Dare to Speak: Islam vs Free Democracy and Free Enterprise (I)

The management of money and assets

Banking, Investment, and Insurance

In addition to its guidance on human relations, the Koran also instructs Muslims on finance. For example, it prohibits lending with interest:

[2.275] YUSUF ALI: Those who devour usury [interest income from lending] will not stand, except as stand one whom the Evil one by his touch Hath driven to madness. That is because they say: “Trade is like usury,” but Allah hath permitted trade and forbidden usury.

[4.161] PICKTHAL: And of their taking usury when they were forbidden it…We have prepared…a painful doom.

This directive is codified in Grand Ayatollah Sistani’s version of Shari’ah, under its list of unlawful business practices. This Shari’ah tells believers that any transaction involving interest is prohibited, except under special circumstances: [1]

2063. There are many Haraam deals and businesses;…mentioned below:

…

(iv) Any transaction which involves interest. 2088 …a Muslim can take interest from a non-Muslim…[the importance of this clause will soon become apparent]

This prohibition against lending money at interest may initially sound good to some people. It also resonates with some interpretations of the Bible. [2] Unfortunately, it also devastates economies.

The reason for this comes down to a basic fact: Money in a person’s hand today is worth more to that person than money promised in the future. Why? Because money is intrinsically useful (if you have it, you can spend it; if you lend it, you cannot) and everyone faces uncertainty about future events, such as repayment.

It turns out that the people whom the Koran claimed to be “driven to madness” by the touch of “the Evil one” were actually correct. Trade really is like “usury,” which we call “lending with interest.” Such lending allows people to freely exchange money today for money in the future, and vice versa, just as trade allows people to exchange one good for another. Strangely, Allah’s perfect wisdom, as spoken in the Koran, missed this fact.

Despite the Koran’s lack of understanding, this concept is essential to banking, finance, and insurance. To see this, consider a bank: It lends money, knowing that a certain percentage of those loans will default. To stay in business, the bank must charge an interest rate on its loans to cover those losses and provide competitive salaries for its employees.

This example demonstrates that interest charges are not inherently evil. In fact, they are the lifeblood of financial institutions because lenders, like everyone else, expect to be paid for their services.

In the West, “usury” has become a term reserved for loans with excessive interest rates that exploit the ignorant and desperate. However, loans that charge competitive interest rates are more than acceptable; they are essential to commerce. Without them, it would be almost impossible to undertake any large private enterprise. Their absence would cause the flood of innovations that power the West’s success, such as automobiles, electricity, telephones, passenger jets, computers, and satellites, to slow to a trickle.

The historical lack of loans, stocks, bonds, annuities, and other financial instruments in the Islamic world has played a major role in its poverty, with the exception of nations with vast oil reserves. This poverty is the unavoidable result of Shari’ah’s laws against lending with interest, despite the claims of Muslim leaders, such as Prime Minister Mahathir Mohamad and Osama bin Laden, who prefer to blame Islamic destitution on imagined Infidel conspiracies. [3]

Interestingly, there was a long time when the Christian world imposed similar self-defeating financial rules upon itself, which caused the money-lending Jews to enjoy financial success despite their persecution.

In the past, Jews were persecuted throughout Christendom and were prevented from owning property. One of the few career options available to them was finance, largely because lending money at interest was considered usury, a business unworthy of Christians. Fortunately for the Jews, finance is a lucrative business, and they often prospered. Thus, despite their persecution, Jews gained financial power, and came to be seen as a necessary evil.

Famous relics from those days are Shakespeare’s The Merchant of Venice and, intriguingly, the Magna Carta, which was signed under duress by King John in 1215. With its mighty reputation for laying the foundations of parliamentary government, the Magna Carta will surprise a first-time reader by referring specifically to England’s Jews, as shown in these excerpts:

Article 10. If one who has borrowed from the Jews any sum, great or small, dies before that loan be repaid, the debt shall not bear interest while the heir is under age…

Article 11. And if anyone dies indebted to the Jews, his wife shall have her dower and pay nothing of that debt…

Apparently, the Magna Carta uses the term “Jew” where people today would say “banker” or “creditor.”

Fortunately, the Christian world eventually realized that borrowing and lending with interest was beneficial to all concerned. This realization played an important role in Europe’s ascendancy.

For Muslims, however, this realization cannot occur, because the Koran eternally rules it out. Consequently, Jews (and Christians) tend to be prosperous compared to Muslims in the House of Islam, even though they suffer socially and legally.

Recently, some enlightened Muslims recognized that Western-style financial instruments contribute to economic vitality. In response, they developed a set of financial services known collectively as Islamic banking. Essentially, Islamic banking is normal banking, except that interest rates and risk-taking are disguised in terms acceptable to Muslims. To the extent that it differs from normal banking, the differences introduce restrictions that damage market efficiencies and create unnecessary risks.

To peer into the world of Islamic Banking, read the following excerpts from the website of the Institute of Islamic Banking & Insurance (www.islamic-banking.com). This institution devotes itself to developing financial instruments that comply with Islamic scripture:

The Institute of Islamic Banking and Insurance

Background

What was dubbed a “utopian dream” over two decades ago has become a reality in this short period…

Islamic Banking – What is Islamic Banking?

The basic principle of Islamic banking is the prohibition of Riba (Usury or interest):

…a basic tenet of Islamic banking [is] the outlawing of riba, a term that encompasses not only the concept of usury, but also that of interest…

…

Although the western media frequently suggest that Islamic banking in its present form is a recent phenomenon, in fact, the basic practices and principles date back to the early part of the seventh century…

It is evident that Islamic finance was practiced predominantly in the Muslim world throughout the Middle Ages, fostering trade and business activities…It is claimed that many concepts, techniques, and instruments of Islamic finance were later adopted by European financiers and businessmen.

The revival of Islamic banking [occurred] in 1976. At the same time financial resources of Muslims, particularly those of the oil producing countries, received a boost due to rationalization of the oil prices, which had hitherto been under the control of foreign oil Corporations. These events led Muslims to strive to model their lives in accordance with the ethics and philosophy of Islam.

…

Islam not only prohibits dealing in interest, but also in liquor, pork, gambling, pornography and anything else which the Shariah (Islamic Law) deems Haram (unlawful). Islamic banking is an instrument for the development of an Islamic economic order. Some of the salient features of this order may be summed up as:

…Islam…forbids all forms of economic activity which are morally or socially injurious.

While acknowledging the individual’s right to ownership of wealth legitimately acquired, Islam makes it obligatory on the individual to spend his wealth judiciously and not to hoard it, keep it idle or to squander it.

While allowing an individual to retain any surplus wealth, Islam seeks to reduce the margin of the surplus for the well-being of the community as a whole…by participation in the process of Zakat.

…Islam seeks to prevent the accumulation of wealth in a few hands to the detriment of society as a whole, by its laws of inheritance.

…the economic system envisaged by Islam aims at social justice without inhibiting individual enterprise beyond the point where it becomes not only collectively injurious but also individually self-destructive.

The Islamic financial system employs the concept of participation in the enterprise, utilizing the funds at risk on a profit-and-loss-sharing basis. This by no means implies that investments with financial institutions are necessarily speculative. This can be excluded by careful investment policy, diversification of risk and prudent management by Islamic financial institutions…

The Islamic Financial System

While elimination of “Riba” or interest in all its forms is an important feature of the Islamic financial system, Islamic banking is much more. In essence, it aims to eliminate exploitation and to establish a just society by the application of the Shari’ah…to the operations of banks and other financial institutions. To ensure compliance to the Shariah, Islamic banks use the services of religious boards comprised of Shari’ah scholars.

The Religious Board

…

The day-to-day application of Shari’ah by religious boards is two-fold. First, the religious board reviews the operations of the financial institution to ensure that they comply with the Shari’ah. This is, to a large extent, an investigatory role…the religious board endeavours to answer the question [of] whether or not proposals for new transactions or products conform to the Shari’ah, and offers constructive and creative recommendations.

An Islamic financial institution is required to establish operating procedures to ensure that no form of investment or business activity is undertaken that has not been approved in advance by the religious board.

Also, the management is required to periodically report and certify to the religious board that the actual investments and business activities undertaken by the institution conform to forms previously approved by the religious board.

Takaful (Islamic Insurance)

In modern business, one of the ways to reduce the risk of loss due to misfortunes is through insurance. The concept of insurance where resources are pooled to help the needy does not contradict Shari’ah.

… [Islamic insurance] is not a new concept, in fact it had been practised by the Muhajrin of Mecca and the Ansar of Medina following the hijra of the Prophet over 1400 years ago. It is generally accepted by Muslim Jurists that the operation of conventional insurance does not conform to the rules and requirements of Shari’ah.

Conventional insurance involves the elements of uncertainty (Al-gharar)…, gambling (Al-maisir) as the consequences of the presence of uncertainty and interest (Al-riba) in the investment activities of the conventional insurance companies which contravene the rules of Shari’ah. Takaful is an alternative form of cover which a Muslim can avail himself against the risk of loss due to misfortunes.

Until this so-called “revival” of Islamic Banking, the damage that Islamic Law did to Muslims’ economic well-being was profound, as the following excerpt from the Associated Press article, Islamic banking expands in West, illustrates: [4]

Many of Britain’s 2 million Muslims have been locked out of buying their own homes because Shari’ah law prevents riba, or usury – meaning traditional mortgages are off-limits.

When presenting its financial concepts, the Institute of Islamic Banking and Insurance makes a number of intriguing claims that are designed to appeal to Islamic sensibilities. For example:

Islamic banking is banking without interest.

How can banking work without interest? This section presents typical examples of Islamic banking by contrasting the Western and interest-free approaches:

The Islamic home mortgage

If a Westerner wanted to buy a house, he or she would make a down payment and then finance the balance through a mortgage from a bank or mortgage company. The buyer would then make monthly payments until the mortgage is paid off.

Because of Islam’s prohibitions against interest, Muslims have lacked a way to finance home purchases until very recently. Fortunately, the promoters of Islamic Banking have invented a traditional-sounding new concept known as “Murabaha.” The Ahli Limited Bank website describes Murabaha as follows: [5]

Murabaha was first introduced in 1997 and is a simple method of financing the purchase of your house according to Islamic principles.

…

How it works

You identify the property you wish to buy and agree on the purchase price with the seller…

…the bank will buy the property…and immediately sell it to you at a higher price.

The higher price is calculated depending on the value of the property, the number of years you wish to pay us over and the amount of your first payment…

Your first payment to the bank is made on the day of completion and is your initial contribution, normally a minimum of 17% of the purchase price.

One month after completion, your regular monthly payments will commence…

In other words, the person who uses Murabaha to purchase a house makes a down payment, in this case 17%, and then makes monthly payments that are indistinguishable from regular mortgage payments. The higher price that the bank charges the homebuyer for the house, which the homebuyer pays off through a series of monthly installments, is calculated to produce the same monthly payments as the interest charged in a conventional mortgage.

Using the handy payment calculator provided by Ahli Limited Bank’s website, [6] one can see exactly how Islamic banking works. For example, if one purchased a $200,000 home, financed by a 15-year payment schedule, the 17% down payment would be $34,000 and the monthly payments would be $1,492. This is equivalent to a situation where a homebuyer makes a down payment of $34,000 and then finances the balance of $166,000 with a traditional 7% mortgage.

While Murabaha may initially appear to be indistinguishable from a traditional mortgage, it has a trait that actually makes it much worse. With Murabaha, the bank owns the house, and the homebuyer purchases it from the bank for a price that is significantly higher than the original seller’s price.

To appreciate the devastating effect of this trait, an example using numbers is necessary. If you have difficulty with numbers, please skip the next two paragraphs to see the end result of Murabaha on the buyer of a $200,000 house.

In the example above, the homebuyer must pay the bank $302,560 ($34,000 + $1,492 x 12 months/year x 15 years) for the $200,000 home. Unfortunately, the homebuyer owes the Islamic bank this amount regardless of whether the person pays it off over the planned 15 years or whether he or she must sell the house before then. For example, if the new homeowner is transferred by work to another location after living in the house for a year, he or she may be able to get a slightly higher price, say $220,000. The amount owed to the bank, however, would be a whopping $250,656 ($302,560 – $34,000 – $1,492 x 12 months). Thus, even though the house’s value increased by $20,000, the homeowner, after using all of the proceeds of the house’s sale to pay off the Islamic bank, would still owe the bank $30,656 ($302,560 – $250,656).

On the other hand, consider what would have happened if this homeowner had made a down payment of $34,000 and then financed the rest with a traditional mortgage of $166,000. After making mortgage payments of $1,492 for a year, $6,490 of those payments would have gone to reducing the principal amount owed, so that the homeowner would still owe the bank $159,510 ($166,000 – $6,490). After using the proceeds from the home sale to pay off the loan, the homeowner with a traditional mortgage would be left with a surplus of $60,490 ($220,000 – $159,510).

In other words, Murabaha would leave the homebuyer in this example $91,146 poorer than if he or she had financed the home with a traditional mortgage ($30,656 of debt after home sale vs. $60,490 surplus after home sale). This difference is nearly half the value of the home.

From the perspective of the homebuyer, Murabaha is grossly inferior to a traditional mortgage because it forces the buyer to either stay in the home for the term of the Murabaha or suffer dramatic financial losses. Moreover, Murabaha destroys one of the traditional ways Westerners build wealth – through the appreciation of home values.

Islamic banks, however, profit handsomely from this arrangement, cashing in whenever homeowners move before the terms of their Murabahas finish.

A simple Islamic loan

The nature of a simple Islamic loan can be seen from the following example:

If a Westerner wanted to take out a simple loan for $10,000, for one month, at a 12% annual interest rate, he could make an agreement with a bank to receive that $10,000 and then later repay it, plus $100 for the interest, for a total of $10,100.

In contrast, when a Muslim needs $10,000, he or she can go to an Islamic bank and get it without paying any interest. Instead, the borrower would pay a service fee for the loan. This service fee might be something like $100. In this case, the Muslim would ask the bank for $10,100, which the bank would give him. It would then immediately charge the $100 service fee, so that the Muslim walks away with $10,000. A month later, the Muslim would repay the loan of $10,100.

Muslims must sure be relieved to know that their Islamic banks avoid the evil and forbidden practice of charging interest! Islamic jurists have actually developed a term for tactics such as those used by Islamic bankers: “hiyyal,” which means “trick” in Arabic.

Rationalizations aside, it is clear that Islamic banking is, at best, identical to normal banking, and, at worst, is very harmful to customers. Its only benefit is that it uses terminology that makes Muslims feel comfortable, so that Islamic Bankers can deceive them, as well as others new to finance, with claims that borrowers do not pay interest.

Islamic banking existed in Islam’s earliest days, and is being revived today.

This is a very strange claim, given Islam’s strong prohibitions against lending with interest, and the fact that historical records reveal Jews to have been the former financiers of Europe. It also rings false because it gives no rational explanation for Islamic banking’s ancient demise. If Islamic banking existed in ancient times, why would it ever have stopped? Muslims cannot blame the West for its disappearance, because Islam was in a state of ascendancy until the 1600s and, throughout the last few centuries of this ascendancy, it was largely unaffected by Western ways, which it considered backward and misguided. [7]

Perhaps the most convincing evidence that Islamic Banking did not exist in Islam’s early days is the fact that Muhammad himself died nearly broke, and in debt to a Jew, as numerous hadiths reveal, [8] such as:

Sahih Bukhari, Volume 3, Book 34, Number 283:…Anas went to the Prophet with barley bread having some dissolved fat on it. The Prophet had mortgaged his armor to a Jew in Medina and took from him some barley for his family. Anas heard him saying, “The household of Muhammad did not possess even a single Sa of wheat or food grains for the evening meal, although he has nine wives to look after.”

Sahih Bukhari, Volume 5, Book 59, Number 743:… The Prophet died while his armor was mortgaged to a Jew for thirty Sa’s of barley.

Given Muhammad’s hostility toward Jews, it seems highly unlikely that he would have taken a loan from a Jew if he could have gotten one from a Muslim.

As Muhammad’s life demonstrated, and the remainder of this chapter will confirm, the economic legacy Muhammad left his followers was a set of laws that produces poverty, large families, and bad debt.

The claim that Islamic Banking has existed from the earliest days of Islam is better explained by a Muslim tendency to take any good idea practiced in the West and find a way to say that it was used in Muhammad’s time, was Islamic, and was lost because Muslims strayed away from true Islam. This sort of propaganda will be discussed in more depth later.

Islamic banking requires a religious board to govern its decisions and procedures.

In contrast to the Western finance industry’s innovative ways, Islamic Banking’s religious boards invoke memories of Islam’s religious leaders railing against innovations accepted long ago in the West, such as organ transplants, [9] photos, television, movies, paintings, and secular music. [10] At best, such boards, which operate in addition to the normal structures of corporate governance, add bureaucratic overhead that make Islamic banks slower to act, less responsive to market phenomena, and more expensive to run.

Takaful (Islamic insurance) is an alternative to Western insurance that allows Muslims to cover risks without involving interest, gambling, or uncertainty.

Insurance is a particularly difficult concept for Muslims to endorse because it can be easily interpreted as gambling. As the old joke says, “You can’t win with life insurance: they’re betting you won’t die, while you’re betting you will!”

Gambling is specifically prohibited by the Koran:

[5.90 – 91] PICKTHAL: … games of chance…are only an infamy of Satan’s handiwork. Leave it aside in order that ye may succeed…

This prohibition is also expressed repeatedly in the Hadith:

Sunan Abu-Dawud, Book 26, Number 3662:…the following verse of Surat al-Baqarah revealed; “They ask thee concerning wine and gambling. Say: In them is great sin….” Umar was then called and it was recited to him…

Malik’s Muwatta, Book 31, Number 31.13.25:…“The Messenger of Allah…forbade…buying something whose number, weight and measure is not known with something whose number, weight or measure is known…That is not a sale. It is taking risks and it is an uncertain transaction. It falls into the category of gambling because he is not buying something from him for something definite which he pays. Everything which resembles this is also forbidden” …

Sahih Bukhari, Volume 8, Book 73, Number 128: [11] Allah’s Apostle said: …whoever says to his companions, ‘Come let me gamble’ with you, then he must give something in charity (as an expiation for such a sin).” [12]

These prohibitions against lending at interest and gambling, and against financial speculation in general, have always made Muslims uncomfortable with the concept of insurance despite the obvious need. Fortunately, organizations like the Institute for Islamic Banking and Insurance have recently come up with a concept called Takaful, which The Bank of Pakistan explains in a publication called An Introduction to Takaful – An Alternative to Insurance: [13]

Different views have been expressed about the status of conventional insurance…An overwhelming majority of the Shariah scholars believe that it is unlawful due to involvement of Riba (interest), Maisir[14] (gambling) and Gharar[15] (uncertainty). Takaful, the Islamic alternative to insurance, is based on the concept of social solidarity, cooperation and mutual indemnification of losses of members. It is a pact among a group of persons who agree to jointly indemnify the loss or damage that may inflict upon any of them, out of the fund they donate collectively…

Takaful is not a new concept in Islamic commercial law. The contemporary jurists acknowledge that the foundation of shared responsibility, or Takaful, was laid down in the system of ‘Aaqilah’, which was an arrangement of mutual help or indemnification customary in some tribes at the time of the Holy Prophet…In case of any natural calamity, everybody used to contribute something until the loss was indemnified. Similarly, the idea of Aaqilah in respect of blood money or any disaster was based on the concept of Takaful wherein payments by the whole tribe distributed the financial burden among the entire tribe…

…

The distinction between…conventional insurance and Takaful…is more visible with respect to investment of funds. While insurance companies invest their funds in interest-based avenues and without any regard for the concept of Halal-o-Haram [Permitted or Forbidden by Shari’ah], Takaful companies undertake only Shariah compliant business and the profits are distributed in accordance with the pre-agreed ratios in the Takaful Agreement. Likewise they share in any surplus or loss[16] from the pool collectively.

This publication explains why normal insurance violates Islamic injunctions against interest, gambling, and speculation, and presents Takaful as a concept with ancient Islamic roots and worthy objectives. It does not, however, explain how Takaful is any less a form of speculation or gambling than regular insurance.

There is also a question about replacing the “interest” of regular insurance companies with the Islamic notion of “shar[ing] in any surplus or loss”: Since when did matters of surplus (that is, profit) and loss stop being speculative? The truth of the matter is that this kind of investment is actually more speculative than the interest-bearing ones used by insurance companies. This brings us to the next strange claim of Islamic Banking:

When an Islamic Bank puts its customers’ assets at risk on a profit-and-loss sharing basis, this does not constitute a form of speculation.

This is Islamic banking’s final deception: It claims that profit-and-loss sharing arrangements do not constitute speculation. To see the falsehood of this claim, imagine the Islamic bankers deciding whether to invest their customers’ funds in the ownership of a business (known as an equity interest among capitalists). What are the first things that these bankers would do? They would research the market that the business serves. They would investigate the firm’s management team, and the business’s products and services. They would find out how much money the management itself has invested in the business. In other words, they would try to determine whether the business is likely to be profitable.

These efforts to minimize risk implicitly acknowledge that risks exist, and that the investment is speculative. Anyone who has invested in a business knows that joint ownership can be one of the highest-rolling gambles of all.

Until the invention of Islamic Banking and Islamic Insurance, business enterprises in the Islamic world languished from a lack of financial tools to help them find capital and minimize risk. Thus, despite the dishonesty of their arguments, Islamic bankers create opportunities for Islamic nations to move away from the destitution they have traditionally known.

Islamic Banking and Islamic Insurance are positive developments for the House of Islam. Unfortunately, they are only partial fixes because they do not address Islam’s prohibitions against stocks, bonds, futures, and money markets, which are all purely speculative.

In recent years, through a combination of Western support and native comprehension of a need for such institutions, stock exchanges and financial houses have begun to arise in a number of Islamic nations. The following is a list of all stock exchanges in the Islamic world as of March, 2005: [17]

Amman Stock Exchange, Jordan

Bursa Malaysia Berhad, Malaysia

Dhaka Stock Exchange, Bangladesh

Dubai Financial Market, United Arab Emirates

Istanbul Stock Exchange, Turkey

Karachi Stock Exchange, Pakistan

Khartoum Stock Exchange, Sudan

Muscat Securities Market, Oman

Palestine Securities Exchange, Palestine

Tadawul-Saudi Stock Market, Saudi Arabia

Tehran Stock Exchange, Iran

While this progress is commendable, participation in these stock markets remains extremely limited. For example, the website for the Amman Stock Exchange (ASE) reveals, in its About ASE section, [18] that:

The ASE was established in March 1999…The ASE membership is comprised of Jordan’s 30 brokerage firms.

Jordan’s Amman Stock Exchange exemplifies how recent, limited, and fragile these stock markets really are, particularly after one understands Islam’s injunctions against speculation.

Inheritance The book, Islam: A Very Short Introduction, brings up several points about Shari’ah which, while subtle, have profound effects on the long-term development of Islamic nations:

[Shari’ah’s] laws of inheritance prevented concentrations of wealth among individuals, as estates had to be divided according to the provisions of the Shari’a which limits the amount a single heir may inherit while favouring a multiplicity of claims by agnatic kin (relatives in the male line).

Although these provisions could be evaded by the creation of family trusts (waqf), endowments from which the founders’ families could draw incomes in perpetuity, such provisions militated against the productive use of capital for commercial and industrial purposes. [19] …

In many Muslim lands women have been systematically denied their inheritance rights under Islamic law, either by family pressures or by legal devices such as the family waqf or trust.

Marriage between first cousins, permitted under Islamic law, is often converted into a positive injunction, with girls obliged to marry their first cousins. The aim of such customs has been to keep property in the patriarchal family, countering the distributive effects of the laws of inheritance…[20]

Some assets, such as businesses and farms, simply do not divide up easily unless they are liquidated, and attempts at joint ownership often lead to major problems concerning governance. Thus, Shari’ah’s laws of inheritance favor the liquidation of businesses so that their assets can be distributed to relatives. This tends to terminate business operations that provide goods and services to society. Apparently, the freedom that Western testators enjoy, of writing their wills any way they want, has important societal benefits. Corruption Islam: A Very Short Introduction also describes how Shari’ah’s silence on legal issues that go beyond the individual or tribe encourages corruption: [21]

The Shari’a, both in theory and practice, was uncompromisingly individualistic… The Shari’a recognized no corporate entities…in law…One consequence of the absence of [this] concept…may be seen in the proliferating alleyways of many pre-modern Middle East cities, where private territory – cafes, workshops, stalls, and so forth – constantly encroaches on public space. The public domain…is…not a separate entity requiring legal protection… A negative consequence of the Shari’a approach to law has been the lack of legitimacy accorded the public interest in the form of city, state, or any other institution standing between the individual and God. Corruption is endemic in many societies, and it would be unfair to target Muslim societies as being uniquely prone to bribery, graft, and the private misappropriation of public funds…However, a culture informed by the absence of institutional boundaries between the public and private spheres may be more vulnerable to such abuses than one where the boundaries are rigorously upheld by law.

Thus, because society in Muhammad’s time was tribal, and had few concepts of corporate or municipal governance, the Koran addresses only issues pertinent to tribal peoples, and is silent on matters of corporate and municipal law. For example, is it wrong for a mayor to hand exclusive contracts for essential services to members of his own tribe, while excluding others? Shari’ah says nothing against it; therefore, according to Shari’ah, it is not forbidden. In fact, Islamic scholars have decided that Islam endorses nepotism. As The Complete Idiot’s Guide to the Koran proudly declares: [22]

Give to the Near of Kin First! At several points, the Koran instructs that voluntary charity should [go] to blood relatives first, and then to other members of [Islamic] society. Notice who comes at the head of the list in the following passage: Give the relatives, the destitute, and the needy travelers their share (of charity). (30:38)

It only takes a small step in logic to turn charity for a relative into a job for a relative. Thus, Shari’ah’s silence on corporate and municipal law, coupled with its directives to help relatives first, creates a mandate for corruption. Despite Shari’ah’s obvious shortcomings in corporate and municipal matters, no devout Muslim would say that it is inadequate. To do so would be tantamount to saying that Allah’s perfect and eternal word is inadequate. The Koran for Dummies also has a section that reveals how, even within the limited context of law for individuals, Shari’ah has severe defects that encourage corruption. Interestingly, the book calls attention to these defects in an effort to show how Shari’ah is not as severe as it initially sounds: [23]

The Koran says a man and woman that are found guilty of fornication should be flogged 100 times (24:2). According to the Sunnah, those who commit adultery should be lashed 100 times as well as stoned to death. However, the proof for fornication or adultery is extremely strict. Basically, in order to convict a man or woman of unlawful intercourse, four male witnesses with a clean record of trustworthiness must have witnessed the act of sexual intercourse (24:4). Only the actual witnessing of the act – not just suspicion – can stand in an Islamic court. Also, spying is completely forbidden in the Koran (49:12). As such, the testimony of someone who peeks or invades the privacy of another person’s home can’t be accepted…

Notably absent from this discussion is any acknowledgement that these legal hurdles work against women who have been raped, as the Wall Street Journal article, Islam and Rape, [24] describes:

…most Hudood laws legalize the prosecution of a woman for fornication if she cannot prove a crime [of rape] was committed. In Pakistan, four Muslim men must have witnessed the event [rape], and testify for the victim. If the woman can’t produce those witnesses, she can be prosecuted for alleging a false crime. Penalties include stoning to death, lashing or prison.

Malik’s Muwatta explains why Shari’ah often punishes rape victims with death:

Malik’s Muwatta, Book 41, Number 41.4.16a: Malik said, “The position with us about a woman who is found to be pregnant…and she says, ‘I was forced,’…is that it is not accepted from her and the hadd is inflicted on her unless she has a clear proof of what she claims…[about being] forced or she comes bleeding if she was a virgin or she calls out for help so that someone comes to her and she is in that state or what resembles it of the situation in which the violation occurred.” He said, “If she does not produce any of those, the hadd is inflicted on her and what she claims of that is not accepted from her.”

Islam: A Very Short Introduction also mentions another aspect of Shari’ah’s illogic in its effort to show that Shari’ah is not as severe as it initially sounds. In this case, it reveals how Shari’ah invalidates pregnancy as proof of recent sexual activity for single women: [25]

…in the case of a deserted or widowed woman who becomes pregnant, she may be protected by the legal fiction (hila) of the “sleeping foetus,” according to which a pregnancy can be accepted as lasting five or even seven years, while the child remains the legal heir of the dead or absent husband. An unmarried woman who becomes pregnant can resort to the fiction of the “public bath.”…a virgin, it was claimed, who visited the public baths after the men had just vacated them might inadvertently sit on a pool of semen thereby making herself pregnant.

In fact, according to these authors, about the only thing that can cause one to be punished according to Shari’ah is telling the truth. Muhammad himself confirms this conclusion through the following hadiths, all of which appear repeatedly in the Hadith:

Malik’s Muwatta, Book 41, Number 41.1.8: [26]…‘Stoning is in the Book of Allah for those who commit adultery, men or women, when they are muhsan [married] and when there is clear proof of pregnancy [according to Islamic standards] or a confession. ’

Malik’s Muwatta, Book 41, Number 41.1.6: [27]…two men brought a dispute to the Messenger…One of them said…“My son was hired by this person and he committed fornication with his wife”…The Messenger…said, “…Your son should have one hundred lashes and be exiled for a year.” He ordered Unays al-Aslami to go to the wife of the other man and to stone her if she confessed. She confessed and he stoned her.

Sahih Bukhari, Volume 8, Book 82, Number 810: [28]…A man from the tribe of Aslam came to the Prophet and confessed that he had committed an illegal sexual intercourse. The Prophet turned his face away from him till the man bore witness against himself four times. The Prophet said to him, “Are you mad?” He said “No.” He said, “Are you married?” He said, “Yes.” Then the Prophet ordered that he be stoned to death, and he was stoned to death at the Musalla.

Sahih Bukhari, Volume 8, Book 82, Number 813: [29]…When Ma’iz bin Malik came to the Prophet (in order to confess), the Prophet said to him, “Probably you have only kissed (the lady), or winked, or looked at her?” He said, “No, O Allah’s Apostle!” The Prophet said…”Did you have sexual intercourse with her?”…At that, (i.e. after his confession) the Prophet ordered that he be stoned (to death) .

The last two hadiths are particularly interesting because, in them, Muhammad actually encouraged the confessor to conceal the truth, to help him escape prosecution. A final method for circumventing the law is to deny a crime in the name of Allah. The Hadith illustrates this method through its rescripted Jesus:

Sahih Bukhari, Volume 4, Book 55, Number 653:…The Prophet said, “Jesus, seeing a man stealing, asked him, ‘Did you steal?’, He said, ‘No, by Allah, except Whom there is None who has the right to be worshipped’ Jesus said, ‘I believe in Allah and suspect my eyes.’”

Thus, with regard to truth-telling during criminal prosecutions, Shari’ah and the laws that generally apply in Free Democracies diverge sharply. Free Democracies will offer leniency to encourage confessions. Islam, on the other hand, discourages confessions with severe punishments. It also grants freedom to those who lie shamelessly when Islam’s demanding burdens of proof cannot be met. Apparently, Muslims believe that God’s divine and perfect law should have the following characteristics:

Extreme punishment, moderated by:

Deliberate ignorance of facts, such as:

Eye-witness accounts (if one denies a crime in the name of Allah)

The fact that pregnancy cannot result from entering public baths

The fact that human live-births have gestation periods that essentially never exceed 43 weeks.

Archaic and nearly unattainable burdens of proof, such as requiring four males to eyewitnesses a sex act, when a modern paternity test based on DNA testing can accurately identify a father.

Roadblocks to criminal investigations, such as prohibitions against entering or looking into a person’s house without permission. These prohibitions make many crime-busting tactics, as well as rescue operations, virtually impossible. Examples of additional roadblocks are the Islamic customs of burying the dead within two days of death and outlawing exhumations. It is common knowledge that essential information about murders can be found through forensic studies of corpses.

While Shari’ah’s rules may have made sense in ancient times, they appear absurd in an era when modern scientific methods of investigation are available. By today’s standards, Islamic Law gives new meaning to the term “Blind Justice,” because its legal system is truly blind. A legal system that punishes those who tell the truth, and is unswayed by the laws of nature, and is unreceptive to modern methods of evidence collection, is nearly certain to be more corrupt than a modern one. To get a sense of the House of Islam’s pervasive corruption, consider the results of a 2005 study conducted by Transparency International, which calculated a Corruption Perceptions Index (CPI) for each nation with a population greater than one million (see table 1). [30] Nations with Islamic pluralities or majorities are shown in black, Free Democracies are shown in red, and struggling democracies (which have been recently liberated from dictatorships, communism, economic isolationism, or foreign domination) are shown in blue. Nations ruled by dictatorships or communist regimes are excluded because of this book’s focus on the conflict between Islam and Free Democracy. Nations whose populations are between 20% and 50% Muslim are shown with three asterisks next to them (***) because, as will become more apparent in subsequent tables, Islam impacts nations even when Muslims are minorities. This table does not reveal that Islam is solely responsible for the corruption of nations. Instead, it indicates that corruption can arise from a number of factors. However, it does reveal a trend: while only ten Islamic nations appear in the top half of this ranking, thirty-eight are in the bottom half. And, of the nations whose populations are between 20% and 50% Muslim, only one appears in the top half, while five appear in the bottom half. In contrast, forty-one of the world’s Free Democracies appear in the top half of the list, while only one appears in the bottom half. In fact, the top 28 nations are all Free Democracies.

Table 1: 2005 Corruption Perceptions Index (CPI) Ranking (Nations with > 1 Million people only) Source: Transparency International (Red=Free Democracy, Blue=Struggling Democracy, Black=Islamic plurality/majority)

Country CPI Rank 2005 CPI Score Country CPI Rank 2005 CPI Score

Iceland 1 9.7 Croatia 70 3.4

Finland 2 9.6 Egypt 70 3.4

New Zealand 2 9.6 Poland 70 3.4

Denmark 4 9.5 Saudi Arabia 70 3.4

Singapore 5 9.4 Syria 70 3.4

Sweden 6 9.2 Morocco 78 3.2

Switzerland 7 9.1 Senegal 78 3.2

Norway 8 8.9 Sri Lanka 78 3.2

Australia 9 8.8 Suriname*** 78*** 3.2***

Austria 10 8.7 Lebanon 83 3.1

Netherlands 11 8.6 Rwanda 83 3.1

United Kingdom 11 8.6 Dominican Republic 85 3.0

Luxembourg 13 8.5 Mongolia 85 3.0

Canada 14 8.4 Romania 85 3.0

Hong Kong 15 8.3 Armenia 88 2.9

Germany 16 8.2 Benin*** 88*** 2.9***

USA 17 7.6 Bosnia & Herzegovina 88 2.9

France 18 7.5 Gabon 88 2.9

Belgium 19 7.4 India 88 2.9

Ireland 19 7.4 Iran 88 2.9

Chile 21 7.3 Mali 88 2.9

Japan 21 7.3 Moldova 88 2.9

Spain 23 7.0 Tanzania 88 2.9

Barbados 24 6.9 Algeria 97 2.8

Malta 25 6.6 Argentina 97 2.8

Portugal 26 6.5 Malawi*** 97*** 2.8***

Estonia 27 6.4 “> Mozambique*** 97*** 2.8***

Israel 28 6.3 The Gambia 103> 2.7

Oman 28 6.3 Macedonia 103 2.7

U.A.E. 30 6.2 Yemen 103 2.7

Slovenia 31 6.1 Eritrea 107 2.6

Botswana 32 5.9 Honduras 107 2.6

Qatar 32 5.9 Kazakhstan 107 2.6

Taiwan 32 5.9 Nicaragua 107 2.6

Uruguay 32 5.9 Palestinian Territories 107 2.6

Bahrain 36 5.8 Ukraine 107 2.6

Republic of Cyprus 37 5.7 Zambia*** 107*** 2.6***

Jordan 37 5.7 Afghanistan 117 2.5

Malaysia 39 5.1 Bolivia 117 2.5

Hungary 40 5.0 Ecuador 117 2.5

Italy 40 5.0 Guatemala 117 2.5

South Korea 40 5.0 Guyana 117 2.5

Tunisia 43> 4.9 Libya 117 2.5

Lithuania 44 4.8 The Philippines 117 2.5

Kuwait 45 4.7 Albania 126 2.4

South Africa 46 4.5 Niger 126 2.4

Czech Republic 47 4.3 Russia 126 2.4

Greece 47 4.3 Sierra Leone 126 2.4

Namibia 47 4.3 Georgia 130 2.3

Slovakia 47 4.3 Kyrgyzstan 130 2.3

Costa Rica 51 4.2 Papua New Guinea 130 2.3

El Salvador 51 4.2 Azerbaijan 137 2.2

Latvia 51 4.2 Ethiopia 137 2.2

Mauritius 51 4.2 Indonesia 137 2.2

Bulgaria 55 4.0 Iraq 137 2.2

Colombia 55 4.0 Uzbekistan 137 2.2

Thailand 59 3.8 Pakistan 144 2.1

Trinidad & Tobago 59 3.8 Paraguay 144 2.1

Belize 62 3.7 Somalia 144 2.1

Brazil 62 3.7 Sudan 144 2.1

Jamaica 64 3.6 Tajikistan 144 2.1

Ghana*** 65*** 3.5*** Cote d’Ivoire 152 1.9

Mexico 65 3.5 Nigeria 152 1.9

Panama 65 3.5 Turkmenistan 155 1.8

Peru 65 3.5 Bangladesh 158 1.7

Turkey 65 3.5 Chad 158 1.7

Burkina Faso 70 3.4 Guinea SEE NOTE SEE NOTE

Guinea-Bissau SEE NOTE SEE NOTE

*** Country which, while not having a Muslim majority or plurality, is at least 20% Muslim.

NOTE: Guinea and Guinea-Bissau were not included in the study by Transparency International, despite their populations of more than one million people. These nations were placed at the bottom of this ranking because it is presumed that an inability to collect data – i.e., a lack of transparency – excluded them from the research.

Other aspects of the economy that are affected by Islam

There are three other important aspects of an economy that are affected by Islam: agriculture, commodities trading, and goods that depend on animal byproducts:

Agriculture. As numerous hadiths report: [31] Sahih Bukhari, Volume 3, Book 39, Number 533:… The people used to rent their land for cultivation for one-third, one-fourth or half its yield. The Prophet said, “Whoever has land should cultivate it himself or give it to his (Muslim) brother gratis; otherwise keep it uncultivated.” In other words, share-cropping is a sin. Because of physical limitations on what a single farmer can do himself, the net effect of Islam’s policy is to discourage the cultivation of lands that the owner cannot till, keep farms small, and inhibit investments in large-scale farming techniques. In spite of the complaints we sometimes hear about “agribusinesses,” it is their high-tech methods, developed in Free Democracies, that have allowed the world’s food supply to grow faster than its human population. Additionally, their large-scale storage and transportation methods have also made sure that food goes to the places where it is needed and is edible when it gets there. In Islamic nations, however, agriculture remains largely dependent on ancient and traditional methods. These nations often appear in the news because of mass starvations. While droughts and other natural disasters are usually blamed, the real cause becomes apparent when one tries to recall the last time people living in the deserts of the United States suffered a mass starvation. This is because the United States has an agricultural system that does not depend on local produce, and it has also turned many arid lands green through irrigation. Even during the disastrous dust-bowl years of the Great Depression, actual starvation was relatively rare. People moved to new locations and sought work. Franklin Roosevelt’s New Deal brought relief. And farmers invented better farming methods. Travelers frequently remark on how the passage into Israel from one of its Islamic neighbors is like passing from a desert into green fields. This is not an accident of geography. It is the result of modern farming and irrigation methods, which are the fruits of Free Enterprise.

Commodity trading. Also recorded repeatedly in the Hadith is Muhammad’s prohibition against brokers: [32] Sahih Bukhari, Volume 3, Book 36, Number 474:…Ibn ‘Abbas said, “The Prophet forbade the meeting of caravans (on the way) and ordained that no townsman is permitted to sell things on behalf of a bedouin.” I asked Ibn ‘Abbas, “What is the meaning of his saying, ‘No townsman is permitted to sell things on behalf of a bedouin.’” He replied, “He should not work as a broker for him.” While it is unclear how narrowly or broadly this edict should be interpreted, the result has been caution about engaging in brokering activities. The effect has been to keep a variety of commodity exchange markets operating at primitive levels. In the busy souks of the Middle East, one commonly finds something that is rare in the West: Street vendors who sell goods that they themselves produce. This practice is evidence of a primitive commodities market. While quaint and charming, this system also lacks the convenience, quality assurance, and accountability that Westerners have come to expect.

Products derived from pork and other dead animals. Muhammad also took the Jewish prohibition against eating pork and broadened it in a dysfunctional and mean-spirited way, as revealed in the many hadiths that resemble this one: [33] Sahih Bukhari, Volume 3, Book 34, Number 438:…“Allah and His Apostle made illegal the trade of alcohol, dead animals, pigs and idols.” The people asked, “…What about the fat of dead animals, for it was used for greasing the boats and the hides; and people use it for lights?” He said, “No, it is illegal.” Allah’s Apostle further said, “May Allah curse the Jews, for Allah made the fat (of animals) illegal for them, yet they melted the fat and sold it and ate its price.” In addition to the products mentioned in this hadith, Muhammad’s prohibition also applies to products like Jell-O, glue, and soap, as well as a broad range of medicines. While many modern products and medicines are produced synthetically today, they never would have been developed in the first place without their animal-based progenitors. Furthermore, many products still use ingredients made from dead animals. Once again, a prohibition from Muhammad has created stumbling blocks to innovation.

REFERENCES FOR SECTION 4:

[1] Islamic Laws, Transactions, Part I of III, by Grand Ayatollah Ali al-Husseini Al-Sistani, section entitled Haraam (unlawful) Transactions

[2] See Bible, Psalm 15: “Lord, who may dwell in your sanctuary? He whose walk is blameless…who lends his money without usury…” (quoted from The NIV Study Bible, General Editor: Kenneth Barker, Zondervan Publishing House, 1985).

[3] See the chapter of this series entitled Chapter 1: The new Cold War.

[4] Islamic banking expands in West, Jane Wardell, Associated Press, June 12, 2005.

[5] http://www.iibu.com/buy_home/murabahahow.htm

[6] See http://www.iibu.com/buy_home/murabahacalc.asp.

[7] What Went Wrong? Western Impact and Middle Eastern Response, by Bernard Lewis, Oxford University Press, 2002, page 26.

[8] Similar hadiths can be found in Sahih Bukhari, Volume 3, Book 34, Numbers 282, 309, & 404, Book 35, Numbers 453 & 454, Book 41, Number 571, Book 45, Numbers 685, 686, & 690, and Volume 4, Book 52, Number 165.

[9] Organ transplants create difficult theological issues in Islam regarding the physical nature of people when resurrected on the Day of Judgment.

[10] These contentions are based on Muhammad’s prohibitions against non-religious music and the creation of musical instruments, and his claim that any graven image, including realistic paintings of individuals, fostered religious idolatry. Interestingly, Muslims who claim that photographs, movies, and television are acceptable explain that this is so because these are mechanical reproductions of real images. Creations made by an artist’s hand, however, remain outlawed. Thus, while a movie may be considered acceptable, a poster for the movie may not. Saudi Arabia, however, recognizes the absurdity of such rulings. Therefore it has made movie theaters illegal, as discussed in Daring to use the Silver Screen to Reflect Saudi Society, by Hassan M. Fattah, in the April 28, 2006 issue of the New York Times, page 4.

[11] Similar hadiths can be found in Sahih Bukhari, Volume 6, Book 60, Number 383, Volume 8, Book 74, Number 314, Volume 8, Book 78, Number 645, and Sahih Muslim, Book 15, Number 4041.

[12] Similar hadiths can be found in Shahih Bukhari, Volume 6, Book 60, Number 383, Volume 8, Book 74, Number 314, & Book 78, Number 645, and Sahih Muslim, Book 15, Number 4041.

[13] An Introduction to Takaful – An Alternative to Insurance, by Muhammad Ayub, Sr. Joint Director of the Islamic Banking Dept. of the State Bank of Pakistan in Karachi. See http://www.sbp.org.pk/departments/ibd/Takaful.pdf.

[14] Any form of business in which monetary gains or losses are matters of chance. Maisir refers to income based on speculation rather than labor or real sector business.

[15] Any major uncertainty about a contract’s subject matter or the rights & liabilities of its parties.

[16] Losses, if any, are first absorbed by reserves known as Participants Equity, then from interest-free loans from shareholders of the Takaful Company, and then by a general increase in pricing by the Company.

[17] Report of the Round-Table Meeting on Promotion of Cooperation Among the Stock Exchanges of the Organisation of Islamic Conference (OIC) Member States, published by the Istanbul Stock Exchange on March 28-29, 2005.

[18] See http://www.ammanstockex.com

[19] Islam: A Very Short Introduction, by Malise Ruthven, Oxford University Press, 2000, Chapter 4, entitled The Shari’a and Muslim Societies, pages 86-88. [20] ibid, 2000, Chapter entitled Women and Family, pages 97-98.

[21] ibid, Chapter entitled The Shari’a and its consequences, pages 88-89.

[22] The Complete Idiot’s Guide to the Koran, by Shaykh Muhammad Sarwar and Brandon Toropov, Alpha Books, a division of Penguin Group (USA) Inc., Chapter 15, section entitled Give to the Near of Kin First, page 158.

[23] The Koran for Dummies, by Sohaib Sultan, Wiley Publishing, Inc., 2004, Chapter 17, section entitled Preventing unlawful sexual relations, page 269.

[24] Islam and Rape, Wall Street Journal, August 3, 2006, page A6.

[25] Islam: A Very Short Introduction, by Malise Ruthven, Oxford University Press, 2000, Chapter 5, section entitled Women and the Shari’a, page 97.

[26] Similar hadiths can be found in Sahih Bukhari, Volume 8, Book 82, Numbers 816 & 817 and Sahih Muslim, Book 17, Number 4194.

[27] Similar hadiths can be found in Sahih Bukhari, Volume 3, Book 50, Number 885, Volume 8, Book 78, Number 629, Volume 8, Book 82, Numbers 815, 821, 826, & 842, and Sahih Muslim, Book 17, Number 4209.

[28] Similar hadiths can be found in Sahih Bukhari, Volume 8, Book 82, Number 814, Sahih Muslim, Book 17, Numbers 4196, 4197, 4202, 4205, & 4206, Sunan Abu Dawood, Book 38, Number 4414, and Malik’s Muwatta, Book 41, Number 41.1.2.

[29] A similar hadith can be found in Sahih Muslim, Book 17, Number 4198.

[30] To learn more about the methods used to calculate a CPI, visit http://www.transparency.org/policy_research/surveys_indices/cpi/2005, and see the methodology section of Corruption Perceptions Index 2005. The sources of Transparency International’s data are: The State Capacity Survey produced by the International Earth Science Informtion Network (CIESIN) at Columbia University, The Economist Intelligence Unit, Freedom House Nations in Transit, Information International (Beirut, Lebanon), The International Institute for Management Development, Lausanne, Grey Area Dynamics Ratings by the Merchant International Group, The Political and Economic Risk Consultancy (Hong Kong), United Nations Economic Commission for Africa – Africa Governance Report, The World Economic Forum, The World Markets Research Centre.

[31] Similar hadiths can be found Sahih Bukhari, Volume 3, Book 39, Numbers 532, 535, 536, & 537, Book 47, Numbers 801 & 802, Sahih Muslim, Book 10, Chapter 13, entitled Leasing of Land, which consists of Numbers 3715 – 3741, Chapter 14, entitled Renting of Land for Food, which consists of Numbers 3742 – 3746, and Malik’s Muwatta, Book 33, Number 33.1.2.

[32] Similar hadiths can be found in Sahih Bukhari, Volume 3, Book 36, Numbers 367 & 372, and Sahih Muslim, Book 10, Numbers 3628, 3629, and 3630.

[33] Similar hadiths can be found in Sahih Bukhari, Volume 3, Book 34, Numbers 426 & 427, and Volume 6, Book 60, Number 157, and in Sahih Muslim, Book 10, Numbers 3840 &3842.