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ARTICLE IN PRESSCCFOR-310; No. of Pages 15

Accounting Forum xxx (2015) xxx–xxx

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Accounting Forum

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ritical Muslim Intellectuals’ discourse and the issue ofInterest’ (riba): Implications for Islamic accounting andanking

ania Kamlaa,∗, Rana Alsoufib

Heriot-Watt University, Edinburgh, United KingdomDepartment Islamisch-Religiöse Studien, Friedrich-Alexander University, Erlangen-Nurnberg, Germany

r t i c l e i n f o

rticle history:eceived 9 October 2014ccepted 23 February 2015vailable online xxx

eywords:ibaank-interest

slamic accountingslamic economicsslamic bankingritical Muslim IntellectualsMIs

a b s t r a c t

This article introduces and employs Critical Muslim Intellectuals’ (CMIs) methodologicalapproaches and debates to discuss the issue of bank-interest/riba in Islam. It builds specifi-cally on Fazlur Rahman’s (Pakistan) methodology and debates and counters them with thetraditionalists’ approaches to the issue of riba. The paper highlights the displacement ofCMIs’ discourses from mainstream Islamic accounting and banking literature and practicesand argues that such displacement is hindering the emergence of genuine, innovative andcritical debate on the issue of riba in particular and Islamic accounting and banking in gen-eral. The paper elaborates on the need to incorporate the critical debates and thought ofCMIs into the fields of Islamic accounting and banking if these fields wish to contribute toenhancing socio-economic justice and finding an alternative to their conventional, neolib-eral counterparts.

© 2015 Elsevier Ltd. All rights reserved.

. Introduction

Discourses on the issue of interest in Islamic accounting and banking are dominated by the thoughts and perceptions ofraditional and conservative ulama that generally perceive bank-interest in all its forms to be gravelly forbidden. Modernslamic banks and financial institutions, therefore, employ great efforts in order to design products that seem to resemblelassical Islamic products (based on profit–loss sharing contracts) and avoid, especially in legal form, the use of interest.slamic accounting literature, similarly, is mainly based on the conservatives’ notion of the necessity of the total prohibitionf bank-interest. While a number of papers in the Islamic economics literature have criticized the conventional/traditionalnderstanding of the issue of riba in Islamic thought and the flawed and limited features of conventional fiqh and Islamic texts

nterpretations (cf. El-Gamal, 2003; Kuran, 2006, 2011; Balala, 2010; Zaman, 2011; Ebrahim, Makhdoomi, & Sheikh, 2012), aew of them have engaged with the radical methodological approaches of contemporary Critical Muslim Intellectuals. In theslamic accounting literature, these radical and alternative debates on the issue of riba are totally absent (cf. Kamla, 2009).his paper attempts to address this gap in the literature by introducing debates on the issue of riba/interest building on

Please cite this article in press as: Kamla, R., & Alsoufi, R. Critical Muslim Intellectuals’ discourse andthe issue of ‘Interest’ (riba): Implications for Islamic accounting and banking. Accounting Forum (2015),http://dx.doi.org/10.1016/j.accfor.2015.02.002

ethodology and thought of a number of contemporary Muslim intellectuals named Critical Muslim Intellectuals (CMIs).he paper will also explore the implications of the absence of these discourses from Islamic accounting and banking researchnd practices.

∗ Corresponding author. Tel.: +0044 7731321507.E-mail addresses: [email protected] (R. Kamla), [email protected] (R. Alsoufi).

http://dx.doi.org/10.1016/j.accfor.2015.02.002155-9982/© 2015 Elsevier Ltd. All rights reserved.

dx.doi.org/10.1016/j.accfor.2015.02.002


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ARTICLE IN PRESSACCFOR-310; No. of Pages 15
2 R. Kamla, R. Alsoufi / Accounting Forum xxx (2015) xxx–xxx

Critical Islam or Critical Muslim Intellectuals (CMIs) are terms that are increasingly being used in Islamic studies todescribe a movement led by a number of Muslim intellectuals aiming at a genuine renewal in Islamic thought (cf. Kersten,2011). The renewal project proposed by this group of intellectuals is based on understanding the historical context of theQuran and Islamic heritage when interpreting the Quran and extending its implications to the current day. For them, certainhistorical values will no doubt have an impact on the present. The present, however, must be constructed in accordance withreligious, historical and intellectual conditions that are currently influencing it (Cooper, Nettler, & Mahmoud, 1998; Filali-Ansari, 1998). For CMIs, previous interpretations of the Quran and other authoritative Islamic texts, that is Hadith and ijmah,reflect ‘exactly the kind of problem they were encountering at the time’. Thus, they are not eternal interpretations; on thecontrary, ‘they are relative disciplines which try to give expression to revelation within the confines of the cultural conditionsprevailing in the past’. CMIs criticize the dominant traditionalist approach to interpreting Islamic texts where it continued‘to interpret this body of knowledge in the light of those historical circumstances instead of updating it in line with theircontemporaneous circumstances’ (, p. 159). For CMIs the understandings and interpretations of the religious texts and Sharıahrulings should be reformed in line with the changing social conditions taking into consideration the Islamic worldview andvalues (Abu-Zahra, 1998). This paper will introduce CMIs’ thought to the accounting literature. It will specifically focus onthe work and methodology on one influential CMI: Fazlur Rahman. On the issue of riba/interest, the paper will incorporateRahman’s thought with other CMIs (like Shahrour and Ramadan) and contemporary economists, finance and law scholars’debates on the issue (e.g. El-Gamal, 2003; Saleem, 2006; Kuran, 2006, 2011; Ebrahim, 2009; Balala, 2010; Ebrahim et al.,2012; Salleh, Jaafar, & Ebrahim, 2012 to mention some). This is a significant contribution to Islamic accounting research,as the critical views of these intellectuals have not been previously discussed in this literature. CMIs’ views also suggestradical shifts in the emphasis and role of Islamic accounting and banking in practice more generally and not only in relationto the issue of riba. Their thoughts and approaches will also be relevant to critical accounting research more generally.For instance, CMIs’ concerns regarding the lack of historicity and contextualization in traditional Islamic thought mirrorconcerns by critical accounting researchers about mainstream accounting research. Critical accounting research, whichis mainly interested in developing more emancipatory alternatives to mainstream accounting, has so far overlooked thepotential of spiritual dimensions and values (integral to the enlightenment and emancipation), especially from the Islamicperspective, to help realize this emancipatory accounting project. Most of the critical accounting research emphasizes seculardiscourses like Marxism and Feminism or other critical-theoretical dimensions that ‘locate emancipation instead within therational process of the mind’ (Molisa, 2011, p. 469). CMIs’ thought can enrich the critical accounting literature by enhancingthe emancipatory potentials of accounting from religious and Islamic perspectives.

The next section highlights the contemporary traditional and conservatives’ debates on the issue of riba/interest. ThenSections 3 and 4 elaborate on the way that these traditional perceptions are informing much of the research and practicesof Islamic banking and accounting. Section 5 introduces the philosophy of CMIs’ thought in general before introducingthe particular methodological approaches of Fazlur Rahman. Section 6 discusses the implications of CMI’s methodology ondiscussing the issue of riba in accounting and banking literature and practices. Section 7 presents the conclusion.

2. The issue of riba in contemporary traditional thought

The issue of riba and bank-interest still provokes controversial debates amongst the �ulama (Muslim jurists) (Caeiro, 2004;Salleh et al., 2012)1. The main controversy surrounding the issue is related to the different interpretations of the Quranicinjunctions in relation to riba, where different schools of thought (Malikı, Shafiı, Hanbalı, Hanafı and Shiı) have had variedinterpretations of the meaning of riba (Noorzoy, 1982). Debates are still taking place amongst Muslim ulama on whetherwhat is meant by riba in the Quran and Sunnah (the oral tradition attributed to the Prophet Muhammad) is usury or interest(Noorzoy, 1982; Caeiro, 2004). Caeiro (2004) explains that the ulama’s position regarding the issue of riba and bank-interestranges between three approaches: the idealist, the pragmatic and the liberal. The idealist approach ‘restricts Islamic bankingto the contracts allowed in classical Islamic Law (fiqh) and considers bank interest a grave sin’. The pragmatic approach‘while it sees bank interest as forbidden, it seeks to circumvent it in innovative and sometimes unorthodox ways’ (Caeiro,2004, p. 352). The liberal approach ‘emphasises that today’s bank interest does not correspond to the pre-Islamic riba and isnot inherently evil’ (Caeiro, 2004, p. 351; Saeed, 2011).

The majority of contemporary Muslim scholars (ulama) adhere to the idealist approach where bank interest is equatedwith riba. They argue for a zero interest rate on transactions (Noorzoy, 1982; Caeiro, 2004; Saeed, 2011)2. One of the most


influential scholars, who has had a significant impact on the contemporary Islamic banking system and thought, is muftiMuhammad Taqi Usmani3. Usmani has fiercely criticized and dismissed various fatwa (juristic opinions) issued in differentparts of the Islamic and non-Islamic world, which premise the dealing with bank-interest on the basis of ‘individual’ or‘national’ necessity. Usmani argued that these fatwa ‘contradict the position taken by the ummah throughout the centuries’,

1 Mews and Walsh (2011) explain that the confusion on the issue of usury (riba) and interest is widespread and goes beyond the Islamic world. In theChristian world similar confusion existed, especially after Jeremy Bentham wrote his piece on the Defence of Usury in 1787AD.

2 Fewer numbers of these ulamas adhere to the pragmatic approach.3 Taqi Usmani is a former judge of the Supreme Court of Pakistan and the vice-president of Dar al-Ulum School in Karachi (Caeiro, 2004). Usmani has

also written books on Islamic finance and held positions in a number of Islamic banks’ Sharıa Supervisory Board.


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hich, according to Usmani, clearly forbids all types of interest (Caeiro, 2004, p. 374). Similarly, a number of influentialeaders of Islamic movements like Mawdudi in Pakistan (the founder of Jamaa al-Islamiyya of Pakistan) have argued thathere is no doubt that interest is equivalent to riba (Saeed, 2011)4. In the same vein, regulatory bodies such as the Council ofslamic Ideology of Pakistan responsible for setting the blueprint for the transformation of the financial system in Pakistann the 1980s have declared that ‘there is a complete unanimity among all schools of thought in Islam that the term ribatands for interest in all its types and forms’ (cited in Saeed, 2011, p. 54). Indeed, the various attempts in modern timeso debate the issue of bank-interest differently to the idealist one have been faced with fierce opposition and sometimesersonal accusations of lack of integrity (to those making these proposals) by both Traditional ulama and supporters of the

slamic banking industry5. Islamic banking, in this context, was declared by the ulama and Islamic finance proponents as thelternative to the prohibited interest-based banking (El-Gamal, 2003).

. The issue of riba and the Islamic banking industry

The idealist position of conservative jurists on the issue of riba and interest has been given prominence and forms theasis in the emerging Islamic banking and finance industry (El-Gamal, 2003; Zaman, 2011). Newly developed contracts androducts by Islamic banks have been designed to a great extent on the basis of these idealist approaches (Saeed, 2011)6.herefore, the niche Islamic banking industry that has emerged in the last sixty years is primarily based, especially inheoretical terms, on concepts such as interest-free banking; profit, risk and loss sharing contracts and fee-based financialransactions. This sort of investment, banking and finance also avoids dealing with industries perceived to be forbidden byharıah (Islamic law) such as those involved with alcohol, pork production, gambling and prostitution. In 2010, the totalssets of Islamic banking were estimated to reach US$ 4 trillion owned by about 370 banks spread in nearly 76 countriesAriff & Iqbal, 2011). Key to the growth of the contemporary phenomenon of Islamic finance and banking are advances inhe Gulf Cooperation Council (GCCs) countries as well as large Muslim countries like Malaysia and Pakistan. The growth ofhe industry is also due to the interest of some multinational financial companies like Citigroup and HSBC in entering theeld of Islamic banking and financial services (El-Gamal, 2003; Kuran, 2006).

The issue of riba has emerged as both a fiqh (interpretation of Islamic law) issue as well as a religious identity issue forany Muslims. Islamic banking, economics and finance have been largely connected to notions of independence as well as

ational and religious identity’s issues (El-Gamal, 2003; Caeiro, 2004; Kuran, 2006, 2011). El-Gamal (2003, p. 123) explainshat despite this initial desire to develop an independent Islamic finance and economics, the fields have failed ‘to escapehe centripetal pull of Western economic thought, and has in many regards been caught in the intellectual web of the veryystem it set out to replace’. Consequently, ‘Islamic finance quickly turned to mimicking the Interest-based conventionalnance it initially set out to replace’.

While the majority of contemporary traditionalist �ulama�, who the banking industry claims to follow their injunctionsnd views, adhere to the idealist approach in relation to riba, the modern Islamic banking system is mainly dominated by theragmatic approach (Caeiro, 2004; Saeed, 2011). In theoretical terms, these banks (along with their Sharıah jurists) upholdhe view that ‘interest in all forms, nominal or real, fixed or variable, simple or compound, must be understood as riba and ishus prohibited’. However, in practice the idealist view of riba as interest in all forms has not fully been implemented (Saeed,011, p. 55). Saeed (2011) explains that the weakening of the idealistic view of interest has been due to a number of factors

ncluding that the treatment of the banking industry to the issue of riba and interest as a legal concept (musstalah fiqhı)ather than an economic one. Therefore, the industry embarked on designing ‘sale’ products and contracts with a mark-upenchmarked against LIBOR (London Inter-bank Offer Rate), which in reality resemble fixed-interest loans. For the banksnd their Sharıah Supervisory Boards these contracts, in their legal form, are not financial transactions with positive returninterest), therefore, they are considered permissible (Saeed, 2011).

This replacement of the interest-based system with a mark-up system has provoked criticism of the Islamic bankingndustry by many idealist Islamic banking theorists arguing that the mark-up system is not an alternative to the interest-ased system but is similar to it in spirit (El-Gamal, 2003; Saeed, 2011). The idealistic view, however, was found by the bankso be unrealistic and out of step with the reality of the current economic and financial environment. The Islamic bankingndustry, therefore, continued to ignore these idealistic views (Saeed, 2011)7. The Islamic banking industry, in the meantime,long with its Sharıah Supervisory Boards still fiercely claim that the industry is interest-free and that all forms of interest


s riba (El-Gamal, 2003; Ebrahim et al., 2012). Thus, despite that Islamic banking lends its legitimacy from its claim to followhe idealistic approach to riba, it has made use of the flexibility available in interpretation of Sharıah texts to operate in theurrent global economic setting with mainly interest-based products (at least in their economic substance) (El-Gamal, 2003;

4 Similar views on the issue were given by influential leaders of the Muslim Brotherhood in Egypt and other parts of the Arab world (Saeed, 2011).5 Even when the differences between these views and the idealists’ view are minimal, such as those made by Al-Azhar in the 1980s (cf. El-Gamal, 2003).6 This is not to say that there are no differences in the conceptualisation of these opinions (cf. Saeed, 2011).7 Saeed (2011) details a number of departures In the Islamic banking industry from the idealistic interpretation of riba in his paper where many trans-

ctions and contracts offered by Islamic banks are interest-based in their economic substance but not in their legal form (see also El-Gamal, 2006; Kuran,006; Ebrahim et al., 2012).


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Kuran, 2006; Saeed, 2011). For Ariff and Iqbal (2011, p. 3) the somewhat ‘consensus amongst contemporary, traditionalistulama to treat usury and interest as equivalent is an attempt to make Islamic banking palatable or saleable’.

4. The issue of riba in contemporary Islamic accounting and banking literature

Islamic finance has emerged in the 1970s as a result of advances in “Islamic economics” which emerged in the 1950s.“Islamic economics” literature built mainly on the writings of Muhamad Iqbal (India); Abu Al-A’la Al-Mawdudi (Pakistan);Baqir Al-Sadr (Iraq) and Sayyid Qutb (Egypt) (El-Gamal, 2003). Islamic economics and finance where mainly socio-politicallydriven based on religion; distinguishing Muslims from both Jews and Christians (El-Gamal, 2003; Caeiro, 2004). Caeiro(2004) notes that Islamic finance, banking and economic literature are emerging as ‘apologetic literature’ claiming Islamiceconomic and finance to be viable and more ethical alternatives to both capitalistic and communist models. This is evidentin a large number of writings on the issue where the Islamic system of interest-free banking is claimed to be not only viablebut also ‘potentially, far superior to the traditional interest-based system’ (Khan, 1985, p. 11). In this literature, the issue ofinterest is usually treated as a decided issue where the necessity of its prohibition is unquestionable based on unambiguousstipulations in Sharıah (Islamic Law). It is common in the Islamic economics and finance literature to encounter declarationslike ‘In view of this categorised and unequivocal prohibition of interest in all its forms, a Muslim society that is committedto establishing socio-economic relations on Islamic values is bound to search for an alternative to the fixed return scheme’(Khan, 1985, p. 11). Further, the issue of interest-prohibition is often given a priority in the Islamic economics and financeliterature over other issues related to socio-economic justice and sustainable development (cf. Kuran, 2006; Ramadan, 2009).

Emergence of the Islamic banking industry and the Islamic economics and finance literature has given rise to a modernliterature termed ‘Islamic accounting’ (Napier & Haniffa, 2011). The Islamic accounting literature, akin to the Islamic eco-nomics and finance literature, claims to build on Islamic jurisprudence (fiqh) which provides ‘general principles and detailedrules concerning business, administrative affairs, economics and politics’ (Napier & Haniffa, 2011, p. xiii). The majority ofIslamic accounting literature has so far placed emphasis on instrumental issues related to the prohibition of interest andzakat (alms giving) calculations over other issues related to social justice, poverty eradication, the environment or ethics(Kamla, 2009).

The Islamic accounting literature mostly treats the issue of riba and bank-interest in simplistic terms. Almost all of thewritings on Islamic accounting in the last five decades equate riba with interest and argue that Islamic Sharıah squarely forbidsinterest. A review of the Islamic accounting literature, for instance, shows that the majority of the writings assume that riba issynonymous with interest and go on to explore the implication of this on accounting (or what is termed Islamic accounting)concepts and practices. For instance, Lewis (2011, p. 48–47) maintains that ‘[B]oth the Holy Quran and the sunna treat interestas an act of exploitation and injustice and as such it is inconsistent with Islamic notions of fairness and property rights’ (seealso Lewis, 2001 for similar statements). Earlier writings have also made similar categorical pronouncements on the issue ofriba/interest. Abdel-Magid (1981, p. 81) in an attempt to investigate the implication of Islamic banking theory on accountingmaintains that ‘Riba, fixed interest in any form, is prohibited by the Quran’. Tomkins and Karim (1987, p. 103) also makesuch general and definite statements about the prohibition of interest: ‘The Sharıah categorically outlaws riba, translatedstrictly as usury, but interpreted universally as the prohibition of charging any interest at all on loans’. The study builds onthe opinions of Muslim scholars like Mawdudi in its understanding of the complete ban of interest who argues that ‘interestdisturb the balance between production and consumption’ (Tomkins & Karim, 1987, p. 104). Similarly, Murtuza (2002, p.n/a) declares that riba ‘should not be equated only to interest-based lending but it should include various forms of fraud anddeception’. Maali et al. (2006, p. 267)Maali, Casson, and Napier (2006) also maintain that ‘Sharıah requires transactions to belawful (halal) and prohibits transactions involving interest and those involving speculation’. Shariff and Rahman (2004, p.n/a)also declare that ‘[O]ne of the most important principles of Islamic finance is the scriptural injunction against riba’ and thereis now a general consensus among Muslim economists that riba’ is not restricted to usury but encompasses interest as well’.Few Islamic accounting papers like Baydoun and Willett (2000) acknowledge (albeit briefly and without major discussion ofthe issue) that there are differences of opinions amongst Muslim scholars on the issue of bank-interest and its unquestionedprohibition. The paper, however, accepts the ‘orthodox Islamic position on the time value of money’, i.e. prohibition ofbank-interest and goes on to examine the implication of such a position on measurement in accounting concepts.

Sweeping and decisive statements in Islamic accounting literature are not only related to the prohibition of interest butalso to the practices of Islamic banks, where they are naturally assumed to be interest-free. Karim (2001, p. 169), for instance,maintains that ‘[U]nlike conventional banks, Islamic banks are prohibited from charging or paying of interest. Instead, Islamicbanks offer profit-sharing investment accounts, such that investors’ return depends on the return on the assets financed bythe investors’ fund’. Similarly Maali et al. (2006, p. 267) state ‘[R]ather than dealing in interest, Islamic banks use forms offinancial instruments, both in mobilising funds for their operations and in providing finance for their clients, that complywith the principles and rules of Sharıah’. Abdel-Magid (1981, p. 82) declares that ‘Islamic banks operate according to twofundamental principles: (1) the complete elimination of interest in any form from the banking system, and (2) the use of


several forms of profit-and-loss sharing plans as the backbone of Islamic banking transactions’. Kamla (2009) explains that sofar the majority of research in the Islamic accounting literature is reluctant to critique or even acknowledge the paradoxicalnature of Islamic banking where it claims to be interest-free banking, while in actuality its contracts and operations aremainly interest-based.


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Similar to Islamic banking, finance and economics, the almost complete hold of Western neoliberal thought on Islamicccounting is also evident. Adnan and Griffikin (1997, p. 133) explain that the majority of Islamic accounting papers are

significantly influenced by Western accounting thought’. Thus, despite attempts by Islamic accounting research to ‘sug-est accounting concepts from an Islamic point of view, they substantially still adhere to the values inherent in Westernccounting philosophy; as a consequence, many view that all conventional or Western accounting concepts can be applied toslamic banks’. Consequently, the majority of Islamic accounting research, while claiming to provide an Islamic worldview ofccounting (especially on the issue of interest-ban), they merely produce recommendations for technical and instrumentaldaptations to the conventional/Western accounting standards, education and practices. Examples of these recommen-ations include, for instance, the revision of accounting courses at universities to ‘introduce the accounting problems ofoninterest banking’ (Abdel-Magid, 1981, p. 99); separation of auditing and reporting procedures between the conventionalctivities of the banks and its Islamic one or further (internal) reports on issue of risks, competitive position and marketttractiveness; keeping a separate account for zakat funds, a separate set of records for investment deposits and producingalue added statements in addition to the conventional income statement (Abdel-Magid, 1981; Tomkins & Karim, 1987;amid, Craig, & Clarke, 1993; Baydoun & Willett, 2000).

In more practical terms, the regulatory bodies responsible for developing Islamic accounting standards like AAOIFIAccounting and Auditing Organization for Islamic Financial Institutions), the main body developing Islamic accountingtandards globally today, have also opted without exception to develop Islamic accounting standards that adopts ‘thebjectives of (Western) financial accounting currently available in contemporary accounting thought that are appropri-te for Islamic banks provided that any objective violating the Sharıah precepts is excluded’ (Karim, 1995, p. 289–290). Thispproach was justified by the ulama involved in the consultation process on the ground that it is ‘acceptable from a Sharıaherspective. . .Therefore, there was no reason to refrain from considering what was available in contemporary accountinghought’ (Karim, 1995, p. 290). As a result, Maurer (2002) explains that AAOIFI’s, has mainly concentrated on develop-ng accounting standards emphasising technical and instrumental concerns related to interest-ban and Zakat calculations.urther, the body has had a significant role in promoting Islamic banking products and legitimising them as interest-free.

. CMI’s thought and Islamic law (Sharıah)

Islamic accounting and banking concepts and practices claim to build on Sharıah (Islamic law) (Kuran, 2006; Kamla, 2009).he total ban on bank-interest by the idealists and traditionalist ulama is mainly presented to be adhering to clear Sharıahulings on the issue as discussed above. Furthermore, Sharıah law plays a key role in many Muslim countries in regulatingome or all aspects of people’s life including finance (El-Gamal, 2003)8. Thus, before presenting the views of CMIs on thessue of riba and bank-interest in particular, it is important to view their overall worldview regarding Islamic Sharıah, as this

orldview informs their position on the issue of riba.One common theme amongst CMIs is their criticism of traditional �ulama’s emphasis on Sharıah (Islamic law) as the sole

asis for interpreting and applying justice and as basis for governance in society. They argue that in order to address deeperssues like the meaning of justice there is a need for an equal or even larger emphasis on theology (kalam) (Vakili, 2001).or many CMIs, like Abdalkareem Soroush for instance, ‘the concept of justice itself cannot be defined by reference to theuran alone. Justice includes a conception of humanity, of what it means to be human, and of what rights humans enjoy. Thisonception must accord with religion, but it cannot be defined on the basis of the religious text alone’ (cited in Vakili, 2001,. 159). Thus, justice is not only understood through religious debates but requires combined efforts from philosophical,etaphysical, political and religious discourses. Governance and justice in society requires more than religious law but

hould be also based on modern sciences such as economics and sociology. These methods, according to Soroush, ‘must notiolate religious values, but they cannot be derived from religion itself’ (Vakili, 2001, p. 159).

Thus, for CMIs, addressing issues like the meaning of justice and governance in society does not only require the effortsf religious scholars and jurists but the involvement of teams of interdisciplinary backgrounds and debates amongst thehole of the community (Rahman, 1982). In this context, Islamic philosophy and Islamic law could incorporate insights

rom Western scholarship in the human sciences (Kersten, 2011). Indeed, the work of CMIs departs significantly fromther Islamists positions on authenticity vs. modernity. They advocate a ‘satisfactory balance between a living faith andn uncompromising modern vision’ (Hopwood, 1998, p. 9). They perceive the outright rejection of anything Western byslamists on the grounds of cultural imperialism to be as essentialist as the attitudes of those who uncritically embracehe Western civilization in all its aspects and do not subject it to critical examination (Kersten, 2011). For CMIs, there iso need to ‘suffer’ modernity but to contribute to it in ‘a context that is in harmony with the indigenous culture’ (Cooper,998, p. 38). The purpose for them is to ‘renew religious concepts and to keep them alive as valid responses’ to the problemsf postmodernity (Hopwood, 1998, p. 9). Their ability to blend their deep knowledge of Islamic heritage and Westernhilosophy and social science allow them to reject the ‘assumed binary opposition of tradition versus modernity’ (Kersten,


011, p. 10). CMIs, therefore, are representing new possibilities for a modernity vision that could be ‘both authenticallyslamic and effectively modern’ (Esposito & Voll, 2001, p. 17). Thus, a common strand of CMIs’ thought is their advocacy of a

ulti-layered understanding of the complex relationship between authenticity (the principles of the Islamic faith), tradition

8 Of course many of the actual civil codes in many of the Muslim countries are largely influenced by European Civil Codes (El-Gamal, 2003).


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(the culturally specific way in which Islam has manifested in different contexts) and modernity (renewing Islamic thoughtin line with the demand of the contemporary context) (Kersten, 2011). CMIs emphasize the importance of Islamic religiousschools to open up, incorporate and critique the findings of modern science, particularly social science and contemporaryphilosophical discourse. They are highly critical of the lack of Islamic philosophical discourse whether in civil rights, moralitypolitics or economics. They argue that the failure of the Muslim world to contribute to international scientific communitiesis a result of its inability to ‘universalize their values and legal system’ (Cooper, 1998, p. 49). CMIs are also critical of thetendency of Islamists to ignore the rich Islamic heritage accumulated over a millennium and a half in favour of what isperceived ‘the authentic Islam’ practiced by the ‘Pious Ancestors’ (al salaf al-Salih) in the first century of Islamic era (seventhand eighth century CE) (Kersten, 2011).

CMIs, thus, reject Islamists calls and attempts to form Islamic States or Sharıah law that are based on literal reading ofthe Quran and the other authoritative sources like the sunnah, and consensus (ijma) (Abu-Zahra, 1998; Cooper et al., 1998;Kersten, 2011). They maintain that Islamists who claim that Sharıah is unchangeable and require its application as it waspracticed in early Islam are contributing to isolating Muslims, hindering socio-economic change in Muslim societies and areare using these debates for their own political advantages. CMIs point out that an historical examination of Sharıah revealsthat it developed over time and changed along the different cultures that Islam encountered after its rapid expansion. Sharıahlaw, thus incorporated the different customs of these different places, which later on became part of Islamic practices. Further,the circumstances and practices that are related to the pre-Islamic and early Islamic era, which many verses of the Qurancorporate, do not correspond identically to the circumstances of contemporary Muslims (Abu-Zahra, 1998). According toone of the CMIs (Husayn Ahmad Amin), severe lack of reform to Sharıah law in the contemporary Muslim world is related toMuslims’ ideological conventions (and misconceptions) that the Prophet and his Pious companions are infallible. Therefore,Muslims are intimidated and hindered from establishing new Islamic rules. Another problem is the lack of appreciation ofhistorical, political and social conditions of the very Islamic heritage and society (Abu-Zahra, 1998)9. The traditional andconservative ulama in particular hinder changes to Sharıah and claim that it meets all the demands and requirements ofthe modern Islamic society, while at the same time they devise ways in order to avoid its application (Islamic banking isone good example). This is because, according to Amin, Sharıah is the only source of authoritative power left to these ulama(Abu-Zahra, 1998). With the expansion of the State-made laws as well as the changes in customs and cultures in differentregions, the ulama “custodians of the Sharıah” had only personal law as well as two segments of Sharıah law related tothe ‘five pillars’ of Islam and hudud (sing., hadd) (the specific ordained punishments stipulated in the Quran for crimes likeadultery, theft, banditry, consuming alcohol, apostasy and slander) to cling to and control (Rahman, 1982)). In this context,the ulama has lost sight of the historical contexts of these Sharıah provisions (Rahman (1982). CMIs in general criticize theulama for overlooking the thoughts of prominent Muslim scholars like Al-Ghazali who treated fiqh in a much ‘broader senseof religious understanding and investigation than merely that of what is lawful and what is unlawful’ (Cooper, 1998, p. 50).

Traditional fiqh (the ‘intellectual discipline for analysis and explanation of the Sharıah; the actual rules and teachingspresented in the Quran and the traditions of the Prophet to guide Muslims in their lives’) especially in the use of qiyas methodis in CMIs view at a ‘dead end’ and totally ‘inadequate for the needs of the contemporary Islamic movement’ (Esposito &Voll, 2001, p. 130). This traditional fiqh, despite being careful in its explanations, contains many deductions and inferencesand will never be adequate for the needs of the Islamic mission (Esposito & Voll, 2001, p. 130)10. For CMIs, there is a needfor a ‘new fiqh’ that will ‘transcend the limitations of the old. . .and contain a radical expansion of a traditional method ofanalysis’ and a continuous questioning of received ideas. It is a fiqh (or ijtihad) that is open for the requirements of Muslimscontemporary life. It is a fiqh that is not imprisoned in the literal meaning of words and is based on the one concept thatrelates to every time and place and that is the common good of all (Esposito & Voll, 2001, p. 130–131; Abu-Zahra, 1998;Filali-Ansari, 1998). Thus, for CMIs, the attempts of traditional Islamists and ulama (and even some Muslim modernists) toportray the Quran and sunnah as providing clear Islamic principles and ruling to many areas of people’s lives represented inSharıah are ‘considerably less than half the truth and. . .dangerously misleading’ (Rahman, 1982, p. 20). The coming sectionwill elaborate in more details on the methodological approaches of one of the most influential CMIs, Fazlur Rahman. Rahmanviews, as we will see below, depart significantly from traditionalists and conservatives’ dominant views in general and onthe issue of bank interest in particular.

5.1. Fazlur Rahman: Methodology and approach


Fazlur Rahman is recognized as one of the few Muslim thinkers to propose a more reasoned and convincing methodologytowards approaching the Quran and the Prophetic tradition, particularly their hermeneutics11. Rahman, in his monograph

9 Amin identified many incidents in the history of Muslim societies where Sharıah rules were applied differently in different places, suspended or notobeyed. Yet Muslims keep claiming that they accept only Sharıah rulings and governments claim that they hold it and respect it (Abu-Zahra, 1998).

10 Here reference is specifically made to the use of narrow qiyas ‘linking a particular case with another particular case’ (Filali-Ansari, 1998, p. 168) methodthat was used in early Islam to resolve issues that the Quran and Sunnah did not touch upon. CMIs reject these limitations and proposes that Muslimsshould instead utilize a broader ‘analogical analysis of the fundamental sources’ (Esposito and Voll, 2001, p. 130–131).

11 Rahman’s work and methodology are very influential in the field of Critical Islam. His methodology, for example, have influenced a number of prominentMuslim feminists’ work like Fatima Mernissi and Leila Ahmed, who used his hermeneutical methods in their interpretations of Quranic and sunnahinjunction on the issue of women.


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slam and Modernity: Transformation of an Intellectual Tradition (1982) proposes a specific strategy, that is, to read the Qurannd the Prophetic tradition as one unified unity “weltanschauung”. This method allows for analysing the Quranic revelationnd the Prophetic career against their historical background, that is, the Arabian society in which Islam first arose. Rahman,hus, views the Quran as a response to that situation, mainly consisting of ‘moral, religious, and social pronouncements thatespond to specific problems confronted in concrete historical situations’ (Rahman, 1982, p. 5). His espousal is highly valueds one of the greatest steps towards a methodology that ‘strikes an almost perfect balance between text [the Quran] andontext [the Arabian context of Mecca and Medina]’ (Hallaq, 1997, p. 241–242). This adequate balance is thoroughly evidentn Rahman’s evaluation of the historical value of the gigantic bulk of the Islamic tradition, which is presented by Muslimurists of the early classical to the late medieval known as jurisprudence (fiqh). Rahman takes no exception in a thoroughnderstanding of the Meccan social, economic, and tribal institutions. This is ‘necessary in order to understand the import ofevelation for the purpose of universalizing it beyond the context of the Prophet’s career’ (Hallaq, 1997, p. 242). In Rahman’siew, the early jurists were responsible for ‘a fragmented view of the revealed source [Quran]’ (Rahman, 1982, p. 3–4). In hispinion, ‘both traditional legal theorists and the exegetes treated the Quran verse by verse, and the Sunnah report by report’Hallaq, 1997, p. 241–242).

The Quran, Rahman (1982) argues, does not provide many general principles. It gives detailed solutions and rulings topecific historical issues, these ruling are ambiguous but the rationale behind them can provide basis for general principlesRahman, 1982). Rahman (1982, p. 32) views Islamic law as ‘not strictly speaking law’, it embodies moral principles thatre not enforceable in any court and further, the legal aspects of it are merely ‘endless discussion of the duties of a Muslimather than a neatly formulated code or codes’. Thus, despite that Islamic law has become rigid and inflexible and uniformlypplied throughout the Muslim world (which gave this world its homogeneous character), in fact it is largely ‘a body ofegal opinions’. In other words, ‘a system of law or even a variety of legal systems can be created on the basis of this body ofpinion, even though these opinions themselves do not strictly speaking constitute law’ (Rahman, 1982, p. 32).

Thus, modern issues facing Muslims cannot be resolved and perceived in light of these detailed, historically-bound andmbiguous rulings but by referring them back to the general principles of Islam. Rahman (1982, p. 20) puts forward hisuggestions of the method that should be used when deducing laws and institutions from the Quran and Sunnah. Therocess of interpretation proposed by Fazlur Rahman consists of ‘a double movement, from the present situation to Quranicimes, then back to the present’ (, p. 5). Rahman (1982, p. 6) explains that before studying the ‘specific text in the light ofpecific situations, a general study of the macrosituation in terms of society, religion, customs, and institutions, indeed, of lifes a whole in Arabica on the eve of Islam and particularly in and around Mecca. . .will have to be made . . . Throughout thisrocess the regard must be paid to the tenor of the teaching of the Quran as a whole so that each given meaning understood,ach law enunciated, and each objective formulated will cohere with the rest. The Quran as a whole does inculcate a definitettitude towards life and does have a concrete weltanschauung; it also claims that its teaching has “no inner contradiction”ut coheres as a whole’.

CMIs including Rahman base Sharıah law on ethics and the common good, that is known as by the juristic legal concepts maslaha of people gives it a consistent view and avoid arbitrary usage (Filali-Ansari, 1998). It makes Sharıah law merely

a reference system for law [rather] than a complete and closed system of commandments’ that allows Muslims who haveaith in the Quran and want to live by its guidance to do so in a coherent and meaningful way (Filali-Ansari, 1998, p. 170;ahman, 1982). Thus, law derived from Islamic teaching should never be separated from the ethical essence of the Quran and

slamic heritage. This mixing together between law and morality is what makes Islamic law unique and different to law in aodern sense. Islamic law is thus ‘a treasure of legal materials thrown up during long centuries of endless discussions, uponhich modern Islamic legal systems can certainly build, but only a part of which can ever be enforced in court’ (Rahman,

982, p. 154). The centrality of ethics to Islamic law guarantees that the law is always governed by morality, which attempto protect it from manipulation. Indeed, morality is the essence of the overall social system with its religious, political andconomic institutions and not just the legal system (Rahman, 1982). The link between the legal system and Quranic morality,owever, does not mean that the legal system should remain static and unchanged or even divine. Rahman (1982) argueshat because the law deals with the day-to-day lives of people where social change happens, it needs to be continuouslyeinterpreted. Failure to engage continuously with reinterpretation will eventually mean that society will stagnate or moveowards secular law.

. CMIs and Rahman’s methodology: Implications for the riba and bank-interest debate in accounting andanking

In light of CMIs and Rahman’s thought and methodology, a contemporary interpretation of Islamic texts in relation tohe issue of riba/bank interest requires striking a balance between the text and the context. To achieve this, the followingubsections will attempt to: (I) Employ a methodological approach where a ‘double movement’ method from the presento Quranic times and back to the present; within the ethical and moral umbrella of the Quranic message. (II) Analyse the


uran and prophetic career against historical background (Arabian society of 6th Century); (III) Provide a rationale to theetailed solutions and dealings in the Quran to reach the general principles (establish reasons for certain ethical and legalulings). (IV) Base the debates on the issue of riba/bank interest on the Quran and the prophetic tradition’s unified unity,weltanschauung’.


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Sections 2, 3 and 4 have provided a critique of the context and dominant mainstream debates on the issue of riba incontemporary Islamic accounting and banking domains. Next sections will elaborate on the rational behind the prohibitionof riba in 6th century Arabia and (go back to the present) to discuss the implications on today’s Islamic banking and accountingthought and practices.

6.1. Rationale behind the prohibition of riba in 6th century Arabia

The Quran has many verses that condemn the economic injustice of sixth century Meccan society and denounce ‘theprofiteering and stinginess of the rich, and their unethical commercial practice such as cheating in the weight and measure-ments etc.’ Condemning riba was one aspect of condemning the whole unjust socio-economic system in 6th century Arabia(Rahman, 1964, p. 3). Providing a balance between the text and the context, therefore, requires that the Quranic account onthe issue of riba is treated in a chronological order (Rahman, 1964). The verse of surah al-rum (Q. 30:39), which is presumedto be the first of the revelation embodying the criticism of riba, was revealed during the early years of Mohammed’s prophecy(Rahman, 1964):

And whatever you invest by way of riba so that may increase upon peoples wealth, increases not with God; but whatyou give by way of zakah seeking the pleasure of god, those—they receive recompense manifold’ (Q30: 39).

Rahman reflects on verse (Q30:39) and its context stating that ‘here it passes only a moral stricture on riba; it does notyet declare it legally which it could eradicate this evil’ (Rahman, 1964, p. 3). When Islam became politically dominant afterthe Prophet’s migration to the city of Medina, riba was categorically prohibited in the following words:

O you who believe, do not consume riba with continued redoubling and protect yourselves from God, perchance youmay be blissful’ (Q3: 130)

Finally, riba is addressed by severe threats for the transgressors in the verses of Surah al-Baqara:

Those who consume riba shall not rise except like the one who has been struck by the Devil’s touch. This is becausethey say that selling and riba making are one and the same thing, whereas God has made selling lawful and hasforbidden riba. Whosoever receives an admonition form his lord and desists, he shall have his past gains and hisaffair is committed to God; but whosoever reverts- those are the inhabitants of the Fire, therein dwelling forever.God destroys riba but makes alms prosper. God loves not any guilty ingrate but those who believe and do deeds ofrighteousness, and performs the prayer, and pay the alms—their reward awaits them with their lord and no fear shallbe on them, neither shall they grieve, O ye who believe protect yourselves from God and remit what is left of riba ifye be faithful. If ye do not, desist, ye shall receive back your capital without doing injustice or suffering injustice. If,however anyone is in difficulties, let there be a delay till he is able to pay, although it is better for yet to remit if yeonly knew’ (Q2: 274-80)

Rahman explains that riba in the Arabian context during which the revelation took place was operated in this way; ‘ifthe man owned another debt, at the time of its maturity the creditor would ask the debtor: will you pay up or will youincrease? If the latter paid up the creditor received back the sum; otherwise the principle was increased on the stipulationof the further term’ (Rahman, 1964, p. 5). In this form of riba (or what is called riba an-nasiah), of pre-Islamic Arabia, thedeferred credit practices relates to when ‘creditors increased the outstanding debt for delays in settlement by the borrower.Instead of granting financial reprieve, the creditor expropriates the debtor’s property, potentially leaving the borrower in adire financial situation’ (Salleh et al., 2012, p. 12; Ebrahim et al., 2012). Thus, for Rahman (1964, p. 28) reviewing the Quranicverses along the historical context of Arabia establishes the following definition of riba (riba an-nasiah): ‘is an exorbitantincrement whereby the capital sum is doubled several-fold, against a fixed extension of the term of payment of the debt’.What constituted riba, therefore, was ‘the increase in capital that raised the principle several-fold by continued redoubling’(Rahman, 1964, p. 6). According to Rahman (1964, p. 28), the prohibition of this particular form of riba by means of law isevidently a ‘religious necessity’. The doubling and redoubling of the loan often meant that ‘where big sums were involved,the debtor went on paying interest alone in instalments and yet could not pay off even the usurious interest, let alone beingable to return the principle’ (Rahman, 1964, p. 6). Rahman (1964, p. 5) concludes from chronologically examining theseQuranic verses on riba that: ‘(1) The riba of the pre-Islamic days was a system whereby the principle sum was doubled andredoubled through a usurious process; (2) Because of this process of doubling the principle, the Quran refused to admit thatriba was a kind of a fair business transaction; and (3) While permitting the commercial profit the Quran encouraged thespirit of cooperation [as] opposed to that of profiteering’.

Saleem (2006), while mirroring Rahman’s understandings, perceives that examining the riba concept in the context of6th century Arabia elicits a distinction between commercial transactions, non-commercial transactions and charity. Saleemexplains that as society in 6th century Arabia lacked a banking system as we know it today, individuals distressed and in need


to satisfy their personal basic consumption requirements like food, drink and shelter were forced to borrow money fromrich people, who in turn were able to charge exploitive rates of interest. For Saleem this is what was meant by usury/riba inthe 6th century Arabia context, where the principle debt of the poor lender was doubled and tripled, threatening the livelyhood of these people and society at large. In these cases, the Quran encourages and advises the rich to provide interest-free


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oans to those in need and forgive their debt if they cannot repay. Saleem (2006), therefore, argues that there should be aistinction between interest on loans for personal consumption and on loans for investment. Balala (2010, p. 64) agrees withaleem’s rational. She explains that as ‘money lending took place in both the pre- and post-Islam Arabia, the prohibitionf riba could not have been intended to discourage money lending, for reports have it that prominent companions of therophet were well-known moneylenders’. Balala (2010, p. 64) in return extends the understanding of the concept of ribaeyond loans: ‘riba–which . . . is neither defined nor limited to the form a transaction takes (money lending) or to increasedeturns (charging interest or receiving gains from loans). Riba . . . is any illicitly or inequitably elicited gain—the fundamentalistinction between a valid and invalid contract’ (Balala, 2010, p. 64).

In a similar fashion, Shahrour (2009, p. 210)12 rationale and interpretations of the Quranic texts question the traditionaliews that forbade interest unconditionally and argues that the Quran ‘does not categorically and unconditionally prohibitshe charging of interest’. What is prohibited is the ‘exorbitant profit through charity’. However, profit through trade isllowed (Shahrour, 2009, p. 210). Shahrour reads the verse ‘God has blighted usury and made alms-giving fruitful.’ (Q.:276) to addresses the poor and the needy who cannot pay their debts. Thus, Shahrour argues that society is obliged toupport its poor and needy without expecting any return, that is, the interest (riba). However, Shahrour stresses that thiserse does not address every individual in the society as a whole. Rather, there are other members of the society who canepay their debts but without any accumulation of interest. In this case, they only owe the sum borrowed, with no paymentf interest (this being the midmost point between the positive upper limit and the negative lower limit). The Quranic basisf this financial policy is the following verse: ‘If a debtor is in stained circumstances, then [let there be] postponement tothe time of] ease; and that ye remit the debt as alms-giving would be better for you if ye did but know’ (Q. 2:280). Theemaining segment of the society, presumably the great majority, does not qualify for the exclusion, for they are sufficientlyealthy. The pillar of support of the economy, Shahrour argues, is the merchants, industrialists, farmers, skilled professionals

nd their like, who if they happen to need to borrow money, can repay it with interest and without any harm coming tohem. But in no case shall the debtor pay an amount of interest that is larger than the principal he borrowed. In otherords, the cumulative interest owed shall in no case exceed 100% of the original loan, irrespective of the debt’s duration.

his represents the positive Upper Limit, defined by the following Quranic verse: ‘O you who believe! Devour not usury,oubling and quadrupling [the sum lent]’ (Q. 3:130) (Shahrour, 2009, p. 213; Hallaq, 1997). Shahrour further questionshe traditionalists’ understanding of the (Q.2: 275), which contains the following clause ‘but God has permitted trade andorbidden usury’. He asks whether this particular verse mean the outright prohibition of interest? Shahrour points out thathe answer is stipulated in verse (Q. 2:276) that immediately follows: ‘God will deprive usury of all blessings, but will givencrease for deeds of charity; for him He loves not creatures ungrateful and wicked’. Shahrour interprets this particular verseo mean that (Q. 2:276) ‘prohibits the payment of interest on money given in charity but allows recipients of charity to earnncome through trade’. God has thus permitted trade for recipients of charity. Contrary to Shahrour’s understanding, theraditionalists’ approach/interpretation of (Q. 2:275) is restricted to the account that God has unambiguously allowed allypes of trade while forbidden all types of interest (riba). In Shahrour’s evaluation ‘such an unqualified statement wouldmply that, before Allah’s revelation concerning trade and interests all trade was forbidden and all types of interest werellowed which would, of course, be historically untrue and economically absurd. Instead, Allah wanted to clarify the positionf recipients of charity’ (Shahrour, 2009, p. 214). If God had not allowed people to trade with profit, then, we would eventuallye in a ‘grotesque situation in which every businessman ought to check whether his trade partners are entitled to charityr not; if so, the partnership would have to cease immediately’ (Shahrour, 2009, p. 214). Shahrour views that in order tovoid such a chaotic and counterproductive ‘trade arrangements and to separate trade from charity the Quranic verse Q.:275 was revealed’ (Shahrour, 2009, p. 214). This Quranic verse undoubtedly had ‘a huge impact on society since it allowedelfare organizations, hospitals, charity banks, mental institutions, old people’s homes, and such to receive charity money

egardless of their commercial and financial activities’ (Shahrour, 2009, p. 214).In addition to the Quranic verses mentioned above, traditional ulama build their verdicts on the prohibition of bank-

nterest on Hadith and Sunnah and perceive them to provide explanation to the Quranic verses on the issue. They insist thatthe prohibition of riba is not to be limited to usury practiced in the pre-Muhammad societies (Riba al jahiliyya)’ as illustratedn (Q3: 130): but to pertains to all money lending transactions: i.e. ‘riba entails a prohibition of usury, compound interest as

ell as any increased returns on money lent’. The ulama derive these unequivocal interpretations from mainly two sayingf the Prophet’s: (I) ‘gold is to be paid for by gold . . . like for like, equal for equal, payment being made on the spot’. Greatermphasis, however, is often given to another saying by the Prophet: (II) ‘Every loan that attracts a benefit is riba’ (Balala,010, p. 74). Balala explains that despite that the authenticity of saying II is in question, the ulama link sayings II to I and


nd these to be sufficient bases to ban any increase on loans or interest in all forms. Rahman points out the problems onepending on these two Hadith to ban all forms of bank interest. He explains that while the basic moral idea underlyinghe Quranic prohibition of riba is clearly given a wider extension and application in the Hadith and Sunnah literature, the

12 Muhammad Shahrour is considered on of the contemporary CMIs; born in Damascus in 1938 is a Syrian professor of civil engineering of the Universityf Damascus (1972–1999). Since 1990 Shahrour contributed five major monographs in Arabic expressing his radical views on the Quran and the Islamicntellectual tradition in a serious attempt to accomplish a new understanding of the authoritative sources (Quran and .hadıth) in a modern and progressiveontext. Shahrour’s contribution has been regarded as ‘impressive in that it offers both depth and range, virtually unparalleled in modern writings on theubject’ (Hallaq, 1997, p. 246).


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contradictions and inconsistencies apparent in the tradition attributed to the Prophet and the ‘evolutionary trend in thisliterature leading to an ever-increasing rigidity vitiate its authenticity and authority’ (Rahman, 1964, p. 29). Shahrour (2009)agrees and uses a quote attributed to Umar b. al.Kha.t.tab (one of the Prophet’s companions and 2nd Khalifah) where hewished that the Prophet had clarified explicitly what is the legal status of riba. Rahman (1964) also elaborates in much detailon occasions where the Prophet had returned, with an increase, borrowed cattle and money (cf. Rahman, 1964)13. Therefore,he maintains that it is not attainable from the Sunnah and Hadith to assume that any profit on loans is riba. For Rahman,as the Sunnah and Hadith records are contradictory on the issue of riba, attempts to define riba through Hadith have beenunsuccessful. This, for Rahman, does not mean that these attempts should be ignored, but means that understanding themeaning of riba should mainly refer back to the spirit of justice and equity in the Quran. In any case, Rahman argues that inthe context of 6th Century Arabia these interpretations do not make sense. Why would a lender, where riba was rife, lendout of charity without any increase on the principle in the first place? Balala agrees that it is not logical to apply ‘the zero-gain principle’ to commercial transactions where it is expected that profit will be made. Instead, commercial transactionsthat incorporate credit transactions (including loans), sale and leasing become equivalent to riba when they are inequitableand exploitive. Loans, being commercial transactions, therefore, are ‘eligible to draw a benefit from the transaction just asany other commercial transaction’, subject to application of the Islamic principle of equity (Balala, 2010, p. 65). Thus, theillegitimate riba transaction is distinguished from the legitimate trade transaction through its substance and effects, i.e. if itis fair and equitable (Balala, 2010).

6.2. Implications for today’s banking system and bank-interest

For Rahman (1964, p. 28), when trying to derive the texts’ interpretations on contemporary issues, the emphasis should beon the ‘general Quranic teaching’, which he understood to aim at developing ‘the maximum of co-operative socio-economicjustice’. Rahman perceived that the economic system, which the Quran requires us to establish should be based on ‘the spirit ofco-operation, the further nourishment and development of this spirit in the right manner and the reconstruction of society.Here individuals, society and the government should aim to achieve the goal of co-operation and mutual consideration’.Society should first embark on addressing economic and social dealings in modern times that are ‘more destructive and havegrave social inequities (and closer to the spirit of what riba meant in the Quran) than bank-interest such as landlordism,feudalism, profiteering and hoarding’ (Rahman, 1964, p. 28). Like Rahman, Shahrour links the issue of riba with the veryhigh degree of universality related to social justice embodied in Islamic legislation that is implicit in God’s revelation. Hepoints out to how traditional jurisprudence (on the issue of riba and beyond) ‘has sacrificed this universally in favour of verynarrow cultural and nationalist agendas that reflect particular political interests more than they do the universal ethicalmessage of the Book’ (Shahrour, 2009, p. 215). The solution for such a dilemma is proposed in Shahrour’s suggestion ‘Wepropose to disentangle Islamic legislation from the narrow cultural perspective of seventh-century Arabia and to replaceit with a universal perspective which allows cultural diversity beyond the specific legal parameters on the ancient ArabianPeninsula’ (Shahrour, 2009, p. 215).

The inability of the ulama today to interpret the issue of bank-interest in light of the contemporary banking system meantthat their understandings are limited to early jurists’ knowledge of credit sale, where the role of financial intermediaries wasdifferent and economics, as a field of inquiry, was not yet developed (Ebrahim et al., 2012). Contemporary ulama, Ebrahim et al.(2012, p. 32) explain, need to realise that credit sale in today’s environment enhances ‘the demand for goods in the real sectorof the economy as it is contingent on the elasticity of demand of an asset being sold’. The failure of the traditionalist ulamato develop an economic rationale related to the prohibition of riba¯ is, therefore, significantly influencing more serious andurgent efforts towards social equity and justice and an equitable financial system in Muslim societies (Ebrahim et al., 2012).Saleem (2006) agrees that in today’s environment, it is wrong to assert that banks do not share risks with the investmentborrowers. There is an acknowledgement in the banking and finance disciplines of the cost of finance and risk to the lender,where the rate of interest is often meant to occupy ‘the same place as price and performs the all-important function that anyprice-mechanism performs’ (Rahman, 1964, p. 27). These contemporary understanding has led Rahman and others to arguethat ‘the abolition of interest in the present state of our economic development would be a cardinal error’ (Rahman, 1964,p. 28). Kuran (2011, p. 151) similarly argues that the insistence in the current environment on interest-ban has ‘harmfulconsequences’ on economies and societies in the Muslim world. These harmful consequences include the increased cost ofcredit to everyone including entrepreneurs; complicating financial transactions through the use of tricks and schemes and


that commercial and financial matters are not discussed honestly in Muslim societies. This is leading to that the banning ofbank interest as practiced by Islamic banks is contrary to the spirit and intentions of the Quran and Sunnah as the ban hindersthese institutions from meeting the welfare of society. Balala (2010, p. 82) further explains that the importance of charginginterest for commercial lending purposes becomes clear when considering the ‘inverse scenario, that is, a prohibition on

13 Rahman (1964, p.21) cites the following story about the Prophet: ‘Abu Rafi [a client of the Prophet] said: the Prophet borrowed a young camel fromsome person, and when some camels from the camels of the sadaqah came to him, he ordered me to pay back the man his young camel. When I told himthat I could find only an “excellentcamel in its seventh year, he said, ‘give it to him, for the best person is he who discharges his debt with something better’.Also Rahman (1964, p. 22) cites: ‘Muharib reported that he heard Jabir b. Abd Allah saying that the prophets owned him [Jabir] some money and at thetime of the repayment of the loan the Prophet added [some money] in excess of the principle borrowed’.


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ll interest bearing loans whatever the purpose’. Such prohibition will mean that hardly anyone would be willing to lendis/her money with a loss to increase others’ wealth. This defies human nature and counters the Quran’s requirement for

ustice and equity (Q.2: 279). The rich, would rather invest their money in their own business or give some for charity butot extended to commercial loans for fear of committing riba. This, for Balala (2010) will have serious implications on social

ustice and equity in society.The dominance of the idealist and conservatives’ views on the riba discourse in the Islamic world is, therefore, creating a

aradoxical and even ‘dishonest’ business and economic environment (El-Gamal, 2003; Kamla, 2009; Ramadan, 2009; Kuran,011). The prevailing practices of the Islamic finance industry ‘whilst compelled not to charge interest explicitly, elicit ‘profitargins’ and ‘fees’ of various kinds and amounts under the guise of ‘profit-sharing’, ‘service fees’ or ‘rent’ (Balala, 2010, p.

2; Ebrahim et al., 2012). Profit margins, (unlike interest rates that are often capped) are unregulated, giving institutionsncluding Islamic banks ‘a blank cheque to charge uncapped fees on their financial products in the name of ‘profit’ that mayn effect be unjustifiably high and inequitable’ (Balala, 2010, p. 82). For El-Gamal (2003, p. 123) the divergence between thection of Islamic finance (of being interest-free banking) and its reality is giving rise to the ‘paradoxical nature of Islamicnance’14. Kuran (2011, p. 150) also explains that while there was a widespread recognition of the unfeasibility of interest-an in the Islamic world, direct challenge to the ban was avoided and the ‘fiction that eliminating interest is both desirablend possible’ remained until this day. The Islamic society and the Muslim individual are living these contradictions. A Muslimerson receiving Islamic education is told that interest is un-Islamic. However, the majority of people in the Muslim worldeal with interest as a matter of course without noticing this contradiction or reflecting on its morality. In Muslim countrieshat claim to follow Sharıah and where interest is illegal (like Pakistan and Sudan), the State itself facilitates this duplicityhrough ‘legal loopholes and by treating violations as personal failings deserving damnation but no worldly retribution’Kuran, 2011, p. 165).

Not equating all forms of today’s bank-interest with riba, does not mean that usurious practices do not exist in the currentanking and finance system and that they should not be banned. In the context of the current financial crisis, the debatef what is socially useful or just should always adjust to time and context (Balala, 2010). In the current finance marketystem, there are serious concerns about manipulations and abuses related to resources’ allocation to a limited privilegedegment of society, hindering entrepreneurial capabilities and economic developments. Exploitive contracts terms, marketanipulation of prices, unfair trading, all have detrimental negative consequences on society especially the disadvantaged

Salleh et al., 2012). Saleem (2006) gives examples of banks’ practices especially in relation to credit cards’ business whereanks charge up to 20% on credit card loans to customers not able to make repayments on time (poorer customers), this isespite limits imposed of rates of interests on many parts of the worlds. Ebrahim (2009) provides examples of how the poorre disadvantaged in the home/mortgage market, facing high cost of funding and getting their homes repositioned. Riba,herefore, is ‘not today limited to those transactions depicted in the traditions of Muhammad; it is a much broader concepthat was simply exemplified (then) by those forms of (inequitable/inefficient) transactions’ (Balala, 2010, p. 71). The inherentharacteristics of the neo-liberal financial system generally, despite apparent regulations, is susceptible of financial crisesue to excessive volatilities and exploitations. Interest is an essential part of this system (Salleh et al., 2012). Still, attemptso address injustice in Islamic banking and finance, should go beyond the technical issue of bank-interest and concentraten the whole economic system.

From the above, traditionalists ulama and Islamic financial institutions’ ‘misunderstanding of the concept and principleehind riba’, has led to confine riba to ‘certain forms and practices’, which consequently relieved Muslims and Islamic banksrom more pressing ‘moral obligation to conduct themselves equitably in all commercial and personal interactions withthers’. Instrumental and technical issues dominated Islamic financial institutions’ concerns. The concept of Riba eventuallyecame narrow and ‘devoid in substance that the very purpose it was intended to serve was neglected if not violated’Balala, 2010, p. 82). Alternatively, the concept of riba was never meant to be and should not be ‘carved in stone’. Any policyegarding riba derived from the text should respond to the economic and social needs and the ever-changing rules of societynd commercial markets (Shahrour, 2009; Balala, 2010). Linking these considerations with the Quranic pronouncement oniba requires, therefore, ‘a flexible banking system which can incorporate, if need be, interest on loans provided that theimits set by Allah are observed, but which can also prevent interest being charged at an exorbitant rate (usury)’ (Shahrour,009, p. 210). Following from this rationale ‘the principle of riba could be used to regulate commercial loans in such a wayhat whilst inequity is prevented, interest may be legitimately charged. This would be in line with the verse of the Quranhat prohibits the taking of riba ‘double and multiplied” (Balala, 2010, p. 82).

In addition, innovative solution to improve co-operative and welfare aspects of finance within society should continue


o be developed in order to enhance economic development and make sure that the poor and disadvantaged are not totallyxcluded from the financial system (cf. Ebrahim, 2009 on the possibilities of housing finance cooperatives with net con-ractual interest rate of zero). Contemporary CMIs like Tariq Ramadan make similar calls today for Muslims to shift their

14 According to Kuran (2011) conservative ulama are failing to acknowledge that there was no point in time in the Islamic history or society where aenuine interest-free economy existed. The only aspect related to the prohibition on riba that was strictly enacted is prohibiting enslavement for debt.therwise, Kuran (2011) maintains, dealers in interest in Islamic history have rarely experienced prosecution or convention. The Quran itself does notrescribe punishment for dealing with riba on earth. Forms of innovative contracts to conceal interest existed historically and gained the approval of Islamic

urists (Kuran, 2011).


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emphasis from ‘retooling’ themselves with “lawful” techniques and practices to be more serious about reflecting on theirconsciences and attempt to contribute to finding more just alternatives to the dominant economic system (Ramadan, 2009).For Ramadan, it is surprising the extent to which the so-called Islamic economics and banking ignore Islamic and Quranicteachings on the issue of the environment and the universe (cf. Kamla, Gallhofer, & Haslam, 2006; Kuran, 2006). Ramadan(2009, p. 233) explains that ‘Muslims’ silence over the great contemporary ecological issue is indeed highly significant: ineffect, it deeply betrays the revealed message’. According to Ramadan (2009, p. 243) the general principles of ethics in Islam‘require us to respect the dignity of humankind, nature, and all living species, to protect their welfare, their development,their diversity as well as fraternity, justice, and solidarity, are among the many objectives that characterize a philosophy ofeconomy’. The political upheavals in many Muslim countries today are clear indications to the populations’ dissatisfactionwith socio-economic and political structure and environment in their countries (Ebrahim et al., 2012).

6.3. Implications for Islamic accounting

Section 4 has illustrated that in practical terms, much of the distinction between Islamic accounting and conventionalaccounting is superficial (Kamla, 2009). Islamic accounting literature, regulations and standards so far seem to be merely con-cerned with technical issues related interest-ban and zakat calculation. They provide no challenge to mainstream accountingthought or practices nor question the essence of these practices. Quite the opposite, the majority of the Islamic accountingliterature confirms that the role of accounting is mainly for investment decision-making purposes (cf. Kamla, 2009). There-fore, Islamic accounting is far from being an alternative to its mainstream counterpart. The dominant neoliberal economicsystem and its institutions have smoothly incorporated Islamic accounting into its mainstream practices, with professionalbodies like ACCA and CIMA devoting training courses and certificates in Islamic accounting, taking advantage of the Islamicfinance trend. This is because the current global system and international accounting bodies are not threatened by “cos-metic adjustments” or changes in labels or terminology but is more concerned with the new markets opportunities that the“Islamic” label could open up (Ramadan, 2009, p. 244; El-Gamal, 2003; Kamla, 2009; Kuran, 2006, 2011).

The challenge for Islamic accounting today is, therefore, to incorporate the vision of CMIs, where religious concepts aremade dynamic and responsive to modern concerns in the Islamic world and beyond, without compromising religious/orIslamic values. Islamic accounting needs to find a way to become authentically Islamic but also responds to modern concerns.In this sense, developing accounting standards and practices needs to be multi-layered reflecting the principles of the Islamicfaith but also sensitive to the cultural context that this faith is practiced. In the meantime, the process needs to remain opento advances in the contemporary context and social sciences in general. CMIs main contribution to accounting/Islamicaccounting would be in making historicity and contextualization integral to accounting research in order to understandthe forces that shape or change the forms that accounting can take. Accounting practices are, in this context, understoodas dynamic and changing departing from the dominating objective, technical and economic logic dominating mainstreamaccounting/Islamic accounting.

Approaches to Sharıah rulings in Islamic accounting should move away from the fatwa approach: what is lawful and whatis not lawful, to adopt a ‘new fiqh’ approach that is free from literal interpretations and rather considers the spirit of Islamicvalues combined with the concern to construct accounting practices and standards that satisfy the contemporary needs ofpeople and in line with the common good of all. The “new fiqh” approaches proposed by CMIs enable Muslim researchersin accounting to free themselves from restrictions imposed on them by conservative and traditionalists’ understandings ofSharıah. They also allow them to question mainstream and conventional theories, standards and practices that are dom-inating the fields of accounting and economics globally. Their intellectual efforts can help in developing new/alternativeaccounting based on radical interpretations of the Quranic injunctions on the economy in line with the demands of thecontemporary environment but also in line with the general Islamic principles. The new fiqh’ approaches advocated by CMIslike Rahman could provide very useful methodological tools for accounting researchers to contribute to developing account-ing standards and practices in line with the universal ethical message of Islam. Consequently, there is a need for Islamicaccounting thought and practices to move away from the traditionalist unconditional prohibition on the charging of interestin all its forms and rather emphasis that the welfare of all members of society. This will require setting interest charges thatmeet the limits of the Quran and avoid exorbitant rates that make this interest equivalent to riba/usury. Further, in order toachieve a more just and equitable society there is a need for Islamic accounting to address economic practices that are inthe current context more responsible for social inequity and injustice than the charging of banking interest. These standardsand practices would emphasise achieving better equity in society and serving the public interest at large.

Placing equity and justice as core objectives of Islamic accounting implies cooperation, exchange and learning from moreestablished accounting domains (like the critical accounting literature) that would share with Islamic accounting the pur-suant of concepts of justice and equity and critique of mainstream thought and practices. Muslim researchers engagementwith the critical accounting field (as well as in other disciplines) can help them reinstate ethical principles to accountingbehaviour, which has long been lost in conventional accounting. Inspiration from CMI’s thought and methodology equipMuslim researchers and critical accounting researchers with the ability to critique they way that conventional and main-


stream understandings views understand accounting from a ‘relatively unproblematic technical’ perspectives, divorced fromits historical and social contexts (Hopwood, 1983, p. 290). These perspectives often result in adopting an orthdoxical andconservative bias and, therefore, legitimize the status quo (Cooper, 1983; Hopwood, 1983; Shearer, 2002; Moerman, 2006).Islamic accounting/critical accounting can benefit from CMIs methodology and insistence on histority and context in order to


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e effective in challenging injustices or bringing change to the status quo. A cooperation and linking between CMIs thoughtnd critical accounting will go beyond the technical issues related to current economic/accounting systems or the structuref development models and focus on finding alternatives and question the essence, the substance and the goals of currentccounting models. The coherent and universal Islamic teachings call for this kind of global cooperative contribution byuslim intellectuals; rather than the current initiatives that isolate Muslims’ intellectual efforts under banners such as

Islamic” accounting, banking or economics.

. Conclusion

Critical Muslim Intellectuals (CMIs) propose a radical renewal agenda that questions and challenges the establishedraditional authority, sources and approaches to Islamic law (jurisprudence). They offer bold and innovative vision andropose solutions to practically transform the Islamic world and beyond. This paper has employed the thoughts of theseMIs (especially those of Fazlur Rahman) to discuss the issue of riba and bank-interest in Islam. The paper introducedhallenging debates to the historically established and authoritative traditionalist opinions in reference to the issue of ribao the accounting literature. While, interest/riba per se has never been the central point of contention to CMIs as, for instance,n the juristic and the contemporary traditionalists’ discourse, their thoughts and methodology aid in discussing the riba issuen a broader framework that is aimed at constructing a contemporary interpretation of the Quranic verses that addresseshe issue of bank-interest. CMIs’ ability to re-define the sources of authority, the spiritual and ethical objectives of Sharıahas the potential to create more space for radically interpreting and understanding the issue of riba in the Quran and itspplication in today’s global environment. The paper, therefore, adds to the body of literature in Islamic economics, financend accounting, which aims at providing contemporary proposals towards a contemporary understanding of bank-interestn a global economy.

Rahman’s and other CMIs like Shahrour and Ramadan contributions on the issue of riba/interest echo some responsesrom Muslim economists and even Muslim scholars on the issue (cf El-Gamal, 2003; Kuran, 2006, 2011; Ebrahim, 2009;brahim et al., 2012; Salleh et al., 2012 to mention some). CMI’s main contribution, however, lies in their methodologies,here they employ ‘structured notions of textual/contextual analysis where emphasis is placed upon a humanistic law that

s suggestively and generally guided, and not literally and textually dictated, by the divine intention’ (Hallaq, 1997, p. 254)15.he paper has shown that the literalist approach of traditionalist ulama and their failure to take the context of Arabia andhe contemporary context of the Islamic world into consideration have resulted in an increasingly rigid interpretation ofhe Quranic and Sunnah sources on the issue of riba. So far, CMIs’ conceptions and methodology remain alien to majority of

uslims and face major resistance from mainstream and traditional legislative powers in the Muslim world (Hallaq, 1997).any ordinary Muslims today still sincerely believe that the Quran has prohibited all forms of interest for all times (Saeed,

011). According to El-Gamal (2003, p. 116), a main obstacle to serious and honest debates on the issue of bank-Interestnd riba in the Islamic world is due to the domination of rhetoric employed by ‘amateur and professional jurists’ in Islamicnance which ‘continues to obscure the relevant facts’ and hinders the emergence of Intellectual debate on the issue. CMIs’ethodological approaches to the Quran and Islamic texts can provides an opportunity for the Muslim public to discuss the

ssue of riba and interest in an honest and intellectual fashion rather than the ‘rhetorical’ and ‘simplistic’ debates dominatinghe Islamic world on the issue.

The approaches of CMIs, especially Rahman, imply a need in the Islamic world to debate the issue of riba/interest in lineith the general ethical philosophy of Islam. This entails that the Islamic banking and finance industries, along with Islamic

anking and accounting standards, practices and research, should move away from attempting to design and engineer “halal”roducts that in legal forms seem “interest-free”; while, at the same time, aspire to create an environment where Islamicanks and financial institutions can achieve the same profit levels of conventional banking and finance counterparts (Kuran,006; Ramadan, 2009). Instead, the Islamic banking and finance industry (along with Islamic accounting practices andesearch) should concentrate on higher Islamic ethics and goals that define objectives and meaning of economic activitiesRamadan, 2009). Indeed, CMIs’ thought lead to questioning the fields of “Islamic” economics, finance and accounting beyondhe riba/interest issue. CMIs’ interdisciplinary and inclusive approaches to knowledge, science and humanity imply a concernith an Islamic ethical approach to the economy (and accounting) rather than distinguished “Islamic” ones (cf. Ramadan,

009). Their approaches promote a more holistic approach to developing economic and accounting practices that achieveetter socio-economic justice beyond the limited scope of what is today called “Islamic economy” or “Islamic accounting”oncerned mainly with instrumental and technical tools to reject interest, calculate tax (zakat) and design Profit–Loss sharingontracts.

So far, the limited and technical Islamic accounting agenda has ignored issues of poverty and environmental tragediesn the Muslim world and beyond. Muslim accountants wishing to adhere to Islamic principles and teaching need, rather,


o expand their fields of enquiry to study ‘real-life experiences—which raise questions about our development and con-umption models, our utilitarian relationship to nature, and our ecological carelessness’ (cf. Ramadan, 2009, p. 234). Muslimccountants need to start addressing deeper issues related to the role of accounting and the impact of our economic system

15 Fazlur Rahman methodology has been criticized in that it does not provide answers to many other legal questions that fall outside the revealed textsHallaq, 1997).


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on society and the environment (Kamla et al., 2006; Ramadan, 2009). They can join forces with other accountants glob-ally (like critical accountants) or grass-root movements like the Christian Liberation Theology to form a global vision fora genuine egalitarian socio-economic alternative to the neoliberal economic model rather than claiming a unique Islamicaccounting or economic model. CMIs’ interdisciplinary and critical approaches can provide a useful methodological andconceptual framework for accountants/Muslim accountants to achieve this goal.

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