Kamla2015 PDF

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ACCFOR-310; No. of Pages 15 ARTICLE IN PRESS

Accounting Forum xxx (2015) xxx–xxx
Contents lists available at ScienceDirect
Accounting Forum
journal homepage: www.elsevier.com/locate/accfor
Critical Muslim Intellectuals’ discourse and the issue of

‘Interest’ (ribā): Implications for Islamic accounting and
banking
Rania Kamla a,∗ , Rana Alsoufi b
a
Heriot-Watt University, Edinburgh, United Kingdom
b
Department Islamisch-Religiöse Studien, Friedrich-Alexander University, Erlangen-Nurnberg, Germany
a r t i c l e i n f o a b s t r a c t
Article history: This article introduces and employs Critical Muslim Intellectuals’ (CMIs) methodological
Received 9 October 2014 approaches and debates to discuss the issue of bank-interest/ribā in Islam. It builds specifi-
Accepted 23 February 2015 cally on Fazlur Rahman’s (Pakistan) methodology and debates and counters them with the
Available online xxx
traditionalists’ approaches to the issue of ribā. The paper highlights the displacement of
CMIs’ discourses from mainstream Islamic accounting and banking literature and practices
Keywords: and argues that such displacement is hindering the emergence of genuine, innovative and
ribā
critical debate on the issue of ribā in particular and Islamic accounting and banking in gen-
Bank-interest
eral. The paper elaborates on the need to incorporate the critical debates and thought of
Islamic accounting
Islamic economics CMIs into the fields of Islamic accounting and banking if these fields wish to contribute to
Islamic banking enhancing socio-economic justice and finding an alternative to their conventional, neolib-
Critical Muslim Intellectuals eral counterparts.
CMIs © 2015 Elsevier Ltd. All rights reserved.
1. Introduction
Discourses on the issue of interest in Islamic accounting and banking are dominated by the thoughts and perceptions of
traditional and conservative ulamā that generally perceive bank-interest in all its forms to be gravelly forbidden. Modern
Islamic banks and financial institutions, therefore, employ great efforts in order to design products that seem to resemble
classical Islamic products (based on profit–loss sharing contracts) and avoid, especially in legal form, the use of interest.
Islamic accounting literature, similarly, is mainly based on the conservatives’ notion of the necessity of the total prohibition
of bank-interest. While a number of papers in the Islamic economics literature have criticized the conventional/traditional
understanding of the issue of ribā in Islamic thought and the flawed and limited features of conventional fiqh and Islamic texts
interpretations (cf. El-Gamal, 2003; Kuran, 2006, 2011; Balala, 2010; Zaman, 2011; Ebrahim, Makhdoomi, & Sheikh, 2012), a
few of them have engaged with the radical methodological approaches of contemporary Critical Muslim Intellectuals. In the
Islamic accounting literature, these radical and alternative debates on the issue of ribā are totally absent (cf. Kamla, 2009).
This paper attempts to address this gap in the literature by introducing debates on the issue of ribā/interest building on
methodology and thought of a number of contemporary Muslim intellectuals named Critical Muslim Intellectuals (CMIs).
The paper will also explore the implications of the absence of these discourses from Islamic accounting and banking research
and practices.
∗ Corresponding author. Tel.: +0044 7731321507.

E-mail addresses: R.kamla@hw.ac.uk (R. Kamla), rana.alsoufi@fau.de (R. Alsoufi).
http://dx.doi.org/10.1016/j.accfor.2015.02.002
0155-9982/© 2015 Elsevier Ltd. All rights reserved.
Please cite this article in press as: Kamla, R., & Alsoufi, R. Critical Muslim Intellectuals’ discourse and
the issue of ‘Interest’ (ribā): Implications for Islamic accounting and banking. Accounting Forum (2015),
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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 to
describe 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 the
Qurān and Islamic heritage when interpreting the Qurān and extending its implications to the current day. For them, certain
historical values will no doubt have an impact on the present. The present, however, must be constructed in accordance with
religious, historical and intellectual conditions that are currently influencing it (Cooper, Nettler, & Mahmoud, 1998; Filali-
Ansari, 1998). For CMIs, previous interpretations of the Qurān and other authoritative Islamic texts, that is Hadith and ijmāh,
reflect ‘exactly the kind of problem they were encountering at the time’. Thus, they are not eternal interpretations; on the
contrary, ‘they are relative disciplines which try to give expression to revelation within the confines of the cultural conditions
prevailing 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 their
contemporaneous circumstances’ (, p. 159). For CMIs the understandings and interpretations of the religious texts and Sharı̄ah
rulings should be reformed in line with the changing social conditions taking into consideration the Islamic worldview and
values (Abu-Zahra, 1998). This paper will introduce CMIs’ thought to the accounting literature. It will specifically focus on
the work and methodology on one influential CMI: Fazlur Rahman. On the issue of ribā/interest, the paper will incorporate
Rahman’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 suggest
radical shifts in the emphasis and role of Islamic accounting and banking in practice more generally and not only in relation
to the issue of ribā. 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 mirror
concerns by critical accounting researchers about mainstream accounting research. Critical accounting research, which
is mainly interested in developing more emancipatory alternatives to mainstream accounting, has so far overlooked the
potential of spiritual dimensions and values (integral to the enlightenment and emancipation), especially from the Islamic
perspective, to help realize this emancipatory accounting project. Most of the critical accounting research emphasizes secular
discourses like Marxism and Feminism or other critical-theoretical dimensions that ‘locate emancipation instead within the
rational process of the mind’ (Molisa, 2011, p. 469). CMIs’ thought can enrich the critical accounting literature by enhancing
the emancipatory potentials of accounting from religious and Islamic perspectives.
The next section highlights the contemporary traditional and conservatives’ debates on the issue of ribā/interest. Then
Sections 3 and 4 elaborate on the way that these traditional perceptions are informing much of the research and practices
of Islamic banking and accounting. Section 5 introduces the philosophy of CMIs’ thought in general before introducing
the particular methodological approaches of Fazlur Rahman. Section 6 discusses the implications of CMI’s methodology on
discussing the issue of ribā in accounting and banking literature and practices. Section 7 presents the conclusion.
2. The issue of ribā in contemporary traditional thought
The issue of ribā and bank-interest still provokes controversial debates amongst the ulamā (Muslim jurists) (Caeiro, 2004;
Salleh et al., 2012)1 . The main controversy surrounding the issue is related to the different interpretations of the Qurānic
injunctions in relation to ribā, where different schools of thought (Mālikı̄, Shāfiı̄, Hanbalı̄, Hanafı̄ and Shiı̄) have had varied
interpretations of the meaning of ribā (Noorzoy, 1982). Debates are still taking place amongst Muslim ulamā on whether
what is meant by ribā in the Qurān and Sunnah (the oral tradition attributed to the Prophet Muhammad) is usury or interest
(Noorzoy, 1982; Caeiro, 2004). Caeiro (2004) explains that the ulamā’s position regarding the issue of ribā and bank-interest
ranges between three approaches: the idealist, the pragmatic and the liberal. The idealist approach ‘restricts Islamic banking
to 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 ribā and is
not inherently evil’ (Caeiro, 2004, p. 351; Saeed, 2011).
The majority of contemporary Muslim scholars (ulamā) adhere to the idealist approach where bank interest is equated
with ribā. 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 mufti
Muhammad Taqi Usmani3 . Usmani has fiercely criticized and dismissed various fatwa (juristic opinions) issued in different
parts 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 (ribā) and interest is widespread and goes beyond the Islamic world. In the
Christian world similar confusion existed, especially after Jeremy Bentham wrote his piece on the Defence of Usury in 1787AD.
2
Fewer numbers of these ulamās 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’ Sharı̄a Supervisory Board.
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R. Kamla, R. Alsoufi / Accounting Forum xxx (2015) xxx–xxx 3
which, according to Usmani, clearly forbids all types of interest (Caeiro, 2004, p. 374). Similarly, a number of influential
leaders of Islamic movements like Mawdudi in Pakistan (the founder of Jamāa al-Islāmiyya of Pakistan) have argued that
there is no doubt that interest is equivalent to ribā (Saeed, 2011)4 . In the same vein, regulatory bodies such as the Council of
Islamic Ideology of Pakistan responsible for setting the blueprint for the transformation of the financial system in Pakistan
in the 1980s have declared that ‘there is a complete unanimity among all schools of thought in Islam that the term ribā
stands for interest in all its types and forms’ (cited in Saeed, 2011, p. 54). Indeed, the various attempts in modern times
to debate the issue of bank-interest differently to the idealist one have been faced with fierce opposition and sometimes
personal accusations of lack of integrity (to those making these proposals) by both Traditional ulamā and supporters of the
Islamic banking industry5 . Islamic banking, in this context, was declared by the ulamā and Islamic finance proponents as the
alternative to the prohibited interest-based banking (El-Gamal, 2003).
3. The issue of ribā and the Islamic banking industry
The idealist position of conservative jurists on the issue of ribā and interest has been given prominence and forms the
basis in the emerging Islamic banking and finance industry (El-Gamal, 2003; Zaman, 2011). Newly developed contracts and
products by Islamic banks have been designed to a great extent on the basis of these idealist approaches (Saeed, 2011)6 .
Therefore, the niche Islamic banking industry that has emerged in the last sixty years is primarily based, especially in
theoretical terms, on concepts such as interest-free banking; profit, risk and loss sharing contracts and fee-based financial
transactions. This sort of investment, banking and finance also avoids dealing with industries perceived to be forbidden by
Sharı̄ah (Islamic law) such as those involved with alcohol, pork production, gambling and prostitution. In 2010, the total
assets of Islamic banking were estimated to reach US$ 4 trillion owned by about 370 banks spread in nearly 76 countries
(Ariff & Iqbal, 2011). Key to the growth of the contemporary phenomenon of Islamic finance and banking are advances in
the Gulf Cooperation Council (GCCs) countries as well as large Muslim countries like Malaysia and Pakistan. The growth of
the industry is also due to the interest of some multinational financial companies like Citigroup and HSBC in entering the
field of Islamic banking and financial services (El-Gamal, 2003; Kuran, 2006).
The issue of ribā has emerged as both a fiqh (interpretation of Islamic law) issue as well as a religious identity issue for
many Muslims. Islamic banking, economics and finance have been largely connected to notions of independence as well as
national and religious identity’s issues (El-Gamal, 2003; Caeiro, 2004; Kuran, 2006, 2011). El-Gamal (2003, p. 123) explains
that despite this initial desire to develop an independent Islamic finance and economics, the fields have failed ‘to escape
the centripetal pull of Western economic thought, and has in many regards been caught in the intellectual web of the very
system it set out to replace’. Consequently, ‘Islamic finance quickly turned to mimicking the Interest-based conventional
finance it initially set out to replace’.
While the majority of contemporary traditionalist ulamā, who the banking industry claims to follow their injunctions
and views, adhere to the idealist approach in relation to ribā, the modern Islamic banking system is mainly dominated by the
pragmatic approach (Caeiro, 2004; Saeed, 2011). In theoretical terms, these banks (along with their Sharı̄ah jurists) uphold
the view that ‘interest in all forms, nominal or real, fixed or variable, simple or compound, must be understood as ribā and is
thus prohibited’. However, in practice the idealist view of ribā as interest in all forms has not fully been implemented (Saeed,
2011, p. 55). Saeed (2011) explains that the weakening of the idealistic view of interest has been due to a number of factors
including that the treatment of the banking industry to the issue of ribā and interest as a legal concept (musstalah fiqhı̄)
rather than an economic one. Therefore, the industry embarked on designing ‘sale’ products and contracts with a mark-up
benchmarked against LIBOR (London Inter-bank Offer Rate), which in reality resemble fixed-interest loans. For the banks
and their Sharı̄ah Supervisory Boards these contracts, in their legal form, are not financial transactions with positive return
(interest), 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 banking
industry by many idealist Islamic banking theorists arguing that the mark-up system is not an alternative to the interest-
based system but is similar to it in spirit (El-Gamal, 2003; Saeed, 2011). The idealistic view, however, was found by the banks
to be unrealistic and out of step with the reality of the current economic and financial environment. The Islamic banking
industry, therefore, continued to ignore these idealistic views (Saeed, 2011)7 . The Islamic banking industry, in the meantime,
along with its Sharı̄ah Supervisory Boards still fiercely claim that the industry is interest-free and that all forms of interest
is ribā (El-Gamal, 2003; Ebrahim et al., 2012). Thus, despite that Islamic banking lends its legitimacy from its claim to follow
the idealistic approach to ribā, it has made use of the flexibility available in interpretation of Sharı̄ah texts to operate in the
current 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 ribā in his paper where many trans-
actions 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,
2006; Ebrahim et al., 2012).
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Kuran, 2006; Saeed, 2011). For Ariff and Iqbal (2011, p. 3) the somewhat ‘consensus amongst contemporary, traditionalist
ulamā to treat usury and interest as equivalent is an attempt to make Islamic banking palatable or saleable’.
4. The issue of ribā 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-politically
driven 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 Islamic
economic and finance to be viable and more ethical alternatives to both capitalistic and communist models. This is evident
in a large number of writings on the issue where the Islamic system of interest-free banking is claimed to be not only viable
but also ‘potentially, far superior to the traditional interest-based system’ (Khan, 1985, p. 11). In this literature, the issue of
interest is usually treated as a decided issue where the necessity of its prohibition is unquestionable based on unambiguous
stipulations in Sharı̄ah (Islamic Law). It is common in the Islamic economics and finance literature to encounter declarations
like ‘In view of this categorised and unequivocal prohibition of interest in all its forms, a Muslim society that is committed
to 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 finance
literature 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 modern
literature 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 detailed
rules concerning business, administrative affairs, economics and politics’ (Napier & Haniffa, 2011, p. xiii). The majority of
Islamic accounting literature has so far placed emphasis on instrumental issues related to the prohibition of interest and
zakāt (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 ribā and bank-interest in simplistic terms. Almost all of the
writings on Islamic accounting in the last five decades equate ribā with interest and argue that Islamic Sharı̄ah squarely forbids
interest. A review of the Islamic accounting literature, for instance, shows that the majority of the writings assume that ribā is
synonymous 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 Qurān and the sunna treat interest
as an act of exploitation and injustice and as such it is inconsistent with Islamic notions of fairness and property rights’ (see
also Lewis, 2001 for similar statements). Earlier writings have also made similar categorical pronouncements on the issue of
ribā/interest. Abdel-Magid (1981, p. 81) in an attempt to investigate the implication of Islamic banking theory on accounting
maintains that ‘Ribā, fixed interest in any form, is prohibited by the Qurān’. Tomkins and Karim (1987, p. 103) also make
such general and definite statements about the prohibition of interest: ‘The Sharı̄ah categorically outlaws ribā, translated
strictly as usury, but interpreted universally as the prohibition of charging any interest at all on loans’. The study builds on
the opinions of Muslim scholars like Mawdudi in its understanding of the complete ban of interest who argues that ‘interest
disturb the balance between production and consumption’ (Tomkins & Karim, 1987, p. 104). Similarly, Murtuza (2002, p.
n/a) declares that ribā ‘should not be equated only to interest-based lending but it should include various forms of fraud and
deception’. Maali et al. (2006, p. 267)Maali, Casson, and Napier (2006) also maintain that ‘Sharı̄ah requires transactions to be
lawful (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 ribā’ and there
is now a general consensus among Muslim economists that ribā’ 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 of
the issue) that there are differences of opinions amongst Muslim scholars on the issue of bank-interest and its unquestioned
prohibition. The paper, however, accepts the ‘orthodox Islamic position on the time value of money’, i.e. prohibition of
bank-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 but
also 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, Islamic
banks offer profit-sharing investment accounts, such that investors’ return depends on the return on the assets financed by
the investors’ fund’. Similarly Maali et al. (2006, p. 267) state ‘[R]ather than dealing in interest, Islamic banks use forms of
financial instruments, both in mobilising funds for their operations and in providing finance for their clients, that comply
with the principles and rules of Sharı̄ah’. Abdel-Magid (1981, p. 82) declares that ‘Islamic banks operate according to two
fundamental 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 so
far the majority of research in the Islamic accounting literature is reluctant to critique or even acknowledge the paradoxical
nature of Islamic banking where it claims to be interest-free banking, while in actuality its contracts and operations are
mainly interest-based.
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Similar to Islamic banking, finance and economics, the almost complete hold of Western neoliberal thought on Islamic
accounting 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-
gest accounting concepts from an Islamic point of view, they substantially still adhere to the values inherent in Western
accounting philosophy; as a consequence, many view that all conventional or Western accounting concepts can be applied to
Islamic banks’. Consequently, the majority of Islamic accounting research, while claiming to provide an Islamic worldview of
accounting (especially on the issue of interest-ban), they merely produce recommendations for technical and instrumental
adaptations to the conventional/Western accounting standards, education and practices. Examples of these recommen-
dations include, for instance, the revision of accounting courses at universities to ‘introduce the accounting problems of
noninterest banking’ (Abdel-Magid, 1981, p. 99); separation of auditing and reporting procedures between the conventional
activities of the banks and its Islamic one or further (internal) reports on issue of risks, competitive position and market
attractiveness; keeping a separate account for zakāt funds, a separate set of records for investment deposits and producing
value added statements in addition to the conventional income statement (Abdel-Magid, 1981; Tomkins & Karim, 1987;
Hamid, Craig, & Clarke, 1993; Baydoun & Willett, 2000).
In more practical terms, the regulatory bodies responsible for developing Islamic accounting standards like AAOIFI
(Accounting and Auditing Organization for Islamic Financial Institutions), the main body developing Islamic accounting
standards globally today, have also opted without exception to develop Islamic accounting standards that adopts ‘the
objectives of (Western) financial accounting currently available in contemporary accounting thought that are appropri-
ate for Islamic banks provided that any objective violating the Sharı̄ah precepts is excluded’ (Karim, 1995, p. 289–290). This
approach was justified by the ulamā involved in the consultation process on the ground that it is ‘acceptable from a Sharı̄ah
perspective. . .Therefore, there was no reason to refrain from considering what was available in contemporary accounting
thought’ (Karim, 1995, p. 290). As a result, Maurer (2002) explains that AAOIFI’s, has mainly concentrated on develop-
ing accounting standards emphasising technical and instrumental concerns related to interest-ban and Zakat calculations.
Further, the body has had a significant role in promoting Islamic banking products and legitimising them as interest-free.
5. CMI’s thought and Islamic law (Sharı̄ah)
Islamic accounting and banking concepts and practices claim to build on Sharı̄ah (Islamic law) (Kuran, 2006; Kamla, 2009).
The total ban on bank-interest by the idealists and traditionalist ulamā is mainly presented to be adhering to clear Sharı̄ah
rulings on the issue as discussed above. Furthermore, Sharı̄ah law plays a key role in many Muslim countries in regulating
some or all aspects of people’s life including finance (El-Gamal, 2003)8 . Thus, before presenting the views of CMIs on the
issue of ribā and bank-interest in particular, it is important to view their overall worldview regarding Islamic Sharı̄ah, as this
worldview informs their position on the issue of ribā.
One common theme amongst CMIs is their criticism of traditional ulamā’s emphasis on Sharı̄ah (Islamic law) as the sole
basis for interpreting and applying justice and as basis for governance in society. They argue that in order to address deeper
issues like the meaning of justice there is a need for an equal or even larger emphasis on theology (kalām) (Vakili, 2001).
For many CMIs, like Abdalkareem Soroush for instance, ‘the concept of justice itself cannot be defined by reference to the
Qurān alone. Justice includes a conception of humanity, of what it means to be human, and of what rights humans enjoy. This
conception must accord with religion, but it cannot be defined on the basis of the religious text alone’ (cited in Vakili, 2001,
p. 159). Thus, justice is not only understood through religious debates but requires combined efforts from philosophical,
metaphysical, political and religious discourses. Governance and justice in society requires more than religious law but
should be also based on modern sciences such as economics and sociology. These methods, according to Soroush, ‘must not
violate 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 efforts
of religious scholars and jurists but the involvement of teams of interdisciplinary backgrounds and debates amongst the
whole of the community (Rahman, 1982). In this context, Islamic philosophy and Islamic law could incorporate insights
from Western scholarship in the human sciences (Kersten, 2011). Indeed, the work of CMIs departs significantly from
other Islamists positions on authenticity vs. modernity. They advocate a ‘satisfactory balance between a living faith and
an uncompromising modern vision’ (Hopwood, 1998, p. 9). They perceive the outright rejection of anything Western by
Islamists on the grounds of cultural imperialism to be as essentialist as the attitudes of those who uncritically embrace
the Western civilization in all its aspects and do not subject it to critical examination (Kersten, 2011). For CMIs, there is
no need to ‘suffer’ modernity but to contribute to it in ‘a context that is in harmony with the indigenous culture’ (Cooper,
1998, p. 38). The purpose for them is to ‘renew religious concepts and to keep them alive as valid responses’ to the problems
of postmodernity (Hopwood, 1998, p. 9). Their ability to blend their deep knowledge of Islamic heritage and Western
philosophy and social science allow them to reject the ‘assumed binary opposition of tradition versus modernity’ (Kersten,
2011, p. 10). CMIs, therefore, are representing new possibilities for a modernity vision that could be ‘both authentically
Islamic and effectively modern’ (Esposito & Voll, 2001, p. 17). Thus, a common strand of CMIs’ thought is their advocacy of a
multi-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 thought
in line with the demand of the contemporary context) (Kersten, 2011). CMIs emphasize the importance of Islamic religious
schools to open up, incorporate and critique the findings of modern science, particularly social science and contemporary
philosophical discourse. They are highly critical of the lack of Islamic philosophical discourse whether in civil rights, morality
politics or economics. They argue that the failure of the Muslim world to contribute to international scientific communities
is a result of its inability to ‘universalize their values and legal system’ (Cooper, 1998, p. 49). CMIs are also critical of the
tendency of Islamists to ignore the rich Islamic heritage accumulated over a millennium and a half in favour of what is
perceived ‘the authentic Islam’ practiced by the ‘Pious Ancestors’ (al salaf al-Salih) in the first century of Islamic era (seventh
and eighth century CE) (Kersten, 2011).
CMIs, thus, reject Islamists calls and attempts to form Islamic States or Sharı̄ah law that are based on literal reading of
the Qurān and the other authoritative sources like the sunnah, and consensus (ijmā) (Abu-Zahra, 1998; Cooper et al., 1998;
Kersten, 2011). They maintain that Islamists who claim that Sharı̄ah is unchangeable and require its application as it was
practiced in early Islam are contributing to isolating Muslims, hindering socio-economic change in Muslim societies and are
are using these debates for their own political advantages. CMIs point out that an historical examination of Sharı̄ah reveals
that it developed over time and changed along the different cultures that Islam encountered after its rapid expansion. Sharı̄ah
law, 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 Qurān
corporate, do not correspond identically to the circumstances of contemporary Muslims (Abu-Zahra, 1998). According to
one of the CMIs (Husayn Ahmad Amin), severe lack of reform to Sharı̄ah law in the contemporary Muslim world is related to
Muslims’ 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 of
historical, political and social conditions of the very Islamic heritage and society (Abu-Zahra, 1998)9 . The traditional and
conservative ulamā in particular hinder changes to Sharı̄ah and claim that it meets all the demands and requirements of
the modern Islamic society, while at the same time they devise ways in order to avoid its application (Islamic banking is
one good example). This is because, according to Amin, Sharı̄ah is the only source of authoritative power left to these ulamā
(Abu-Zahra, 1998). With the expansion of the State-made laws as well as the changes in customs and cultures in different
regions, the ulamā “custodians of the Sharı̄ah” had only personal law as well as two segments of Sharı̄ah law related to
the ‘five pillars’ of Islam and hudūd (sing., hadd) (the specific ordained punishments stipulated in the Qurān for crimes like
adultery, theft, banditry, consuming alcohol, apostasy and slander) to cling to and control (Rahman, 1982)). In this context,
the ulamā has lost sight of the historical contexts of these Sharı̄ah provisions (Rahman (1982). CMIs in general criticize the
ulamā for overlooking the thoughts of prominent Muslim scholars like Al-Ghazali who treated fiqh in a much ‘broader sense
of 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 Sharı̄ah; the actual rules and teachings
presented in the Qurān and the traditions of the Prophet to guide Muslims in their lives’) especially in the use of qiyās method
is 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 inferences
and will never be adequate for the needs of the Islamic mission (Esposito & Voll, 2001, p. 130)10 . For CMIs, there is a need
for a ‘new fiqh’ that will ‘transcend the limitations of the old. . .and contain a radical expansion of a traditional method of
analysis’ and a continuous questioning of received ideas. It is a fiqh (or ijtihād) that is open for the requirements of Muslims
contemporary life. It is a fiqh that is not imprisoned in the literal meaning of words and is based on the one concept that
relates 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 ulamā (and even some Muslim modernists) to
portray the Qurān and sunnah as providing clear Islamic principles and ruling to many areas of people’s lives represented in
Sharı̄ah are ‘considerably less than half the truth and. . .dangerously misleading’ (Rahman, 1982, p. 20). The coming section
will elaborate in more details on the methodological approaches of one of the most influential CMIs, Fazlur Rahman. Rahman
views, as we will see below, depart significantly from traditionalists and conservatives’ dominant views in general and on
the 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 methodology
towards approaching the Qurān and the Prophetic tradition, particularly their hermeneutics11 . Rahman, in his monograph
9
Amin identified many incidents in the history of Muslim societies where Sharı̄ah rules were applied differently in different places, suspended or not
obeyed. Yet Muslims keep claiming that they accept only Sharı̄ah 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 qiyās ‘linking a particular case with another particular case’ (Filali-Ansari, 1998, p. 168) method
that was used in early Islam to resolve issues that the Qurān and Sunnah did not touch upon. CMIs reject these limitations and proposes that Muslims
should 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 prominent
Muslim feminists’ work like Fatima Mernissi and Leila Ahmed, who used his hermeneutical methods in their interpretations of Qurānic and sunnah
injunction on the issue of women.
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Islam and Modernity: Transformation of an Intellectual Tradition (1982) proposes a specific strategy, that is, to read the Qurān
and the Prophetic tradition as one unified unity “weltanschauung”. This method allows for analysing the Qurānic revelation
and the Prophetic career against their historical background, that is, the Arabian society in which Islam first arose. Rahman,
thus, views the Qurān as a response to that situation, mainly consisting of ‘moral, religious, and social pronouncements that
respond to specific problems confronted in concrete historical situations’ (Rahman, 1982, p. 5). His espousal is highly valued
as one of the greatest steps towards a methodology that ‘strikes an almost perfect balance between text [the Qurān] and
context [the Arabian context of Mecca and Medina]’ (Hallaq, 1997, p. 241–242). This adequate balance is thoroughly evident
in Rahman’s evaluation of the historical value of the gigantic bulk of the Islamic tradition, which is presented by Muslim
jurists of the early classical to the late medieval known as jurisprudence (fiqh). Rahman takes no exception in a thorough
understanding of the Meccan social, economic, and tribal institutions. This is ‘necessary in order to understand the import of
revelation for the purpose of universalizing it beyond the context of the Prophet’s career’ (Hallaq, 1997, p. 242). In Rahman’s
view, the early jurists were responsible for ‘a fragmented view of the revealed source [Qurān]’ (Rahman, 1982, p. 3–4). In his
opinion, ‘both traditional legal theorists and the exegetes treated the Qurān verse by verse, and the Sunnah report by report’
(Hallaq, 1997, p. 241–242).
The Qurān, Rahman (1982) argues, does not provide many general principles. It gives detailed solutions and rulings to
specific historical issues, these ruling are ambiguous but the rationale behind them can provide basis for general principles
(Rahman, 1982). Rahman (1982, p. 32) views Islamic law as ‘not strictly speaking law’, it embodies moral principles that
are not enforceable in any court and further, the legal aspects of it are merely ‘endless discussion of the duties of a Muslim
rather than a neatly formulated code or codes’. Thus, despite that Islamic law has become rigid and inflexible and uniformly
applied throughout the Muslim world (which gave this world its homogeneous character), in fact it is largely ‘a body of
legal opinions’. In other words, ‘a system of law or even a variety of legal systems can be created on the basis of this body of
opinion, 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 and
ambiguous rulings but by referring them back to the general principles of Islam. Rahman (1982, p. 20) puts forward his
suggestions of the method that should be used when deducing laws and institutions from the Qurān and Sunnah. The
process of interpretation proposed by Fazlur Rahman consists of ‘a double movement, from the present situation to Qurānic
times, then back to the present’ (, p. 5). Rahman (1982, p. 6) explains that before studying the ‘specific text in the light of
specific situations, a general study of the macrosituation in terms of society, religion, customs, and institutions, indeed, of life
as a whole in Arabica on the eve of Islam and particularly in and around Mecca. . .will have to be made . . . Throughout this
process the regard must be paid to the tenor of the teaching of the Qurān as a whole so that each given meaning understood,
each law enunciated, and each objective formulated will cohere with the rest. The Qurān as a whole does inculcate a definite
attitude towards life and does have a concrete weltanschauung; it also claims that its teaching has “no inner contradiction”
but coheres as a whole’.
CMIs including Rahman base Sharı̄ah law on ethics and the common good, that is known as by the juristic legal concept
as maslaha of people gives it a consistent view and avoid arbitrary usage (Filali-Ansari, 1998). It makes Sharı̄ah law merely
‘a reference system for law [rather] than a complete and closed system of commandments’ that allows Muslims who have
faith in the Qurān and want to live by its guidance to do so in a coherent and meaningful way (Filali-Ansari, 1998, p. 170;
Rahman, 1982). Thus, law derived from Islamic teaching should never be separated from the ethical essence of the Qurān and
Islamic heritage. This mixing together between law and morality is what makes Islamic law unique and different to law in a
modern sense. Islamic law is thus ‘a treasure of legal materials thrown up during long centuries of endless discussions, upon
which modern Islamic legal systems can certainly build, but only a part of which can ever be enforced in court’ (Rahman,
1982, p. 154). The centrality of ethics to Islamic law guarantees that the law is always governed by morality, which attempt
to protect it from manipulation. Indeed, morality is the essence of the overall social system with its religious, political and
economic institutions and not just the legal system (Rahman, 1982). The link between the legal system and Qurānic morality,
however, does not mean that the legal system should remain static and unchanged or even divine. Rahman (1982) argues
that because the law deals with the day-to-day lives of people where social change happens, it needs to be continuously
reinterpreted. Failure to engage continuously with reinterpretation will eventually mean that society will stagnate or move
towards secular law.
6. CMIs and Rahman’s methodology: Implications for the ribā and bank-interest debate in accounting and
banking
In light of CMIs and Rahman’s thought and methodology, a contemporary interpretation of Islamic texts in relation to
the issue of ribā/bank interest requires striking a balance between the text and the context. To achieve this, the following
subsections will attempt to: (I) Employ a methodological approach where a ‘double movement’ method from the present
to Qurānic times and back to the present; within the ethical and moral umbrella of the Qurānic message. (II) Analyse the
Qurān and prophetic career against historical background (Arabian society of 6th Century); (III) Provide a rationale to the
detailed solutions and dealings in the Qurān to reach the general principles (establish reasons for certain ethical and legal
rulings). (IV) Base the debates on the issue of ribā/bank interest on the Qurān 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 ribā in
contemporary Islamic accounting and banking domains. Next sections will elaborate on the rational behind the prohibition
of ribā in 6th century Arabia and (go back to the present) to discuss the implications on today’s Islamic banking and accounting
thought and practices.
6.1. Rationale behind the prohibition of ribā in 6th century Arabia
The Qurān has many verses that condemn the economic injustice of sixth century Meccan society and denounce ‘the
profiteering and stinginess of the rich, and their unethical commercial practice such as cheating in the weight and measure-
ments etc.’ Condemning ribā 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 Qurānic account on
the issue of ribā is treated in a chronological order (Rahman, 1964). The verse of surah al-rum (Q. 30:39), which is presumed
to be the first of the revelation embodying the criticism of ribā, was revealed during the early years of Mohammed’s prophecy
(Rahman, 1964):
And whatever you invest by way of ribā so that may increase upon peoples wealth, increases not with God; but what
you give by way of zakāh 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 ribā; it does not
yet declare it legally which it could eradicate this evil’ (Rahman, 1964, p. 3). When Islam became politically dominant after
the Prophet’s migration to the city of Medina, ribā was categorically prohibited in the following words:
O you who believe, do not consume ribā with continued redoubling and protect yourselves from God, perchance you
may be blissful’ (Q3: 130)
Finally, ribā is addressed by severe threats for the transgressors in the verses of Surah al-Baqara:
Those who consume ribā shall not rise except like the one who has been struck by the Devil’s touch. This is because
they say that selling and ribā making are one and the same thing, whereas God has made selling lawful and has
forbidden ribā. Whosoever receives an admonition form his lord and desists, he shall have his past gains and his
affair is committed to God; but whosoever reverts- those are the inhabitants of the Fire, therein dwelling forever.
God destroys ribā but makes alms prosper. God loves not any guilty ingrate but those who believe and do deeds of
righteousness, and performs the prayer, and pay the alms—their reward awaits them with their lord and no fear shall
be on them, neither shall they grieve, O ye who believe protect yourselves from God and remit what is left of ribā if
ye 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 ye
only knew’ (Q2: 274-80)
Rahman explains that ribā in the Arabian context during which the revelation took place was operated in this way; ‘if
the man owned another debt, at the time of its maturity the creditor would ask the debtor: will you pay up or will you
increase? If the latter paid up the creditor received back the sum; otherwise the principle was increased on the stipulation
of the further term’ (Rahman, 1964, p. 5). In this form of ribā (or what is called ribā an-nasiah), of pre-Islamic Arabia, the
deferred 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 a
dire financial situation’ (Salleh et al., 2012, p. 12; Ebrahim et al., 2012). Thus, for Rahman (1964, p. 28) reviewing the Qurānic
verses along the historical context of Arabia establishes the following definition of ribā (ribā an-nasiah): ‘is an exorbitant
increment whereby the capital sum is doubled several-fold, against a fixed extension of the term of payment of the debt’.
What constituted ribā, 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 ribā by means of law is
evidently 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 being
able to return the principle’ (Rahman, 1964, p. 6). Rahman (1964, p. 5) concludes from chronologically examining these
Qurānic verses on ribā that: ‘(1) The ribā of the pre-Islamic days was a system whereby the principle sum was doubled and
redoubled through a usurious process; (2) Because of this process of doubling the principle, the Qurān refused to admit that
ribā was a kind of a fair business transaction; and (3) While permitting the commercial profit the Qurān encouraged the
spirit of cooperation [as] opposed to that of profiteering’.
Saleem (2006), while mirroring Rahman’s understandings, perceives that examining the ribā concept in the context of
6th century Arabia elicits a distinction between commercial transactions, non-commercial transactions and charity. Saleem
explains 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 from
rich people, who in turn were able to charge exploitive rates of interest. For Saleem this is what was meant by usury/ribā in
the 6th century Arabia context, where the principle debt of the poor lender was doubled and tripled, threatening the lively
hood of these people and society at large. In these cases, the Qurān encourages and advises the rich to provide interest-free
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loans to those in need and forgive their debt if they cannot repay. Saleem (2006), therefore, argues that there should be a
distinction between interest on loans for personal consumption and on loans for investment. Balala (2010, p. 64) agrees with
Saleem’s rational. She explains that as ‘money lending took place in both the pre- and post-Islam Arabia, the prohibition
of ribā could not have been intended to discourage money lending, for reports have it that prominent companions of the
Prophet were well-known moneylenders’. Balala (2010, p. 64) in return extends the understanding of the concept of ribā
beyond loans: ‘ribā–which . . . is neither defined nor limited to the form a transaction takes (money lending) or to increased
returns (charging interest or receiving gains from loans). Ribā . . . is any illicitly or inequitably elicited gain—the fundamental
distinction between a valid and invalid contract’ (Balala, 2010, p. 64).
In a similar fashion, Shahrour (2009, p. 210)12 rationale and interpretations of the Qurānic texts question the traditional
views that forbade interest unconditionally and argues that the Qurān ‘does not categorically and unconditionally prohibits
the charging of interest’. What is prohibited is the ‘exorbitant profit through charity’. However, profit through trade is
allowed (Shahrour, 2009, p. 210). Shahrour reads the verse ‘God has blighted usury and made alms-giving fruitful.’ (Q.
2:276) to addresses the poor and the needy who cannot pay their debts. Thus, Shahrour argues that society is obliged to
support its poor and needy without expecting any return, that is, the interest (ribā). However, Shahrour stresses that this
verse does not address every individual in the society as a whole. Rather, there are other members of the society who can
repay their debts but without any accumulation of interest. In this case, they only owe the sum borrowed, with no payment
of interest (this being the midmost point between the positive upper limit and the negative lower limit). The Qurānic basis
of this financial policy is the following verse: ‘If a debtor is in stained circumstances, then [let there be] postponement to
[the 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). The
remaining segment of the society, presumably the great majority, does not qualify for the exclusion, for they are sufficiently
wealthy. The pillar of support of the economy, Shahrour argues, is the merchants, industrialists, farmers, skilled professionals
and their like, who if they happen to need to borrow money, can repay it with interest and without any harm coming to
them. But in no case shall the debtor pay an amount of interest that is larger than the principal he borrowed. In other
words, the cumulative interest owed shall in no case exceed 100% of the original loan, irrespective of the debt’s duration.
This represents the positive Upper Limit, defined by the following Qurānic verse: ‘O you who believe! Devour not usury,
doubling and quadrupling [the sum lent]’ (Q. 3:130) (Shahrour, 2009, p. 213; Hallaq, 1997). Shahrour further questions
the traditionalists’ understanding of the (Q.2: 275), which contains the following clause ‘but God has permitted trade and
forbidden usury’. He asks whether this particular verse mean the outright prohibition of interest? Shahrour points out that
the answer is stipulated in verse (Q. 2:276) that immediately follows: ‘God will deprive usury of all blessings, but will give
increase for deeds of charity; for him He loves not creatures ungrateful and wicked’. Shahrour interprets this particular verse
to mean that (Q. 2:276) ‘prohibits the payment of interest on money given in charity but allows recipients of charity to earn
income through trade’. God has thus permitted trade for recipients of charity. Contrary to Shahrour’s understanding, the
traditionalists’ approach/interpretation of (Q. 2:275) is restricted to the account that God has unambiguously allowed all
types of trade while forbidden all types of interest (ribā). In Shahrour’s evaluation ‘such an unqualified statement would
imply that, before Allah’s revelation concerning trade and interests all trade was forbidden and all types of interest were
allowed which would, of course, be historically untrue and economically absurd. Instead, Allah wanted to clarify the position
of recipients of charity’ (Shahrour, 2009, p. 214). If God had not allowed people to trade with profit, then, we would eventually
be in a ‘grotesque situation in which every businessman ought to check whether his trade partners are entitled to charity
or not; if so, the partnership would have to cease immediately’ (Shahrour, 2009, p. 214). Shahrour views that in order to
avoid such a chaotic and counterproductive ‘trade arrangements and to separate trade from charity the Qurānic verse Q.
2:275 was revealed’ (Shahrour, 2009, p. 214). This Qurānic verse undoubtedly had ‘a huge impact on society since it allowed
welfare organizations, hospitals, charity banks, mental institutions, old people’s homes, and such to receive charity money
regardless of their commercial and financial activities’ (Shahrour, 2009, p. 214).
In addition to the Qurānic verses mentioned above, traditional ulamā build their verdicts on the prohibition of bank-
interest on Hadith and Sunnah and perceive them to provide explanation to the Qurānic verses on the issue. They insist that
‘the prohibition of ribā is not to be limited to usury practiced in the pre-Muhammad societies (Ribā al jahiliyya)’ as illustrated
in (Q3: 130): but to pertains to all money lending transactions: i.e. ‘ribā entails a prohibition of usury, compound interest as
well as any increased returns on money lent’. The ulamā derive these unequivocal interpretations from mainly two saying
of the Prophet’s: (I) ‘gold is to be paid for by gold . . . like for like, equal for equal, payment being made on the spot’. Greater
emphasis, however, is often given to another saying by the Prophet: (II) ‘Every loan that attracts a benefit is ribā’ (Balala,
2010, p. 74). Balala explains that despite that the authenticity of saying II is in question, the ulamā link sayings II to I and
find these to be sufficient bases to ban any increase on loans or interest in all forms. Rahman points out the problems on
depending on these two Hadith to ban all forms of bank interest. He explains that while the basic moral idea underlying
the Qurānic prohibition of ribā 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 University
of Damascus (1972–1999). Since 1990 Shahrour contributed five major monographs in Arabic expressing his radical views on the Qurān and the Islamic
intellectual tradition in a serious attempt to accomplish a new understanding of the authoritative sources (Qurān and .hadı̄th) in a modern and progressive
context. Shahrour’s contribution has been regarded as ‘impressive in that it offers both depth and range, virtually unparalleled in modern writings on the
subject’ (Hallaq, 1997, p. 246).
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contradictions and inconsistencies apparent in the tradition attributed to the Prophet and the ‘evolutionary trend in this
literature 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 .t āb (one of the Prophet’s companions and 2nd Khalifah) where he
wished that the Prophet had clarified explicitly what is the legal status of ribā. Rahman (1964) also elaborates in much detail
on 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 ribā. For Rahman,
as the Sunnah and Hadith records are contradictory on the issue of ribā, attempts to define ribā through Hadith have been
unsuccessful. This, for Rahman, does not mean that these attempts should be ignored, but means that understanding the
meaning of ribā should mainly refer back to the spirit of justice and equity in the Qurān. In any case, Rahman argues that in
the context of 6th Century Arabia these interpretations do not make sense. Why would a lender, where ribā was rife, lend
out 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 transactions
that incorporate credit transactions (including loans), sale and leasing become equivalent to ribā when they are inequitable
and exploitive. Loans, being commercial transactions, therefore, are ‘eligible to draw a benefit from the transaction just as
any other commercial transaction’, subject to application of the Islamic principle of equity (Balala, 2010, p. 65). Thus, the
illegitimate ribā transaction is distinguished from the legitimate trade transaction through its substance and effects, i.e. if it
is 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 be
on the ‘general Qurānic teaching’, which he understood to aim at developing ‘the maximum of co-operative socio-economic
justice’. Rahman perceived that the economic system, which the Qurān requires us to establish should be based on ‘the spirit of
co-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 have
grave social inequities (and closer to the spirit of what ribā meant in the Qurān) than bank-interest such as landlordism,
feudalism, profiteering and hoarding’ (Rahman, 1964, p. 28). Like Rahman, Shahrour links the issue of ribā with the very
high degree of universality related to social justice embodied in Islamic legislation that is implicit in God’s revelation. He
points out to how traditional jurisprudence (on the issue of ribā and beyond) ‘has sacrificed this universally in favour of very
narrow cultural and nationalist agendas that reflect particular political interests more than they do the universal ethical
message of the Book’ (Shahrour, 2009, p. 215). The solution for such a dilemma is proposed in Shahrour’s suggestion ‘We
propose to disentangle Islamic legislation from the narrow cultural perspective of seventh-century Arabia and to replace
it with a universal perspective which allows cultural diversity beyond the specific legal parameters on the ancient Arabian
Peninsula’ (Shahrour, 2009, p. 215).
The inability of the ulamā today to interpret the issue of bank-interest in light of the contemporary banking system meant
that their understandings are limited to early jurists’ knowledge of credit sale, where the role of financial intermediaries was
different and economics, as a field of inquiry, was not yet developed (Ebrahim et al., 2012). Contemporary ulamā, 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 sector
of the economy as it is contingent on the elasticity of demand of an asset being sold’. The failure of the traditionalist ulamā
to develop an economic rationale related to the prohibition of riba¯ is, therefore, significantly influencing more serious and
urgent 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 investment
borrowers. 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 any
price-mechanism performs’ (Rahman, 1964, p. 27). These contemporary understanding has led Rahman and others to argue
that ‘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 ‘harmful
consequences’ on economies and societies in the Muslim world. These harmful consequences include the increased cost of
credit 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 of
bank interest as practiced by Islamic banks is contrary to the spirit and intentions of the Qurān and Sunnah as the ban hinders
these institutions from meeting the welfare of society. Balala (2010, p. 82) further explains that the importance of charging
interest 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 from
some 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 him
that I could find only an “excellentc̈amel 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 the
time of the repayment of the loan the Prophet added [some money] in excess of the principle borrowed’.
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all interest bearing loans whatever the purpose’. Such prohibition will mean that hardly anyone would be willing to lend
his/her money with a loss to increase others’ wealth. This defies human nature and counters the Qurān’s requirement for
justice and equity (Q.2: 279). The rich, would rather invest their money in their own business or give some for charity but
not extended to commercial loans for fear of committing ribā. This, for Balala (2010) will have serious implications on social
justice and equity in society.
The dominance of the idealist and conservatives’ views on the ribā discourse in the Islamic world is, therefore, creating a
paradoxical and even ‘dishonest’ business and economic environment (El-Gamal, 2003; Kamla, 2009; Ramadan, 2009; Kuran,
2011). The prevailing practices of the Islamic finance industry ‘whilst compelled not to charge interest explicitly, elicit ‘profit
margins’ and ‘fees’ of various kinds and amounts under the guise of ‘profit-sharing’, ‘service fees’ or ‘rent’ (Balala, 2010, p.
62; Ebrahim et al., 2012). Profit margins, (unlike interest rates that are often capped) are unregulated, giving institutions
including Islamic banks ‘a blank cheque to charge uncapped fees on their financial products in the name of ‘profit’ that may
in effect be unjustifiably high and inequitable’ (Balala, 2010, p. 82). For El-Gamal (2003, p. 123) the divergence between the
fiction of Islamic finance (of being interest-free banking) and its reality is giving rise to the ‘paradoxical nature of Islamic
finance’14 . Kuran (2011, p. 150) also explains that while there was a widespread recognition of the unfeasibility of interest-
ban in the Islamic world, direct challenge to the ban was avoided and the ‘fiction that eliminating interest is both desirable
and possible’ remained until this day. The Islamic society and the Muslim individual are living these contradictions. A Muslim
person receiving Islamic education is told that interest is un-Islamic. However, the majority of people in the Muslim world
deal with interest as a matter of course without noticing this contradiction or reflecting on its morality. In Muslim countries
that claim to follow Sharı̄ah and where interest is illegal (like Pakistan and Sudan), the State itself facilitates this duplicity
through ‘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 ribā, does not mean that usurious practices do not exist in the current
banking and finance system and that they should not be banned. In the context of the current financial crisis, the debate
of what is socially useful or just should always adjust to time and context (Balala, 2010). In the current finance market
system, there are serious concerns about manipulations and abuses related to resources’ allocation to a limited privileged
segment of society, hindering entrepreneurial capabilities and economic developments. Exploitive contracts terms, market
manipulation 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 where
banks charge up to 20% on credit card loans to customers not able to make repayments on time (poorer customers), this is
despite limits imposed of rates of interests on many parts of the worlds. Ebrahim (2009) provides examples of how the poor
are disadvantaged in the home/mortgage market, facing high cost of funding and getting their homes repositioned. Ribā,
therefore, is ‘not today limited to those transactions depicted in the traditions of Muhammad; it is a much broader concept
that was simply exemplified (then) by those forms of (inequitable/inefficient) transactions’ (Balala, 2010, p. 71). The inherent
characteristics of the neo-liberal financial system generally, despite apparent regulations, is susceptible of financial crises
due to excessive volatilities and exploitations. Interest is an essential part of this system (Salleh et al., 2012). Still, attempts
to address injustice in Islamic banking and finance, should go beyond the technical issue of bank-interest and concentrate
on the whole economic system.
From the above, traditionalists ulamā and Islamic financial institutions’ ‘misunderstanding of the concept and principle
behind ribā’, has led to confine ribā to ‘certain forms and practices’, which consequently relieved Muslims and Islamic banks
from more pressing ‘moral obligation to conduct themselves equitably in all commercial and personal interactions with
others’. Instrumental and technical issues dominated Islamic financial institutions’ concerns. The concept of Ribā eventually
became 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 ribā was never meant to be and should not be ‘carved in stone’. Any policy
regarding ribā derived from the text should respond to the economic and social needs and the ever-changing rules of society
and commercial markets (Shahrour, 2009; Balala, 2010). Linking these considerations with the Qurānic pronouncement on
ribā requires, therefore, ‘a flexible banking system which can incorporate, if need be, interest on loans provided that the
limits set by Allah are observed, but which can also prevent interest being charged at an exorbitant rate (usury)’ (Shahrour,
2009, p. 210). Following from this rationale ‘the principle of ribā could be used to regulate commercial loans in such a way
that whilst inequity is prevented, interest may be legitimately charged. This would be in line with the verse of the Qurān
that prohibits the taking of ribā ‘double and multiplied” (Balala, 2010, p. 82).
In addition, innovative solution to improve co-operative and welfare aspects of finance within society should continue
to be developed in order to enhance economic development and make sure that the poor and disadvantaged are not totally
excluded from the financial system (cf. Ebrahim, 2009 on the possibilities of housing finance cooperatives with net con-
tractual interest rate of zero). Contemporary CMIs like Tariq Ramadan make similar calls today for Muslims to shift their
14
According to Kuran (2011) conservative ulamā are failing to acknowledge that there was no point in time in the Islamic history or society where a
genuine interest-free economy existed. The only aspect related to the prohibition on ribā that was strictly enacted is prohibiting enslavement for debt.
Otherwise, Kuran (2011) maintains, dealers in interest in Islamic history have rarely experienced prosecution or convention. The Qurān itself does not
prescribe punishment for dealing with ribā on earth. Forms of innovative contracts to conceal interest existed historically and gained the approval of Islamic
jurists (Kuran, 2011).
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emphasis from ‘retooling’ themselves with “lawful” techniques and practices to be more serious about reflecting on their
consciences 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 Qurānic
teachings 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: in
effect, 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 of
economy’. The political upheavals in many Muslim countries today are clear indications to the populations’ dissatisfaction
with 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 conventional
accounting 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 accounting
thought or practices nor question the essence of these practices. Quite the opposite, the majority of the Islamic accounting
literature 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 economic
system and its institutions have smoothly incorporated Islamic accounting into its mainstream practices, with professional
bodies like ACCA and CIMA devoting training courses and certificates in Islamic accounting, taking advantage of the Islamic
finance 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 are
made dynamic and responsive to modern concerns in the Islamic world and beyond, without compromising religious/or
Islamic 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 Islamic
faith but also sensitive to the cultural context that this faith is practiced. In the meantime, the process needs to remain open
to advances in the contemporary context and social sciences in general. CMIs main contribution to accounting/Islamic
accounting would be in making historicity and contextualization integral to accounting research in order to understand
the forces that shape or change the forms that accounting can take. Accounting practices are, in this context, understood
as dynamic and changing departing from the dominating objective, technical and economic logic dominating mainstream
accounting/Islamic accounting.
Approaches to Sharı̄ah rulings in Islamic accounting should move away from the fatwa approach: what is lawful and what
is not lawful, to adopt a ‘new fiqh’ approach that is free from literal interpretations and rather considers the spirit of Islamic
values combined with the concern to construct accounting practices and standards that satisfy the contemporary needs of
people and in line with the common good of all. The “new fiqh” approaches proposed by CMIs enable Muslim researchers
in accounting to free themselves from restrictions imposed on them by conservative and traditionalists’ understandings of
Sharı̄ah. 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/alternative
accounting based on radical interpretations of the Qurānic injunctions on the economy in line with the demands of the
contemporary environment but also in line with the general Islamic principles. The new fiqh’ approaches advocated by CMIs
like 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 Islamic
accounting thought and practices to move away from the traditionalist unconditional prohibition on the charging of interest
in all its forms and rather emphasis that the welfare of all members of society. This will require setting interest charges that
meet the limits of the Qurān and avoid exorbitant rates that make this interest equivalent to ribā/usury. Further, in order to
achieve a more just and equitable society there is a need for Islamic accounting to address economic practices that are in
the current context more responsible for social inequity and injustice than the charging of banking interest. These standards
and 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 more
established 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 engagement
with the critical accounting field (as well as in other disciplines) can help them reinstate ethical principles to accounting
behaviour, which has long been lost in conventional accounting. Inspiration from CMI’s thought and methodology equip
Muslim 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 from
its historical and social contexts (Hopwood, 1983, p. 290). These perspectives often result in adopting an orthdoxical and
conservative 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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be effective in challenging injustices or bringing change to the status quo. A cooperation and linking between CMIs thought
and critical accounting will go beyond the technical issues related to current economic/accounting systems or the structure
of development models and focus on finding alternatives and question the essence, the substance and the goals of current
accounting models. The coherent and universal Islamic teachings call for this kind of global cooperative contribution by
Muslim intellectuals; rather than the current initiatives that isolate Muslims’ intellectual efforts under banners such as
“Islamic” accounting, banking or economics.
7. Conclusion
Critical Muslim Intellectuals (CMIs) propose a radical renewal agenda that questions and challenges the established
traditional authority, sources and approaches to Islamic law (jurisprudence). They offer bold and innovative vision and
propose solutions to practically transform the Islamic world and beyond. This paper has employed the thoughts of these
CMIs (especially those of Fazlur Rahman) to discuss the issue of ribā and bank-interest in Islam. The paper introduced
challenging debates to the historically established and authoritative traditionalist opinions in reference to the issue of ribā
to the accounting literature. While, interest/ribā per se has never been the central point of contention to CMIs as, for instance,
in the juristic and the contemporary traditionalists’ discourse, their thoughts and methodology aid in discussing the ribā issue
in a broader framework that is aimed at constructing a contemporary interpretation of the Qurānic verses that addresses
the issue of bank-interest. CMIs’ ability to re-define the sources of authority, the spiritual and ethical objectives of Sharı̄ah
has the potential to create more space for radically interpreting and understanding the issue of ribā in the Qurān and its
application in today’s global environment. The paper, therefore, adds to the body of literature in Islamic economics, finance
and accounting, which aims at providing contemporary proposals towards a contemporary understanding of bank-interest
in a global economy.
Rahman’s and other CMIs like Shahrour and Ramadan contributions on the issue of ribā/interest echo some responses
from Muslim economists and even Muslim scholars on the issue (cf El-Gamal, 2003; Kuran, 2006, 2011; Ebrahim, 2009;
Ebrahim et al., 2012; Salleh et al., 2012 to mention some). CMI’s main contribution, however, lies in their methodologies,
where they employ ‘structured notions of textual/contextual analysis where emphasis is placed upon a humanistic law that
is suggestively and generally guided, and not literally and textually dictated, by the divine intention’ (Hallaq, 1997, p. 254)15 .
The paper has shown that the literalist approach of traditionalist ulamā and their failure to take the context of Arabia and
the contemporary context of the Islamic world into consideration have resulted in an increasingly rigid interpretation of
the Qurānic and Sunnah sources on the issue of ribā. So far, CMIs’ conceptions and methodology remain alien to majority of
Muslims and face major resistance from mainstream and traditional legislative powers in the Muslim world (Hallaq, 1997).
Many ordinary Muslims today still sincerely believe that the Qurān has prohibited all forms of interest for all times (Saeed,
2011). According to El-Gamal (2003, p. 116), a main obstacle to serious and honest debates on the issue of bank-Interest
and ribā in the Islamic world is due to the domination of rhetoric employed by ‘amateur and professional jurists’ in Islamic
finance which ‘continues to obscure the relevant facts’ and hinders the emergence of Intellectual debate on the issue. CMIs’
methodological approaches to the Qurān and Islamic texts can provides an opportunity for the Muslim public to discuss the
issue of ribā and interest in an honest and intellectual fashion rather than the ‘rhetorical’ and ‘simplistic’ debates dominating
the Islamic world on the issue.
The approaches of CMIs, especially Rahman, imply a need in the Islamic world to debate the issue of ribā/interest in line
with the general ethical philosophy of Islam. This entails that the Islamic banking and finance industries, along with Islamic
banking and accounting standards, practices and research, should move away from attempting to design and engineer “halāl”
products that in legal forms seem “interest-free”; while, at the same time, aspire to create an environment where Islamic
banks and financial institutions can achieve the same profit levels of conventional banking and finance counterparts (Kuran,
2006; Ramadan, 2009). Instead, the Islamic banking and finance industry (along with Islamic accounting practices and
research) should concentrate on higher Islamic ethics and goals that define objectives and meaning of economic activities
(Ramadan, 2009). Indeed, CMIs’ thought lead to questioning the fields of “Islamic” economics, finance and accounting beyond
the ribā/interest issue. CMIs’ interdisciplinary and inclusive approaches to knowledge, science and humanity imply a concern
with an Islamic ethical approach to the economy (and accounting) rather than distinguished “Islamic” ones (cf. Ramadan,
2009). Their approaches promote a more holistic approach to developing economic and accounting practices that achieve
better socio-economic justice beyond the limited scope of what is today called “Islamic economy” or “Islamic accounting”
concerned mainly with instrumental and technical tools to reject interest, calculate tax (zakāt) and design Profit–Loss sharing
contracts.
So far, the limited and technical Islamic accounting agenda has ignored issues of poverty and environmental tragedies
in the Muslim world and beyond. Muslim accountants wishing to adhere to Islamic principles and teaching need, rather,
to expand their fields of enquiry to study ‘real-life experiences—which raise questions about our development and con-
sumption models, our utilitarian relationship to nature, and our ecological carelessness’ (cf. Ramadan, 2009, p. 234). Muslim
accountants 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 texts
(Hallaq, 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 for
a genuine egalitarian socio-economic alternative to the neoliberal economic model rather than claiming a unique Islamic
accounting or economic model. CMIs’ interdisciplinary and critical approaches can provide a useful methodological and
conceptual framework for accountants/Muslim accountants to achieve this goal.
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ACCFOR-310; No. of Pages 15 ARTICLE IN PRESS

Contents lists available at ScienceDirect

Critical Muslim Intellectuals’ discourse and the issue of

∗ Corresponding author. Tel.: +0044 7731321507.

2. The issue of ribā in contemporary traditional thought

3. The issue of ribā and the Islamic banking industry

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

5. CMI’s thought and Islamic law (Sharı̄ah)

5.1. Fazlur Rahman: Methodology and approach

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

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

6.3. Implications for Islamic accounting

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