The Art of Islamic Banking and Finance: Tools and Techniques for Community-Based Banking

  • Book Title:
 The Art Of Islamic Banking And Finance
  • Book Author:
Yahia Abdul-Rahman
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In 2009, John Wiley & Sons called me, stating that they were looking for n American to author a book on RF (riba-free) Islamic finance and bank- because most books authored on the subject, until then, were in fact authored by authorities who live outside the United States.

I welcomed the idea. The Art of Islamic Banking and Finance was published in 2010. I am thankful to all those readers who chose to buy the book and who were kind enough to critique and rate the book on

We at the LARIBA RF Movement, are most indebted to God, the Lord of all people, for creating this opportunity to publish the book, to make it successful worldwide and to help popularize the RF Movement. This move- ment aims at inviting people of all religions, nations, and beliefs to live riba free.

This RF lifestyle is a lifestyle that is free of debt, of overconsumption, of trying to use extravagance and “cool” looks to impress others, and of thinking that money can be rented at a price called interest by using credit cards, excessive borrowing, and the equity of one’s home as a source of extra money to extinguish consumptive spasms created by slick advertising campaigns.

The RF Movement is out to popularize a new RF lifestyle—a lifestyle that is free from the abuse of credit cards to consume more. It is a movement that promotes the goal of paying debt as soon as one possibly can. The movement also entices students, the leaders of the future, not to take the easy way out by borrowing their tuition using student loans. The RF Movement promotes that it is better for a student not to borrow money, find a part-time job, and graduate in six years debt free in contrast to gradu- ating in four years with the heavy burden of debt.

The second edition includes:

  • Many of the recommendations and feedback that were received from many of the readers of the first edition. I thank all of those readers who invested their time to carefully read the book and to communicate their critiques, valuable feedback, and insightful advices to me.
  • Rearrangements of chapters to present the new ideas that cast a new light on the RF banking, finance, and monetary disciplines presented in the book for the first time in the history of RF Islamic banking. This, I hope, will make these RF disciplines and the real added value of applying the

RF banking, finance, and monetary disciplines crystal clear. For example, Chapter 5 in the first edition was divided into two chapters—Chapters 5 and 6. In addition, a new Chapter 12 was added to integrate and wrap up all the research findings, the RF disciplines, and the pioneered models pre- sented in the book and how this integrated process is applied in practice.

  • New chapters added to cover:
    • RF capital markets to include a detailed study of financial products that were not fully covered in the first edition of 2010.
    • The financing products available in the riba-based conventional bank- ing and their applicability in an RF domain.
    • How to handle nonperforming loans in an RF setting based on the 10-year RF operating experience at the LARIBA Bank of Whittier since 2003.

It is hoped that the reader of this second edition will find these additions enriching and most useful:

  • A set of review questions at the end of every chapter. These questions can be useful to students if the book is taught at a university campus. The review questions also will help give an intriguing quick insight about what to expect to learn by reading each of the chapters.
  • The use of a dedicated website for the book. See the page at the back of the book for details.

Now to a personal note and some words of advice:

In 2014 at the age of 70, I want to leave a message to the new genera- tion of RF bankers—Muslims and non-Muslims—before I return to God:

  • Try your hardest; never lose hope, which is a manifestation of believing in God; and try your best by starting from the idea that it is possible to achieve what others tell you is impossible.
  • Remember that we, the believers in the RF lifestyle, are not out to dis- credit nor do away with the riba-based banking and finance system. We are out to offer an alternative lifestyle and system that we hope will shine when contrasted with the riba-based system.
  • Never give up or feel defeated when you face a setback or if you could not achieve a dream. You will be criticized by Muslims and non-Muslims with good intentions and sometimes from people who lack experience and vision for the future. Never let these criticisms get you down. Listen carefully and fix the problems they bring to your attention as much as you can within the limitations at hand. Never discount the criticism of others to your work. Always pay respect and close attention to what others say about your work—good and bad.
  • Always associate with the optimists and the constructive well-meaning criticizers, but never hate those who criticize you or position them as your enemies. Remember never to burn your bridges with others. You will never know when you will need others in the future.
  • Communicate with people in the language they understand, including presenting RF banking disciplines, products, and contracts in a way that can be easily compared, evaluated, contrasted, and litigated with the riba-based conventional banking and finance disciplines.
  • Continue to build institutions and not a one-person organization. Insti- tutions live for generations, but one-person shows expire when that man or woman disappears from the scene.
  • Hold to your RF beliefs and disciplines and always be frank, sincere, and straight in your communications with the public; what comes out of the heart reaches people’s hearts.
  • Deal with all people with a humble attitude and respect. Never be boastful about what you, your staff, and/or your company have done by serving others in the community. Never complain because people do not appreciate your work. The ultimate goal you and we all should be working for is to please God.
  • Remember that when it seems that it is over, God will bring His rescue from the least expected source.
  • Make sure never to use ruses and circumventions of the RF disciplines and the law, including the laws of the land.
  • Always be clear in explaining the added value of the RF disciplines. Remember that the RF Movement is out to serve all people: Jews, Chris- tians, Buddhists, Sikhs, Zoroastrians, and those who do not believe.

Remember that no one, regardless how pious that person is, holds the keys to paradise and to God’s kingdom. We are all servants of God and His people, who were created by Him. We at the RF Movement are thankful because the first edition of this book made it to the top 10 bestsellers list in its category on the book list for a period of over six months. The book was bought by many customers around the world—in the United States and Canada, as well as in many countries around the world, mainly in Asia and Europe.

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The success of the book prompted John Wiley & Sons to issue another printing in 2012, and with the success and the almost sellout of the second printing, it was decided to produce this expanded second edition.

Our hard work in publicizing and promoting the book worked. John Wiley & Sons, thankfully, did its share of marketing the book in the media by arranging radio and print media interviews and Internet publicity. To complement these efforts, we at the RF Movement decided to create a road

show to present the book to universities, government regulatory authorities, and different communities around the world. The book was presented with signing events in many cities in the United States, Canada, Europe, Asia, the Middle East, and Africa.

In the United States, we arranged book-signing seminar events at the Uni- versity of Wisconsin; California State University in San Bernardino; University of Southern California; Southwest Law School in Los Angeles; University of Texas at Dallas (UTD); Bradley University in Peoria, Illinois; Whittier College; George Washington University; and Columbia University, to mention a few. We visited most states’/provinces’ major cities in the United States and Canada.

Internationally, book-signing events were conducted in many countries around the world.

In the United Kingdom, we presented at Oxford University, London School of Economics, and Durham University. In addition, we presented the book to the communities in Manchester and in East London at one of the larger Islamic Centers of London.

 These events were arranged by my dear friends, gifted RF monetary regime researcher Tarek El Diwany, and Afzal Chaudhary, who has moved to Manchester from southern California after retirement. We at the RF Movement thank them for their efforts and sincere help.

In the rest of the world, the book was presented at many universities and many government financial authorities in Malaysia, Singapore, Turkey, Saudi Arabia, Egypt, United Arab Emirates, Lebanon, Tunisia, Jordan, Switzerland, South Africa, Ethiopia, Argentina, and Trinidad. In addition, the book was promoted in Kazakhstan, where we had a successful full-service RF banking operation—LARIBA Bank of Kazakhstan—from 1993 to 2006.

 The bank was sold in 2006 due to the new excessive capital requirements of the government at that time because we simply did not have $100 million. LARIBA Bank of Kazakhstan was the first bank ever in the history of Kazakhstan and the former Soviet republics in Central Asia to introduce and publicize, using TV interviews and lecture series, mortgages in general and, for that matter, RF mortgages.

The book was also introduced and promoted by the Egyptian Islamic Banking and Finance Association. It is important to note the successful introduction of LARIBA—LARIBA Misr Al Arabiya—in Egypt between 2004 and 2010, when its services were temporarily frozen due to political turmoil that led to the events that took Egypt to the January 25, 2011, revolution. It is worth mentioning that half of its finance portfolio was given to members of the Egyptian Coptic and Christian community business entrepreneurs.

It is also useful to report that after the book was released, LARIBA Bank of Whittier opened up a full-service RF banking branch in the City of Richardson, Texas (about eight miles north of Dallas). The new branch, under the able leadership of Mohsin Mandavia, has contributed greatly to our cause and our RF Movement. We all want to thank the Texas commu- nity for their wonderful and enthusiastic support of the RF Movement.

To conclude, please remember that “the best of all people are those who benefit people through serving their needs with love and good intentions” as taught by Prophet Muhammad (pp ).

The Faith-Based Judeo-Christian- Islamic Foundation of the Prohibition of Interest and the RF (Riba-Free) Banking System

This chapter studies in some detail the fundamental issue of the prohibi- tion of riba (interest) in Islam and researches its foundations by tracing

it back to its origins in the Jewish and Christian faiths and Bibles. An intro- duction to the religion of Islam is included at the beginning of this chapter to familiarize the reader with an overview of the fundamental foundation of Islam as revealed in the Qur’aan, the teachings of Muhammad (pp) as well as its links to the revelations to the teachings of Moses (pp) and Jesus (pp). Charging interest (called riba in the Qur’aan and ribit in the Torah)

is divinely prohibited in Judaism and Christianity as it is also clearly and strictly prohibited in Islam. That is why it is believed that this can pre- sent the followers of the Abrahamic faiths (Judaism, Christianity, and Islam) with a wonderful window of historic proportions to cooperate together to bring to market a credible, efficient, fair, and equitable financing and bank- ing system—The RF (riba/ribit-free) banking and finance system—which uses the Judeo-Christian-Islamic RF banking and finance discipline.

It is important to study, learn, and reflect upon the history of the prohibition of interest from the original teachings of Moses (pp) in the Torah (Jewish Bible), the teachings of Jesus (pp) in the Christian Bible, and the teachings of Muhammad (pp) as revealed in the Qur’aan to discover how these atti- tudes and disciplines developed over time and eventually produced the more relaxed interest-based banking and finance practices used today.

The main reason for the prohibition of ribit/riba—the prohibition of renting money to those who need it—is to prevent those who have money from taking advantage of and abusing the freedom of the poor and the needy. Slavery became rampant among the Hebrews in ancient Egypt because of the charging of ribit on loans needed by those who did not have the money to buy seeds or to meet their daily needs.

When Moses (pp) came to free the Hebrew slaves, he was taught by God to remove ribit from society as revealed in the Torah and later explained and elaborated on in the Talmud by the learned rabbis. It is interesting to note that the rabbinical laws do not allow a Jewish person to stand as a witness in a Jewish court if he is involved in usury/interest. The prohibition of riba/ribit started the transformation process of societies and nations to freedom.

It empowered the Hebrews to move out of Egypt behind the leadership of Moses (pp) by crossing the Red Sea to establish new settlements and farmlands. When Jesus (pp) was com- missioned to preach God’s teachings, the society he was sent to consisted of people who lived in an agrarian society with slavery being practiced. Jesus (pp), as revealed and taught in the Bible (Injeel—the name used for the Bible, in Arabic, among the Muslims), propagated the principle of prohibiting the use of renting money to the poor and the needy as a tool to enslave them and to eventually confiscate their collateral properties, including agricul- tural lands of the farmers if they could not pay their debt back as agreed.

 It is interesting to note that in the early days of the Catholic Church, a Catholic who participated in usury/interest through charging it or receiving it is denied a Catholic burial. When Prophet Muhammad (pp) was commis- sioned by God, the world was experiencing the dawn of the commercial era and international trade. Islam taught, reinforced, and made into law the principles of prohibiting ribit/riba, which involves the rental of money at a price called usury or interest rate and the use of money to take advantage of the unfortunate circumstances of people by confiscating their freedom and eventually turn them into slaves if they do not pay back the principal and usury (riba or interest) at the agreed-upon time. In addition, and in order to meet the demands of the new society of expanding trade and international business, Islamic teaching started a business revolution to define the disci- plines, regulations, and rules needed for riba-free business and trade financ- ing, as revealed in the Qur’aan and according to the teaching of Prophet Muhammad (pp).

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In Christianity, it is interesting to note that according to the First Cen- tury . . oral tradition of the Pharisees (a Pharisee is a member of an ancient Jewish sect, distinguished by strict observance of the traditional and written law, and commonly held to have pretensions to superior sanctity) as com- mitted to writing in Mishnah Sheqalim 1:3–6, money changers who had “set up in the Temple” exacted “surcharges” for their services. In Christianity, Jesus Christ (pp) stated that one of his goals is to drive the money changers out of the Temple (John 2:15–15; Matthew 21:12–13; Mark 11:15–18).

S. C. Mooney, an author and a leading contemporary Protestant oppo- nent of interest on money, states: “What is being argued here is not a new

 The Faith-Based Judeo-Christian-Islamic Foundation 17

idea, or a new interpretation of Scripture. It is the historic position. This is not a call to strike out in a new direction; it is a call to return to faithfulness to God. . . .”

It is also interesting to note that under the Biblical concept of the Jubilee (the word Jubilee in the Hebrew Scriptures means a year of rest to be observed by the Israelites every 50th year, during which slaves were to be set free, alienated property restored to the former owners, and the lands left untilled), no indebtedness would last longer than the sabbatical seventh year. Visitors to Philadelphia, Pennsylvania, will notice that the key Jubilee pass- age from Leviticus (25:10) was engraved on the Liberty Bell in Philadelphia by the founders of the United States of America.

History also documents that as late as the fifteenth century, movements abounded to eradicate the renting of money for a price called interest—in other words, to prohibit usury. For example, during the time of the Protec- torate that administered the kingdom under England’s first fully Protestant monarch, the boy-king Edward VI, the laws of England were returned to their immemorial Catholic position on usury, last implemented by the English Catholic King Henry VII in 1495. All interest on money was declared illegal. The Protestant Edward VI’s law banning usury is one of the most stirring documents authored against usury. It is interesting to note that King Henry VII’s prohibition of usury in his realm was overthrown in 1545 by his son and successor, King Henry VIII.

As an adherent to Islam and not to Christianity nor to Judaism, the author felt that it would be more appropriate, fair, and credible to study the prohibition of the charging of usury (charging interest to rent money in Judaism and Christianity) is to ask an expert scholar who is also an adher- ent to each faith and who has demonstrated expertise in the field of finance to summarize the position and the original teachings of his/her faith on usury/the charging of interest on money. It was thought that it would also be useful to discuss how these clear theological injunctions that prohibited the charging of usury/interest were modified, diluted, and/or reconstructed to become in the current acceptable form and which led to the practice of freely and openly charging interest on money.


This section is thought to form an important foundation to one of the goals of this book, which is to offer a Judeo-Christian-Islamic solution to the problem of renting money at a price called interest rate. It is an introduc- tion to Islam, with an emphasis on how Islam ties itself by the revelations of the Qur’aan to the teachings of Abraham and all his descendants, including Moses (pp) and Jesus (pp).

The basic foundation of faith in Islam is belief in God; in all of God’s prophets, including Prophet Abraham (pp ) and his children Ishmael (pp) and Isaac (pp) and their descendants; and in subsequent appointed proph- ets, including Joseph (pp), Moses (pp), Jesus (pp), and Muhammad (pp). A Muslim is a person who submits his/her will to that of God. A Muslim believes that the “people of the book” (as the Qur’aan refers to them) are those brothers and sisters in Judaism and Christianity who received a book of guidance and discipline of living from God: the Torah in the Jewish Bible, the Gospel in the Christian Bible.

It is important to note that part of the creed of a Muslim is that he/she must believe in Moses (pp) and Jesus (pp). Moses (pp) liberated the Hebrews from the slavery practiced against them by the ancient Egyptian Pharaohs and God spoke to him and gave him the Ten Commandments, which were further developed into the Jewish Bible. On that part of the experience of Moses (pp), the Qur’aan2 reveals:

4:164 Of some apostles We have already told thee the story; of others We have not; and to Moses God spoke direct;

Jesus (pp) was later commissioned to revitalize, deepen, and expand on the teachings of Moses (pp). He taught the words of God and set the ulti- mate example of offering himself in sacrifice in order for the world to stay the course and for him to leave behind a shining example for all generations to come. This was recorded in the Qur’aan as follows:

3:45 Behold! The angels said: “O Mary! God gives thee glad tidings of a Word from Him: his name will be Christ Jesus, the son of Mary, held in honor in this world and the Hereafter and of (the company of) those nearest to God.

As the world grew, its resources diversified, and its people started travel- ing to chart new local and international trading routes (resulting in growth in trade and commerce), the Prophet Muhammad (pp) was commissioned by God to expand further on the teachings of Moses (pp) and Jesus (pp) and to offer the people of the world at large a universal working model and various disciplines on how to live, raise a family, build a community, govern, and conduct business with each other.

Prophet Muhammad (pp) was a revolutionary, like Moses (pp), lead- ing a movement to free the slaves and remove slavery of the body and the soul from Arabia and the world. He worked hard to educate and liberate the pagans in Arabia and the rest of the world, to set them free by worship- ping only one God.

He also followed and built on the example of Jesus (pp) by intensifying people’s commitment to God; by softening people’s hearts toward those who are poor, deprived, underprivileged, and in need; and by standing up in righteousness to those who abused their riches and powers in the name of religion to take advantage of the helpless poor, the underprivi- leged and the needy. In doing so, he made it easier for people to live together in peace, with justice and fairness for all.

With the emergence of the Roman/Byzantine Empire and the Persian Empire as the two leading superpowers during the time of Prophet Muhammad’s (pp) mission, he was commissioned to offer the world, through the revelations of God’s words in the Qur’aan and his living model (the Sunnah ) a detailed exam- ple of a living prophet who was a spiritual leader, the head of a state, and a businessman.

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His actions and model of living were all fully documented because he was commissioned in the light of history brought on by the invention of paper and the printing press. He acted as a prophet and as a shepherd (like Jesus [pp] and Moses [pp]) and as a political leader and as head of the state defense forces. He expanded his responsibilities to offer a role model for being a successful merchant, an accomplished money manager, and an admired and trusted investor.

Michael Hart, who was born in a Christian family,4 states: “He [Prophet Muhammad (pp)] was the only man in history who was supremely successful on both religious and secular levels.” While studying the Qur’aan and the style of living (the Sunnah) of the Prophet Muhammad (pp) depicted in the vastly researched, meticulously authenti- cated and documented body of his sayings (the Hadeeth ) and his traditions and story of his life (the Seerah6), we learn about similar models of living offered by Moses (pp) and Jesus (pp). Prophet Muhammad’s life expanded on the examples of Moses (pp) and Jesus (pp) to demonstrate how to live in the more complex world of the sixth century. This new world included more sophisticated communication systems, transportation methods, and trading routes, as well as new businesses, more integrated markets, and expanded villages and cities—and a more sophisticated monetary and economic system. We read in the Qur’aan:

2:136 Say: We believe in God, and in that which has been bestowed from on high upon us, and that which has been bestowed upon Abraham and Ishmael and Isaac and Jacob and their descendants, and that which has been sent to Moses and Jesus; and that which has been sent to all the [other] prophets by their Sustainer: we make no distinction between any of them and it is unto Him that we sur- render ourselves.7

42:13 The same religion has He established for you as that which He enjoined on Noah—that which We have sent by inspiration to thee—and that which We enjoined on Abraham, Moses, and Jesus.

The religion of Islam as understood from the Qur’aan and the tradi- tion of Prophet Muhammad (pp) reinvigorated the basic religious concepts brought by Abraham, Moses, and Jesus. Being a Muslim means to submit our will to the will of God by worshipping only Him and by abiding by His injunctions, which He revealed to all His prophets.

Conceptually, Islam can indeed be looked upon as part of an encom- passing Judeo-Christian-Islamic tradition that extends back to the father and patriarch of all prophets, Abraham (pp). One well-read American Muslim stated that he researched all religions and philosophies to find a faith to which he could adhere. He concluded that Islam was it for him because it did not take away from him Moses (pp) and his Jewish beliefs in the Old Testament or his Christian beliefs in Jesus (pp) and in the Bible.

He said that Islam, to him, was the umbrella that covered all and included all God’s prophets and messengers. He added that Islam was to him like a tent that brought under it, in one house, the teachings of Moses (pp) in Judaism and Jesus (pp) in Christianity; it did not discredit these teachings, but rather intensified, reinforced, and deepened them.8 This concept is exactly what is meant in this book by the Judeo-Christian-Islamic lifestyle.

The original teachings of Judaism, Christianity, and Islam prohibit lend- ing money and charging interest/usury (the original word usury was used to mean paying a rent for the use of money; the meaning was changed to mean, in today’s language, lending at an excessive interest rate), ribit (which means an increase over the original amount of debt, in the language of the Old Testament), and riba (which also means an increase, in the language of the Qur’aan).

It is also interesting to note that charging interest is prohibited in Buddhism, Hinduism, and many other faiths and philosophies.9 Muslims are taught that participating in the culture and practice of charging and/or paying interest (charging interest on lending money, borrowing with interest, and witnessing contracts that involve interest) is divinely prohibited (haram) and is one of the worst sins by the Islamic—that is, the Judeo-Christian- Islamic—laws (the term that will be used throughout this book for Judeo- Christian-Islamic law is Shari’aa, “the law”).

The act of borrowing money with interest (riba) is not a socially and religiously acceptable behavior. In a typical Muslim society, borrowing money and paying interest is reserved only for meeting a dire need, and it is socially considered a shameful act.

Charging interest is also divinely prohibited in Judaism and Christianity. It is important to study, learn, and reflect upon the history of the prohi- bition of interest from the original teachings of Moses (pp) in the Torah

 The Faith-Based Judeo-Christian-Islamic Foundation 2

(Jewish Bible) and the teachings of Jesus (pp) in the Christian Bible with an eye toward how these attitudes developed into the more relaxed practices involving the renting of money (interest/usury) of today.

It was felt that a more appropriate and credible approach to studying the charging of interest in Judaism and Christianity is to ask an adherent to each faith who is an expert in the field of finance and banking to summarize the position and the original teachings of his/her faith on the charging of inter- est, and then to discuss how these clear Judeo-Christian-Islamic injunctions that prohibited the charging of interest were modified and reconstructed to become the current acceptable practice of charging interest.

In March 2002, the board of directors of LARIBA in Pasadena, California, invited a Jewish rabbi, a Catholic professor, and a Protestant professor to author and present papers on the subject. The following is a summary of their analysis. The next section starts with a summary of the foundations of what I call the Judeo- Christian-Islamic value system and beliefs, followed by an analysis of the prohibition of interest/usury in Judaism, Christianity, and in Islam.


The following is a brief summary of the building blocks needed to develop a unified understanding of our approach and to study various religions and their position on charging interest.

The Book

Jews: People of the Jewish faith abide by the Jewish Bible, which is called the Torah and is referred to and is acknowledged in the Qur’aan. The people of the Jewish faith believe that it is the book revealed by God to Prophet Moses (pp). It is considered to be the main source of the Jewish law.

Christians: Adherents to the Christian faith abide by the Christian Bible. The Christian Bible comprises the Jewish scriptures in the Torah, which Christians traditionally refer to as the Old Testament, as well as documented writings from the period of Jesus (pp) and just afterward, which are referred to as the New Testament. The New Testament includes four versions of the life of Jesus (pp); each one was written by one of the saints of the Christian faith (St. John, St. Mark, St. Matthew, and St. Luke). The Bible also contains letters from Jesus’s (pp) early disciples to various communities and groups; these letters elaborate on the teachings of Jesus

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