3 Questions YOU need to ask about any “Shariah-Compliant” financing

In light of the lack of consensus regarding the actual Sharia-compliance of many financing products that claim to be so (1), and because not everyone can leave their day job to become an expert on the subject, here are 3 simple questions that anyone can answer which will, God willing, steer them in the right path:

  1. When you try to justify using the product, is the only argument you can make: “they have a sharia council that approved it”?

If you can’t convincingly articulate how a product provides a substantively different experience than another product you know to be prohibited in Islam, I’d stay away.

Albert Einstein famously said: “If you can’t explain it to a six year old, you don’t understand it yourself.” (2)

And if you don’t understand how a personal financing product is Sharia compliant, it’s probably not. Trust your judgment and don’t be intimidated by the beard length of someone who swears its Sharia compliant. With all due respect to people who sit on Sharia-boards, but Sharia compliance is not rocket science. The reasons for why a certain product is “Islamic” should be readily explainable and understandable to anyone.

I’ve created some additional mental tools to assist the average Muslim consumer in doing just that. e.g. 3 ways to identify Riba.

  1. Would you still buy this product if Sharia-compliance wasn’t a consideration? 

If the answer is no, then the product is probably not Sharia-compliant.

It is impossible that Allah, the most compassionate the most merciful, will ask His believers to use a product that is inferior in utility to other products on the market. Especially if the product it’s inferior to, for example a traditional loan, is prohibited in Islam because it’s considered unfair to the consumer!

I say it’s probably not Sharia-compliant because it is always possible that the product contains benefits that are unknown to you or that you just have bad judgment. Both these possibilities are relatively small since:

1- Whoever is selling the product will make sure you are aware of every single possible feature and benefit of their product, even the very far-fetched ones.

Case in point, I was watching a promotional video for an “Islamic” financing solution and they mention, quite enthusiastically, that they will share their customers any loss incurred from “Eminent Domain”. I admit I didn’t know what that was so I looked it up. Turns out, Eminent Domain is the power of a government to acquire private property for public purposes (3). Really? How often does that happen? Also, this was an American company and nowhere in the video did it mention that “Just compensation” from the government to the property owner is already guaranteed in the U.S. Constitution! (4)

2- People wise up over time. You may exercise bad judgment the first time you choose a product, but the second and third time? It’s unlikely if you have alternatives.

If you’re unsure about how to answer the question: would you still buy this product if Sharia-compliance wasn’t a consideration? Ask the question in a different way: Does the product have non-Muslim customers? If the answer is no, there is a good chance you are just buying the words “Sharia-compliant” that were used when they marketed the product to you. Otherwise, if the product was superior to alternatives, some non-Muslims would have seen this and bought the product. Especially if the product is being offered in a predominantly non-Muslim country!

  1. What do state and federal government agencies think?

If the company’s disclosure documents include the words “loan” and “interest” that’s because the government thinks the product is these things and requires the company to use this terminology. This is not a matter of government bureaucracy or people in the government not having the mental capacity to understand the genius behind this particular “Islamic” financing product.

What likely happened is the government looked at the product, read the terms, and said something along the lines of “yeeaaah I’m not sure what exactly you crazy Muslims are up to but this sure as hell seems like interest-bearing debt to us and you need to make this clear to your customers.”

For example, in the United States, if you were truly paying “rent” or some other euphemism commonly used to disguise interest-bearing debt, the IRS wouldn’t require the people receiving “rent” payments to disclose how much they received in interest from you last year.

So the next time your weighing whether or not to buy a product that claims to be “Sharia-compliant” make sure you ask yourself the above 3 questions. If one or more of the answers doesn’t check out, trust your logic, and make your decisions accordingly.

References

  1. International Monetary Fund, Regulation and Supervision of Islamic Banks, Page 15, December 2014, Prepared by Alejandro López Mejía, Suliman Aljabrin, Rachid Awad, Mohamed Norat, and Inwon Song. http://www.imf.org/external/pubs/ft/wp/2014/wp14219.pdf
  2. Good Reads, http://www.goodreads.com/quotes/19421-if-you-can-t-explain-it-to-a-six-year-old
  3. Legal Dictionary, http://legal-dictionary.thefreedictionary.com/eminent+domain
  4. Cornell University of Law, https://www.law.cornell.edu/wex/eminent_domain

2 Comments

  1. ASA WRB brother. I’m sure you have good intentions inshallah but unfortunately it’s not sufficient to address the nuanced subject you so confidently write about. It would benefit you to gain more knowledge about this subject from experts before you start coming up with over simplified proclamations. Reading various write ups of yours from your blog here left me shaking my head in dismay so many times it made me dizzy. Often times I didn’t even know where to start attempting to correct, almost like trying to swallow an elephant…there’s no real good position or angle to start from due to the enormity.

    While those who may be less familiar with the home financing industry and Islamic finance / economics might lend a ear to some of the cliched line of thinking contained in some of these write ups but those with more thorough knowledge of the subject will know better and see through the superficial understandings of the subject or the lack of depth of their realities in the real world industry. Most laypeople realize that not every Tom, Dick, or Harry on the street can be an expert at everything or pass judgement judiciously against an entire class of experts despite their claims. While you give Einstein’s attributed (but not authentically sourced) quote “If you can’t explain it to a six year old, you don’t understand it yourself” to make your point, I think this quote is much more fitting here…Make things as simple as possible, but not simpler.”

    Of course, you probably want examples but I’m reluctant because I fear any discussion will just continue down the path of misunderstandings that are already present. I know that sounds unfair for me to criticize and not cite examples and may be it is, but as I said earlier, it seems as daunting as trying to swallow an elephant. Suffice it to say, that if you had to look up as common a subject as “eminent domain” (I appreciate your honesty), don’t know how often it’s used by government or agencies, and think just because there’s some text for a constitutionally required “just compensation” that it’s a non-issue, etc…you are concurrently underinformed and overly confident, which is never a good combination.

    Having said the above, I applaud your cautious stance toward many of these “shariah compliant” claims (though you sometimes throw the baby out with the bath water due to not being able to distinguish between what is what). My advice to you is that since you obviously have some ambition and passion for the subject, maybe start formally learning, even part time and prepare for a CSAA and/or CIPA certifications. This will at least ensure that you have a foundation of some sort on the subject and thereafter if you still have some eye opening solutions or unique perspectives, you will be taken more seriously after having made the investment in to knowledge.

    Please forgive me for anything that may have offended you, that was not my intent…it was more aimed at letting others know the importance to have a strong background in something before making bold statements as well as perhaps motivating you to consider getting more educated in the subject. May Allah Taala guide us all to that which pleases Him and protect us from all that incurs His wrath, aameen.

    With brotherly salaams,

    Abu Safiyy

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    1. My dear brother Abu Safiy,

      While I was reading your comment I was eagerly waiting to get to the part where you mention an argument that would challenge any specific claim or comment that I made in my blog or videos. I searched your comment quite thoroughly but couldn’t find any. As such, I am forced to think that you didn’t provide a counter argument for the simple fact that you couldn’t. Needless to say, I do not respect your claim that providing a counter argument would be like swallowing an elephant, it sounds like a cop out to me and something that someone with nothing to say would claim.

      As for your attempt to cast doubt on my level of expertise, I think the strength of my arguments speak for themselves. You’ll have a much better chance of convincing me and the readers that I am indeed not an expert by providing a valid counter argument to something I’ve claimed which I wholeheartedly invite you to do.
      Finally, I will remind you of verse 2:111 from the generous Quran: “…Say: give me your proof if you are indeed truthful”.

      WsSalam.

      Like

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