History

History Of Islamic Banking – Part I 

Islamic financial system was started during the time of the prophet Muhammad S.A.W. In fact, the Prophet himself is a businessman in Mecca and was called by the Meccan “Al-amin” - meaning an honest and sincere people. He was hired by a wealthy business owner, a widower - Khadijah and later married to at the age 25 year old whereas Khadijah was 40 year old. The great Irish philosopher, George Bernard Shaw said once about Muhammad S.A.W. : "I have studied him (Muhammad) - the wonderful man - and in my opinion far from being an anti-Christ he must be called the savior of humanity." Prophet Muhammad was practicing Murabahah concept in His transactions. As we all know, Prophet Muhammad travelled a lot in conducting his businesses. He travelled to Sham (nowadays Damascus) to purchases stocks and securing the caravans from Sham to Mecca. There are threats of pirates and Bedouins during the journey between Mecca and Sham. Besides Murabahah, Prophet Muhammad S.A.W also practices Musyarakah, Mudharabah concept in his business operations. This is the starting point where the Islamic Financial System was brought to the world as promoting the spirit of fraternity and brotherhood.


History Of Islamic Banking – Part II 


It was obvious that Islam prohibits the practice of riba’ (usury/interest) as Allah said in the Holy Quran (Al-Baqarah:275): وَأَحَلَّ اللَّهُ الْبَيْعَ وَحَرَّمَ الرِّبَا ... Allah has permitted trade and has forbidden interest” The main pillar of Islamic banking is the practice of Riba-free transactions. Even according to the books of Heaven, (Torah and Bible) stated that interest was evil. In Judaism the enforcement of prohibition of Riba’ are applied only to among Jews but it is compulsory to be applied on the non-Jews (Goyyim). While in Christianity, it is more stern on the prohibition of riba practice, thus it is a sin for a lender to claim for repayment on the loan from the borrower. However, in Islam, it is permissible to claim the loan but even better to release the borrower from the debt. In conclusion, all of religions in this world are prohibit the practice of riba as it is one form of oppression towards the poor and the needy. In fact, all religions are promoting welfare, brotherhood and harmony. Therefore, the practice of riba’ may lead to other social/criminal problems. Wallahua’lam


History Of Islamic Banking – Part III 

Saint Thomas Aquinas, an Italian priest in the 13th century of the Catholic Church asserted that usury was a violation of natural moral law. He stated that putting money out for the generation of more money is an evil unto itself.

Money as defined by Aquinas is consumable goods (Goods that may be depleted or worn out by use). Therefore it is not appropriate to generate more money by lending ot to others. To illustrate the evil of interest, St. Aquinas claimed that usury or riba as a “rent” on the money given out as a loan. It is not fair to charge a rent on the money that has been depleted.


From above, we could see that, the Christians are also prohibited to practice riba'. It was considered as an evil practice since then