Why does Islamic financing look like usury? On a recent episode of Religion & Ethics Newsweekly (April 10, 2009), Hussam Qutub, Director of Communications for Guidance Residential, explained how his company helps a family purchase a home. After the family makes a qualifying down payment, the home is purchased with the family and Guidance as co-owners. In lieu of interest the family pays Guidance a monthly fee. With each payment the family makes, their ownership increases while the financier's ownership decreases. As with other financial institutions, if the borrower should default on the loan, Guidance will foreclose, but only after "trying to work things out."
Reading the final verses of the second chapter of the Holy Qur'an (Al-Baqara), beginning with verse 270, we find that the true concern in the charging of interest is its lack of charity and lack of concern for the needs of our neighbors. If a neighbor comes to us with a need, those of us who submit to God, will help without profit or benefit to ourselves. If it becomes difficult for him to repay, the devout among us will remit the debt as charity.
Those who devour usury will not stand except as stand one whom the Evil one by his touch Hath driven to madness. That is because they say: "Trade is like usury," but God hath permitted trade and forbidden usury. Those who after receiving direction from their Lord, desist, shall be pardoned for the past; their case is for God (to judge); but those who repeat (The offence) are companions of the Fire: They will abide therein (for ever). (2:275)
In trade, one agrees to pay for a product or service at a price the seller and buyer both agree is fair. In usury, one person has a difficulty that compels him to ask for help. The usurer agrees to a loan but only if the debtor agrees to repay more than what is loaned. If the debtor's difficulty continues, the usurer adds more fees until the amount of the debt is perhaps doubled or multiplied.
O ye who believe! Devour not usury, doubled and multiplied; but fear God that ye may (really) prosper. (3:130)
How is it that Islamic scholars have so clearly missed the mark on what God forbids? According to an article on Forbes.com, "Islamic Finance" (April 21, 2008), Islamic finance is booming. With only twenty men said to be qualified to determine Sharia compliance, each scholar sits on from ten to forty compliance boards and annually earns ten thousand to one million dollars for each seat. And Islamic financing is projected to grow to up to one trillion dollars in the next few years.
It is disingenuous to say that Islamic financing is investing or risk sharing. Huge profits are being generated not by the buying and selling of goods and services but by usury. Without a clear understanding of what God truly allows, some Muslims are opting not only to pay interest--cloaked as something else--but to pay at a rate higher than if they chose traditional financing.
The foundation for truly Islamic financing must be charity; it must be a system that allows those who have more than they need to assist those who would otherwise not meet their needs. It must be void of any opportunity to profit from the misery of those who are less fortunate, with only the desire to please God.
O ye who believe! Fear God, and give up what remains of your demand for usury, if ye are indeed believers.
If ye do it not, Take notice of war from God and His Messenger. But if ye turn back, ye shall have your capital sums: Deal not unjustly, and ye shall not be dealt with unjustly.