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Central to the Qu’ranic teaching is thepromotion of justice, which leads to peace and harmony.
Kamali says that the purpose of the Prophet’s missionwas not only mercy to mankind, but to all of God’screatures.
He says that in order to attain these objectives, whichconstitute the component parts of mercy, we musteducate the individual, establish justice, and realizebenefit (maslahah) for the people.
We must follow the Rules on Counter-Values in IslamicFinance to create justice.Both counter-values must be certain and may eitheroccur both at the time of transaction or one now andone later, however, not both in the future.
In the case of riba, the variance in certitude between thetwo counter-values, the interest on the one hand andthe opportunity cost on the other hand, constitutes theessence of the injustice of imposing interest on loans.The increase over the principal, the common form ofwhich is bank interest, is certain and its amount isknown whereas the yield resulting from investing theloan by the creditor is not sure to materialize and if itdoes, its amount is not ascertainable in advance.
In a contract, which contains gharar, such as a contractbased on speculative activities, the contract mayinclude a counter-value, which is not only of uncertainvalue, but may not be realized at all.In both riba and gharar, one of the counter-values isuncertain and may never materialize and both aretherefore invalid under Shariah.Riba is an extreme form of gharar.
Islamic finance today primarily uses debt-finance,which replicates the results of Interest-Financing ratherthan using equity-finance, which promotes justice.
Asyraf Wajdi Dusuki states that (2010): ‘In contrast to debt- financing, equity-financing utilizes a profit-loss sharing mechanism based on the contribution of capital in the project or investment.’ Dusuki says that (2010): In equity- based financing, both the borrower and lender share profits and losses as compared to the case of debt- financing, where one party is made to take all the risk.’ Dusuki explains that (2010): It also promotes expansion of the economy including the development of small- to -medium sized businesses in addition to large enterprises and promotes stability in the economy and society at large.’
Equity- financing fulfills the essence of Shari’ah requirementsin Islamic banking and finance as it fulfills the counter- value(iwadh).For a contract to be valid, there should be Iwadh or counter-value present. Three elements of iwadh that should exist arerisk (ghorm), work and effort (ikhtiar) and liability (daman).In the majority of debt- financing contracts, one or more ofthese elements of Iwadh are missing. If there is no risk, effortand liability, then such a contract cannot be considered tocontain any element of justice.
Bank as a Finance House Rather than Loan House
The Islamic Banking and Finance Industry, which exists today is a sham.There is nothing moral about it. It does not encompass any of the ideals of theIslamic moral economy and has become just another branch of theconventional banking system, imitating its products and services and dishingout interest in disguised forms. It is debt-based and produces similar outcomes as interest-based financing.Shari’ah is not the base and the Tawhid (One-God) Framework is not beingutilized.The modes of finance are not musharakah and mudharabah and thus aparticipatory superstructure in society does not result.The debt finance base of Islamic finance and banking creates the same debt-trap superstructure encapsulating the neo-classical individual in his ownmisery, which exists in the conventional economy.The bank remains a loan house rather than finance house to the detriment ofthe well-being of humanity.