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Towards Ethical Finance - Searching for a synergy of ethical intent
6/Feb/2014     by Shaykh Ruzwan Mohammed

I have been asked to speak on some of the key value sets that inform a Muslim concept of what an ethical finance would be like, while at the same time touching on the shared vistas with the other monotheistic faith traditions and the subsequent relevance of this to the crisis of ethics that the financial sector is beset with. I would like to start though from a personal observation that, though not of direct relevance to the topic at hand, explains the manner in which I intend to frame my presentation. 

While in Konya, the city of the poet and mystic Rumi, I visited a lodge established by his students as a homage to his teachings. Its entrance leads into a commanding yet intimate courtyard that serves as a canvass for exquisite quranic calligraphy which then winds it way up around the walls towards a large opening  in the ceiling which frames the heavenly canvas above. From there one gazes in awe at the striking deep darkness of the night sky punctuated by the most piercing of stars. It is a deeply moving experience and within moments it takes one from the worldly to the sublime. But as pointed out to me by one of my teachers, in the midst of the courtyard lies a large pool of water used for the ritual ablution. As you approach it to purify yourself in preparation for prayer, you see the same heavenly canvas reflected even more clearly in the surface of the pool. For Muslims, access to illumination starts with what we do on earth.  

The 9th century scholar & jurist al-Shaybani, upon being requested to write a work on spiritual excellence and matters of the heart (raqa’iq) replied ‘I have already composed a work on Commerce which suffices the purpose.’


The Prophet of Islam (s), from an early age, made a stand against economic exploitation. Historical literature mentions an instance which later came to be known as ‘The pact of chivalry’ (hilf al-fudul). It relates to the case of a trader who arrives in Makkah, only to find himself duped out of the full value of his goods by a prominent and powerful local trader. The visitor has no authority to turn to, and so penniless he makes an impassioned plea to the collective consciousness of the population of Makkah for justice. His words do not go unheard and a meeting is called by concerned citizens of the city in which they make a pact to seek redress on his behalf. Of the people there was Muhammad (s). This incident took place over a decade before the first revelations of the Quran and recalling it towards the end of his life the Prophet (s) remarked ‘If I was called to such a meeting today I would surely respond to it.’ 

The event encapsulates what was to become a pivotal concern of Islamic law, namely the pursuit of justice (‘adl) and transparency in contractual forms and transactions. 


So what are the main value sets that inform a Muslim understanding of ethical finance? The most important of these is the search for the Common Good. Muslim deliberations on what constitutes the Common Good find their contextual home in Legal theory (usul al-fiqh) and revolve around the core values that the law was sent to both protect and promote. These are referred to as ‘The five universal values’ (al-Kulliyat al-Khams). Islamic legal ethics sees the promotion and protection of these as the fulfilment of one’s moral debt to God and society. Crucially in the context of our current deliberations, these are seen as not exclusive but inclusive of all ethical value systems. As the Spanish Muslim legal theorist al-Shatibi states:

“The entire Community agrees, nay all religious communities agree, that religious law was instituted for the protection of the five absolute essentials namely: religion, life, progeny, wealth and reason.” 


Alongside these five universals, the application of Islamic financial ethics places particular emphasis on the pursuit of equity and fairness in the formulation and implementation of contractual forms. This pursuit of equity is encapsulated in the theory of Istihsan which postulates a divergence from the letter of the law when it is shown that the letter of the law would undermine the universal axioms that define due ethical process. Equity serves to create a unison between the external statutes of the law and the higher intent of the law (maqasid) through a meditation on the ethical affect of volitional acts.


Although the area of financial contracts in Islamic law is vast, the general rule with regards to commercial contracts and transactions is that they are permitted unless proven to be otherwise detrimental to the Common Good. From an essentialist perspective, this translates into a requirement that financial transactions be free of two proscribed elements: Riba  and Gharar.

Riba literally means ‘an increase’ and is translated as either usury or interest, though neither term adequately encompasses the scope of Riba as used in Muslim legal literature. Of the many forms Riba may take, by far its most common contemporary form is the modern interest bearing loans. The prohibition of Riba also calls into question the system of fractional reserve banking as an ethical form of currency provision. But why is it forbidden? Allow me to quote directly from al-Ghazzali, the theologian ‘par excellence’ of the Muslim tradition.  

‘Riba is prohibited as it channels individuals away from undertaking direct and productive economic activity. When a person possessing capital can earn more through Riba, through either immediate or deferred transactions, it becomes more appealing for him to earn money on the basis of Riba, thereby not engendering the uncertainty of real economic activities. This hampers the wider interests of mankind which cannot be safeguarded without the practice of real commerce, industry and construction.” [al-Ghazali, Ihya, 2:132]


It may also be relevant here to point out that Islamic law makes no differentiation between exorbitant rates of interest (defined as Usury) and what may be defended as reasonable rates. There are of course those that argue in defense of charging reasonable interest based on considerations for the lender.


Amongst these considerations is the need to compensate the lender for the risk of default. Another consideration is a payment to offset ‘the privation of profit’ which would otherwise had been accrued by the lender through investing the currency elsewhere. Needless to say that neither objections necessitates the existence of interest, as securities alleviate the need for a fixed financial remuneration and ‘the privation of profit’ consideration assumes as a fact what all economists clearly recognize as false, that investments are by their nature always profitable. 

The second major prohibition in Islamic commercial law relates to contractual arrangements that lead to excessive speculative elements (Gharar). 

Gharar is an Arabic word which has an ancient root meaning of ‘a fruit of pleasant appearance but rotten core’. The poignancy of this etymology to many types of financial investment forms which are both prevalent and legal today can barely go unnoticed.


It may be understood simply as ‘trade in risk.’ As the nature of all financial contracts is the existence of a degree of risk, what is intended here is not absolute risk but an overriding risk which is a result of contractual ambiguities or elements that according to the legal theorist Ibn Taymmiyah ‘leads to dispute, hatred, and the appropriation of the wealth of others unethically.’ 


Modern examples of gharar would include trading in unbundled risk; short selling commodities; speculative transactions; trading in debts; collateralized debt obligation (CDO’s) and the derivatives market.


To conclude this quick overview of the value sets that informs Islamic commercial ethics, one can say that by insisting on a minimal ethical benchmark by which to assess commercial contracts, Islamic law seeks to limit the responsibility of an individual to act ethically by subsuming the morality of the transaction into the form and content of the transaction itself. This allows people to be safe from that which undermines the common good, while at the same time allowing people to excel in personal altruism. Significantly, this insistence on a minimal ethical benchmark eliminates the propensity of the economic system to be held to ransom by wanton acts of risk undertaken by individuals. 



In keeping with the points I have been requested to touch upon in the time allocated, allow me to mention just a few strands of the shared ethical narrative that exists between the Ibrahamic faiths and how they may provide hope for a shared response to the inequities and imbalances that mark much of the financial sector. I would like to start with Judaism as it is, like Islam, essentially nomocratic in nature.  


A survey of the scriptural sources of Judaism and Islam points us to a set of common rulings that are enshrined at the level of sacred law and which are indicative of what an unethical economic practice would consist of. We find, for example, that the Old Testament condemns all usurious transactions except in dealings with foreigners: “Thou shall not lend upon usury to thy brother”. [Deuteronomy 23:19]

One could, of course, simply say that Islam extended this condemnation of Usury to encompass the process rather than focus on the religious allegiances of the contracting participants, but this would be to ignore developments in Jewish religious thinking on usury itself. The Talmudic extensions of the prohibition of usury to what is referred to as ‘the dust of Usury’ (avak ribbit), extending to various types of rent sales and work contracts, has clear parallels with the Islamic prohibitions on gharar.  Interestingly, the phrase ‘Dust of Usury’ used by rabbinical scholars reappears in the words of Muhammed (s): ‘There will come upon people a time in which they will devour Usury. And the one that does not devour it will still be reached by the dust of Usury.’ [Ahmed & Hakim]

This ‘synergy of ethical intent’ as I like to refer to it, is not surprising given that the first revelation to Muhammed was identified at its inception as the coming of ‘The Great ‘Namus’ that came to Moses before him...’. ‘Namus’ is a word that entered the Arabic lexicon as a loan word from the Greek nomos (νόμος) and refers to the ‘Knowledge of the Sacred canons associated with Prophecy’ and is associated with the coming of the Angel Gabriel. 


Shared parallels in substantive Law extend to shared deliberations of the ultimate function the law was revealed to fulfill. In his deliberations on what qualifies a law to be referred to as ‘Divine’, the preeminent Jewish polymath Maimonides interestingly focuses not on the law's agent - God - but on its ultimate aim: that of achieving human perfection. This is the core intent [maqsid; telos (τέλοϛ)] of both legal traditions. It is worthy to note that the Muslim pioneer on legal ethics and the higher purposes of the Law, Al-Izz Ibn Abd Salam (d. 1209), passed away in Cairo only five years after the death of Maimonides in the came city.



If Judaism and Islam share a common understanding of the primacy of the Law, Christianity and Islam have a shared reflections on how God’s love should be allowed to manifest for the Common Good. Though Christianity holds that the spirit of the law has ultimate preeminence over the letter of the law, this does not mean that the manifestation of love is in anyway bereft of ethical norms that societies should be obliged to uphold. ‘He who loves his neighbor has fulfilled the Law’ [Romans 13:8] does not preclude the idea that fulfilling the dictates of a legal system cannot or does not also serve as an expression of Divine love. The fullest expression of love in a particular scenario may at the same time be the ultimate expression of justice.

For Muslims, God’s compassion, approval and love are aspects of His Beneficent Will (iradat al-in’am) which is given declarative form in the Sacred law. However this variation in theological focus between Islam and Christianity does not necessitate a variation in practical intent.

This unity of intent can be seen in the views of both Christianity and the Church over what constitutes un-ethical commerce and in particular, Usury.

Despite a lack of any conclusive condemnation of Usury in the New Testament, we find that the early Church articulated a consistent stance on usury that spanned 1400 years. From the First Council of Nicaea in the year 325 AD until the gradual relaxation on the laws of Usury during the Reformation in the 16th Century, through the efforts in particular of Calvin, the early Church viewed the practice usury as contrary to the emanation of mercy and love and, through the works of Aquinas in particular, as counter to natural law.

The church position mirrored that of early Greek philosophers such as Plato and Aristotle, who both saw usury as a contravention of the essential nature of things. The first of the scholastics, St Anslem of Canterbury posited the charging interest as the same as theft and exploitive of those in dire need. 

It is with St Thomas Aquinas, however, that we find the most articulate presentation of the Church case against Usury. He expounded various reasons for Usury being unethical, amongst them the concept of ‘double charging’, levying a charge for both the thing and the use of the thing. Mirroring Aristotelian natural law theory, he also restated Usury as unnatural. As usury is the rental of currency which is incapable of self-replication, it was against the nature of currency that it produce profit without prior investment. Later critiques of Usury by the clergy also underscore the practice as being contrary to altruism and the imperative of extending love to ones neighbour.

These criticism of a zero-ethics financial system, especially those made by the Scholastics, remain centrally relevant to any faith based assessment of what an ethical economy should be.

I would like to conclude with some general observations. 

One of the failings of modern economics as a discipline is the jettisoning of a value based analysis of human actions. From an enquiry into ‘What ought to be’ in favour of the wholly positivist stance of simply describing ‘What is’. This detachment from the usual norms of ethical enquiry in pursuit of what is presented as an objective look at humans qua ‘Homo Economicus’ in many ways lies at the heart of the crisis of legitimacy that the financial system, both in terms of individuals and institutions, is faced with.

At a deeper level, to examine the economic activity of humans disconnected from the value systems which provide them with context makes the dangerous assumption that an economic model which fails to take into account the real and constant threat of human failing is one that can adequately protect the rest of society from the fall out of unethical practices. As the financial system becomes ever more interdependent, the results of malfunction do not affect the contracting parties alone, but all that inhabit the economic sphere.

It is becoming increasingly clear that while humanity has succeeded in stretching the horizons of science and harnessing the latent potential of nature through ever advancing technologies, it has yet to fully come to terms with its role as the custodian and steward of these same resources. As financial products and mechanisms become more advanced and abstract, the need for a clear and well articulated analysis of the ethical ramifications of such products should be seen not as a luxury of intellectual expediency but as a current and pressing need. Such an ethics should not be overly restrictive so as to stifle the creation of wealth, but it should also not be so non-committal so as to allow the economic system to continue unchecked, creating systemic inconsistencies that jeopardize real global prosperity.     

These three presentations provide a fertile arena for cross scriptural analysis between the Ibrahamic faiths and perhaps give hope for shared action. Where they converge is on an understanding that the the arena of financial transactions has lost its moral compass and with potentially catastrophic results. It is a moral imperative that all faiths, and in particular those of the monotheistic tradition, provide a well articulated blueprint for what they agree should be the norms of an ethical finance in the 21st century fit for the aspirations of all the worlds citizens. 

This is a transcript of the keynote speach delivered by Sh Ruzwan at the House of Lords in September 2012 along with the Most Rev and Rt Hon Lord Archbishop of Canterbury, Dr Justin Welby and Rev Rabbi Dr Naftali Brawer.

The full proceedings can be accessed here.

PROFILE: Shaykh Ruzwan Mohammed is a Sunni theologian and scholar. A graduate in Geopolitics and Arabic from the University of Glasgow, in 1993 he left to travel and study with a wide array of leading scholars and theologians in various countries in the Muslim world. In the process, he read Turkish language at the University of Ankara in Turkey and as part of his formal Islamic training, he graduated from the Fat?h Islamic Law College in Damascus, graduating from the prestigious 6-year program with a distinction of merit, achieving overall first position in his year of graduation from the college.

In the summer of 2009, he co-founded the Solas Foundation, which focuses on offering quality and transparent religious consultancy in the areas of Islamic ethics and education. He is the author and educational director the iSyllabus Islamic studies program.

He is a regular panellist on shows such as BBC One?s ?The Big Question?, BBC radio 4?s religious analysis programmes, and is a contributor to national Scottish newspapers and magazines. He is currently engaged in research into the effect of textual hermeneutics and environment on Islamic legal ethics, and is working on a study and translation of an early juristic text by the Spanish philosopher Averroes. He also serves as an advisor to various Muslim educational organisations in the United Kingdom and is actively involved in interfaith work, as well as wider social issues, lobbying on climate change and combatting poverty.
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