Turning, more generally, to the impact of Islamic thinking on the general economy, two points are key: First, there should be no debt without a corresponding asset, which means that a loan must be tied to an activity that adds real economic value. This is a tricky area, and some scholars argue that, if the financial sector is separated from the real economy, any debt transaction can be considered rib. On the other hand, since finance is supposedly riskier than the real economy, a moral justification for Islamic finance is that it cushions the real economy against financial crises.
How can financial institutions be made to adhere to these Islamic principles
Second, Islam prohibits hoarding. If you do not use your wealth for one year, you are required to pay zakah at the rate of 2.5 per cent on the unused portion of that wealth, with the proceeds going to the poor and needy. At the present time, faced with weak demand, Western t.• economies might do well to adopt this practice.
How can financial institutions be made to adhere to these Islamic principles?
The first guarantee is obviously the religious convictions of those who work in and who run these firms. The second is the sharia committees that they all have. There is also an Islamic rating agency, recently established in Bahrain, which provides further assurance of compliance.
That said, there is still no single supra-national Islamic regulator. Indeed, there are no commonly-agreed regulatory standards for Islamic financial institutions. And there is no single, supreme body that supervises the sharia committees and reviews their decisions.
Nevertheless, Islamic finance only developed after 1955 and it is still a work in-progress to be open for easy online loans.
There are those who argue that it has not yet come up with anything genuinely new, that it has simply Islamicised traditional financial products — e.g. ijara and sukuk. But that is unfair.
Islamic finance is steadily evolving. With hard work by Islamic institutions and scholars, products will emerge that respond to the urgent needs of the Islamic world and to the moral system laid down by the Creator Himself.