Poverty Alleviation through Charity

I am surprised to find that there is an alternative to poverty reduction through micro finance / micro lending. The program is run by The BOMA fund in Africa. Through three programs, the Rural Entrepreneur Access Project (REAP), Agents of Change, and Cows For Kids, BOMA helps groups in northern Kenya learn how to run businesses, become leaders, and start on the road to self-sufficiency. Executive Director of the BOMA fund, Kathleen Colson says that we focus on economic empowerment, primarily with women, through the Rural Entrepreneur Access Project, or REAP. That's our signature program of micro-enterprise development.We identify and train people within villages to work as business mentors. They must have strong community roots, work well with women, and have a sustainable income through some kind of business. They then organize small businesses around groups of five women and provide them with business skills training and a small grant of 150 dollars. The groups are mentored for two years. She says that I think that grants are the right way to go for an effective poverty alleviation program when you're dealing in areas where you have the truly ultra-poor who don't have experience or skills with business. It's not so much about the 150 dollar grant as it is about the business skills training program and helping people identify the discipline that's required in starting these very small businesses. Her theory of helping the poors is very much in line with Quranic injunctions. "They ask thee what they should spend (in charity). Say: Whatever ye spend that is good is for parents and kindred and orphans and those in want and for wayfarers. And whatever ye do that is good Allah knoweth it well". Aya 215 Sura Al-Baqara

Debt Based Business - 1

Reading and thinking about debt / loan, I come to the conclusion so far that it is highly dangerous for one's wealth as well as for ethics to deal in it either as a lender or as a borrower as far as Muslim and Islam is concerned and this is best for the mankind as a whole as Allah (SWT) says that "And this was the legacy that Abraham left to his sons and so did Jacob; "O my sons! Allah hath chosen the faith for you; then die not except in the faith of Islam." Aya 132 Sura Al-Baqara

Let us discuss, first, why and how the debt is harmful for one's wealth. First, it is not possible to lend someone without any benefit whether pecuniary or else, Islamic or non-Islamic. So the discussion of usury / interest / mark-up / profit is irrelevant. It will be present in any transaction involving debt; pure loan transaction, credit based trading transaction, Islamic debt "Murabaha", "Ijara" etc. Second, in lending business there shall always be risk of default because future is an unknown entity, anything can go wrong beyond our most sophisticated analysis or our wildest dreams. As a Muslim, we have complete faith that what is said in Quran, is absolutely true.

"O ye who believe! devour not usury doubled and multiplied; but fear Allah; that ye may (really) prosper. " Aya 130 Sura Al-i'Imran

"That which ye lay out for increase through the property of (other) people will have no increase with Allah: but that which ye lay out for charity seeking the Countenance of Allah (will increase): it is these who will get a recompense multiplied." Aya 39 Sura Ar-Rum

"Allah will deprive usury of all blessing but will give increase for deeds of charity: for He loveth not creatures ungrateful and wicked." Aya 276 Sura Al-Baqara

"O ye who believe! fear Allah and give up what remains of your demand for usury if ye are indeed believers." Aya 278 Sura Al-Baqara

"If ye do it not take notice of war from Allah and his Apostle: but if ye turn back ye shall have your capital sums; deal not unjustly and ye shall not be dealt with unjustly." Aya 279 Sura Al-Baqara

"That they took usury (interest) though they were forbidden; and that they devoured men's substance wrongfully; We have prepared for those among them who reject faith a grievous punishment." Aya 161 Sura An-Nisa

"If the debtor is in a difficulty grant him time till it is easy for him to repay. But if ye remit if by way of charity that is best for you if ye only knew." Aya 280 Sura Al-Baqara

Two commandments from Allah (SWT) are very clear from above referred verses from Quran. First, usury/ interest/ mark-up/ profit on loan is forbidden, stay away from it otherwise take notice of war from Him and His Messenger (PBUH). Second, grant time to debtor in distress till he is able to pay or write off debt by way of charity. Both the orders are very difficult to obey if not impossible. How can one lend to someone without any benefit explicit or implicit? How can one give unlimited time to debtor, even in distress, for payment of his debt?

Sharia Compliant Investment

Islam is "According to dictionary, the word Islam, from the tri literal root s-l-m, is derived from the Arabic verb Aslama, which means "to accept, surrender or submit. “ A Muslim (Arabic: مسلم ) an adherent of the religion of Islam. The feminine form of 'Muslim' is Muslimah (Arabic: مسلمة ). Literally, the word means "one who submits to God"."

Hence, it can be said that Islamic Finance is conducting financial and business matters according to the commandments of Allah(SWT) expressed or implied.

Muath quoted Zaineb Sefiani at BMB Islamic that It is permitted for Muslims to invest in companies whose share of income from Haraam activities is less than or equal to 5%.

The question before us is can we mix Halal with Haraam ? If yes, then what should be the ratio of Haram to Halal or ratio of Haram in a given total quantity or value and what are the conditions or circumstances under which this is allowed? Before we go further, it is pertinent to clearly define what is understood as Haram.

Haraam (Arabic: حرام‎) (often Haram) is an Arabic term meaning "forbidden". In Islam it is used to refer to anything that is prohibited by the faith. Itsantonym is halaal.

The religious term haraam can be applied to:

• certain behaviours, such as adultery or abuse, abstention in the general elections (e.g. in Indonesia) and profane language.
• certain objects and sacrelige.
• certain foodstuffs or food ingredients, such as alcohol or pork.
• and also to foods, objects and people that would normally be halaal but which were tarnished in some or other way, for example meat slaughtered in a non-permitted way or people with certain sexual preferences.

Haraam has, over the years, accumulated additional non-traditional uses to it. In Arabic-speaking countries, such as Lebanon, saying "haraam" can mean, "what a shame" or "what a pity" (this meaning has been adopted by Modern Hebrew slang as well). This can be used formally or between friends. Children are commonly told not to mistreat other children or animals because it is 'haraam'.

Haraam also applies to ill-gotten wealth obtained through sin. Examples include money earned through cheating, stealing, corruption, murder or any means that involves harm to another human being. It is prohibited in Islam for a true Muslim to profit from such Haraam actions. Any believer who benefits from or lives off wealth obtained through Haraam is not a Muslim.

The word also appears in Amharic, the national language of Ethiopia. It connotes the same idea of prohibition on religious grounds, however it is used by Christians in the Ethiopian Orthodox Tewahedo Church, including bans on pork (more out of Jewish dietary laws, not Islamic).

Haraam is best known to non-Arabs by means of the related word harem, referring to the forbidden area of the palace where the women were quartered.

The Hebrew cognate Herem referes to the highest ecclesiastical censure in the Jewish community.

The use of the term varies between Arabic-speaking communities and non-Arabic-speaking ones.

In Arabic-speaking countries, the term is used to describe anything permissible under Islamic law, in contrast to haraam, that which is forbidden. This includes human behavior, speech communication, clothing, conduct, manner and dietary laws.

In non-Arabic-speaking countries, the term is most commonly used in the narrower context of just Muslim dietary laws, especially where meat and poultry are concerned, though it can be used for the more general meaning, as well.

I am failed to come up with anything in Quran that suggests mixing of Halal with Haraam. All I get is following Hadith

"Narrated An Numan bin Bashir

I heard Allah's Apostle saying, 'Both legal and illegal things are evident but in between them there are doubtful (suspicious) things and most of the people have no knowledge about them. So whoever saves himself from these suspicious things saves his religion and his honor. And whoever indulges in these suspicious things is like a shepherd who grazes (his animals) near the Hima (private pasture) of someone else and at any moment he is liable to get in it. (O people!) Beware! Every king has a Hima and the Hima of Allah on the earth is His illegal (forbidden) things. Beware! There is a piece of flesh in the body if it becomes good (reformed) the whole body becomes good but if it gets spoilt the whole body gets spoilt and that is the heart." (Sahih Al-Bukhari 1:49)

According to The Lawful and Prohibited in Islam by Yusuf al-Qaradawi "Another Islamic principle is that if something is prohibited, anything which leads to it is likewise prohibited. By this means Islam intends to block all avenues leading to what is haram. For example, as Islam has prohibited sex outside marriage, it has also prohibited anything which leads to it or makes it attractive, such as seductive clothing, private meetings and casual mixing between men and women, the depiction of nudity, pornographic literature, obscene songs, and so on.

Accordingly, Muslim jurists have established the criterion that whatever is conducive to or leads toward the haram is itself haram. A similar principle is that the sin of the haram is not limited only to the person who engages in it but extends to others who have supported him in this, materially or morally; each is held accountable according to his share. For example, in the case of intoxicating drinks, the Prophet (peace be on him) cursed not only the one who drinks them but also the one who produces them, the one who serves them, the one to whom they are served, the one to whom the price of them is paid, etc. This point will be discussed again later. Again, in the matter of usury, the Prophet (peace be on him) cursed the one who pays it, the one to whom it is paid, the one who writes the contract, and the one who acts as a witness thereto. Accordingly, we derive the rule that anything which assists in the doing of what is haram is itself haram, and anyone who helps another person to do it shares in the sin of it."

"whenever any permissible action of the believer is accompanied by a good intention, his action becomes an act of worship. But the case of the haram is entirely different; it remains haram no matter how good the intention, how honorable the purpose, or how lofty the aim may be."

"While Islam has narrowed the range of what is prohibited, it is, at the same time, very strict in seeing that its prohibitions are observed. Accordingly, it has blocked the ways, apparent or hidden, leading to what is prohibited. Thus, what is conducive to the haram is itself haram, what assists in committing the haram is haram, any rationalization for engaging in the haram is haram, and so on, to the last of the principles which we have elucidated. At the same time, Islam is not oblivious to the exigencies of life, to their magnitude, nor to human weakness and capacity to face them. It permits the Muslim, under the compulsion of necessity to eat a prohibited food in quantities sufficient to remove the necessity and save himself from death. On the basis of these and similar verse of the Qur'an, Islamic jurists formulated an important principle, namely, that "necessity removes restrictions." However, it is to be noted that the individual experiencing the necessity is permitted to eat the haram food with the stipulation that he is "neither craving it nor transgressing." This is interpreted to mean that he should not desire to relish it nor transgress by eating more than the bare amount needed to satisfy his hunger. From this stipulation, jurists have derived another principle, that "The quantity permitted is determined by the (magnitude) of the necessity." Here the underlying idea is that, even though compelled by necessity, a person need not surrender to it or embrace it with eagerness; rather he must live with what is essentially halal and seek a way to return to it so that he may not become accustomed to the haram or begin enjoying it under the pretext of necessity."

It is the intention that matters

According to dictionary, the word Islam, from the tri literal root s-l-m, is derived from the Arabic verb Aslama, which means "to accept, surrender or submit. “ A Muslim (Arabic: مسلم ) an adherent of the religion of Islam. The feminine form of 'Muslim' is Muslimah (Arabic: مسلمة ). Literally, the word means "one who submits to God".

“If anyone is looking for a religion other than Islam, then let it be known that it will not be accepted from him; and in the Hereafter he will be among the losers.” (Sura Al’i-Imran Aya No. 85)." Dīn (دين, also anglicized as Deen) is an Arabic word usually translated as "religion" but also as "way of life", especially referring to Islam, known as ad-dīn "the deen", or dīn al-haqq "the true deen" (e.g. ayat 48:27, 9:33 = 61:9). It is, however, not exclusive to Islam, as Arab Christians also use it to refer to their religion and religion in general. The word “Deen” appears in as many as 79 Qur'anic verses and it is often translated as religion for convenience since there is no equivalent single satisfactory English word. In the Qur'an, Islam is always referred to as Dīn. It is the sum total of a Muslim's faith and the code and conduct necessary to submit to Allah's laws.

Hence, it can be said that Islamic Finance is conducting financial and business matters according to the commandments of Allah(SWT) expressed or implied.

Aya 65 of Sura Al-Baqara "And well ye knew those amongst you who transgressed in the matter of the Sabbath; We said to them: "Be ye apes despised and rejected."

This Ayah means, O Jews! Remember that Allah sent His torment on the village that disobeyed Him and broke their pledge and their covenant to observe the sanctity of the Sabbath. They began using deceit full means to avoid honoring the Sabbath by placing nets, ropes and artificial pools of water for the purpose of fishing before the Sabbath. When the fish came in abundance on Saturday as usual , they were caught in the ropes and nets for the rest of Saturday. During the night , the Jews collected the fish after the Sabbath ended. When they did that , Allah changed them from humans into monkeys, the animals having the form closest to humans. Their evil deeds and deceit appeared lawful on the surface, but they were in reality wicked. This is why their punishment was compatible with their crime.(Tafsir Ibn-e-Kathir)

Dr. Mahmoud El-Gamal said best "When developing an Islamic financial model, the temptation is very strong to try to mimic what bankers already know. Indeed, that has been the history of Islamic banking and finance: start with the conventional practice that you forbid but want to mimic (e.g. an interest-bearing loan), break it down into its pieces (e.g. money now from A to B, more money later from B to A), and then reconstruct the pieces with some degrees of separation (e.g. goods sold for money now from C to A, goods sold on credit for more money later from A to B, and goods sold for money now from B to C -- this is tawarruq if the bank conducts all three transactions, or commodity murabaha if the bank only does the first two pieces and leaves it up to B to make the spot sale to C or another party D). This is the silly model marketed variously as commodity murabaha or tawarruq."

Dr. Muhammad Nejatullah Siddiqi said "We consider Murabaha to be superior to debt financing on a number of grounds. We also consider that its inclusion in the toolbox of Islamic financial instruments makes that box really capable of handling all financial situations. We claim that it serves to keep the financial market in sync with the market for real goods and services, thus making it less vulnerable to gambling like speculation. Demonstrating these and possibly other virtues require Murabaha to be practiced in real earnest, i.e. as a means of financing the acquisition of means of production and needed goods by people who are expected to be able to pay for them, but after sometime. It would be a caricature of Islamic finance if, instead, Murabaha is used as a trick to do what conventional finance is doing, i.e. lending on the basis of interest. It is only the practitioner who can ensure that Murabaha does not degenerate to that level."

Dr. Mahmood Ahmed is of the view that "Finance", whether Islamic or conventional,is dependend on financial intermediation which has three essential features-1.Principal amount,2.Rate and 3.Time. All these three must be pre- determined. Hence an intermediary accepts signature of the client in a set of charge documents as per law of the land then makes him agent to buy goods which is not an essence for it but is done as an eye wash for lebeling it "Islamic" which is a religius cheating in the name of Islam."

Brother Mahmood Shafqat is of the opinion that "in my view, we need to distinguish between recommended or liked and disliked practices."

Sahih Al-Bukhari 1:1 Narrated Umar bin Al-Khattab (RAA)

I heard Allah's Apostle saying, "The reward of deeds depends upon the intentions and every person will get the reward according to what he has intended. So whoever emigrated for worldly benefits or for a woman to marry, his emigration was for what he emigrated for."

The result that emerges from the above discussion, it is the intention that matters.

Proposed Solution to Global Financial Crisis

Ellen Hodgson Brown in his book "Web of Debt - The Shocking Truth About Our Money System and How We Can Break Free" says that in a system in which money comes into existence only by borrowing at interest, the system as a whole is always short of funds, and somebody has to default.

He cites from a case law "In his court memorandum, Justice Mahoney stated:

Plaintiff admitted that it, in combination with the Federal Reserve Bank of Minneapolis, . . . did create the entire $14,000.00 in money and credit upon its own books by bookkeeping entry. That this was the consideration used to support the Note dated May 8, 1964 and the Mortgage of the same date. The money and credit first came into existence when they created it."

Startling revelation about the current banking system comes from Bernard Lietaer who helped design the single currency system (the Euro):

"[G]reed and competition are not a result of immutable human temperament . . . . [G]reed and fear of scarcity are in fact being continuously created and amplified as a direct result of the kind of money we are using. . . . [W]e can produce more than enough food to feed everybody, and there is definitely enough work for everybody in the world, but there is clearly not enough money to pay for it all. The scarcity is in our national currencies. In fact, the job of central banks is to create and maintain that currency scarcity. The direct consequence is that we have to fight with each other in order to survive."

In the 1990s, a young team at Wall Street investment bank JP Morgan pioneered a new way of making money – credit derivatives. Within a decade, the market for these exotic securities had exploded to more than $12,000bn – and some people later blamed them for fuelling the global financial fiasco. In the first of two extracts from her book, Fool’s Gold, the FT’s Gillian Tett reveals how the innovation genie was first let out of the bottle – and eventually devoured the system, to the horror of its creators.

Christina Romer says that "Also important was an accidental switch to contractionary monetary policy. In 1936 the Federal Reserve began to worry about its “exit strategy”. After several years of relatively loose monetary policy, American banks were holding large quantities of reserves in excess of their legislated requirements. Monetary policymakers feared these excess reserves would make it difficult to tighten if inflation developed or if “speculative excess” began again on Wall Street. In July 1936 the Fed’s board of governors stated that existing excess reserves could “create an injurious credit expansion” and that it had “decided to lock up” those excess reserves “as a measure of prevention”. The Fed then doubled reserve requirements in a series of steps. Unfortunately it turned out that banks, still nervous after the financial panics of the early 1930s, wanted to hold excess reserves as a cushion. When that excess was legislated away, they scrambled to replace it by reducing lending. According to a classic study of the Depression by Milton Friedman and Anna Schwartz, the resulting monetary contraction was a central cause of the 1937-38 recession."

Ben Funnell proposed " What can be done? First, although it is not ideal, we should not be too hasty about abandoning the capitalist model. It is less bad than any other system yet invented. But we should redouble our efforts to increase productivity through innovation and creating new markets; simply squeezing lower-income workers is a bad option, which helped get us into this mess in the first place. This requires investment in education and research. Second, we have to learn to live within our means. This means spending less than we earn, perhaps doing without the BMWs, flat-screen television sets and leather sofas. Third, we should be careful in distributing the higher tax burden that we will inevitably have to bear over the coming decade. Very high marginal tax rates did not work in the 1970s and will not work now. That said, income disparity at current levels is a political time-bomb that needs to be dealt with. Finally, we should all come to terms with the fact that these are structural issues needing structural solutions; they need to be enforced over a longer time period than any one government’s term. So we need a new political consensus, one aimed at reducing overall debt levels while reducing inequality by encouraging education, entrepreneurship and investment in innovation."

Nassim Nicholas Taleb offers "No socialisation of losses and privatisation of gains. Whatever may need to be bailed out should be nationalised; whatever does not need a bail-out should be free, small and risk-bearing. We have managed to combine the worst of capitalism and socialism. In France in the 1980s, the socialists took over the banks. In the US in the 2000s, the banks took over the government. This is surreal."

"Do not give an addict more drugs if he has withdrawal pains. Using leverage to cure the problems of too much leverage is not homeopathy, it is denial. The debt crisis is not a temporary problem, it is a structural one. We need rehab."

George Soros say that since markets are bubble-prone, regulators must accept responsibility for preventing bubbles from growing too big.

Quran offers "Allah has laid His curse on usury and blessed charity to prosper. Allah does not love any ungrateful sinner. " 2:276 "O You who believe! Fear Allah and waive what is still due to you from usury if you are indeed believers;" 2:278 "or war shall be declared against you by Allah and His Rasool. If you repent, you may retain your principal, causing no loss to
debtor and suffering no loss. " 2:279 "If the debtor is in a difficulty, grant him time till it is easy for him to repay; but if you waive the sum by way of charity it will be better for you, if you understand it. " 2:280

New Life for Open Source Movement

Open source movement was worried over the acquisition of "MySQL" by "ORACLE". There was all kind of speculation about the future of most successful open source database. Recent two events have breathed a new life into the movement. One is the inquiry of the US Department Of Justice regarding how the Oracle / Sun deal could affect Open Source software, in particular MySQL and Java and the other is announcement of Google to launch an open source Google Chrome OS.

Limited Liability Concept in Islam

Dr. Mahmoud El-Gamal writes that

"One of the traditional verses to start a sermon is [59:18]:
يَا أَيُّهَا الَّذِينَ آمَنُوا اتَّقُوا اللَّهَ وَلْتَنْظُرْ نَفْسٌ مَا قَدَّمَتْ لِغَدٍ وَاتَّقُوا اللَّهَ إِنَّ اللَّهَ خَبِيرٌ بِمَا تَعْمَلُونَ
The traditional translation is: "O ye who believe! Fear Allah, and let every soul look to what (provision) he has sent forth for the morrow. Yea, fear Allah: for Allah is well-acquainted with (all) that ye do." I would not limit the collective order اتَّقُوا, which is repeated twice in the plural, I would not limit it to "fear", because the notion of taqwa encompasses God-consciousness, God-wariness, and other concepts besides fear.

Our focus for today is on the following: the verse does not say "let every soul" or "let each soul" (و لتنظر كل نفس) but rather "let a soul" (و لتنظر نفس), focusing on the community of the faithful (addressed: يَا أَيُّهَا الَّذِينَ آمَنُوا) as a single organism. In other words, although we are accountable individually, we are also accountable for the future (مَا قَدَّمَتْ لِغَدٍ) that the community as a single organism forges for itself."

So, we are jointly and severally liable for the deeds of the community. If so, then the concept of limited liability company in Islamic Finance becomes doubtful as every shareholder is jointly and severally liable for all the deeds including all liabilities of the company. Think for a moment, had this been the case, would large number of shareholders having minority shareholding let happen misdeeds in corporate finance e.g. the case of "Enron".

The concept of "limited liability" is worth revisiting in the context of recent global financial crisis and more so in the context of Islamic Finance.