– The Islamic Prohibition of Usury and its Modern Implications for Muslims and Banking LeRoy Nosker Tanner University of Wisconsin – Eau Claire

Major Points The definition of terms The origination of the prohibition on usury in Islamic countries The central banking & financial markets The implementation of monetary policy How do Muslims adapt to the western banking system?

Western Banking-Historical Roots Economic Standpoint Religious Standpoint When? Where? How? Who? Why? Jewish Laws In the Torah Pope Innocent III Prohibition on Christians Forced involvement for Jews Britain and the Crusades Practice of ransom

Usury Definition “interest paid for the use of(loaning) money” Application Business transactions Banking of money Reparations

Riba? Definition A forced “increase of value” in “the medium of exchange” that is loaned or swapped Interpretation Debated Why is it mentioned? Historical setting Arabia in the 7 th Century C.E.

Riba in Sacred Text Qur’an Origins Meaning for Muslims Verses dealing with Riba Hadith Origins Isnad Meaning for Muslims Reports dealing with Riba

Gharar Transactions Knowledge Shared or known only by one? Asymmetric information Intention Is the knowledge necessary for an equitable transaction? Penalties Legal Religious “hidden knowledge”

Source of the Prohibition of Usury Ulema Religious Scholars Ijma Shari’a Fatwa Where is it politically instituted?

Fiqh-Government Application “Jurisprudence” Political vs. Religious law What’s the distinction? Is there a distinction? Hakimiyyah Ummah

Shari’a Economics Basis Shari’a Qur’an Hadith Main Questions How do I avoid usury and gharar, but still stay in business? How do I grow my business and help my consumers without using usury or gharar?

Banking under Shari’a Wadiah 2 Main Contractual Principles Profit Sharing “Rent to Own” Checking Savings, Investments & Loans 6 methods for avoiding usury and gharar Mudarabah Musharakah Bai Murabahah Bai Bithaman Ajil Bai Inah Ijarah

Central Banking? What does a central bank do? Maintain financial stability Banking regulation and monetary policy Does it apply for Islamic Banking? Yes! How is monetary policy conducted? Saudi Arabia Turkey

Economic Well-being

Inflation Rates

Stock Markets

Muslims in the U.S. Muslim Population in the U.S. ~6 million 0.6% How do they adapt? Credit cards? Loans? Bank accounts?

Further Research Statistical data on number and types of loans given out by Islamic banking institutions Expanding the number of countries included in the comparison to better represent the actual usage of Islamic Banks by Muslims across the world Survey data of Muslim Americans discussing their personal relation to this principle