BBC, Nov. 18, 2002
Traditionally, Islamic banks have only been able to pay interest that was tied to the bank’s profits.
A fixed interest rate, conservative scholars hold, is equivalent to usury or “riba” – the earning of money without doing any work for it.
But Agence France-Presse reports that the Islamic theological research committee of Egypt’s Al-Azhar institute – seen by many as the philosophical centre of the dominant Sunni strand of the faith – has voted 21-1 to approve fixed interest rates.
In practice, Egyptian banks may not notice any immediate difference.
Despite the problems traditionalists have with interest, nine out of 10 banking institutions in Egypt pay a fixed rate of interest.
And from the Al-Azhar institute’s point of view the decision was necessary.
“Religious jurisprudence means change, and it is illogical to remain frozen while the world changes around us,” Sheikh Saber Talaab, head of the research committee secretariat, told AFP.
“So long as we do not go against what is written (in the Koran) or the Sunna (Islamic tradition), we have a clear conscience.”
But despite Al-Azhar’s importance and influence, the decision risks stirring up controversy.
The prohibition of riba is at the heart of Islamic financial practices, and the arguments are all the more vocal for being rooted in differences in the interpretation of the Prophet Muhammad’s writings and deeds.
For the reformers, there is a parallel between Muhammad’s acceptance of money from members of his tribe in order to finance trading caravans.
The sharing of the profits between the contributors, they say, is broadly similar to a bank paying interest using the profits it makes on commercial deals using the money deposited with it.
But the conservatives say that can apply only if the interest is proportional to the profit – in other words, if depositors are taking a risk with their money.
Otherwise, the rule of riba applies, they say.