Search this site

Author Credit: This blog is adapted from an article by Muhammad Rizwan-ul Haque, Founding Chairman of Dawood Family Takaful, CEO of an Investment Bank, and Director of a Trust. The original article was published on July 24, 2015. Introduction Economics is built around a simple reality: resources are limited, while human needs and desires are virtually unlimited. Because resources are scarce, individuals, businesses, and financial institutions must constantly decide where to allocate them. This is where the concept of opportunity cost becomes important. In Islamic finance, however, opportunity cost raises a deeper question: what happens when the alternative return available to a financial institution is based on interest? Muhammad Rizwan-ul Haque explores this relationship and questions whether Islamic financial institutions can genuinely move away from Riba while interest-based returns continue to influence investment decisions. Understanding Scarce Resources A basic principle of economics is that resources are limited. Whether the resource is money, land, labor, or time, choosing one use means giving up another. A prudent investor therefore attempts to allocate available resources toward opportunities that provide an appropriate return. The objective, however, is not necessarily to pursue the highest possible return. Higher returns generally come with greater risk. An entrepreneur who expects substantial profits may also have to accept the possibility of significant losses. What Is Opportunity Cost? Opportunity cost is the value of the alternative that is given up when a particular choice is made. For a bank or financial institution, this means considering what it could have earned by investing its funds elsewhere. For example, suppose a financial institution has the choice between investing in a relatively low-risk government security offering a 9% return or financing a business project with an expected return of 14%. The return available from the alternative investment represents the institution's opportunity cost when it chooses to finance the business instead. Why Opportunity Cost Matters in Banking Financial institutions operate with limited capital and must decide how that capital should be deployed. If a relatively secure investment offers a higher return than a business opportunity, a financial institution may be reluctant to take the additional business risk. This creates a powerful incentive to compare every investment opportunity against the return available elsewhere. Opportunity cost is therefore closely connected with the economic principle of scarce resources and the choices made in allocating them. Opportunity Cost in Islamic Banking The same principle applies when examining Islamic financial institutions. An Islamic bank also has limited funds and must determine where those funds should be invested. According to the argument presented by Muhammad Rizwan-ul Haque, the problem arises when the benchmark for opportunity cost is an interest-based return. If conventional interest rates are readily available in the market, they can influence the pricing and decision-making of Islamic financial institutions. The Influence of Interest-Based Benchmarks Interest-based benchmarks such as KIBOR and LIBOR have historically been used as reference points in financial markets. The article argues that these benchmarks can influence Islamic financial products, including structures based on Murabaha, Sukuk, Ijarah, and diminishing Musharakah. Although these contracts have different legal structures, the concern is that their economic pricing may still be influenced by the prevailing interest-rate environment. This raises an important question: if the benchmark itself originates from an interest-based financial system, how far can Islamic finance move away from that system? Risk-Sharing Versus Predictable Returns The issue becomes particularly significant when comparing risk-sharing arrangements with transactions that provide more predictable returns. Contracts such as Mudarabah and Musharakah involve genuine business risk. Investors participate in economic activity where returns depend on the actual performance of the underlying business. By contrast, an interest-based investment can provide a predetermined return without requiring the investor to participate directly in the underlying business risk. According to the article, this difference can make risk-sharing structures less attractive when an interest-based return is readily available as an alternative. The Challenge for Islamic Financial Institutions If an Islamic financial institution can achieve a relatively predictable return through structures influenced by prevailing interest-rate benchmarks, it may have less incentive to enter into genuine risk-sharing transactions. This can lead to an important contradiction. Islamic finance is intended to connect finance with real economic activity, trade, investment, and responsible risk-taking. But if financial institutions consistently structure transactions around conventional financial benchmarks, the economic substance may begin to resemble the conventional system they are intended to provide an alternative to. Beyond Financial Engineering The article therefore raises a broader concern about the purpose of Islamic finance. Simply changing the structure or terminology of a financial transaction may not be sufficient if the underlying economic incentives remain driven by interest-based benchmarks. For Islamic finance to achieve its intended objectives, capital should be directed toward productive economic activities rather than primarily toward financial transactions designed to reproduce conventional returns. Promoting Real Economic Activity A genuine Islamic financial system should encourage entrepreneurship, trade, investment, and production. When capital is invested in real businesses, it can create employment and generate goods and services that benefit society. This is particularly important for lower-income groups who depend on productive economic activity for employment and livelihood. Agriculture, manufacturing, construction, services, and other sectors can all contribute to a stronger and more balanced economy when capital is directed toward them. The Path Toward a More Islamic Financial System According to Muhammad Rizwan-ul Haque, if Islamic financial institutions genuinely want to distinguish themselves from conventional finance, they must move beyond dependence on interest-based benchmarks. This means encouraging genuine trading activities, supporting entrepreneurship, accepting legitimate business risk, and increasing the use of risk-sharing structures. The objective should not simply be to create financial products that comply with a particular legal form. It should be to develop a financial system that reflects the broader principles of Shariah. Conclusion Opportunity cost is a fundamental economic concept. Every financial decision involves choosing one opportunity while giving up another. The challenge for Islamic finance arises when the alternative opportunity used to evaluate investments is itself based on interest. If Islamic financial institutions continue to compare their investments primarily against interest-based returns, the incentive to participate in genuine risk-sharing and productive economic activity may remain limited. The vision presented in this article is therefore broader than simply eliminating interest from financial contracts. It calls for an Islamic financial system that encourages trade, entrepreneurship, real investment, employment, and socioeconomic justice. Ultimately, the objective should be to ensure that finance serves the real economy and contributes to a more balanced and harmonious society.

Author Credit: This blog is adapted from an article by Muhammad Rizwan-ul Haque, Founding Chairman of Dawood Family Takaful, CEO of an Investment Bank, and Director of a Trust. The original article was published on August 3, 2015. Introduction Money plays a central role in every modern economy. It facilitates trade, allows businesses to operate efficiently, and enables people to exchange goods and services without relying on barter. But as the nature of money has changed—from gold and silver coins to paper currency and, eventually, fiat money—an important question has emerged in Islamic finance: Does the prohibition of Riba apply equally to fiat money, even when interest rates are regulated by governments? According to the perspective presented by Muhammad Rizwan-ul Haque, changes in the form of money do not change the underlying principles governing it in Islam. From Barter to Money Before the widespread use of money, people relied on barter to exchange goods and services. The introduction of gold and silver coins made trade much easier because money provided a common medium of exchange. Over time, precious metals were deposited with goldsmiths, who issued receipts or IOUs representing the deposited assets. These notes could then be used in transactions. As financial practices developed, goldsmiths and money lenders began extending credit against assets. Eventually, paper-based monetary systems emerged, initially supported by gold, silver, or other valuable assets. The Evolution of Paper Money The monetary system gradually moved away from direct backing by precious metals. Governments eventually gained the authority to issue currency according to economic and fiscal requirements. This led to the development of modern fiat currency—money whose value is not directly tied to a fixed quantity of gold or silver. Today, virtually all major currencies operate as fiat money. Governments and central banks manage their monetary systems through various policies, including interest rates and money supply. This evolution raises a fundamental Islamic finance question: does the change from commodity-backed money to fiat currency change the ruling on Riba? Does the Type of Money Change the Ruling? The argument presented in the article is that money remains money regardless of whether it is backed by gold, silver, or issued as fiat currency. Its fundamental economic characteristics remain similar. Money is used as a medium of exchange, can be stored, does not perish like an ordinary commodity, and can accumulate when placed in an interest-bearing arrangement. Therefore, the distinction between gold-backed money and fiat money should not, according to this perspective, create two separate categories under the Islamic prohibition of Riba. Is Government-Regulated Interest Different From Riba? One argument sometimes made is that government-regulated interest rates are different from Riba because they may be intended to protect the purchasing power of money. As prices rise over time, the argument goes, money loses purchasing power. A regulated interest rate may therefore be viewed as compensation for this decline. However, Muhammad Rizwan-ul Haque argues that regulation by a government does not fundamentally change the nature of interest. If a return is being generated simply because money has been lent for a period of time, government approval does not automatically transform it into a permissible transaction. Is There a Difference Between Riba and “Interest”? Another frequently raised argument is that Riba refers only to excessive interest or usury, while ordinary or moderate interest may be permissible. The article challenges this distinction. The Qur'anic references to the “doubling and redoubling” of debt are understood in the context of the historical accumulation of interest and debt. They should not, according to this view, be interpreted as establishing a permissible lower interest rate. If Islam intended to permit a certain level of interest, an obvious question would arise: what would the acceptable rate be? Would it be 2%, 5%, 10%, or another percentage? Such a standard could vary between countries, periods, and economic circumstances. The argument therefore maintains that the prohibition of Riba cannot simply be reduced to a question of whether an interest rate is high or low. Money as a Medium of Exchange, Not a Commodity A central principle highlighted in the article is the distinction between money and productive assets. Money facilitates trade and economic activity. It allows people to buy, sell, invest, and conduct business. When money itself becomes a commodity that produces a predetermined return simply through lending, the relationship changes. From the Islamic finance perspective presented here, wealth should instead be connected with legitimate trade, investment, entrepreneurship, asset ownership, and productive economic activity. Riba and Socioeconomic Justice The prohibition of Riba is closely connected in the article with the broader Islamic objective of socioeconomic justice. When capital can generate guaranteed returns without participating in productive activity, wealth can become increasingly concentrated among those who already possess financial resources. By contrast, investment in businesses and productive activities creates opportunities for workers, entrepreneurs, suppliers, and communities. Agriculture, manufacturing, construction, services, and other productive sectors require people to work and create value. A financial system that encourages genuine economic activity can therefore contribute to wider employment and wealth circulation. The Role of Entrepreneurs If interest-bearing investments offer a relatively predictable return, an investor may be less willing to take the risks associated with entrepreneurship. A business investment involves uncertainty. It can generate profit, but it can also produce losses. According to the argument presented by Muhammad Rizwan-ul Haque, removing interest-based alternatives encourages capital owners to participate more actively in productive economic activity. In this model, capital is directed toward businesses that create goods, services, employment, and economic value rather than simply generating returns through financial transactions. The Broader Social Consequences The article connects excessive reliance on debt and interest-based finance with growing economic inequality. When economic opportunities become concentrated among a small group while lower-income segments have fewer employment opportunities, social divisions can deepen. Islamic finance therefore cannot be viewed only as a technical system of contracts. It is also connected to broader questions of fairness, wealth distribution, economic participation, and social responsibility. Can Governments Make Riba Permissible? A particularly important question is whether government regulation can change the Islamic ruling on interest. The position presented in the article is that regulation does not change the underlying nature of the transaction. If something has been prohibited by the Qur'an and Sunnah, government policy cannot independently transform it into something permissible. For Islamic finance, the starting point must therefore remain the principles established by Shariah rather than the practices adopted by modern financial systems. Conclusion The transition from gold and silver to paper currency and modern fiat money has transformed the monetary system, but according to the perspective presented by Muhammad Rizwan-ul Haque, it does not change the fundamental Islamic principles concerning Riba. Whether money is backed by precious metals or issued as fiat currency, money continues to serve as a medium of exchange and a means of facilitating economic activity. The central question is therefore not whether an interest rate is government-regulated, high, or low. The deeper question is whether money itself is being used to generate a predetermined return through lending. Islamic finance seeks to direct capital toward genuine trade, investment, entrepreneurship, and productive economic activity while maintaining principles of justice and socioeconomic balance. The discussion ultimately invites us to revisit the Qur'anic message on Riba and consider its implications not only from a religious perspective, but also through the lens of economics, business, and social justice.

Author Credit: This blog is adapted from an article by Muhammad Rizwan-ul Haque, Founding Chairman of Dawood Family Takaful, CEO of an Investment Bank, and Director of a Trust. The original article was published on August 5, 2015. Introduction One of the most common questions in discussions on Islamic finance is whether only excessive interest rates are prohibited while lower rates are acceptable. Some argue that charging a small percentage of interest is reasonable and economically necessary, while only exploitative or excessively high rates should be considered forbidden. However, according to the principles of Islamic finance, this distinction does not exist. The article by Muhammad Rizwan-ul Haque explores this important issue by examining the concept of Riba in light of the Qur'an, Sunnah, and the broader objectives of Islamic economics. Does Islam Differentiate Between High and Low Interest? According to the article, there is no evidence in the Qur'an or Hadith suggesting that one level of interest is permissible while another is prohibited. The prohibition of Riba is absolute and is not linked to a specific percentage. Whether the rate is high or low, charging a price for money remains inconsistent with the principles of Islamic finance. The idea that only excessive interest should be prohibited is viewed as a relatively modern interpretation rather than one rooted in classical Islamic teachings. The Islamic Concept of Lending Islam encourages financial support based on compassion, fairness, and social responsibility. Instead of commercial lending for guaranteed financial gain, Shariah promotes arrangements such as Qarz-e-Hasna, an interest-free loan provided to those in genuine need, and Salam, which allows advance payment for future delivery of goods under clearly defined conditions. These arrangements are intended to assist financially weaker members of society rather than enable wealth accumulation through lending. Equality and Justice in Islamic Economics A central objective of Islamic finance is to promote justice and reduce economic inequality. Interest-based lending generally benefits those who already possess financial resources, while borrowers bear the burden of repayment regardless of business performance or financial hardship. By prohibiting Riba, Islam seeks to establish a financial system based on shared risk, productive investment, and equitable distribution of wealth rather than guaranteed returns on capital alone. The Opportunity Cost Argument Modern finance often justifies interest by referring to opportunity cost. Investors compare the expected return of a business project with the guaranteed return available through interest-bearing instruments. According to Muhammad Rizwan-ul Haque, this comparison discourages investment in real economic activity. Entrepreneurs may reject productive projects simply because they do not outperform interest-based alternatives. When guaranteed returns dominate financial decision-making, fewer investments are made in businesses that create employment, goods, and services. Can Money Have a Price? The article argues that assigning a price to money itself fundamentally changes its nature. Money is intended to facilitate exchange, not become a commodity that generates guaranteed income merely through the passage of time. Whether interest is charged to finance businesses or justified as a tool for controlling inflation, the principle remains the same: placing a price on money leads to Riba. The Qur'anic Warning Against Riba Before the Qur'an delivers its strongest warning against Riba in Surah Al-Baqarah (2:279), it repeatedly emphasizes charity, generosity, and helping those in need. This sequence highlights an important lesson. Islam encourages believers to circulate wealth through Zakat, charity, and ethical financial dealings instead of seeking guaranteed gains through interest. The prohibition of Riba is therefore not only a legal ruling but also part of a broader economic philosophy based on compassion, justice, and social welfare. A Timeless Principle The article concludes that the prohibition of Riba is not limited by changing economic theories or financial practices. While modern concepts such as benchmarking and interest-based financial models continue to evolve, the ethical principles established in the Qur'an and Sunnah remain unchanged. Islamic finance is built upon real economic activity, partnership, risk-sharing, and fairness rather than guaranteed returns from lending money. Conclusion The question is not whether an interest rate is high or low. From the perspective presented in this article, the issue is whether money itself is being used to generate a guaranteed return. Islamic finance encourages investment in productive activities that create value for society while discouraging systems that increase wealth solely through debt. Understanding this distinction is essential for anyone seeking to build a financial system that reflects the principles of justice, equality, and ethical responsibility taught by Islam. Credit: This blog is adapted from the article by Muhammad Rizwan-ul Haque, Founding Chairman of Dawood Family Takaful, CEO of an Investment Bank, and Director of a Trust.

Author Credit: This blog is adapted from an article by Muhammad Rizwan-ul Haque, Founding Chairman of Dawood Family Takaful, CEO of an Investment Bank, and Director of a Trust. The original article was published on August 7, 2015. Introduction Internal Rate of Return, commonly known as IRR, is an important financial concept used to evaluate the profitability of a project or investment. In simple terms, IRR helps investors understand whether a project is worth pursuing. It is commonly used in budgeting, investment analysis, and financial modelling to estimate the expected return from a project. However, when IRR is compared with interest rates, especially in economies where interest-based instruments dominate, an important Islamic finance question arises: does this relationship affect real economic activity? What Is IRR? IRR is the rate of return at which the net present value of a project becomes equal to zero. In other words, it is the discount rate at which the present value of a project’s expected benefits equals the present value of its costs. If a project has a higher IRR, it is generally considered more attractive. If the IRR is too low, investors may reject the project. This is why IRR is widely used by financial experts, economists, entrepreneurs, and investors when deciding whether a project is financially viable. The Role of Net Present Value To understand IRR, it is also important to understand Net Present Value, or NPV. NPV calculates the present value of future cash flows. Since money received in the future is considered less valuable than money available today, future cash flows are discounted back to their present value. IRR is the rate at which the project’s future cash flows balance out the cost of investment. This makes it a useful tool for comparing different investment opportunities. Why Is It Called “Internal”? The word “internal” means that the calculation is based on the project’s own expected cash flows. It does not directly include external factors such as inflation, market interest rates, or government bond yields. However, in real-world financial decision-making, investors often compare IRR with external benchmarks, especially interest rates and returns on fixed-income securities. This is where the concern begins. How IRR Is Compared With Interest Rates In modern financial modelling, investors often compare the expected IRR of a project with prevailing interest rates or returns offered by government bonds and fixed-income securities. For example, if a debt instrument offers a guaranteed return, an entrepreneur may only invest in a business project if the expected return is higher than that guaranteed return. This comparison can discourage real investment. If interest-based instruments offer easy and relatively secure returns, investors may prefer them over productive business activity. The Islamic Finance Concern According to Muhammad Rizwan-ul Haque, this is one of the major harms of Riba. When interest rates exist as a guaranteed benchmark in the market, investors begin comparing every project against them. As a result, many projects that could create jobs, goods, services, and economic benefit may be ignored simply because their expected return is lower than the available interest-based return. From an Islamic perspective, this creates a serious imbalance. Instead of encouraging real economic activity, interest-based systems may encourage capital to remain in debt instruments. Why Riba Was Forbidden The article highlights that Allah SWT has declared Riba forbidden with great wisdom. If there is no guaranteed interest-based return available in the market, entrepreneurs and capitalists may be more willing to invest in real projects, even when the expected return is modest. This can increase economic activity, create employment, produce goods and services, and help maintain balance in society. In this way, the prohibition of Riba is not only a religious command. It also protects society from an economic system where money makes money without contributing to real production. Riba and Economic Imbalance Interest-based returns can create a mindset where investors constantly seek guaranteed increases in wealth. This may reduce the willingness to take business risk, support entrepreneurs, or invest in productive sectors of the economy. When money flows toward fixed-income instruments instead of real economic activity, society may suffer from fewer jobs, less production, and greater inequality. This is why Riba is not just a technical issue. It affects the structure and direction of the entire economy. The Alternative: Zakat and Charity The article also reminds readers that the Qur’an emphasizes Zakat, charity, and spending in the path of Allah SWT before sternly warning against Riba. This creates a powerful contrast. Riba is based on increasing wealth through guaranteed gain, while Zakat, Sadaqah, and Khairat are based on giving wealth for the benefit of others. In worldly terms, giving may appear to reduce wealth. But in Islamic belief, spending in the path of Allah SWT brings true reward and long-term benefit. A Message to Reflect Upon Modern economies often measure success through financial increase, return, and accumulation. But Islam teaches that true success is not only in gaining more wealth. Sometimes, real benefit comes through spending, helping, sharing, and avoiding prohibited income. This is a deep message. In worldly life, people often chase Riba because it promises increase. But Allah SWT shows a different path, where real gain comes through obedience, generosity, and justice. Conclusion IRR is a useful financial tool for evaluating projects. However, when it is constantly compared with interest rates, it can discourage real economic activity and push investors toward guaranteed interest-based returns. The Islamic prohibition of Riba protects society from this imbalance. It encourages capital to move into trade, production, services, employment, and real economic development. For Islamic finance to remain true to its purpose, it must avoid using interest rates as the foundation of financial decision-making and focus instead on ethical, productive, and Shariah-compliant investment. Credit: This blog is adapted from the article by Muhammad Rizwan-ul Haque, Founding Chairman of Dawood Family Takaful, CEO of an Investment Bank, and Director of a Trust.

Author Credit: This blog is adapted from an article by Muhammad Rizwan-ul Haque, Founding Chairman of Dawood Family Takaful, CEO of an Investment Bank, and Director of a Trust. The original article was published on September 18, 2015. Introduction Agriculture is one of the most important forms of real economic activity. Many people involved in farming, poultry, dairy, cattle, and related fields work hard to produce food, create employment, and support communities. However, agriculturists often face a common challenge: they may need financing before their crops, livestock, or business activity begins generating income. A key question then arises: how can an agriculturist arrange financing without falling into Riba? This question becomes even more important in areas where Islamic banks are not available, or where financing options are limited. The Value of Agricultural Work According to Muhammad Rizwan-ul Haque, people involved in farming and agriculture deserve appreciation because they are engaged in real economic activity. Agriculture does not only create income for the landowner or entrepreneur. It also creates work opportunities for farmers, laborers, workers, suppliers, transporters, and other lower-income groups. In this way, agriculture contributes to socioeconomic justice. It helps wealth circulate in society and supports people through productive work instead of speculative or interest-based activity. The Challenge of Scarce Resources Every business requires resources, and capital is one of the most important resources. An agriculturist may begin with personal savings or family resources, but at some stage, additional financing may be required. The challenge is that while many funding options exist in the market, not all of them are halal. If an agriculturist wants to avoid Riba, the choices become more limited. However, there are still practical Islamic alternatives that can be considered. Option 1: Incorporating a Company One long-term option is to incorporate a company for the agricultural activity. If a person owns agricultural land, he can contribute that land to the company based on its fair value. Other partners or financiers can contribute cash. Based on these contributions, shares can be issued to all partners. Under this structure, all shareholders participate in profit and loss according to their agreed shareholding arrangement. This avoids the need for an interest-based loan because the financing is raised through partnership and ownership rather than borrowing. If any shareholder is actively working in the agricultural business, whether full-time or part-time, he may also receive a fixed salary based on mutually agreed terms. This salary would be separate from his share of profit or loss. Option 2: Musharakah Transaction A Musharakah arrangement can be used as a shorter-term financing option. In this structure, the landowner and investors pool their resources to carry out a specific farming project. This may be limited to one harvest, multiple harvests, or a defined agricultural cycle. The investors may contribute cash, while the landowner contributes land, effort, or both. The profit and loss are then shared according to the agreed terms of the Musharakah arrangement. The landowner may also be entitled to rental income for the use of land, if agreed by the parties. Similarly, anyone who devotes time, effort, and management to the project may receive a salary. This structure keeps the transaction connected to real economic activity and avoids interest-based borrowing. Option 3: Salam Financing Salam is another important Islamic financing option, especially for farmers and traders. In a Salam transaction, the buyer pays the price in advance, while the seller agrees to deliver a specific commodity at a future date. The purpose of Salam was to support small and financially weak farmers and traders who needed money before their crops were harvested or goods were sold. It allowed them to receive payment in advance and use that money for necessary expenses. However, Salam must be structured carefully. The commodity, quantity, quality, delivery time, and other conditions must be clearly defined. Most importantly, the price of the commodity should not be linked to interest rates in any form. If Salam is used properly, it can provide a Shariah-compliant way for agriculturists to raise funds without taking an interest-based loan. Option 4: Qarz-e-Hasna Qarz-e-Hasna is an interest-free loan given to someone in need. In Shariah, it is a charitable and supportive form of financing. It is generally offered to people who are financially challenged and need help without being burdened by interest. For an agriculturist facing genuine financial difficulty, Qarz-e-Hasna may be an option if family members, friends, community members, or welfare organizations are willing to provide support. However, it should be understood as a loan of help and kindness, not as a wealth-enhancing commercial tool for the lender. Other Possible Structures The four options discussed above are not the only possible halal structures. More financing models can be developed by combining partnership, rental, advance sale, and service-based arrangements. The important principle is that the transaction should avoid Riba and remain connected to real economic activity, fair risk-sharing, and genuine trade or production. Islamic finance is not just about avoiding conventional banking names. It is about creating fair and productive financial arrangements that do not exploit either party. Loan From a Bank The article also highlights an important caution. Any loan from a conventional or Islamic bank that is benchmarked to interest rates remains problematic from a Shariah perspective. Similarly, borrowing from individuals or institutions purely as a wealth-enhancing tool is not desirable if it creates inequality or misuses available resources. When financing becomes disconnected from real economic activity and is used only to increase wealth through debt, it can disturb the balance and harmony of society. Conclusion Agriculturists have several possible ways to arrange Riba-free financing. These include incorporating a company, entering into Musharakah, using Salam correctly, or seeking Qarz-e-Hasna in cases of genuine need. The best option depends on the situation, the size of the farming activity, the available partners, and the financing requirement. The key principle is that financing should be halal, fair, linked to real economic activity, and free from interest-based arrangements. Agriculture is a noble and productive field. When financed through ethical and Shariah-compliant methods, it can support not only the agriculturist but also workers, families, and the wider society. Credit: This blog is adapted from the article by Muhammad Rizwan-ul Haque, Founding Chairman of Dawood Family Takaful, CEO of an Investment Bank, and Director of a Trust.

Author Credit: This blog is adapted from an article by Muhammad Rizwan-ul Haque, Founding Chairman of Dawood Family Takaful, CEO of an Investment Bank, and Director of a Trust. The original article was published on January 19, 2016. Introduction Swap Dollar Sukuks are often presented as Shariah-compliant investment instruments. However, their structure raises an important question: are these transactions truly Islamic, or are they simply conventional loan arrangements presented in an Islamic form? According to Muhammad Rizwan-ul Haque, the issue lies not only in the name of the instrument, but in the substance of the transaction. How Swap Dollar Sukuks Work In market practice, governments may raise foreign currency from commercial banks against local currency. These transactions are usually carried out to meet a country’s foreign exchange requirements and support its balance of payments. In simple terms, the government receives foreign currency, such as US dollars, while committing to repay the amount at maturity along with a predetermined return. This return is often linked to prevailing interest rates, making the transaction similar in nature to a conventional loan. A Balance of Payments Support Tool Governments often enter into such arrangements because they need foreign currency to meet external obligations. When a country is spending more dollars than it earns, it may need to borrow additional foreign exchange. These transactions therefore become a supporting structure for balance of payments. They help the government meet short-term foreign currency needs, but they also increase the country’s foreign currency liabilities. The Main Concern The concern raised by Muhammad Rizwan-ul Haque is that these Sukuk structures may not involve genuine Islamic trade, investment, or economic activity. In a truly Islamic financial transaction, there should be real economic substance, asset-backed activity, and some form of business risk. However, in many Swap Dollar Sukuk structures, the transaction may simply involve lending foreign currency against a promise of repayment with profit. If the profit is predetermined and reflects the prevailing interest rate, then the structure becomes difficult to distinguish from an interest-based loan. Is There Real Economic Activity? One of the strongest criticisms of Swap Dollar Sukuks is the absence of real economic activity. These transactions do not necessarily create production, trade, asset development, or business participation. Instead, the lenders mainly take credit risk on the government, just as they would in a conventional loan transaction. This becomes problematic from a Shariah perspective because Islamic finance should not be based only on guaranteed returns and credit exposure. It should be connected to real assets, genuine risk-sharing, and productive economic activity. The Issue of Artificial Structuring According to the original article, some Sukuk structures are made to look Islamic by adding agents, trustees, and other formal parties. However, if these additions do not change the real nature of the transaction, then the structure remains questionable. Islamic finance is not only about documentation. It is about the substance and purpose of the transaction. If a transaction is effectively a loan on interest, then changing its legal form or adding extra parties does not automatically make it Shariah-compliant. Why Are Such Sukuks Structured? Swap Dollar Sukuks may provide Islamic banks with an opportunity to place excess liquidity in long-term investments. Since Islamic banks are restricted from investing in conventional interest-based instruments, these Sukuks may appear to offer an alternative. However, if the transaction contains interest-like features and does not generate real economic activity, then it may not fall within the true ambit of Shariah. The concern is that such instruments may give Islamic banks a way to achieve conventional financial outcomes while using Islamic terminology. Living Beyond Means Another important point raised in the article is that governments often need such foreign currency arrangements because they are spending more dollars than they earn. This means the transaction is not necessarily helping create productive economic value. Instead, it may simply be helping the government manage a foreign exchange gap. When new foreign currency loans are used to repay old commitments, the cycle of debt continues. This raises both financial and ethical concerns. Conclusion Swap Dollar Sukuks raise serious questions in Islamic finance. If they are structured as foreign currency loans with predetermined returns linked to interest rates, and if they do not involve real economic activity or genuine business risk, then their Islamic validity becomes doubtful. The real challenge for Islamic finance is to move beyond labels and ensure that every transaction reflects the ethical, economic, and Shariah principles of Islam. A Sukuk should not merely look Islamic on paper. It should support real economic activity, avoid interest-based outcomes, and remain faithful to the objectives of Shariah. Credit: This blog is adapted from the article by Muhammad Rizwan-ul Haque, Founding Chairman of Dawood Family Takaful, CEO of an Investment Bank, and Director of a Trust.

Author Credit: This blog is adapted from an article by Muhammad Rizwan-ul Haque, Founding Chairman of Dawood Family Takaful, CEO of an Investment Bank, and Director of a Trust. The original article was published on June 25, 2015. Introduction Salam is an important transaction in Islamic finance. It refers to an agreement between a buyer and a seller in which the buyer pays the price in advance, while the seller agrees to deliver a specific commodity at a future date. In simple terms, Salam allows payment today for goods that will be delivered later. However, this mode of finance was not introduced merely as a commercial tool. It had a strong social and economic purpose behind it. The Original Purpose of Salam According to Muhammad Rizwan-ul Haque, the need for Salam arose after Riba was declared forbidden. At that time, many small farmers and traders needed money to continue their work and support their families. Farmers required funds to purchase seeds, materials, and other necessities before their crops were ready for harvest. Traders also needed money to buy and transport goods before they could sell them in the market. Since interest-based borrowing was no longer allowed, Salam provided a Shariah-compliant alternative. It allowed financially weak farmers and traders to receive payment in advance against real goods or produce that would be delivered later. Salam Was Meant to Support the Financially Weak The spirit of Salam was to support people who were genuinely in need. It was a practical solution for those who had real goods, crops, or trade activity, but lacked immediate cash. This is an important point. Salam was not designed as a tool for artificial financial gain. It was connected to real economic activity, actual commodities, and genuine trade. The seller was not simply selling a paper or document. The transaction was based on expected goods or agricultural produce that would later be delivered to the buyer. Salam and the Prohibition of Riba When Riba became forbidden, people could no longer rely on interest-bearing loans. Salam helped fill that gap in a permissible way. However, the price of the commodities in Salam was not meant to be linked with prevailing interest rates. The purpose was not to recreate interest-based lending under a different name. Rather, it was to provide relief and support through a real trade-based transaction. This difference is very important for understanding the true nature of Islamic finance. Islamic finance is not only about changing the form of a contract. It is also about preserving fairness, justice, and the ethical purpose behind the transaction. Salam in Trade Activities Salam was also useful for traders. People of Makkah used to carry local goods to other places for sale. They would also buy goods from outside and bring them back to Makkah to sell in the local market. Often, these traders needed money before starting their journey or before completing their trade cycle. Salam allowed them to raise funds by selling expected goods in advance. Again, the key point is that Salam was linked to real goods and genuine trading activity. It was not merely a financial arrangement for leverage or profit maximization. Concern With Modern Islamic Banking and Finance The concern raised by Muhammad Rizwan-ul Haque is that some Islamic financial institutions may be using Salam in a way that moves away from its original purpose. Instead of supporting small farmers, traders, and financially weak individuals, Salam may sometimes be used as a leveraging tool for wealthy businesses and capitalists. When this happens, the spirit of Salam becomes questionable. If the transaction is structured mainly to maximize profit and imitate the result of interest-based financing, then it may lose its true Islamic character. Is Salam Being Used in Its True Spirit? This raises an important question for modern Islamic banking and finance: is Salam still serving the people it was originally meant to support? The Islamic financial system is not only about avoiding the word “interest.” It is about creating a fair, ethical, and real economy where money is connected to trade, production, risk, and responsibility. For Salam to remain a truly Islamic mode, it must continue to serve its original purpose. It should help those who need liquidity for real production and trade, especially farmers, traders, and financially weaker segments of society. Conclusion Salam is a valuable Islamic financial contract when used according to its proper conditions and purpose. It was allowed as a means of support for people who needed upfront payment while avoiding Riba. However, when Salam is used mainly as a leveraging tool for wealthy market players, its purpose becomes doubtful. The challenge for Islamic financial institutions today is to ensure that Salam remains faithful not only to the legal structure of Islamic finance, but also to its ethical and social objectives. Credit: This blog is adapted from the article by Muhammad Rizwan-ul Haque, Founding Chairman of Dawood Family Takaful, CEO of an Investment Bank, and Director of a Trust.

Author Credit: This article is based on the original LinkedIn post written by Muhammad Rizwan-ul Haque, Founding Chairman of Dawood Family Takaful, CEO of an Investment Bank, and Director of a Trust. Originally published on June 25, 2015. Introduction Salam is one of the important modes of Islamic finance. It refers to a transaction between a buyer and a seller in which the buyer pays the full price in advance, while the seller promises to deliver a specific commodity at a future date. In its original spirit, Salam was not created as a tool for financial engineering or profit maximization. Rather, it was allowed as a practical solution for people who needed financial support without falling into Riba. The Original Purpose of Salam According to the understanding shared by Muhammad Rizwan-ul Haque, Salam became necessary when Riba was declared forbidden. Many small farmers, traders, and financially weak individuals needed money to purchase seeds, goods, raw materials, or other essentials for their livelihood. Before harvest or before completing their trade journey, they required funds to survive and continue their economic activity. Since interest-based borrowing was no longer allowed, Salam provided them with a Shariah-compliant alternative. Through Salam, farmers and traders could sell their future produce or expected goods in advance and receive payment immediately. This helped them meet their basic needs while avoiding interest-based loans. Conditions and Spirit of Salam The permissibility of Salam was subject to specific conditions. The commodity had to be clearly defined, the delivery date had to be agreed upon, and the price had to be paid upfront. However, the most important point highlighted in the original article is the spirit behind the transaction. Salam was introduced to support those who were genuinely in need, especially small farmers and traders who lacked financial strength. It was not meant to become a replacement for interest-based lending in form while keeping the same profit-driven mindset in substance. Salam and the Prohibition of Riba When Riba was prohibited, financially weak people could no longer rely on interest-bearing loans. Salam offered a way for them to raise funds by selling real goods or agricultural produce in advance. This distinction is very important. Salam was connected to actual commodities, real economic activity, and genuine trade. It was not merely a paper transaction or a financial document designed to create leverage. In the original Islamic framework, the transaction was based on goods, production, delivery, and real market needs. Salam in Trade Activities Salam was not limited only to agricultural produce. Traders in Makkah also used to travel with local goods to sell in other regions. Similarly, they would buy goods from outside and bring them back to Makkah for sale. These traders often needed funds before beginning their journey or completing their trading cycle. Since interest-based borrowing was prohibited, they were also allowed to sell expected goods in advance under Salam. Again, the transaction was linked to real goods and genuine trade activity, not artificial financial structuring. The Concern With Modern Islamic Banking and Finance The major concern raised by Muhammad Rizwan-ul Haque is that some Islamic financial institutions may be using Salam in a way that moves away from its original purpose. Instead of serving small farmers, traders, and financially weak communities, Salam may sometimes be used as a leveraging tool to assist capitalists and maximize profit. If Salam is structured only to replicate the outcome of interest-based financing, without serving its original social and economic purpose, then it risks losing its Islamic spirit. Is Salam Still Serving Its Purpose? This raises an important question for modern Islamic banking and finance: is Salam still being used to support real economic activity and financially vulnerable people, or has it become another financial product designed mainly for institutional profit? The Islamic financial system is not only about avoiding certain words or replacing conventional contracts with Islamic names. It is about fairness, justice, risk-sharing, real trade, and avoiding exploitation. For Salam to remain a truly Islamic mode, it must stay connected with its original objective: supporting those who need liquidity for genuine production and trade. Conclusion Salam is a valuable Islamic financial contract when used according to its proper purpose and conditions. It was allowed as a mercy and facilitation for farmers, traders, and financially weak individuals who needed upfront payment while avoiding Riba. However, when Salam is used mainly as a leveraging tool for wealthy market players, its purpose becomes questionable. The real challenge for Islamic financial institutions today is not only to structure products that appear Shariah-compliant, but to ensure that these products remain faithful to the ethical and social objectives of Islam. Credit: This blog is adapted from the article by Muhammad Rizwan-ul Haque, Founding Chairman of Dawood Family Takaful, CEO of an Investment Bank, and Director of a Trust.

By Muhammad Rizwan-ul Haque Founding Chairman, Dawood Family Takaful, CEO of an Investment Bank and Director of a Trust September 22, 2015 Introduction This article explains the difference between Musharika and Murabaha, two commonly discussed concepts in Islamic finance. Musharika According to the author, Musharika represents one of the purest forms of Islamic finance because it is based on partnership, shared ownership, and shared business risk. Features of Musharika Musharika is a financing arrangement in which two or more parties pool their financial resources together to undertake a genuine economic activity without unfair leveraging or preferential treatment. Additional Characteristics The article describes Musharika as: A fully equity-based arrangement, Based on shared participation, and Ideally independent from conventional interest-rate benchmarking. How Musharika Works Once resources are pooled: Each participant receives a share according to their investment or mutually agreed terms, The project must involve real economic activity such as trade, manufacturing, or agriculture, and Profits and losses are distributed among participants based on agreed principles. The article argues that such arrangements may help create employment opportunities and broader economic participation. Murabaha In contrast, the article describes Murabaha as a transaction structure commonly used by Islamic financial institutions that is often documentation-driven and benchmarked against prevailing market interest rates. Purpose of Murabaha According to the author, Murabaha is widely used by Islamic financial institutions for liquidity deployment and short-term financing purposes. Relationship with Conventional Banking The article further notes that Islamic banks may sometimes engage in Murabaha arrangements involving conventional banks within interbank markets. Socioeconomic Concerns The author argues that benchmarking transactions against interest rates and maintaining close operational similarities with conventional banking systems may undermine the broader socioeconomic objectives associated with Islamic finance. Conclusion The article concludes by emphasizing the distinction between: Musharika, which the author views as a partnership-based and equity-oriented structure tied to real economic activity, and Murabaha, which the author considers more transaction-focused and closely linked to prevailing financial benchmarks. Author Credit: This article is written by Muhammad Rizwan-ul Haque, researcher and commentator on Islamic economics and finance.

By Muhammad Rizwan-ul Haque Founding Chairman, Dawood Family Takaful, CEO of an Investment Bank and Director of a Trust June 22, 2015 Introduction This article discusses the concept of Murabaha within Islamic Banking & Finance and raises questions regarding its practical implementation and compatibility with the broader economic objectives of Islam. Reference to Muhammad Taqi Usmani The article cites an excerpt from An Introduction to Islamic Finance by Muhammad Taqi Usmani, where it is stated that: “Murabahah is not originally a mode of financing and not an ideal instrument for carrying out the real economic objectives of Islam.” The excerpt further notes that Murabaha was intended as a temporary or transitional mechanism where Modaraba or Musharakah arrangements may not be practical. Analysis of the Concept The author argues that many Murabaha transactions conducted by Islamic financial institutions function primarily as paper-based arrangements designed to resemble trade transactions, while in practice remaining closely linked to conventional financing structures. Not a Preferred Instrument The article highlights that even scholars associated with Islamic finance have described Murabaha as a non-ideal or temporary solution rather than the preferred structure for Islamic economic activity. Questions Raised by the Author Why Is Murabaha Widely Used? The article questions why Islamic financial institutions continue to rely heavily on Murabaha if it is considered a transitional or less desirable structure. What Corrective Measures Exist? The author asks whether regulators, scholars, or institutions have implemented measures to gradually reduce dependence on Murabaha-based financing. Responsibility of Institutions The article further questions whether responsibility lies with: Islamic financial institutions, Shariah boards, or Regulators overseeing the industry. Transparency with Customers The author raises concerns about whether customers are adequately informed regarding the nature and limitations of Murabaha structures. “Islamic” Labeling Another concern raised is whether institutions should market themselves as fully Shariah-compliant while continuing to rely heavily on financing structures viewed by some scholars as transitional. Duration of the “Transitional” Period The article questions how long Murabaha can continue to be described as a temporary measure and whether any formal roadmap exists toward broader equity-based Islamic financial models. Profit and Ethics The author argues that excessive focus on profitability may risk overshadowing broader ethical and socioeconomic objectives emphasized in Islamic teachings. Conclusion The article concludes that serious discussion and scholarly engagement are necessary regarding the continued use of Murabaha within Islamic Banking & Finance. According to the author, these discussions are important to ensure transparency, fairness, and alignment with the objectives of Islamic economic principles. May Allah (SWT) guide us all toward the straight and truthful path. Aameen. Author Credit: This article is written by Muhammad Rizwan-ul Haque, researcher and commentator on Islamic economics and finance.

By Muhammad Rizwan-ul Haque Founding Chairman, Dawood Family Takaful, CEO of an Investment Bank and Director of a Trust December 10, 2015 Introduction There has been increasing discussion regarding fiat currencies and the role of banking systems in modern economies. This article presents an overview of these concepts from the author’s perspective. What Is a Bank? A bank is generally understood as a place where something is stored or accumulated. For example, a place where blood is collected is known as a “blood bank.” In the modern sense, however, a bank is commonly recognized as an institution where money is deposited and managed. Early Forms of Banking Primitive banking systems existed throughout ancient civilizations, including Greece, Rome, India, China, and Syria. Wealthy individuals and temple-based lenders commonly: Provided loans to farmers and traders, Lent money to financially struggling individuals, Accepted deposits, and Exchanged currencies. These transactions were typically associated with usury or interest (Riba), which often trapped borrowers in long-term debt. Riba and Exploitation According to the article, it was because of exploitation linked to Riba that it was forbidden through divine teachings brought by various Prophets (AS). During those times, gold and silver coins were commonly used as currency. The Practice Continued Although financial systems evolved over time, the author argues that the underlying practice of interest-based lending continued, becoming increasingly sophisticated while operating under different names and structures. Evolution of Modern Banks The article refers to the historical role of goldsmiths, whose written receipts (IOUs) gradually evolved into instruments accepted as legal tender. Initially, these IOUs were backed by valuables deposited with them. Over time, however, goldsmiths reportedly observed that many depositors did not reclaim their valuables, encouraging the issuance of additional IOUs beyond actual reserves. Fiat Currency Fiat currency refers to money declared legal tender by governments but not backed by a physical commodity such as gold or silver. The Rise of Banks and Central Banks The article notes that one of the earliest recognized banks was the Medici Bank in Italy, while the Sveriges Riksbank, established in 1668, is widely considered the world’s first central bank. The Age of Fiat Money Under the Bretton Woods Agreement, the U.S. dollar was tied to gold at a fixed rate, while other currencies were linked to the U.S. dollar. The system eventually ended following economic measures introduced by Richard Nixon in 1971, after which the global economy increasingly shifted toward floating fiat currencies. Banking and Interest The article argues that the core activities of modern banking continue to revolve around: Collecting deposits, Issuing loans, and Operating through systems linked to prevailing interest rates. The author further contends that this applies to both conventional and Islamic banking structures where transactions are benchmarked against interest rates. Conclusion According to the article, fiat currency systems allow governments to issue money without direct commodity backing, often through deficit financing and debt expansion. The author argues that this contributes to inflation, economic inequality, and growing financial instability. The article concludes by asserting that meaningful socioeconomic reform requires confronting these structural issues directly rather than relying solely on modified banking models that continue to reference prevailing interest-rate systems. Author Credit: This article is written by Muhammad Rizwan-ul Haque, Founding Chairman of Dawood Family Takaful and a researcher in Islamic economics and finance.

By Muhammad Rizwan-ul Haque Published November 17, 2016 Respected Justice (Retired) Maulana Taqi Usmani Sahib السَّلاَمُ عَلَيْكُمْ وَرَحْمَةُ اللهِ وَبَرَكَاتُهُ 1. Gratitude In Shaa Allah, your efforts will earn abundant rewards in the Hereafter. The appreciation of this world can never truly reflect the sincerity and dedication with which you are serving the Ummah through your time, knowledge, and resources. May Allah (SWT) grant you the best reward (Jaza-e-Khair). Aameen. 2. A Humble Request With utmost respect, the writer humbly requests that the term “Islamic” be reconsidered in “Islamic Banking & Finance” (IB&F) institutions unless such systems fully eliminate interest and avoid paper-based transactions that do not result in real economic activity or meaningful job creation, particularly for lower-income segments of society. 3. Awareness of Realities It is understood that the real economic objectives of Islam cannot be achieved through transactional structures that are overly formal or detached from productive economic activity. According to the author, there is a need to critically reassess such systems if genuine relief for the masses is to be achieved. 4. Naïve or Opportunists The author suggests that individuals in this field may broadly fall into two categories: those unaware of deeper issues, and those who may benefit from the current system. This includes professionals, Shariah advisors, regulators, and market participants. 5. IB&F and Capitalism The argument is made that IB&F in its current form functions largely as a support system for conventional capitalism, differing mainly in: product labeling contractual documentation Shariah endorsement mechanisms 6. Divine Guidance Over Desires “And O believers! Judge according to what Allah has revealed and do not follow their desires…” (Surah Al-Ma’idah 5:49) 7. Interest and Its Associated Structures The letter asserts that Riba (interest), along with loans, leveraging, and conventional banking mechanisms, continues to exist in various forms within IB&F structures. 8. Growing Wealth Inequality The system, according to the author, disproportionately benefits wealthy individuals, corporations, and governments who are able to leverage depositor funds to expand their wealth, often at the expense of balanced economic development. 9. Economic Consequences The letter argues that when capitalism is supported by interest-based systems, it contributes to inflation, unemployment, poverty, low productivity, and widening inequality, which may also lead to broader social instability. 10. Rejecting Systems of Ignorance “Do they then seek judgment of the days of ignorance? And who is better in judgment than Allah for a people who have certainty?” (Surah Al-Ma’idah 5:50) 11. Social Impact The author further expresses concern that economic hardship and inflation may push individuals toward compromising principles, potentially increasing social problems within society. 12. Regret and Apology The writer apologizes if any part of the letter causes discomfort, stating that speaking truth (as understood) is preferred even if it causes temporary disagreement in this world, in hope of benefit in the Hereafter. 13. A Reminder “O you who believe! Whoever among you turns back from his religion, Allah will bring forth a people whom He loves and who love Him…” (Surah Al-Ma’idah 5:54) 14. Capitalism vs Islamic Economic System The author encourages readers to explore comparative perspectives between capitalism and an Islamic economic framework, as discussed in his writings: A Tale of Two Economies (Part I) https://www.linkedin.com/pulse/tale-two-economies-societies-part-i-muhammad-rizwan-ul-haque A Tale of Two Economies (Part II) https://www.linkedin.com/pulse/tale-two-economies-societies-part-ii-muhammad-rizwan-ul-haque 15. Closing Note The author mentions an intention to forward this letter through mutual contacts and expresses gratitude for any attention given to its key points. May Allah (SWT) guide us all toward implementing the true economic system based on the Qur’an and Sunnah. Aameen. Author Credit: This letter is written by Muhammad Rizwan-ul Haque, researcher and commentator on Islamic economics and finance.