Wednesday word: Istisna’a

Like salam, istisna’a is an Islamic contract that allows two parties to agree on a price now for a product delivered later (although Islam generally prohibits deferred payment sales or sales of objects that do not yet exist).

Specifically, istisna’a is defined by Islamic finance specialist Brian Kettell as “a sale contract whereby the purchaser asks the seller to manufacture a specifically defined product, using the seller’s raw materials, at a given price.”*

One difference between istisna’a and salam is that is that istisna’a is used for major manufactured products, facilities, or equipment such as an oil rig, while salam is often used for agricultural or other objects.

However, while there is a marginal justification for salam in Islamic law, there is virtually none, if any, for istisna’a.  Kettell writes:

Similarly to Murabaha and Ijara, no direct support for the principle of Istisna’a can be found by studying the major sources of Sharia’a law.  In fact, the majority of religious schools argue that Istisna’a is inconsistent with Sharia’a law.  Only the Hanafi School accepts the Istisa’a contract and then merely because there is a need within society and customary practice (urf) to have an Islamically acceptable form of project finance.  Nothwithstanding the lack of juristic support for Istisna’a, it is still a widely employed method among Islamic banks.

In a 10 page document describing and justifying salam and istisna’a, Mufti Taqi Usmani (one of the two most notorious sharia finance proponents in the world) cites only one Hadith to justify salam, and none to justify istisn’a.  Usmani makes one vague reference to the Ottoman Empire as having utilized istisna’a.  Although Mr. Usmani supports jihad, sharia, and Islamic supremacy, his apparent support for istisna’a contracts may be based upon something other than Islam.

*Kettell, Brian B., Introduction to Islamic Banking and Finance (Chippenham: John Wiley and Sons, 2011).

Chicago sharia bank linked to Usmani

The Chicago-based Devon Bank has been named the best Islamic bank in the U.S. for 2012 by Global Finance magazine.

The person who approves Devon Bank’s “faith-based financing” products is Mufti Muhammad Nawal-ur-Rahman, the president and founder of the Shariah Board of America.

A professional biography of Mufti Rahman listed the notorious Mufti Taqi Usmani as one of the advisors to the Shariah Board of America when it was chartered.

Mufti Rahman is also part of the Tablighi Jamaat movement, an offshoot of the radical Deobandi school of Islam, which has been involved in “the fringes of numerous terrorism investigations.”

Mufti Rahman’s rather hard to find biography follows after the jump:

Sharia money man hates owing the West

One of the two best known sharia finance advocates, Taqi Usmani, has written a column proposing a post-Communist alternative to the “inequitable” nature of capitalism.  The alternative would be an Islamic economic system.

Such as system wouldn’t be nearly so equitable as Usmani leads the reader to believe.  Pakistan has had state-mandated zakat for decades, which has only caused more dependence and squalor among its citizens.

Under Islamic tax law, not even the poorest Christians, Sikhs, or other religious minorities are entitled to receive zakat; in fact, they are required to pay the jizya from which there is no waiver due to poverty.

But leaving that aside, it’s worth noting how deeply humiliating it is for Usmani and for Islamic countries to owe money to the West for development aid loans.  Not only do they detest being dependent on the Great Satan (and dependent on the Jews who they regard as the masters of world banking and lending in the world), but they resent paying loan interest that they believe is haram.

We should do Usmani and the Islamic world a favor and discontinue any such loan programs.

Here’s Usmani’s column as reprinted in the Pakistan Herald:

It is common knowledge that Ummah’s basic economic problem is the dependence of the Muslim countries on others. Most of the them areborrowing huge amounts from the rich Western countries. Some countries are incurring these heavy interest-bearing loans not only for the development projects, but also for their day-to-day expenses, and what is more serious, for the payment of interest accrued on their previous loans which keeps the size of their indebtedness ever-increasing through a vicious circle.

Dependency on foreign loans is the basic disease of our economy that has not only shattered our economic life, but has also devastated our self-determination and has forced us to submit to the demands of our creditors

Usmani fumes after being denied his cut

One of the two most prominent sharia finance proponents in the world, Taqi “Ugly” Usmani, has rebuked financial institutions in North America and Australia for using his name to market sharia financial products without having paid for his endorsement.

Mr. Usmani is accustomed to being “hired” as a sharia board member by major Islamic banks throughout the world.  Whenever he blesses off on the latest product that the sharia bankers have cooked up, Usmani gets a nice, fat check.

But this time, the sharia bankers failed to stroke his back and line his pockets.  They apparently decided to use old Usmani quotations to help promote ijara loans, which gave the appearance of Usmani approving these specific financial products.  Usmani released a written statement (h/t Creeping Sharia) last month warning legal action against the unnamed banks:

Announcement Regarding Misuse of a Fatwa

Thursday, 17 February 2011 12:32

This is for information of all concerned that I have been receiving correspondence from various places enquiring whether I have authorized any Ijarah contracts of certain financial institution in America, Australia and Canada. As evidence these companies have posted a 15 years old fatwa of mine on their websites. I would very explicitly like to declare the following in this regard:

I have never approved any Ijarah contract or scheme for any Financial Institution in America, Australia or Canada.

This fatwa was actually issued 15 years ago in peculiar circumstances prevalent at that time in favor of a house financing company, namely, Al-Amin Company based in Jeddah which they had intended to implement at that time but is no more acting in USA. This Fatwa cannot be used by any other company, because I never reviewed their contracts, nor do I serve on their Shriah Board . As such, the use of this fatwa by other financial institutions is illegal and misleading.

All such companies are requested not to refer to this Fatwa nor to use it as their marketing material, and immediately remove it from their websites failing which they may face legal action at their own cost.

But mind you, Usmani is not opposed to ijara loans.  In fact, ijara is one of the more widely accepted methods among Muslims for structuring a loan.  Usmani himself has specifically signed off on ijara loans before.  Recently Usmani has become critical of murabaha, which is a different structural basis for Islamic financial products.

Once you understand that Usmani supports ijara, but has blasted the banks who invoked his name to help market ijara loans, then you understand more about the profit motive of the sharia advisors.  He’s not mad that sharia banks in North America sell ijara loans.  He’s just mad that they didn’t pay him for it.

Also, sharia advisors like to have access to a portion of the sharia bank’s profits to divert as corporate zakat toward “Islamic charity” or jihad.  That helps the sharia advisors maintain their status and reputation with their sharia-oriented friends.  And if the banks don’t pay, then Usmani can’t play.

Concerns about popular sharia finance method

Weekly word:  Ijara

Ijara simply means “to give something for rent”.*  In practice, ijara financing often works as a lease-to-own agreement.

In real estate, ijara is frequently used as the basis for a mortgage with a premium rolled into the monthly rental/lease payment toward an eventual purchase of a house.  Ijara-based home loans can be distinguished from murabaha mortgages by the timing of the “sale.”  Murabaha may allow the sale and technical transfer of ownership once the borrower begins making payments, whereas under ijara the sale is made when the lessee makes final payment.

Ijara is widely accepted among Islamists because even they cannot deny the logic of paying on a lease to use an asset until the leesee is able to buy the asset outright.

Ijara critique

But if ijara is simply a lease, why bother having it at all?  In other words, Muslims could just take out a conventional lease, which is a popular method of financing car purchases in the U.S.  One senior member of a Pakistani web forum makes the following observation:

I am in possession of a Car Ijara Document from Meezan Bank which claims to have their Car lease interest free and Shariah Compliant certified by Maulana Taqqi Usmani. Some body [sic] please explain [to] me the difference between their Arabic sounding Ijarah and Car lease by other banks.

Meezan bank gives you [a] car for 20% security (another name for down payment) and gives you [a]  car on monthly rent almost comparable in amount to interest being charged by other banks (instead of instalments [sic] as rent is allowed in Islam). After 3-5 years, whenever the term completes, car is gifted to you while your security deposit is forfeited (or the car is sold to you at the security deposit price). Now someone please tell me, where do you pay rent and get guaranteed ownership of the property after a fixed tenure. There are few other obscure differences regarding ownership of car, status of monthly instalments [sic] etc etc but they are more of playing with words than having any real value.

This seems to me as a case of “Halala” of interest. Just play with words and use some arcane Arabic terminology like Mudaraba and Ijarah etc etc and viola, you are certified Shariah compliant. And you always get some maulvi to give a fatwa in your favour in exchange of some pay/ emolument. I wonder how much Maulana is being paid by the bank to be its Sharia advisor?

Money Jihad too wonders how much Taqi Usmani is being paid to bless off on sharia finance products.  In theory, one difference between ijara and a conventional lease is that ijara rents received by the bank aren’t invested in pork bellies or Anheuser-Busch stocks, and a portion of the bank revenues are diverted as zakat to be distributed as pro-sharia men Mr. Usmani see fit.

Investors start souring on ijara

Sukuk (Islamic bonds) are one of the largest asset classes among the sharia finance industry.  Sukuk can be structured using any of the methods that Money Jihad has defined over the last couple months—murabaha, mudarabah, musharaka, ijara, etc.—but ijara sukuk have become the most popular (partly because the aforementioned Mr. Usmani panned the alternatives).

Nevertheless, when Goldman Sachs recently announced its record and troubling $2 billion sukuk issue, it eschewed ijara for a murabaha—a structural choice that prompted surprise and speculation among Islamic finance analysts.  Goldman Sachs has committed a moral failure by endorsing such a massive foray into sharia finance, but their decision to base it on murabaha suggests that there are practical risks to ijara that have not yet been fully communicated to the public.

* Kettell, Brian B., Introduction to Islamic Banking and Finance (Chippenham:  John Wiley and Sons, 2011).

Sharia goon blames corn futures for recession

Grain futures contracts were traded as early as the 1840s in the United States.  Were the commodities futures a monstrous invention of godless financial speculators that doomed America to nearly two centuries of economic ruin?  Far from it.  One source explains:

Before the North American futures market originated some 150 years ago, farmers would grow their crops and then bring them to market in the hope of selling their commodity of inventory. But without any indication of demand, supply often exceeded what was needed, and unpurchased crops were left to rot in the streets. Conversely, when a given commodity such as soybeans were out of season, the goods made from it became very expensive because the crop was no longer available, lack of supply.

In the mid-19th century, grain markets were established and a central marketplace was created for farmers to bring their commodities and sell them either for immediate delivery (spot trading) or for forward delivery. The latter contracts, forwards contracts, were the fore-runners to today’s futures contracts. In fact, this concept saved many farmers from the loss of crops and helped stabilize supply and prices in the off-season.

Commodities markets and their predictions of future supply and demand have, generally speaking, helped bring relative stability to food markets and avoid famine.  But what does Islamic law have to say about Western commodities markets that have helped stabilize food prices and avoid starvation?  Just watch this clip from known jihadist Taqi “Ugly” Usmani, one of the world’s foremost sharia finance scholars and Islamic jurists, denigrate the system during a speech in August:

Keep in mind, malnutrition plagues countries across the Islamic world today.  Few, if any, societies have ever made so much food available to the world at such an affordable price as has the United States of America.  Yet sharia law declares the financing behind this unique historical accomplishment to be a haram (filthy) sin.

HLF co-conspirator trains 100 American imams on sharia finance

The Islamic Society of North America (ISNA), which is the son of the Muslim Student Association, the grandchild of the Muslim Brotherhood, and the secret step-brother of the Holy Land Foundation (HLF) in a conspiracy to fund Hamas, has undertaken a new effort to deepen the Islamization and separatism of America’s Muslims.  They are doing so by training imams on sharia finance in the hopes that they will help force feed, bully, and shame American Muslims into abandoning conventional finance methods and embracing sharia banking.

World-class jihadist Taqi Usmani delivered the “inaugural address” for the training.  Ethica Institute Of Islamic Finance’s Jul. 18 press release follows (h/t GMBDR):

Two Months of Rigorous, First Ever Islamic Finance Training Successfully Completed

What does it take to bring 7 million American Muslims Islamic finance? Maybe training only 100 prominent religious leaders as a small first step. That is what the founding members of the American Islamic Finance (AIF) Project have now successfully accomplished. Jointly founded by Ethica Institute of Islamic Finance, Guidance Financial, and the Islamic Society of North America, the AIF Project seeks to promote standards-based Islamic finance among Muslim communities in North America.

The training program began with an inaugural address by Mufti Taqi Usmani, chairman of AAOIFI (Accounting and Auditing Organization for Islamic Financial Institutions), the world´s leading standard-setting body. Ethica´s spokesperson said, “Muslims in America rely on their imams for all kinds of information. By giving these community leaders direct training in the practical application of Islamic finance, Ethica now equips them with an understanding of global standards.”

Ethica´s two-month imam training program looks to become an annual event. The program was successfully completed this month after Ethica delivered a rigorous blend of e-learning, including case studies, exercises, and exams, in addition to intensive classroom instruction. With fewer banks and universities opting for face-to-face training, and more institutions adopting the increasingly popular e-learning option, Islamic finance is set to become more accessible to countries outside of the Gulf.

Ethica Institute of Islamic Finance

With over 20,000 paid users in more than 40 countries in 2011, Ethica (http://www.EthicaInstitute.com) is the world´s leading accredited Islamic finance training and certification institute, with more learners than any other Islamic finance organization in the world. Ethica remains the only institute in the world to deliver standardized certification based entirely on the Accounting and Auditing Organization for Islamic Financial Institutions (AAOIFI), the leading standard-setting body in the industry.

Guidance Residential

Guidance is the leading US provider of Sharia-compliant home financing with over $2 billion in home financings. It is a subsidiary of Guidance Financial Group, an international company dedicated to serving the market for Sharia-compliant financial products and services. Guidance Financial Group offers unique investment products to institutional investors and financial intermediaries worldwide, and provides financial services to its retail customer base in the United States.

Islamic Society of North America

ISNA is an association of Muslim organizations and individuals that provides a common platform for presenting Islam, supporting Muslim communities, developing educational, social and outreach programs and fostering good relations with other religious communities, and civic and service organizations.

Puneet Madaan exposes Usmani protégé

Puneet Madaan, a frequent commenter here on Money Jihad and no stranger to our readers, recently sent in a link about IjaraLoans.com, a Michigan-based sharia compliant lender.

After clicking on IjaraLoans.com’s online tool to “Chat With A Scholar”, Puneet noticed the name of their scholar is Sheikh Mohammed-Umer Esmail.  He also found that Sheikh Mohammed-Umer Esmail has led prayers with UT Austin’s Muslim Student Association.  Thank you, Puneet, for notifying us about this.

(It’s also worth noting that the Global MB Daily Report says that Muslim Student Associations have “long been associated with the U.S. Muslim Brotherhood…”  The linkages deal with the origins of Muslim student unions in America and Yusuf al-Qaradawi’s admission that the MSA is a recruitment ground for the U.S. Muslim Brotherhood.)

But the association between Sheikh Muhammed-Umer Esmail and the champions of global sharia finance is not as attenuated as working for IjaraLoans.com or praying with the MSA.  It turns out that Esmail actually studied Islamic finance under Taqi Usmani (or as Shariah Finance Watch occasionally calls him, “Ugly Usmani”), perhaps the biggest proponent of sharia finance in the world today.  From a cached “SeekersGuidance” profile:

Shaykh Mufti Mohamed-Umer Esmail as our new instructor at SeekersGuidance.  He will begin teaching this Summer with two courses in the sciences of Tafsir and Qira’at.
  
Shaykh Umer Esmail is a Canadian born, traditionally trained scholar who started his quest to acquire Islamic knowledge at a young age and continued formal studies of the Sciences of Shari`ah in different parts of the world for thirteen years.

He initially studied Urdu and Arabic as well as other traditional Islamic Sciences at the Institute for Islamic Studies in Dewsbury, UK. There he acquired an Ijazah (teaching certification) in Hanafi Fiqh, Hadith, Tafsir, Tajwid and the Ten Qur’anic Qira’at. He then traveled to Karachi, Pakistan, where he studied under some of the greatest living scholars of our time; including Justice (Rtd) Shaykh al-Islam Mufti Muhammad Taqi Usmani (may Allah preserve him). There he received an Ijazah in ten major books of Hadith. He also spent two years specializing in the science of Fiqh and Ifta’ (giving legal verdicts) and during this time he published hundreds of Fatawa (legal verdicts). Furthermore, he was blessed with the opportunity to study Islamic Finance under the tutelage of Mufti Muhammad Taqi Usmani.

It’s not surprising that scholars in America have learned and are implementing Usmani’s teachings in the U.S. (especially considering that Western banks like HSBC were affiliated for years with Usmani).  But there’s something unsettling about having a homegrown Usmani hawking loans in Michigan and influencing students in Texas.