Can money be called a “commodity”? What do Islamic scholars say about this idea?
Before we get to these questions, let us briefly go over some important points regarding how Islamic banks differ from conventional banks the whole focus of our ongoing discussion through this column over the past few weeks.
An Islamic bank deploys funds from a common pool (obtained from depositors on a Mudaraba basis). It credits profits as well as debits and losses to the same pool.
At any given point in time, the residual excess, or deficit, over the aggregate value of the common pool (as per the bank’s last drawn balance sheet) constitutes the profit earned or loss incurred by the bank as Mudareb.
An Islamic bank is less prone to financial losses due to the fact its transactions are based on goods, assets or investments. This provides it with a built-in safety cushion. The financial assistance extended by a conventional bank to a customer, by contrast, is more likely to turn delinquent due to non-availability of such backing.
In fact, lending by a conventional bank, in the form of overdrafts, discounting of debt (cheques or bills), working capital loans, etc, have a tendency to hurt the borrower’s debt serviceability. The borrower’s serviceability declines with every dirham borrowed for non-productive purposes.
Similarly, the lending on the retail banking front in shape of personal loans, top-up finance, credit cards, cash-your-car and so on can lure customers to overextend themselves. The result they can become trapped in a vicious cycle of having to constantly borrow fresh money to cover what they already owe.
An Islamic bank is guided by the wisdom of Sharia. Sharia negates such practices described above, by prohibiting people to part with money in exchange for more money. Here, we will consider the questions posed earlier.
The old argument that money is a commodity and hence can be traded does not is disputed by Sharia scholars. Sharia scholars say money is merely a medium of exchange, and hence cannot be regarded as a commodity.
According to Sharia, one can enter into a transaction where one exchanges money for some kind of good.
Such transactions are Sharia-compliant one side gives money, the other gives some commodity or good in return. When one party, however, gives money and expects to receive money in return this is where the Sharia scholars become concerned.
What is a commodity? The economic definition of a commodity is a product that can be “sold” to make profit.
A trader’s nightmare is to have his previously-sold goods returned to him. It is equally undesired by an accountant to record a “sales return entry”. In light of this, we can understand how commodities are indeed intended to be sold at a profit, with no intention of having them returned.
All this might remind one of the note that appears at the bottom of many shop bills “Goods once sold will not be taken back or exchanged”.
Let’s apply this logic to money. The lender of money parts with his capital with a clear intention to not only make a “profit”, but also to have the capital returned to him after an “agreed period”.
In case of delay, the lender not only insists for the early return of his capital, but may also threaten the borrower with legal action. The lender will also try to increase the amount of “profit” due to him given the delay in repayment.
Will someone who trades in a particular commodity resort to such measures in order to get his “sold” commodity returned to him?
From the perspective of Sharia scholars, therefore, money cannot be described as a commodity. All such “trading” in money, or the view that money is a “commodity”, leaves much to be desired, from the perspective of an Islamic bank.
The writer is the vice-president, Sharia structuring, documentation and product development, Dubai Islamic Bank.
Source: Gulf News