Application of 'Urf in Islamic and Conventional Bank
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APPLICATION OF ‘URF IN ISLAMIC AND CONVENTIONAL BANK Shafi‘i Abdul Azeez Bello Postgraduate & Research, Ahmad Ibrahim Kulliyyah of Laws IIUM E-mail: [email protected] Rusni Bt Hassan Islamic Law Department, Ahmad Ibrahim Kulliyyah of Laws IIUM E-mail: [email protected] ABSTRACT ‘Urf or Customary law is one of the most important supporting sources in Islamic law. This can be seen through many legal rulings (ahkam) in Islamic law, which was based on ‘urf in which most of these ahkam will change according to the change of circumstances, place and time. As for basis of ‘urf or custom, it is the product of the nature of the people and their culture, it grows in strength and popularity by means of imitation that transfers and implants it in the lives of people. Moreover, Contemporary financial system poses great problem and even great challenges to Muslims. Muslims are not permitted by Islamic Law to indulge in ribā. Since contemporary financial system is based on interest, Muslims have great problems in participating in it. Therefore, this paper stands to explain the application of ‘urf in Islamic and conventional Bank. The concept and principle of ‘urf in Islamic law was critically analysed such as application of ‘urf in Islamic law, differences between ‘urf and consensus of jurists, also between ‘urf and adah, in addition, classification of ‘urf, conditions of valid ‘urf and so on. Furthermore, the application of ‘urf in deposit products under Islamic and Conventional bank were well examined, types of conventional deposit products as well as Islamic deposit products. In fact the product shows that a little different was in-between them which can be easily avoid. Keywords: ‘Urf, ‘Adah, Islamic & Conventional Deposit Products INTRODUCTION This article compares the application of ‘urf (custom) under Islamic law of banking with the practice of conventional banking. The study is necessary due to the criticisms, especially from the Muslim world, against the practices of Islamic banking system, which is structured after the template of the conventional banking system. The example of such criticisms is as follows: “Collection of deposits, Islamic banks uses the concept of mudarabah to collect deposits whereas conventional banks use interest rates. If one understands the concept of mudarabah, one knows that an Islamic bank cannot quote a deposit rate upfront; the return on the deposits will only be known on maturity. In a low-liquidity situation, conventional banks merely hike interest rates, but Islamic banks are helpless to compete. 1“ The comparison is limited to account deposits in both systems of banking. The application of ‘urf in Islamic Finance can be traced back as early as from the time of the Prophet (s.a.w). This could be observed through the recognition of certain pre-Islamic practice of transaction by the Prophet, In the jahiliyyah period, there were various types of commercial contract practiced by the people and some of these contracts have been approved and practiced in Islam whereas some other have been forbidden. For instance, the contracts that were practice at that time are the contract of sale.2 1Saeed, Abdullah, Islamic Banking and Interest: A Study of Prohibition of Interest and its Contemporary International (New York: Leiden Brill, 2ndEdn., 1999), at 102. 2MohamadAkramLaldin, The Theory and Application of ‘urf in Islamic law, (PhD, unpublished thesis, Edinburgh: University of Edinburgh, 1995), at 113. 62 | Page APPLICATION OF ‘URF IN ISLAMIC AND CONVENTIONAL BANK S. A. A. Bello/R.B. Hassan There were several types of sale contract, which among others are: (1) Sale of goods for goods as an exchange of goods or barter (muqayadah). Sale of goods for money, a form of sale commonly being used (bay’). (2) Sale in which the price was paid in advance, the article to be delivered at a future date, this sale being called (Salam). (3) Sale with option to revoke (Khiyar). (4) Sale at less than cost price (Wadi‘ah). The contract of mudarabah was also known among the people in that period. This contract means that a person who has money will give it to another person to trade and both of them will share the profit according to the agreement between them. The Quraysh sent caravans to Syria and Yemen and on this trip, those who had money would give it to the traders to do business in order to share the profit.3 Islam has approved this kind of practice. al-Qard was another type of contract practiced during that period. This contract means that a person would borrow something including the borrowing of money from another person and upon giving or paying it back the borrower would have to pay usury (Ribā) on the goods or money that he borrow. Islam recognised the contract of qard as mentioned in a hadith of the Prophet in which he said, “If a Muslim loans to another Muslim, the reward from it is twice that of sadaqah”.4 However, Islam has forbidden the practice of usury as mentioned in the Qur’an which says “But God hath permitted trade and forbidden usury”. 5 This means that Islam preserved the original idea of qard with the banning of interest (Ribā). This show that Islam has been considered some practice of jahiliyyah and not totally abandoned the practice of that period, also taken into consideration some practice of conventional bank as ‘urf (custom) among the customers, which does not contradict any Shari‘ah principle. Moreover, as function of Shari‘ah is to reevaluate or ratify the existing practice when it does not violate Islamic law. Similarly, ‘urf has been played a good role in Islamic and conventional bank. The operations of both banks in deposit products are based on ‘urf, which are current, saving and investment account, because they are well known to depositee and depositor. The current account in Islamic and conventional bank operates in the same way, which is accepting deposits from customers. This is also known as the ‘demand deposit’ as the deposited amount is payable to customer on demand without any notice. As banks use current account at their own risk, the depositors of this types of account are not entitled to any share in the profit earned by the bank. However, operation in savings and investment account is totally different, because in offering Islamic financial services, institutions are bound by a common thread in Islamic finance, where all transactions must compliance with Shari‘ah. APPLICATION OF ‘URF IN ISLAMIC LAW Lexically, ‘urf’ means ‘custom’. It is the noun of the verb of the Arabic word ‘arafa’, which means to know as a conventional term.6‘Urf literally means ‘that which is known ‘as opposed to “what is unknown”. It refers to customs and common practices of a given society whether good or bad. The two words, ‘urf and ma‘ruf are synonymous and are mentioned in the Qur’an.7 Various definitions of ‘urf have been given by the Muslim Jurists.8 Khallaf defined ‘urf as, “What is established and practiced by people from their saying and doing, or not doing.9 The other definition is propounded by Badran who defines ‘urf as, what is established and common in a group of 3Zaydan ‘Abdul al-Kareem, Al-MadkhalLidirasah al-Shari‘ah al-Islamiyah, (Baghdad: Dar al-Wafi, 1992), at 34. 4 Al-Shawkani Muhammad Bin ‘Ali, Nayl al-AwtarSharhMuntaqa al-Akhbar Min AhadithSayid al-Akhyar, (Cairo: Dar al-hadith, 1993), vol. 5, at 347. 5 Qur’an 2: 275. 6 Mohammad AkramLaldin, Introduction to Shari‘ah and Islamic Jurisprudence, (Kuala Lumpur: CERT, 2006), at 117. 7 Ibn Manzur, Muhammad Bin Karam, Lisan al-‘Arab, (Beirut: Dar as-Sadir, 1955), vol. 9, at 236-243. See also, Al-Zubaydi Mohammad Bin Mohammad Bin ‘Abdu Al-Rozak, (M.H., ED) Taj al-‘Arus min fawdhir al-Qamus, al-Kuwait: Wizarat al-I’lam, 1987), vol. 16, at 135. 8Id., 6. 9Khallaf, ʻAbd al- Wahab, ‘IlmUsul al-Fiqh, (Kuwait: Dar al-Qalam, 1978), at 89. 63 | Page Journal of Arts and Humanities (JAH), Volume -2, No.-4, May, 2013 people (jumhur) from their saying and doing, and is consistently repeated until it influences them and is therefore accepted by their reason”.10 Al-Zarqa has defined ‘urf as “The behavior of a group of people in their sayings or doings”, or recurring practices that are acceptable to people of sound nature. 11‘Urf refers exclusively to the common practice which has been established as good by the testimony of reason and has becomes acceptable to people’s disposition (ma istaqarratal-nufus‘alayhi bi-shahadatal-‘uqulwatalaqqathualtaba’iu‘bi al- qabul).12 The above definitions indicate that in order for ‘urf to constitute a valid basis for legal decision it must be the consistent practice of a group of people. DIFFERENCE BETWEEN ‘URF AND ‘ADAH Word ‘adah is derived from the Arabic root of (al-‘Aodah) which means “to return” or “to repeat”. It refers to a habit or a continuous practice, (daydan).13 ‘Urf and ‘adah are largely synonymous, and the majority of ‘ulama have used them as such. Some others distinguished between them,14 holding that ‘adah means repetition or recurrent practice, and can be used with regard to both individuals and groups. We refer, for example, to the habits of individuals as their personal ‘adah. However, ‘urf is not used in this capacity: we do not refer to the personal habits of individuals as their ‘urf. It is the collective practice of a large number of people that is normally denoted by ‘urf. The habits of a few or even a substantial minority within a group do not constitute ‘urf.15It is the collective practice of a large number of people that is normally denoted by the word ‘urf.16 Finally, it can be said that there is no clear distinction between the two terms.