Halal certification for food can, at times, be something of a rort. There is well-known principle in fiqh (jurisprudence) that states that the ‘asl (basis) of all things outside of matters of worship is that they are permissible. In other words, the starting assumption when faced with these issues is that they are allowed. This has, to some extent and at various times, been inverted by some of the commercial organisations offering halal certification.
Of course, this is hardly surprising given there is a strong incentive for such companies to, firstly, convince manufacturers that unless they are explicitly certified as halal, there products will be forbidden to Muslims; and, secondly, the legitimacy of their certification depends, to some extent, on Muslims themselves believing that such products are forbidden to them. A more efficient alternative might be to teach Muslims enough of the rules of fiqh in order to be able to assess most products for themselves.
In any case, as Muslim communities develop there is one area where Muslims could also do with halal certification: finance. Like food products, there are many financial products on offer in the market — different types of insurance, leasing structures, managed funds, etc. — but very little information on what is and what is not permissible. I have noticed that there are a number of broad assumptions about the impermissibility of particular types of transaction and product without any detailed understanding or analysis. However, it is quite possible that there are many products and transactions we consider, by default, to be haram but are actually permissible or permissible with some conditions.
For example, there is a blanket assumption that insurance is forbidden as it involves gharar (extreme uncertainty), is a form of gambling, etc. However, some Australian insurance companies such as AAMI and GIO offer a product whereby a person pays a premium and, in the event of an accident, the customer drops the vehicle off at the depot and they (the insurance company) do everything required to fix the vehicle and return it back to the customer. The actual repairs are carried out by a subcontractor and the customer never receives a cash payment; instead being provided with a service. This transaction is therefore fundamentally different to the popular understanding of insurance. Is it also haram? And what about health insurance in which the insurer subcontracts a hospital to ‘repair’ the insured?
It is surprising that our religious leaders, imams and scholars seem not to have looked at these sorts of questions despite Muslims having been in this country for many decades. Therefore, I believe that there is a significant opportunity and need for organisations to be established — similar to the halal certification bodies used with food products — that look at the various financial products, assess them and issue certifications to the providers.
Finance companies could provide the certification body with a description of their product for assessment. The certifier would examine it, present it to their shariah board, and, if it passes, publish their findings on a website and/or in a journal alongside the company’s own description. The company would pay a fee entitling them to use a particular trademark and would sign a contract promising to notify the certifier of any changes to the product and agreeing that the description provided is a fair and accurate representation of how the product actually works. This would, I believe, be attractive to a company because it requries little from them except to provide documentation such as a product disclosure statement and yet the potential benefits of reaching a hitherto unreached market may be quite significant.
The perceived absence of halal alternatives to many increasingly important financial products in this society is and will continue to be an impediment for many Muslim’s economic development. For example, all Australians are required to pay money into superannuation yet, to the best of my knowledge, nobody has assessed the various funds to determine which ones are the most appropriate for Muslims to use. It takes a lot of money, time and skill to develop new products and the organisations to deliver them. Perhaps, it makes more sense for us to look initially at the products already on offer in the market first and assess these.
I would be interested in hearing what people think about the idea of halal certification applied to financial products. Has this been attempted anywhere in the West? If so, how has it worked/failed?
23 comments ↓
assalamu alaikum,
I think it is an essential idea (whether it is accrediting existing products or creating our own companies etc) because I don’t think we can move much forward if we can’t have halal alternatives of what are now the basics of living in the West.
The main issue is knowledgeable people who can accredit these existing schemes (or work with the companies to maybe modify the schemes to make them halal).
Not only Islamic knowledge is required but also the ability to deal with the large companies that cover most of this area and also an understanding of current day finance and insurance and other financial schemes so as to be able to fully understand what they are accrediting.
wassalamu alaikum
The interesting thing about Australia is that although we have various identities suitably qualified to issue open letters denouncing other people’s attempts at creating halal finance, these same scholars haven’t yet been able to come up with an alternative model that satisfies their own shariah requirements whilst also satisfying government and regulatory requirements. That suggests that either they are interested only in destroying the efforts of others or they lack the shariah knowledge and/or secular knowledge/expertise to come up with an alternative.
Therefore, I think we would have no choice but to look to scholars abroad for something such as this until we start seeing local people who have both the knowledge and, as importantly, the credibility in the community to certify these products. The former is a lot easier to obtain than the latter. For example, we have a number of graduates from Islamic universities in this country but not all of them enjoy the widespread support and respect to be able to operate credibly in this domain. There’s no point a bank or other company paying money for a rubber stamp from a man who might not even be perceived as an authority outside of his own sectarian, cultural and/or geographic group.
Suggesting halal certification for financial products is just about as futile as doing so for food products. One immediate consequence is the increased expense that certification brings. Kosher sausages don’t cost more for nothing.
In the end of the day it is an issue of religious culture; Muslims have been taught that everything is Haram until proven Halal; Imams and their lot reiterate this erroneous culture through demanding (very parentally) the sole right to speak for Allah on these issues.
End result? Lack of progress and lack of solutions for the needs of a growing community.
If the Imams had instead taken the time to educate their communities of the very simple fact that the “…(basis) of all things outside of matters of worship is that they are permissible…” there wouldn’t particularly be a need for a certification board, and secondly we might have seen some economic growth in the community through diversification.
Muslims would partake in society, benefit it and benefit from it, and the only time the permissibility of such things would be presented would be upon dispute.
This hasn’t happened because for some strange reason Muslims have envisioned the Shari’ah as an restrictive regulatory framework instead of a broad set of principles to guide social interaction.
Why should we allow banks to pay for rubber stamps, and effectually ‘own’ what is considered to be ‘Islamic’. I am for supporting both Muslim and non-Muslim ventures into the financial sector, but don’t see why we should support the selling of indulgences just because Muslims have been to lackadaisical to learn fundamental issues in their religion.
We have halal mortgages etc here in the UK and they’ve had their share of problems but seem to be heading in a very positive direction. It’s a growing industry to have halal financial solutions. They have all been drafted, formulated, revised and executed with the aid of “Imams” (ullema) – without whom they would never have been possible.
Whilst the Imams are teaching our children to read and recite Qur’an it is US that then stops educating them about shariah and WE take them out of pious hands and deprive them of deeni knowledge. We need to wake up and take on responsibilty for OUR OWN shortcomings rather than blaming Ullema, blessed men and women who are the inheritors of the legacy fo Prophets – not ppl to slag off.
jazak Allah khair for your comments, Hood. As always, very thoughtful mashallah.
The issue with food products is that the company may be required to modify its production processes and use of ingredients in order to become ‘halal’. Therefore, they often cost more than the alternatives. There is also the problem that some of the certification boards are commercial ventures and so there are, as I mentioned in the post, incentives for them to try and perpetuate the ‘everything is haram until we say it’s halal’ meme.
I’m not suggesting that imams/certification bodies do the same thing with financial products (change their product to meet Islamic criteria) but simply that the products that are already allowed are checked by someone who is appropriately qualified and that information made available to the community. In order for it to be self-sustaining, the company can pay a fee in much the same way as some food companies now opt to pay fees to health organisations to assess their products. The intent, though, isn’t to run a money-making scam but to inform Muslims and that is why I made the point that there must be full and public disclosure of every assessment made (in detail).
I agree completely. However, the difficulty with finance (that doesn’t exist to the same extent with food) is that the fiqh is substantially more complicated and it also requires a detailed understanding of the business and regulatory aspects of the product. At least in Australia, I can’t see the ‘average Muslim’ ever acquiring the requisite knowledge to be able to make those sorts of decisions. We can run courses for people and try to educate them but ultimately the nature of financial products and the commitment involved (30 year contracts, large sums of money etc.) is such that people are always going to want to check and double-check before they commit to it.
By taking existing products (without modification) or a class of products (such as different leasing structures), describing them and then publishing an assessment of the product (something that isn’t generally done with foodstuffs because, I suppose, people would surprised by how simple it all is), it would go some way to educating the community and maybe even changing some of the misconceptions.
Maybe there are better ways of addressing the problem? In a country such as Australia with just 300,000 Muslims, I can’t see creating new products specifically for Muslims as always viable (unless the benefits are more general and would appeal to non-Muslims too) nor necessarily getting companies to change their products to appeal to Muslims (at some cost to them). That leaves education or the people who have the requisite knowledge/expertise advising the community.
It’s very harsh to just tell the community to work it out for themselves. Most people don’t have the knowledge to work out what is halal and haram when it comes to Islamic finance. It’s not like food where if you make a bad choice, you can just forget about it and move on. If you make a bad choice with finance, you could make yourself bankrupt trying to get out of the contract. I take Hood and Amir’s point about food certification being a “rort” but finance is a lot more serious and complicated.
The reason scholars and imams haven’t bothered to look at these problems is exactly because they are so serious and so complicated! Instead they just stuck with food and ignored finance but this has to change urgently because really its holding the community back here..
Abduljalil, I think Muslims need to know as much as they need to know in order to manage their affairs. Umar (r), for example, used to prevent people from selling in the market place until they had a basic understanding of fiqh ul-buyuu’ (the laws of business transactions). That’s certainly the end point we should be working towards and, I think, at least in Australia it would benefit Muslims for scholars to look at existing products or types of product and make public rulings on them. This shouldn’t give rise to the attitude that everything is haram unless the scholar says otherwise, but would, I hope, shatter some of the myths about finance and the belief that everything is haram and Muslims have no options.
Take insurance, for example. Most Muslims would tell you straight away that it is haram in all its forms and implementations. This may not be the case but, right now, there is very little incentive for any scholar to ever look at the insurance products on the market in this country and make a ruling. But let us say some products are indeed okay, then a ruling would, firstly, highlight an option for Muslims looking for insurance and, secondly, highlight a particular class of product or style of insurance that is allowed.
By publishing their assessment, it would allow others to better understand the fiqh and how it is applied to modern business transactions and, over time, the need for this ‘certification body’ would hopefully decline and what would be left perhaps would be increasingly generic product rulings. e.g. along the lines of chattal mortgages are halal if they meet x, y and criteria.
I think the idea is well overdue and deserves to be moved forward. Coming from a specialised financial background, I am happy to offer my knowledge and advice in this area. I do not have the same level of understanding on the Islamic perspective, however if we could find Islamic Scholars versed in this area from overseas eg Malaysia (I do not think there are any in Australia), then it is a start on something that would benefit the Muslims and also lead the financial market to cater for our needs in the future.
He could simply stick to the Asl and say that all things are permitted until proven otherwise. This would be a big help to the community both economically and psychologically, create value for them and lifting of the burden of a guilty conscience for committing a presumed ’sin’.
The whole issue here of assesment, incentive, and issuing opinion brings us to another issue, the proper forum for such a think, i.e. the lack of Muslims in (or at least publishing in) Academia about these subjects.
If there is to be a certification board, it will have to be something non-profit and advisory, to avoid the obvious ethical problems. But then that would necessitate some state sponsership (however small) which is another problem in and of itself.
The athar of Umar you mentioned really needs to be investigated more, as the supporting narrations that contain the story behind it seem to allude to the fact that this was said after a person did something haram, not as a prerequisite for selling in the Souq.
Another point when then have (from an Usul standpoint) is whether or not the statements of the Sahabah are to be taken in a general context.
FYI:
heres’ a link on Halal certification
http://yaleglobal.yale.edu/display.article?id=9052
Perhaps one of the reasons that the scholars don’t address the issue of the finances of Muslims living in the west is because they are not here in the West. The majority of them are living in Muslim countries, where at the moment, there is no financial infrastructure to speak of. The issue of investing in mutual funds or contributing to a pension scheme isn’t relevant to them.
I found this post extremely relevant to me, because I am in the process of considering several investments by which I might create a nest egg for myself and my child. I haven’t found any difficulty in actually accessing information about what is halal and haraam in terms of islamic finances, since a simple search of the words “halal” and “investment” will usually turn up several dozen useful and informative websites.
I have been able to garner a few basics, like the fact that interest-generating income is not permissable, that there has to be some degree of risk involved, and that the investments must not be in businesses that are involved in haraam transactions or manufacture haraam products.
The gap comes when I am trying to navigate my own financial market looking for products that fit these guidelines. This is difficult because there are very few investment alternatives that don’t generate interest, and it is hard to explain my requirements to a financial adviser who is not muslim.
Here in Canada, we have several initiatives, that offer a limited selection of islamic financial services. One such is UM financial. They have so far been very successful, in their own right. But the Western markets are not structured so that we muslims can make money the halal way.
assalamu alaikum,
What Hood mentioned would probably be good in an ideal world but
a) you can’t change the mentality of people nowadays
b) I don’t know how practical it is either considering you would need to look at the details before signing a contract and a great deal of the financial dealings in the West are based on haram concepts i.e. riba etc. Would you just ignore it in the name of ‘everything is halal until proven haram’ or would you be required to at least investigate when these matters are in front of you? If you have some basic understanding of Islamic finance would you be required to investigate further when alarm bells go off or can you just ignore it?
c) When people sign 20 or 30 years mortgages and then a scholar says this is a haram contract and proves it then what do those people do? Can they continue on with the haram contract or would they be required to sell their house (for e.g.) and stop the haram contract?
I think it is vital that current schemes be looked at and assessed particuarly just to give the people in the community the knowledge that there are halal options out there. By doing that and mentioning why they are not haram people may begin to understand more about some of the basics of the subject. Our people are stuck behind because they can’t get what is considered basic necessities in the West nowadays – getting insurance for your car, house, work etc. Some Muslims are falling into financial difficulties because of them wanting to stay away from haram.
My father considers insurance (at least 3rd party) a necessity now. He told one young brother to get it particularly considering his business was based on his car. The brother didn’t get it and had a car accident and having no insurance and also relying upon this car for his job caused enormous difficulty and hardship for him. He didn’t have the funds to just go out and get another car. Well I think he learned from that because he did get it after his car was fixed.
Recently my friends house burnt down with everything in it and they had house insurance. If they didn’t I wonder where they would be considering her parents are both very old and not working.
These are practical problems we need to deal with and to try to find solutions for the community.
[...] Did you ever think about that? A more efficient alternative might be to teach Muslims enough of the rules of fiqh in order to be able to assess most products for themselves. Powered by Gregarious (21) [...]
Fatima, not to say that I was envisioning a perfect world, but that I was speaking about what our base stance should be; I do see your point however.
We should be practical in dealing with these issues, however (as I see it) one element of that practicality is to lessen the tide of blanker declarations of Haram in the community, especially as relates to finance. More times often than not, there is no more investigation into the permissibility of a contract than a mere question after prayer to the Imam, who many times will offer the blanket statement of impermissibility (not based on analysis but on perceived un-islamicity). The question then is bigger than just whether or not someone asks or not, which is i think what Amir was getting at in the article.
I feel you on your comments about insurance, and myself after reading about insurance have reservations about the method in which it was declared impermissible. Even if we were to say that is it (which most Fiqh councils do if we are talking about commercial insurance), the question of where we live is an important one. Back to living in a perfect world, an Islamic state should use the funds of bayt al-mal to help out victims of disaster, etc.
But since we are not in a perfect world, and we are not living in societies that offer those type of services (socially or governmentally) we need solutions. One solution is just sticking to the base principle of permissibility until we are 100% sure about something being otherwise. The whole paradigm of islamic economics/finance is one that is post-modern and has its ideological underpinnings (some which seem to go against both tradition and principle, namely the above one).
It seems to be a much more pragmatic and islamically viable solution to permit all transactions based on this broad principle than to restrict them all and cause hardship, which Allah has stated more than once in his book that he doesn’t want for us. What people do after they become personally aware that this X is impermissible would be their own business, until it takes the form of legislation or regulation.
Hood, have you looked into the view, advanced by some of the ahnaf that the narrations about al-Abbas’s transactions in Makkah mean it is allowed to deal in riba in non-Muslim societies? There is always a tendency to scoff and denounce these views out of hand but is it possible that there is some legitimacy to them?
Amir,
How do the products at AAMI and GIO, as you referred to, differ from those of other insurance companies? Also, it still is a form of gharar and gambling, even if you don’t receive a payment, isn’t it?
As far as i recall it is the opinion of Abu Hanifah himself.
Legitimacy is possible, it being an ijtihadi issue, and there is always a need for more research
Firstly, I’m not giving a fatwa or saying these schemes are allowed but merely asking a question because, on the face of it, they could be seen as a service contract.
Anyway, the difference is that, under the schemes I mentioned, you pay a fee each year and if you have an accident, you take your car to a depot and they return it to you fixed. They don’t give you any money and you don’t even know how much the car cost to be fixed because the insurance company subcontracts the repairs to a mechanic/panel beater of their choosing.
For this reason, it could be seen as payment for a service. Compare this to ambulance membership or roadside assist. In both of these there is an element of uncertainty because you don’t know whether you will end up needing them (and probably hope that you won’t) but you pay the fee anyway.
This is the sort of thing I wish our scholars would look into.
Ambulance membership was something I was thinking about as well. That involves a risk, just like insurance.
If you applied risk to paying for a service and then not using it couldn’t you apply that to any sort of membership? Gym membership? Library membership? Internet subscription? You might use it and you might not or you may only use it partially.
[...] Amir at Austrolabe discusses the potential for halal certification for financial products. This raises an interesting question especially for libertarians. If the market can be trusted to certify halal (and kosher) products which are pretty important issues for the devout, why not other things? Why not use certification as a less restrictive and anti-competitive alternative to many regulations as a means of addressing information asymmetries? [...]
Fatima, that is what I was thinking. Just where do you draw the line?
Assalamu ‘alaykum wa rahmatullah
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‘How to be Islamic in business’, The Economist:
“Ensuring that financiers comply with sharia is becoming big business…”
http://www.economist.com/world.....id=9304369
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