Is Islamic Finance in Disrepute Due to Bad Actors?
Islamic finance is a growing sector with the potential to provide Shari’ah-compliant financial solutions for Muslims around the world.
However, like any other financial system, it is not immune to abuse by bad actors. In recent years, there have been instances where rogue scammers have used the guise of Islamic finance to deceive unsuspecting Muslim consumers. This has led some to question whether Islamic finance as a whole is in disrepute.
But is the problem with Islamic finance itself, or with those who misappropriate it for their own gain?
Islamic Finance vs. Scammers in the Name of Islam
Islamic finance has a rich tradition rooted in the principles of Islam. However, just as the actions of a few misguided individuals do not reflect the teachings of Islam, the fraudulent activities of scammers do not represent the principles of Islamic finance.
Unfortunately, rogue actors often use the banner of Islamic finance to lend credibility to their schemes, exploiting the trust and faith of Muslim consumers.
Islam condemns all forms of cheating, especially in business. The Quran speaks against dishonest practices, such as those of the people of Lut alayhis salaam, who were criticised for their dishonesty in trade.
A whole surah, Al-Mutaffifeen, is named after those who short-change others the scales of measuring the correct amounts.
The Messenger of Allah ﷺ also described betraying trusts as a trait of the hypocrites (Al-Bukhari and Muslim).
He even censured corn sellers who hid defects by placing wet corn at the bottom of heaps (Muslim).
If these minor deceptions were so severely criticised, what then about those who take hundreds of thousands or even millions of dollars from Muslims through scams?
The Role of Financial Literacy and Trust in Islamic Finance
One of the reasons scammers succeed is the lack of basic financial literacy among the average person. This issue is not unique to Muslims; it is a widespread problem that fraudsters exploit across various communities.
However, within the Muslim community, this lack of financial literacy is often compounded by our tendency to assume the best (husn al-dhan) about fellow Muslims. While this can be a beautiful trait, it can also make Muslims more vulnerable to being conned by those who claim to operate under Islamic principles.
Another factor that contributes to the success of these scams is the superficial trust factors that easily impress some Muslims. Anecdotal stories of success, the fear of missing out (FOMO), and the use of Islamic jargon are often enough to convince unsuspecting individuals to invest in fraudulent schemes.
Terms like “Bismillah” (with the name of Allah) at the top of contracts, and technical terms like “Murabaha” (pre-agreed profit margin) and “Musharakah” (partnership/shared profit) can create an illusion of legitimacy, even when the underlying products are problematic or outright scams.
The Need for Critical Evaluation and Education in Islamic Finance
To protect themselves from these scams, Muslims must become more critical and discerning in their financial dealings. This means selecting credible institutions with long-standing histories of trust and real Shari’ah compliance.
The Prophet Muhammad ﷺ, known as Al-Sadiq Al-Amin (the truthful, the trustworthy), set a standard for good character in all dealings. He taught that “The honest and trustworthy merchant will be with the prophets, the truthful, and the martyrs” (Al-Tirmidhi).
This hadith highlights the importance of integrity in business, a value that should be central to all Islamic financial institutions.
Like the science of hadith, where Muslims differentiate between authentic and fabricated narrations, Islamic finance also has its authentic and fabricated options. Differentiating between the two requires knowledge and vigilance. Muslims need to educate themselves about Islamic finance, understanding the red flags that indicate potential scams.
Islamic finance itself is not in disrepute; rather, it is the actions of a few bad actors that have tainted its image.
By increasing financial literacy, exercising critical judgement, and choosing trustworthy institutions, Muslims can protect themselves and their wealth from fraud. As with any other aspect of life, knowledge and vigilance are the best defences against those who seek to exploit our values for their own gain.
At MCCA, we are committed to providing financial literacy workshops around the nation with the resources and information to help the community make informed decisions and avoid falling victim to financial fraud.
