Introduction
The most beloved personality is the Prophet Muhammad ﷺ. He is unlike any other human being. He is the final messenger of Allah and the noblest creation. Among the many miracles of the Prophet Muhammad ﷺ, one miracle is his character, which harnessed the strength, fortitude, and intellect to fulfill so many different roles in his life with perfection; he was a father, son, cousin, nephew, friend, husband, grandfather, teacher, lecturer, spiritual guide, Imam, leader (‘president’) of the government. He was just as brilliant in Islamic Finance; he was the first teacher of Islamic Finance, a practitioner, a risk manager, an economist, regulator, product structuring expert, strategist, communications expert, investor, entrepreneur, and founder of the greatest project. Words cannot do justice to his excellence and eminence in the 63 years of his life. We shall dwell on some glimpses of his excellence in Islamic Finance to appreciate our teacher and role model.
The Prophet ﷺ and Islamic Finance
Teacher
He was the first teacher of Islamic Finance. He taught us the principles of each product and contract, the prohibitions we must abstain from, the objectives of Islamic Finance and likewise, the ethics every person in the market should display. He said to us:
“May Allah show mercy to a man who is kind when he sells when he buys, and when he makes a claim.” (Bukhari)
He is the teacher of all teachers, the smartest of all geniuses, and the most caring of teachers. The Islamic economy immediately began to take shape as the Prophet ﷺ laid the foundations of three Masjids; namely, Masjid Quba, Masjid Banu Salim, and Masjid al-Nabawi. The landscape was redrawn with these Masjids, allowing people to envisage change and a new direction. The Masjids proved to be central to the Islamic economy as they provided education and awareness on Islamic trading, finance and economics as well as instilling virtuous traits within market participants.
Practitioner
He was a practitioner and not just an academic or teacher. He was well aware of the practice and would go to the markets, so much so that those who did not accept his message would object to his presence in the markets. The Qur’an mentions their rebuke:
“They also say, ‘What sort of a messenger is this? He eats food and walks about in the marketplaces! Why has no angel been sent down to help him with his warnings?” [Qur’an 25:7]
Those who were jealous of his message and jealous of him tried to ridicule the Prophet on account of him being like other humans; he would eat, sleep and also go the markets. Allah responded to their erroneous judgment with the following:
“No messenger have We sent before you [Muhammad] who did not eat food and walkabout in the marketplace. But We have made some of you a means of testing others- will you stand fast? Your Lord is always watching.” [Qur’an 25:20]
Founder
He was a founder and started a start-up! He started the biggest project in the history of mankind and the largest project to continue and grow until the Day of Judgement.
Not only did he work to develop Islam in the lives of people, but he also founded several Islamic institutions. His excellence was manifest in meticulous planning and strategic launching. From among them was the market in Madina that he himself established. Madina had four markets in the following places: Zubala, Wadi Buthan in Qaynuqa, as-Safasif and Muzahim or Zuqaq. Two were controlled by the Jewish tribes whilst the other two were controlled by pagans[1]. These four markets were located in different parts of the cluster towns across Madinah. These markets were known for their high barriers to entry, high taxes and unscrupulous practices. The Prophet ﷺ knew that the growth of the Islamic economy depended on the markets and the current markets were rife with injustices. He immediately set out to establish a market. The narrations mention that he himself conducted a land survey to designate the ideal location. He went to two different sites which did not meet his standards and criteria. Thereafter, a companion came and requested the survey of a site he had come across. Upon viewing this proposed site, the Prophet ﷺ decreed “This is your market; trading should not be suspended nor should anyone be prevented from trading, there should be no unfair practices and no taxes will be levied[2].” The location of this was economically strategic in the north-west of the city. It was a vast open space where trade caravans usually came and disembarked. The market was situated in close proximity to the “natural main entrance” to the city next to the mountain pass[3]. This particular spot not only facilitated local trades, but also opened up the doors to international trade, imports, and exports.
Risk manager
Another amazing dimension of the Prophet ﷺ was his teaching of risk and demonstrating the art of risk management. He showed us models to deal with risk and laid out principles to determine acceptable risk and unacceptable risk. The Hadith of Sayyiduna Abu Huraira states that the Messenger of Allah prohibited the Gharar sale, and the Hasah sale. [Tirmidhi]
The Prophet ﷺ equally explained unacceptable models and transactions, such as the al-Mulamasa and al-Munabadhawhich were practiced in the Arab society. Al-Mulamasa would result in a trade by merely touching objects whilst al-munabadha resulted in executed trades by one party just throwing his garment to another party.
Sayyiduna Ibn Abbas is reported to have said: “The Prophet came to Madina and found that people were selling dates for deferred delivery after a duration of one or two years on a Salam basis. The Prophet said: ‘Whoever pays for dates on a deferred delivery basis (Salam) should do so on the basis of a specified scale and weight’”. In another text of the Hadith the Prophet ﷺ said: “Whoever pays on a deferred delivery basis should do so on the basis of a specified scale, weight and date of delivery.” [Sahih al-Bukhari] Through teaching us how to perform a Salam contract properly, he taught us how to manage and mitigate some of the risks that are attached to the Salam product.
Economist and policymaker
The Prophet ﷺ was well aware that the dynamic state of the economy meant that there would be people caught in financial distress, debt, hardship and emergency situations. The public treasury of the prophetic government allocated most of the resources to help those in need and those struggling to make ends meet. These resources were Zakat, Sadaqah, Luqtah (lost and found items), Kharaj (land tax), Jizyah (payment for protection), Ghanimah and Fay’ (war booty)[4]. Every citizen was guaranteed a baseline provision and support to give them more opportunities to break out of the cycle of poverty. A shelter in the form of Waqf (endowment) was introduced in the Masjid where the homeless could come and reside. This was called as-Suffah[5]. The Prophet allocated one of the funds in the public treasury for infrastructure development and maintenance. He demonstrated the importance of good infrastructure for the development of the economy.
Regulator
The Prophet ﷺ was a regulator and ensured that the markets functioned for the benefit of the community and not for the interests of few. He laid out principles to protect consumers, ensure that there is fair competition and that no artificial barriers or constraints are imposed on the markets and economy.
He showed us that overregulation stifles the economy and is counterproductive. On one occasion, prices had increased in Madina so a man came and said, ‘Messenger of Allah, fix the prices’. He said: ‘No, but I shall pray.’ Again the man came and said, ‘Messenger of Allah, fix the prices.’ He said, ‘It is only Allah who ultimately determines the price of things, it is He Who makes the prices low and high. I hope that when I meet Allah, none of you has any claim on me for doing wrong regarding blood or property.’ [Sunan Abi Dawud]
He barred cartels and monopoly positions where manipulation was feared. He said: Whoever withholds food (in order to raise its price), has certainly erred!” [Muslim] He also told us: “Whoever strives to increase the cost of products for Muslims, Allah, the Exalted, will seat him in the centre of the Fire on the Day of Resurrection.” [Ahmad and al-Hakim]
On hoarding, he further said: “No one hoards but a sinner.” [Sunan Ibn Majah]. He taught us that regulation is ultimately linked to Allah, “Do not hoard; otherwise, Allah will withhold from you.” [Al-Bukhari and Muslim].
Product structuring
The Prophet ﷺ structured products and explained the Shariah non-compliant elements in transactions. Once, the Prophet instructed one of his companions to sell his low-quality dates first and then buy the high-quality dates he wanted, instead of resorting to exchange more quantity of low-quality dates for less quantity of high-quality dates. [Tirmidhi]
Ibn Al-Qayyim said, “This indicates that the companion was directed to commence the process of purchasing the high-quality dates after the complete finalization of the former transaction; i.e., selling his low-quality dates. If, instead, he agreed beforehand with another party to conduct the two deals successively, the second contract will not become an independent contract, because it is a mere completion of the first one. The directives of the Prophet (Peace be upon Him), apparently necessitate two separate contracts that neither of them is related to or based on the other.” [I’laam al-Muwaqqi’in]
Visionary and strategist
The Prophet ﷺ was a strategist and a visionary. In the following example, he smartly strategised to bring the agro-based industry to life in Madina through the following resolution:
“If anyone brings barren land into cultivation, it belongs to him, and the unjust vein has no right.” [Sunan Abu Dawud]
The Prophet ﷺ had a vision for an Islamic economy and established it perfectly. The Islamic economy started from the Masjids and grew with the markets, Zakat and Awqaf, small-scale financing operations, and international trade until a fully-fledged economic machine was set in motion when this beloved teacher departed this temporal life. May Allah shower His blessings and mercy on our noble master and teacher, and unite us with him in the next life. Ameen.
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[1] Badr ‘Abd al-Basit, al-Tarikh al-Shamil li al-Madinah al-Munawwarah, (Madinah, n.pp, 1993), vol. 1 p. 236.
[2] This translation encompasses all the different commentaries and word variables mentioned by the narrators.
Ibn Majah, Sunan ibn Majah
Ibn Shabbah, Tarikh al-Madinah
Al-Maqrizi, Imta’ al-Asma’
Al-Samhudi, Khulasatul Wafa’
[3] Abd al-‘Aziz Abdullah b. Idris, Mujtama’ al-Madinah fi ‘Ahd al-Rasul
[4] Al-Kasani, Bada’i al-Sana’i
[5] Al-Salihi, Subul al-Huda wal Rashad
