“You cannot charge interest (Riba) under Islamic Banking laws”, I was recalling the slides of my presentation from 2011. My topic of presentation for the day was Islamic Banking and I distinctly remember this one line that I wrote on the deck.
Conventional Banks work on a simple principle: You get interest on Deposits, you pay interest on Borrowings. The difference in these interest amounts is Bank’s revenue. But Islamic laws, especially the financial system differs from any other banking system in the World.
So when a new payment system or commodity is becoming popular in the world, it becomes imperative to know if an investment or business in it is Halal or Haram for people who belong to the second largest religion in the world. This new payment system or commodity is Bitcoin and other cryptocurrencies.
Is Bitcoin Halal or Haram in Islam?
Mr. Muhammad Abu Bakar from Indonesia works as Blossom Finance’s internal Shariah advisor in his role as Head of Shariah Compliance. He published a working paper on whether Bitcoin can be considered Halal. Blossom Finance is an Indonesian investment firm that facilitates international investment in micro finances under Islamic Finance Laws, aka no interest but ownership.
In the paper, he proposes that Bitcoin is Halal. At this point before I explain why it is halal, here’s something important you should know. It is a working Paper. A working Paper is a preliminary scientific paper with findings and conclusions, but it is open to peer reviews, feedback and changes. A working paper when published in a journal becomes a Research paper.
Why is Bitcoin Considered Halal?
- Bitcoin is Islamic ‘customary’ money, that fulfils the law by acting as a medium of exchange, unit of account and a store of value. The argument against the price fluctuation is that the prices are an external factor to Bitcoin, as they are based on Demand and Supply like any other commodity or Fiat.
- Shariah rules of money requires all money to be exchanged has to be owned and never on a fractional reserve basis like the conventional banking system does. Blockchain provides a ‘mathematical proof’ of ownership of the cryptocurrency and hence more inclined to Sharia Law.
What is Still Forbidden for Bitcoin in Sharia?
- Making profits by excessive trading and speculation of prices is still prohibited. Bitcoin should be used a store of value investment or a Currency for payment.
- Funding illegal activities like gambling, money laundering, fraud is not permissible.
Does it affect India?
Using Bitcoin as a payment currency is completely out of question as Government has not approved Crypto as a legal tender. But the question is whether Indian Muslims can buy Bitcoin or not?
“Majority of Muslims in India follow Sharia Law. We donate the interests received from bank in charity as it is forbidden to collect interest as per Islamic laws”, says Dr. Tausif Malik, founder of All India Muslim Business Startup Network and Mahabfic.
Dr. Tausif Malik has been in the news for partnering with the DICCI for delivering the largest Bitcoin Mining Training Program, under which the disadvantaged in India can learn to mine bitcoin in villages and become self-employed. The AIMBSN provides a startup Ecosystem and counselling for Indian Muslim Entrepreneurs.
“Majority of the people speculate the prices in Bitcoin and that is not permissible as per Sharia laws. If an individual buys Bitcoin as investment, sells it for a profit and pays tax on it. There should be no problem. The person can also donate a certain amount to charity as it is considered a cleansing task in Quran”, Dr Malik continues.
But how many Indian Muslims invest in Cryptocurrency? “Everyday I get around 5-10 calls from potential investors asking me where they should invest. Looking at the interest level, I’d say around 25% of Indian Muslims will invest in cryptocurrencies, by the end of this year”, says Dr. Malik.
Coin Crunch Opinion:
I honestly urge everyone to go through the working paper before commenting about Why bring Religion into Blockchain? What we are currently doing against the RBI’s decision is what some scholars in the Muslim community are doing against many Fatwas that declares Bitcoin Haram or illegal. Mr. Muhammad Abu Bakar has carefully countered the points made in the fatwas, argued about Sharia Compliance and finally put across a point of view for debate. Aren’t we doing something similar to counter RBI’s embargo on banks?
Now, I personally believe in holding Law of the land above everything else. Which means that if my bank allows me an interest, I will take it. If my government allows me to pay in Crypto, I will use Bitcoin to pay. If it doesn’t, well I will just trade. But its easier said than done in a religion like Islam. I am more of an agnostic in nature but if my religion says we are banning crypto, I will either fight it or buy Bitcoin nonetheless. But the religion I am born in has a world population of may be 6 Million. So, we don’t have much to say here. Over 1.6 Billion People follow Islam and hence its a different league.
Islamic countries follow Islamic law. It means that these countries can only legalise Crypto, if it is allowed by the Islamic law. If a quarter of the population in the world follows the same guidelines, you will want to ensure that those guidelines allow you to buy or sell a certain commodity or introduce a new payment system. That is all what this is about. It is a set of rules and people are checking if Bitcoin can be considered legal or not within those set of laws.
I don’t think Blockchain or Bitcoin should have segregated laws based on caste and religion. However, it is happening. Hence it should be talked about more often to abolish the practice and come up with an amicable solution.
Usually we ask our readers a question at the end of the article, today I want to keep the floor open for discussion. Say your mind in the comments section below.