Islamic Shari'a Compliance May Be Easier At CUs
MADISON, Wis. -- A new technical report issued by World Council of Credit Unions finds that the mutual ownership and equal distribution of profits typical among financial cooperatives may make credit unions attractive for Islamic savers and borrowers.
The report, Supporting Credit Union Development in Afghanistan: An Overview of Issues Important to the Development of Shari'a-Compliant Cooperative Finance, outlines the challenges WOCCU confronts in establishing credit unions in the war-torn Islamic country.
Robert Wieland is the report's author and a researcher with Main Street Economics.
Under Islamic law, lenders may not charge riba, often translated as "interest" or "usury," on money lent, nor pay interest on deposits held without truly sharing in gharar, translated as "risk" or "uncertainty," writes Wieland.
The two requirements are part of Shari'a compliance, a term used to describe financial transactions allowed by the Koran.
Credit unions' mutuality aligns more closely with Islamic law, according to the researcher, making the cooperative model well-suited for Muslim countries and communities.
The report goes on to discuss types of financial products and the way they may be developed for Shari'a compliance, including savings, investments and different types of loans. Under the teachings of the Koran, there are strategies by which financial business may be conducted without violating its laws, which includes a characteristic of generosity and forgiveness without penalty for loans and investments that go bad.
Complementary copies of the 21-page report, funded by WOCCU's United States Agency for International Development Cooperative Development Program, are available at www.woccu.org.