LAGHMAN, Afghanistan -- The World Council of Credit Unions has received a Fatwa, a religious edict or ruling on Islamic law issued by an Islamic scholar, from the head of a mosque and an Islamic religious school here. The edict endorses the Laghman Investment and Finance Cooperative to do business.
Under the rigors of Islamic law, Shari'a--buying and selling--is legal, but the charging of interest is forbidden.
The Fatwa states:
"As we know Islam is a holy religion and a complete faith. In Islam all the issues are clearly and brightly solved. Laghman Investment and Finance Cooperative is a legal organization because the way that they are lending and transacting with the members is in the murabahah system...even if the members are receiving cash from the Laghman IFC, it gives assurances that they are using it in a legal way. They will start their business in order to avoid people going into illegal activities such as stealing money, robbery and cheating due to unemployment. From the income derived from the capital they borrow from Laghman IFC they will enjoy an honest living with their family.
"We want to mention that this Laghman Investment and Finance Cooperative shares its profit (dividend) and loss (if there is no dividend they will not receive one) with the members because they are the owners. With this, now we can say that the transactions are fair and legal in accordance with the Islamic Laws.
"All the members of Laghman Investment and Finance Cooperative are sharing the profit of LIFC because they are the users and the owners and LIFC is serving them. If something bad happens to LIFC, it would be a great loss to the people of Laghman. If Laghman Investment and Finance Cooperative will grow, people will benefit on its profit and use of its services.
"Therefore, with the above reasons, we can say that all transactions of LIFC are lawful and in accordance with the Islamic Law.
"Peace be upon you.
Signed: Mulaia Abdullah (Muhmmadi), Mullah of a Mosque in Laghman Province, and: Qari Hameed (Nazari), Teacher of a Madrassa (an Islamic
Obtaining the Fatwa supports the thesis behind WOCCU's January report titled, "Supporting Credit Union Development in Afghanistan," written by researcher Robert Weiland. Weiland asserts that credit unions may well be the best financial entities to serve Muslim populations.
WOCCU helped organize two credit unions in 2004 with funding provided by the Microfinance Support Facility for Afghanistan. They were Balkh Savings and Credit union in Mazar-e-Shariff and Jawswan Savings and Credit Union in Sheberghan, according to the report.
The report--available on WOCCU's Web site (www.woccu.org)--details loan and savings products and services that are Shari'a-compliant. It also stresses that there may be details of Shari'a compliance that escape outsiders, so it recommends further technical assistance from experts on Islamic finance in developing its Afghanistan program.
An important conclusion, however, "is that mutual institutional ownership is a viable, if not necessary, way to structure an Islamist financial institution.
"To a certain extent this requirement is driven by religious prohibitions, but it might also have practical application in Afghanistan, especially with respect to employing local sanctions in a credit union's operation. Credit unions introduced to the country will be foreign phenomena until their members truly accept ownership of them. By complying with local and religious practice the credit union will make its services more recognizable to members, allowing them to more easily accept ownership of the institution."
Members cannot be repaid a fixed-return on deposits under Islamic law, but they can receive a share of the institution's net gains annually. For investment capital to increase should either involve trade or a sharing of the risks between borrower and lender.