LAGHMAN, Afghanistan — The World Council of Credit Unions hasreceived a Fatwa, a religious edict or ruling on Islamic law issuedby an Islamic scholar, from the head of a mosque and an Islamicreligious school here. The edict endorses the Laghman Investmentand Finance Cooperative to do business.

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Under the rigors of Islamic law, Shari'a–buying and selling–islegal, but the charging of interest is forbidden.

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The Fatwa states:

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“As we know Islam is a holy religion and a complete faith. InIslam all the issues are clearly and brightly solved. LaghmanInvestment and Finance Cooperative is a legal organization becausethe way that they are lending and transacting with the members isin the murabahah system…even if the members are receiving cash fromthe Laghman IFC, it gives assurances that they are using it in alegal way. They will start their business in order to avoid peoplegoing into illegal activities such as stealing money, robbery andcheating due to unemployment. From the income derived from thecapital they borrow from Laghman IFC they will enjoy an honestliving with their family.

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“We want to mention that this Laghman Investment and FinanceCooperative shares its profit (dividend) and loss (if there is nodividend they will not receive one) with the members because theyare the owners. With this, now we can say that the transactions arefair and legal in accordance with the Islamic Laws.

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“All the members of Laghman Investment and Finance Cooperativeare sharing the profit of LIFC because they are the users and theowners and LIFC is serving them. If something bad happens to LIFC,it would be a great loss to the people of Laghman. If LaghmanInvestment and Finance Cooperative will grow, people will benefiton its profit and use of its services.

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“Therefore, with the above reasons, we can say that alltransactions of LIFC are lawful and in accordance with the IslamicLaw.

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“Peace be upon you.

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Signed: Mulaia Abdullah (Muhmmadi), Mullah of a Mosque inLaghman Province, and: Qari Hameed (Nazari), Teacher of a Madrassa(an Islamic
religious school).

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Obtaining the Fatwa supports the thesis behind WOCCU's Januaryreport titled, “Supporting Credit Union Development inAfghanistan,” written by researcher Robert Weiland. Weiland assertsthat credit unions may well be the best financial entities to serveMuslim populations.

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WOCCU helped organize two credit unions in 2004 with fundingprovided by the Microfinance Support Facility for Afghanistan. Theywere Balkh Savings and Credit union in Mazar-e-Shariff and JawswanSavings and Credit Union in Sheberghan, according to thereport.

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The report–available on WOCCU's Web site (www.woccu.org)–detailsloan and savings products and services that are Shari'a-compliant.It also stresses that there may be details of Shari'a compliancethat escape outsiders, so it recommends further technicalassistance from experts on Islamic finance in developing itsAfghanistan program.

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An important conclusion, however, “is that mutual institutionalownership is a viable, if not necessary, way to structure anIslamist financial institution.

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“To a certain extent this requirement is driven by religiousprohibitions, but it might also have practical application inAfghanistan, especially with respect to employing local sanctionsin a credit union's operation. Credit unions introduced to thecountry will be foreign phenomena until their members truly acceptownership of them. By complying with local and religious practicethe credit union will make its services more recognizable tomembers, allowing them to more easily accept ownership of theinstitution.”

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Members cannot be repaid a fixed-return on deposits underIslamic law, but they can receive a share of the institution's netgains annually. For investment capital to increase should eitherinvolve trade or a sharing of the risks between borrower andlender.

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