What Is RF (Islamic) Banking?

Some have defined “Islamic” banking as conventional banking minus the word interest, with a new contract that does not include the word interest and that is structured in a convoluted version of buy/sell, in which the seller changes ownership to the bank or finance company and then the bank sells it to the eventual buyer. Many participants in “Islamic” banking business thought, with good intentions, that these guidelines made the contract Islamic. Others conceptualized “Islamic” banking by using the expression of socialism, minus state control, plus God to give it the needed faith-based credibility.

The following are believed to be the true conceptual fundamentals of the RF brand of banking, which is based on the Judeo-Christian-Islamic value system:

■ Believes in the fact that giving credit is a basic human right.

■ Is socially responsible and ethical banking, designed to deliver services to the community according to the guidelines of the Judeo-Christian- Islamic value system. For example, RF bankers cannot finance alcohol-related businesses, gaming, gambling, polluting businesses, or other unethical activities. RF banks finance businesses in a fair and just way and serve all customers of all faiths and backgrounds. RF banks scrutinize the businesses they finance to ensure that the business owners treat their employees fairly and without discrimination. RF bankers believe in equal financing opportunities without discrimination, because discrimination is a sin in the Judeo-Christian-Islamic value system. In RF banking practice, no one is too small to serve and work with. Every community member is encouraged to live within his/her means.

■ Enjoys the advantages of low overhead, lower risk, and lower loan losses, because the RF banker knows his/her clients, as he/she is active in the community.

■ Is built on asset- (and services-jbased financing. This requires that a commodity, tangible asset, and/or service must change hands at a fair market value — one that is gathered from the live market — using the discipline of marking to the market.

■ Is not a money lending operation. It is involved in actual financing of and investing in tangible assets and services. It finances economically viable projects. If the project is not economically viable for the customer, it will not be financed. There is no “name” lending or unsecured lending allowed in RF banking.

■ Invests in specific activities and projects to make a difference in peoples' lives. RF financing requires that the RF banker/financier knows what the applicant will use the money for and that the agreement involves the exchange of assets/properties/businesses or the leasing of such.

■ Believes that speculation and its tools — like trading in risk (gharar) — and paper trading are divinely prohibited (haram).

■ Believes in promotion and financing for community development and reinvestment of its deposits in the community.

■ Believes that wealth should be circulated within the community to create jobs, economic growth, and prosperity. It uses the power of congregations and networks in places of worship and in social organizations to enhance its market penetration at the grass roots, thus fulfilling the financing and banking rule of “know your customer.” This approach minimizes losses that may be realized due to ill-conceived financing of the wrong project with people who may not meet the needed prerequisites and applicable experience for a successful venture.

■ Believes that one of its prime objectives is to remove riba/ribit from people's behavior and lives, one step at a time. RF bankers must start from the possible to achieve the impossible.

■ Does not intend to remove, eliminate, or “destroy” riba-based conventional banks and systems. The aim of RF banking is to develop an alternative system that serves all people, regardless of faith or background.

■ Measures success by return on investment, the number of households financed, and its achievement in making a difference in the lifestyle of the family and in the community.

Believes that fiat (paper) money is not a commodity that commands a rental fee (interest rate). It also does not reproduce. Money (fiat — paper money) only grows when invested in an economic activity. Money is a man-made measuring device. It is a “thing.” It cannot be rented. It is only useful, as a medium of exchange, if invested. Riba can be defined in today's terminology, and in light of riba-based financing activities, as renting money at a predetermined price called interest. RF bankers cannot merely take the interest rate of the day and charge it under the names rent, service charge, index, or profit. RF financing should be based on renting assets and services at the actual prevailing market rental/lease rate commanded by the market forces of supply and demand, not on the interest rate — the price of renting money.

■ Believes that the value of different things in terms of fiat (paper) currency must be related to one of (or a basket of) the reference calibrating commodities using the Commodity Indexation Discipline, as detailed in Chapters 5 and 6. For example, economic bubbles can be detected by relating prices expressed in fiat (paper) money to a precious metal or a staple food commodity, and investment practices can be adjusted to avoid loss of assets and properties.

■ Believes in full transparency as a must. Full disclosure is required as part of the contract, because deception, ruses, and/or attempts to misrepresent (called gharar) are haram (divinely prohibited).

■ Believes that it must comply with the laws of the land without violating God's law (the Judeo-Christian-Islamic Shari'aa law). RF bankers are not in business to change the laws of the land, to be elected to a high office using the power of money, to influence, or to discredit others. RF bankers do their best to educate and guide government banking regulators, politicians, and the public at large about the RF system and its values and benefits.

■ Prepares and offers to the community RF bankers who are trained to believe that their ultimate goal is not to sell and make commissions, but to serve to earn a decent and humble living and, eventually, win paradise.

What Is the Difference between Riba-Based Conventional Banking and RF (Islamic) Banking?[1]

Dominant attractor:

■ Riba-based: Money

■ RF: Life as prescribed by God in all Abrahamic faiths, as ordained in the Judeo-Christian-Islamic value system and way of life.

Defining purpose:

■ Riba-based: Use money to make money for those who have money.

■ RF: Employs available resources within its means to meet the basic needs of everyone without extravagance.

Bank size:

■ Riba-based: Very large (e.g., mega-banks).

■ RF: Small and medium-sized community-based.


■ Riba-based: Impersonal, with absentee shareholders' role in most cases.

■ RF: Personal, with shareholders playing an active role in bank direction and procedures.

Financial capital:

■ Riba-based: Global, with no borders.

■ RF: Local/national, with clear community reinvestment borders and assessment areas.

Purpose of investment:

■ Riba-based: Maximize private profit and wealth.

■ RF: Increase beneficial output to the community to make it prosper.

Role of profit:

■ Riba-based: An end to be maximized.

■ RF: An incentive to invest productively in the community.

Coordinating mechanisms:

■ Riba-based: Centrally planned by mega-corporations.

■ RF: Self-organizing markets and networks of communities around temples, synagogues, churches, masajid, and other social congregations and networks.


■ Riba-based: Among competitors, to escape the discipline of competition and in some cases to avoid regulations.

■ RF: Among people and communities to advance the common good for all.

Purpose of competition:

■ Riba-based: Eliminate the unfit and capture markets.

■ RF: Stimulate efficiency and innovation.

Government's role:

■ Riba-based: Protect the interests of property.

■ RF: Advance the human interest, as revealed in all God's messages.


■ Riba-based: Free, but for the benefit of mega-corporations.

■ RF: Free, but fair and balanced.

Political orientation:

■ Riba-based: Elitist, democracy of the money (greed is good!).

■ RF: Populist, democracy of persons.

  • [1] This comparison is based on a comparison originated by Professor David C. Korten. It was adapted by the author to compare conventional riba- based banks with riba-free banks. David C. Korten, The Post-Corporate World, a co-publication of Kumarian Press Inc. and Berrett-Koehler Publishers, Inc., 1999, p. 41.
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