Commodity Exchange and Stock Exchange in an Islamic Economy

I would like to take this opportunity to respond to Muhammad AkramKhan’s article “Commodity Exchange and Stock Exchange in an IslamicEconomy,” which appeared in the American Journal of Islamic Social Sciences5, no. 1 (September 1988): 91-114. The explanations advanced are from mypersonal understanding of Islamic and Western finance systems and are nota defense of Western financial markets. But I believe that the Islamic financialsystem should provide a better alternative.To begin with, I have no disagreement with Khan about interest-bearinginstruments being haram. However, I do disagree with him in the followingareas:Common Stocks (Mudarabah Certificates)As regards the physical possession of share certificates, the importanceof such possession (a commodity) is given in the following hadith: “Ibn ‘Abblsreported Allah’s Messenger as saying: ‘He who buys foodgrain should notsell it until he has weighed it (and then taken possession of it)”’ (Siddiqui1986, #3643). In the attached footnote (#1983), Siddiqui further states that:“Imh Shlfi‘i subscribes to the view of Ibn ‘Abbls that every salable thing,whether land, tree or grain, should be sold only by the buyer if he has takenpossession of that. Imam Abu Hanifah is of the view that if it is a questionof the sale of immovable property, the buyer can re-sell it before takingpossession of it, the reason being that while destruction of the land is rare,that of the movable property is probable” (Ibid., vol. 3, p. 803).I interpret this to imply that as long as a person owns an indestructiblethug and can give it to the buyer accordmg to a mutually acceptable agreement,it can be sold. In today’s environment, the actual physical possession of stockcertificates is expensive and, in addition, they can be lost, stolen, destroyed,or otherwise damaged. Keeping such certificates with a broker is lessexpensive. Moreover, the physical transfer takes place on the settlement date,which is five days after the transaction date. In the meantime, if the newowner can get a better price before the settlement date, he/she should notbe prohibited from selling the stock certificates.On the issue of speculation, one could curtail it by imposing a higher ...