RIYADH, 17 August 2005 — As Saudis seek Shariah-compliant investment opportunities, the issuance of religious rulings, or fatwas, from various levels is creating confusion in financial markets and may actually be harming the Kingdom’s efforts to modernize its economy into one that is competitive in the global marketplace. Because most business dealings in banks are using systems that do not comply with Islamic law, many people are searching for fatwas from sheikhs or at least get their opinions before investing money in stocks or banks, according to Al-Riyadh newspaper.
Most bank experts say the difficulty comes when defining the activities of companies and local banks. Companies may get loans from foreign banks one day and the next day from an Islamic bank.
The next part of the problem is that some local sheikhs inexperienced in financial matters issue fatwas banning investment in some companies and permitting investment in other companies. This can have the effect of putting the brakes on private-sector economic growth.
Some experts worry that Saudi Arabia is getting a third and unique macro economic factor after supply and demand, specifically fatwas, which may create serious adverse effects in attracting foreign investment to the Kingdom and maintaining the nation’s position in an increasingly competitive world. As it is today, some say that fatwas are having pronounced effects on Saudi stock prices and market activity. Economists face a dilemma.
Experts say if there are demands to have a committee of ulema, or scholars, within the Capital Market Authority, it may cast doubts on the legality of the financial institution. An equally daunting concern is that the national economy could be divided into legitimate and illegitimate businesses, which could lead to a black-market underground economy.
An example of the adverse effects fatwas can exert on the economy can be found in the stock plunges of gas and cooperative insurance companies after a negative fatwa was issued. Later, after the issuance of another contradictory fatwa, the stocks of both concerns rose significantly.
Economists say fatwas should be based on legitimate studies and only be issued by those who have knowledge of the economy.
“Why do they issue fatwas on something they do not know about?” asked Abdullah Al-Maghlooth, an economics teacher at King Saud University. “We have a Shariah committee and a higher ulema committee that specialize in such cases and issue a fatwa only after intensive study. We as citizens want to invest our money in something profitable. Issuing random fatwas is not good for economy or for individual investors. I wish those sheikhs would stop issuing such fatwas and leave it to the experts.”
It can be both confusing — and costly —for investors.
“I hesitated before entering the stock market,” said investor Khaled Al-Manie. “I was using investment portfolios. After I noticed the amazing interest of people in the stock market, I decided to enter. What confused me the most were the names of the sheikhs issuing fatwas to ban investing in that company or buying stocks in this company.”
Al-Manie said he was scared of doing something against Islam, and searched for fatwas on the Internet before investing in anything. “In the end, I had it. Now I only listen to the higher ulema committee. It is because of a random fatwa that I missed investing in cooperative insurance,” he said.
