Taken from ‘A Question of Interest: the Paralysis of Saudi Banking’ by P.W. Wilson (pp.186-188):
The Asharq Al-Awsat article was just SAMA’s [Saudi Arabian Monetary Agency] opening parry...the agency again tried to question Islamic banking by allowing one of its employees, [X], to question the ulema’s stand on interest and Islamic banking.....[X]’s paper...began with the provocative statement, "it is possible to say that there will not be Islamic strength without economic strength, and there will not be economic strength without banks, and there will not be banks without interest."...[X]’s conclusion was that simple interest charged by banks had nothing to do with the riba mentioned in the Koran and therefore should not be banned...
....In December, 1986, Bin Baz and his allies wrote replies to [X]’s paper...Quoting sayings of the Prophet to prove that simple interest was indeed riba, Bin Baz thundered against [X]’s assertion that there would be no Islamic economic strength without banks and interest. "The experience of Muslims from the time of the Prophet until banks were established is evidence of the fallacy of his argument...the Muslim economy has been righteous...it has gone for more than 13 centuries without banks or riba interest. Our wealth grew through righteous dealing....anyone with the narrowest vision knows that riba banks are against a sound economy and against the public interest and are among the greatest of reasons for the collapse, unemployment, the elimination of blessing and the rule of our enemies. We ask [Allaah] that He deliver Muslims from this and give them vision and uprighteousness." Bin Baz then ended his letter with a blunt warning..."No one may make permissible something which [Allaah] has forbidden. We ask [Allaah]...to help the writer...to return to truth and repent for what he issued and to announce it to the community. Perhaps [Allaah] will forgive him."
Proponents of Islamic banking didn’t rest there. In February, 1987, the Imam of the Grand Mosque at Mecca and the three judges of the Western Province Court of Appeals--four of the pillars of Saudi Arabia’s ulema--wrote to Bin Baz expressing their horror at the spread of interest, and urged him to press the country’s leaders to do something about it. Heeding their call, Bin Baz addressed a letter to King Fahd the next month, renewing his appeal for the immediate creation of Islamic banking institutions "which Muslims could use instead of riba banks. With these, they could protect themselves against the wrath, vengeance and severe punishment of [Allaah] that threaten those who go against His orders and beyond His boundaries...it is feared that the economic recession and fall in incomes that has occurred in this country and others could be warning of the imminent consequences that could end for us our blessing and in their place bring misfortune, punishment and vengeance upon us...the path of [Allaah] cannot be exchanged or changed, and we are a people of His people bound by His path as are other people, except that [Allaah] covers us with His grace. Might we seek His forgiveness for the war we are waging upon Him and His Prophet, and cease dealing in riba in its various forms, to purify the country and its people from its filth and stain."
And then Bin Baz reminded King Fahd of an oath he made before his ascension, saying "On this occasion I would like to remind you of your promise to the council in your letter of 16/7/1401 (May, 1981) of the determination of the government to set up an Islamic financial agency. I ask that an urgent royal decree be issued to finish the necessary studies to create this agency as soon as possible, along with the proposed Islamic banks, as an alternative to the present riba banks. The sheikhs are still receiving embarrassing written and oral enquiries which they are not able to answer on why there are no Islamic banks that don’t deal in interest in the Kingdom of Saudi Arabia, which is at the forefront of the countries that fight riba." [Author’s note: Taken from Bin Baz’ letter to King Fahd. All documents written by the cleric were supplied by lawyers.]
Fahd’s response has never been published. However, shortly thereafter, several events occurred that suggest that Fahd had bowed to their wishes. First, the country’s fledgling stock exchange was closed after religious leaders reportedly complained that trading was in the hands of the unIslamic banks...
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