Was Banking Known at the Prophet’s Time?

Many of the institutions and activities we see nowadays have their origins in the long history of humankind. They may have become more complicated than their primitive origins, but this complication should not divert our attention from their essence.

Dr. Monzer Kahf, an expert in Islamic banking, finance, and economics, said:

Banks as institutions date back to the sixteenth century. This means that at the time of the Prophet (peace and blessings be upon him), there were no banks.

However, the main activities banks do is finance, and finance is as old as the human society. Normal finance activities used to take place in all societies thousands of years before the time of the Prophet (peace and blessings be upon him) as well as during his time too.

Financing during the time of the Prophet (peace and blessings be upon him) used to take place through real transactions; namely, sale on credit, renting, and pooling resources together from several people to create a new project or venture.

Of course, some debts, created by sale on credit and lease may not be paid on the due date, and giving an extension of maturity used to take place with increment; that is, increasing the amount of debt for the new extended maturity. This is why many Sharia scholars state that this is exactly the definition of riba (usury) that is mentioned in the Qur’an as a prohibited act.

Of course, it goes without saying that the verse also covers creating a debt by giving money (loan) and charging an increment on this debt for the period until maturity.

Other banking activities like currency exchange and money transfer from one country to another used to be practiced too. Currency during that time was either gold or silver and there were needs to exchange one for the other. This was done by merchants. But shortly after the Prophet (peace and blessings be upon him) within the first 200 years, there existed merchants who specialized in providing the service of currency exchange. They were called sarrafs (tellers). The sarraf is the first historical version of a bank.

The sarrafs in Damascus, Baghdad, Mosul, Halab, Cairo, and other Muslim cities were doing certain other functions in addition to money exchange. These functions included safekeeping of money for their customers and providing them with payment facilities that used to be called sukuk (s. sukk) or ruqa` (s. ruq`ah).

The sukk was a piece of paper marked by a specific sarraf and given to the depositor, whereby the latter can pay the merchants from whom he buys goods by writing the name and amount of the payment on this piece of paper, and then the merchant would submit this sukk to the sarraf to get his or her gold or silver. This facility was necessitated by the fact that metal currency was heavy and one would not carry it in pockets while roving the market to buy one’s things.

This use of sukk is the origin of the check as we know today. In fact, the word check itself came from the Latin sek, which came from the Arabic word sukk.

During the Crusades, Europeans learned this profession from the Middle East, especially Syrian, Iraqi, and Egyptian cities. In the years that followed 1200 CE, we started seeing sarrafs in the Mediterranean European cities; the European sarraf later developed into banks when they started lending the extra money that is kept with them for safe keeping.

Lastly, we must realize that financial contracts like money exchange (sarf), deposit (wadi`ah), sale on credit (bay` bi ajal), loan (qard), money transfer (suftajah), advance payment, forward sale (salam bay`), and others were known during the Prophet’s time, and they were later described in detail in the fiqh literature as early as the first 200 years after the Prophet (peace and blessings be upon him).

We should realize that Islamic banking today has a deep-rooted history in the Muslim society to which it can relate.