Mufti Muhammad Abu Bakar, a sharia advisor and compliance officer at Blossom Finance in Jakarta, Indonesia, has published a paper that indicates that the purchasing of Bitcoin by Muslims can be permitted (Halal) in certain situations.
These comments by come at the end of a week that saw the annual Sharia conference of the Accounting and Auditing Organisation for Islamic Financial Institutions (AAOIFI) take place in Bahrain. At this conference, leading Islamic finance scholars have been discussing whether there is a place for cryptocurrencies under Sharia Law and whether Islamic financial firms can invest in the cryptocurrencies alongside the rest of the world.
Discussed at the conference is whether new currencies such as Bitcoin fell into the ribawi category, as do gold and silver. According to Islamic law, items falling under the ribawi category must be exchanged in equal measure and with immediate transfer of possession, otherwise, transactions may involve riba or usury, a major prohibition in Islam.
This argument is key to any decision that might be taken in the future regarding the permissibility of virtual currencies in the Muslim world, as the buying and selling of Bitcoin could be viewed as a type of usury due to its huge profit and loss margins.
The declaration by Mufti Muhammad Abu Bakar that Bitcoin could be compliant with Sharia law has been suggested by some commentators as one possible reason for the hike in the price of Bitcoin over the past 24 hours, as it opens up the market to Muslim investors unsure about their position regarding trading in the digital currency.
An excerpt from Abu Bakar’s paper read:
“In Germany, Bitcoin is recognized as a legal currency and therefore qualifies as Islamic money in Germany. In countries such as the US, Bitcoin lacks official legal monetary status but is accepted for payment at a variety of merchants, and therefore qualifies as Islamic customary money.”
As the fastest growing religion in the world, with Muslims now representing 23% of the world’s population, Bitcoin has become an important issue for financial authorities. Last year, the International Monetary Fund (IMF) held its first formal discussion about Islamic banking needs.