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    Islam & our social issues-Islamic Finance System vs Interest based Economy

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    OVER VIEW OF THE PROBLEM WE ARE FACING

    I don’t own a house and I will never buy one because I don’t want to deal with interest.
    How can I support a system which creates so many homeless people around the world!
    How can I support a system which exploits the natural resources of poor countries and forces their government not to spend in building infrastructure for health care and basic education system which is a right of every human being!
    How can I support a system which is partly responsible for modern human slavery on a level which human history has never seen before!
    Wait what? How claims I made above are interconnected to interest based finance system or Capitalism in other worlds?
    Before you ask am I crazy?

    Let me start my post by assuming that I bought a house for $500, 000 with 7.5% interest for period of 30 years. I will end up paying at least $750,000 over the period of 30 years. That is $250,000 to cover the interest. The worst thing is that I have to pay the interest first before starting paying principal. Let’s say I have paid $150,000 for the house but I lost my job or I got disabled and could not work anymore. What happens? Will bank listen to my problems? Is there any humanitarian factor involved to let me live in the house for which I have been paying for last 5 years? No, banks do not listen to such issues. All they care about is the money and if I can’t pay them the money they will kick me and my family out of my house and resell the same house to someone else may be at a higher price and this goes on.

    Does this sound something familiar? I have seen many homeless people in Los Angeles, heart of Hollywood and proud of world’s richest country USA.
    According to some statistics, there are more than 3.2 million homeless people in UK and more 6.5 million homeless people in USA. One major factor for homelessness in Western countries is related to financial issues.
    According to the most recent U.S. Census Bureau report 46.2 million Americans are poor. This is the condition of most rich country in the world. We see very rich people or poor people while middle class is almost on the verge to disappear.
    Let’s look at the same issue but on a bigger scale. I am sure you guys have heard about international debt. To explain how international debt works, let me start with an example. Suppose a country borrows $1 billion and there is 25% compound interest every year. Every year that country will have to pay $40million for to cover the interest alone. There is no way a poor country can pay that much interest. Debt, with its increasing amount of interest compounded upon it, is dangerous for any nation because it means loss of sovereignty and control. As a result the countries who established institutes to lend international loans such as IMF, end up exploiting the natural resources of that country. These rich countries not just stop there, they also establish puppet governments in such countries and basically run the government policies. These poor countries are forced to spend more on debt serving and are forced to cut spending on education and health care of the citizens of those countries. Now imagine this is not in one place but all over the world, to all third world and poor countries in Africa.

    This shows that this crime of interest based economy is worse than killing a human being because this interest based system destroy the families, kills the spirit of people and many people end up being homeless and committing other crimes in the society.
    Global capitalism kills more people each year then were killed by Adolf Hitler.
    Over three billion people live on less than $2.50 per day, that’s almost half the world population.
    Every year since 1981 between 15 and 20 million people died unnecessarily due to debt burden because Third World governments have had to cut back on clean water and health programs to meet their repayments.
    Un-cancelled debt was responsible for the deaths of 130,000 children a week from 1998 until the year 2000.
    As you see, interest based economy is not a social problem on smaller scale. It has effected every human being and that’s why I choose to discuss this issue.

    MUSLIMS KNOWS THAT INTEREST IS HARAM IN ISLAM SO WHY DID I SELECTED THIS TOPIC?


    I think it very important for Muslims to understand the blessing Allah has given to us. Often time we engage with non-Muslims to give Dawah and try to prove Quran through science. I myself have taken this approach in the past and I admit I was wrong in taking that approach. What we need to understand is that Quran is God’s revealed message and it is for our guidance. Alhamdulillah that we have guidance for every sphere of life within Quran. Quran is not a science book and it does not need science to prove it. Second, science by its nature can never establish any facts. What we believe to be true in science today, may not be true tomorrow. What I conclude from this is that in fact it is science which needs Quran to prove itself and not the other way around.
    I also think if we can understand the social issues and their solution in Quran’s teachings, we can convince lot more people to accept Islam. In future I will create more threads addressing social issues of our time and how Islam provides the best solution to address those issues. But for today, I will focus on Capitalism and interest based economic system and how it has proven to be a crime against humanity.
    I have already discussed some of the evils of interest based finance system and I will discuss more in depth later in my post but first I want to discuss Islamic perspective of why interest is prohibited. I will also discuss whether prohibition of interest was only introduced in Quran or was this Divine law also found in New and Old Testament. If prohibition of interest was mentioned in both Old and New Testament, why do Christians and Jews don’t put this into practice?

    INTEREST AND ISLAMIC PERSPECTIVE

    Interest is something that is known to anyone living in a capitalist country. It has become so completely institutionalized and accepted in modern economies that it is almost impossible to conceive that there are some who completely oppose it and refuse any transactions that involve interest. But there are devout Muslims who refuse to deal in interest.

    The actual reason why such Muslims do not deal with interest is that interest has been forbidden by Allah in the Quran. When one reads the Islamic texts concerning interest, one is immediately taken by how stringent the warnings are against any involvement in interest. Islam prohibits a number of immoral acts such as fornication, adultery, homosexuality, consuming alcohol and murder. But the variety of discussion and extent of warnings for these other acts is not of the same level of those related to taking interest.

    The Quran, for example, contains the following verses concerning interest:
    “O you who have believed, do not consume interest, doubled and multiplied, but fear God that you may be successful. And fear the Fire, which has been prepared for the disbelievers.” [Quran 3:130-131]
    This rather strong warning towards the believers warns of a fatal consequence: being thrown into the Hell-fire that has been prepared for the disbelievers.
    God also says:
    “Those who consume interest cannot stand [on the Day of Resurrection] except as one stands who is being beaten by Satan into insanity. That is because they say, Trade is [just] like interest.’ But God has permitted trade and has forbidden interest. So whoever has received an admonition from his Lord and desists may have what is past, and his affair rests with God. But whoever returns [to dealing in interest or usury]? Those are the companions of the Fire; they will abide eternally therein. God destroys interest and gives increase for charities. And God does not like every sinning disbeliever.” [Quran 2:275-276]
    Just as an insane person, unconstrained by ordinary reason, resorts to all kinds of immoderate acts, so does one who takes interest. He pursues his craze for money as if he were insane. He is heedless of the fact that interest cuts the very roots of human love, brotherhood and fellow-feeling, and undermines the welfare and happiness of human society, and that his enrichment is at the expense of the well-being of many other human beings. This is the state of his “insanity” in this world: since a man will rise in the Hereafter in the same state in which he dies in the present world, he will be resurrected as a lunatic.

    These verses make it quite clear that there is a difference between legitimate business transactions and interest. The difference between them is so glaring that the verse does not bother to explain them, which is one of the stylistic aspects of the Quran.

    Most importantly, these verses clearly state that God “destroys interest and gives increase for charities.” This is one of God’s “laws” which humankind cannot necessarily discover on its own. The ultimate and full negative effects of interest on the individual, community and world as a whole in both this life and the Hereafter are known only to God.

    However, a glimpse of some of those negative effects, testifying to the truth of this verse, shall be given later towards the end of my post. In fact, perhaps highlighting the meaning of this verse, the Prophet Muhammad (peace and blessings of God be upon him) also said, “Interest- even it is a large amount- in the end will result in a small amount.” Undoubtedly, in the Hereafter when the individual meets God, all that he amassed via such illegal means will be a source of his own destruction.

    Shortly after the above verses, God further says,
    “O you who have believed, fear God and give up what remains [due to you] of interest, if you should be believers. And if you do not, then be informed of a war [against you] from God and His Messenger. But if you repent, you may have your principal?[thus] you do no wrong [to others], nor are you wronged.” [Quran 2:278-279]
    Who in his right mind would expose himself to a declaration of war from God and His Messenger? Undoubtedly, a stronger threat one will rarely find. At the end of the verse, God makes it very clear why interest is forbidden: it is wrongdoing. The Arabic word for such is dhulm, meaning a person has done wrong to, harmed or oppressed another person or his own soul. This verse demonstrates that interest is not forbidden simply due to some ruling of God without any rationale behind that ruling. Interest is definitely harmful and therefore it has been forbidden.

    In addition to the verses of the Quran, the Prophet Muhammad (peace and blessings of God be upon him) also made many statements concerning interest. For example, the following statement clearly demonstrates the gravity of this action:
    “Avoid the seven destructive sins: associating partners with God, sorcery, killing a soul which God has forbidden- except through due course of the law, devouring interest, devouring the wealth of orphans, fleeing when the armies meet, and slandering chaste, believing, innocent women.” (al-Bukhari and Muslim)
    In fact, another statement of the Prophet (peace and blessings of Allah be upon him) should be sufficient to keep any God-fearing individual completely away from interest. The Prophet (peace and blessings of Allah be upon him) said:
    “One coin of interest that is knowingly consumed by a person is worse in God’s sight than thirty-six acts of illegal sexual intercourse.” (al-Tabarani and al-Hakim)
    The Companion Jaabir narrated that the Messenger of God (peace and blessings of God be upon him) cursed the one who takes interest, the one who pays interest, the witnesses to it [that is, the interest contracts] and the recorder of it. Then he said, “They are all the same.” (Muslim)

    This is a basic principle in Islam. If something is forbidden and wrong, a Muslim should not participate in it or support it in any fashion.
    Thus, since interest is forbidden, it is also forbidden to be a witness to such contracts, to record them and so on. The Prophet’s words also explain that there is no difference between the one who pays interest and the one who receives it. This is because they are both involved in a despicable practice and, hence, they are equally culpable.

    The Prophet Muhammad (peace and blessings of Allah be upon him) also said,
    “If illicit sexual relations and interest openly appear in a town, they have opened themselves to the punishment of God.” (al-Tabarani and al-Hakim)
    This statement is a reference to one of God’s “societal laws.” The punishment of God may come in different forms in this world or the next.

    PROHIBITION OF INTEREST IN OLD & NEW TESTAMENT

    Islam, of course, is not the only religion that has banned interest and considered it a despicable practice. The prohibition of interest at least to some extent is a well-known law in both the Old and the New Testaments of the Bible. In numerous places in the Old Testament, reference has been made to “usury” or “interest.” (Again, usury and interest used to be equivalent but only over time did usury begin to mean an exorbitant or illegal amount of interest. Thus, as shall be noted below, the American Standard Version of the Bible repeatedly changed the King James Version from usury to interest.)
    Deuteronomy 23:19-20 reads:
    “Thou shalt not lend upon usury to thy brother; usury of money, usury of victuals, usury of anything that is lent upon usury: Unto a stranger thou mayest lend upon usury; but unto thy brother thou shalt not lend upon usury: that the LORD thy God may bless thee in all that thou settest thine hand to in the land whither thou goest to possess it” (King James Version).
    Similarly, Exodus 22:25 states:
    “If thou lend money to any of my people that is poor by thee, thou shalt not be to him as an usurer, neither shalt thou lay upon him usury” (King James Version).
    In Leviticus 25:37 one reads:
    “Thou shalt not give him thy money upon usury, nor lend him thy victuals for increase” (King James Version).
    In Jeremiah 15:10, the Prophet complains that he is being cursed although he has never done anything such as take interest, meaning that such curses would be appropriate for him if he were someone who took interest. Perhaps one of the harshest verses in the Old Testament concerning interest is Ezekiel 18:13:
    “Hath given forth upon interest, and hath taken increase: shall he then live? he shall not live: he hath done all these abominations; he shall surely die; his blood shall be upon him.”
    There are yet other verses of the Old Testament that indicate the prohibition of interest but what has been presented above should suffice.

    Easton‘s Bible Dictionary has summarized the Mosaic Law concerning interest in the following passage:
    The Mosaic law required that when an Israelite needed to borrow, what he asked was to be freely lent to him, and no interest was to be charged, although interest might be taken of a foreigner (Exodus 22:25; Deuteronomy 23:19,20; Leviticus 25:35-38). At the end of seven years all debts were remitted. Of a foreigner the loan might, however, be exacted. At a later period of the Hebrew commonwealth, when commerce increased, the practice of exacting usury or interest on loans, and of suretyship in the commercial sense, grew up. Yet the exaction of it from a Hebrew was regarded as discreditable (Psalms 15:5; Proverbs 6:1,4; 11:15; 17:18; 20:16; 27:13; Jeremiah 15:10).
    Unfortunately, as is often the case on practical issues, the New Testament is somewhat vague on the issue of interest. According to The Encyclopedia of Religion and Ethics:
    “there are no direct precepts [concerning interest] to guide the Christian conscience.”
    However, in the teachings attributed to Jesus in the New Testament, there are some passages that seem to be clearly against the practice of interest. In one passage, Jesus is reported to have said:
    “But love ye your enemies, and do good, and lend, hoping for nothing again; and your reward shall be great, and ye shall be the children of the Highest: for he is kind unto the unthankful and to the evil” (Luke 6:35).
    In this passage, Christians are actually told to lend out money without hoping to receive the principal again. This may be considered one of the “hard sayings” and, as is well-known, Christian scholars differ as to how such passages are to be interpreted and implemented.

    In Matthew 25:14-28, there is a lengthy parable wherein God gives different amounts of coins (called “talents”) to various servants. Some of them invest the money and bring back more to God than what God gave them. However, the person to whom God only gave one such coin is described in verse 18:
    “But he that had received one went and digged in the earth, and hid his lord’s money.”
    When God calls back His servants and asks about what they did with the money, the one who received only one talent stated to God:
    “Then he which had received the one talent came and said, Lord, I knew thee that thou art an hard man, reaping where thou hast not sown, and gathering where thou hast not strowed: And I was afraid, and went and hid thy talent in the earth: lo, there thou hast that is thine” (Matthew 25:24-25).
    The Lord then sternly replies to him:
    “His lord answered and said unto him, Thou wicked and slothful servant, thou knewest that I reap where I sowed not, and gather where I have not strowed: Thou oughtest therefore to have put my money to the exchangers, and then at my coming I should have received mine own with usury. Take therefore the talent from him, and give it unto him which hath ten talents” (Matthew 25:26-28).
    Commenting on this passage, the Geneva Study Bible states,
    Bankers who have their shops or tables set up abroad, where they lend money at interest. Usury or loaning money at interest is strictly forbidden by the Bible, (Exodus 22:25-27; Deuteronomy 23:19, 20). Even a rate as low as one per cent interest was disallowed, (Nehemiah 5:11). This servant had already told two lies. First he said the master was an austere or harsh man. This is a lie for the Lord is merciful and gracious. Next he called his master a thief because he reaped where he did not sow. Finally the master said to him sarcastically why did you not add insult to injury and loan the money out at interest so you could call your master a “usurer” too! If the servant had done this, his master would have been responsible for his servant’s actions and guilty of usury.
    Based on the Old and New Testaments, the early Church Councils disallowed interest. Eventually all Christians were prohibited from indulging in interest, not simply the clergy. Christian fathers, such as St. Thomas Aquinas, dealt with the issue of interest in some detail.

    “In the Decree of Gratian, as subsequently at the Third Lateran Council (1179), a canon ordained that manifest usurers shall not be admitted to communion, nor, if they die in their sin, receive Christian burial.'”
    The Fourth Lateran Council of 1215 condemned the practice but allowed it for the Jews. Catholics remained firmly against interest until the 19th Century. Martin Luther of the 16th Century, the Protestant leader, also condemned usury but, it is claimed, he allowed on it on a plea of human weakness. Calvin, more than anyone else, was the beginning of a softer view concerning interest among Christian leaders. Slowly civil legislation freed itself from Canon Law and interest began to be institutionalized over time.
    It was not only those of the Judeo-Christian thinking that condemned interest. In fact, the Greek philosophers also took a very negative view of interest. Aristotle and other leading Greek scholars condemned interest. The famed Austrian economist, Eugen von Böhm von Bawerk (also known as Boehm-Bawerk), wrote in his important work, Capital and Interest:
    The hostile expressions of the ancient world, not few in number, consist, in part, of a number of legislative acts forbidding the taking of interest and in part accidental utterance of philosophers such as Plato, Aristotle, the two Catos, Cicero, Seneca and Pantus etc. Greek philosophers regarded money as nothing but a medium of exchange and, therefore, they denied the productivity of money loans. A piece of money cannot beget another piece was the doctrine of Aristotle. The obvious conclusion was that interest is unjust.
    Initially, the Roman Empire as well prohibited the charging of interest. With the rise of trading classes, this was lessened a bit but there were still severe restrictions on interest lending as well as laws to protect debtors.
    Shakespeare’s character Shylock in The Merchant of Venice (written just prior to the year 1600) demonstrates just how despised moneylenders who dealt in interest were. The obvious question arises as to how interest went from being a despised and forbidden act to a socially acceptable and institutionalized practice in the West.

    ILLS OF INTEREST

    Economists can attempt to come up with numerous justifications for the payment of interest but the real test is to study the effects that interest has. It is important to note that when something is prohibited by God, this does not mean that there is absolutely nothing beneficial in the prohibited item or practice. Indeed, one may be able to find something beneficial even in prohibited items. For example, God says in the Quran about alcohol:

    They ask you [O Muhammad] concerning wine and gambling. Say: ?In them is great sin, and some benefit for people; but the sin of them is greater than the benefit.' (Quran 2:219)

    Thus, the essential point is not whether there is anything beneficial in something but whether the harm of something outweighs its benefit. Thus, economists may be able to find a hint of a justification for paying interest but this definitely would not outweigh the harms that interest can be shown to cause. Even if interest is considered some kind of payment to a factor of production, it has some unique characteristics that set it apart from payments to any other factor of production. Due to its unique nature, it leads to some very disturbing results.

    First, interest leads to an inequitable distribution of income. This can be seen by taking an example of three people. Suppose there are three people who consume of all of their income in a given year yet one of them starts with $1,000 in savings, a second with $100 and a third with zero. At 10% interest per annum, by the end of the year, the first person will have $1,100, the second $110 and the third person zero in their accounts. If the same scenario follows in the next year, the first person will have $1,210, the second $121 and the third will have zero. Already, one can see how the distribution between them grows every year, even between the one who has some savings of his own. This scenario will be made even worse if the richest person will also to be able to add savings. Suppose he adds one thousand at the end of each year. He will have 1,100 at the end of the first year, he adds $1,000 and continues with his 10% interest and he will have $2,310 at the end of the second year, and so on.

    Now it is one thing if this money paid was actually due to some positive factor of production but in reality one cannot make that argument in this case. The money that the people are making via interest may have been squandered, lost or even stolen by the people who borrowed it, but one still has to be pay the interest. It may have been invested in a completely losing project and therefore it actually did not produce anything. But all of that does not matter, it has to be paid regardless of whether that “factor of production” produces anything or not. This is simply one of the unique aspects of money and payments to money. No one can argue that this is just and therefore its results are an inequitable distribution of money.

    Interest based banking tortures the borrowers more than its benefits. There are so many cases where it can be seen that borrower had to suffer a lot due to loan taken from bank or from other lender under this system. The borrower had to lose his/her assets, relief in life and even his/her life due to this cruel system of interest. In 2008 when the major banks of USA collapsed and overall panic and uncertainty created, the curse of interest came out in full face and so many societies and economies criticized this system. There are some points which may describe the actual adverse effects of interest based banking.
    • Ignorance of humanity and well being
    • Induces the greed and selfishness
    • Exploitation of poor and weak
    • Negative impact on performance of small and individual business
    • Capitalist control on Institutions, Resources, Production and National Income
    • Improper circulation of wealth and income in society
    • Barrier to social collective development
    • Social instability


    The distribution of income becomes more and more skewed over time. One can imagine some individuals dealing in millions while others are dealing in hundreds or thousands. The disparity in their interest incomes will indeed be great and growing every year. In other words, as one hears often, it will lead to a situation where the rich keep getting richer while the poor keep getting relatively poorer. Note that those in debt, paying interest that grows every year, have not been added to the equation. In their case, as interest continues to grow, more and more of their overall income is consumed by interest, further exacerbating the skewed distribution of income.

    Someone could ask as to whether an inequitable distribution of income should be considered a major issue. Besides the psychological effects on the poor, especially given mass media advertising that emphasizes the good life and the need to consume, there are very important effects on the market as a whole. In a market economy, production will be geared towards those who have the money to pay for the output, regardless of how necessary other goods may be for society. If the rich desire, demand and are willing to pay a lot of money for SUVs and gas-guzzling vehicles, those will be produced (regardless of how much conservationists may complain). As the income distribution becomes more and more skewed, more and more resources will be devoted to the demands of the richer classes. Since resources are somewhat “fixed,” this means that less and less will be devoted to the needs of the poorer classes.

    Furthermore, the lesser resources devoted to the goods that the poor consume reduces supply and drives up the prices of those goods, further harming the poor people’s overall economic situation. For example, one can find numerous medical clinics catering to the rich (those who can afford such treatments), even if they are far from necessary, such as numerous places for cosmetic surgery and the like. At the same time, one may find it very difficult to find clinics catering to the poor and meeting their basic needs. If they could pay more for those essential services, in a market driven economy, one would definitely find more of those types of clinics, more resources devoted to those needs and a cheaper price in the long-run for what they need. In addition, this skewed distribution also has strong implications for the health of democracy; however, that discussion is beyond the scope of my post and will only make my reply much more longer.

    In addition, the burden of interest upon the poor who fall into debt puts them into a situation where they cannot advance socially or economically, widening the gap between the rich and the poor. Debt itself is a difficult situation for any individual. However, it is interest payments that make one’s debt a moving target, many times one that an individual simply cannot keep up with. Again, it is a bogus factor of production but it works to allow the rich to get richer while putting a great burden upon those who fall into debt.

    Perhaps you are familiar with how much of a debtor society the United States, the richest country in the world, has become. This has afflicted not only the lower classes but many of the middle class as well. Some sorry individuals do not realize that if they pay only the minimum on their credit card bills, for example, they will virtually never clear their balance. But, of course, it is the poorest that are hardest hit. In fact, the system is stacked against them as the poorer an individual is, the worst his credit rating and the higher the interest rate he will be forced to pay.
    The plight of small-scale farmers forced to borrow due to dropping prices on their output has been well-documented. Many of them have pawned their precious belongings or lost their farms that have been in their families for generations simply due to interest payments that they could not keep up with.

    On an international level, the situation is much more devastating and dangerous. There is no question that when looked at from an international perspective, interest kills people. The debt servicing of lesser developed countries today is so great that they must sacrifice essential health and nutritional needs. It is dumbfounding to think that untold numbers of children are dying daily in lesser-developed countries due to the “tool” of modern capitalism: interest. Some African governments are forced to spend more on debt servicing than they spend on health or education.

    In this context, the UNDP (1998) predicted that if the external debt of the 20 poorest countries of the world was written off, it could save the lives of 20 million people before the year 2000. In other words, it means that uncancelled debt was responsible for the deaths of 130,000 children a week up until the year 2000. Global capitalism kills more people each year then were killed by Adolf Hitler. IMF and World Bank are to be blamed for deaths of millions due to their refusal to ease the debt burden. Every year since 1981 between 15 and 20 million people died unnecessarily due to debt burden because Third World governments have had to cut back on clean water and health programs to meet their repayments.

    Debt, with its increasing amount of interest compounded upon it, is dangerous for any nation because it means loss of sovereignty and control. This aspect, incidentally, is no accident. Lesser developed countries especially their elites and corrupt rulers are not free of guilt when it comes to the issue of the debt that they have accumulated. At the same time, if they did not borrow and get in debt, pressure would definitely be put on them to do so.

    The current debt situation, with the major role that interest is playing in it, is potentially very devastating for the world as a whole. In Global Trends 2015, the Central Intelligence Agency (CIA) recognized:

    The rising tide of the global economy will create many economic winners, but it will not lift all boats. [It will] spawn conflicts at home and abroad ensuring an ever-wider gap between regional winners and losers than exists today. [Globalization’s] evolution will be rocky, marked by chronic financial volatility and a widening economic divide. Regions, countries and groups feeling left behind will face deepening economic stagnation, political instability and cultural alienation. They will foster political, ethnic, ideological and religious extremism, along with the violence that often accompanies it.
    In reality, there are yet other ills related to interest that could be discussed but the above should suffice for the purposes here.

    ISLAMIC SOLUTION

    Islamic finance system rests upon two basic principles:

    (1) If an individual wishes to lend money to another in order to help the latter, this act must be based on “brotherly principles” and it is absolutely unacceptable to charge any interest in such a case. It is not helping another individual to put him into a cycle of debt where he has to pay more than what they borrowed. This principle applies as well to Islamic international relations. If this important principle were applied today, countries would truly give “aid” and assistance to other countries, rather than sucking them into a pattern of dependency and debt burden.
    (2) If an individual wishes to use his money to make more money, then he must be willing to put his money at risk. In other words, he cannot guarantee for himself a fixed return (whose amount keeps growing over time) regardless of the result of the investment that his money is used for. If he puts his money at risk, he is deserving of some share of the profits. However, this also means that he must accept losses if losses occur. This is a system that is based on justice. It also has numerous benefits to it. The one who invests becomes concerned about the results of his investment and cannot demand his “pound of flesh” regardless of what may occur to the debtor.

    This Islamic solution works for individuals as well as for society as a whole. Banks are essentially financial intermediaries. They take money from those who have excess money (savings) and turn it over to those who need money for investment purposes. Interest is not necessary for such a system to work. The bank and its depositors (shareholders) invest, rather than simply loan, their holdings. The money is put at risk and the return to the depositors will be based on the amount of profits made in the respective investments. Under normal circumstances of a growing economy, if the bank is big enough and it diversifies its portfolio, the bank is virtually “guaranteed” a positive return on its total investments. Thus, those who invest their money with the bank will also receive a positive return on their money without it being guaranteed or fixed ahead of time.
    Numerous “Islamic” financial institutions have been set up throughout the world today. They have been established on the principle of avoiding interest and some of them have flourished. During the 2008 GFC, not a single Islamic bank anywhere needed to be bailed out by tax payer’s money. The success of Islamic finance system has forced Western banks to look into Islamic finance system. There are banks in the West who now provide 0% interest and Islamic finance system is even taught in the West now because they see it as future for solution to their problems.

    CONCLUSION

    As far as present-day economies are concerned, the worst thing that could happen would be for people to wake up and discover that we do not need most of the things they want us to buy—to realize that there other routes to inner peace than continual consumption. Could this be one of the reasons that our materialist culture seems unwilling to take inner development very seriously? Does it suspect, perhaps unconsciously, that if we became less attached to the material world, less addicted to what we have and do, then this would spell its end?

    But as far as humanity is concerned, waking up is the best, not worst, thing that could happen. It would not only free us to discover other paths to the inner fulfillment we each seek, it would also remove the root of our malignant tendencies that are today threatening to destroy us.

    We have to break the vicious circle society has caught itself in. And we have to break it at its origin. Just as a doctor does not heal a patient by only patching up the symptoms—if he does not look to the underlying cause the symptoms will more than likely reappear at some later time—so too, we will not eliminate the charging of interest and all its ramifications by outlawing it. In one form or another it will re-emerge—as history has shown.
    To solve the many problems facing us we have to tend the root cause—our addiction to the world of things and the love of money to which it leads. This is the virus in our mind, the root cause of our malignant tendencies. For the most part, “modern civilization” has decided to turn its back on Divine Guidance (mostly due to the experience in the West with Christianity) and have attempted to construct their own economic systems, political systems, international laws and so on. When doing so, though, they have to admit that they are attempting something that is beyond their means.

    The social sciences are very different from the physical sciences. There are no labs in which humans can be entered to determine what may be the best results under different scenarios (and even that would have to assume that humans will always react the same under the same circumstances).
    In the realm of economics, the first thing that may come to mind is the collapse of the theories of socialism and communism.
    One should, though, also take a closer look at capitalism and how far its reality is from what it is supposed to be. The early capitalist theorists envisioned a theory that would lead to “the best of all possible worlds.” However, their theories were based on assumptions that never were and will never be fulfilled. They assumed perfect competition, perfect knowledge, free trade and so forth. Once these assumptions are violated, which they inevitably are, they do not lead to the “best of all possible worlds.” Instead, they easily lead to a world of exploitation, wherein the rich get richer and the poor get poorer. One of the driving forces behind this system is the institutionalization of interest.

    It is laughable that these so called peace makers think their actions are to restore peace in the world, it is very clear from our discussion above that they are source of corruption in the society. As Quran says:

    And when it is said to them, "Do not cause corruption on the earth," they say, "We are but reformers."
    Unquestionably, it is they who are the corrupters, but they perceive [it] not. [Quran 2:11-12]
    God has blessed humans with the guidance of the Quran-a book that has been minutely preserved since its revelation. This book contains the guidance that humankind needs to lead a successful life in both this world and the Hereafter. It is therefore no surprise that this book absolutely prohibits and condemns interest in the strongest fashion. This book puts great emphasis on life in hereafter, love for poor and charity to seek God's pleasure. Love alone is not enough, we may love the poor but if we are following man made laws and prefer them over Divine laws then we are setting ourselves for failure. History has proved this over and over again but man does not learn from history. Without following Divine laws, we can never succeed in finding love, peace and harmony.

    May Allah help us understand Islam and may Allah give us strength to implement Shariah! Ameen!
    Last edited by HabibUrrehman; 1 Week Ago at 08:19 PM.
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    Re: Islam & our social issues-Islamic Finance System vs Interest based Economy

    Brother, did you type this all up? Either way, jazakAllahu khairan. A very comprehensive, yet easy to read and understand, explanation on interest, it’s effects, and where it fits into Islamic principles. I read a little more than half way through it but I’ll continue the rest after work inshaAllah.

    Unfortunately, there are very little halal investment services out there. The ones I’ve found seem to be UK based. There is another thread which talks about wahed investment which I signed up to a couple of months ago. It seems promising, but i believe some of their endorsers state that it isn’t 100% halal. In the times we’re living in, one cannot live without some kind of retirement package and unfortunately, there are not a lot of options available.

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    Re: Islam & our social issues-Islamic Finance System vs Interest based Economy

    Subjects such as this would have been nice to learn when I was younger in school. I hope parents take note and teach their children.

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    Re: Islam & our social issues-Islamic Finance System vs Interest based Economy

    Greetings and peace be with you Habib;

    I have tried to understand Islamic banking, but from what I can see it is very similar to any western bank. They talk about co-ownership when buying a house, and profit; rent or fees rather than charging interest, but the formula for their profits seem to be calculated in the same way interest is calculated. If you borrow £200k over twenty years you pay back £276k. If you borrow the same £200k on the same plan over an extra ten years then you pay back £320k. Am I missing something?
    The link below is an Islamic bank finance calculator.

    https://www.alrayanbank.co.uk/home-f...nt-calculator/

    In the spirit of praying for justice for all people,
    Eric
    Islam & our social issues-Islamic Finance System vs Interest based Economy

    You will never look into the eyes of anyone who does not matter to God.

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    Re: Islam & our social issues-Islamic Finance System vs Interest based Economy

    Quote Originally Posted by Eric H View Post
    Greetings and peace be with you Habib;

    I have tried to understand Islamic banking, but from what I can see it is very similar to any western bank. They talk about co-ownership when buying a house, and profit; rent or fees rather than charging interest, but the formula for their profits seem to be calculated in the same way interest is calculated. If you borrow £200k over twenty years you pay back £276k. If you borrow the same £200k on the same plan over an extra ten years then you pay back £320k. Am I missing something?
    The link below is an Islamic bank finance calculator.

    https://www.alrayanbank.co.uk/home-f...nt-calculator/

    In the spirit of praying for justice for all people,
    Eric
    Well, people nowadays run businesses then apply label as 'Islamic' as they want to attract certain market.
    I don't have much knowledge the situation in other countries but in my country there are many banks labeled as syariah banks but the way they operate is not within the Islamic rulings.

    For me 'Islamic' means following Quran and Sunnah as very base foundation.

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    Re: Islam & our social issues-Islamic Finance System vs Interest based Economy

    Quote Originally Posted by keiv View Post
    Brother, did you type this all up? Either way, jazakAllahu khairan. A very comprehensive, yet easy to read and understand, explanation on interest, it’s effects, and where it fits into Islamic principles. I read a little more than half way through it but I’ll continue the rest after work inshaAllah.

    Unfortunately, there are very little halal investment services out there. The ones I’ve found seem to be UK based. There is another thread which talks about wahed investment which I signed up to a couple of months ago. It seems promising, but i believe some of their endorsers state that it isn’t 100% halal. In the times we’re living in, one cannot live without some kind of retirement package and unfortunately, there are not a lot of options available.
    I actually have a very long essay on this topic which is of course based on my reading of different books and articles from various Islamic scholars. This post was a summary of my actual essay, I wanted to keep it as short as possible but as you know it is a very important topic and I may have missed several important details. Anyways I am glad that you found this helpful.

    You are right that there are not many halal options available. Some which are available are hijacked by Western banking and they have corrupted the very concept of Islamic finance system. I normally stick to a simple rule which is only buy something when I have cash for it. I know its hard to do in this materialistic world but inshallah we will find our house and several others blessings in Jannah by trying our best to stay away from haram. Regarding retirement, sometimes the company allow you to invest in the companies you like for 401K or other retirement plans. If that's the case then we should take advantage of that and try not to invest in business which are haram from Islamic point of view such as drugs, alcohol, pornography, pork and tobacco etc.

    May Allah keep us steadfast in practicing the teachings of Islam and may Allah keep us away from anything which displeases Him! Ameen!

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    Re: Islam & our social issues-Islamic Finance System vs Interest based Economy

    Quote Originally Posted by Eric H View Post
    Greetings and peace be with you Habib;

    I have tried to understand Islamic banking, but from what I can see it is very similar to any western bank. They talk about co-ownership when buying a house, and profit; rent or fees rather than charging interest, but the formula for their profits seem to be calculated in the same way interest is calculated. If you borrow £200k over twenty years you pay back £276k. If you borrow the same £200k on the same plan over an extra ten years then you pay back £320k. Am I missing something?
    The link below is an Islamic bank finance calculator.

    https://www.alrayanbank.co.uk/home-f...nt-calculator/

    In the spirit of praying for justice for all people,
    Eric
    Greetings and peace be with you brother Eric,

    The first question which I should ask you if you agree with interest free finance system? I have given several quotes in my OP from Bible and hope that's something we can agree upon.

    Now to answer your direct question, let me quote a verse from Quran which is key to understand the difference between conventional banking and Islamic banking:

    Those who consume interest cannot stand [on the Day of Resurrection] except as one stands who is being beaten by Satan into insanity. That is because they say, "Trade is [just] like interest." But Allah has permitted trade and has forbidden interest. So whoever has received an admonition from his Lord and desists may have what is past, and his affair rests with Allah . But whoever returns to [dealing in interest or usury] - those are the companions of the Fire; they will abide eternally therein. [Quran 2:275]
    The part which I have bolded in the verse is the key to understand the difference between Islamic and conventional banking. Let me list few differences:

    1. While the central role of conventional banking is to operate as borrowers and lend us the money, the central role of Islamic banking is to operate as a trader. Therefore the earnings of Islamic banks are a result of trading activities unlike the conventional bank. Such trading activities include sale of commodities, leasing of assets, providing services and investing into business through varied relationships.
    2. There are firm laws governing the types of businesses with which the Islamic banks can trade. There should be absolutely no investment in unsuitable businesses, including those involved with armaments, pork, tobacco, drugs, alcohol or pornography. Ethics has nothing to do with conventional banking, all they care is about getting their money back with interest.
    3. The relationship with customers brings up another key area where a marked difference can be seen between conventional and Islamic banking systems. Conventional banking revolves around single type of structure for such relationship which is of lender and borrower. However, Islamic banking works on multitude trading structures and relationships. Some of which are as follows:


    • In a sale base structure which is called murabaha, the relationship is of buyer and seller where earnings come from profit of the sale.
    • In a rental based structure which is called ijara, the relationship is of lesser and lessee where earnings if any come in the form of rent.
    • In participation based structure which is called musharka or mudaraba, the relationship is that of a partnership where earnings if any comes from profit sharing.
    • In an agency based structure which is called wakala, the relationship is of a principal and an agent where earnings if any come from fees.

    Accordingly the key point to understand the Islamic banking and its products and how it differs from conventional banking it is important to understand the structure and relationship on which the product is based. Once the structure and relationships are identified are recognized, the difference between Islamic banking and conventional banking becomes clear and evident.

    Hope this helps to see the differences. For the humanitarian justice, let's raise our voice against interest based finance system and advocate for the Divine of interest free economic system.

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    Re: Islam & our social issues-Islamic Finance System vs Interest based Economy

    Greetings and peace be with you too brother Habib,

    Quote Originally Posted by HabibUrrehman View Post
    The first question which I should ask you if you agree with interest free finance system?
    I am very much against our interest based economy also gambling, the stock market, hedge funds and bitcoin. I hate the idea that a footballer is worth more than a doctor or teacher. Our whole finance system is for the benefit of billionaires, they dictate what we do. If you do a google search for the worlds rich, you find statements like...........

    The growing concentration of the world's wealth has been highlighted by a report showing that the 26 richest billionaires own as many assets as 3.8 billion of the poorest people living in extreme poverty.
    Only God can give true justice, we each strive to do what we can.

    In the spirit of praying for justice for all people,

    Eric
    | Likes loneseeker liked this post
    Islam & our social issues-Islamic Finance System vs Interest based Economy

    You will never look into the eyes of anyone who does not matter to God.

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    Re: Islam & our social issues-Islamic Finance System vs Interest based Economy

    Quote Originally Posted by Eric H View Post
    Greetings and peace be with you too brother Habib,



    I am very much against our interest based economy also gambling, the stock market, hedge funds and bitcoin. I hate the idea that a footballer is worth more than a doctor or teacher. Our whole finance system is for the benefit of billionaires, they dictate what we do. If you do a google search for the worlds rich, you find statements like...........



    Only God can give true justice, we each strive to do what we can.

    In the spirit of praying for justice for all people,

    Eric
    This is good to know brother Eric. God has clearly forbidden interest and we can see the reason why. On our part what we can do is to stay away from interest to the best of our abilities and educate others about the ills of interest based economic system. If we can convince three people to stay away from interest and each of those three people can convince three more, we can start something which will soon have positive impact in our own communities. Please feel free to share my post if that helps to spread the good word.
    | Likes Eric H, loneseeker liked this post


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