Interest/Riba Dilemma! - Economics

[lolwatever]

Re: Dilemma! - Economics

Errr.. I dunno if this makes sense, but if 5 years ago I borrowed £500 from you to buy a dvd player. And 5 years later the same DVD player costs half the price. You'd still want your £500 and not the value of the DVD player as it would be today, wouldn't you? You'd lose out if I insisted to pay you by the value of the item today.

Now look at in reverse. If you borrowed me a bag of sugar which cost 49p at the time. You lost 49p. Then when I come to pay you back when sugar now costs 69p, why should I pay you the 20p extra when all you lost was 49p in the first place? You'd be making profit from me na?

salams sis, jazaks for that, but the dvd example is different.. umm.. the price of dvd player decreased because teh technology is now more widely available and its not only one company that produces it anymore... everyone makes dvd so price goes down..

that's different to prices "overall" in an economy increasing or decreasing..

umm ill giv u xample... say you make your own 'muslimahsis car'.. to produce first car will cost you an arm and a leg... but after you produce a couple thousand.. it doestn cost much to produce more cars because the relative price of production is cheaper...

so that cant be used to illustrate the borrowing idea

---

ok so you ask, what's inflation then?

basically this is inflation.. people get higher wages.. so people start demanding to buy more stuff.. but companies cant cope to keep up with consumer demand, so they push up prices, ---> THAT's inflation

tc
salamz

 

[Snowflake]

^lol@Muslimah Sis car..what a wicked reg plate that would make eh? ;D

nah, I dont get ur drift lol. All I knw is why should u be paid back according to inflation rates. If I owe u a packet of humbugs. Im gonna buy u packet of humbugs ten yrs later, no matter how much they cost me. But if u want the money instead, Im gonna pay u not what they cost today, but what I paid for them. Cuz u can only take back what u gave and I pay back what I owe.

 

[lolwatever]

salamz sis, yep exactly..

 

[Malaikah]

sooo... can someone summarise this thread? I didnt really understand anything lol. I just discovered the other day that my student loans thingy uses this non-real interest inflation thingy...

Is it halal?! :X I dont want to be working with riba!!ffended:

 

[lolwatever]

salams btw sis manal.. did u checkout the pdf i sent u? which had the fisher equation in dere..
salams

 

[IbnAbdulHakim]

keeping in midn that not all interest is riba....

jazakumallah khayr.. evidence please!
salams

interesting, can someone explain this?

 

[learningislam]

:salamext:

sooo... can someone summarise this thread? I didnt really understand anything lol.

i second that......it would be a great help.

:wasalamex

 

[manaal]

salams btw sis manal.. did u checkout the pdf i sent u? which had the fisher equation in dere..
salams

Err no..... I decided it was a lost cause....

 

[lolwatever]

Err no..... I decided it was a lost cause....

lol u mean the link didnt work or....:?

 

[learningislam]

:salamext:

CASE 2:

Suppose inflation is 2% (in simpel terms, at teh end fo the year, my money will be worth 2% less).

becasue when we lend money to someone.. we want to recieve teh same money we gave them... therefore:

i = 2 (becasue inflation is 2%)
r = 0 (becasue it's haram to make actual profit on the loan)

therefore:

n = i + r = 2 + 0 = 2%

therefore i am giong to charge 2% to offset the effect of value loss... but i'm not making any net gain, i'm just ofsetting the effect of value loss... hence i'm nto charging "real interest".

well....what i get is this ...... that if a person borrows $100 from me and she has to pay me back after 1 year.... and suppose at the end of the year the money value decreases by 20%.....that means $100 are now equivalent to $80......
in my case
inflation is 20%
i = 20 (becasue inflation is 20%)
r = 0 (becasue it's haram to make actual profit on the loan)
therefore:

n = i + r = 20 + 0 = 20%
therefore u say that if i charge 20% to offset the effect of value loss... i'm not making any net gain, i'm just ofsetting the effect of value loss... hence i'm not charging "real interest".

bro...i would disagree with you charging 20% nominal interest.What i think is, giving somebody loan is similar to keeping that money with you and not spending it. So at the end of the year, my money would be $100 which are worth $80.If i charge 20%, that would mean i am taking $120....contrary to what she had to give me...becoz...she had to give me $100.

One can only claim back exactly the amount which was given as loan. Anything other than that will be considered Riba, thus unlawful (Haram) and sinful.
It is akin to the situation where one places his money in a safe or money box and thereafter takes the money out after few years. It is obvious that the money which he will take out will be exactly the same as he put in. It will not increase or decrease due to inflation or deflation!

Now, suppose

CASE 3:

Let's assume there's DEFLATION (negative inflation).... I.E. in simple terms, the value of money is RISING in an economy... so lets plug some numbers

lets assume inflation is -2%, (i=-2%) and real interst is zero (coz that's haram), therefore... nominal interst :

n = i + r = -2%

now.. based on that, in order for me to not be making any 'real interest', i should pay back the borrower 2% of what he returns coz the value of money has increased...

but lets say i don't... i.e. we'll set n=0

n = i + r = -2 + r = 0

r = 2

therefore if i dont pay him back, i'm making a profit of 2%

doesn't that ring any bells?

here again....bro i disagree with you.......because the money you will get is not profit. If you hadnot given that money to the other person, the money was all yours....be it inflation or deflation.

Suppose......deflation is 20%......
that means....if the person gives me back $100.....as she had borrowed from me. But the $100 are now worth $120...so she should pay me back $80 as they would be worth $100. I dont agree with that again.......i should get back my $100....as i had given her $100. If i hadnot given her that money, and kept with me, would i end up with $80 at the end of the year...No.....so why would i get $80 instead of $100...

i completely agree with manaal's example.

BTW, this is just my opinion...i think its better to ask a scholar on this.
:wasalamex

p.s. MashaAllah bro i really appreciate your step by step explanation. You can be a good teacher...... JazakAllah khair

 

[lolwatever]

salams sis LearningIslam

jazaks 4 ur analysis , but i think the question is.

"Are you lending her the $100 paper, or the $100 value in money?"

If what you're lending her for the period of one year is the paper, then obviously yes she has to return the same 100 dollar paper (technically speaking i could make counterfeit money and return that to you and i'd be fine lol).

If what you're lending her is the value of money, then for her to return back to you the same value of money, it needs to be adjusted for inflation/deflation effects based on the example of mine you quoted.



Keep in mind in sahabah's time, they didn't have to worry about this, coz the beauty of gold standard, is that if i lend you 5grams of gold, i don't need to worry about inflation effects, because if there is inflation:

- It means that the price of goods have increased, and the value of money decreased. (that's why inflation happens).

- Therefore, if i sell gold as jewellery, it's more valuable then using gold as money.

- So i can melt my gold and make a ring out of it and sell it as jewellery.

- Hence i'll recover the same value of money i initially lent to the bro/sis in the beginning of the year

Unfortuantely with paper money, if you return the same 100 dolalr note i initially lent you, i can't melt/burn it n sell the ash to get my value back






However, i'm not making any halal or haram judgemetns here, insahlah i'm trying to get through to the islamtoday guys... but they're always full

jazaks 4 the input!



ps: could u link me bak 2 sis manal's xample u referred 2?

 

[learningislam]

:wasalamex

"Are you lending her the $100 paper, or the $100 value in money?"

$100 in paper form..

If what you're lending her for the period of one year is the paper, then obviously yes she has to return the same 100 dollar paper (technically speaking i could make counterfeit money and return that to you and i'd be fine lol).

i gave her $100.....so i want the same thing back. Not the paper cut into the size of that..

ps: could u link me bak 2 sis manal's xample u referred 2?

here it is.....(its post #11)

Consider this example:
I have 100 pounds with me which I am hoping to buy a piece of furntiture with. But My sister borrowed 100 pounds. 2 months later, the price of the item has increased by 5%. So the value of the money has fallen by 5%. If I charge 105pounds from my sister would it be riba?

According to the hadeeth it is,

Unfortuantely with paper money, if you return the same 100 dolalr note i initially lent you, i can't melt/burn it n sell the ash to get my value back

well...i think i have a solution....whenever someone asks you to lend him some money.Suppose he wants $200 and will return you back in one year. So you just ask him to stand there....and rush to the gold shop.....and buy some gold coins or jewellery worth $200. and give that to the man with the receipt.
At the end of the year , he will give you back the money in gold form (now i am kinda confused in this part...will he give gold worth $200 or the original weight of the gold that was given to him)...now you can melt it and make up ur value back.

Caution: Do the above experiment at your own risk....coz i invented it rite now.....and i dont know if it makes sense or not.

:salamext: