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Topic initiated on Saturday, June 9, 2007  -  12:22 PM Reply with quote
Why Islam is Against Lending Money at Interest ?

It has been argued that money is a "producer good" and that the lender should receive a share of the extra wealth that these goods produce. Yet this is illogical on several points. The only true producer of wealth (i.e. goods and services) is Labour when it is applied to either Land or Capital. Unlike Land, Money is infinite when not artificially restricted, which it often is. Money is man-made out of nothing and at tiny real cost. This credit creation confers enormous economic power and influence on those usually private institutions who have secured for themselves monopoly rights in this money issue.

That private banks create money out of nothing is a fact too little known amongst the public. Our national debt stands at over 200 billion pounds, and that of other industrialised countries is of similar magnitude. Have you ever asked yourself who is that fabulous lender who always seems to have all the money which the government does not have? Whom does the nation owe the national debt? The truth is that when banks create money (as cheque-money or blips on computer screens) they lend what they have not got to reap where they did not sow. Their loans are not backed by any real wealth on their behalf. Nor do they lend out depositors' money (or when did the bank last tell you that you can't take out money from your account, because it has been lent to someone else?). When you give your house or business as guarantee for their money, this money is not backed by gold, silver or tangible wealth. It is an empty promise except for the fact that the govenment, with the central bank as lender of the last resort, is ready to bail out the banks should a run on their money occur. Bank-created credit is based on the nation's capacity to produce and consume in the sense that whilst it is not issued nor backed by the government, the government - being the largest debtor - guarantees a certain return in debt service payments from its revenue. An increasing part of local and national government taxation today is raised for the purpose of servicing the interest payments on local and national govemment debt. So whether you personaily borrow or not, you pay the interest on that fictitious rnoney. Likewise, when you take a bank loan, you pay at least twice: you give a guarantee of real wealth in case of default, and you pay a penalty (as interest) for accepting money as a loan which costs the lender nothing and did not exist until it was created as a loan to you. Heads you lose, tails you lose again...


Posted - Monday, June 11, 2007  -  11:48 PM Reply with quote
Whoever wrote this article has no knowledge of how banks work. Please spare us this ignorance.

Posted - Tuesday, June 12, 2007  -  7:29 AM Reply with quote
I am interested in learning more about the basics of interest/usuary.How it works?its short and long term effect on economy/common man.what will happen to global economics if there is no'interest'.How Islamic banking is 'interst free''(different from normal banks)

I am expecting yours and other participants views on it.
For details ,if you provide me links of some suggestive reads ,will be appreciated.


Posted - Tuesday, June 12, 2007  -  8:32 AM Reply with quote

I feel, after a little deliberation I have done on this subject, that Charging a predetermined, fixed, rate of return, in a given time, on a loan.....

means that the borrower is forced to assume:

i) a risk which is additional to the natural risk of the business he is doing (incase of a commercial loan)

ii) a risk which is additional to the natural risk of not being able to recover the money which he borrowed for his consumption (incase of a consumer loan)

this is called financial risk in Finance. Now this risk (uncertainty/resultant variation in the earnings) is what is exploitative according to Islam. There can be following criticism on what i wrote:

1) How is it 'exploitative', when the transaction happens with mutual consent and at a competitive rate? My thoughts are that same can be said of prostitution, its a transaction of mutual consent, happens a competitive rate, still we consider it worng.

2) Incase of commercial loan, one can do a business of larger size by taking a loan, so whats wrong with it? Yes, but it can be shown statistically that chances of default increases as uncertainity rises.

Current efforts of Islamic Banking in Pakistan atleast have been mostly (approx. 80% of times) relying upon Murabaha Financing. It is basically a credit sale where a physical asset is first bought by a bank at certain price and then sold at a markup which is predetermined, fixed, and linked with time. So firstly Murabaha doesnt solve the problem. Secondly, it is very very easy to fool this system by showing a 'ghost' asset in papers submitted to the bank, so that the transaction would become exactly identical to a loan transaction. Through my experience with an Islamic Bank here, I can confidently say it can happen quite frequently!

So the subject still requires a lot of research to come up with products which are more in conformance with Islamic Law.

Posted - Tuesday, June 12, 2007  -  10:50 PM Reply with quote
also check out the special issue of monthly renaissance for the research work done on this topic:

The Economic Directives of Islam


Posted - Saturday, June 16, 2007  -  3:39 PM Reply with quote

Whoever wrote this article has no knowledge of how banks work.


Posted - Monday, June 18, 2007  -  9:19 PM Reply with quote
Assalam alaikum,

Please consult the links by hkhan at renaissance.com.pk to learn about the banking system, interest, riba, etc.

It is not just to say western banking system is wrong, because every bank is different, and every loan is different. Unless you know the clauses and terms of your loan, you cannot say that it is haram or not. To universally brand all western banking as haram is pure ignorance.

Posted - Tuesday, June 19, 2007  -  10:01 AM Reply with quote
thanks oosman,
your last post was a claim lacking reason,thatswhy i had to ask.

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