Islamic Banking

The Debate of Riba /Interest

Quranic Injunctions on Riba

The Holy Quran verses [2:278-279] 278. O ye who believe! Fear Allah, and give up what remains of your demand for usury, if ye are Indeed believers. 279. If ye do not, take notice of war from Allah and His Messenger: but if ye turn back, ye shall have your capital sums; Deal not unjustly, and ye shall not be dealt with unjustly
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What is Riba / Interest?

Consensus on meanings- Riba and interest Riba- Arabic word means increase Equivalent to interest paid on loan

Riba-al Qard
Also known as Riba al Quran or Riba al nisa Any thing in excess of principal paid by borrower to the lender a) As a condition of loan b) For an extension of Maturity

Hadith-Relating to Riba al Fadl

Ab Sa[id al Khudr narrated that the Apostle of Allah (Peace be upon him) said: Gold for gold, silver for silver, wheat for wheat, barley for barley, dates for dates and salt for salt, like for like, payment being made hand by hand. If anyone gives more or asks for more, he has dealt in riba. The receiver and giver are equally guilty (Muslim).

Rationale for Prohibition

A subterfuge for rib al-nasah Six-commodities (1) Gold (2) Silver (3) Wheat (4) Barley (5) Date (6) Salt Gold Silver as Monetary commodities in past Medium of Exchange for other commodities
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Rationale Prohibited (Contd)

Four commodities sold by weighing Characteristics of edibility Characteristics of Storability

Other implications of Riba

Not merely restricted to Loan In sale transactions-Riba al buyu a) Riba al nasiah- Increase in lieu of postponement and delay of payment b) Riba al fadl-Sale and purchase of six commodities.

Controversy on Meanings of Riba

Production and consumption loans High rate of interest An accepted fact-Interest is cost of using capital

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Riba-According to Shariat Appellate Bench (SAB)

All prevailing forms of interest in Banking or otherwise Any interest on Government borrowings Present financial system based on interest need radical changes

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Evils of Riba /Interest

Greek and Roman philosophers prohibited. Non sharing of risk on capital Creates Parasites in society-Earning without economic activity Notion that interest increases savings has proved wrong Rich are becoming richer and poor are becoming poorer Credit vs Equity in business Generates un-employment

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Islamic Economic System

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Islamic Economic System Vs Materialistic Economic System

Investor not concerned with the fate of business rather fixed return Distribution vs concentration of wealth Concept of Economics as ultimate goal and necessity for prosperous life

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Islamic Economic System Vs Materialistic Economic System

According to materialistic economics: "Livelihood is the fundamental problem of man and economic developments are the ultimate end of human life While according to Islamic economics: "Livelihood may be necessary and indispensable, but cannot be the true purpose of human life The Holy Quran has enunciated this basic truth very precisely in a brief verse: "Seek the other world by means of what Allah has bestowed upon you" (28:77).
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Islamic Economic System

The Real Nature of Wealth and Property According to the illustration of the Holy Quran "wealth" in all its possible forms is a thing created by Allah, and is, in principle His "property". "Give to them from the property of Allah which He has bestowed upon you." (24:33).

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Islamic View on Property

(1) Whatever wealth man does possess has been received from Allah. (2) Man has to use it in such a way that his ultimate purpose should be the other world (3) Since wealth has been received from Allah, its exploitation by man must necessarily be subject to the commandment of Allah.
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Form of Allahs Commandments

a) Allah may command man to convey a specified production of "Wealth" to another man. b) He may forbid you to use this "wealth" in a specified way. He has every right to do so because He cannot allow you to use "wealth" in a way which is likely to produce collective ills or to spread disorder on the earth.
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