it's about Islamic banking. There is not need of correcting the typo
because the premise of Islamic banking is nothing but banging the economy
anyway, where banging should be interpreted in slang.
Economics has many siblings - Keynesian economics, Marxian economics,
classical economics, etc. etc. and the new kid on the block is Islamic
economics, based on the concept of "Riba" or interest free banking system.
May be comical but it's not economical at all. The new fashion of Islamic
financing does not comply with modern economics or the Quran, it's
kind of transsexual, neither a male nor a female.
macro economic concept of Quranic law gave birth to so-called interest
free Islamic banking at a micro economic level. Malaysia in the mid-forties
and Pakistan in the late fifties introduced small-scale interest free
banking system. However, these two pre-matured babies did not survive.
In 1963, Ahmed Al-Najjar of Egypt tried the system one more time and managed
to outlive along with conventional banking. Soon at the beginning of seventies,
abundant petro-dollars inspired bigots to create Islamic banks. In 1974,
IDB (Islamic Development Bank) was formed by the OIC (Organization of
Islamic Countries) to help member Muslim countries with a desperate attempt
to isolate Muslim countries form rest of the world.
recently, more than 100 financial institutions are involved in this freaky
business. Muslim apologists claim that Islamic banks of the world
altogether have around $200 billion dollars in assets. Big deal! It's
a negligible amount compared to any other conventional banks. Bank of
America of USA alone has over $700 billion dollars in assets. Conventional
Banks are not supported by free money; they have evolved from natural
economic phenomena. Islamic banks, on the other hand, are mostly state-sponsored,
if not fueled by free petro-dollars.
is not the only religion that talks about Interest free banking; Christianity
also has the same formula, hidden in their religious books. While interpreting,
Matthew 13:12 and 25:29, Luke 19:26 and 8:18, Old Testament, Exodus 22:25,
many scholars agree that accepting or paying interest is hazardous to
people's health. Seldom, they protest with a faint "m..e..o..w" like
a cat but never try to make it an issue. They understand the impact of
interest on modern economic machine.
Federal Reserve System, shortly known as "the Fed," is the central bank
of the United States. It's not a profit-making organization and it
works independently within the government. Fed conducts nation's monetary
policy, regulates banking institutions, maintains the stability of the
financial system and provides certain financial services. In order to
maintain a fiscal discipline, Fed often changes the short-term interest
rate that makes a tremendous affect on domestic economy and international
market as well.
Alan Greenspan, the chairman of "Fed" is considered the God of monetary
world. He carefully reviews different factors of economy with the board
members and decides to change the interest rate. Dr. Greenspan is an admirer
of Ayan Rand, the pioneer of "Objectivist movement" who advocated capitalism
as a social and economic philosophy. Dr. Greespan
has set a milestone in modern economics and he has been showered with
honorary degrees from Harvard, Yale, Pennsylvania, Leuven (Belgium), Notre
Dame, Wake Forest, Colgate, and Edinburgh universities. According to Islamic
law, Mr. Greenspan will definitely go to hell and turn into Red-spank
i.e. he will be spanked until he becomes red. More importantly, Dr. Greenspan
is aware of interest free banking system but he would not dare to propose
the stone-age idea, because he does not want to turn USA into a poor Islamic
banks are practicing a twisted concept of current interest based economic
system. Usually, Investment financing is done in three different ways.
Musharaka: Sounds like mushroom but it
did not grow like mushrooms. It's a joint venture between the bank
and a business farm. They split loss and profit in a pre-arranged fashion.
Bank may withdraw gradually after a certain period of time. However, Bank
is making money out of the investment.
Another idea of murdering the economy. In this peculiar system, bank contributes
the money and the entrepreneur provides expertise, management and labor.
Profits are shared by both the partners but lose is carried by the bank.
rate of return: The bank determines an estimated rate of return
on a specific project. If the project makes more than estimated amount,
the client keeps it but bank will take a lower amount if lose occurs.
objective of a traditional bank is lending and securing money, it's
not a bank's job to poke its nose in all ventures. When an entrepreneur
submits a plan to build an industry, bank reviews the viability of the
project but they are more concern of enough collateral. It's the entrepreneur,
who takes the risk with his/her last penny. On condition of receiving
a percentage of interest, Bank will comfortably loan any amount of money
as long as it's secured.
and Loss Sharing or "PLS" (not PLO), is the sweetened name of Islamic
financing. The goal of an Islamic bank is ensuring the profitability of
a project. An Islamic bank will never lend a dime unless it's guaranteed
that the project will make money. They surely don't want to take a
loss. A bank should finance various types of projects; it may be a chemical
plant or a charcoal project, candy factory or panty hosiery. When an Islamic
bank takes the position of an entrepreneur and tries to oversee each and
every project, they become "Jack of all trades-master of none". It's
impossible for a bank to have knowledge on various types of business.
Nonetheless, Islamic banks are making profit, aka interest, on their invested
financing of Islamic banks is the most deceitful technique. They use Mark-up,
Leasing, Hire-purchase and Sell & buy back procedures. In each case,
clients end up paying more than the original price, which is nothing but
mirrored image of traditional interest based loan system.
example will expose the true picture of Islamic banging. Mr. John Doe
buys a nice car and gets the financing from a traditional bank. The price
of the car is $30,000 and he agrees to pay $588 a month for 5 years at
the rate of 6% interest. After 5 years he will pay $35,280, out of which
$5,280 is interest.
Mr Mohammad Akkelmond buys the same car and he decides to deal with an
Islamic bank because of his religious pregnancy. Islamic bank will buy
the car for $30,000 and Mr. Mohammad will agree to pay an amount of $35,280
after 5 years. Obviously, He will not be able to pay $35,280 at a time.
So, they will agree that Mr. Mohammad would pay $588 per month for 5 years.
Did the bank accept any interest? Naujibillah! (God forbid!), there is
no such thing as interest.
banks also have loans with a service charge. Is service charge a form
of interest? Islamic bowlers, I mean scholars will shake their beards
and violently say, "NO". Any reasonable person can see that the interest
is merely hidden and relabeled, if not redefined.
Money has a time value. Today's $30,000 is worth less the amount after
5 years. Also, many economists consider "interest" as "rent" on money.
Therefore, when money is borrowed, we have to pay the rent to compensate
the time value. Just like any rental, the interest is subject to change
to reflect market conditions. The flexibility of changed interest may
or may not help the consumer; lower rate is more auspicious than higher
rate. However, the flexibility of changing rate is influenced by many
factors and it's the outcome of free economy.
Quran, the moronic book of Islam talks about prohibiting usury in four
places (see ref. below). Interestingly, all of these verses mentioned
"Riba", which means usury and not "Faida" meaning interest. What
is usury? According to Webster dictionary it does mean "interest" but
it also classifies as, "an unconscionable or exorbitant rate or amount
of interest; specif: interest in excess of a legal rate charged to a borrower
for the money".
Kepping the techmicality aside, Quran is more specific about the topic,
verese 30.39 dictates, "That which
ye give in usury in order that it may increase on (other) people's
property hath no increase with Allah-.". In other words, money should
not increase when borrowed. Aren't the Islamic banks are doing exactly
the same thing? Also, verse 3.130 confirms, "O ye who believe! Devour
not usury, doubled and multiplied; but fear Allah; that ye may (really)
prosper-". Despite Allah's warning, western countries are prospering
very well with the help of interest based economy.
Verse 2.275 is very clear
- "-..but Allah hath permitted
trade and forbidden usury-". Inspired by the verse, Islamic banks are
pretending to do trade while investing the money to rip off the interest.
According to most of the scholars, only one loan is acceptable in Islam
and it's called "qard-el-hassan" or literally good loan, where the
lender does not charge any interest or additional amount over the money
was an unsuccessful businessman and he did not learn anything from his
first wife Khadija, which inspired him to take a short cut and start "no
money down-prophet hood" business. When Mohammad made all those verses,
he had no idea of sophisticated interest-based banking system. While Islamic
banks are taking interest under cover and professing "Profit & loss
sharing" system, they are still having trouble in financing in different
areas, such as, a) participating in long-term low-yield projects, b) financing
the small businessman, c) granting non-participating loans to running
businesses, and d) financing government borrowing.
Western countries are extremely flexible in adopting new system that seems
to be beneficial. As mentioned earlier, Islam does not have the sole proprietorship
of interest free banking system; Christianity shares the same proposition
too. Yet no one talks about the hypothesis because modern economic machine
is running very well.
In contrary, Islamic countries do not have the luxury to experiment new
economic system. They should follow the proven system and recover from
the current economic turmoil that they are going through. Not surprisingly,
they won't buzz because Islam takes top priority and not the citizen.
Everything has to be Islamic, even if it leads to destruction.
That which ye give in usury in order that it may increase on (other)
people's property hath no increase with Allah; but that which ye give
in charity, seeking Allah's Countenance, hath increase manifold.
That they took usury, though they were forbidden; and that they devoured
men's substance wrongfully;- we have prepared for those among them who
reject faith a grievous punishment.
O ye who believe! Devour not usury, doubled and multiplied; but fear
Allah; that ye may (really) prosper.
Those who devour usury will not stand except as stand one whom the Evil
one by his touch Hath driven to madness. That is because they say: "Trade
is like usury," but Allah hath permitted trade and forbidden usury.
Those who after receiving direction from their Lord, desist, shall be
pardoned for the past; their case is for Allah (to judge); but those
who repeat (The offence) are companions of the Fire: They will abide
therein (for ever).