Islamic Finance: A Solution to Global Financial Challenges

Professor Kamali, a celebrated Islamic Economist, while calling for ijtihad, explicitly adopts the method of choice and the criterion of the general welfare in his legal analysis of these instruments. The solution put in place once a bank has been closed is to use everyone’s tax money through central banking insurance to eliminate the problem until it occurs again. States, by ‘protecting’ banks from bank runs by means of deposit insurance, ultimately compound the problem by fractionating further the central bank reserves on which the banks draw from to begin with. The current banking industry is regulated in such a manner that a legitimate cartel of money-makers has been created. The State protects this banking cartel from the normal rationale and logic of the contractual law.

Therefore, something that does not have intrinsic value cannot be money. They practice fractional reserve banking which is the basis on which the majority of the money in circulation comes into being. The excess is incorporated into the economy as money supply which contributes to the phenomenon of inflation.

What is Riba? – An authoritative work on the most misunderstood term in Islamic economics  (Paperback, Iqbal Ahmad Khan)

If someone is in need of money, the rich should fulfill his needs for the sake of Allah’s Pleasure or offer him an advance not including interest. As against the Islamic system, this system of Riba is based on self-centeredness, abuse and containment. Interest on manufacturing or marketable loans does not plunge in the group of riba. Though Muslims agree that riba is prohibited, there’s much debate over what constitutes riba, whether or not it is towards Sharia regulation, or solely discouraged, and whether or not it must be punished by individuals or by Allah.

The current value of bitcoin is largely driven by speculative interest. Bitcoin has exhibited characteristics of a bubble with drastic price run-ups and a craze of media attention. From a Islamic perspective it is just like a paper or Governmental Digital currency and therefore Haram. In the end as a side note, it should be stated that Bitcoins and other private crypto currencies utility as a store of value is dependent on its utility as a medium of exchange. Economists retort that the findings of the ‘conservative’ legal scholars ought to be rationalised, since vulnerable to charges of perpetuating an opposition to Muslim progress.

What is RIBA Architecture? – Royal Institute of British Architects

At its core this system of disequilibrium which we call capitalism is based on Riba. Mechanised Riba through the banking and economic systems has turned a criminal contract into a means of economic and political domination. As long as we remain slaves of Riba, our Muslim nations will remain enslaved. It is generally assumed from the point of view of material wealth, that things have never been better than they are today.

Additional costs may not be imposed after a murabaha due date, which makes murabaha default an rising concern for Islamic banks. Islamic law prohibits charging interest as well as any usury (i.e., lending money at exorbitant or unlawful rates of interest). Therefore, interest cannot be charged on loans, nor can it be paid on savings. But Islamic banks are still banks, which means they also seek to make profits for their investors. Islamic banking is a banking system in accordance with the Shariat. In Islam, money has no intrinsic value – money, therefore, cannot be sold at a profit and is permitted to be used as per shariat only.

Secondly what is the assurance that the scrounger manufacturer or an entrepreneur is bound to create revenue and that would be plenty to recompense interest in adding together to the amount of advance? Is it fair that while the providing party’s (i.e. the moneylender’s) profit is fixed the scrounger may be unable to find all and yet be indebted to pay back a sum well in surplus of the advance? In addition, Moneylenders make no compromises of interest rate in cases of non-trade mortgages. A most important piece of the government’s loans may be spent in the defense sector or in payment of salaries. Likewise, the average inhabitant may scrounge from a Moneylender for house or car financing or even for wedding arrangements.

Objective of the Paper

The spot price is considered the price; and the excess occurs when there is an increase in the price offered in delayed terms. May Allah bless him and grant him peace, went to Marwan ibn Hakam and said, ‘Marwan! ’ He said, ‘These receipts which people buy and sell before they take delivery of the goods.’ Marwan therefore sent guards to follow them and take them from people’s hands and return them to their owners.” (Muwatta Imam Malik – Sanad Sahih).

• Islamic banking has barriers in India but it can be addressed with some flexibility and modifications in regulations which ultimately depend upon the political will.
• For those who want credit from a Sharia compliant bank the instrument of Ijara is available — in which the bank purchases the asset on behalf of the client and allows its usage for a fixed rental.
• At instances, many countries from ancient Greece to historic Rome have outlawed loans with any interest.
• Hence it is ensured to distribute the actual outcome and none is to bear risk alone and none is to earn with zero risk.

1] Acceptance of the interest charged on their loans, either explicitly or by disguise. “Yahya related to me from Malik that he had heard that al-Qasim ibn Muhammad said, ‘Umar ibn al-Khattab said, “A dinar for a dinar, and a dirham for a dirham, and a sa’ for a sa’. Something to be collected later is not to be sold for something at hand.” . Islamic understanding of Riba opens the path to restoring our own Economic model and thus creating the tools that can overcome the present system. Only while we remain confused between the halal and the Haram do we perpetuate the present situation.

Furthermore, from this utilitarian perspective not only is what is riba accepted but the original idea of equivalence is no longer relevant and is therefore ignored. This explains the incapability of economists to understand the Islamic definition of Riba, which is based on the intrinsic equivalence of a just transaction. It leaves economists in pure perplexity when it comes to understanding the Islamic sense of equivalence, as expressed in sentences such as “gold for gold, hand to hand, equal for equal.” The ‘perplexity about equivalence’ is a factor common to all economists. India wants to become economic giants but it will not possible until the large group of population remain excluded from mainstream economy.

This normally takes 48 months for completion through a combination of on-the-job training and academic study at an accredited university. The Royal Institute of British Architects can provide more information about architectural apprenticeships to pupils who are willing to practise Architecture in the United Kingdom.

As the bankers and economists broaden the legal community’s understanding of finance, however, interpretations along his lines crystallise day by day into a new ‘consensus’ concerning Islamic derivatives. Islamic finance has acquired a considerable ‘flexibility’ from the initial steps taken by the first Islamic Bankers. It has by no means finished, and will not be until it becomes completely integrated into the kafir banking system. As we analysed earlier – has been transformed into a means of financing a sale by making two transactions into one.

Another instrument is Murabaha, which means a sale on mutually agreed profits. In this financing technique, an asset is purchased by the bank at a market price and sold to the customer at a mutually-decided marked-up cost. While banking is premised on charging interest while lending, and paying interest on deposits, there are a number of financial institutions even in the West, that also structure their accounts in Sharia compliant ways.

The latest modernist scholars now argue that time value of money is a valid argument but they reject making money from money. Under this legal artifice, the bank financing a Murabaha sale must actually buy the merchandise and then advance it to the buyer. They essentially deprived Riba an-nasiah of its true meaning and reduced it to something else. First, they maintained that the Riba prohibited in the Qur’an was the Riba known as ‘Riba al-jahiliyah’, when a person did not pay his due after the stipulated time, the seller would increase the price, which they wrongly equated with Riba an-nasiah.

The Islamic Reformers came in all guises and shapes through out the Muslim world during the latter part of the 19th century till today. A group of pseudo scholars started their own Islamic version of a Protestant reformation. Among other things they tried to change the definition of Riba in order to accommodate the banking practices of their day. Its supremacy in present society is so absolute that expressions like taxation and interest rates command more certainty than the existence of Allah. Religions in the process have had to bend their supposedly unchangeable laws in order to submit to the rationale of the banking order.

This vacuum is filled with their own definition of Riba an-nasiah, which allows them to remove it from its true meaning. To give a semblance of validity to their mistaken position, they quote all the authorities and the hadith but they change the context and twist the meaning of what type of Riba is applicable, thus derailing the comprehension of the issue. The aforementioned hadith refers specifically to the exchange of Dinars and Dirhams of different denominations, and implies the impossibility of using promises of payment in the exchange.

The micro, formal, transaction-based perspective, is the one that most influences the practices of Islamic Banking and finance today. This is done by reducing the Fiqh to a few simple rules that are usually incorrect as statements about the classical law. The first idea of Islamic Banking derives from the ideas of ‘Abduh, who equated the bank with Shirkat and Qirad.

Finally the Protestant revolution redefined usury from being any interest to only ‘excessive interest’. The Protestant interpretation consented that any interest that was in accordance with the market rate was permissible, and only the interest that was in ‘excessive’ disparity to the market was considered usury. But in practice, without an upper limit beyond which people can agree that usury is taking place, the definition has proved pointless. What we call modernism in Islam is similar to what Protestantism is to the christian world.

The key to understanding our present economic situation is the concept of Riba in the shariah. Without a proper understanding of what is Haram, we will not be able to make a correct judgment. To understand Riba we will need to eliminate some common misunderstandings, such as making interest chargeable on loans as the only form identical to Riba – when in fact it is only just one form of Riba. None of branches of knowledge directly related to assets e.g. accounting, economics and commerce recognize it. Even in ordinary life it is not so, same treatment is given to cash and all other assets throughout the world in theory as well as in practice.

Any addition over the loaned capital during the term of loan is Haraam. Muslim consensus gives a special status to cash/ currency as compared to all other assets. Greenlam is now offering a RIBA approved CPD module on anti-fingerprint HPL surfacing solutions. CPD stands for Continuing Professional Development and is the term used to describe the learning activities professionals engage in to develop and enhance their abilities.

KSIDC will be the single largest shareholder in the company holding 11% shares whereas other individual shareholders can hold a maximum of 9% shares. On the other hand, where the purpose is for utilization when one has for some cause or other gone astray his earnings, to insist a fixed return where no homecoming is produced is frequently considered as iniquitous. Especially so if the collateral demanded is the house in which the borrower lives or land from the prospect turn out of which he expects to pay back the loan. All the way through the era, currency providers have used the first type of case to defend their business. Ironically it is their appliance of it to the second set of circumstances that twisted the ground for the second type of spat. In the other kind, the holder allows the bank to invest his money in specific projects and gets returns after a stipulated term based on how the business performs.

The handpicked religious scholars of the autocratic Muslim countries decreed that assets, which depreciate, could be rented. So, all assets that are depreciated with the passage of time can be given on rent. But this rule is not admitted in the case of cash / currency, even though currency is also depreciated with the passage of time due to inflation. Hence here also the unnatural division is a completely self- contradictory concept. In a democracy like India, can two / three / four parallel banking system work, specially in free competition world.

For the Muslims Islamic finance could open new doors, enabling the betterment of this community and achievement of the goal of financial inclusion for all. This will also help to open new avenues for flow of substantial funds in the market. It will help in mobilize large amounts of money from Muslims who participate very little in conventional banking. This will also help to channelize huge amounts of Investments from Gulf and other Muslim countries that India is currently loosing.