Quote:
Originally Posted by azeegum
In past few years the phenomenon of Islamic banking has earned a lot of fame. Many institutions, economists, analyst etc are busy in understanding the concepts and nature of Islamic banking. A lot of work is being done in different countries to understand the Islamic mode of financing. However the Islamic banking system has not yet been able to beat the current banking system. There are many myths around the Islamic banking system.
Now as a student, critically analyze the major reasons behind
the above mentioned situation of Islamic banking system and why the Islamic banking is more like a myth than a reality? Please discuss this issue here. I hope the discussion that that follows will prove be very helpful to those who want to develop material on a topic like such... Thanks
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The Quran’s Injunctions about Interest
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If people had not indulged in wishful interpretation of these verses of the Quran,
It should have been unnecessary for us to consider further what is that excess, usury or interest, which the Quran so forcefully prohibits. Now what the verses had been revealed for this excess or usury or what we call interest:
That is because they say;
*trade is like usury*.
But God hath permitted trade
And forbidden usur
What does this word ‘usury’ mean? The original word which is translated here as usury is riba. Riba literally means an excess or addition wit reference to debts, itmeans any excess above the principal lent. Therefore, it includes both interest and usury. In fact, argument is superfluous in the presence of these clear verses, verse 278 say; discard usury ( little excess ), verse 279 says; You can not take back the capital sum. So that we are prohibited from taking is the excess over the capital sum. Since interest is also an excess over the capital lent, according to the Quran, it is prohibited.
Mark the last four lines. The Quran foresees the bearing of interest on trade. Yet in its own glorious way it insists on permitting trade and prohibiting int
If we start from the negative end, the Quran’s meanings become obvious. The clue is provided by verse 275 of chapter ii.
That is because they say;
*trade is like usury*.
But God hath permitted trade
And forbidden usury.
Why does God “permit trade and forbid usury “?
Capital invested in trading brings an excess called profit, invested in banking it brings interest. God prohibits one excess and permits another- What is the difference between the two? The difference is that profits are the result of intiative, enterprise and efficiency- They result after a definite value-creating process. Not so with interest. It may even retard a value-creating or productive process and too often does as we shall soon see- A still more fundamental difference is that interest is fixed, profit fluctuates.
In the case of interest you know your return and can be sure of it. In the case of profit you have to work to ensure it. If a banking structure could be evolved in which the return for the use of money would fluctuate according to the actual profits made from it, Islam would have no objection to it. That would be a developed form of “SHIRAKAT” which is already recognized in Islamic jurisprudence. What the Quran prohibits is a fixed return for the use of money irrespective of the profit gained or the loss incurred by the borrower. So riba or interest means; Fixed return for the use of money. It is always prohibited whether it results from the loans of gold and silver or economic credit.
According to economic point of view, Interest plays a peculiar part in bringing about the crises the interest sows the seed for the crisis. It takes place in the heydays of a boom. Large amounts of money on interest are employed in productive processes. Due to burden of interest the marginal cost of production no doubt rises, but as yet there is enough demand for goods and procedures feel highly optimistic about the future.As the demand for goods is great, the profits rise and are reinvested in industry or banks. The wages, however, always lag behind. Interest has a bearing on this lagging behind of wages because the enterprises carrying the burden of interest, are very reluctant to increase wages. Besides a large number of labourers remain unemployed even during the nascent boom. In the high marginal cost of production and in the lagging behind of wages are sown the seeds of the invisible yet inevitable crisis.
The abolition of interest can abolish the crises.
It is the “enhancement” of interest that there are goods without market and men who need them but can not purchase them. “Enhancement” is the word which Carlyle used for this strange phenomenon. But God had permitted it in the Holy Quran;
“Those who devour usury
will not stand except”.