Riba and the Pakistani Economy

Re: # 46

.......... and pigs will fly !........... why, some of them might even be able to make it to the eighth heaven, thus breaking the previous record held by a flying horse !

#46 by Urstruly on June 10, 2006 9:20pm PT
what you are advocating is social justice, we don`t need islam for that, europe did it with social democracy. there is no reason why islamic and the third world can`t do same, infact some are already doing it, i.e south korea, malaysia.

I have been tracking this islamic finance business for the past 16 odd years ever since Malaysia started on the sukuk bandwagon. Financial Institutions love this, its a one way bet, nobody loses. Across the arab world, you get what is called as non-interest bearing deposits. One way bet, you cant lose, you take in the money from people who dont want interest and loan it out. Which is the reason why you have strange liquidity sinks and peaks in the middle east markets.

ALL justifications given by the sharia boards are pure unadulterated BS. And I mean ALL, no exceptions. So if an instrument is publicised as sharia compliant, immediately know that they dont know what the heck they are talking about, each and every financial transaction is either interest bearing or has elements of explicit risk involved. It is all a way to make money out of the faithful. Then again, its the same with the ``socially responsible investment``, you are paying for your consience in that case, and in case of these islamic instruments, you are paying for your faith. Best of luck.

Re: # 39
Dear Musa,

Al Azhar fatwa on Bank interest is available on the internet, google.com zindabad. As for Dr Fazlur Rehman`s take on modern day banking, well he has tried to explain Quranic injunctions in detail going into their background and ill-effects on the general population. Basically, his argument is the same ie any social inequilibrium caused by evil practices such as charging of exorbitant interest rates, exploiting the needy, enslavement of entire families because of non-payment, depriving people of their basic rights to feed their families, all such acts go against the basic ethos of Islamic social justice and need to be resisted and opposed.

Rule of law by any court if not respected is meaningless, no matter if it is a Islamic injunction or by the military. Country`s with strong legal systems where write of the state is administered have demonstrated a much better human rights record in terms of society and economics. Take the example of Germany and Japan, both countries suffered huge losses in terms of people and capital post world war II, both were held responsible thus forced to pay damages to the allied countries. So why have they succeeded where many have failed? Two reasons (1) Good leadership which followed rule of law, respected their constitution and worked for the benefit of their people (2) No defense spending, both countries by law could not maintain their own armies. Point being, doesnt matter whether its religious doctrine or man made system, its as good as the people who manage it.

As for the comment on Pakistan debt, well these were supposed to be invested into projects which should have repaid these debts ie they should have been productive. What can the international lending agencies do when you have corrupt leaders and its people dont care cause they too are getting rich, who cares what happens to the country. Yeah, it makes good headlines, once in a while we can all get together and lambast these crooks, but tell me honestly, has it ever bothered anyone why we still have 250,000 Pakistanis stranded in Bangladesh? Morally we suffer from selective amnesia, we like to talk big on Islamic piety yet offer no real solutions and in our real life we ignore or embrace social norms which are to our benefit.

Instead of trying to reinvent the wheel Pakistan and its poor 150MM will be served better if we could provide them with economic relief, enough of this religious hypocrisy it does not feed their children niether does it provide them with a better future.

Re: # 46
You may not be describing a society on mars but sure do sound like an alien from a planet millions of light years away from earth.

Islamic Govt? Govts are made of ppl, flowery words are excuses for totalitarianism, exclusion of minorities, no room for dissent. Where do u see Islamic society in Pakistan or this world or when was the last time one was sighted?

Liquid assets currently owned by National (??) and private banks? Abay jahil, jub putha na huwa karey tho muth bola kar. These liquid assets are loans granted against CUSTOMER deposits. Banking ki abcd aathee naheen aur challay hein lecture denay.

Care to expand on the concept of inflation? why dont u be honest and say LIBOR ie London inter bank offer rate, cause thats what all the Islamic banks are doing.

If there is a malignant tumour in our society it is in the form of semi-literate maulvis parading themselves as all knowing pure breeds, in actuallity they are good for nothing power grabbers including the Taqi Usmanis of this world.

The first responsibility of Islamic government in the Islamic Republic of Pakistan will be to make arrangements and establish policies that are conducive to and facilitate the people of Pakistan to earn decent and honest living which is called Rizq-e-Halal. In order to achieve this objective we will have to eliminate the bloodsucking social class that has lost its fear of God. Those who do not fear God are the enemies of God and His people.

Since interest and Riba is haraam, the institution of banking will be replaced by a federal government financial institution that will be called Baitul Maal or People`s Treasury. Initially, it will contain all the liquid assets that are currently owned by by all national and private banks. The role of institutionalized lending by any private or government institution, in the present day sense, will be abolished. THe trillions of rupees currently owned by these banks will be loaned to people who would want to establish a business. These loans will be absolutely interest free, that is, Qarz-e-Hasna. However, the borrower will have to pay back the loan in a fixed time (it may be in installments) with a mark-up that would be equal to the rate of inflation for that period. In addition, borrower would also pay the administrative charges (which will include the wages for those who administer the loan process i.e. baitul maal employees etc). In other words a bank in Islamic republic will be absolutely non-profit. For loans upto Rs. 500K no collateral in fixed assets will be required. However, there will be stern process in place to deal with defaulters. A network of collection agencies, run by federal investigators will be establihed. The Baitul Maal will be required to publish a monthly financial statement, which will have absolutely no hidden or secret line items. The list of borrowers will also be publihed periodically along with their borrowed money figures. Since, the money lended is from Peopl`s treasury, therefore, confidentiality clause will not apply. This pool of funds will be replenished with a part of state revenues annuallyand partially through zakat and usher funds. The bulk of zakat and usher funds will be used for pension for all Pakistanis of retirement age, every child will be given a state stipend from the day she was born until she will reach the 16 years of age. Education for every child in Pakistan will be free upto Secondary school. Every jobless Pakistani will be given unemployment allowance for 12 months and he will be loaned (interest free) to continue his higher or vocational education. Unemployed will be given preference for businss loans.

I am not describing a society living on Mars; almost every Western country has established this welfare state in their country. Pakistanis have to make a decision today, whether they want this achievable dream materialize in their country or they wish to continue their misery under the oppression of a corrupt, amoral, and bloodsucking class. There is absoluetly no other way to our freedom without eliminating this malignant tumor festering among us. It is now or never.

Re: # 44

........ the question is why doesn`t potohar have the capital ? ............ as far as i can tell, taxila has been around a lot longer than atlanta

.......... but you are partly right about stuffing dollar bills into g-stings - it is a waste of money if you can`t expense it ........ but it has got nothing to do with humanity and all that - it simply means that those fine women are good business women and don`t want to waste their time hanging out with guys who don`t have the money to pay for a dance ..........having said that, dancing is an honorable profession unless you run across the duke lacrosse team ........

........ the thing that bothers me about muslims, and other primitive people, sitting around and criticizing the current economic system is the fact that they can`t point to a viable system that has ever worked - now, or in the past .......... and for mo`s sake, don`t talk about the kulafa-i-rashideen who presided over a city state that filled its coffers by plundering its neighbors and stealing their camel and women ........the fact that three of them got whacked tells you something about how clever these guys really were !........... the socialist experiment too has failed, and i don`t see anybody else coming up with anything else in the forseeable future ........... everyone, including the commie chinese and the horrible hindoos, is jumping on the bandwagon and making a buck while the muslims are busy whining about the ``system`` and contemplating suicide ..........

#43 by hamidm2

Hamidm all I`m saying is that US sucked up Hamidm from Potohar because it had capital while Potohar didn`t, otherwise Hamidm would be advising some Potohari company on increasing productivity. That`s all. After all, it`s the same Hamidm ... isn`t it? Whether in US or potohar. It was not because of any conspiracy ... it was only how things turned out. But it was a shame. Hamidm would be happier I think .... as would be Potohar.

I have a question.

I loved tucking up dollar bills in g-strings in Atlanta (boy what knockouts) not to mention other parts of the world (but Atlanta was the best), but somehow they would all drift away to the next guy when I ran out of dollar bills. So I carried more the next day, and still more the next, but they kept running out. And I had mortgages to think about so thought I couldn`t compete with the next guy, and the next, and still the next, and so forth. I was running like a rat on a carousel with no end in sight. Didn`t want to be a rat. Neither did I want to be a utilitarian nor a phillistine. So I decided that dollar bills turn humans into illusions and deprive them of humanity...unreal and unattainable.

Was I wrong?

If you say I was wrong, I`ll join you back on the stripper strip!

Re: # 41

zeemax,

``Perhaps the 7th century people did know what they were talking about`` ....... is that why they lived in a tent with their sheep while their wives slept outside in the rain ?

``persons with capital and persons with productive skills must be `partners` `` ......... sounds a lot like the union/management partnership bs, doesn`t it ? ......... all around the midwest wherever you see a uaw logo along with the company logo you can be sure they are going out of business ........... on the other hand, all across the south, the japanese and korean capitalists are going it alone without the damned uaw getting in the way and everyone is happy .......... sam walton would have made his money with or without the half-wits handing out flyers for fryers at wal mart ........... and i hope to god warren buffet doesn`t `partner` up with engineers, insurance salesmen and bitheads ......... if he does i am selling my brkb shares !

``Uncle Sam is great only because it first sucked in all the world capital`` ......... you mean to tell me that the chinese and the rest of the world are deaf and cannot hear that big sucking sound ? !...........how do you suck capital, through a straw ? ......... do you mean to say that the us is what it is simply because it has looted all the capital in the world and then drained all the brains from botswana and the republic of chad to put them to work on plantations in the silicon valley ? ........ who would have thought - slaves driving bmw`s and sipping napa wines !

........... heard any other conspiracy theories lately ? ......... how about the one that the us is causing global warming because it hates penguins ?

#35 by bbabu

There is something called ``gold standard``. America followed it until 1971. You do not need an Islamic economic system for this. A lot of you dudes suffer from NIH (not invented here) syndrome.

You`ll find the answer for this in the post below.

Rgds

Oak,

But if we are to consider the abolition of interest we may have to bring it about by gradually reducing the interest rates purposefully in order to abolish it. At this stage we ought not rule anything out.

Japan reduced interest rates to zero and has maintained it at zero since a few years. But even zero rates are still interest rates in an overall interest rate regime. Thus it can only be abolished, not reduced gradually.

But as for partnership requiring pooling of hard funds we could say that banking or governmental institutions ought to be able to step in.

Yes. That`s exactly the point of Islamic mode of finance (not banking) that persons with capital and persons with productive skills must be `partners` in keeping with the egalitarian spirit of Islamic Society, rather than a sytem whereby those with productive skills are left at the mercy of a few controlling the capital alone and with no other skills. Islam seeks to remove that anamoly.

Why is there a brain drain? It`s only because productive people cannot excel in a capital deficit society, but the same do well in places where capital is surplus ... e.g. USA.

Uncle Sam is great only because it first sucked in all the world capital, and then all the world brain. At first it siphoned-off capital through high interest coupled with the gold standard where other nations thought all the dollars they had were backed by some gold bars in fort knox, but when they found out they were cheated, Uncle Sam just abandoned the gold standard and introduced floating exchange rates, again manipulated by interest rates, because by then dollar was the reserve currency anyway and others had no choice but to buy dollars .... gold-backed or not. So the world capital remains with uncle sam and finances its deficits.

Quite realistically, many people reject the interest-free system outright because it is difficult to believe the people in the 7th century knew about the vast implications of an interest based regime for a sophisticated economic system of today, which is why it was opposed by them so vehemently. But quite apart from the religious edict, an interest-free system is indeed vital towards an egalitarian society.

Perhaps the 7th century people did know what they were talking about.

I.e. Hamidm`s crusades notwithstanding ...)

......... is it okay to take a leak standing up ?

...... this, along with riba and other burning questions like whether women on the rag should be allowed to pray, are discussed ad nauseam by the brialliant ummah while they continue to squat by the roadside and then get up to watch the traffic with one hand inside their shalwar ! .........sometimes one feels like walking up to them and slapping them in the face to see if they will let go their pants !..... wake up !.... wake up, you fool! ........ you have no right to talk about business and commerce and science and technology, because you haven`t contributed anything to any of these things in the past thousand years !........ if it weren`t for white man and his machines you would stilll be sitting on top of all that oil pounding sand and waiting for the next prophet ........... you have no business talking about banking and interest and financial markets because, at the best, you are a nation of petty traders who can get by with elementary barter trade : six goats for a camel and a fifteen year old virgin for two camels and a basket of dates ........... that`s all the economics you need to know ........... what do you care about mortgages and private equity financing when all you need is a tent and a sheep to keep you company !

............ leave this stuff to people who have indoor plumbing and use utensils to eat their dinner !

p.s. now i feel a lot better !

Re: # 36

rf786

.....edicts issued by Azhar University which voted 21-1 in favor of Banking interest rates stating it was not Riba. Islamic scholars such the late Dr Fazlur Rehman has written in detail differentitating usuary as described in the Quran and interest rates as practiced in the modern economy.

I would request you to quote your sources so that we could discuss this further. I would be interested to know Fazlur Rehman`s take on the issue. If you could get a copy of the text of the fatwa itself, or its main conclusions, that would also be revealing.

But generically, I believe this idea was first taken up by Muhammad Abdu at the turn of the last century so it is not a new idea. One could sit and debate about specific transactions all day. But the contemporary form of compound interest, used in modern finance, is certainly forbidden in the Quran (3:130):

In the name of God the ever Gracious, the Merciful:

``O ye who believe! Devour not usury, doubled and multiplied; but fear Allah that ye may (really) prosper.`` Yusuf Ali

``adaa`afan mudaa`afatan`` means doubling or multiplying upon itself. It refers to the riba i.e. the usurious amount rather than the principle. Therefore one could not escape this by saying as long as the principle is not doubled than that is fine.

The other point is that transactions which have been allowed e.g. in Pakistan do not seem to exploit the debtee any less. Therefore one could argue from the point of the maqsad of the Shariah that it is forbidden.

Quoting debt numbers without describing their background fails to explain their reasons and seems to be a deliberate attempt presenting one side of the story. Fact is, much of this borrowing has been used to fund projects in Pakistan, now the issue here is whether those funds were properly utilized or not?

But the poor people of Pakistan are paying for it. And continuing to pay for it. And the riba, except in a nominal way, is not relieved from them.

What you are telling me is that a deal was done by the corrupt classes of Pakistan and the worlds financial institutions to mortgage the future of the people of Pakistan. I don`t see how the financial institutions can avoid responsibility.

JK

Musa

Re: # 29

Zeemax

Regarding interest and growth, let`s take the recent example. Below is the unemployment rate in the USA.........It just manipulated interest rates to achieve growth. It is actually nothing more than creating a `self-fulfilling prophecy` through artificially inflated wealth. This, in essence is what Islam prohibits i.e. creation of wealth from thin air without the backing of tangible and intrinsic value.

I see what you are getting at but first lets deal with a small hurdle. If Uncle Sam reduced interest rates to increase employment that has a net effect of economic redistribution then fine. Teriffic. Reduction of interest to achieve a result. What`s wrong with that.

I understand where you are coming from: that the manipulation of the interest rate to achieve economic objectives creates an artificial economy. But if we are to consider the abolition of interest we may have to bring it about by gradually reducing the interest rates purposefully in order to abolish it. At this stage we ought not rule anything out.

Your points re partnership, raising funds from stock markets etc are fine at a micro level, but partnerships require pooling of hard earned funds and cannot be leveraged, thus slow growth only from reinvestment of profits; while cheaply borrowed money can not only be leveraged but also independant from need of profits for investment. Thus fast growth.

Surely that is because of the system that has been put in place. In this particular system interest acts as a motivator for resource allocation. We can devise alternative motivators. I am skeptical of the make up of the current stock market because that leads to speculation rather than investment. But as for partnership requiring pooling of hard funds we could say that banking or governmental institutions ought to be able to step in. And as for interest being independent of the need of profits we could say that interest by its very nature requires a level of profit higher than the interest rate. Otherewise there would be no motivation to take out a loan.

But people want fast guarenteed cash, they don`t want to engage with society to work on a wholesome prosperity.

Your thoughts?

Musa

rf786 #36

`` Writer usage of the word riba for bank interest rates or those practiced in capital markets ignores edicts issued by Azhar University which voted 21-1 in favor of Banking interest rates stating it was not Riba. Islamic scholars such the late Dr Fazlur Rehman has written in detail differentitating usuary as described in the Quran and interest rates as practiced in the modern economy.

Quoting debt numbers without describing their background fails to explain their reasons and seems to be a deliberate attempt presenting one side of the story. Fact is, much of this borrowing has been used to fund projects in Pakistan, now the issue here is whether those funds were properly utilized or not? We all know of the corruption in Government and general public including our honorable sharia benches, it was not interest rates or capital financing which caused ballooning of debts but human corruption. ``

Corruption doesn`t exist in the land of the pure :-)

Writer usage of the word riba for bank interest rates or those practiced in capital markets ignores edicts issued by Azhar University which voted 21-1 in favor of Banking interest rates stating it was not Riba. Islamic scholars such the late Dr Fazlur Rehman has written in detail differentitating usuary as described in the Quran and interest rates as practiced in the modern economy.

Quoting debt numbers without describing their background fails to explain their reasons and seems to be a deliberate attempt presenting one side of the story. Fact is, much of this borrowing has been used to fund projects in Pakistan, now the issue here is whether those funds were properly utilized or not? We all know of the corruption in Government and general public including our honorable sharia benches, it was not interest rates or capital financing which caused ballooning of debts but human corruption.

Monetary policy has been instrumental in developing German, Japanese and todays Chinese economies with great success. Referencing failures that too of Islamic states should reveal more of the people than the system.