Islamic Economics and Place of Interest – English Essay

Islamic Economics and Place of Interest

English Essay on “Islamic Economics and Place of Interest”

 

 

 

Islamic Economic Order, based on the revealed teachings of Islam by Allah, the Knower, the Wise, is unique in its nature, teachings and methodology. It is fundamentally poles apart from both capitalism and communism possessing the birtues of both but free from their evils. Allah has given a warning in the Quran that anyone who is not prepared to give up the practice of Riba should prepare himself for war with Allah. But while all Muslims accept the prohibition, the controversy about the essence, nature and parameters of what has been prohibited by the Quran in prohibiting Riba remains.

The meaning of Riba in the light of the Shariah as understood by the scholars is as follows: in the Arabic language Riba, literally refers to increase, addition, expansion or growth. In explaining the injections of the Quran, the Messenger of Allah (PBUH) added cret.ain transitions of exchange (bay) also in definition of Riba, i.e., riba al fadl (riba of excess) to distinguish it from riba al nasiah (riba of waiting).

Quran disapproves of Riba (Usury). A true Muslim is, therefore, a duty bound to avoid all monetary transactions, which have an element of Riba, or exoritant iniquitous interest.educationsight.blogspot.com This brings us to the crucial issue whether the modern banking system based, as it is, on payment of interest -to the depositors and realisations of interest from the borrowers is objectionable on religious grounds or not, irrespective of the fact whether the interest rates are exorbitant and terms and conditions iniquitous or not. The first verse about Riba, revealed in Mecca six or seven years before the Prophet’s (PBUH) migration to Madina says:

That which you give in Usury (Riba), in order that it may increase on other people ‘s property does not increase in the eyes of Allah but that that you give as Zakat (Poor due) for Allah’s pleasure increases manifold.. (30:39)

The Holy Quran contains the guiding dictum in this behalf and makes it clear that guidance in it is for God-fearing people, who believe in the unseen, establish worship and spend in charity. The ‘central message of the Quran, however, is that salvation in the Hereafter is the ultimate goal, the summum bonnum, of earthly existence. The purpose of wealth, as of life itself is to spend it in the path of Allah, so as to be rewarded in the Hereafter (and possible on earth as well). The most blessed expenditure of surplus wealth is in Zakat, sadaqah or charity. And in Islam (according to the Islamic Law) there is no room for earning money though money lending.

The word ‘Riba’ as used in the Quran, has been rendered in English by most of the translators as ‘Usury’, the taking of iniquitous or illegal interest and a Userer as a money lender for excessive interests.’ This definition is on all fours with the descriptions of Riba contained in the Quran itself, i.e., ‘doubling and quadrupling of the sum lent.’ Therefore, one can safely say that this kind of interest charged either by the individual lender or by a financial institution or a bank which is decidedly excessive like the compound rate of interest previously charged by the House Building Finance Corporation and now being charged in the name of ‘rent’ which makes the borrower repay double the principal amount falls within the ambit of Riba and such persons as would justify suc2 interest as described in the Quran as:

Those who swallow usury can not stand upright like a bedeviled person whom Satan has prostrated by his touch. They have been advised to give up usury otherwise be warned of war against them from Allah and His Messenger. (2:2 78)

There are ‘very strong words and should instill the fear of God (Allah) in every believer’s heart. The Holy Prophet’ (PBUH) during the short period that he lived after the Divine Revelation prohibiting Riba, concluded treaties of friendship with the people of Taif and Yemen with the overriding stipulation that Riba would be prohibited completely in those two commercial centres of Arabia. Laying down the rules of religious rites imposed prohibition on social eils of liquor and gambling as well.

The Holy Prophet {PBUH) in his famous Declaration on the occasion of the “Farewell Pilgrimage” barely three months before his death, announced the total and permanent ban on Riba and remitted the entire amount of interest due to his uncle Hazrat Abbas (RA). Thus, the Quranic injunction against Riba, though received at about the close of the Holy Prophet’s (PBUH) mortal life on earth; was adequately enforced by him not only on his followers but also on those communities who were favorably inclined towards Islam and had extended their hands of friendship.

Although one can pile up wealth through Riba earnings, this will ultimately lead to losses because enrichment of a few at the cost of others will result in inequality, injustice and social unrest. On the other hand trusts based on collective ownership, equality, co-operation and social welfare characteristics of Zakat, Sadaqat and charities will generate order, peace, brotherhood and freedom.

In the Shariah, therefore the issue is not whether the use to which the money advanced is put in commerce or production, but whether the motive for the advance is charity or enterprise. When the intent is not charity, but to benefit from the profits of the enterprise, the Shariah does not permit arrangements in which the donor of the advance is insulated from the risk of the enterprise, and the recipient of the advance is under an obligation to return the money irrespective of the outcome of the recipient’s venture. The interest paid by the government to its ernployees on their provident fund deposits or investments in the Government’s National Savings Schemes cannot be called Riba as, firstly, it helps rat.hei’ than injures any one and, secondly, the fund raised by such depositors is not lent to any borrower on interest unlike a Bank.

Now this brings us to the crucial issue whether the modern Banking System based, as t is, on payment of interest to the depositors arid realisations of interest from the borrowers is objectionable on religious grounds or not, irrespective of the fact whether the interest rates are exorbitant and terms and conditions iniquitous or not. The sceptics say that trade is just like usury but the fact is that Allah has permitted trading and forbidden usury.

Going by the above criterion, the interest charged by banks is also a kind of Riba whether it is called ‘mark up’ or anything else, as long as the banks function not as trading houses but primarily as repositories of fluid capital to be lent to those who are prepared to pay interest, including industrialists, traders and businessmen at rates and terms either fixed or negotiable. Therefore, as long as the nature of banking activity does not undergo a radical change, its role, although different from that of the users of Arabia fourteen centuries ago, no account of the former’s institutionalized, impersonal character, is basically that of a money-lender.

Banking is distinguishable from trade and commerce in the following ways:
• No risk is involved (barring exceptional cases of bad loan).
• Fixed profit is guaranteed whether the borrower loses or gains.
• Recurrent profit accrues on money advanced only once.
• Neither labour nor intellect comes into play to earn profit.
• Rear capitalist economy channelizing investment, on the basis of ‘opportunity cost’ in projects whether the return is highest and not where it is most needed.

Some of the steps taken in Pakistan to eliminate interest or to bring it closer to profit earned in trade and industry, like ‘Profit & Loss Sharing Account’, Modarbah’, National In-vestment Trust (NIT) are pioneering measures which can lead to a drastic reorientation of the banking system and other, financial institutions by entrusting t them direct investment in industrial and agricultural projects, real-estate development and even trading by creating the required organisation in the anks and finance corporations, in the public sector. Alternatively, the banks and finance corporations should participate financially, as well as actively, with entrepreneurs and not just advance money on mark-up to the already rich business tycoons, up-coming industrialists and influential politicians.

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