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    interest free economy

    Pakistan is going to have it.

    Has some other nation tried and did they suceed?

    #2
    Go to IslamicBanking for more infos on the Interest Free economy.

    Fata Morgana

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      #3
      doesnt have really much info. my question is that in absence of interest, why will anyone lend the money?

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        #4
        Interest based: Depositor get a fixed/variable interest on his deposits almost always. Banks lend money to borrowers in return for higher interest. Most of the times, banks and the depositors make money. The borrowers have always to return money+interest regardless of his profits or loses.

        Interest free: Depositor can deposit his money with a bank against profit/loss the bank makes in a specified time. Conclusion: in this system, the businesses are more real any most money will be spent in the most lucrative projects only. I don't think there is a place for a half-cooked adventure.

        Fata Morgana

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          #5
          Another useful site for IslamicBanking

          Fata Morgana

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            #6
            will this apply to international contracts? will pakistan pay interest to IMF or WB? if it pays interest but does not charge, it is not practical and also paying interest may not be islamic. WB and IMF are clearly not making profit. will u stop taking international loans? In that case will u take loans domestically only? How will you raise money for projects inside your country, say infrastructure like roads or bridges which will not be profitable for very long time. But profitable in the sense that it encourages other businesses. What about foreign investment. For example, will non resident pakistani keep money at US banks or send it to Pakistani banks without interest.

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              #7
              ZZ,

              As far I know Interest free economy is not in practice anywhere in the world including Saudi Arabia which is considered to be heartland for Islamic World. SA also takes loans from World Bank on interest.

              Once so called Amirul Mauminin of Pakistan General Ziaul-Haq introduced so called interest free banking in Pakistan to give profits after deducting compulsory Zakat. Shias of Pakistan protested his version of interest free banking and declared as un-Islamic because according to them Zakat is paid only on voluntarily basis rather than compulsory. So called ‘Amirul-mauminin” had to bite his bullet and allowed Shias to pay Zakat voluntarily if they want to. The Banks in Pakistan stopped “Zakat” deductions after receiving self declaration that person is Shia. As far I remember many Sunni declared them selves as Shia to stop forced “Zakat” deduction!

              Pakistan is in debt of 35 Billion dollars mostly taken from IMF and World Bank. The other day I was reading in a news paper that 58% of the deficit in Pakistani budget is due to payment of interest on that huge lone alone. In view of above facts how the hell Pakistan implement interest free banking is any body’s guess. Pakistan is in dire need of foreign funds to run the country. From where it can get interest free foreign funds. I do not know.

              Judge who has passed these orders must be thinking that Pakistan is a country surviving in “Water tight:” compartment. Either he is so dumb or he deliberately created more hurdles for Self style Chief Executive of Pakistan.

              FM

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                #8
                >will this apply to international contracts?

                In my opnion, Pak must honor all the past contracts till the date the new law about interest free economy becomes in force. That means, we must pay interest on the alreay borrowed loans from (inter)national lenders.

                >will pakistan pay interest to IMF or WB? if it pays interest but does not charge, it is not practical and also paying interest may not be islamic.

                In an interest free system, getting and paying interest is NOT allowed (inter)nationally.

                >WB and IMF are clearly not making profit. will u stop taking international loans? In that case will u take loans domestically only?

                I am not sure whether WB & IMF make profit or not but if they ask interest on loans then we cannot borrow from them. And then we have to generate loans domestically and loans from internation lenders who do not ask interest.

                >How will you raise money for projects inside your country, say infrastructure like roads or bridges which will not be profitable for very long time.

                Building infrastructures like roads, bridges and financing defence and law & order is mostly the job of the govt. which can be paid/financed from the taxes.

                >What about foreign investment. For example, will non resident pakistani keep money at US banks or send it to Pakistani banks without interest.

                All foreign investors are not un-islamic. Overseas Pakistanis can keep their money where they want.

                I think an interest free economy can generate more money on deposits than people get interest from banks. If we look closely, millions of people around the world are investing in stock markets than depositing their money in banks. They take risk and make more money. Dow Jones stocks, a few years ago were @ some 3.500 points and now they are hittint almost 12.000.

                In an interest free system, there is little place for the lazy, the sick, widows, pensioners and haramkhours etc.

                Fata Morgana

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                  #9
                  As far as I know, revenue in Pakistan is entirely eaten up by debt servicing and defence. Now how will u do anything like roads and infrastructure and education without loans? These are of course not profitable.

                  currently stock market in pakistan had big upheaval. Currrency is not stable. If u put money in interest free bank (for the only reason that there may be theft at home) and tomorrow govt. prints money like mad or raises taxes, I am cheated since my money does not have the same value. Will I get money back at least adjusted against inflation?

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                    #10
                    >As far as I know, revenue in Pakistan is entirely eaten up by debt servicing and defence. Now how will u do anything like roads and infrastructure and education without loans? These are of course not profitable.

                    Yes, some 75% of Pak budget is spent on debt servicing(55%) and on defence(20%). And a major part of the remaining 25% goes into the corrupts pockets. A little is left for the people. Thats why Pak is near to bankruptcy.

                    In my observation, Pak don't need foreign loans & aid because according to the rumors I heard and read, some 60-90 billions of dollar has been stashed outside Pak by our honest influential Pakistanis. So the average Pakistani tax payer has to be that wonderful attitude.LOL!

                    In my opinion, infrastructure and education are more profitable than a goldmine. Think about it!

                    People who use the infrastructure, pay immediately when they use it. Education is something a value added factor in a human being. Keeping people illiterate is more costly than we can imagine, especially women. I can keep explaining, but I have to write books for that. LOL

                    I can catagorize education in 3 sectors: Private, govermental & charity based. Private & govermental are (semi)commercial while charity based education survives on donations.

                    >currently stock market in pakistan had big upheaval. Currrency is not stable. If u put money in interest free bank (for the only reason that there may be theft at home) and tomorrow govt. prints money like mad or raises taxes, I am cheated since my money does not have the same value. Will I get money back at least adjusted against inflation?

                    Since the military take-over, the stocks of KSE have gone up by 50%(from some 1100 to 1625 till this date). And Pak rupee is stable too comparing before the military take-over.

                    Taxes must be paid from income and consumption and not from the money you have deposited in a bank. Because the money one has deposited, in a good taxing system, must already have been taxed. And then you only pay tax on profit/loss.

                    Well, I wonder why a govt has to print money in such a solid system.

                    Fata Morgana

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                      #11
                      even if it is stashed outside, i don't know how u are going to bring it back in pakistan. it is also not clear if all of it is illegal.

                      now if you dont print money nor take loans, it is not possible to plug in the gap between revenue and expenses.

                      well.. one can argue about long term profits of investment from education and infrastructure, but it is not going to be seen very clearly. now how will govt pay back someone from whom they have borrowed since there is no clear profit?

                      the stocks are just back to where they were before india's nuclear test due to signing of debt resheduling. but growth stays at 3% and agricultural growth is negative. definitely the economy is far from being solid.

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                        #12
                        I have one more question, maybe outside the topic or maybe not. Cash is one form of capital. Now in days of paper currency which state can print at will, it's value keeps changing in time. And u seem to advocate variable rate of interest (including negative interest) in form of profit/loss. What about other forms of capital. what about other forms of capital? say i have a room which i rent to a shopkeeper. if his shop runs in loss, should i pay him money. Rent is nothing but return at a fixed rate for money invested in real estate. is it islamic.

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                          #13
                          Lets not confuse rent with interest and printing inflatory money by the govt.

                          My understanding is that renting a shop and buying a candy is the same. If your shopkeeper is unable to pay the rent(according to the contract signed between you and the shopkeeper)then he has to vacate the shop. And the same goes to buying a candy, if you don't have money, you cannot buy a candy. Could you?

                          Fata Morgana

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                            #14

                            i'm not too good at economics, but from what i know, interest rates form the bulwark of a country's monetary policy. the interest rate determines the rate of growth of an economy as well as inflation. interest rate is a very powerful tool to control the money supply in the country, atleast under the kind of banking seen at present. absence of interest rates would perhaps mean the money supply in the economy goes haywire.
                            Simple ain't easy.

                            Comment


                              #15
                              I think Prophet Mohammad gave this advice in the time when there were gold and silver coins and money had true value. He perhaps did it so that poor people do not get exploited by greedy money lenders. Now the nature of money and economy is different. Isssue of rent is not unrelted. It is not like selling, it is more like borrowing. It is a form of capital.

                              there are some more serious questions on how Pakistan in particular will be able to do it in current situation. But even if u forget about Pakistan, question is how any country will be able to do it current times.

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