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Pak wants interest to be haraam, how will they repay foriegn debts??

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    Pak wants interest to be haraam, how will they repay foriegn debts??

    Details please.

    #2
    Pak wants interest to be haraam, how will they repay foriegn debts??
    That is why they have conveniently said, interest will be paid for foreign loans and not for domestic loans. Had they called for Islamization of foreign loans, Pakistan would default in 30 days. Nobody would be ready to re-schedule. The reason that the paris club agrees to re-schedule everytime is because, Pakistan promises to pay slightly higher interest every time.

    Pakistan has more than 1.5 trillion rupees of domestic loans and if they implement an interest free economy, the goverment can prevent this 1.5 trillion baby into becoming 2 trillion.

    Personally I think Musharaff will NOT implement an interest free system. Musharaff will face a lot of pressure for this, but he won't implement this in the interest of Pakistan.

    Imagine this, if no interest is to be received when you lend any loan, how many money lenders will lend money out? What will happen to the entreprenuers who rely on this money.

    If the money supply goes down, so will the money turn-over rate which will directly affect the economy's growth. America's economy is huge today only because of its M3 money or its phantom money supply that is generated by its strong credit system.

    Islamic concept of interest free economy is very puritanic but is not practical and will not stimulate any growth with it - something like Communism. When no interest is paid in the market, there will be no motivation to invest or take risk. Risk improves the chances of growth.

    Will visa or mastercard or american express be in America, if they cannot charge any interest? Imagine an America, where there are no credit cards. That will help you realize where interest free economy will take Pakistan.

    It is in Pakistan's best interest not to implement this Islamic puritanic interest free economic system.

    I hope they will not implement this. But you never know, it is Pakistan we are dealing with. lol!

    --------------------------
    A note for my Pakistani friends!

    Now please don't jump up and down and shout how great Islam is and how the system of interest-free economy will bring equality to the universe and how Islamic economic system "if implemented properly" would be the solution for the problems of the even the aliens in andromeda galaxy etc. etc. etc..

    If anybody would care to educate me on any issues where Islamic economic system would actually stimulate growth and opportunity in Pakistan, please feel free! I am here to learn from you.


    [This message has been edited by kumarakn (edited February 28, 2001).]

    Comment


      #3
      The thing with interest is that it is a guaranteed rate of return. That is what makes it haram. Its not that the person who gives the loan gets nothing in return. Its similar to a type of partenership. This is where one of the investors give the money but is not involved in the daily decision making of the company, but has a share of the profit. Similar to what happens in the stock exchange.

      Now here is an example of how you can buy a house without paying interest. Now you have to realise that the only thing haram about the interest is that it has a gaurenteed rate of return.

      If you want ot buy a house worth $100,000 whose rent would be $1000/month if it were on rent ... what you can do (and this is being done by ISNA in the north america). The person who is buying the house payes 60% up front, i.e. $60,000. Now the rest is paid by ISNA. The rent of the house in the open market is $1000. But the person who has bought the house only owns 60% of it. So if he pays the rent he would be paying $100, $600 to himself and $400 to ISNA. As long as he keeps on paying the remaining rent to ISNA his share of the property wont increase. Now if one month he decides to pay $10,000 extra with his $600 rent then his share of the property will increase to 70% and he will only have to pay $300 for his rent. Similarly all paments above the rent increase his share of the property and thereby make his rent smaller the more he pays up. This way ISNA gets a return on their investment and the person does not have too much trouble in buying the house as he can pay it off in istallments.

      Now what is different between this and interest. Ok, as i said the interest rate is based on a fixed rate, say 12% a year for our exaple since 12% of $100,000 = $12,000 = $1000 / month same as the rent. but if the property value goes down then so the rent. thereby making the monthly payments lower. On the same token if the property value increases then the rent goes up. The 'rent' is not fixed and depends on the market value of houses. The thing with interest is that it puts a rent (which is actully an economic term slightly different from the 'rent' in renting a house) on money it self. Islam puts the 'rent' on the property, which is something real and not abstract.

      So i hope that this simple example shows how a system without interst can function.

      So u see it is possible to work without interest. Especially for investment as this property can be extrapolated to capital investment as well. There are islamic banks that do finance without interest. Interest garuntees the financior of a set rate of return thereby the condition of the debtor is not taken into consideration. If the debtor takes a loan, putting his personal belongings on line then he might lose them if the situation goes out of his control, the current banking system where the bank confiscates his property.

      Islam forbids spending more then one can earn unless under a financial situation where he really needs the money to survive. Now the american economy is based of false spending. The amount of money going around the economy is 1000s of time larger then the GDP. I have not studied Economics too far as to know how this can be bad but i think it can.

      And one important thing, Pakistan is in a bad spiral of debt and we need to get out of it. The supream court decision was only in regards to the internal system of banking. THe external one will remain the same. U C interest is haram for muslims. Where there is a will there is a way. With many great minds on work to find a way out of interest, and mainly with the will of God, we can get out of it. I belive that most people who believe that it is impossible to survive without interest say so out of lack of konwledege of other economic systems.

      [This message has been edited by Topee Wala (edited March 01, 2001).]

      Comment


        #4
        If I understand the above post, the interest free lender in Islam will be treated as an investor than as a creditor. The investment will be treated similar to equity than as a liability.

        Is it right? If it is, then it is not neccessarily bad. Entrepreuners will be ready to take more risk as there is no credit that puts a knife on his/her throat. But it may also lead to a lot of other problems like laxity in payment or work.

        Only time will tell, which direction Pakistan takes.


        [This message has been edited by kumarakn (edited March 01, 2001).]

        Comment


          #5
          Great concept.. what will make the diff is teh commitment and discipline.. which we asian are notorious for not having..

          Comment


            #6
            Originally posted by kumarakn:
            That is why they have conveniently said, interest will be paid for foreign loans and not for domestic loans. Had they called for Islamization of foreign loans, Pakistan would default in 30 days. Nobody would be ready to re-schedule. The reason that the paris club agrees to re-schedule everytime is because, Pakistan promises to pay slightly higher interest every time.

            Pakistan has more than 1.5 trillion rupees of domestic loans and if they implement an interest free economy, the goverment can prevent this 1.5 trillion baby into becoming 2 trillion.

            Personally I think Musharaff will NOT implement an interest free system. Musharaff will face a lot of pressure for this, but he won't implement this in the interest of Pakistan.

            Imagine this, if no interest is to be received when you lend any loan, how many money lenders will lend money out? What will happen to the entreprenuers who rely on this money.

            If the money supply goes down, so will the money turn-over rate which will directly affect the economy's growth. America's economy is huge today only because of its M3 money or its phantom money supply that is generated by its strong credit system.

            Islamic concept of interest free economy is very puritanic but is not practical and will not stimulate any growth with it - something like Communism. When no interest is paid in the market, there will be no motivation to invest or take risk. Risk improves the chances of growth.

            Will visa or mastercard or american express be in America, if they cannot charge any interest? Imagine an America, where there are no credit cards. That will help you realize where interest free economy will take Pakistan.

            It is in Pakistan's best interest not to implement this Islamic puritanic interest free economic system.

            I hope they will not implement this. But you never know, it is Pakistan we are dealing with. lol!
            Bashfull Kumarakn ,you lift an article from CHOWK without giving url &Pretending to,take credit for it!SHAME SHAME SHAME plagarist indians

            ------------------


            barque(bijli) yoon akadti hai apne karname pe ke
            jaise phir naya hum aashiyaan bana nahi sakte

            Comment


              #7
              Mr. Azad Munna:

              I swear that I have never visited Chowk.com or any site that gives info on Interest free economy in the last 2 years.

              I am glad that my opinion was shared by somebody else at the same time in a different place.

              Truw to my conscience, I feel great now. thanks for your post.

              And honestly munna, the more you know about me you will know, I will be the last person to quote an article from somewhere else and call it my own.

              Comment


                #8
                And recently, I had another pleasant surprise. A few days back I had asked a question on GDP will some hairdresser example.

                After a whole days research, to my plesant surprise, I found an article on the web with the same hair dresser example that explained GDP. I was glad to know that experts of the field had used the same examples like me.

                I don't have to prove anything to you or anybody Munna, but with all due respect, I assure you that I have never read any article or story about your economy before (oe even after -other than the ones at pak.org) I posted that reply.

                PS: will you please gimme the link to the chowk article? I am genuinely interested to see what the author says about this interest-free economic system.


                [This message has been edited by kumarakn (edited March 02, 2001).]

                Comment


                  #9
                  wrong thread/

                  [This message has been edited by FYI (edited March 03, 2001).]

                  Comment


                    #10
                    Originally posted by kumarakn:
                    And recently, I had another pleasant surprise. A few days back I had asked a question on GDP will some hairdresser example.

                    After a whole days research, to my plesant surprise, I found an article on the web with the same hair dresser example that explained GDP. I was glad to know that experts of the field had used the same examples like me.

                    I don't have to prove anything to you or anybody Munna, but with all due respect, I assure you that I have never read any article or story about your economy before (oe even after -other than the ones at pak.org) I posted that reply.

                    PS: will you please gimme the link to the chowk article? I am genuinely interested to see what the author says about this interest-free economic system.


                    [This message has been edited by kumarakn (edited March 02, 2001).]
                    Iam sorry Kumarakn ,my mistake if that is the case.Yes some time back on chowk there was a good analysis of interest free economy ,the writer seemed to be from econmics /banking /investment back ground ,but was educated in American system ,living here ,it is hard to be not influenced by the pivitol center of interest based economy.
                    Do visit CHOWK.COM its more mature than here but its open to all,many indians & pakistani ofcourse.Started by umair Ahmed ,a smart ,enterpreneuer mit graduate.Ill post the specific link to the interest free economy link if you dont find it .Again my opology to have misjudged you

                    [This message has been edited by Azad Munna (edited March 03, 2001).]

                    Comment


                      #11
                      http://www.chowk.com/bin/showa.cgi?ahsani_aug0197
                      Islamic Economic Model: La Riba (Interest-free) Banking
                      by S. A. H. Ahsani

                      ------------------------------------------------------------------------

                      47 Civic Center Drive
                      ------------------------------------------------------------------------

                      Islamic Economic Model: La Riba (Interest-free) Banking
                      by
                      A. H. Ahsani, Former Ambassador. Associate Faculty, University of Texas
                      at Arlington


                      During the last few years, a considerable body of literature has
                      appeared, mostly in the Islamic countries, on an alternative economic
                      system to the Western economic system. In the developing world there is
                      increasing realization that the interest-based system of the capitalist
                      West has failed to solve the problem of poverty and economic disparity.
                      Various solutions have been tried to meet the economic needs of man, but
                      he has not yet been able to achieve a welfare society, free from
                      periodic recessions and depressions, based on equal opportunity, balance
                      between classes, and spirit of cooperation rather that unbridled
                      competition and greed.

                      Whether it is a capitalist system or socialist system, man is the center
                      of the universe, directed by the basic instincts of food, sex and
                      survival. Following the renaissance in the 14th century, Euro-central
                      civilizational model has been motivated by Reason, which must be the
                      cornerstone of all knowledge; even the Divinely inspired spiritual
                      heritage was subjected to close scrutiny. In science, Darwin's theory of
                      evolution and survival of the fittest permeated the intellectual
                      courses; in economics, technological advancement as measured by GNP,
                      became the hallmark of man's progress; in politics, democracy became the
                      creed of representation government, rather than dictatorship.

                      The substitution of divine spiritualism, the common heritage of mankind
                      since Islam, by secularist materialism has made man's life limited to
                      satisfying the fundamental human urges, bereft of any sense of
                      accountability before a creator in Hereafter. Churches and Synagogues
                      have not talked about Hell for the last 75 years or so. No wonder, the
                      prevailing civilization in the industrialized West and the deprived
                      developing countries, which have been caught in the maze of scientific
                      and technological developmental Western model, is suffering from
                      political instability, the economic imbalance between rich and poor, and
                      social ills like violence, drugs and teenage pregnancy.

                      Politically, European post-renaissance system has drifted from monarchy
                      and oligarchy to government, based on popular representation. Whether
                      they are Greek city states, consuls of Rome Constantine's Roman empire,
                      Charlemagnes, Holy Roman Empire, nation states of medieval Europe or
                      post-revolution democracies, their common denominator has been Man's
                      quest for a decent living and security against attack by invaders. Since
                      feudal lords provided protection to tenants, they levied taxes, supplied
                      conscripts for army of the Monarch. The church itself owned land and
                      worked in tandem with feudal aristocracy and monarchy. In the Middle
                      Ages, on the bidding of Church, armies were raised to fight the Infidel,
                      the Muslims, leading to the crusades in return for some pay, bounty and
                      reward in Hereafter. Although the Christian army hated the Muslims, they
                      respected them and contact between Muslims and Christians during
                      crusades had a great impact on European economy, political and
                      socio-cultural life.

                      In post-renaissance period Europe was swept by the wave of supremacy of
                      Men, where the main tool of knowledge was Reason rather than Divine
                      Revelation. Everything from scripture to secular knowledge - Astronomy,
                      Geography, Mathematics, Medicine, Philosophy and Physics became
                      empirical in reasoning and experimentation. Nothing existed unless it
                      was tested by five's senses. In the history of Western thoughts, the
                      scholars relied for inspiration on Greek civilization which was unknown
                      to them till Arab Muslims translated (and commented upon) Greek sources
                      into Latin and Romance languages. Under Alfonso the Third, the academy
                      named after him, carried on this conversion and transmission of
                      knowledge from Toledo in Spain wherefore books were carried on donkeys
                      to all over Europe during the 11th to 13th centuries. James Barker's The
                      Day the Universe Changed was televised, depicting that Andalus acted as
                      a bridge between Greek civilization and Europe. In fact, ironical though
                      it may seem, original Greek works were taken by scholars from Istanbul
                      when it was conquered by Mohammad the conqueror in 1458, to Bologna in
                      Italy; till then only Arabic translations were available to Europe.

                      In turn, the Greeks owed much to earlier civilizations: Assyrians,
                      Babylonians, Chaldions, Chinese, Egyptians, Indians; this portrayal by
                      Cornell's Martin Bernal in Black Athena has angered many Western
                      Scholars who have been advocates of Greeks as precursors of Western
                      Civilizations, ignoring the debt Greeks owed to earlier civilizations.
                      Similarly, the West, excepting the scholars, rarely acknowledges the
                      contribution of Arabs in heralding renaissance in Europe. Knowledge is a
                      continuum, but not to a vast majority in the West. On the contrary, the
                      Western man looks with disdain on Arab Muslims, considering them as
                      retrogrades. He is ignorant of the fact that Al-Beruni in 10th century,
                      much earlier than Galileo proved that the Earth revolved around the Sun.
                      Avicenna's (Ibn-i-Sina) canon was taught in Europe for 200 years;
                      Averros (Ibn-i-Rushd) is considered very popular in Europe for his
                      philosophical commentaries on Aristotle; Ibne-Khaldun is considered the
                      father of sociology; Al-Khwarzami (for algorithms) and
                      Al-Jabr-wal-Muqabla heralded modern mathematics in which Arabic numerals
                      replaced Latin numbers; in astronomy, many names of stars are Arabic in
                      origin. Likewise, Al-Kindi as geographer and Al-beruni as mathematician
                      measured the circumference of the Earth with greater precision than
                      Ptolemy; Al-Zahravi as gynecologist and Ibne-Haitham as the father of
                      optics, have made lasting contributions to Western sciences. Chemistry
                      is derived from the Arabic branch of learning known as "Al-Kimia";
                      Algebra from "Al-Jabr-Wal-Muqabla". And as a final example, Al-Idrisi
                      was a great geographer who prepared the Atlas of the world.

                      Nine hundred years before Columbus, a West African Muslim King of Mali
                      sent expeditions to explore what lies beyond the Atlantic Ocean; all
                      ships were destroyed, one survived and reached the Caribbean, where an
                      Arabic translation was later found, confirming the discovery of America
                      by West African Muslims long before Columbus. Al Omari, the historian
                      has mentioned this historical fact. Likewise, Spain was first explored
                      during the time of Othman, the third Caliph. He sent Oqba Bin Naji to
                      Spain with instructions to reach Constantinople overland. But the Berber
                      tribes stopped his passage and further expeditions were discontinued.

                      Andalus served as a bridge for transfer of learning from Arabia into
                      Europe, leading to renaissance there. At an International Conference on
                      Islamic Spain at Lahore in 1991, tributes were paid to the contribution
                      made to the West by Arab Muslims [the writer coordinated this
                      conference]. The scientific, technological and economic advance in the
                      West since the rennaissance accompanied by political and intellectual
                      development, has not made man a happy being or the present society more
                      egalitarian and just. Plagued by socio-economic ills the West is
                      bewildered as attempts are being made to tinker with the problem as is
                      evident from the advocacy of family virtues by Republicans who upon that
                      platform, won the 1994 congressional elections. In national economies,
                      sustained economic progress leads to the heating of the economy, giving
                      rise to increases in interest rates to curb inflation; the risk always
                      remains that the pendulum may swing in the other direction - recession.

                      To overcome the economic ills of the West, spilling over in the
                      political and social realm, another alternative economic model is
                      needed, especially in the wake of the failure of the socialist model. In
                      that sense, Fukuyame's End of History is at best a flawed proclamation
                      about the victory of Capitalism as the panacea for all ills afflicting
                      modern society, i.e. the ecological disasters, green house effect,
                      pollution, and prospects of nuclear winter. These are attributed to
                      unbridled industrialization and urbanization with their concomitant
                      effects in social fields.

                      The alternative is the La-Riba (interest free) system postulated by
                      Islam and practical for a long time before the Western interest-based
                      system played havoc with the world's economy. Interest is banned in the
                      Old Testament of the Bible. Al Quran considers interest as war on Allah.
                      In the Islamic economic system, money is a medium of exchange, not-to-be
                      transacted on, be it home or mortgage, credit card, car purchase, and
                      the like. In the Western economic model, the consumer society, based on
                      instant gratification, has placed a heavy burden of debt on individual
                      and community, being passed on to future generations.

                      To obviate these ills, Islamic system proposes Modaraba, Musharka, and
                      Ijara. The Modaraba is a partnership between the provider of capital and
                      worker; both agree to share profits on an agreed basis while the loss is
                      borne by the former as the worker loses his labor. The messenger of
                      Allah (MPBUH) carried on in this manner trading with the capital of
                      Khadijah. In Musharka, the shareholders in a joint stock company share
                      their profits and losses, but the management company made responsible
                      for the day to day operations, share in profit while the loss is borne
                      by the shareholders, with the management company losing their labor. In
                      capitalist system the management company receives their fees
                      irrespective of profit or loss, enabling them to acquire riches at the
                      expense of share holders which is iniquitous. For instance, in stocks
                      and Mutual Funds, the holding company is paid finance charges, losses
                      notwithstanding. Ijara, is a form of leasing with the user of machinery
                      paying the rent on the market value of the machinery on a declining
                      scale.

                      For example, La Riba bank, a form of Mudaraba, enters into agreement
                      with depositors that they will be paid a return, proportionate to the
                      profit or loss in the investment of their capital; the bank invests
                      capital on agreed terms, with a director of the bank sitting in the
                      board of directors of the joint venture, be it an industry or a trading
                      company, and sharing profit as well as loss. This is in sharp contrast
                      to the prevalent banking practices, charging fixed interest against
                      collateral, irrespective of the profit or loss with depositors receiving
                      fixed interest in turn. The credit card venture, whether it is a company
                      or a bank, charges exorbitant interest, passing on a small percentage to
                      depositors. The musharka has its equivalent in joint stock company,
                      considered permissible in Islam, as it entails a sharing in both profits
                      and losses.

                      Apart from equipment and machinery, leasing or Ijara is used in the
                      purchase of homes or cars, with La Riba financing institution entering
                      into separate agreements with depositors and users. By way of example,
                      if a loan of $100,000 is provided, the tenant, not the owner, agrees to
                      pay installments of the loan over an agreed period which is much shorter
                      than 15-30 years so that the investors receive their capital early
                      enough. In addition, the tenant or user pays rent, depending on the
                      market value, assessed annually, with the total of investment and rent
                      not exceeding the installment of loan under mortgage system. Also, in
                      the event of default, the house or car is not seized, as is the capital
                      system, and the tenant is given a grace period beyond which a penalty
                      may be imposed to deter defaults. Thus, the Islamic system works on the
                      tradition of the prophet (MPBUH): that the lender should provide a grace
                      period, etc. It is more just and equitable than the capitalist system
                      wherein the lender must receive his pound of flesh. At the same time,
                      the debtor is encouraged to pay back the loan; in case of death, it is
                      paid before the inheritance is divided.

                      Besides the interest free financing, the Islamic system is based on
                      voluntary spending (Sadaqa) or charity, gifts and donations to the poor,
                      needy, old, handicapped, wayfarers, war veterans, widows, orphans,
                      school, hospitals, in addition to the compulsory payment of Zakat
                      (2.5%). Al-Quran exhorts Muslims to spend whatever is surplus to their
                      neess, ensuring circulation of wealth in forty years. Earning of reward
                      in Hereafter provides the incentive for spending on the poor, rather
                      than hoarding and instant gratification. Helping the neighbor is
                      encouraged to the extent that the Prophet (MPBUH) imagined that Gabriel
                      may make neighbors entitled to inherit property. Giving to the relations
                      earns double reward - Sila Rahmi.

                      No wonder, the Islamic system is gaining popularity. In Pakistan, mutual
                      funds and industrial joint ventures on Mudaraba basis have been
                      established. The Baitul Mal Al Islamic Geneva has set up about a dozen
                      Islamic banks. La Riba financing institution by Dr Yahya Abdul Rahman
                      has opened many branches in USA including one in Uzbekistan. Grindlays
                      Bank in Pakistan has opened a Mudaraba. In Houston, St Louis, and
                      Toronto, loans are being given on an interest-free basis.

                      Given the concept of accountability in Hereafter, the Islamic system,
                      especially in the field of Economics, may prove to be a harbinger of a
                      new era of welfare state - a Utopia - which has been the unrealized
                      dream of mankind. If man realizes his true station in life as vice-roy
                      of God on earth, he may make it a heaven of peace, progress and harmony.


                      ----------------------------------------------------

                      Comment


                        #12
                        Interesting aricle from the Economist on the subject:

                        Islamic banking

                        Forced devotion
                        Feb 15th 2001
                        From The Economist print edition

                        Pakistan’s banks have four months to turn Islamic


                        His money is just not interested

                        WHEN Pakistan’s Supreme Court ruled at the end of 1999 that Islamic banking methods had to be used from July 1st this year, most bankers assumed that nothing much would change. This is not the first time, after all, that Pakistan has tried to introduce an Islamic banking system.

                        Now, however, it appears that the highest figures in the land, including Pervez Musharraf, the country’s military ruler, as well as Shaukat Aziz, the finance minister, are committed to the idea. Pakistani bankers face the awesome task of completely transforming the way in which they do business—all in little more than four months.

                        The Koran clearly condemns interest, which is called riba in Arabic, as exploitative and unjust. But of the world’s Islamic countries, only Iran and Sudan have imposed interest-free banking on their populations. In most of the places where Islamic banking flourishes, such as Malaysia and Kuwait, borrowers and depositors may choose between conventional and Islamic banks. Although the first Islamic banks opened only 25 years ago, they have multiplied. There are now about 170 Islamic financial institutions worldwide, managing over $150 billion of funds. In recent years, conventional banks such as HSBC and Citibank have started offering Islamic financial services.

                        Instead of paying interest on deposits and charging it on loans, Islamic banks aim to enter into profit- and loss-sharing agreements with depositors and borrowers. Under mudarabah, for instance, a bank will give money to a borrower on the understanding that it will later share the resulting gains according to a ratio agreed upon beforehand. The bank’s depositors will then take a share of the bank’s profits on its mudarabah and other contracts, instead of receiving fixed interest.

                        Some Islamic bankers claim that this system is superior to interest-based banking, for reasons beyond religion. Islamic institutions, they argue, think more about the future profits of their borrowers than about their present creditworthiness. Lending decisions are therefore longer-term and more likely to be prudent. Banks are less likely to fail as a result (but see article).

                        In other ways, however, Islamic banks are less obviously suited to modern economies. Judging whether a company will make profits in the future is harder than making a decision about its current ability to repay a loan. A possible perverse consequence of a pure Islamic banking system is that a smaller number of companies end up getting financed. In addition, Islamic banks offer far fewer kinds of financing than the conventional sort. Pakistani companies may find that they can no longer borrow with the degree of flexibility to which they have become accustomed.

                        In fact, the great majority of Islamic transactions are not based on profit- and loss-sharing at all but on murabaha—another structure that bears a suspicious resemblance to an interest-bearing loan. In a murabaha contract, the provider of capital buys, say, a piece of machinery for $1,000, and the borrower buys it back from the bank later for $1,100. According to the murabaha rules, the $100 represents a “mark-up”, but it works much the same as interest in everything but name.

                        Murabaha lending is likely to be the mainstay of Pakistani banks in the next year or so. From a bank’s point of view, mark-up loans are a relatively easy way to lend without receiving interest. The more complex profit-and-loss transactions will probably have to wait till later. Transforming Pakistan’s banking system will involve other, more immediate kinds of difficulty, however. Although Mr Musharraf has said that interest payments on the government’s external debt of $36 billion will continue, it is not known what it will do about its domestic borrowing of 1.6 trillion rupees ($25 billion). According to Fahim Khan, a member of the team that Pakistan’s central bank asked to plan the reform, the country’s biggest challenge in the next few months will be to find a way for the government to raise money domestically without paying interest.

                        Then there is the vital question of what to do about old loans and deposits. Will depositors suddenly be deprived of their accrued interest and given another type of “profit-related” return in its place? Legal havoc would follow. Or will Islamic methods apply only to new loans and deposits? So far, says Mr Khan, no final decision has been made. The path of least disruption would no doubt be to respect existing contracts.

                        The success or failure of Pakistan’s experiment in Islamic banking will also depend on whether the central bank chooses to be liberal or strict in its interpretation of Islamic law. There is something of a divide between places like Malaysia, which tends to be flexible and innovative, and the Gulf countries such as Saudi Arabia and Bahrain, which are more dogmatic. Malaysian Islamic banks, for instance, think they have an Islamic justification to buy and sell existing murabaha contracts once they are in place. The Islamic Development Bank in Saudi Arabia and other authorities in the Gulf frown on this. The Pakistani central bank would do well to lean towards the Malaysian model. The more freedom Pakistan’s banks are allowed within their new Islamic framework, the more likely they are to obey it.


                        I guess the work is cutout for the Pakistani financial wizards. But to the point of interest free banking, I think that is a mis-nomer, there's abviously is interest involved. Interst or "Murabaha" , just call the spade a spade.

                        Comment


                          #13
                          Achcha....so this basically means that interest free banking in notpossible in todays world... I think the world hasto be totally islamic for this to be implemented..

                          Comment


                            #14
                            Azaad Munna:

                            I am sorry to say that I fail to see any link betwen my post and the scholars post you have posted above. Was this the article you thought I plagiarised?

                            Not even one thought of your scholar's story is anyway close to mine in my post. Or was it some another article which you are not able to find right now?

                            Comment


                              #15
                              Ok, nothing is impossible. What is haram about interest you may ask. Here is what the problem with interest.

                              A rate of return is defined on the value of something. Proprtey and its demand, Labour and its demand, Enterpernurship and profit, and lastly Capital and interest. These are the economic rents on the 4 factors of production.

                              Interest puts a value on money by its demand. Now, the islamic banking system, the actual money has real value. The usuall currency is gold/silver coins or gold lined curreny notes. So the actual money has a value as apposed to today where the value is guarenteed by the govt.

                              Islam makes it haram to put a return on the value of money. Now, can a system work without interest. I believe, yes. Instead of a rate that is fixed on the amount of money being lent, it should be dependant on the situation of the market for which the mopney is being used for, so that the rate is dependant on the property prices, if someone is buying a house. The return should be based on the situation of the cotton market if the loan is on cloth production. And the rate has to change as the situation of the market changes.

                              In the Islamic system, investment will go towards the most profitable sector of the economy becasue the investors will want the highest rate of return... At the same time it will also go into the prodution of nesscessities because there is a definate demand for them.

                              The Islamic banking is basiclly like a stock exchange. The investors (which will be the banks) own part of the company until the company pasy the bank off. There can be agreements reached so that if the lendor does not maintain his part of the bargain that under some period of time the company will be transfered to the banks name.

                              What is the main difference. Well if the market goes down here in the west, all the companines have to pay their loans back regardless. In the islamic system the banks will have to pay as well as the people who started the company since they are also the investors. Everyone is treated equally unlkike the system in the west where the banks dont suffer if the markets fall because they are gaurenteed a rate of return. In the Islamic system, the industralists dont lose their share of the production facility to the bank as the bank and the producer fall equally.

                              Basiclly after all this explanation:

                              Islam does not allow for a rate of return on the damand of Money. 1st because money is an abstarct concept onto which the value of everything is defined. 2. because the demand of the money is independant of the situation of the market.

                              3rd, we cant say that the system cant work becaues we havnt tried it. Where there is a will there is a way. Man can go on the moon if he wants too then why cant a system be created that can do this. I mean its not like that it has not been done before. There was no interest in the Islamic empires yet there was investment as well as produciton!

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