Interest -- Q. No. 1

[ahmadjee]

While discussing the Islamic Economic structure with someone the topic of interest came up.

Her Q. was as the money devalues with time, what is the solution from an Islamic prespective on saving?

[khan_sahib]

The problem with us is that we can only see "money being devalued" over a period of time. It was one of the question that bugged me for years as how can an Islamic System works without Interest as money devalues itself.

If we try to come out of our ponds then we will see that a system where money doesn't devalue itself is perfectly possible. The idea of achieving such system is that the unit of currency doesn't have a value but rather have a quanity. An example would be gold (itself not the value of gold) which can't be increased in quantity. Hence, there won't be any devaluation. I had written something earlier in another thread on the similar topic but I don't remember the thread. I think it was "creadi cards".

The ruling passed by the supreme court in Pakistan few years ago was based on the proof that our system can work without interest. I don't know how the Savings work but I am sure the only way is to invest in business so the money keeps rolling (i.e. the backbone of a healthy economy)

[mAd_ScIeNtIsT]

Well the whole point of inflation rate linked interest is still strongly contested.

But a savings account can be run by an Islamic bank in a Shahria compliant manner.

Bear in mind that whilst Islamic banking is generally described as being interest-free, this is a very vague description. A more accurate one is that Islam does not permit business transaction where the risk is not born by both parties; the Deen teaches that it is morally wrong for one party to suffer risk at the expense of the other.

(Also, loans on which a profit are made are not permitted. By there are means by which, say a mortgage can be deemed Islamic - if you want more details just post here and I'll fill you in on one method of Islamic mortgages)

What this means is that fixed-return transactions are not permitted; so saving accounts where the bank gaurantees you 5% per year are not allowed. In this case, the bank bears all of the risks of economic fluctuations, whereas you are guranteed payment. In an Islamic savings account, the bank would invest you money in low risk ventures i.e. stable commodities or property. Profits and losses would be split (though not neccesarily evenly) between you and the bank.

Hence your money in the bank could increase in value, without just one person bearing all of the risk.

Your money could, of course, decrease in value too - but the odds are that a savings account would invest in low-risk ventures.

[Pristine]

Back all paper currency with precious metals. Don't print bank-notes without having corresponding reserves. No inflation. No devaluation.


ps. This is not a serious answer, so don't jump on my case!

[Abdali]

Originally posted by ahmadjee:
While discussing the Islamic Economic structure with someone the topic of interest came up.

Her Q. was as the money devalues with time, what is the solution from an Islamic prespective on saving?

Islamic banking is based on profit and loss where the effect of inflation are equal to both, interest and interest free.

[ahmadjee]

My immediate answer was that Islam does not encourage saving loads. Little for the emergency needs but the rest is to be invested!(or morally, given in charity)

Islam does not permit taking interest as a profit or a business. But if a need based loan is given out for 15-30+ years then sure enough the money devaluation should be considered. And it’s not very difficult to figure out how much money was devalued during the period of time.

Khan_sahib,

We neither live in a perfect Islamic society, nor a system that runs through Islamic rules of economics. So such contemporary issues need to be answered in a conceivable manner!

Pristine Bhai,

Its always fun to jump on your case! ;D

[khan_sahib]

I know that we don't live in an Islamic society but if we do live in one then Islam presents a solution.

[Changez_like]

how many times this question shall be asked? I think ahmedjee asked same question a few weeks back, ahmedjee didn't you get your answers then?

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We oughta be Changez like, don't we?

[ahmadjee]

Changez,

I am sorry if this was discussed in another thread. Can you please give me the link to the other one?

[scarface1]

I hope this helps.

Economic policy in Islam

The policy of the economic system in Islam is to guarantee the fulfillment of all basic needs of every person and to enable every individual to satisfy his additional needs as much as possible, given that he lives in an Islamic society which has a special way of life.

Therefore, the laws of Shari'ah contain the fulfilment of man's basic needs like food, drink and shelter for every person and that is achieved by forcing those capable to work, so that their basic needs and those of their dependants are met. Islam has obliged the father to provide for his dependants, and obliged his inheritor to provide for these needs if the father is unable to do so. If there is no one who is capable to provide for these needs, Bait al-Mal (state treasury) will provide for them. In this way Islam has guaranteed to fulfill the basic needs which every individual requires as a human being.

The Economic Problem in the view of Islam

It is the distribution of capital and services amongst all the people. In other words, it is the distribution of wealth and not the production of wealth

The Necessity of money being in Gold and Silver

The Muslims at the time of the Messenger of Allah (saw) had taken units of gold and silver as the basic monetary currency and used both of them simultaneously. They used the Byzantine dinars and Persian dirhams as their currency and they did not forge their own currency from the time of the Messenger of Allah (saw), until 'Abdul Malik ibn Marwan came. In his period of leadership 'Abdul Malik issued special Islamic currency and made it of a special shape and type and patterned on it Islamic patterns. He based it on the unit of gold and the unit of silver with the weight of the Shari'ah dinar and dirham.

Islam enunciated divine laws with respect to gold and silver; it considered them to be gold and silver elements and currency and coins, and the prices for things, or the wages for work, and Islam prohibited their hoarding and attached to them specific, fixed, unchanging laws. It prescribed zakat on them; it considered them to be two forms of money, and the prices for goods and it assigned the nisab (minimum money amount for zakat) in dinars of gold and dirhams of silver. And when Islam imposed diyyah (blood money), it made the payment to be by this currency and prescribed an amount in gold, that is one thousand dinars and an amount in silver, that is twelve thousand dirhams. And when Islam obliged the cutting of a hand for theft, it laid down the amount on which the thief's hand is to be severed to be one fourth of a dinar of gold, or three dirhams of silver. Similarly, when it laid down rules for exchange in currency matters, it defined them in gold and silver.

The connection of Islam with these Shari'ah rules for gold and silver as two currencies and as means for exchange and as a price for goods is by the agreement of the Messenger of Allah (saw) who made gold and silver alone the standard unit of currency by which the prices of goods and the wages of work are estimated.

This indicates that Islam considers currency as gold and silver, because all the rules which are connected with currency have been connected with gold and silver.

Therefore, it is essential for Muslims to have their currency in gold and silver, and it is the duty of the Khilafah State to make its currency in gold and silver and to work on the basis of gold and silver as it was during the time of the Messenger of Allah (saw) and his Khulafa'a after him. It is the duty of the State to print dinars and dirhams in a shape and style unique to the Khilafah State, and to fix the weight of dinars equal to the Shari'ah dinar or 4.25 grams for one dinar, which is the weight of one Miskal, and to fix the weight of one silver dirham equal to one Shari'ah dirham, which is called the weight of seven i.e. every 10 dirhams have the weight of seven Miskal. Therefore the dirham has the weight of 2.975 grams. The basis of gold and silver as currency is the only way to solve currency related economic problems and the high inflation rates that are common in the world, and to produce currency stability for rates of exchange and progress in international trade. Only by taking gold and silver as the standard, can the American control and the control of the dollar as an international currency, be demolished in international trade and world economies. By returning to gold as the basic currency, the dollar will lose its influential status in the world.

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I don't think there will be banks under the khilafah or they'll have a different role. PLCs are not allowed in Islam.

Islam promotes investing money so much so that if you don't use your money for 3 years the state will take it from you it and invest it for you. Also rules in Islam are not moral or immoral. Morality in Islam is to stick to the Hukm Shari and immorality is to turn away from Hukm Shari.

[mAd_ScIeNtIsT]

Originally posted by scarface:
PLCs are not allowed in Islam.

I find this somewhat doubtful. My father work for an Islamic bank, and they are overseen by a board 4 prominent Islamic scholars who do permit trade in shares of PLCs (or at least of those PLCs whose activities and business practices are not deemed to contravene Islam. Hence, say, buying shares in non-Islamic banks or tobacco/alcohol PLCs is deemed haraam.)

This Shariah board issues its ruling as fatwas, making it legally binding on Muslims.

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Actually, Scarface's point is only slightly inaccurate. He is correct in that the practises of banks under an Islamic state will be forced to change. For example, interest-based cash accounts and bonds, 2 common parts of the western financial system, have no place in Islamic banking. Also, currency dealing would be abolished, the Islamic principle being that money is a means to purchase commodities, and not a commodity in itself, to be bought and sold.

[This message has been edited by mAd_ScIeNtIsT (edited October 10, 2001).]

[scarface1]

Mad_Scientist,

The turbulence of the stock markets: Their causes & the Shari'ah rule pertaining to these causes
http://www.geocities.com/Athens/Acad...turbulence.htm

This explains the role of the plcs in the western economic system.

Fatwas aren't binding on anyone other than the person issuing them.

The actual contracts are invalid. In Islam there can only be 2 parties to a contract with plcs there are many, also in Islam the shareholders have an equal say regardless of how much shares they own. The shareholders permission is required before anyone new wants to buy shares in the company.