Is interest haram, or is only usury haram?
John L. Miller
knowledgeable brothers and sisters than I can help answer these questions. I
mean them honestly, so I can understand whether my conduct is proper.
I have heard that interest is haram. Alternatively, I've heard that
market-based interest isn't haram, but fixed interest is.
In the (English) translations of the Quran which I read, I only remember
seeing that usury is haram. Usury is charging exorbitant interest, something
difficult to define. I think of usurious interest as more than the market
will bear, intended to prey upon those in desperate need.
There are Islamic banks in the middle east which provide a return on
investment, and the return (or interest) you receive depends upon how the
bank's investments do. Are these haram?
Interest in a regular American bank can be considered your share of the
money they make loaning your savings out. Certainly you're getting back less
than their profit on the money. Is this in itself haram, or is it haram
because lending with fixed interest is how they're making money, and that's
haram?
What if a bank lends with variable rates, does it become not haram, despite
this being to the detriment of the borrower?
I believe American credit unions pay out shares on their income from your
deposits, rather than interest. At least, this was how the one I belonged to
in Alaska worked. The share return varies from quarter to quarter, depending
upon the credit union's success and market conditions. Is this haram?
Finally, if you loan money out, and receive it back in the same amount a few
years later (no interest), then you've actually LOST money because of
inflation. is it haram to charge interest the same as inflation for that
currency?
Thank you for your patience, and I greatly appreciate any light you can shed
on these topics, especially if you can point me at surah's or hadiths which
support a given perspective.
john
------------------------------------------------------------------------
John L. Miller http://www.nwlink.com/~johnmil
Omar Farouq
In article <7a0f0q$jnv$1...@bolero.rahul.net>,
"John L. Miller" <joh...@nwlink.com> wrote:
> I have heard that interest is haram. Alternatively, I've heard that
> market-based interest isn't haram, but fixed interest is.
Ribaa prohibition is aimed at lenders, not borrowers (do not eat the ribaa).
The most direct command is in 3:130. Ribba is then defined by the same verse
as, mutiples of multiples. You may also examine 2:275.
If you are a lender, you may charge interest to cover your expense and account
for inflation over the loan period. God does not want to you practice poor
trade. Going overboard by charging three times the principle is ribaa.
If you are a borrower, this prohibition does not affect you. You are the
victim, and not predator, so to speak. Naturally, if you have a choice then
you should seek an equitable loan, and not encourage ribaa.
Salaam,
Omar.
---
http://www.q-zone.com
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Fariduddien Rice
On 12 Feb 1999, Omar Farouq wrote:
> In article <7a0f0q$jnv$1...@bolero.rahul.net>,
> "John L. Miller" <joh...@nwlink.com> wrote:
>
> > I have heard that interest is haram. Alternatively, I've heard that
> > market-based interest isn't haram, but fixed interest is.
>
> Ribaa prohibition is aimed at lenders, not borrowers (do not eat the ribaa).
> The most direct command is in 3:130. Ribba is then defined by the same verse
> as, mutiples of multiples. You may also examine 2:275.
>
> If you are a lender, you may charge interest to cover your expense and account
> for inflation over the loan period. God does not want to you practice poor
> trade. Going overboard by charging three times the principle is ribaa.
>
> If you are a borrower, this prohibition does not affect you. You are the
> victim, and not predator, so to speak. Naturally, if you have a choice then
> you should seek an equitable loan, and not encourage ribaa.
The above is Br. Omar's opinion ("fatwa"), based on his own
Qur'an-only approach. This is not the approach of the vast
majority of Muslims, who also accept the Sunnah, which are
the reported words and deeds of Prophet Muhammad (peace and
blessings of Allah be with him). Perhaps this is why Omar's
view differs from the view of the vast majority of Islamic
scholars both today and in history.
Among Sunni Muslims, there are four major schools of thought
-- Hanafi, Maliki, Shafi'i, and Hanbali. A fifth major
school of thougth is the Ja`fari school of Shi`ah Muslims.
The scholars classify "riba" (the Arabic word used in the
Qur'an) into two types: usurious gain in selling, and
a loan in which the lender gains some benefit. [Reference:
The Reliance of the Traveller, translation and annotation
by Nuh Ha Mim Keller, section k3.0.]
What is prohibited regarding riba is participating it in
any way. Therefore, accepting or giving interest are both
prohibited among Muslims and also with non-Muslims in Muslim
lands.
That it is prohibited to accept or give interest (which
is a form of riba) is stated in the following hadith:
The Messenger of Allah (Allah bless him and give him peace)
cursed whoever eats of usurious gain (riba), feeds another
with it, writes an agreement involving it, or acts as a
witness to it.
[Sahih Muslim; quoted from the Reliance, section k3.0.]
However, there is a difference of opinion as to whether
this holds in non-Muslim countries which permit interest,
when dealing with non-Muslims. This is based on a hadith
(which I don't know the original source for), which states
that the Prophet (peace and blessings of Allah be with him)
said,
"There is no usury (riba) between the Muslim and the
hostile non-Muslim in enemy lands (dar al-harb)."
[Reference: the Reliance, section w43.2.]
One Hanafi view is given by the Mufti of Dar al-`Ulum in
Deoband, India, who stated that when dealing with non-Muslims
in non-Muslim countries which permit dealing in interest, it
is permissable to both take and give interest. (By "non-Muslim
country" here is meant "dar al-harb," which literally means
"enemy lands," however in this case being interpreted to
mean countries in which the rules of Islam do not exist.) This
particular ruling was given specifically with respect for
Muslims living in India, which is primarily Hindu. This ruling
is based also on the view of Imam Abu Hanifa (the founder of
the Hanafi school), who held the view that this is the case
when dealing with dar al-Harb. [Reference: The Reliance,
section w43.1.]
However, a contemporary Hanafi scholar, Muhammad Hamid, does
not concur that this holds for India, since it is not an "enemy
land," meaning one with which Muslims are at war. So there is
a difference of opinion regarding where this ruling applies.
What is not agreed upon is whether this is holds for non-Muslim
countries today, the vast majority of which Muslim countries are
not at war with. [Reference: The Reliance, section w43.1,
w43..5.]
Therefore, while the Hanafi position is that it is permitted
to deal in interest with non-Muslims in dar al-harb, it
seems there is a difference of opinion regarding what
constitues dar al-harb here, with opinions ranging from
the less restricted view of countries in which the rules of
Islam do not exist, to the more restricted view of only
constituting those countries with which Muslim countries are
at war.
It should also be clarified that the Hanafi view, nevertheless,
considers it completely prohibited for a Muslim to deal in
interest in any way with other Muslims, or with non-Muslims who
are in Muslim countries. The difference of opinion only arises
regarding the definition of "dar al-harb" which applies here for
the exception to the rule.
Imam Shafi'i, the founder of the Shafi'i school of thought,
however held that dealing with interest is prohibited
irrespective of who you are dealing with, or where you
are. This is the position of of the Shafi'i school on
this matter. [Reference: The Reliance, sections k10.5,
w43.1.]
I do not know the specific views of the Maliki and Hanbali
schools of thought, but I think they are probably close
to that of the Shafi'i school, that is, that dealing in
interest in any way is completely prohibited.
Overall, it is safer to avoid dealing with interest....
Alhamdulillah, there are some alternatives nowadays to dealing
with interest....
One alternative are Islamic banks and co-operatives, which
have sprung up here and there. With these institutions,
you can both get something like a loan without dealing in
interest, and also get a return if you put your money with
them. The "something like a loan" is actually usually a
co-ownership of something, such as a house. The organization
I know of here in Australia, Muslim Community Co-operative
Australia (MCCA), works this way.... You and MCCA will
jointly buy a house (for example), which you live in.
You pay rent on the proportion of the house you do not
own, with the rent determined by market rates. In addition,
you slowly buy back the portion of the house you do not
own from MCCA, again at market rates. This avoids dealing
with interest, and in practice the difference between this
and interest is that the risk for the investment is shared with
MCCA, and not taken on by the individual only. For example,
if the house collapses after a year, MCCA takes a loss (since
it partly owns the house), however, if you used a bank loan,
you still have to pay back the loan plus interest, even though
your house is now in ruins.
Another alternative for investment is to invest in shares
which do not deal in haram activities. Return from banks is
ridiculously low (around 5% or so at the most) compared to
what you can get in a return from the stock market. Shares
are not a form of "gambling" if you are buying and holding for
the long term, since what you are doing in fact is buying
a part of a business, which is halal as long as that business
is itself halal. There are some very rational approaches
to long-term (by which I mean 5 years or more) investment
in shares, and some of the best evaluation methods I think
are given in the books "The Warren Buffett Way" by Robert
Hagstrom, Jr., and by "Buffettology" by Mary Buffett and
David Clark. (I have used the method of analysis in "The
Warren Buffett Way" with great investment success over
the last two years; I have not yet studied the book
"Buffettology" in detail.) To get some idea, the *average*
annual return for share investments in Australia is something
like 11% or so.
As for credit cards, I have heard that now there is a kind
of "debit" card where you don't borrow, but instead funds are
taken from an account of money you already have. However, I
don't know much about this (I must investigate!).
Anyhow, that gives some idea, I hope, of the view about interest
of the majority of Islamic scholars in history.
Please correct me if anyone notices any mistakes.
Wassalamu alaikum,
__________________________________________________________________________
Fariduddien Rice Email : dien@ rice.net (remove the spaces)
http://www.haqq.com.au/~salam/
__________________________________________________________________________
Asad Khan
Alternatively there is an opinion saying that riba is when there is a transaction
in which the items traded are "same in species but different in amount", and that
all the parties involved in such a transaction are sinful.
Asad.
AbdulraHman Lomax
not accept principles which have long been accepted by consensus, and
who is not shy about contradicting them.
Omar Farouq <in...@q-zone.com> wrote:
>Ribaa prohibition is aimed at lenders, not borrowers (do not eat the ribaa).
>The most direct command is in 3:130. Ribba is then defined by the same verse
>as, mutiples of multiples. You may also examine 2:275.
In general, it can be said that it is forbidden to engage in a
transaction which involves, as an essential element, an action which
is haram, even if the action is performed by someone else. We consider
it prohibited, in general, to buy alcohol intended for human
consumption; thus we similarly consider it forbidden to sell it to
others for that purpose.
Aside from specific hadith on this subject, as I recall, including the
paying of ribaa' with the charging of it as forbidden, the principle
enunciated above should lead us to the position that it is forbidden
to pay it just as it is forbidden to receive it.
But that is not quite the end of the matter.
>If you are a lender, you may charge interest to cover your expense and account
>for inflation over the loan period. God does not want to you practice poor
>trade. Going overboard by charging three times the principle is ribaa.
It is generally lawful, according to my understanding, for a lender to
charge expenses incurred as part of the loan to the borrower. After
all, if the lender is not making a profit, neither should he lose.
The question of inflation is more difficult. To consider this, we
should consider the conditions in which the Qur'an and its prohibition
of ribaa' were revealed. Paper money, that is, money with a purely
floating value due to government mandates and control of the supply as
well as market factors, was not in use.
We are accustomed to inflation because that is the normal condition in
modern times; but deflation can also occur when the medium of exchange
is in plentiful supply. For example, it is said that the value of gold
plummeted in Egypt when the King of Mali came through on Hajj,
distributing enormous sums. What does this mean, "the value of gold"?
It means how much gold can be purchased in the market for a given
amount of some other commodity (or service or other property).
Now, some of us think that paper money is inherently haram; it has
been said that it is riddled with ribaa'. Of course, one might still
use paper money under color of necessity....
>If you are a borrower, this prohibition does not affect you. You are the
>victim, and not predator, so to speak. Naturally, if you have a choice then
>you should seek an equitable loan, and not encourage ribaa.
A borrower who borrows for necessities, who cannot meet those
necessities in a fully lawful way, may borrow as required even if it
involves the payment of excessive interest. This does not make the
paying of excessive interest halaal!
The case is more difficult to judge when the purchase is, for example,
a home. It can be argued that the buying of a home is not a necessity;
one may, instead, rent. And if one can pay the down payment on a home
and the interest and principle payments on a loan, one could rent.
However, those of us in the United States live in a society where the
tax laws have been structured to favor the paying of interest over the
paying of rent, even though they are so similar to each other that
some companions considered rent to be ribaa.' After all, it is a loan
which is repaid by the surrender of the property to the landlord, and
the rent is increase ("ribaa'").
So paying rent can be much more expensive for some people than paying
mortgage interest. Since the paying of interest by these people
actually results in relief to them, not oppression as is implied of
ribaa' in the relevant verses, I would consider it difficult to rule
that such mortgage interest was ribaa, where the interest was lower
than comparable rent. (Generally in the early years of a house
mortgage, most of the payment is interest, so it really is comparable
to rent).
So if the choice is between paying rent or paying interest, and the
interest is favorable to the one who pays the loan as well as the one
who makes the loan, even though both might be technically haraam, one
will choose the lesser evil. Superior to both of these for those who
can do it is simply purchasing the property, and there are also, for a
favored few, shared-purchase agreements which do not involve interest
or anything which resembles interest. But they often involve rent!
Where the loan is secured by property, and the surrender of the
property satisfies the loan, interest also resembles rent more than it
does ribaa', which is clearly burdensome increase on a loan. Yes, it
is a fixed return on investment (which often satisfies scholars as to
defining a payment as ribaa', but so is rent.
Now, back to the subject of inflation. The general principle in the
fiqh of ribaa' seems to be that what is loaned should be *exactly*
what is paid back, though the borrower may make a voluntary gift in
addition. If dates were loaned, it should be repaid in dates, and not
just any dates, but dates of the same quality and, of course, weight.
Paper money has a face value, but its "quality," that is, what can be
purchased with it, varies. So one might consider that one could pay
back a paper money loan with paper money which would have the same
purchasing power. But "purchasing power" varies with the commodity
purchased. And this same variation occurs with gold as well as paper
money.
I can well understand why some have considered paper money to
inherently involve ribaa'. It is difficult to fix its value so that a
repayment is of what was borrowed.
But if we have a choice, we could state a loan in a commodity, gold,
for example, even if what actually changes hands was paper money (or
its modern extension, credit). I've written this into a few contracts
where substantially delayed payment was possible, though not
desireable, to protect the one owed the debt from loss through delay
in payment. There might still be a loss due to shifts in market value
of the commodity, but this would have taken place if the lender had
simply held the commodity, just as it could happen if the lender put
the money in a no-interest checking account and thus it was fully
exposed to inflation.
While this involves stating a transaction in a commodity other than
the one actually exchanged, which is not fully satisfactory, it is the
best solution I have come up with in my own life.
But I did buy a car from Ford and am paying 0.9% interest per year
(which is well below inflation....) Ford is happy and I am happy. The
fact is that the 0.9% loan is seen by Ford as a *gift*, of substantial
value, to me, and the proof is that they would have given a cash
rebate (I forget the amount, but it might have been $1000) if I had
paid cash for the car. That money costs Ford more than they are
charging me, quite a bit more, but they make it back in profit on the
sale. (This has nothing to do with haggling with dealers; the dealer
only made a few hundred dollar's profit. It pays to know what the
dealers pay for the car! Rather, it is a *factory* rebate.)
I understand that Abu Bakr said that there were two subjects on which
he wished the Prophet had given more guidance. One was authority in
the community after his passing, and the other was ribaa'. I can
understand why he might have said that, or, alternatively, why such a
hadith would have come into existence. Ribaa', in practice, can be
difficult to define. If it is merely "excessive" interest, then there
is no clear definition of what is excessive. That the loan doubles is
not clear, because the period over which it doubles is unspecified,
and *any* positive rate of interest will double a loan if the period
is long enough. And what is haraam *should* be clear. This is why, I
would think, the line was drawn by the scholars at *any* increase
whatever, but then we run straight into serious practical issues,
beginning with that of rent, since it *is* a form of increase (and
could likewise be excessive), and on into many institutions and
practices which are widely seen as lawful and necessary.
Everyone agrees that excessive interest is evil, however; it is called
usury and is illegal in most jurisdictions. Interestingly enough,
charging *too little* interest on a loan can get one into tax trouble.
The undercharging of interest, under United States tax law, is
considered a gift in the amount of the undercharge (the difference
between the actual interest and the published federal rate), and gifts
beyond a certain amount (several hundred thousand dollars over one's
lifetime, plus $10,000 per year per recipient, so this does not apply
to small loans!) are taxed at a high rate, unless they go to
recognized charitable organizations.
So another possible solution is simply to charge the federal rate. I
think it is 8% or 9% right now, but I haven't looked for a while. If
one is receiving or making a loan in paper currency, to follow the
laws of the jurisdiction issuing the currency (especially if that was
the place of residence of both the borrower and lender) would seem to
be appropriate.
AbdulraHman Lomax
mar...@vom.com
P.O. Box 690
El Verano, CA 95433
USA
Omar Farouq
In article <7a2m14$gqu$1...@bolero.rahul.net>,
Fariduddien Rice <dr...@see.text.for.email.address> wrote:
> The above is Br. Omar's opinion ("fatwa"), based on his own
> Qur'an-only approach.
And this is bad in the eyes of Br. Fariduddin. Subhana Allah! When the Qur'an
is used as the final authority, the sectarians go berzerk. They call it a
personal opinion and a fatwa. But when their professional religionists
resort to sources that God has never authorized then they rejoice.
Simple math, Fariduddin, a man borrows US$10,000 on the basis that it will be
paid in monthly installments over a period of 5 years. The purpose of the
loan and the reason for granting it are irrelevant for this scenario. All we
need to know is:
If the lender, bank, government, your uncle, or whoever did not charge any
interest, will he have received his money in full after the end of 5 years?
If not, then do you consider that fair trade? Does Allah (swt) encourage
unfair trade?
If yes, then how so when factoring inflation over 5 years, and the growth
poential of that amount in the possession of the lender over the same peiod?
Why do you attribute to God what you have no knowledge of? Just because your
shykhs were wrong, do you want to follow their errors? Even if they have no
guidance and they do not reason, mathematically or otherwise?
Fariduddien Rice
On 13 Feb 1999, Omar Farouq wrote:
> In article <7a2m14$gqu$1...@bolero.rahul.net>,
> Fariduddien Rice <dr...@see.text.for.email.address> wrote:
>
> > The above is Br. Omar's opinion ("fatwa"), based on his own
> > Qur'an-only approach.
By the way, the stress should be on "HIS OWN," not on
"Qur'an-only."
My emphasis is that, Omar's views are different from that of the
the vast majority of Muslims in history and today. Some of his
views, at least, are far outside of mainstream Islam.
Now, the original questioner was asking about what Islamic views
were regarding interest. I assumed that most likely he was
interested in MAINSTREAM views, rather than the views of one lone
person way outside the mainstream.
The majority of Muslims are Sunni, and Omar has made clear he
is not Sunni, so his views are not mainstream, but represent
only his own opinion.
> And this is bad in the eyes of Br. Fariduddin. Subhana Allah! When the Qur'an
> is used as the final authority, the sectarians go berzerk. They call it a
> personal opinion and a fatwa. But when their professional religionists
> resort to sources that God has never authorized then they rejoice.
Someone giving his own opinion on a matter is a "fatwa."
According to traditional Islamic criteria, Omar's fatwas are
not valid (because he purposely ignores hadiths). This is
also my view.
Most of my post (19 out of 20 paragraphs) was about the
Sunni perspective on interest. This was an attempt to
give a more mainstream perspective than Omar's non-mainstream
view, which represents no school of thought or even any
well-known branch of Islam, but only his own opinion.
I hardly call trying to clarify the matter by giving the
Sunni perspective going "berzerk," but Omar is entitled to
his own opinion.... non-mainstream as it may be.
Omar Farouq
In article <7a4set$a49$1...@bolero.rahul.net>,
Fariduddien Rice <dr...@see.text.for.email.address> wrote:
> > > The above is Br. Omar's opinion ("fatwa"), based on his own
> > > Qur'an-only approach.
>
> By the way, the stress should be on "HIS OWN," not on
> "Qur'an-only."
>
> My emphasis is that, Omar's views are different from that of the
> the vast majority of Muslims in history and today. Some of his
> views, at least, are far outside of mainstream Islam.
Woopdi do(spelling)! Now that everyone heard your ill-informed clarification,
why don't you stop dodging the issues with your smokescreening techniques and
answer the question I posed to you. Here it is, once more:
Simple math, Fariduddin, a man borrows US$10,000 on the basis that it will be
paid in monthly installments over a period of 5 years. The purpose of the
loan and the reason for granting it are irrelevant for this scenario. All we
need to know is:
If the lender, bank, government, your uncle, or whoever did not charge any
interest, will he have received his money in full after the end of 5 years?
If not, then do you consider that fair trade? Does Allah (swt) encourage
unfair trade?
If yes, then how so when factoring inflation over 5 years, and the growth
poential of that amount in the possession of the lender over the same peiod?
> The majority of Muslims are Sunni, and Omar has made clear he
> is not Sunni, so his views are not mainstream, but represent
> only his own opinion.
The majority of muslims are muslims. God does not acknowedge your sectarianism
and, in fact, He condemns it in the Qur'an. Look:
"Those who have divided their religion and broke up into sects, you
(Muhammad) are not a part of them in the least. Their affair belongs to God.
He will inform them of that which they had been doing." (6:159)
So, when someone asks for an Islamic view, and Islam is the religion of Allah
(swt,) why do you assume that they are looking for the Sunni sect view, and
not Allah's rulings in His own Book?
One last thing: Please stop approving your own posts, unless they are
administrative.
exp...@khi.comsats.net.pk
mar...@vom.com wrote:
>
The issue of Riba has been discussed at length in "Dr. Mahmood-ur-Rehman
Faisal and Others v/s Secretary, Ministry of Law, Justice and Parlimentary
Affairs, Government of Pakistan, Islamabad and Others". This is a judgement
of the Federal Shariat Court of Pakistan (Citation PLD 1992). The Hon'ble
court was pleased to find all kinds of banking transactions taited with Riba
except some instruments mentioned in the 600 page judgement.
The judgement maybe obtained from Pakistan Legal Decisions Publishers,
35-Nabha Road, Lahore (Phones (9242)-213497 & 214883).
For an alternate perspective to the Riba issue, please see my "Riba- The need
for More Debate" on ARI posted in 98.
Regards
Aurangzeb
exp...@khi.comsats.net.pk
AN UPDATE.
DAWN (WWW.DAWN.COM) of Sunday 14th Feb carries the text of the
govt. of pakistans petition before the federal shariat court on the
question of riba. Pls. note that an appeal is pending before the
pakistan supreme court againt the order of the federal shariat court.
pls. bookmark this thread as I intend to follow this with regular updates on
sri, ari and scp.
if you are not able to read the above text from dawn's website please dont
hesitate to send me an email. I intend to ocr it and circulate it thru
these ngs.
please be ready to do something concrete about this thing because of
its enormous importance.
Jeremiah McAuliffe
I don't know a thing about economics, but that never stopped me from
mouthing off when the urge hits me! <lol>
Omar Farouq <in...@q-zone.com> wrote:
>Assalaamu &Alykum,
>
>In article <7a4set$a49$1...@bolero.rahul.net>,
> Fariduddien Rice <dr...@see.text.for.email.address> wrote:
>> > > The above is Br. Omar's opinion ("fatwa"), based on his own
>If yes, then how so when factoring inflation over 5 years, and the growth
>poential of that amount in the possession of the lender over the same peiod?
It doesn't seem to me that the growth potential of the capital is of
issue. The person with the money can invest it in a business, or
choose to loan it as *kindness*-- but not both. Loans in Islam are
not investments, they are a partial distribution of wealth to the
community on behalf of Allah.
Wouldn't that be kind of one of the meanings of riba?
Loans-as-investments?
Wouldn't inflation be easy to factor in? Perhaps that mean ballooning
payments, or an extended period of payment?
>> The majority of Muslims are Sunni, and Omar has made clear he
>> is not Sunni, so his views are not mainstream, but represent
>> only his own opinion.
>
>The majority of muslims are muslims.
Really Fariduddien. This is not the way to go. "Sunni" Islam,
whatever that really is, if it is majority (or I think its just
*traditional*-- and tradition DOES deserve respect and carry weight)
then clearly, clearly, clearly, given the state of the ummah and the
state of the planet the majority is wrong. There is something simply
wrong, wrong, wrong with the way the majority understands Qur'an in
light of the sunnah of Muhammad, God love him.
I completely reject the rejection of sunnah and the hadith literature
as an astounding extremist absurdity that expresses an incipient
dehumanization-- which I've been clear about for years. But, the
Qur'an Only stuff DOES come out of genuine issues. Its an extremist
response to those issues, but the issues are real, and they seem to
have to do with authority of interpretation, at heart.
I've pushed this book on ari. Don't know if its been mentioned on
sri.
"Rethinking Tradition in Modern Islamic Thought" by Daniel Brown.
Anyone there read it?
I strongly urge all Muslims to read this short (but kind of
expensive) book. He gives a terrific overview of debate regarding
sunnah and the hadith literature going back about a century. My copy
is extensively marked. Brown does a good *scholarly* <ahem!> job of
simply reporting the issues. It gave me a real grasp and sense of
over-arching themes in our Muslim intellectual-theological history--
which have to do with sunnah and hadith.
Always, Allahu 'alim.
Fariduddien Rice
> Assalaamu &Alykum,
Wa alaikum salam,
[...]
> Simple math, Fariduddin, a man borrows US$10,000 on the basis that it will be
> paid in monthly installments over a period of 5 years. The purpose of the
> loan and the reason for granting it are irrelevant for this scenario. All we
> need to know is:
>
> If the lender, bank, government, your uncle, or whoever did not charge any
> interest, will he have received his money in full after the end of 5 years?
>
> If not, then do you consider that fair trade? Does Allah (swt) encourage
> unfair trade?
>
> If yes, then how so when factoring inflation over 5 years, and the growth
> poential of that amount in the possession of the lender over the same peiod?
I think Br. Abdulrahman Lomax already gave the answer to solving
the problem of inflation in a way which avoids interest.
One way to do it is to not loan the person in dollars, but in
some commodity (such as gold, silver, etc.). You don't need to
have the gold, but instead of loaning a person $10,000, loan
them an amount of money *equivalent* to (say) 34.6 kg of gold
(the price of gold now is around US$289 per kg -- I just looked
it up, so 34.6 kg of gold right now is about US$10,000).
Then, when the person pays the loan back, they don't pay $10,000,
but they pay money equivalent to 34.6 kg of gold.
If they are paying back in monthly installments over 5 years
(that is, 60 payments in all), they pay the equivalent of
around 0.58 kg (which is 34.6/60) of gold per month.
Of course, you don't have to use gold, but can use any commodity
(silver, platinum, iron ore, tons of wheat, etc.), which should
be agreed upon before-hand. Commodity prices are given in the
finance pages of many major newspapers.
This is avoids interest (and is therefore halal), and it generally
provides a hedge against inflation.
As for "growth potential," I think Br. Jeremiah already addressed
that issue. If a person wants "growth potential," they should
invest it (which involves taking some risk), rather than loaning
it.
If you are starting your own business and need capital, you can get
needed cash as an investment, rather than as a loan. This is essentially
how Islamic banks work (they invest in businesses, rather than loaning
them money). Venture capital works in a similar way (they
inject cash into a business by buying a part of it, to my
understanding). Businesses also sometimes bring in capital by
actively trying to attract individual investors, who are known as
"angel investors." If you are a Muslim who runs a company, attracting
investors to buy shares in your company is certainly halal.
The main difference between "angel investors" and "venture capital"
I think is the size of the investment. Angel investors (I have
read) tend to invest from $50,000 to $500,000, while venture
capitalists are only interested in much larger investments, from
around $1.5 million to $8 million. Both types are in principal
halal, to my understanding, and do not involve interest....
(Although I am a physicist by profession, learning about finance and
business has become my hobby.... :)
Omar Farouq
In article <7a7fsj$8ss$1...@bolero.rahul.net>,
ali...@city-net.com (Jeremiah McAuliffe) wrote:
> Salaams,
Wa &alykumu -ssalaam
> >If yes, then how so when factoring inflation over 5 years, and the growth
> >poential of that amount in the possession of the lender over the same peiod?
>
> It doesn't seem to me that the growth potential of the capital is of
> issue. The person with the money can invest it in a business, or
> choose to loan it as *kindness*-- but not both. Loans in Islam are
> not investments, they are a partial distribution of wealth to the
> community on behalf of Allah.
That certainly is a choice, and a wonderful choice for that matter. But it is
not what what is mandated by God, but rather highly recommended for those who
are able to do it to help those with difficulties in repayment.
Perhaps if we separate personal and business loans this would become more
apparent. I think it is wonderful to give up the potential growth of a
certain amount of money to help out a brother or sister in need. It is the
foundation of <al-Qadh al-hasan> "the good or righteous loan." Now, a person
in dire need should also be considered for charity. I personally loaned
money to friends and associates, did not charge any interest, and extended
the repayment period, or even forfeited the loan repayment when they were
unable to do it.
Now, a business ( bank, company, etc.) does not open for the purpose of
losing, or for the purpose of charity. Otherwise, it would not be a business
by definition. The money in a business fund has a growth potential as a
result of investment, sales and trade. If they loan some of it out then they
can *rightly* expect the equivalent value of it at the end of the loan
period.
In the old days, loans did not have to be in currency. You could borrow
livestock, for example. Five healthy cows today are worth five healthy cows
some years later. But that is not the issue with currency. $10,000 now is not
worth $10,000 in the year 2005. Its purchasing power will diminish, based on
economic indicators such as the consumer price index, inflation, and others.
God does not ask business people to practice poor trade. A business loan is
part of a valid trade. A personal loan to cover a dire need should have
special consideration, including the extent of exempting from repayment, and
considering the amount as charity.
Islamic banks advertise <qard hasan>"righteous loans." Is that interest free?
No. They charge interest, but the interest rate is not as excessive as
Citicorp, for example. It is to protect the value of their money.
> I've pushed this book on ari. Don't know if its been mentioned on
> sri.
> "Rethinking Tradition in Modern Islamic Thought" by Daniel Brown.
I do not post or read a.r.i. but I am open to alternative approaches. This is
why I promote Altway's "The alternative way" on my web site. If you have that
book and wish to have it linked or posted in my web site, I'll more than
happy to do it insha'Allah. My web site is Qur'anic, but that does not mean
that every thing else is forbidden.
> Always, Allahu 'alim.
May I recommend a better expression? <Allahu al-&aleem> "God, The All
Knowing."
Salaam,
Omar.
---
http://www.q-zone.com
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Dedicated to Qur'anic Studies, with no sectarian affiliation.
-----------== Posted via Deja News, The Discussion Network ==----------
exp...@khi.comsats.net.pk
frequently does >not accept principles which have long been accepted by
>>Ribaa prohibition is aimed at lenders, not borrowers (do not eat the
ribaa). >>The most direct command is in 3:130. Ribba is then defined by the
are a borrower, this prohibition does not affect you. You are the >>victim,
and not predator, so to speak. Naturally, if you have a choice then >>you
be said that it is forbidden to engage in a >transaction which involves, as
an essential element, an action which >is haram, even if the action is
"someone else". Omar's translation is literal. As Lomax has pointed out the
question of Riba arises WHEN A TRANSACTION TAKES PLACE. A transaction
necessarily assumes two parties, either as lender and borrower or seller and
buyer. So as Omar has put it above, that the prohibition is aimed at "lenders
not borrowers" is logically un-tenable. It tantamounts to saying that it is
prohibited to charge interest but permitted to pay it. This is obviously
illogical. Secondly Riba arises not only in borrowing and lending but also
in any sale/purchase transactions. However for the purpose of this discussion
this genus is irrelavent. Coming back to Omar's interpretation, "eating of
riba" is an essentially supply side thing as is self evident. Obviously no
borrower would like to pay more than he/she has borrowed. Necessarily the
lender gets addressed, in a manner of speaking. >>If you are a lender,
you may charge interest to cover your expense and account >>for inflation
over the loan period. God does not want to you practice poor >>trade. Going
overboard by charging three times the principle is ribaa. >It is generally
lawful, according to my understanding, for a lender to >charge expenses
incurred as part of the loan to the borrower. After >all, if the lender is
essentially because you have not clarified the terms in your mind. First
Omar's para above refers. Interest charged to cover expenses is RIBA. It can
only be NOT BE SO IF AND ONLY IF MONEYLENDING IS CONSIDERED A TRADE. However
money lending can ONLY BE CONSIDERED A TRADE IF AND ONLY IF CAPITAL/MONEY IS
CONSIDERED (OR GIVEN THE STATUS OF A COMMODITY). Thus moneylenders become
traders in "money/capital". For those who are economically literate, such a
departure has serious philosophical repurcussions. I would therefore advise
you (Omar) to read up on these issues before rendering such an opinion. Also
"the no. of times" is completely irrelavent since we are discussing a matter
of principle here. The issue in terms of " no. of times" is very simple and
is enunciated as "anything over and above is Riba". Here the implied "no.of
times is ONE". (1.1) (1.2) (2.0) (300) (50000) ARE ALL MORE THAN THAN ONE.
Now for Lomax. How can the lender determine his cost of lending. It can only
be notional. In the real world say in the case of a Bank (as a lender) it can
at best be calculated on the basis of a previous trend. What about the case
when one maintains interest bearing deposits in Banks. Individual depositors,
to my mind do not incur any expenses in maintaining such deposits. They
should; then according to your definition ; not be entitled to interest
thereon. If you think thru the various transactions taking place in the
banking system and apply your definitions, the result is that the banking
system has to be halted. >The question of inflation is more difficult. It
is not only difficult but impossible. Inflation is a notional value
determined on various agregates. It could be consumer related (CPI) or
industrial (IPI). In fact we could agree to any number of parameters to
define inflation. >What does this mean, "the value of gold" >It means how
much gold can be purchased in the market for a given >amount of some other
The noble metals are only equivalents of themselves. Please recall the
convertibility of paper money into equivalent drafts of gold/silver which the
central banks were bound by law to do, only a few years ago. The pound
sterling was a pound of silver. Not any more. And you point to the obvious
difficulty. The value of gold you speak about is really the "exchange value"
of gold and not its use value. Therefore you need to bring in an amount of
some other commodity or service or property. Quite obviously you are aware
of the difficulty here. This is exactly the philosophical difficulty I spoke
about above. >Now, some of us think that paper money is inherently haram; it
has >been said that it is riddled with ribaa'. Of course, one might still
Allah on the altar of necessity (pun intended). The rest of the world doesn't
believe in Him. We can't see Him. We might as well admit He doesn't exist at
all----- and on and on and on. >A borrower who borrows for necessities, who
cannot meet those >necessities in a fully lawful way, may borrow as required
even if it >involves the payment of excessive interest. This does not make
interest ( in some fashion) by adding words like excessive etc. You rightly
point out that it cannot be converted from haraam to halaal by some fiat or
jugglery of words. The concept of dar-al-harb is of course relavent in your
case. However I may assure you that the so called islamic countries are as
much dar-al-harb as say the US or Europe as far as this issue is concerned.
In fact probably we are guiltier because we are additionally guilty of
munafiqat. >The case is more difficult to judge when the purchase is, for
example, >a home. It can be argued that the buying of a home is not a
necessity; >one may, instead, rent. And if one can pay the down payment on a
paying rent can be much more expensive for some people than paying >mortgage
interest. Since the paying of interest by these people >actually results in
relief to them, not oppression as is implied of >ribaa' in the relevant
verses, I would consider it difficult to rule >that such mortgage interest
was ribaa, where the interest was lower >than comparable rent. (Generally in
the early years of a house >mortgage, most of the payment is interest, so it
mortgage on it, which is normally the case in the west. According to your own
definition it then becomes an unlawful transaction. You cannot run away from
the problem by merely considering that mortgage interest is lower than rental
therefore it is halaal. Please do not fool yourself. We are discussing issues
of principles here and not specifics. Please do not induct in specifics in an
illogical manner. >So if the choice is between paying rent or paying
interest, and the >interest is favorable to the one who pays the loan as well
as the one >who makes the loan, even though both might be technically haraam,
IS STILL HARAM. >But if we have a choice, we could state a loan in a
commodity, gold, >for example, even if what actually changes hands was paper
unless the accounting unit is officially recognised as Gold and dates and
cigarettes and all the things on God's earth. Remember it is gold for gold,
dates for dates etc--- Imagine the problem for the registrar of agreements J
>I've written this into a few contracts >where substantially delayed payment
was possible, though not >desireable, to protect the one owed the debt from
loss through delay >in payment. There might still be a loss due to shifts in
market value >of the commodity, but this would have taken place if the lender
had >simply held the commodity, just as it could happen if the lender put
>the money in a no-interest checking account and thus it was fully >exposed
problem at hand. Covering delays in payment is basically equivalent to
monetizing Time, another form of Riba (I believe technically called
riba-al-fad'l) >While this involves stating a transaction in a commodity
other than >the one actually exchanged, which is not fully satisfactory,
come up with in my own life. Yes. That is the best that can be said about
it. >But I did buy a car from Ford and am paying 0.9% interest per year
>(which is well below inflation....) Ford is happy and I am happy. I assure
you that happiness of the parties is not the basis on which matters of
principles can be decided upon. Such things are mere expediencies, which can
only be justified under specific initial conditions and not on the whims and
the mutual happiness of the transacting parties. >The fact is that the 0.9%
loan is seen by Ford as a *gift*, of substantial >value, to me, and the proof
is that they would have given a cash >rebate (I forget the amount, but it
Lomax. The cash rebate is because in such cases it is time which is
monetised. In this case if you paid outright cash then Ford would not need to
"carry you" for the period of the installments that are written in your
agreement. This is a calculation that is routinely made when designing such
schemes. >That money costs Ford more than they are >charging me, quite a
bit more, but they make it back in profit on the >sale. How do you know
that? These schemes are based on statistical and historical data. Are you
implying that Ford merely makes a profit on turn-over. It would if it was
getting a subsidy/car sold. As far as I know Ford is a manufacturer and not a
trader that makes profit on turnover. Please do not bend things unduly.
>This is why, I >would think, the line was drawn by the scholars at *any*
increase >whatever, >but then we run straight into serious practical
although I do not have such authority. However I am inclined to believe that
the real culprit is the lack of knowledge of economics, particularly the
Marxian model of the economy. Most people are really stuck in the
neo-classical notions of the economy, considering it something "natural". I
earnestly implore you to study it for it has some important ramifications
particularly with ref. to the question of RIBA. Regards, Salaams and Good
wishes. Aurangzeb PS:- Please don't forget to email me a copy of your
reply/post at my email address. TIA
Omar Farouq
In article <7a816a$o5h$1...@bolero.rahul.net>,
Fariduddien Rice <dr...@see.text.for.email.address> wrote:
> On 13 Feb 1999, Omar Farouq wrote:
> I think Br. Abdulrahman Lomax already gave the answer to solving
> the problem of inflation in a way which avoids interest.
I'll keep my remarks about flexing your cousin's muscles without realizing the
true degree of his strength to myself. I looked at Brother Lomax's reply.
According to Lomax, you simply incept the loan amount, setting its worth in
gold. Let's use $10,000 like the example I posed. Then when it is time for
repayment, you pay an amount equivalent to the value of that gold at the loan
termination point. This works very well in Fantasy Island.
In 99% of cases the loan is not going to be paid in a lump sum at the end of
the loan period, but rather in monthly installments. Imagine the acounting
nightmare of re-figuring everyone's monthly loan installment, every day,
based on today's gold value. Do brothers Lomax and Rice live in this same
world we live in?
I wonder what Nations Bank, or 1st National bank, or the Saudi Islamic banks,
for that matter, would tell brother Lomax and brother Rice if they walk in,
and propose that type of loan!
No problem Mr. Lomax and Mr. Rice. We will hire a special acountant that will
recalculate your loan every single day, figure out your average daily
balance, complie that into an instant e-mail statement at midnight of the
last day of each month, and expect your payment to be instantaneous as well
because the price of gold may change in the next 5 minutes. However, there is
that little matter of the special accountant, the computer system, and
overhead cost that you need to incure out of this nightmare type of
transaction. We figure that the accountant makes about $65,000 annually, our
overhead cost is 5%, and the computer system allocation dedicated to your
transaction is roughly $250 per month.
Well, lets add it up:
Loan principle = $10,000
Accountant Salary = $65,000 X 5 = $325,000
Overhead = $10,000 X 0.05 = $500
Computer System cost allocation = $250 X 60 = $15,000
Since the acountant, through hard work and dedication, will be able to handle
two more loans besides yours, your share of his salaray will only be:
$325,000 / 3 = $108,333.33
Your monthly statement for Februray 28 is expected to be $2,063.89. But it
may change by as much as $500. Please do not remit payment, since this is
merely an estimate. By the way, your total unpaid balance has become
$123,833.33
Way to go, allaamas! I prefer to pay 9.9% simple interest. My monthly payment
will be $210.24, and the total amount due will be only $12,614.65
God's religion is straight forward. But this scholarly sectarian over ijtihaad
has turned it into an impossibility.
Salaam,
Omar.
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Dedicated to Qur'anic Studies, with no sectarian affiliation.
-----------== Posted via Deja News, The Discussion Network ==----------
exp...@khi.comsats.net.pk
Salaams.
Sorry for not responding to the points of your post, which Iwill in a day or
two.
This is the text of the petition filed by Govt. of Pakistan in the Federal
Shariat Court. Some say it is a delaying tactic. Please form you opinion and
post it. or better still send it to the govt. of pakistan through email.
Regards all round.
Aurangzeb
=================
DAWN SUNDAY, FEBRUARY 14, 1999
Text of petition filed by federal government on Riba before the Federal
Shariat Court (Pakistan).
It is submitted on behalf of the Federal Government as under:
l.1. That one of the major issues relating to the Islamization of the
economy relates to the question of elimination of riba.
2.1 That this matter has come up before different fora on different
occasions and there are conflicting judgement in the field. A number of such
cases came up before this Honourable Court and a decision was rendered
thereon by a bench of three judges which has been reported as Dr.
Mehmood-ur-Rehman" Faisal vs Secretary, Ministry of law, Government of
Pakistan (PLD 1992 Federal Shariat Court Page 1). It would be relevant to
point out that a contrary view was expressed in an earlier judgement of the
Sindh High Court reported as PLD 1989 Karachi 304.
3.1 That up to now no petition has been filed by or on behalf of the
Government of Pakistan, before this Honourable Court for an authoritative
decision as to the scope, ambit and extent of transactions which are
prohibited under the tenets of Islam. The Government, being cognizant of its
responsibilities for ensuring a smooth and seamless transition to an economy
based on Islamic principles, is desirous of taking effective and immediate
steps with a view to attaining this objective.
4.1 That there are numerous articles of the Constitution which lay down
the Islamic basis of the polity of Pakistan. Article 2 of the Constitution
stipulates that Islam shall be the state religion of Pakistan. This Article
exists in the original Constitution adopted in 1973. Similarly, Article
227(I), which also exists in the original Constitution, states that all
existing laws shall be brought in conformity with the Injunctions of Islam as
laid down in the Holy Quran and Sunnah. Article 38, which also has not been
amended and still appears in its original shape, states in terms of clause
(f) thereof that the State shall eliminate riba as early as possible. By
means of Article 2A, the provisions of the Objectives Resolution, which
appear in the Preamble to the original Constitution, were made a substantive
part of the Constitution. These provisions state, inter alia, that it is the
will of the people of Pakistan to establish an order wherein Muslims shall be
enabled to order their lives in the individual and collective spheres in
accordance with the teachings and requirements of Islam as set out in the
Holy Quran and Sunnah.
5.1 That the Federal Government, being conscious of its responsibilities
for implementation of the constitutional mandate enshrined in the various
articles of the Constitution referred to herein above, is moving this
petition with the intent that this Honourable Court may be pleased to lay
down an overarching schema with clearly delineated features providing for a
comprehensive solution to the problem of creating an economy based on the
elimination of riba Without in any manner seeking to criticize, or detract
from, any of the various pronouncements emanating from different quarters in
the past for or in relation to, the proper modalities for the elimination of
riba it is respectfully submitted that:
5.1.2. The banking systems in different Islamic countries are operating
smoothly within the framework of Islam. However, there has been no sustained
research on or systematic application of mind as to the exact features of
these banking systems with a view to determining how far they would be
relevant or applicable in relation to the socioeconomic milieu of Pakistan.
5.1.3 The question of the impact of inflation on the rights of borrowers
and lenders is the subject matter of conflicting decisions and views both in
Pakistan as well as abroad. In this context it needs to be emphasized that
the Quran specifically affirms the right of a lender to recover the full
amount he has lent. The question, therefore, is whether an innocent lender
can be denied his right of full recovery if in the meanwhile the value of
money has fallen due to an inflationary process for which he is not
responsible. It is essential that this aspect of the matter be systematically
and analytically examined so as to determine the appropriate modality to
ensure economic justice to both lender and borrower in accordance with the
tenets of Islam.
5.1.4 The right of banks to levy service charges (which has been upheld in
the earlier judgement of the Federal Shariat Court) requires a more thorough
and systematic evaluation with a view to working out an appropriate
methodology for its application and practice. The decision on this point is
cursory and does not lay down detailed guidelines to enable its effective
implementation.
5.1.5 The question of the returns, or profits, to be earned by banks and It
in what manner, also requires further examination. In this context it needs
to be specifically pointed out Is, that the past experience of financial
institutions in entering into profit sharing agreements with business houses
has not been very encouraging. Some reasonably safe mechanism will have to be
evolved to I ensure that false, or inaccurate books of accounts are not
maintained by businesses with a view to denying banks their fair share of
profits. If companies fraudulently start maintaining false books of accounts
to claim that they have suffered losses, when in fact they are operating
profitably, the result will be that not only will banks be given no profits,
but even the principal amounts loaned may be lost. Since bank loans are
funded by the deposits of ordinary citizens, it is imperative that no
injustice, which is manifestly violative of the injunctions of Islam, should
be done to small depositors. They should not have to face a situation in
which they are informed that hard earned money which has been deposited by
them in banks will not be repaid, in part or in whole, because it has been
lent to companies which are claiming that they had suffered losses. What is
required is a mechanism for ensuring interest free banking which meets the
criteria of the Quranic principles of Ehsan and Adl.
5.1.6 The above point needs to be elucidated further. Specifically, the
fundamentally different nature of the underlying relationship between banks
and their customers, as against the traditional relationship of creditors and
borrowers, has to be considered against a historical backdrop. In particular
the following points need to be considered.
5.1.6 (a) The prohibition against interest is not confined to Islam. In
fact it dates back to pre-Islamic times (see page 66 of FSC judgement). The
question, therefore, is whether an innocent lender can be denied his right of
full recovery if in the meanwhile the value of money has fallen due to an
inflationary process for which he is not responsible.
5.1.6 (b) Usury is also specifically forbidden in Judaism (Sura An-Nisa
Chapter N:160-1).
5.1.7 (c) Usury was condemned by Jesus in unequivocal terms.
5.1.6 (d) In most countries of the World, including the Indo- Pak sub
continent, there have been laws against usury dating back to a hundred years
or more. 5.1.6 (e) A common feature of all these laws is that they are
intended to prevent exploitation. Traditionally, borrowers, almost by
definition, have been persons in, need - sometimes in dire need whose weak
bargaining position meant that they were in danger of being exploited by the
limited number of persons who controlled wealth and capital and drove hard,
unfair and inequitable bargains by virtue of their superior bargaining
position. It was for this reason laws were passed to prevent money lenders
charging usurious rates of interest.
5.1.6 (f) The introduction of the banking system has in a sense inverted
the traditional relationship. The lenders are now not a small number of very
rich persons who monopolize wealth. They consist of millions of middle class
individuals who deposit their life savings in banks to meet the future needs
of their families, say the marriage of a daughter, or a provision against
sickness, or as security for old age. It is this money which is passed on by
banks to borrowers. As against the above, the bulk of the borrowing from
banks is done by corporate or business entities, some of which are very large
or very wealthy. This it is now the lenders and not the borrowers who need to
be protected.
5.1.6 (g) It is a well known fact that, in Pakistan, many businesses do not
give a fair return to their shareholders. If the records of public limited
companies, which are listed on the stock exchange, are examined, it will be
seen that in many, perhaps most, cases, the value of the shares has not even
kept pace with inflation. Dividends are routinely not declared for years. The
value of the shares of many companies has fallen to as little as Rs. 2 or
Rs.3. Thus the suggestion, that banks should in future resort exclusively to
traditional Islamic methods of financing, such as mudarabas or musharika
arrangements, which, in essence, are similar to corporate equity financing or
profit sharing, may simply lead to a mass deprivation of the savings of
depositors. Instead of being reduced the level of exploitation of the poor
will enhance exponentially. The only difference will be that unlike the past,
it will not be the borrowers who will be exploited, but the lenders (i.e. the
depositors whose money is lent to borrowers through the banking system). As
against this the borrowers may reap vast fortunes. They may repay neither the
principal amounts nor the profit thereon, but simply claim that their
businesses have suffered losses. Thus the ordinary bank depositors may end up
losing money in three different ways.
(i) they may receive no profits on their deposits. (ü) they may even
lose a part of the principal amount deposited by them, and (üi) they will
not even be compensated for the fact that the value of their money has been
eroded by inflation.
In contra-distinction the borrowers i.e. large and wealthy companies, will
receive interest free loans, which they may or may not repay. Thus the rich
may get richer, while the poor may get poorer. This is not in conformity with
the spirit of slam. It is, therefore, vital that whatever new system is
proposed by Hon'able Court it should have adequate safeguards built into it
to that a situation is not created which the letter of the law is observed
but the spirit is violated.
5:1.6 (h) There are different categories of cases relating to bank
borrowing which require an analytical treatment and systematic application of
mind The relevant factors, to be borne in mind, include the follow:-
(i) It is essential that banks productively utilize the 'money deposited
with them. Banks have enormous overhead costs including costs of 'premises,
salaries, etc. These have to be paid for. If the money deposited with them is
not profitably utilized these costs will have to be paid for out of the funds
of depositors. The banks cannot just retain the money deposited with them and
do nothing with it. Thus profitable avenues of investment for banks have to
be discovered.
(ü) Risky investments have to be eschewed. The vast mass of depositors do
not want banks to gamble with their money in the form of high risk lending.
Those who do, make direct investments in the stock exchange. It is the others
who prefer to keep their money in PLS accounts. Their wishes have to be
respected. The lending policies of banks have, therefore, to be biased in
favour of conservatism.
(üi) All lending entails a certain level of risk. It is a manifest fallacy
that interest-free banking is risk free banking. Every time a loan is made
even to a profitable company, there is a risk that it may not be repaid.
There may, for example, be an economic slump, or recession, which may lead to
a high level of business failures. Another possibility is that in a free
market environment some companies forge ahead and others fall behind. There
is no certain criterion for predetermining which companies will go on to
prosper and which companies will lag behind. Microsoft, a company which has
only recently come into existence, has the largest market capitalization of
any company in the United States. Long established companies like IBM have
been overtaken. Another illustration is provided by the Japanese economy
which, after many years of prosperity, has now fallen into a prolonged
economic recession. Japanese banks, which are amongst the largest in the
world, have suffered massive losses and the Japanese Government has recently
set aside a figure in excess of US $500 billion for their rescue. (By way of
comparison, it may be pointed out that the total defaults of Pakistani banks,
despite years of bad management and corruption, are only of the order of US$3
billion). These facts illustrate th8 basic point, which is, that there can
never be any absolute certainty in the making of loans. Even he most
efficient of business organizations can fail or incur losses.
(iv) It is, therefore, essential that banks, on behalf of their
depositors, be compensated for the risks incurred by them during the course
of lending. The only question is as to how this compensation is to be
determined and built into the structure of bank lending. Handing over the
savings of ordinary depositors to companies without any return for banks is
simply a recipe for economic disaster. There has to be an Islamic solution to
the problem.
5.1.7 The above paragraphs have addressed the issue from the point of view
of depositors. However, it is also necessary, in the interest of fairness,
that the same question be examined in the fight of the genuine needs and
requirements of borrowers. It has been pointed out in the above that
borrowers should not be handed over the hard earned monies of depositors
without any charge. At the same time, it is also important that borrowers
should not be saddled with exorbitant charges imposed by banks. If that is
done the pace of economic activity in the country will slacken, the economy
as a whole will slow down, and it will become increasingly more difficult for
the people of Pakistan to emerge from the poverty trap in which most
developing countries are locked in. The all important question is as to how
this should be achieved. Some salient features of the problem may be
highlighted.
5.1.7 (a) Let us take the case of a sound and profitable company which
seeks a bank loan et us further assume that the loan has been given on the
basis of profit sharing. The bank's attitude may well be that since it has to
safeguard against the possibility of a default, and since its lending
policies, in general, have to take into account the fact that many companies
do not maintain correct books of accounts, it, therefore, has to demand a
correspondingly higher share of profits in order to compensate it for the
risks undertaken by it. The net result may, therefore, be that such a company
may end up paying for more to the banks under the name of profits than it
used to pay under the previous interest based system of banking. (In fact,
such a complaint was commonly made when the interest system was discontinued
with effect from 1st January, 1985, and the mark up system was introduced.
Companies complained that while formerly they had to pay, say, 16: per cent
interest, now, they were being asked to pay 20 or 22 per cent under the name
of mark-up. Thus instead of exploitation being reduced it was actually being
increased in the name of interest free banking.
5.1.7 (b) It needs to be emphasized that a high cost of bank borrowings is
not simply a fairness issue as between banks and borrowers also has a
critical level of importance in relation to the functioning and growth of the
economy as a whole. Higher costs of bank borrowing are likely to lead to
Pakistani manufacturers being priced out of foreign markets, with low cost
producers from India and other countries supplanting them. The cost of bank
borrowing is an extremely important part of the total cost of manufactured
goods. If it is not kept reasonably low the result can be extremely adverse
for the functioning of the economy. Internally it will lead to price
increases and a higher rate of inflation, and externally it will lead to a
fall in exports and a eater dependence on foreign loans at high rates of
interest and a consequential transfer of economic sovereignty in favour of
foreign countries.
5.1.7 (c) The above point is reinforced in the case of sick industries. The
textile industry is the largest industry in Pakistan. At present, about 20
per cent of the textile mills in Pakistan have shut down because of the state
of the economy. A vast amount of investment in infrastructure, facilities,
plants and equipment has gone into these mills. They provide productive
employment for hundreds of thousands of families. The question is as to the
manner in which bank borrowing is to be extended to these companies.
Obviously, profit sharing is not the answer since they will inevitably run at
a loss for some time. Nor would it be right to simply hand over the money of
ordinary depositors to them as qarz-e-hasana. Some charge will have to be
made for the money lent to them. Obviously some via media will have to be
evolved to deal with such a situation. The question is, what is this via
media to be?
5.2 In the above, an attempt has been made to identify some of the
practical problems which will be encountered in seeking to restructure the
banking system and bring it closer to the Islamic ideal. It should be obvious
by now that this is a highly complex issue which is not susceptible to a
simplistic solution. What is required is a reform of the banking system and
not its destruction in the name of interest-free banking. The banking system
is integral to the functioning of the economy as a whole and a facile and
unrealistic decision may lead to seriously adverse consequences. What is
requited is a detailed, careful and systematic application of mind to
restructure it in the light of the injunctions of Islam in such a manner that
it leads to an improvement in efficiency and not a devastation of economy.
5.3 It is a basic principle of economics that no modern economy can
function without a secure and Traditionally, borrowers, almost by definition,
have been persons in need sometimes in dire need - whose weak bargaining
position meant that they were in danger of being exploited by the limited
number of persons who controlled wealth and capital and drove hard, unfair
and inequitable bargains by virtue of their superior bargaining position
vibrant banking sector. The banking system is an indispensable adjunct to the
functioning of the economy of the country for many reasons. It permits, and
promotes, a pooling of savings and enables them to be used for productive
purposes. It is the savings generated through the banking system that are
processed and lead to a flow of investment without which there can be no
economic growth. It is obvious that in the absence of productive investment
the people of Pakistan will remain mired in poverty and distress. The process
of Islamization of the economy is intended for the moral redress and economic
betterment of the people of Pakistan and not as a regressive measure for
their impoverishment.
5.4 It is also necessary to emphasize the fact that the banking system is
the conduit through which flows of money (whether in the shape of portfolio
investment or direct foreign investment) into, and out of the country take
place. It regulates international trade and investment without which an
economy cannot function. It permits, and facilitates, the making of imports
and exports. It is not possible in the modern world for any country to
subsist as an island of isolation. Furthermore, it is imperative that
Pakistan, as an essential and integral part of the Islamic world, should play
its appropriate role in relation to the progress and prosperity of the
Muslimummah as a whole. If the country is to act as one of the flag bearers
of an Islamic renascence it cannot afford to lag behind in economic progress
and development.
6.1 That amongst the issues which remain unresolved is one that relates
to the question of retrospectively. The language of Article 203D does not, on
the face of it, contemplate a retrospective application o1 the conclusions
arrived at by the Federal Shariat Court. Indeed, the constitutional language
points in the opposite direction since even the jurisdiction of the court to
examine fiscal or banking laws was postponed for ten years. The fact that
the court has been specifically authorized to delay the coming into effect of
its decisions is a further pointer in the same direction. This, therefore, is
a relevant factor in relation to subsisting contracts entered into with
foreign or domestic entities.
7.1 That it appears that some of the problems mentioned in the above have
not been adequately addressed, or analysed, in the earlier decisions, With
all due respect to the authors of the earlier decisions, and without
intending any criticism of their views, it has to be pointed out that the
crucial and central role the banking system has perhaps not been realized in
its fullest amplitude. It is, therefore, all the more important that this
Honourable Court should embark on a detailed and exhaustive exercise to
authoritatively lay down the salient features of an Islamic economy. In
particular it is vital that not merely should those systems which are `haram'
be identified but it is of equal, if not greater, importance that a system'
which conforms to the spirit and letter of the Islamic provisions should be
spelled out in terms of which the banking system can function efficiently and
productively for the benefit of the people of Pakistan. It is inherent in the
power of this Honourable Court while deciding the issue of the repugnance of
a law on the anvil of the Injunctions of Islam that it should lay down the
rationale of the decision. Indeed, it is explicitly stipulated in Article
203D that the reasons for a decision must be stated which necessarily implies
that the features which are Islamic must be isolated, and separated from,
those which are unIslamic.
8.1 That the above line of reasoning ineluctably implies that a new E
paradigm should be adumbrated f along strictly Islamic lines specifying,
inter alia which transactions are permissible in Islamic law, which are also
consistent with the functioning of a modern economy including specifically
the banking system of the country. In the absence of dear guidelines being
laid down by this Honourable Court, there is a real possibility that the
existing system may be destroyed without creating an alternative system which
is in accord with the principles of Islam. This can only be a recipe for'
economic and social disaster.
9.1 It also needs to be pointed out that none of the previous judgments
adequately addresses the problem of the existing international and domestic
obligations of the Islamic Republic of Pakistan. These are in excess of US
$60 billion (of which an amount in excess of US $34 billion is foreign debt
and an amount in excess of Rs.1200 billion is domestic debt). Debt servicing
runs into billions of dollars annually. If, as a consequence of a decision
not to pay interest, the debt is not serviced, the country, as a whole, may
become a defaulter with potentially extremely serious implications.
10.1 Quite apart from the economic aspect of the matter, there is a moral
dimension to the problem as well. The major part of the foreign debt is owed
to non-Muslim countries and institutions which can legitimately enquire as to
why the Islamic Republic of Pakistan entered into these contracts in the
first place if the intention was, or is, not to abide by them. The verses of
the Holy Quran emphasising the importance of honouring contractual
stipulations freely entered into require no elucidation (see, for example,
Chapter V verse I and Chapter XVII verse 34).
11.1 That the Government of Pakistan respectfully seeks guidance from this
Honourable Court in relation to:
(a) attaining a smooth and non-disruptive transition to an economy based
on the principles of Ehsan and Adl which is free from the taint of riba;
(b) A workable economic system which will enable Pakistan to flourish and
prosper in the light of the principles of the Holy Quran and Sunnah and
become a modern, progressive, competitive and efficient economy which will be
able to meet the challenges of what is some times described as an emerging
global vi1lage in which the shackles of the past will not be permitted to
impede the growth of a modem and vibrant economy.
PRAYER
It is therefore prayed that this Honourable Court may be pleased to examine,
elucidate, lay down and declare the principles of Islam on the basis of which
the existing laws, for and in relation to the question of riba, are
scrutinized and examined and an authoritative verdict given as to the lines
along which the existing system can be remodelled so as to bring it in
conformity with the requirements of Islam.
It is further prayed that this Hon'ble Court may also clarify and direct by
means of an interim order, or orders, that in order to avoid creating a
vacuum, the functioning of the existing system may not be disrupted until
such time that a modified system has been put in place. Petitioner (Ch.
Irshad Ahmad) Secretary, Human Rights and Parliamentary Affairs, Islamabad.
Islamabad, the l3th February,1999.
mar...@vom.com
formation of paragraphs was a wonderful innovation, not to be
abandoned lightly.... :-)
Likewise the practice of distinguishing what is quoted from one's
reply is not only useful to the reader, it is a courtesy to the
original author, so that his words are not mixed with one's own.
exp...@khi.comsats.net.pk wrote:
>Now for Lomax.How can the lender determine his cost of lending. It can only
>be notional.
This is an assumption predicated on experience of a floating currency.
It is not true with a pure commodity exchange.
>In the real world say in the case of a Bank (as a lender) it can
>at best be calculated on the basis of a previous trend.
That is, essentially, making an assumption that previous trends will
hold. Frequently they do not, to the loss of either the bank or the
borrower. If inflation exceeds the rate of interest being charged by
the bank, the bank will lose because the currency with which the loan
is paid back is worth less, even after the addition of the interest,
than what was loaned. Conversely, if there is no inflation, or if,
even, there is deflation, which is not common but which *does* happen
when money is in short supply, the loan could become an onerous burden
and the profit of the bank much higher than expected.
>What about the case
>when one maintains interest bearing deposits in Banks. Individual depositors,
>to my mind do not incur any expenses in maintaining such deposits.
That is correct. The bank, in fact, incurs expenses.
>They
>should; then according to your definition ; not be entitled to interest
>thereon.
I am not clear as to what definition Br. Aurangzeb is referring. I
have agreed with those who say that paper money is riddled with
ribaa', at least the forms of paper money (and account balances and
transfers) that we have today are. A gold or silver certificate,
payable in a certain weight of gold or silver, would not necessarily
involve ribaa', particularly if it could be purchased with exactly the
same weight of gold or silver. We *used* to have that kind of money in
the U.S.
>If you think thru the various transactions taking place in the
>banking system and apply your definitions, the result is that the banking
>system has to be halted.
No. The ensuing chaos would be far too harmful. But this does not mean
that we should consider the system lawful. It may be permissible, as I
said, under color of necessity, but we should seek ways to return to
what is fully lawful.
>The question of inflation is more difficult.It
>is not only difficult but impossible. Inflation is a notional value
>determined on various agregates. It could be consumer related (CPI) or
>industrial (IPI). In fact we could agree to any number of parameters to
>define inflation.
Yes. Any commodity may measure inflation or deflation, and generally
commodities will differ in such a measure.
>What does this mean, "the value of gold">It means how
>much gold can be purchased in the market for a given>amount of some other
>commodity (or service or other property).
Yes.
>This is the crux of the matter.
>The noble metals are only equivalents of themselves. Please recall the
>convertibility of paper money into equivalent drafts of gold/silver which the
>central banks were bound by law to do, only a few years ago. The pound
>sterling was a pound of silver. Not any more.
Yes.
>And you point to the obvious
>difficulty. The value of gold you speak about is really the "exchange value"
>of gold and not its use value.
However, gold is chosen as a medium of exchange because of a number of
desireable properties. First, it is relatively uncorruptible; it does
not rust or corrode with age. It is easily purified, and because of
the high density of gold, most cheaper metals which might be used to
adulterate it will betray their presence by a reduction in density.
And it also has many uses of high value, though some of them, such as
its use in jewelery, might actually stem or be maintained from or by
the monetary use.
>Therefore you need to bring in an amount of
>some other commodity or service or property.Quite obviously you are aware
>of the difficulty here.
Indeed. Though I do not consider it a difficulty. However, there *is*
a difficulty in dealing with a taxation system which will tax
exchanges and an alleged "profit" which ensues from them, even where
no real profit has been made. But if the transactions are carefully
structured, I think these taxes could lawfully be avoided.
>This is exactly the philosophical difficulty I spoke
>about above.>Now, some of us think that paper money is inherently haram; it
>has>been said that it is riddled with ribaa'. Of course, one might still
>>use paper money under color of necessity....And then why not sacrifice
>Allah on the altar of necessity (pun intended).
Necessity is a valid principle in Islamic law. It can be abused, as
can any principle of fiqh. Until I have a means to survive in this
world without the use of money, I consider it permissible to continue
to use paper money. Permissible under necessity, not because it is
Halaal.
The rest of the world doesn't
>believe in Him. We can't see Him. We might as well admit He doesn't exist at
>all----- and on and on and on.>A borrower who borrows for necessities, who
>cannot meet those>necessities in a fully lawful way, may borrow as required
>even if it>involves the payment of excessive interest. This does not make
>the>paying of excessive interest halaal!
Absolutely. I did not claim that it did.
>Please do not try to justify
>interest ( in some fashion) by adding words like excessive etc. You rightly
>point out that it cannot be converted from haraam to halaal by some fiat or
>jugglery of words.The concept of dar-al-harb is of course relavent in your
>case. However I may assure you that the so called islamic countries are as
>much dar-al-harb as say the US or Europe as far as this issue is concerned.
I did not, as I recall, consider the issue of dar al-Harb, which does
enter into the matter in the considerations of some scholars.
>In fact probably we are guiltier because we are additionally guilty of
>munafiqat.
I have not generally separated, in what I quoted, what I had
originally written from Aurangzeb's response. But I will note that
this is what I wrote:
>The case is more difficult to judge when the purchase is, for
>example,>a home. It can be argued that the buying of a home is not a
>necessity;>one may, instead, rent. And if one can pay the down payment on a
>home>and the interest and principle payments on a loan, one could rent.>So
>paying rent can be much more expensive for some people than paying>mortgage
>interest. Since the paying of interest by these people>actually results in
>relief to them, not oppression as is implied of>ribaa' in the relevant
>verses, I would consider it difficult to rule>that such mortgage interest
>was ribaa, where the interest was lower>than comparable rent. (Generally in
>the early years of a house>mortgage, most of the payment is interest, so it
>really is comparable>to rent).
and this was his response:
>And what if you know that the house has a
>mortgage on it, which is normally the case in the west. According to your own
>definition it then becomes an unlawful transaction.
It does not appear that Br. Aurangzeb followed my argument. First of
all, I consider interest, of any kind, where a transaction is stated
in a commodity, to be ribaa'. The matter becomes clear if a loan is
stated in a commodity and the weight of the commodity to be repaid is
larger than the weight loaned. Interest is a complicated issue because
of the fuzzy nature of money, where interest largely is balanced by
inflation. Banks make money even when what is returned on a loan is
less than what is paid, because what they pay their depositors as
interest (where they pay any interest at all) is less than what they
charge. To them, inflation is pretty much irrelevant. But the
depositors *and* the creditors, taken together, lose, in general. To
some degree this is balanced, again, by the services that the bank
provides. I consider it lawful for a bank to charge for its services;
this is not interest. A bank could theoretically charge for storage of
the money, because there is an expense associated with it, and
investment necessary on the part of the bank. Commodity accounts, such
as those at Credit Suisse, stated in weight of gold, silver, platinum,
palladium, are charged a fee per time period.
>You cannot run away from
>the problem by merely considering that mortgage interest is lower than rental
>therefore it is halaal. Please do not fool yourself.
I'd prefer not to.... The problem is that *rent* is just as much
ribaa', in my view, at least potentially, as is mortgage interest.
However, a landlord may certainly charge for maintenance and other
costs. I think there is a solution, but it is not being done by
anyone, as far as I know. It addresses both questions, mortgage
interest and rent.
>We are discussing issues
>of principles here and not specifics. Please do not induct in specifics in an
>illogical manner.
I don't know what he means.
I wrote:
>So if the choice is between paying rent or paying
>interest, and the>interest is favorable to the one who pays the loan as well
>as the one>who makes the loan, even though both might be technically haraam,
>one>will choose the lesser evil.
>As a practicality, YES. As a principle IT
>IS STILL HARAM.
Yes. I agree. I stated that explicity. Both remain haraam. And then I
continued:
>But if we have a choice, we could state a loan in a
>commodity, gold,>for example, even if what actually changes hands was paper
>money (or>its modern extension, credit).
>You do not have that choice,
>unless the accounting unit is officially recognised as Gold and dates and
>cigarettes and all the things on God's earth.
No, it is not true that we do not have that choice. Any two people
could decide to enter into a contractual relationship of mutual
benefit that served purposes equivalent to mortgage interest or rent,
without having, I suspect, any element -- or any serious element -- of
ribaa'. It does not require official recognition, except, perhaps, for
the recognition of the validity of lawful contracts, which is
generally true in today's world, at least in those parts of it which
are not suffering from chaos.
>Remember it is gold for gold,
>dates for dates etc---
Yes. Gold for gold. However, the purchase of a property by a
promissory note is, I believe, lawful. So, to be clear, one may also
exchange gold for other property not of like kind, or one may exchange
property for a promissory note stated in weight of gold.
>Imagine the problem for the registrar of agreements J
I have. There is no problem for the registrar, unless he or she
insists that all contracts be stated in dollars or other local
currency. However, even this is not difficult to do; one simply states
the dollar value of the consideration according to the current value
of the commodity, according to an agreed standard (and also a standard
that will be recognised by the authorities having jurisdiction.)
I wrote:
>>I've written this into a few contracts>where substantially delayed payment
>was possible, though not>desireable, to protect the one owed the debt from
>loss through delay>in payment. There might still be a loss due to shifts in
>market value>of the commodity, but this would have taken place if the lender
>had>simply held the commodity, just as it could happen if the lender put
>>the money in a no-interest checking account and thus it was fully>exposed
>to inflation.
He replied:
>This my friend is hedging. It has nothing to do with the
>problem at hand. Covering delays in payment is basically equivalent to
>monetizing Time, another form of Riba (I believe technically called
>riba-al-fad'l)
It can hardly be said, at the same time, that it has nothing to do
with the problem at hand *and* that it is a form of ribaa'. If it is
ribaa', then it is relevant but defective. But since the exact nature
of such a contract has not been stated, Br. Aurganzeb is making
certain assumptions, which, if true, would make the contract one
involving ribaa'. It would serve him better if he would examine those
assumptions.
But I would also appreciate knowing more about ribaa al-faDl.
>While this involves stating a transaction in a commodity
>other than>the one actually exchanged, which is not fully satisfactory,
Now, the concept of these transactions does not involve what the
brother has said. The use of a statement of relation (such as
accepting payment in currency rather than in the commodity) is a
matter of convenience. If it cannot be arranged without ribaa' --
though I think there is a way -- then the convenience can be
abandoned. Payment would then be in, for example, gold. There is no
"increase" for delay in payment. Aurangzeb assumed that; it is not
what I stated.
>Hedging again my friend. Completely RIBA.
*On what basis?* I said:
>it is the>best solution I have
>come up with in my own life.
And he responded:
>Yes. That is the best that can be said about
>it.
Perhaps. In fact, as long as I do not limit myself to this, I am
content with it as regards what is past.
Me:
>But I did buy a car from Ford and am paying 0.9% interest per year
>>(which is well below inflation....) Ford is happy and I am happy.
Him:
>I assure
>you that happiness of the parties is not the basis on which matters of
>principles can be decided upon. Such things are mere expediencies, which can
>only be justified under specific initial conditions and not on the whims and
>the mutual happiness of the transacting parties.
That is a rather tight view, I would say. Yes, that both parties are
happy is no proof of the lawfulness of a transaction. But where both
parties actually profit (over other alternatives), there is no victim
to the crime. It might still be unlawful.
Me:
>The fact is that the 0.9%
>loan is seen by Ford as a *gift*, of substantial>value, to me, and the proof
>is that they would have given a cash>rebate (I forget the amount, but it
>might have been $1000) if I had>paid cash for the car.
[I should not have said "gift." It is a consideration, not a gift.]
Him:
>Come on Brother
>Lomax. The cash rebate is because in such cases it is time which is
>monetised. In this case if you paid outright cash then Ford would not need to
>"carry you" for the period of the installments that are written in your
>agreement. This is a calculation that is routinely made when designing such
>schemes.
Of course. And I would assume that our readers also know that. My
point still stands; Aurangzeb is arguing against things that I have
not said. My point was that Ford considers the low-interest loan to be
a thing of value that they have given me as a consideration, worth
more to me than what they will collect in interest. Thus they would
buy this thing back, if I were to choose to pay cash, for a sum
greater than all the interest I would pay over the term of the loan.
The whole thing is a mess, if one wants to be strict about ribaa'.
Me:
>That money costs Ford more than they are>charging me, quite a
>bit more, but they make it back in profit on the>sale.
Him:
>How do you know
>that? These schemes are based on statistical and historical data. Are you
>implying that Ford merely makes a profit on turn-over. It would if it was
>getting a subsidy/car sold. As far as I know Ford is a manufacturer and not a
>trader that makes profit on turnover. Please do not bend things unduly.
Aurangzeb appears to be arguing here just for the sake of argument.
His comments are not on the issue we are considering. Does he think
that Ford is selling cars below cost, or that it is making a profit
from the interest? Neither is true, I am sure.
I wrote:
>>This is why, I>would think, the line was drawn by the scholars at *any*
>increase>whatever, >but then we run straight into serious practical
>issues,
He replied:
This "BUT" speaks of a weak imaan; please permit me to say so
>although I do not have such authority.
I can't stop him from saying it, but neither could I stop him from
running headlong into hell, not that I think he is about to do this.
We do run into serious practical issues if we try to live and raise
families in this world without using money, and money, in modern
terms, inherently involves ribaa'. I'm not saying that the issues
cannot be solved, but they are not solved by accusations of "weak
imaan," weak faith.
>However I am inclined to believe that
>the real culprit is the lack of knowledge of economics, particularly the
>Marxian model of the economy. Most people are really stuck in the
>neo-classical notions of the economy, considering it something "natural".I
>earnestly implore you to study it for it has some important ramifications
>particularly with ref. to the question of RIBA.
Actually, I have studied Marxist economics to some extent. Marx was
better at economics than he was at predicting the political future....
Now, how could a contract for the purchase of a house not involve
ribaa'? Here is one idea:
The price of the house is *negotiated* in dollars, say, for
convenience. But the actual contract is made in gold (for example), in
a stated weight. Whatever payments are due are due in a certain weight
of gold at a certain time. The payee may *voluntarily* accept payment
on that date in any other commodity, but the payer is only obligated
to deliver the metal, and may deliver the metal if he chooses.
The loan is secured by the property. So it is a mortgage. If the buyer
defaults, the seller recovers possession, and, this is critical: the
buyer is refunded all that he has paid, less any expenses incurred by
the seller to recover the property under the contract and to restore
the property to its original condition, if it has been damaged. (I am
not dealing with the question of improvements. For brevity I will set
that aside. But the basic principle is that neither party shall be
unjustly enriched.) If the expenses of the seller to restore his
property exceed what the buyer has paid, the seller may obtain
judgement against the buyer for any deficiency.
Note that if there is a down payment agreed in the contract as a
certain weight in gold, once again, the buyer may offer it in currency
and the seller may *voluntarily* accept it. Either party may insist on
gold as the mode of payment.
There is no increase, therefore there is no interest. Some might think
that there would be problems with accepting payment in another
commodity or in cash, but, because this is voluntary, it is not
essential to the loan. Gifts are lawful, and it is a gift both to
allow payment in cash and to be paid in cash or other mutually
convenient commodity. The debt is in gold and each payment is
negotiable if it is to be paid in any other way.
Naturally, if cash is considered convenient, the parties will probably
make payments at the current market price of gold. The buyer may well
obtain a resale license for gold; the seller will do likewise and will
resell the gold. In this case neither the buyer when he buys the gold,
nor the seller when it is transferred to him, will incur sales tax. In
California, sales tax is about 7.5%, and this tax would impair the
contract.
This is a barter transaction. Especially where a payment has been made
in cash, but even if it is not, the tax authorities may well want to
know a cash equivalent. Likewise the "registrar of contracts," here
the county recorder's office and property tax assessor.
As it looks to me, however, the income tax that the seller might incur
will not be greater than what he would have incurred if the house had
been exchanged for gold.
A rental could be handled just like a sale. The only difference would
be that there would not be a down payment (but there might be a
deposit -- again, in gold) and title would not transfer (but the
renter would rights very similar to the buyer in a sale contract; the
major difference being an agreed term, renewable by mutual consent).
A landlord may recover costs from the tenant, including every cost
associated with maintaining the house or restoring it to condition
equivalent to that in which it was rented, as well as property taxes.
How would a landlord profit from this arrangement? The same way that
owners of rental property in many areas benefit. It is common to lose
money on tenants, but the profit is made from appreciation due to
increased demand, which can far outweight the losses from rental.
The arrangement requires the tenant to carry all the costs of
maintaining the house, protecting it, etc. This preserves the value of
the property of the landlord. But because the agreement provides for
tenants rights, if the tenant paid any amount in excess of the cost of
maintenance, that excess would be refunded on vacating the property in
proper condition. This would be a high incentive for a tenant to keep
the property in good order.
A rental agreement (we should really call it an occupancy agreement or
a management contract) would be more complex and more difficult to
keep from ribaa', but I still think it is possible.
But this is theory. It is easy to come up with theories. What is
difficult is to put them into practice.
Fariduddien Rice
> Assalaamu &Alykum,
Wa alaikum salam,
[...]
> According to Lomax, you simply incept the loan amount, setting its worth in
> gold. Let's use $10,000 like the example I posed. Then when it is time for
> repayment, you pay an amount equivalent to the value of that gold at the loan
> termination point. This works very well in Fantasy Island.
I don't see any reason why it wouldn't work well in real life too.
Commodity prices are very easy to look up, if you know where to
look. You can generally find them in the finance pages of your
daily newspaper.
I had the impression Br. Lomax has used this method. Admittedly,
I haven't, but I don't see why it wouldn't work. In the past,
I have always either given my money away, invested it, or loaned
it for an equal dollar value return. However, if I was going to
make a large value loan for a long time period, I would certainly
consider using this method (though personally, I might prefer
using silver over gold, but I won't go into it).
It is a method which is halal, and also provides a hedge against
inflation, and is really not so complicated when you understand it.
> In 99% of cases the loan is not going to be paid in a lump sum at the end of
> the loan period, but rather in monthly installments. Imagine the acounting
> nightmare of re-figuring everyone's monthly loan installment, every day,
> based on today's gold value. Do brothers Lomax and Rice live in this same
> world we live in?
I don't think it is difficult at all.
Firstly, if it is a *monthly* installment, you have to figure it
out every *month*, not every day. And figuring it out is quite
easy. With your daily newspaper in front of you, it would take
about 10 seconds to figure it out on your calculator.
Let me give a much clearer example than before.
Let's say someone wanted to borrow $3,468, which I've chosen
because it is the same price as about 12 kg of gold at today's
prices (around $289 per kg, I think).
So, now, we stop thinking in dollars. We think in kg of gold.
Let's say that the loan is for one year, paid back monthly.
Easy, that means the person pays back 1 kg of gold per month.
They look up the gold price in the paper, and that's what they
pay back.
It is really quite simple. With the paper in front of you,
this calculation would take about 10 seconds (or less) on a
calculator, even if the example was not as "clean" as the one
I give above. The main hassle would be finding the finance
page in the newspaper. However, now this information is also
available on the internet.
Of course, I am assuming that the person doing the calculating
understands mathematics. Maybe I should say, for *me* the
calculation would take less than 10 seconds. However, in
real life, you get people who do know mathematics to do these
kinds of calculations. In fact, it is quite a lot easier
I think than trying to calculate compound interest. I suspect
Br. Omar might have never calculated compound interest, so he doesn't
realize how much easier it is to calculate the above, than to calculate
using compounded interest.
> I wonder what Nations Bank, or 1st National bank, or the Saudi Islamic banks,
> for that matter, would tell brother Lomax and brother Rice if they walk in,
> and propose that type of loan!
There is no reason why an Islamic bank couldn't use this method.
However, they wouldn't get much of a return, and to my knowledge
Islamic banks primarily work on the basis of investment, rather
than loans. This would be more suited to loans between individuals,
or non-business related loans for things that tend to depreciate
(which is almost everything except property). It would also be
good for non-profit Islamic co-operatives, and other non-profit
Islamic financial institutions.
Personally, to be honest, I haven't bothered with it, since
I am happy to just loan a dollar amount, and get the dollar
amount back when the loan is repaid. However, my loans have
been relatively small and for short time periods (I'm not
particularly wealthy). If I were going to make a large loan
for a long time period, then I would certainly consider this
kind of scheme, as a hedge against inflation, and which is halal.
It's really quite easy, at least if you are comfortable with
some basic mathematics (there is nothing beyond multiplication
and division in these calculations).
It also does not involve interest, so it is Islamically halal.
Fariduddien Rice
On 16 Feb 1999, Omar Farouq wrote:
[...]
> Now, a business ( bank, company, etc.) does not open for the purpose of
> losing, or for the purpose of charity. Otherwise, it would not be a business
> by definition. The money in a business fund has a growth potential as a
> result of investment, sales and trade. If they loan some of it out then they
> can *rightly* expect the equivalent value of it at the end of the loan
> period.
The Islamic solution is, if you want a return, don't *loan* your
money (for interest), but to *invest* it. That is halal. It also
shares the risk between the investor and the recepient of the
investment money.
For example, if you have a financial institution, and a business
which needs cash, a halal way for the financial institution to
provide cash to the business in a way so that it can get a
return is to invest it in the business. It can do this by buying
shares in the business (i.e. becoming a co-owner of that business).
Of course, they don't have to be co-owners forever. It could be
part of the agreement that the business will buy back its shares
from the financial institution at a specific period in the future.
If the business is making a better profit (as a result of the
cash injection), then the price of the shares should be higher,
and the financial institution will get a return.
This is, I understand, essentially how Islamic banks work.
It is halal, to my understanding, as it does not involve
interest, and the risk is shared by both the investor and
the recipient of the investment. The whole risk is not
only on the recipient, as is the case with a loan with
interest.
Angel investors (on a smaller scale) and venture capitalists
(on a larger scale) work in a similar way, that is, they work
by *investing* their money in businesses. For larger companies,
they can also get the same benefit by being listed on a public
stock exchange and selling their shares that way, in order to
get cash to expand the business. All these different methods
of *investment* are inherently halal, according to what I have
read. They do not intrinsically involve interest.
However, many people don't know about these various aspects,
which is what leads to confusion. All many people know about are
banks, but banks are just one out of many ways a business
can find financing. The halal way to find financing is by
encouraging investment in your business.
[...]
> Islamic banks advertise <qard hasan>"righteous loans." Is that interest free?
> No. They charge interest, but the interest rate is not as excessive as
> Citicorp, for example. It is to protect the value of their money.
This is incorrect, to my knowledge.
I am familiar with how an Islamic co-operative here in Australia,
Muslim Community Co-operative Australia (MCCA), works. MCCA has
purposely modeled itself on Islamic banks, except that it is
non-profit. (By the way, it is now aiming to change from being
a co-operative, to becoming a credit union, while keeping its
interest-free principles.)
MCCA's qard hasan fund provides just that -- an interest-free loan.
People can put their money, if they want, in the qard hasan
fund. By doing this, they will get no return on their money,
so a person who does this does it purely for the pleasure of Allah.
Then this money is loaned out to people who are really in need
of it, interest-free. They have to pay it back at some agreed-upon
date in the future, but it is a purely interest-free loan. I
think MCCA tries to ensure that they have enough funds in the qard
hasan fund so that if any of the loaners want their money back,
they can get it back from the fund within a month or so.
So, MCCA's qard hasan fund is really interest-free. Since MCCA
is modelled on an Islamic bank, I expect there is something similar
in most, if not all, Islamic banks.
People who put their money into the qard hasan fund do not get
a return. They do it purely for the pleasure of Allah, not for
greed. This is a difference between Islam and pure capitalism.
mar...@vom.com
Omar Farouq <in...@q-zone.com> wrote:
>According to Lomax, you simply incept the loan amount, setting its worth in
>gold. Let's use $10,000 like the example I posed. Then when it is time for
>repayment, you pay an amount equivalent to the value of that gold at the loan
>termination point. This works very well in Fantasy Island.
>
>In 99% of cases the loan is not going to be paid in a lump sum at the end of
>the loan period, but rather in monthly installments. Imagine the acounting
>nightmare of re-figuring everyone's monthly loan installment, every day,
>based on today's gold value. Do brothers Lomax and Rice live in this same
>world we live in?
Probably not. I live in California, Farouq lives in his assumptions of
superior wisdom.
For some reason, Farouq thinks it difficult to calculate an equivalent
payment; but he thinks it easy, I presume, to calculate interest. The
real failure here is a failure of imagination. As soon as the idea
runs into a snag, he will condemn it, even if the snag is not really
of significance.
Yes, if we are to maintain the convenience of a monetary system which
moves debits and credits around, with or without paper, but without
the movement of actual commodities, some complexity is involved, more
than simply paying X dollars per month (where the interest is
prefigured in advance and the the payment calculated as a level
payment over a fixed term). Has Farouq ever made that calculation?
It's not difficult with a spreadsheet or financial calculator, but it
is not a simple one to approach with mere arithmetic.
In the days before computers, banks and real estate professionals used
pre-compiled tables to determine the payments. And, yes, every month
the bank would make calculations of interest and principal. It's
actually more complex than what I am suggesting, which takes no more
math than looking up a number on the web and multiplying the payment
weight by it. And even that is not necessary (for the borrower); I'll
explain.
>I wonder what Nations Bank, or 1st National bank, or the Saudi Islamic banks,
>for that matter, would tell brother Lomax and brother Rice if they walk in,
>and propose that type of loan!
I have no idea. But commodity accounts already exist. I had a Credit
Suisse palladium account at one point. I did not make up the idea.
Farouq loves to indulge in his silly sarcasm:
>No problem Mr. Lomax and Mr. Rice. We will hire a special acountant that will
>recalculate your loan every single day, figure out your average daily
>balance, complie that into an instant e-mail statement at midnight of the
>last day of each month, and expect your payment to be instantaneous as well
>because the price of gold may change in the next 5 minutes. However, there is
>that little matter of the special accountant, the computer system, and
>overhead cost that you need to incure out of this nightmare type of
>transaction.
Any programmer could write a program to do the job in perhaps a day,
and the same program would work for any account and any commodity for
which data can be automatically downloaded.
But I would not do this. I'll say what I would do below.
>We figure that the accountant makes about $65,000 annually, our
>overhead cost is 5%, and the computer system allocation dedicated to your
>transaction is roughly $250 per month.
>
>Well, lets add it up:
>
>Loan principle = $10,000
>Accountant Salary = $65,000 X 5 = $325,000
>Overhead = $10,000 X 0.05 = $500
>Computer System cost allocation = $250 X 60 = $15,000
>
>Since the acountant, through hard work and dedication, will be able to handle
>two more loans besides yours, your share of his salaray will only be:
>
>$325,000 / 3 = $108,333.33
>
>Your monthly statement for Februray 28 is expected to be $2,063.89. But it
>may change by as much as $500. Please do not remit payment, since this is
>merely an estimate. By the way, your total unpaid balance has become
>$123,833.33
>
>Way to go, allaamas! I prefer to pay 9.9% simple interest. My monthly payment
>will be $210.24, and the total amount due will be only $12,614.65
By Farouq's logic, no credit card company could survive on the very
small margin it makes. I mean, collating all the charges and credits
from merchants, calculating interest *on the basis of daily balances*,
applying payments, not to mention the work of addressing the
envelopes. No way, it is much too expensive. Think of the pencils one
would wear out doing all those calculations!
You know, now I understand why Farouq has been unable to comprehend
why the mathematics of 19 in the Qur'an is a fraud. It appears that he
is incapable of cogent thought. Or if he is, his mind goes south when
his arrogance goes north.
Let me explain how it might work.
A lender and borrower agree that the lender will provide a certain
weight of gold, or any other commodity for which regular market data
is available (though that is not a completely necessary element, it
merely allows convenience) to the borrower. I will, however, use gold
as the commodity for purposes of discussion. The loan will be
repayable at a certain weight of the commodity per month, if it is an
installment loan, or at the completion of the period if it is a term
loan.
*For mutual convenience,* the borrower may agree to accept cash in
lieu of gold. If the borrower elects to receive the gold, the lender
will have a certain period in which to obtain the gold; but the
repayment schedule is not affected.
Likewise the lender may agree to accept cash in lieu of actual
transfer of gold. But the contractual *rights* are for loan in gold
and for payment in gold. The sum of the gold payments equals the
amount of the loan.
A bank which is in the business of making money from loans will not be
interested in this transaction because there is literally no profit in
it. *If there is profit in a pure loan, it is ribaa', by the classical
definitions.* I have already considered this point, to some degree,
from the point of view of Qur'anic revelation; arguments could be made
that ribaa' is only *excessive* interest, and an argument could be
made for the simple meaning of ribaa', which is increase or profit. I
think the weight of evidence is toward the latter meaning.
So who would make such a loan?
*Individuals or mutual benefit associations would.* Such a loan would
be secure against inflation (with respect to the commodity chosen).
The risk is that the loan will not be paid, of course.
Or, if a Muslim community established such a fund, and collected 2.5%
on balances above a certain amount, a properly-managed fund would, I
think, cover its losses and more out of this zakat. The defaulted
loans would be forgiven as charity where appropriate.
(I am not clear on how zakat is calculated when the amount is loaned
out. I have seen some evidence that the borrower, because he enjoys
possession, pays it. If so, then the fund is effectively acting as a
trustee, holding wealth on behalf of its depositors and returning it
on demand.)
Yes, there would be expenses. TANSTAAFL. Some of the expenses might be
appropriately paid by the borrower, and some by the lender or
association (or, through it, by the depositors.)
For convenience, again, the borrower and lender could agree that
payments may be made in a certain cash amount, calculated
periodically, and the gold balance due would then be adjusted
according to the actual value of gold according to some agreed upon
standard on the day of receipt. There is absolutely no technical
difficulty in doing this if the standard is readily accessible. But at
any point either party may insist upon using gold. Thus both parties
have a motivation to choose an equitable standard of value.
It is completely clear to me that this loan satisfies the conditions
of a lawful loan as exemplified in what is known of the sunna of the
Prophet and his companions. It is purely and simply a loan of gold
with a return of gold of exactly the same weight, expenses excepted.
If I am a trustee, and I am entrusted with some item from which I gain
no use, yet I incur necessary expenses for the storage of that item,
may I collect those expenses from the trustor? I think so.
But if I gain value from the use of the item, I would bear the
expenses.
If someone were to question the legitimacy of payment conversions,
these are not the essence of the agreement. The return of exactly what
was borrowed is.
Now, one might claim that *cash* is itself a commodity. While this
arguement is not entirely without merit, on balance I think it untrue.
Cash has no utility outside of its use in facilitating transfers of
value, and any piece of paper would serve.
(If I write on a piece of paper a note to my treasurer, "Pay to the
order of the bearer 1 oz. of gold," that would be a form of cash that
would not have a floating value in itself, though the value might be
affected by how reliable I was perceived by the community. If a
government (or the bayt al-maal) with adequate reserves issues such a
note, I would consider it equivalent to a commodity. It is not
essential that it be a bearer note; it might require specific "pay to"
endorsements; it would serve as cash if it were transferable by such
endorsement.
A Muslim community, in my view, has the power to develop such forms of
cash, which could be used internally, and, to some degree, externally.
I have heard that the fuqaraa' of ^Abdul Qadr al-Murabit are
interested in such things. It is not a bad idea if one does not take
matters to an extreme.
If I can now write a check for so many dollars payable to so-and-so,
why could I not write a check payable in a certain weight of gold,
based on my deposit of such gold -- or its agreed equivalent -- with a
bank (storage facility or clearinghouse) that would accept such checks
for payment? I see no inherent difficulty in the accounting; computers
don't care if a number is a weight or so many dollars. (To use
existing equipment, I would use an arbitrary equivalence of one dollar
with a certain weight. The printed checks would explicitly define the
draft to refer to a weight of a stated commodity, and there would be
no dollar signs on the draft or other mention of cash value. If the
bank, having agreed to accept such certificates, defaulted, the holder
of the note in due course could demand specific performance under
existing law and continue to avoid ribaa'.)
Now, the laws of the United States provide that the currency of the
country shall be "lawful tender for all debts, public and private."
But this does not establish a dollar equivalent where a debt is stated
in other than dollars, and it does not nullify contracts for the
delivery of commodities (though it may reduce such contracts to cash
value if delivery is not reasonably possible).
And if a Muslim organization, here, were to issue gold certificates,
it might have to register with various authorities to satisfy the
requirements of law. Interfacing such organizations with the existing
cash/credit system would not be simple, but I believe that it can be
done, and that there would be benefits to doing so. And this is aside
from the little detail that ribaa' is unlawful for us.
passi...@my-dejanews.com
My verdict on that issue is that, although the current banking system WAS
built on usury, the current banking system IS not usurious.
Simply because the system was usurious when currencies were fixed to Gold.
This usurious system could not hold and it collapsed by itself. Subhana
Allahu. It began when the British devalued the pound (against the gold)
early in the century, basically cheating all sterling holders on the usurious
interest they've been receiving for years. It then happened again when the
dollar was devalued, until finally this usurious system finally collapsed
when America floated the dollar.
All currencies are floating because even those so called 'fixed', are fixed to
a floating dollar.
So holding paper money is a risky investment in itself. The dollar is good
because the U.S. central bank is reputable. The federal reserve use interest
rates to affect the supply of the dollar and influence its value, which could
change overnight. A hundred dollar bill costs the Feds 4 cents, while the
remaining $99.96 is the good word of the central bank.
In essence, Br. Lomax is saying that only the difference between the real
interest rate (which is the exchange rate between current goods with future
goods) and the nominal rate (which is what the Fed determines) is haram.
Well, I don't think Alan Greenspan himself can figure out that difference
easily.
Peace,
Omar Farouq
Since, concerning loans, they are both spinning around the same axis
aimlessly, this reply is to both Lomax and Rice. No sense wasting preciuos
bandwidth by replying to each separately, or to each statement made.
In article <7aiarh$6k$1...@waltz.rahul.net>,
mar...@vom.com wrote:
> Omar Farouq <in...@q-zone.com> wrote:
: >In 99% of cases the loan is not going to be paid in a lump sum at the end
of : >the loan period, but rather in monthly installments. Imagine the
acounting : >nightmare of re-figuring everyone's monthly loan installment,
every day, : >based on today's gold value. Do brothers Lomax and Rice live in
this same : >world we live in? : >
> Probably not. I live in California, Farouq lives in his assumptions of
> superior wisdom.
Ah! So, that's why you often hear the term "out of this world, dude!" when in
Caifornia :-) Kidding, my fellow Californians, I love your state. But you have
allowed Lomax to move in, so I can't help the sarcasm.
> Yes, if we are to maintain the convenience of a monetary system which
> moves debits and credits around, with or without paper, but without
> the movement of actual commodities, some complexity is involved, more
You said the magic word "commodities."
Converting a loan to gold makes as much sense as converting it to dollars or
yen or euros. "No," I'm sure the response will go, "Gold is real--those other
things are fake.
Gold is a commodity. Its value will vary according to the laws of supply and
demand. There is nothing particularly more "real" about it than there is about
dollars, yen, or euros. Lomax seems to be assuming that the value of gold
reflects an innate quality, while the value of the dollar is simply an
artifact of human caprice. In reality, gold has very little actual utility.
Why on earth would anybody want it, except that it is "worth" money?
The fact is, there is no commodity whose value does not fluctuate with its
relative supply and demand, and it would do no good to look for one. We could,
for example, look for a renewable staple (e.g., rice), whose value remains
relatively stable over time in certain societies that rely on it in largely
the same quantities per person over time, but the problem remains--the value
of rice will nevertheless fluctuate because there will inevitably be periods
of relative scarcity and relative surplus, and the price will change to
reflect those conditions.
So the problem is--how do you keep up with inflation without accepting
interest? (We will recall the sectarian understanding that <ribaa> is
interest of any kind at all--even though we know it really refers to "usury,"
which is not the same thing.) Having thought through this question for several
seconds, it seems to me that there is indeed a solution that might appeal to
Lomax: If you have no income, then you need not worry about inflation or
interest. So the solution is to deprive yourself of any and all income.
Usury and interest are not the same thing, people.
Salaam,
Omar.
---
http://www.q-zone.com
mailto:in...@q-zone.com
Dedicated to Qur'anic Studies, with no sectarian affiliation.
-----------== Posted via Deja News, The Discussion Network ==----------
mar...@vom.com
exp...@khi.comsats.net.pk wrote:
>This is the text of the petition filed by Govt. of Pakistan in the Federal
>Shariat Court. Some say it is a delaying tactic. Please form you opinion and
>post it. or better still send it to the govt. of pakistan through email.
I'm actually rather shocked by the shallowness of this petition. I'd
expect more from the government of a Muslim country. *Of course* there
are problems involved with ribaa' and with interest and the relation
of the two. That's not why I am shocked.
I am shocked because the petition does not seem to discriminate
between three activities, each of which has its own rules. It is very
much the confusion between these three that is the source of much
difficulty on the subject of ribaa'.
First there is trust. If at thing is entrusted, it is the obligation
of the trustee to return the thing to the trustor, undiminished and
unharmed. Depending on the thing and the agreement, it is possible
that the trustee may have the use of it in the interim. But the
essence of trust is an obligation of undiminished return. If the
trustee is unpaid, however, and loss is suffered with regard to the
thing entrusted, the trustor will suffer the loss unless the trustee
has been recklessly negligent, or the loss has been suffered in the
course of the trustee's use of it, for the trustee is merely an agent
of the trustor, obligated only to faithful and honest service and
reasonable caution. On the other hand, if the trustee is paid, there
should be a contract specifying rights and responsibilities; a
professional trustee may well be obligated to cover losses.
Second, there is loan. With a loan, clearly the debtor has the use of
the loan (whereas this is conditional with trust); it is, in fact,
advanced for that purpose. The purpose of the loan is two-fold: it is
to aid the borrower, as a form of charity, and, from the other side,
it is a form of trust, a place where on can put one's wealth to use
with an expectation of return. Islamically, the lender has no right to
profit, and may expect an undiminished return of the principal. But if
the borrower does not pay, the lender, in my judgement, may not
enforce payment unless the need of the lender for repayment is greater
than the need of the borrower. So if the borrower has sufficient
provision, and the lender does not, the borrower would be forced to
pay at least enough to equalize their condition. If the reverse is
true, the borrower should not be forced to pay. Again, Islamically,
there is no increase or decrease of the loan except voluntarily.
I do not know about bankruptcy in Islamic law, but with a loan like
this, there would be no bankruptcy, no discharge of the loan, which is
just because the loan is secondary to the necessary provision for the
borrower and his dependents. The loan remains until repayment or the
death of the borrower, and is collectable from the estate of the
borrower, if I am correct.
Third, there is investment. With investment there is the possibility
of gain and the risk of loss. Of course, with all three activites,
there is risk of loss, but with investment the risk of loss is larger,
and an investor may lose even if the one with whom the funds are
invested gains, or vice versa, depending on the nature of the contract
and the conditions it encounters. Ordinarily, however, if one gains
the other will gain, and if one loses, the other will lose.
Because of the use of floating currencies, it is impossible to
directly make and state trusts and Islamic loans in such currency
without taking on at least the smell of ribaa', for the obligation of
repayment in an Islamic loan requires that the thing repaid be equal
in quality as well as quantity to the thing loaned. If a dollar will
buy a loaf of bread today, and next year it will only buy a half a
loaf, it is arguable that this later dollar is not of the same quality
as the later dollar. Of course, there are complications because bread
might be more expensive and milk might be cheaper, etc...
I think it is the duty of any Islamic government to make a way in
which ordinary citizens, and especially the poorer and weaker among
them, can deposit in trust what they can spare as savings. Such
accounts would inherently be protected against inflation; in my view
this would best be done by tying them to a commodity price. Gold might
be used, but it is not necessarily the best for this purpose.
As a minimum, the trustee would simply hold commodities in storage.
But a government might well consider that it was better to circulate
through prudent investment this wealth, even though this might make
opportunity for corruption. If it did circulate the wealth, it would
be obligated to restore it to any depositor on demand, even if a loss
were suffered in investment. Here the trust becomes like a loan, but,
again, the obligation of the trustee is to return what has been
entrusted; it would be a public responsibility.
If private individuals offer such accounts, they should nevertheless
be closely supervised and regulated. But it might be better to keep
such accounts as a public trust.
(And the problems of corrupt government are best addressed by cleaning
up the corruption, rather than by transferring a public trust to
private individuals, for there is no guarantee that private
individuals will be any less corrupt than government officials. And a
government remains responsible -- and accessible -- for losses
suffered as a result of official corruption, whereas if an individual
absconds with millions, there may be no recourse.)
But accounts which purport to pay interest ought to be in the third
category. They are investment accounts, with an associated investment
contract. They are not loans. Since they are not loans, there is no
ribaa', or at least not the kind of ribaa' associated with loans.
Now, an *investment contract* may well provide for fixed payments, in
my view. When a person is hired, he *invests* his labor in work for
the company, and he expects, typically, a fixed return. He expects it
whether the company makes a profit or not, unless he has a
profit-sharing contract, which is not the norm. Rent is also an
investment contract. If I own a house and I put it out to rent, I
expect a fixed payment according to the contract, and the return of
the house in the same condition, normal wear and tear excepted, at the
end of the term. It may be argued that the rent compensates for wear
and tear, but normally it is at a higher level than that.
If I *loan* a person my house, however, the person is only obligated
to return the house to me; but I may charge him with any damages if he
has used the house.
Because rent resembles the loan of a house, I understand that some
companions considered it unlawful to collect rent.
It might seem that I have contradicted myself because on on hand I
mentioned that investment was unlike loan in that with investment one
might gain or lose, and then I have described the possibility of an
investment contract where one is contractually guaranteed a fixed
return.
But consider what happens on default. As I mentioned, a loan would not
be dischargeable in bankruptcy (that is, an Islamic loan) but an
investment would. Even though a contract guarantees a fixed payment,
the insolvency of the debtor can result in actual cancellation of the
loan. This is a risk, compensated by the fixed payment. A society may
well regulate such payments for various reasons, but as long as they
represent contracts freely entered into according to the business
judgment of those who make them, they are not intrinsically loans, as
Islamically defined.
When this is confused with trust and loan, then we have a complete
mess. Poor people need trust accounts to hold their wealth and protect
it from robbers and inflation and they need loans for emergencies.
People of greater means need investment accounts to put their wealth
to work in a more active, and therefore riskier, way. And society
benefits by all of this, if it is properly done.
In my view, as well, a deposit with a bank which pays interest is not
a loan to the bank. It is an investment with the bank. Usually it is a
pretty bad investment; so one would do this only if there is no other
way to hold money or to make it available for ready use (as with
checking accounts). Because there is no individual owing a debt, there
is no loan. One making such a deposit knows full well that the bank
will invest the funds at a much higher rate of return than one is
being paid, and this can mean that the risk of loss is inherently
higher for the bank. For various reasons, goverments often protect
depositors against the complete loss of their deposits. I am not
considering here the lawfulness of insurance, another huge can of
worms.
But the Islamic public is never likely to be comfortable with any
account which purports to pay interest. I do think that commodity
accounts, such as those offered, or at least which used to be offered,
by Credit Suisse, might find wide acceptance, and, with government
support, such accounts might very low or non-existence maintenance
fees. (As might be expected, Credit Suisse charged a monthly fee for
the storage of the commodity; transactions were made in currency and
translated to or from weight according to a defined index, as I
recall, the spot price with a certain commodity market. These accounts
are clearly lawful.)
A government-sponsored commodity account intended for people of little
means, however, might be stated in a market-basket, so to speak, of
commodities, particularly of basic commodities needed by people in
order to live; the actual funds could be invested in ensuring the
ready supply of these items. While such investment might lower the
market prices of these commodities, causing an apparent loss to the
depositors, such a loss would be precisely compensated by a matching
gain in buying power; and other people of little means and no savings
would benefit as well.
Of course, if the price of the commodities nevertheless rises, the
investments in the production of them should do well, thus ensuring
the maintained buying power of the savings.
Thus the expenses of maintaining such accounts might well be carried
by the public treasury in lieu of a certain level of charity which it
would make unnecessary.
These accounts would promise no interest. They might be literally be
stated as a series of items with their weights or measures. "Your
account today has 47 bushels of wheat, 12 gallons of oil, and you have
a 35% share of a cow." Computers can handle things like this very
well. To make it easy, a statement would also state the current market
value of those things, which could be withdrawn in cash if the
depositor desired.
If one has read my other posts, one would know that I think that cash
payments to and from such accounts would be voluntary. A depositor
could demand payment in the actual commodities. I would only add that
expenses associated with this (since the bank would probably not have
a barrel of oil in the vault....) could be charged to the depositor
making the withdrawal. However, the bank might very well issue scrip
good for those commodities at stores, redeemable by the bank at the
current market rate for stores that wanted to convert them to cash....
Omar Farouq
In article <7afls5$epk$1...@waltz.rahul.net>,
Fariduddien Rice <dr...@see.text.for.email.address> wrote:
> The Islamic solution is, if you want a return, don't *loan* your
> money (for interest), but to *invest* it.
What if it is a personal loan? How can a bank invest in you, and buy shares?
What if I need the money to buy a new car, or one in good shape to transport
my sick mother to the hospital, and manage to go to work? How can the bank
invest in my car? All they can do is hold on to the title of a depreciating
personal property. That is not exactly investment.
> For example, if you have a financial institution, and a business
> which needs cash, a halal way for the financial institution to
> provide cash to the business in a way so that it can get a
> return is to invest it in the business. It can do this by buying
> shares in the business (i.e. becoming a co-owner of that business).
What if I don't want a co-owner? What if I want to own my own business?
Should I wait till I save all capital out of my measily salary? The business
oppotrunity may either be gone, or it may become obsolte by then. Your
approach has just robbed me of a good business opportunity.
: > Islamic banks advertise <qard hasan>"righteous loans." Is that interest
: > free? No. They charge interest, but the interest rate is not as excessive
: > as Citicorp, for example. It is to protect the value of their money.
>
> This is incorrect, to my knowledge.
Well, at least you cushioned your claim by "to my knowledge." Have you
applied to a loan with a Saudi bank, Dien? Have you looked at their
contracts? I do not know anything about MCCA in Australia. So I will not
confirm or deny your claim.
> MCCA's qard hasan fund provides just that -- an interest-free loan.
Could you e-mail me their contact information. I would like a loan to pay for
my house and car. Where I live, these are not luxuries. They are basic
necessities for survival. I hope their solution is not to suggest moving
somewhere where a house and a car are not needed.
Fariduddien Rice
> In article <7afls5$epk$1...@waltz.rahul.net>,
> Fariduddien Rice <dr...@see.text.for.email.address> wrote:
>
> > The Islamic solution is, if you want a return, don't *loan* your
> > money (for interest), but to *invest* it.
>
> What if it is a personal loan? How can a bank invest in you, and buy shares?
> What if I need the money to buy a new car, or one in good shape to transport
> my sick mother to the hospital, and manage to go to work? How can the bank
> invest in my car? All they can do is hold on to the title of a depreciating
> personal property. That is not exactly investment.
The method used by Muslim Community Cooperative Australia (MCCA) for
this is that they buy the car, then re-sell it to the person at
a profit on a deferred payment plan.
Here is the explanation of it from one of their brochures:
Murabaha (Financing Resale of Goods)
Islam acknowledges the utility of trade and commerce. Members
may acquire capital and durable goods such as motor vehicles
or any other commodity through financing provided by MCCA.
Under the Murabaha form of financing, MCCA purchases the goods
from a third party at the request of its member. The goods
are then sold at profit to the member on deferred payment
terms upon receiving the member's unconditional obligation to
pay such sale price by installment. A guarantor or other form
of security must be obtained to ensure repayment of the
outstanding amount.
This method is halal, to my understanding.
Where this differs, as I see it, from interest payments is that
the repayment price is fixed, while with interest payments, the
total amount you pay back has no upper limit (if you take a long
time to pay it back, for example).
I have posted MCCA's brochure on SRI in the past. You can find
the complete text of MCCA's brochure at
http://x7.dejanews.com/[ST_rn=ps]/getdoc.xp?AN=240207940
> > For example, if you have a financial institution, and a business
> > which needs cash, a halal way for the financial institution to
> > provide cash to the business in a way so that it can get a
> > return is to invest it in the business. It can do this by buying
> > shares in the business (i.e. becoming a co-owner of that business).
>
> What if I don't want a co-owner? What if I want to own my own business?
> Should I wait till I save all capital out of my measily salary? The business
> oppotrunity may either be gone, or it may become obsolte by then. Your
> approach has just robbed me of a good business opportunity.
Firstly, banks generally do not loan large loans to start-up companies.
They are much more likely to loan to you if you are expanding your
business (which is already profitable), rather than to loan to a
start-up business. Banks are, in general, extremely conservative,
so the bank loan option is generally not available to start-up
businesses anyway.
For most businesses, their only option is to borrow from alternative
sources (usually at much higher interest rates), or to seek investment
funding.
The halal option is to seek investment funding, which is what most
businesses have to do at some stage anyhow, if they wish to grow.
Practically *no* large companies are completely owned by one person
or one family. That is because they *need* outside investment money
at some stage to grow, and banks often will not provide this (too
risky!), particularly if the company is just starting out.
[...]
> > MCCA's qard hasan fund provides just that -- an interest-free loan.
>
> Could you e-mail me their contact information. I would like a loan to pay for
> my house and car. Where I live, these are not luxuries. They are basic
> necessities for survival. I hope their solution is not to suggest moving
> somewhere where a house and a car are not needed.
I'm glad you asked. Contact information for MCCA is available
in the brochure, available from the link provided above.
By the way, I understanding there is also an Islamic (housing?)
cooperative in North America (it *might* be linked to ISNA, though
I am not sure if that is the case). I understand Jamal Badawi has
had some involvement with it, at least in the past. However, they
might be limited to housing.... I don't know anything more than that.
Fariduddien Rice
> Since, concerning loans, they are both spinning around the same axis
> aimlessly, this reply is to both Lomax and Rice. No sense wasting preciuos
> bandwidth by replying to each separately, or to each statement made.
>
> In article <7aiarh$6k$1...@waltz.rahul.net>,
> mar...@vom.com wrote:
> > Omar Farouq <in...@q-zone.com> wrote:
>
> : >In 99% of cases the loan is not going to be paid in a lump sum at the end
> of : >the loan period, but rather in monthly installments. Imagine the
> acounting : >nightmare of re-figuring everyone's monthly loan installment,
> every day, : >based on today's gold value. Do brothers Lomax and Rice live in
> this same : >world we live in? : >
>
> > Probably not. I live in California, Farouq lives in his assumptions of
> > superior wisdom.
[...]
> > Yes, if we are to maintain the convenience of a monetary system which
> > moves debits and credits around, with or without paper, but without
> > the movement of actual commodities, some complexity is involved, more
>
> You said the magic word "commodities."
>
> Converting a loan to gold makes as much sense as converting it to dollars or
> yen or euros. "No," I'm sure the response will go, "Gold is real--those other
> things are fake.
>
> Gold is a commodity. Its value will vary according to the laws of supply and
> demand. There is nothing particularly more "real" about it than there is about
> dollars, yen, or euros. Lomax seems to be assuming that the value of gold
> reflects an innate quality, while the value of the dollar is simply an
> artifact of human caprice. In reality, gold has very little actual utility.
> Why on earth would anybody want it, except that it is "worth" money?
Omar seems to think that gold is similar to the paper used to make
paper money. This is relevant to the question of why gold as
a currency is halal, while *some* Muslims (notably the Murabitun,
who follow Shaykh Abdul-Qadir al-Murabit) consider paper money
to be a form of riba (and therefore, according to them, haram).
Omar questions the value of gold ("why on earth would anybody want
it"). The reason why gold is considered valuable is because of its
scarcity. This is where "supply and demand" come in.
Now, Omar says that there is nothing more "real" about the value
of gold than of dollars, yen, or euros. There is in fact, a very
big difference, which is that the supply of gold (or any other
precious metal or gemstone) is limited by nature. However, there
is no in-principle limit on the availability of paper money (apart
>from the supplies of trees and ink!).
For example, if the Russian government wants to print more
roubles, it can print as many as it wants, causing immense
inflation. The "supply" side of the equation is in principle
unlimited and at the government's whim. This is not the case
with precious metals or gemstones. For example, if Russia used
gold as its standard of currency instead of roubles, it would
be impossible for the Russian government to "print" more gold
the way that it does roubles.
What is the effect of printing more money? Essentially,
by printing more roubles, the Russian government is stealing from
its own people. That is because printing more money causes
inflation, which means that the value of the rouble has a
devalued purchasing power. The inreased purchasing power is
held by the government (since it has all the money it just
printed). So the government, by printing more money, effectively
steals from the people. This is one reason why some groups (such
as the Murabitun), to my understanding, consider paper money to be
a form of riba (and therefore haram, according to them), since
paper money has little intrinsic value, unlike gold or other
precious metals or gemstones, or other commodities. (The "real"
intrinsic value of a $1 bill is probably only a few cents.)
So, gold has a "real" value according to supply and demand, and
so (to my understanding) it is halal to use it as a standard for
currency. However, the value of the rouble depends largely on
how many the Russian government wants to print, that is, the
"supply" side of the equation is controlled artificially, and
is not due to the market.
A halal way to "beat" inflation, as we have mentioned before,
is to tie your loans etc. to the price of a commodity (or a set
of commodities), and use that as your standard of transaction,
rather than money, which can be printed at will by any government
which chooses to do so (as Russia's government is doing now,
to my understanding). This way you can beat inflation and also
avoid interest at the same time.
Omar also writes that "usury and interest are not the same thing."
This goes against the opinions of many Islamic scholars. However,
Omar does not accept many standard Islamic beliefs (such as 5 prayers
a day -- according to his web site, Omar only believes 3 prayers a
day are compulsory), so we expect him to disagree with many other
Islamic beliefs as well.
By the way, Omar's view that only 3 prayers a day are compulsory
is sufficient, according to some Islamic scholars, to consider
him to be outside of Islam.
AbdulraHman Lomax
passi...@my-dejanews.com wrote:
>My verdict on that issue is that, although the current banking system WAS
>built on usury, the current banking system IS not usurious.
The great difficulties in the matter of ribaa' stem from a number of
situations. "passing_by," while some of his analysis is interesting,
does not really address these in an Islamic way. Essentially, he
describes one situation as "usurious" and another as "not usurious,"
without ever defining what these terms mean.
But we can find a clue:
>Simply because the system was usurious when currencies were fixed to Gold.
>This usurious system could not hold and it collapsed by itself. Subhana
>Allahu. It began when the British devalued the pound (against the gold)
>early in the century, basically cheating all sterling holders on the usurious
>interest they've been receiving for years. It then happened again when the
>dollar was devalued, until finally this usurious system finally collapsed
>when America floated the dollar.
Now, I personally find the fiqh on the matter of usury, as found in
the classical sources available to me in translation -- aside from the
Qur'an -- to be a mass of rather arbitrary rules. And, in the Qur'an,
only the extremes are clear. At one extreme, it is crystal clear that
a commodity loan where the repayment is exactly what is loaned is
lawful. At the other extreme, the same kind of loan where the required
repayment is "doubled and redoubled" is unlawful.
Now, as a banknote fixed to gold is a promise of payment to bearer of
a certain amount of gold, a required repayment of a loan consisting of
such banknotes, where the repayment is increased over the loan would
be ribaa', literally, increase. That ribaa' is any increase whatever
>from a simple loan is strengthened by the mention of the repayment of
capital in Baqara. (The word for capital, interestingly, in Arabic is,
like it is in English, derived from "head.")
So I agree with "passing_by" that the payment of interest in such a
system would be usurious, if usury means *any* increase of capital.
>All currencies are floating because even those so called 'fixed', are fixed to
>a floating dollar.
Yes. If, however, a currency is fixed to a commodity (usually gold or
silver), it is not floating.
>So holding paper money is a risky investment in itself. The dollar is good
>because the U.S. central bank is reputable. The federal reserve use interest
>rates to affect the supply of the dollar and influence its value, which could
>change overnight. A hundred dollar bill costs the Feds 4 cents, while the
>remaining $99.96 is the good word of the central bank.
Again, this is true.
>In essence, Br. Lomax is saying that only the difference between the real
>interest rate (which is the exchange rate between current goods with future
>goods) and the nominal rate (which is what the Fed determines) is haram.
That may be true, but that is not what I said. First of all, it should
be understood that I am *discussing* ribaa', not ruling regarding it.
If, in this discussion, I happen to say that such and such a thing
would be haraam, it is only a provisional suggestion.
I think that "passing_by" might be referring to my suggestion that the
imputed interest rate, which is indeed set by the federal government
might (for transactions taking place wholly within the United States)
be used as a zero-increase level, since a loan below that level will
be interepreted as a gift for tax purposes with a value of the
difference between the stated interest on the loan (which might be
zero) and the imputed interest rate.
The "real" interest rate, however, is impossible to determine without
a definition of the commodities, or collection of commodities, on
which the loan is based. A loan of commodities, by the nature of what
is loaned, establishes this standard, and a loan in a truly hard
currency does likewise by the standard on which it is fixed, such as
gold. For many purposes, however, most of us use some vague standard
as "cost of living," or a government statistic which is supposed to
represent this cost, to determine real interest. It has nothing to do
with "nominal rate," though the Fed might consider it in determining
the nominal rate. And they might not.
> Well, I don't think Alan Greenspan himself can figure out that difference
>easily.
For these reasons, as I said, some have asserted that floating
currency is "riddled with ribaa'." This would be because it becomes
impossible to determine if a transaction does or does not involve
interest or increase, or decrease, for that matter.
One of the possible positions which may be taken is the one that a
floating currency is nevertheless a commodity like any other. If so,
then the precedent of the sunna would be clear: any interest whatever
would be haraam. There still remains the matter of what is a "loan,"
for there might be transactions which involve a calculation like
interest but which are nevertheless not usurious. An example would be
rent, or, more to the point, perhaps, an automobile loan or lease.
Again, I am not saying that automobile leases are lawful. But there
are many who *do* consider them lawful, and one of the Islamic
investment organizations here in the United States does offer auto
leases. I am quite sure that the effective interest rate on those
leases is a matter known to all the parties.
There is only one point where I am making a "ruling": I am declaring
that we badly need good scholarship, knowledgeable both about our
traditional sources *and* about the functioning of a modern economy.
exp...@khi.comsats.net.pk
Please see below the latest news item (DAWN Front Page 23rd Feburary,1999) on
the petition on Riba.
--------------------------
The Supreme Court on Monday did not allow the government to withdraw its
appeal against the Federal Shariat Court (FSC) judgment on Riba, and
announced that it would conduct daily hearing of the appeals to decide the
matter which is pending for the last seven years.
The government had filed an application in the Supreme Court in June 1997
seeking withdrawal of its appeal against FSC judgement declaring
interest-based banking as unIslamic.
The government on Monday informed the Shariat Appellate Bench that it had
already approached the FSC for seeking its guidelines to modify the existing
banking system on the Islamic lines.
The five-member bench, headed by Justice Khalilur Rehman Khan, observed that
the court could not delay the proceedings any more as the appeals were
pending in the Supreme Court since 1992. The bench asked the federation to
provide assistance to the court in deciding the appeals and present its point
of view effectively.
Justice Khan observed : We have to see what is Riba. The matter of concern
not only to Pakistan but to the whole of Muslim Ummat."
The bench consisted of Justice Khalilur Rehman, Justice Munir A Sheikh,
Justice Wajihuddin Ahmed, Justice Maulana Muhammad Taqi Usmani, and Justice
Dr. Mahmood Ahmed Ghazi.
The request for the withdrawal of the application was made by Deputy Attorney
General Maulvi Anwarul Haq. He informed the court that the government had
already filed an application under Article 203D of the Constitution in the
FSC for seeking guidelines to modify the existing banking system.
The withdrawal request was opposed by the counsel of Qazi Hassain Ahmed, Amir
Jammaat-I- Islami. He contended that the application seeking to withdraw the
appeal was gross contempt of the court. The counsel of JI chief said that it
was contemptuous on the part of the federation to seek "authoritative
pronouncement" from the FSC instead of the Shariat Appellate Bench.
Justice Wajihuddin Ahmed observed that the purpose of the government to file
application in the FSC was to gain time, and the court wanted to decided the
appeals which were pending for the last seven years. Justice Ahmed further
observed that the application of the government was filed with mala fide
intention.
He asked the DAG to point out the steps taken by the government to implement
the FSC judgment during the last seven years.
The DAG was unable to point out any of the steps taken by the government to
implement the FSC judgment on Riba. He stated that the government had filed
an application in the FSC to seek guidelines.
Justice Munir A. Sheikh observed that the appellate bench of the Supreme
Court was also competent to provide guidelines which the government wanted.
He asked the DAG to present its point of view before the bench.
--------------------------------------
The news item ends here.
Aurangzeb
exp...@khi.comsats.net.pk
mar...@vom.com wrote:
> as-salaamu ^alaykum. Allow me to suggest that punctuation and the
> formation of paragraphs was a wonderful innovation, not to be
> abandoned lightly.... :-)
Salaams all round.
I apologise of these mix-ups and the inconvenience caused. My ISP doesn't
have newsgroups so I am dependent upon dejanews. My browser does not allow
editing of HTML documents. I therefore need to transfer the document to
MS-Word, and then work on it. Subsequently it has to be cut-pasted into the
posting form of dejanews.
I assume that all these steps have been the cause of this mix-up. I apologize
again. I will try to guard against this in future.
Another little clarification. My name is Aurangzeb Haque. I normally sign my
posts (Aurangzeb). My email address is (exp...@khi.comsats.net.pk). I'm
making this clarification because it seemed to me the cause of a confusion in
Brother Lomax's mind.
With the preliminaries completed, let us turn to the business at hand. It
seems that I had posted the reply to Brother Lomax's post (AR here-onwards)
under certain assumption. There were as under :
a) First about the Fiqhi definitions in respect of RIBA. Riba has been
further classified by jurists into Riba-al-Fad'l and Riba-al-Naisiah. RibaN
is the more classical from of Riba arising in transactions involving lending
/ borrowing relationships (Qar'd in Arabic). RibaF is more subtle and arises
in sale / purchase agreements (Baa'i in Arabic). From John Miller's original
post, and the subsequent thread, I assumed that the decision would be about
Riba N.
b) and because of the above AR; in his reply; always gravitates towards RibaF
(as it arises in sales / purchase (technically Baa'i) while I assumed that
discussion would be about RibaN.
Having made this clarification, I would like to make a suggestion. This is
that both of us should at the very outset state on positions very clearly so
that the lines are drawn un-ambiguously. I say this because it is evident
>from both our posts and particularly from AR's response that he is not sure
what my position is. This is because I have presumed that he holds a certain
opinion and as such I make my critique. However this presumption must be
clearly brought out in the open so that nothing is left to presumptions. Once
that is done we can proceed to touch the substantive issues. For this purpose
now I would like to use Br. AR's post of 18th Feb,1999 in response to Br.
Omar's post because the it is more useful in this respect.
First of all my own position is as under:-
I firmly hold that fundamental changes need to be brought about in the
economic system (AMENDMENTS in CONSTITUTIONAL PROVISIONS as well as other
legal and regulatory instruments) are a sine-qua-non for implementing an
Islamic economic system, in any of the countries such as US/European Union or
even Pakistan. Or conversely that a Riba (N or F) free system can not be
implemented by, say the muslim community, within the existing constitutional
and legal framework in such countries.
I also hold that any additional charges incurred by lenders (banks person
etc.) over and above a loaned amount are Riba N.
I presume (and stand to be corrected) that AR does not subscribe to the above
views. He holds that the current system (say as it exists in the US/European
or even Pakistan) needs no changes and a Riba free system can be implemented
without the legal changes mentioned above. Also he believes and holds that
paper money is tainted with RIBA but its use is permitted under the doctrine
of necessity. He further believes and holds that (most generally stated) it
is permissible for a lender (a person, bank or an institution) to charge for
expenses incurred in lending; from a borrower ( a person, bank, or and
institution) AND THIS EXCESS CHARGE IS NOT RIBA (F or N).
The main reason for this is that I do not wish to enter into a meaningless
circular discussion which bores the readers so to speak. I have no intention
to win any argument. My only intention is that we learn from each other and
in doing so obtain Allah's guidance for doing the right thing.
I regret my insinuation of a weak faith attributed to Br. AR. I hope you will
excuse me. The subject being close to my heart, makes me get carried away
once in a while. My well considered view in respect of western muslims,
particularly those who have opted for the muslim faith as a matter of choice,
to be the most blessed from amongst us.
The delay in responding was because I was out of town.
Regards, Salaams & good wishes.
Aurangzeb.
PS. Pl. don't forget to send a copy of your response by em. TIA
exp...@khi.comsats.net.pk
In article <7aiart$7b$1...@waltz.rahul.net>,
passi...@my-dejanews.com wrote:
> Salaam,
>
> My verdict on that issue is that, although the current banking system WAS
> built on usury, the current banking system IS not usurious.
I DISAGREE. It was usurious then. it is usurious NOW. The doctrine of
neccessity is our only way out.
> Well, I don't think Alan Greenspan himself can figure out that difference
> easily.
The future belongs to Allah. Not all the Greenspans of this world can
monetize it.
I add here my article providing an alternate perspective to Interest.
Comments most appreciated.
Regards & Salaams
Aurangzeb
---------------------------------------------------------
RIBA - NEED FOR MORE DEBATE
Preamble
Recent Government statements and action concerning its appeal in the Supreme
Court of Pakistan, regarding Riba have rekindled discussion of the matter.
This appeal had been preferred against the decision of the Federal Shariat
Court's (FSC), historic decision of 1992 in Dr. Mahmood-ur-Rehman Faisal and
others versus the Government of Pakistan. In this landmark decision, all the
applicable legal instruments were examined in the light of Islamic Shariah,
with inputs from eminent scholars. The intent was to review these fiscal laws
& rules containing provisions regarding Interest, and to determine whether
these were repugnant to the injunctions of Shariah. The decision of the FSC
found them to be so.
In a paper published in "The Dawn" (1-2 August '97) Prof. Khursheed Ahmed
has criticised the procrastination shown by the Government in implementing
the steps which are to lead to the Islamisation of the economy through doing
away with Riba. He feels that sufficient theoretical and legal debate has
taken place in the recent past, to now proceed to the stage of
implementation. Prof. Sahib is also of the opinion that is essentially a lack
of faith that is responsible for this procrastination.
This paper is an attempt to examine Prof. Sahib's first contention regarding
adequate legal and theoretical examination of the question of Riba. For this
purpose, the FSC judgement of 1992 provides an ideal vehicle. The main
reasons for using it are as follows:
(a) The FSC judgement is the latest decision on this matter, by the
judicial organ of the State. This judgement has the potential of being made
into law subject to review by the Supreme Court. As such, it is extremely
significant.
(b) The FSC has tried to exhaustively examine all the facets of this
issue. This includes juristic opinions of the early period of Islam as well
as the more recent work done thereon. Eminent scholars, bankers and
economists have also been consulted. This judgement is therefore, a distilled
essence of the work done in the past on the examination of the question of
Riba. Using this judgement therefore precludes the need to examine all the
earlier work that is an arduous task.
(c) The judgement is easily accessible and provides a solid archimedean
point of reference for the basis of any discourse or debate. Allah be my
witness, the intent of using the judgement for this purpose is no way meant
to cast any aspiration on it, but for enquiry into the truth and to elicit
His guidance in such an important and vital matter.
The Statement of the Argument
Our point of departure is therefore, by a refutation of Prof. Khursheed
Ahmed's contention that adequate legal and theoretical debate has taken place
on the question of Riba. The following statement is made as to clearly posit
this view:
Perusal of the responses from learned persons, acting as amicus curiae
(attached as appendices to the judgement) clearly shows that:
(a) due to the lack of a thorough and rigorous theoretical analysis, of
the applicability of Shariah and Fiq'h in the realities of today, a one
sided view has emerged. This is as if the neo-classically structured economy
is 'natural', and as such, axiomatically, a sine qua non for a modern Islamic
economy.
(b) following from (a) above, there is a similar insufficiently examined
view, that Riba can be done away with in an equity based banking system. And
that such a banking system can be implemented without any major changes.
In the author's opinion the above point to fatal flaws in the whole debate on
the question of Riba. In fact the debate should have questioned the
neo-classical model of the economy. By this exclusion, this model has been
excluded from the debate, by raising it to an undeserved status of an axiom.
The result is a complete disregard of the marxian model of the economy. The
marxian model happens to be important since it provides a vital counter-point
to the neo-classical scheme. Due to this shortcoming, the debate remains
incomplete and at best provides a partial, if not a prejudiced view.
The question before the FSC, nay the whole Islamic ummah, is to put its heads
together and determine a way to structure the economic system so that the
evil called RIBA is eliminated. Naturally in doing so, all possible models
must be earnestly, studied and debated. Arbitrary disregard of any one system
or model and its exclusion from debate amounts to intellectual and moral
laziness.
In an economy structured along marxian lines, the economic category called
Interest or Riba-al-Nasiah does not exist. In fact, within this model,
certain forms of Interest classed under Riba-al-Fadl are also eliminated.
Also, within a neo-classically structured economy, the economic activities
classed under Mudarbah and Musharkah cannot function effectively especially
in the banking sector, without having Interest or Riba in some form. This is
because these modes of financing go against the grain of the modern economy,
which is hallmarked by division (specialisation) of labour.
The above arguments provide sufficient prima-facie material to debate the
marxian model for its possible usefulness. This debate should also be useful
for the Supreme Court since it is highly likely that, at some later point in
time, that court would definitely be requested to hear the matter, either as
an appeal or for advise.
At this point it must be clarified, that the intent of this paper is not to
rigorously compare the neo-classical and marxian models of the economy, but
rather to refute the claim that adequate legal and theoretical debate has
taken place on this question. Hopefully, this paper may catalyse such a
debate and should place before the general public a theoretically sound and
rigorous comparison between the various alternatives.
Reasons for Exclusion of the Marxian Model from the Debate
Before proceeding to a more elaborate exposition of the main theme, it seems
worthwhile to pause and examine the possible reasons for exclusion of the
marxian model from the debate, in the Islamic World in general and Pakistan
in particular.
In the three or four decades of the cold war period, almost all of the Muslim
states chose to join the western camp. In fact the significant ones,
including Pakistan, became involved in the encirclement of the communist bloc
countries. Consequently the state actively suppressed the spread and debate
on these ideas. This was particularly accentuated in the eighties because of
Pakistan's involvement in the Soviet invasion of Afghanistan, as a front-line
state.
Secondly, tertiary level education in these countries, particularly Pakistan,
was designed on the western pattern. Faculty training, curriculum design etc.
mimicked western systems. It was therefore natural that over time only a one
sided view based upon the neo-classical scheme was being read, taught,
debated on all legitimate forums in Pakistan.
Finally the religious parties in Pakistan caused the public to equate any
idea related to Marx with kuf'r and thus to be shunned. Pejorative terms such
as dahria, surkha, la-deen were in general use indicating the public mindset
in these matters. Political pamphlets were used for this purpose. Such
pamphlets were written with little external review, critique or debate. Being
for a polemical purpose, these tended to mix-up ideological and mundane
questions freely. Such writings helped to shape a negative public perspective
of the marxian model.
Based upon these historical reasons it maybe hypothesised that this
economic/social model was slowly and surely removed from the discourse. In
90s, the matter reached a certain level of maturity and came before the FSC.
It was but natural that the one sided examination of the past four decades of
debate should come up before that court, for use as an aid to analyse the
issues at hand.
The Philosophical Examination
The preceding section illustrates, the historical reasons for the one sided
examination of the issues. However, after the enormous political changes in
the world, there is now an opportunity to examine the question either afresh,
or at least in juxtaposition to the earlier one-sided view.
As stated earlier, there are essentially two major flaws in the examination
of the question of Riba. These are:
(a) the implied precept that the Islamic juristic interpretations and
legal precedents are only applicable in a neo-classically organised economy,
being somehow "natural", in today's world.
(b) and the absence of a sound theoretical basis for the assertion that
equity based banking is islamic, and can be easily started without any major
structural changes.
In the following sections, an attempt has been made to point out the fatal
theoretical flaws which are a direct result of the exclusion of the marxian
model from the debate. This exclusion is highly arbitrary. In fact, this
model should be of interest to us because of its claim of abolishing interest
or Riba-al-Nasiah from the economy; this being the basis and foundation of
our quest.
Our discussion must start with a philosophical examination of economics. All
epistemological branches of knowledge, start with certain basic assumptions
which are a-priori, or given. These are technically called, axioms. Different
sets of axioms, result in extremely diverse interpretations within a branch
of knowledge. In physics these differences lead to the Newtonian, Einstienean
and the Quantum views of nature. In psychology, these emerge as the Freudian,
Adlerian and the Jungian models of the human psyche. Economics is no
exception. Within economics, differences in the way capital and labour are
viewed, creates the difference which either results in a neo-classical view
or a marxian one. Any free enquiry into fundamental matters must remain
conscious of these axioms, and not accept them, undebated.
As has been argued above, this is exactly what the learned amicus curiae have
overlooked. It is at this axiomatic level that the application of Shariah and
Fiq'h must take place. Without that the debate merely touches the surface and
remains incomplete. Interestingly, one can see the courts mind being partly
conscious of these questions. (Question No. 5(i) of the questionnaire
circulated by the FSC). However, it does not proceed far enough. This is due
to a shortcoming on the part of the amicus curiae, especially the economists,
not to have invited the court's attention to these matters.
The following is an example illustrative of the above discussion. One of the
learned respondents, in answering question 5(i), makes the following
statement:
"As per Islamic point-of-view, production has in fact three factors instead
of four." These are then shown to be Sarmaya, land and labour, which are then
defined. Interestingly Sarmaya, which would ordinarily be translated as
Capital is really defined in terms that would translate to "commodity".
It is immediately obvious that:
(a) Although purporting to be Islamic, there is no citation from the Shariah
or Fiq'h literature in support of the point-of-view that there are in fact
three factors of production instead of four.
(b) Moreover, it is also debatable whether there are three factors of
production, or four. In fact, this number can be argued down to two, or even
one. Economic theory is full of arguments to this end.
The point that is being made here is that there are a number of
different axiomatic definitions regarding the economic category "factors of
production". To the author's knowledge, there has never been a substantial
debate about these definitions based upon Shariah and Fiq'h. It is critical
that such questions should first be resolved in the light of these guiding
principles, being the foundation of matter of economic organisation.
Another important philosophical issue that needs debate is the neo-classical
economic organisation being considered as something "natural". The
naturalness argument has been used to preclude the marxian model from the
debate. It has been used in almost all the political pamphlets referred to
above. One of the learned amicus curiae has also used it in the same manner
in responding to the FSC's questionnaire.
He writes :
"[that] the communist system, directly conflicts with two objectives of
Islam's concept of distribution of wealth. These are
(a) the setting up of a natural economic system
(b) to ensure that the rightful owner gets his rights."
He then defines a natural economic system in the following terms;
"On the other hand there are those things in which without accepting the
institution of private property a practicable and natural economic system
cannot be set up".
The weakness in the reasoning is quite obvious. Definitions of
"naturalness" and "practicability" have not been provided, either through
citations from Shariat or Fiq'h literature or from any of the other
non-Islamic schools. Having thus inducted in the institution of private
property, as a necessary prerequisite for a natural & practicable system; the
reasoning proceeds to show this to be commensurate with Islam's concept of
distribution of wealth. There are no citations from any Shariah or Fiq'h
literature for this either.
In a nut-shell, the whole debate and reasoning of the recent past,
alluded to by Prof. sahib is based upon such circular and faulty logic and
reasoning. The author has seen instances where the Quran's concept of
personal privacy of homes, has been used to deduce that Islam accepts the
rights to private property.
The examples cited above clearly shows that the debate on these matters is
incomplete and faulty and requires more effort on our part. Inclusion of the
marxian model of economic organisation into the debate, immediately brings
these issues into perspective and can result into a more thorough and
rigorous discussion.
Modern Banking
Let us now examine the question of interest as it occurs in the banking
sector. Once again the intent of this examination is to try to show the
inadequate and one sided debate which has occurred in the past. Also it will
be argued in the paragraphs that follow that the exclusion of the marxian
model from the debate is a cause of this shortcoming.
The current epoch is characterised by its explosion of knowledge through
rapid exchange of information. The application of this ever increasing bank
of knowledge feeds into the practical sphere in the shape of specialisation.
Neurologists, cardiologists, nephrologists and so forth have replaced hakims
and tabeebs. A student does not get a degree in Chemistry, but rather in any
of the specialist disciplines of organic, in-organic or bio-chemistry. In a
similar manner, specialisation becomes the order of the day in every field.
Let us now briefly examine a modern bank's investment/lending decisions. This
would need to be seen in the perspective of the currently proposed Islamic
model of banking which is essentially equity based instead of loan based, and
how it comes in conflict with this inexorable trend of specialisation.
In the current interest based system, the bank examines the feasibility of a
proposed project prior to its lending decision. This is a one time
examination which includes the capacity of the projects sponsors to undertake
such an enterprise. However, after the loan agreement has been signed, the
bank concerns itself with the project to the extent of timely receipt of its
capital and interest thereon.
Now by definition, the bank is a profit maximizer. It could have made
more profit if it was a shareholder in the enterprise. So why does it settle
for a lesser "return" in the form of interest? This is because of the trend
of specialisation mentioned earlier. There is an untold types of businesses
and enterprises in the world of today. As an equity holder, the bank would
require to get invovled in the running of the enterprise, in order to
maximise profits. This is to say that it would need to get involved in the
management of the enterprise. Interest provides a good arrangement whereby
the bank can avoid getting involved in such a manner. It can then make
efforts to improve itself in its own field i.e. banking. It is also
convenient for the sponsors. They would rather go to a bank which demands a
known amount as interest and let them run the business as they know best.
The case of supply of working capital, by the banks, brings home the
reality of specialisation more vividly. The management of most businesses of
today is synonymous with management of its working capital. Interest based
lending keeps the bank and the debtor at an arms length as far as the
enterprise is concerned. In case working capital is supplied on an equity
basis, the bank is likely to get involved in the running of the business to
maximise profits. This is something which is obviously undesirable from the
bank's point of view, since it supplies working capital to hundreds and
thousands of different businesses, both big and small. Thus, in a free market
economy, the equity based banks are unlikely to be able to compete against
interest based banks. In case equity based banking is made compulsory by law,
then foreign banks and as such foreign capital, shall take flight from the
economy.
The comparison of the two banking systems shows that the proposed
equity based system is quite unworkable because of the inherent tendency of
specialization in various fields. This tendency is the child of the
neo-classically organized economy. Any system which conflicts with this
tendency would not be able to survive until these set of conditions remain
unchanged.
Inclusion of the marxian model of economic organization brings these
facts to light. This is because it provides a counter argument at the
appropriate level. It is for us, as seekers of truth, to accept the one which
we consider suitable to us in terms of our ideology and our needs.
Conclusion
The Quran abhors `Fasad' in a society just as much as it
abhors Riba. A headlong rush forward, without taking into account something
vividly obvious seems to be a good recipe for disruption, especially of a
system already standing at the edge of a precipice. Allah has promised us his
grace and help if we exert in the quest of the right path. We can do that by
earnestly examining and applying our minds to what is around us and not by
arbitrarily ignoring things for undebated reasons. His promise should give us
the strongest of hopes of finding the truth, in such an uncertain future.
anil k goel
> Where this differs, as I see it, from interest payments is that
> the repayment price is fixed, while with interest payments, the
> total amount you pay back has no upper limit (if you take a long
> time to pay it back, for example).
Does MCAA allows you to make the repayments over an idefinite period
of time? Your description did not say anything explicitly, but I would
think that the "repayment terms" referred to in it also include a
specific time period within which the repayments must be made. If that
is true, then I fail to see the difference. You can walk into most
financial instritutions and come back with a loan that fixes the
intrest you will pay as long as you repay within the stipulated time
period. Also, many instutions will even allow you to *reduce* interest
if you were to make your payments faster than agreed upon...
-anil
Paul O Bartlett
in here with one point.
On 23 Feb 1999, AbdulraHman Lomax wrote (excerpt):
> There is only one point where I am making a "ruling": I am declaring
> that we badly need good scholarship, knowledgeable both about our
> traditional sources *and* about the functioning of a modern economy.
This scholarship is not only badly needed, it is very urgently
needed, and Muslims need to know what to do in the meantime while
such scholars are making up their minds.
For example, for many people in the United States and possibly many
other western countries as well, retirement and pension plans for old
age are probably intimately bound up with interest transactions. If
insha'Allah I grow old, I will have no children or other relatives to
support me. I must look after my own affairs and try to prepare for
that old age. But what if the only pension plans available to me now
seem inextricably to be bound up with interest transactions?
I could, I suppose, forego all such plans and resign myself to live
in poverty and deprivation (and possibly homelessness) when I grow old.
Or I can get involved in interest transactions now just to have enough
to live on then. Interest transactions are so intimately bound up with
nearly all financial dealings that it is almost impossible to avoid
such transactions and avoid poverty at the same time. This is an
example of how Muslims in the west are caught in an almost hopeless
situation if all financial transactions with interest are forbidden.
--
Paul <bart...@smart.net>
..........................................................
Paul O. Bartlett, P.O. Box 857, Vienna, VA 22183-0857, USA
Keyserver (0xF383C8F9) or WWW for PGP public key
Home Page: http://www.smart.net/~bartlett
exp...@khi.comsats.net.pk
Paul O Bartlett <bart...@smart.net> wrote:
>
Paul.
Sorry for not responding to your post and just using the thread.
Those on ARI and SCP who read this the main thread is on SRI.
----------------------------------------------------------------
Salaams all round.
NEWS UPDATE.
THE DAILY DAWN dated 25th Feburary,1999, front page.
--------------------------------- The Shariat Appellate Bench of the Supreme
Court, hearing appeal against the Federal Shariat Court judgement declaring
all interest based banking as un-Islamic, on Wednesday decided to seek
assistance of jurists/experts to decide the case involving banking, economy
and insurance.
The bench, headed by Justice Khalilur Rehman Khan, decided to invite the
experts to assist the court as the appellants – the federation of Pakistan,
and all the nationalised banks and DFI- were not providing any proper
assistance to it.
The bench also issued directions to the finance and commerce ministries and
State Bank to nominate experts in the field of banking economy, accounting and
insurance, if possible on Islamic jurisprudence, to represent their point of
view before the bench.
The bench while realizing that Islamic banking system was under practice in
Iran and Sudan asked the miniseries that it would be welcome if any
documentation in this regard were made available to the bench.
The bench felt that the assistance of the experts was essential as the appeals
involved the intricate matters of banking, insurance accounting, inflation and
indexation etc.
The bench directed its office to invite the following experts: Dr. Waqar
Masood Khan, Director General Planning Islamic University, Islamabad Dr.
Arshad Zaman, Karachi Abdur Jabbar Khan, former president of National Bank of
Pakistan; Khalid M. Ishaq, Advocate Ibrahim Sidat Haider & Company,
Chartered Accountants, Karachi; Dr. Shahid Hasan Siddiqui; Director Institute
of Islamic Insurance and Banking, Karachi; Dr. Nawab Haider Naqvi, Islamabad;
S. Mahmood Hussain of Khalid Majeed Hussain and Rehman Chartered
Accountnats, Karachi; Dr. Ziauddin Ahmed, ex-deputy governor, State Bank;
Sibghatullah ex-deputy governor SBP; Hafiz Abdur Rehman Mandi, Lahore and
eminent lawyer, S.M. Zafar.
During the proceedings the DAG, Maulvi Anwarul Haq who is reading the Federal
Shariat Court judgement on Riba from last two days, suggested the court to
consider the book authored by Jameel Nishtar who contributed a lot through his
book on the interest-free banking.
Dr. Sayyid Tahir of International Institute of Islamic Economy (International
Islamic University) will start his submission from Thrusday after the DAG will
conclude reading of the FSC judgement.
The five-member bench consisted of Justice Khalilur Rehman, Justice Wajihuddin
Ahmed, Justice Maulana Taqi Usmani and Justice Dr. Mahmood A. Ghazi.
The news item ends here.
Note:- The Supreme Court of Pakistan is holding daily hearings on this
IMPORTANT matter. I will be posting regular updates gleaned from the press on
SRI ( and from now onwards on ARI, SCP and others). Those brothers and
sisters who read this post PLEASE PASS IT ONTO OTHERS PARTICULARLY THOSE
WORKING ON ISLAMIC ECONOMICS OR LAW. You can send your opinion in writing
to:-
Mr. Justice Khalil-ur-Rehman Khan
Shariat Appellate Bench
Supreme Court of Pakistan
Islamabad, PAKISTAN.
If you want to get any other detail please don’t hesitate to contact me by
email.
Regards Salaams and Good wishes.
Aurangzeb
<exp...@khi.comsats.net.pk>
exp...@khi.comsats.net.pk
anil k goel <akg...@plg2.math.uwaterloo.ca> wrote:
Anil.
Sorry for not responding to the substantial questions.
News updates.
>From DAWN Thursday 26th Feburary,1999.
The Shariat Appellate Bench of the Supreme Court on Thursday dismissed the
application of the government seeking withdrawal of its appeal against the
Federal Shariat Court judgment on Riba.
With the dismissal of the withdrawal application the SC bench frustrated the
government's efforts to seek guidelines from the FSC. The government would
have to present its case before the Shariat Appellate Bench of the Supreme
Court.
The application was dismissed by the Bench with the observation that
allowing it to remain pending was a hurdle in the way of the government to
present its case before the Shariat Appellate Bench.
The Shariat Appellate Bench turned down another request for the adjournment
of the proceedings and announced that it would continue hearing of the
appeals against the FSC judgment declaring all the interest-based banking as
Riba. The court observed that the appeals were pending from the last seven
years and the bench wanted to dispose those off.
Justice Wajihuddin Ahmad observed that if the government was allowed to
withdraw the appeal, it would mean that the FSC judgment had become
effective. It was further observed that withdrawal of one of the appeals
would not solve the problems for the government as it was the respondent in
every other case.
Justice Khalilur Rehman, chairman of the Bench observed that the case should
not be treated as for or against any body. The court observed that collective
efforts should be made to assist the court for reaching the right conclusion.
The deputy attorney general, Maulvi Anwarul Haq, on Thursday completed the
reading of the impugned judgment. The court invited Dr Sayyid Tahir of
Institute of Islamis Economy, International Islamic University, Islamabad to
start his arguments.
Dr Tahir contended that interest in every form was Riba. Regarding the loan
contracts which had already been executed on the basis of interest, he
contended that those should be treated as past and closed chapter. He said
under the contract already executed had to be honoured minus Riba.
He argued that contract for debt was between two individuals which must be
based on equality.
Justice Munir A. Sheikh and Justice Wajihuddin Ahmad asked the expert on
Islamic economics to explain whether a lender could be denied of his right to
full recovery of the amount he had lent if the value of the money had fallen
due to inflationary process for which he was not responsible.
Dr Tahir would continue his submission on Friday.
--------------------------------------------------------------
>From DAWN front page main news item 27th Feburary,1999.
Justice Wajihuddin Ahmed, a member of the Shariat appellate bench of the
Supreme Court, seized of appeals against the Federal Shariat Court judgment
on Riba, observed on Friday that the principle of "Ijtehad" had been
enunciated to bring Islamic laws in conformity with changing circumstances.
He further observed that if a narrow approach was adopted in the
interpretation of Islamic laws, they would become impracticable. Giving an
example Justice Ahmed said:" The Holy Quran has ordained that Muslims must
keep their horses ready for war; but if we stick to horses we would not be
able to face the enemy equipped with tanks and cannons."
Justice Maulana Mohammad Taqi Usmani, an aalim judge, observed that Islam
provides the concept of equal return to the lender. He observed that Islamic
currency in the period of holy Prophet (PBUH) was in the form of "floos". If
one dinar consisting of hundred "floos" was lent, the lender was entitled to
get one dinar even if its value had gone up to 120 "floos". Dr Syed Tahir, a
professor of International Islamic University, who is arguing that all forms
of interest was Riba, however, contended that the lender was entitled to
exact amount which he had lent. He also contended that if the lender
incurred some expenses in getting back his money he could not claim the
expenses.
However, Justice Mohammad Taqi Usmani disagreed with the view and observed
that the lender was entitled to expenses he had incurred for getting back the
money.
Justice Munir A. Sheikh asked the expert to address the court on the
question that if the borrower and the lender agreed on a formula of payment
at the time of agreement, would it be un-Islamic.
Justice Khalilur Rehman also observe that expenses incurred for securing the
loans back, formed part of the capital. Dr Tahir would continue his arguments
on Monday.
The federal government has engaged Dr Riaz Hussain Gillani to present its
case before the Shariat appellate bench which consisted of Justice Khalilur
Rehman Khan, Justice Munir A. Sheikh, Justice Wajihuddin Ahmed, Justice
Maulana Mohammad Taqi Usamani, and Justice Dr Mehmood Ahmed Ghazi.
-----------------------------------------------
The news items end here.
exp...@khi.comsats.net.pk
====================================
The bench, while realising that the issue of Riba was very sensitive in
Islamic perspective involving the sentiments of the people, said that those
who had been sending letters expressing their willingness to address the
court or to submit their opinions in writing would summon them if their
explanation or opinion was required.
During the proceedings Dr Riaz Hussain Gillani, representing the federal
government, in
response to the court's query stated that he would seek information from the
government whether there was any rule or law to control the borrowing and the
FCF.
SC seeks IMF help on Riba
ISLAMABAD: The Supreme Court Wednesday decided to invite International
Monetary Fund (IMF) Executive Director Abbas Merakhur to assist the court on
the issue of Riba.
------------------------------
The news item ends here.
Note:- The Supreme Court of Pakistan is holding daily hearings on this
IMPORTANT matter. I will be posting regular updates gleaned from the press on
SRI ( and from now onwards on ARI, SCP and others). Those brothers and
sisters who read this post PLEASE PASS IT ONTO OTHERS PARTICULARLY THOSE
WORKING ON ISLAMIC ECONOMICS OR LAW. You can send your opinion in writing
to:-
Mr. Justice Khalil-ur-Rehman Khan
Shariat Appellate Bench
Supreme Court of Pakistan
Islamabad, PAKISTAN.
If you want to get any other detail please don’t hesitate to contact me by
email.
Regards Salaams and Good wishes.
Aurangzeb
<exp...@khi.comsats.net.pk>