Islamic Banking - Your VIEWS !

[the SHA]

After its establishment in the Middle East, "Islamic banking" is undergoing a huge growth in the UK.

We now have "Shariah-compliant" bank accounts, mortgages, personal finances etc (we even have a halalmortgages advert on PakPassion).

Would any Pakpassioner consider getting any of these products? Do you believe they are really halal, or just a big con by big banks to dupe the Muslim market?

 

[Daoud]

Im doing an internship at an investment bank in Bahrain which does offer halal investments. Talking to a guy at risk management (although I wasnt really talking about halal investments), he mentioned that the main reason they deal with commodities in their portfolios is for shahria investments.

Miggy would have a better idea though

 

[Oxy]

I have opened up a Amanah Finance Bank Account with HSBC...and have had 3-4 meetings with their rep to take out a Shariah compliant 'mortgage' with them in the Summer.

Personally I think its about time the needs of Muslims who wished to bank without the hassels of interest be considered.

I have no problem with any Pak/Muslim arguing that Interst should be taken/paid etc....but not for me.

 

[Nauman]

There is no such thing as Islamic banking the interest credit to your account can be given any name but it still doesnt make it Islamic. The unislamic thing about banking is not the investments made by banks but the interest credited.

 

[the SHA]

With the bank accounts, there are 2 attributes that make it "shariah-compliant". One of course is the absence of interest gained / charged, the other is that the deposited funds are held in a seperate 'pot' by the bank - so that it cannot use your money for anything.

 

[Daoud]

There is no such thing as Islamic banking the interest credit to your account can be given any name but it still doesnt make it Islamic. The unislamic thing about banking is not the investments made by banks but the interest credited.

From what I understand about Islamic mortages is that it works as a sort of lease. So the payments that you make is more like rent rather than interest.

 

[Raz]

Apparently what some do is they buy the house for you say for 100,000 pounds so its their property by law. But you dont actually pay 100,000 pounds you pay more than that in installments to cover costs and what not.

They dont call it interest though.

Which leaves me to question, what else can it be if it isnt interest?!!!!!!!!!

 

[Oxy]

Apparently what some do is they buy the house for you say for 100,000 pounds so its their property by law. But you dont actually pay 100,000 pounds you pay more than that in installments to cover costs and what not.

They dont call it interest though.

Which leaves me to question, what else can it be if it isnt interest?!!!!!!!!!

Its their 'fee' for servicing the loan.

 

[pakdesi]

its totally ok for me but it needs to be out in a larger scale so more n more muslims can benifit the conditions r quite hard for normal ppl to take that step

 

[Nauman]

From what I understand about Islamic mortages is that it works as a sort of lease. So the payments that you make is more like rent rather than interest.

As Raz said they just give it another name it is still interest call it profit/loss, time value of money or what ever you want to at the end of the day it will be interest no matter how you look at it. Though I am not against interest (banks and leasing) but I cant stand the tricks banks play on customers by just renaming interest to attract more customers, if you really want Islamic banking there is only one way.
Open up a current account and tell the bank not to credit any interest in your account, check your bank statement weekly/monthly to make sure none is being credited.

 

[Raz]

Its their 'fee' for servicing the loan.

You can dress it up how you want. Its still interest.

Interest is defined as:

a) A charge for a loan, usually a percentage of the amount loaned.
b) An excess or bonus beyond what is expected or due.

From http://dictionary.reference.com/search?q=interest

 

[z10]

it is impossible to succeed or perhaps even survive in this world without risking interest

interest affects everything, it is the global system and nobody can abandon the system, nobody can live beyond it

 

[Nauman]

it is impossible to succeed or perhaps even survive in this world without risking interest

interest affects everything, it is the global system and nobody can abandon the system, nobody can live beyond it

True even Prophet Mohommad SAH said that a time will come when there will not be a single person in the world who would be able to avoid interest in one form or the other.

 

[Raz]

it is impossible to succeed or perhaps even survive in this world without risking interest

interest affects everything, it is the global system and nobody can abandon the system, nobody can live beyond it

Anything is possible when Allah is with you

 

[Majid Khan]

I think the real issue is what is the 'role' of banks in an Islamic society? lets face it if they are businesses than they are out there to make a profit, and that means charging for their services, ie asking poor brother Abdul to pay back more than the amount they loaned out to him .. this can be called a 'fee' or profit, but to brother Abdul it is the same as Riba (interest)..

IF we're expecting banks to be able to provide a service without charging for it, ie - no interest, than the role of banks in an Islamic society would have to be that of a charity, run by volunteers, with the aim to help the poor in the community..

That's the only way you can expect a bank to give brother Abdul a loan and then expect him to pay back that loan with no interest, ie . pay back the same amount he loaned.

I can't really see how else a bank can be classified as Shariah compliant.. ?

 

[Gasherbrum]

loans aren't the only form of financing. equity based profit sharing is another option. the bank in effect owns a portion of the business and the risk is shared between the two parties. my islamic banking is a little rusty but i did read up on it a few years ago, still have some books lying around in the house. the major issue i guess is the one mentioned above - in my opinion Islamic Financing authorities need to do a little more in terms of clarifying how a 'service fee' is different from interest.

 

[hussain_0216]

The way an islamic mortgage works is that you have to pay a deposite of around 20% of the houses value.

You then enter a contract with the islamic mortage people, where by you pay your normal monthly payments minus intrest, essentially the owner of the house is the bank, but you will continue paying until you have payed what you have borrowed and then you own the house...



The problem is the original deposit.

 

[the SHA]

As Raz said they just give it another name it is still interest call it profit/loss

'Riba' is what is prohibited under Islam, which is essentially any form of usury including interest. Riba is defined as "any increment in a loan" - according to a well known Hadith of the Prophet (pbuh).

A 'Loan' is defined as "A sum of money lent at interest." [Link].

Under Islamic 'Mortgages', a Leasing contract is made between the Bank & Customer. Hence the Bank purchases the property (becoming the owner) and leases it back to customer, similar to how a Landlord would charge a Tenant. Irrespective of the costs, this is distinctly different to a secured loan (mortgage), therefore involving no 'riba'.

 

[srh]

Islamic Banking

just read that Islamic banking is getting popular among muslims and non-muslims. It is also called Risk Sharing Banking or RF Banking. (RF means Riba/Interest Free). Rodney James professor of economics @ University of Durham has written article that islamic banking is here to stay.

http://www.express.com.pk/epaper/PoPupwindow.aspx?newsID=1101357587&Issue=NP_LHE&Date=20111019

So how many PPers do islamic banking? And which islamic banks they use? And are they satisfied with their products & services? which ones you would recommend?

 

[AlizeeFan]

Is it possible to translate that article for those who don't understand Urdu? Article is long and translating may take time.

 

[Down2Earth]

just keep your money in a cash account. The interest would be no more than 5p per month. Just throw it away every month if you feel guilty about it...

 

[ElRaja]

ive never done it, but i have read about it a bit some time ago out of curiousity. Im not a religious guy, so please correct me if im wrong on any thing specific.

My personal understanding is that the basic premise of islamic banking is the prohibition of interest in financial transactions so as to not to create excessive debt. Now what is interest, in its most basic form interest is a premium on the principal amount of the loan, for the time value of the loaned money.

Islamically the only currencies that are allowed are silver and gold coinage, i.e. "real" money, or one that cannot be (at least easily) manipulated to increase or decrease cash flow with ease, thus trying to achieve an as near as possible zero inflation/deflation economy.

In a zero inflation/deflation economy money theoretically has a constant value in time such that 10 grams of gold buys today roughly what it did 10 or 20 years ago.

Now to the part i emboldened, in a paper money society politicians invariably over supply money to spend more than they make, thus leading to inflation and the loss of moneys buying power, and hence all transactions involving paper money being lent for a certain period of time must be inflation protected (excluding premiums to account for risk of lender, etc), hence the interest.

The point im making is that in islamic banking is not insular, it uses the same constantly devaluing currencies which in essence require interest payments, and hence no matter what way they dress it, in essence the "premium" you pay with respect to buying from the bank in repayments what the bank has bought from you outright equates in real terms to interest repayment.

you cannot have an islamic banking system without a gold standard. however if it makes you feel better then fair enough i guess.

 

[AbdulrazzaqFan]

Riba (interest) is forbidden in Islamic finance, but that doesn’t mean that the time value of money isn’t recognized. The sale price has to be stated upfront, though. You can’t charge someone $X + 5% until you pay for the item in full. Instead you agree to a sale price upfront which already takes into account the payment time frame. And you can’t increase the amount if the person takes longer to pay. That’s just a risk of doing business (as there are risks in all things).

 

[shakil]

My understanding of Islamic banking is the following.

Islam forbids giving/receiving of Interest. Islamic Banking system was developed keeping this commandment in view. Now in order to gain profits, Islamic banks usually don't provide "Cash loans" instead they work by lending tangible assets to its' customers and charging a slightly higher price than the market. This way they gain profit from the price difference of the asset. Furthermore in order to force the customer into full payment, they usually surcharge the customer. The amount gained from this is given to the needy (as it would be considered interest for the bank otherwise).

Now this is all fine and good. However it doesn't address the root issue present in the interest based economy. Islam doesn't propose only gold and silver as viable currency option as barter system was also popular at the time. Gold and silver are also difficult to carry around and prone to security risks (counterfeit and theft) and loss of value.

I have discovered another viable option i.e. http://en.wikipedia.org/wiki/Bitcoin.
Electronic currency is good as we are already used to electronic transactions using ATM and credit cards which makes the transition in terms of use seamless. Furthermore, government cannot inject inflation/deflation in the currency or even close the service down as it uses a distributed system. All the users of bitcoin also provide as a server (much like bit torrent).

P.S. In no way, am I related to the technology of bitcoin. However, I support it because I hate the current interest based economics.

 

[zindagi]

I have discovered another viable option i.e. http://en.wikipedia.org/wiki/Bitcoin.

I also found the concept of Bitcoin fascinating.

Here is another take on Islamic Banking from an Atheist forum, I have cut and pasted. So apology to that poster and no copyright infringement intended

----------
the biggest reason some islamic banks are doing well is that islamic finance is a giant scam. islamic banks don't GIVE interest to their depositors, BUT they do in fact charge interest from their borrowers. all they do is give interest a different name like "murabaha", "musharaka" or simply "profit".

EVERY SINGLE LAST islamic bank in the world will charge you an additional amount on top of the money they lend you. in the english language, that amount is known as interest.
in fact, islamic banks generally charge you a HIGHER rate than a normal bank would, simply because they've given interest an arabic name and they knw full well that muslims are so stupid, that they would rather pay a higher amount as long as its not called interest.

so its a win win for the islamic bank: they don't GIVE any interest to their depositors, but they TAKE a HIGH rate on the money they lend.

how do i know this? i interned for an islamic bank. also, i got a mortgage on my house n looked into what rate the different normal banks n islamic banks were charging me. i have attended 6 islamic finance conferences and consulted with no less than 15 ulema.

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

 

[ElRaja]

Riba (interest) is forbidden in Islamic finance, but that doesn’t mean that the time value of money isn’t recognized. The sale price has to be stated upfront, though. You can’t charge someone $X + 5% until you pay for the item in full. Instead you agree to a sale price upfront which already takes into account the payment time frame. And you can’t increase the amount if the person takes longer to pay. That’s just a risk of doing business (as there are risks in all things).

so am i right to assume that the pre agreed premium includes the probability of delay or default so in essence you would be paying more in return then if you were lending on interest with a clean credit history.

 

[srh]

the article mentioned that there was a documentary by voice of america which shows that lot of people are starting a new form of banking which is according to islamic rules. But its not called Islamic Banking; instead its called Risk Sharing Banking.

 

[AbdulrazzaqFan]

so am i right to assume that the pre agreed premium includes the probability of delay or default so in essence you would be paying more in return then if you were lending on interest with a clean credit history.

Yes, you've understood it correctly. Under islamic banking the interest component is not charged based on % rather, a fee negotiated per case individually which can sometime be higher than what a local, interest-based bank might loan you on low interest rate.

 

[AbdulrazzaqFan]

I also found the concept of Bitcoin fascinating.

Here is another take on Islamic Banking from an Atheist forum, I have cut and pasted. So apology to that poster and no copyright infringement intended

----------
the biggest reason some islamic banks are doing well is that islamic finance is a giant scam. islamic banks don't GIVE interest to their depositors, BUT they do in fact charge interest from their borrowers. all they do is give interest a different name like "murabaha", "musharaka" or simply "profit".

EVERY SINGLE LAST islamic bank in the world will charge you an additional amount on top of the money they lend you. in the english language, that amount is known as interest.
in fact, islamic banks generally charge you a HIGHER rate than a normal bank would, simply because they've given interest an arabic name and they knw full well that muslims are so stupid, that they would rather pay a higher amount as long as its not called interest.

so its a win win for the islamic bank: they don't GIVE any interest to their depositors, but they TAKE a HIGH rate on the money they lend.

how do i know this? i interned for an islamic bank. also, i got a mortgage on my house n looked into what rate the different normal banks n islamic banks were charging me. i have attended 6 islamic finance conferences and consulted with no less than 15 ulema.

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

Thank you once again for proving what an Islamophobe you are. You can't digest anything Islamic can you? People are well aware of the aforementioned problems with Islamic banking.

It's a very challenging field and is still in its initial stages and is not without its critics, muslim and non-muslim, laymen and experts. And a lot of issues require research, inquiry & debate.

However this does not mean that we dismiss their efforts altogether. I personally think that it's awesome that people are attempting to present and exercise an economic system that's based on Islamic teachings and values. But there's much that still needs to be done and many issues that still need to be worked out.

 

[Gotham Cronie]

just keep your money in a cash account. The interest would be no more than 5p per month. Just throw it away every month if you feel guilty about it...

Why not just keep it in a checking account then?

 

[Cover Drive]

I haven't this thread yet but RF banking, checking account etc isn't it same thing really?

Not sure how RF account works but they still deduct monthly fee from it right? If so then isn't it same thing like interest? If you pull your ear from left side or right side its same thing really, but just different sides and way of pulling it.

 

[Gotham Cronie]

I haven't this thread yet but RF banking, checking account etc isn't it same thing really?

Not sure how RF account works but they still deduct monthly fee from it right? If so then isn't it same thing like interest? If you pull your ear from left side or right side its same thing really, but just different sides and way of pulling it.

I've never heard about RF banking.

Checking involves no fees and no interest.

 

[Cover Drive]

i've never heard about rf banking.

Checking involves no fees and no interest.

rf =

just read that islamic banking is getting popular among muslims and non-muslims. It is also called risk sharing banking or rf banking. (rf means riba/interest free). Rodney james professor of economics @ university of durham has written article that islamic banking is here to stay.

 

[zindagi]

I have discovered another viable option i.e. http://en.wikipedia.org/wiki/Bitcoin.
Electronic currency is good as we are already used to electronic transactions using ATM and credit cards which makes the transition in terms of use seamless. Furthermore, government cannot inject inflation/deflation in the currency or even close the service down as it uses a distributed system. All the users of bitcoin also provide as a server (much like bit torrent).

P.S. In no way, am I related to the technology of bitcoin. However, I support it because I hate the current interest based economics.

I read about this bitcoin thing. The difference seems to be that there is no central issuing authority. The central issuing authority is now a pre-determined algorithm. It has hardwired rules for monetary expansion (creation of bitcoins) making it kind of inflexible. Also, it's rigged for early adopters.

I still have to get my head around it sounds really complicated.

Interest based economics is fine I think. It's just that excessive speculation is making it too volatile and too unmanageable. Electronic money and markets means that you can push and pull money into an economy creating havoc and instability in society. So, that needs to be regulated for sure.

Also, a few people/institutions have accumulated too much currency and cash , meaning they and their future progeny not only never ever need to work but they have acquired way too much influence over the rest of the society. This will create discontent in the vast majority. So, some regulation needs to happen which will either decimate/destroy their currency or put it back into the system via heavy inheritance taxes.

 

[zindagi]

You can't digest anything Islamic can you?

I like the way Muslims do namaaz and their prayer style. It's powerful and should be adopted by other religions. (synchronicity of physical movement)

I personally think that it's awesome that people are attempting to present and exercise an economic system that's based on Islamic teachings and values. But there's much that still needs to be done and many issues that still need to be worked out.

I am all open for trying out new stuff. But the Islamic banks at this point in time are exploiting poor muslims more than anything else just like the Islamic regimes and Islamic clerics. (my opinion)

 

[AbdulrazzaqFan]

I like the way Muslims do namaaz and their prayer style. It's powerful and should be adopted by other religions. (synchronicity of physical movement)



I am all open for trying out new stuff. But the Islamic banks at this point in time are exploiting poor muslims more than anything else just like the Islamic regimes and Islamic clerics. (my opinion)

So basically up until a few days ago you had very little knowledge of Islam as per your own assertion in this thread http://www.pakpassion.net/ppforum/showthread.php?t=137694&page=3 (You still don’t know jack, but that’s a different point). And even now, you’re quoting some random guy from a random forum and I highly doubt you’re from a financial background or possess knowledge of the banking system and you have the audacity to question Islamic finances, regimes & clergies?

 

[shakil]

I read about this bitcoin thing. The difference seems to be that there is no central issuing authority. The central issuing authority is now a pre-determined algorithm. It has hardwired rules for monetary expansion (creation of bitcoins) making it kind of inflexible. Also, it's rigged for early adopters.

I still have to get my head around it sounds really complicated.

Firstly its algorithm is open source. Secondly it becomes exponentially more and more difficult to generate bitcoins so a time will come that the number of bit coins in the market will be constant. This should make its valuation constant (at least if market speculation is considered constant).

I think Gold and Silver also have very little intrinsic value. They have value because People value them as they are so rare.

I am still not sure how the partial (pennies) Bitcoins work. I would also like to take an opinion of some economist or finance guy before investing.

 

[zindagi]

Firstly its algorithm is open source. Secondly it becomes exponentially more and more difficult to generate bitcoins so a time will come that the number of bit coins in the market will be constant. This should make its valuation constant (at least if market speculation is considered constant).

I think Gold and Silver also have very little intrinsic value. They have value because People value them as they are so rare.

I am still not sure how the partial (pennies) Bitcoins work. I would also like to take an opinion of some economist or finance guy before investing.

yes , gold and sliver have value because people value them and they are rare. just like antiques/art/coin collections. So, this bitcoin thing is then an attempt to create/replicate virtual gold/silver as a store of monetary value.

pennies of bitcoins would then just be smaller denominations of bitcoins. As as bitcoins become more valuable, the monetary expansion could happen by bringing more pennies into circulation as their value increases. how is it different from the existing currency system then? in the existing currency system, you create money by printing/issuing it. In bit coin economy, more money gets created by splitting bitcoins into pennies and with more pennies getting into circulation. Then, the innovation is that it's completely virtual and distributed and the power of issuing/increasing money also gets distributed to markets rather than central authorities like banks. Hmm..

 

[shakil]

yes , gold and sliver have value because people value them and they are rare. just like antiques/art/coin collections. So, this bitcoin thing is then an attempt to create/replicate virtual gold/silver as a store of monetary value.

pennies of bitcoins would then just be smaller denominations of bitcoins. As as bitcoins become more valuable, the monetary expansion could happen by bringing more pennies into circulation as their value increases. how is it different from the existing currency system then? in the existing currency system, you create money by printing/issuing it. In bit coin economy, more money gets created by splitting bitcoins into pennies and with more pennies getting into circulation. Then, the innovation is that it's completely virtual and distributed and the power of issuing/increasing money also gets distributed to markets rather than central authorities like banks. Hmm..

In a fiat currency system (not backed by Gold) currency can be injected into the economy which decreases the value of the money already in the market (inflation). Thus we are at the mercy of the government and its policies. As we are slowly moving from the kingship era to an era of more power to the individual (democracy) and a border-less economy. Therefore I feel we need one standard currency (other than US dollars or fiat currency).

Today, a new graduate in Pakistan earns around 30 Thousand Rupees but here in Sweden he also earns around 30 Thousand but in Swedish Crowns. The thing is having one currency may eliminate any discrimination on where the worker is residing.

In economics, Money is defined as a "Store of value" or a "Claim on labor". Therefore, I feel the value of one's labor should decrease overtime at least not due to some government madly printing notes. We don't want to trust the government any longer especially if we can find any alternative method of saving the value of our labors.

Bitcoins is similar to e-gold in that it is also an electronic currency. However, it is vastly different from it because it is not backed by anything. It is not much different than the currency notes that we use everyday which also is NOT backed by anything (except the trust of government). Currency is all about trust. Bitcoins can also have a lot of value if people belief that it works. Otherwise even Banks are prone to collapse (Bank runs).

Why shouldn't we invest in Gold/E-Gold? We can definitely use E-Gold/Gold to safe guard against inflation and it is a viable option. However, they charge a lot whenever we want to make any transactions (for e.g. buying milk . In comparison, bitcoin transactions are totally free . Also it uses a central system so a government can easily shutdown their services if it wants (It has happened in the past). If we want to totally surpass the interest based economy we need to use a distributed system. Otherwise it is hard to see any "Currency" revolution which liberates that world from the monopoly and control held by bankers.

P.S. I fail to see why we appreciate "Gold" so much. It cannot be eaten and it is hardly a substance that is used in industries on a regular basis.

 

[shakil]

pennies of bitcoins would then just be smaller denominations of bitcoins. As as bitcoins become more valuable, the monetary expansion could happen by bringing more pennies into circulation as their value increases. how is it different from the existing currency system then? in the existing currency system, you create money by printing/issuing it. In bit coin economy, more money gets created by splitting bitcoins into pennies and with more pennies getting into circulation.

I fail to see the comparison. Dividing a currency into small denominations doesn't change its total value. Changing 1 dollar into 50+50 pennies still equals to 1 dollar. But printing an extra currency note reduces the worth of a dollar by half (assuming only 1 dollar in the whole world).

 

[zindagi]

I fail to see the comparison. Dividing a currency into small denominations doesn't change its total value. Changing 1 dollar into 50+50 pennies still equals to 1 dollar. But printing an extra currency note reduces the worth of a dollar by half (assuming only 1 dollar in the whole world).

the comparison is this. rarer a quantity (number ) more it's value. bigger demand , more it's value.
So, if a currency (bit coin) can be divided into pennies, then more of these virtual units come into the market. (you can replace dollar, pennies with any other term :doesn't matter), so earlier lets you had 10 exchangeable units, now you have 1000 exchangeable units.

Same is with printing extra currency, you are doing the same thing but from the opposite angle, earlier lets say you had 500 exchangeable units, print 500 more and you get a 1000 now decreasing it's value.

The difference now is the control of the fiscal policy (when/how to print money) shifts from US federal bank (therefore a few individuals) to the distributed (peer-peer) network (markets) which can be global and not restricted by country boundaries.

As an unrelated sidenote about the future of the internet, However, I can a conflict emerging where National govts (bank,army,state beauraucrats) would want to clamp down on the internet by censoring (aka china and middle east).

 

[sa88]

I can understand why Islamic finance may take issue with usury. Usury is wrong - it is essentially extortion. However, interest is a brilliant idea. It is essentially the price you pay to access capital. Interest is a vital component in allocating capital to those parts of the economy that will be the most productive. It is essentially a rate of return I would expect on my capital if I gave it to someone else to use. You can change its name and call it profit, as Islamic Finance does, but it remains the same thing in substance if not in form.

Can someone tell me what exactly is objectionable about interest. Once again keep in mind interest is not usury, the two are completely different things.

 

[AbdulrazzaqFan]

I can understand why Islamic finance may take issue with usury. Usury is wrong - it is essentially extortion. However, interest is a brilliant idea. It is essentially the price you pay to access capital. Interest is a vital component in allocating capital to those parts of the economy that will be the most productive. It is essentially a rate of return I would expect on my capital if I gave it to someone else to use. You can change its name and call it profit, as Islamic Finance does, but it remains the same thing in substance if not in form.

Can someone tell me what exactly is objectionable about interest. Once again keep in mind interest is not usury, the two are completely different things.

Usury is the general term whilst the interest rate is the particular (muqayid) application of that general. Secondly, using the term usury in our time is actually incorrect ‘cause the actuality of riba now comes in forms that are different than the meaning of usury, thought it islamically falls under riba. In other words, all interest rates are usury but usury is not limited to interest alone. Moreover, from what I know there’s two major types of riba:

1) Riba al naseya (interest on lent money) &
2) Riba al fazl (taking of superior thing of the same type of goods by giving more of the same kind of goods of inferior quality e.g. mangoes of superior quality for mangoes of inferior quality in great amount).

Furthermore, the literal definition of interest/riba as its used in in Arabic means to excess or increase. Moreover, in Islamic terminology interest is referred to an effortless profit or that profit which comes free from compensation or an extra earning obtained free of exchange. Riba has also been described as a laon with the condition tha the borrower will return to the lender more & better than the quantity borrowed. This in a nutshell is the definition of riba and is hence haram as per my understanding.

 

[shakil]

the comparison is this. rarer a quantity (number ) more it's value. bigger demand , more it's value.
So, if a currency (bit coin) can be divided into pennies, then more of these virtual units come into the market. (you can replace dollar, pennies with any other term :doesn't matter), so earlier lets you had 10 exchangeable units, now you have 1000 exchangeable units.

Same is with printing extra currency, you are doing the same thing but from the opposite angle, earlier lets say you had 500 exchangeable units, print 500 more and you get a 1000 now decreasing it's value.

The difference now is the control of the fiscal policy (when/how to print money) shifts from US federal bank (therefore a few individuals) to the distributed (peer-peer) network (markets) which can be global and not restricted by country boundaries.

As an unrelated sidenote about the future of the internet, However, I can a conflict emerging where National govts (bank,army,state beauraucrats) would want to clamp down on the internet by censoring (aka china and middle east).

Either way fluctuation in price due to perception is not necessarily a bad thing (like in Gold investments). I was only trying to allude to the susceptible nature of fiat currency to artificial change in value by inflation/deflation.

As for government control of internet, the government is still unable to stop the piracy issue by the use of torrents. It can indeed be something to look into in future but their are always workaround on any internet policies.

 

[RWAC]

How would Islamic banking work?

So I've been reading a few people mentioning in various threads that the current economic system is not the correct one, and Islamic banking is the best (?) system to replace it with.

I would like to know how such a system would work. Please I'm not looking for broad generalizations but actual examples of how day-to-day micro and macro economic activities would be carried out.

For some examples - What would the currency be based on? How would capital be traded amongst people? What sort of activities would barred/mandated by laws?

To set a pointer, maybe some one can pick a country (Pakistan?) and given how the current financial condition/system is in that country, explain how it would shift towards a system based on Islamic banking, and how it would function w.r.t. international trade and commerce.

PS: Saudi (or any other econ guru I might need your assistance to counter/explain/find flaws in some of the arguments that might be presented.


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[Saudi]

I won't profess to be an expert in Islamic banking but its been something that I've researched on my own. For starters, something you must know is that there is no worldwide body to set standards for Shariah compliant banking. Every Islamic bank has its own Sharia board that governs it.

In the real word many Islamic Banks disagree with regards to treatment of fin. instruments Things are changing though as the AAOIFI have started to work towards some sort of harmony. It seems like the best bet with regards to adoption from Islamic banks.

The basic rules of Islamic banking usually prohibit receiving or paying interest of course, but also investing in highly geared companies, companies that conduct haram activities(open to debate). Speculating on future and options markets is usually labelled haram, but it seems insurance is permitted in certain conditions.

The methods of obtaining finance, well just wiki it, sukuk, ijara, musharaka,murabaha. Its quite complicated at times, but essentially these 4-5 ways are the mainstream methods of Islamic finance.

In practice, cash flows under these approaches end up being the same as with the normal interest based ones. The differences end up being qualitative ones, i.e risk sharing between the parties is more equal.

Feel free to ask any questions....

 

[Stewie]

Islamic financing to me is a way of lying to yourself that you are not paying interest. Sure they will give it a dressing down and call it processing fee or something but how is it any different?

A "non Muslim" or western bank will give you the loan which by the time you pay off, you would have paid more than you got the loan for and Islamic financing inst will do the same thing except call it something else and not interest.

Either way in this day and age if you are taking out a loan or a mortgage, you have to admit, some financial institution wont give it to you for free, they are in it to make money as well and the way they do it is by charging interest, fees, surcharges, etc

Kaan ko aisey pakro ya aisey, baat wohi hai

 

[Stewie]

I won't profess to be an expert in Islamic banking but its been something that I've researched on my own. For starters, something you must know is that there is no worldwide body to set standards for Shariah compliant banking. Every Islamic bank has its own Sharia board that governs it.

In the real word many Islamic Banks disagree with regards to treatment of fin. instruments Things are changing though as the AAOIFI have started to work towards some sort of harmony. It seems like the best bet with regards to adoption from Islamic banks.

The basic rules of Islamic banking usually prohibit receiving or paying interest of course, but also investing in highly geared companies, companies that conduct haram activities(open to debate). Speculating on future and options markets is usually labelled haram, but it seems insurance is permitted in certain conditions.

The methods of obtaining finance, well just wiki it, sukuk, ijara, musharaka,murabaha. Its quite complicated at times, but essentially these 4-5 ways are the mainstream methods of Islamic finance.

In practice, cash flows under these approaches end up being the same as with the normal interest based ones. The differences end up being qualitative ones, i.e risk sharing between the parties is more equal.

Feel free to ask any questions....

Ok, so that makes some sense to me. You throw in the additional variable of how your interest payments are being usesd into qualifying it as haram or halal. If those monies are being used for unislamic means using unislamic methods, its haram. fair enough.

But let me ask you this. How is that any different from living in a non muslim country and abiding by their rules and regulations and paying taxes and what not? Some percetange of it is always going to be used in something by some form or fashion that can be termed unislamic. How do you escape that?

It is quite clearly explained in hadith that you abide by and follow the rules of the country you live in. By the same logic you used, if one was doing that and paying taxes, one is indulging in unislamic activities. isnt it true?

 

[Namak_Halaal]

I have 2 CTFs in Shariah Baby Bond Child Trust Funds.

http://www.thechildrensmutual.co.uk/savings/child-trust-funds/shariah-baby-bond/

Shariah Baby Bond® Child Trust Fund fully adheres to Islamic law by investing mainly in a fund that holds shares only in companies that are listed on the Dow Jones Islamic Market Index. The fund (and any investment made outside the fund) is approved by our Shariah Advisory Board for this purpose.

This means that no investment will be made in any organisation involved in:

pork related products
alcohol
weapons and defence
conventional financial services
entertainment

Not sure if this qualifies but I am happy with it.

 

[speed]

The Great deception - "Islamic Banking"!

<iframe width="420" height="315" src="http://www.youtube.com/embed/apr4Wju62XY" frameborder="0" allowfullscreen></iframe>

 

[shakil]

Work towards "interest/inflation free currency" is the need of the day.

 

[speed]

Work towards "interest/inflation free currency" is the need of the day.

agree and Allah has provided us with gold and silver which is hardly affected by inflation if at all.

 

[Saudi]

I'll just post something that I posted in the last thread about Riba.

Was there even any concept of banks/financial instruments/equity in 600 AD Arabia? I imagine this ruling was made to outlaw loan sharks of the time, rather than setting the foundations for a financial system. Extrapolating the Riba ruling to modern day banking interest is problematic to say the least.

 

[Black Zero]

There is no such thing as Islamic banking.

The current Islamic Mortgage is a sham.

 

[anakin]

Islamic banking.. and finance in muslim world??

Guys, I have heard a little about no interest being there in Islamic Banking system.
Can someone explain how do such banks work?
And also other financial institutions as per Islamic banking systems?
and how do they interact with the other financial bodies who run on the concept of interest?

 

[sania250]

Islamic banking is now rapidly spreading in the world.

 

[anakin]

Any helpful views??

 

[speed]

Anakin Banks never existed in the world of Islam this is purely a jewish invention, I am sure many great scholars if they were alive today would declare Islamic banking as Haram, unfortunately today we have scholars giving fatwas to banks so they can carry on in their Interest ridden ways. See the video in post 50.

 

[Buffet]

Bank charging no interest for loans is simply a misleading information. Why the heck anyone will risk their money without incentive? It is simply against the human nature and not sustainable. You can sure package it with some other fancy name but capital got to have some incentive otherwise it won't flow. No liquidity means civilization will develop at much slower pace.

Individually, we won't risk our capital for individual projects but by pooling money we decrease the risk and money flows. It makes it possible to capital to be used for productive things. Banks were great concept and we should all be thankful for folks who first came up with this idea. Sure, it evolved with time but just saying.

 

[Pak_Jazba]

Guys, I have heard a little about no interest being there in Islamic Banking system.
Can someone explain how do such banks work?
And also other financial institutions as per Islamic banking systems?
and how do they interact with the other financial bodies who run on the concept of interest?

Suppose you want to buy a car, and the dealer quotes you a price of $50,000.
You go to an Islamic Bank, you request them to purchase the car on your behalf. The Bank purchases the car for $50,000, BUT, the Bank structures your payment such that you need to pay it $60,000 over 8 years. Now this may seem like any other Bank transaction, but the catch here is that the Bank is actually expending its resources (manpower,financial) to purchase the car for you by itself, and therefore it is also owning the car for a limited period of time before selling you this car in a different contract. The Conventional Bank on the other hand, will just hand you over with $50,000 so you can buy the car for yourself, and will not OWN the car by themselves initially.

Now lets come to the Islamic Bank's payment structuring - It asks you to pay $50,000 + $10,000 as additional PROFIT on the car over a period of 8 years. Now that you know that the Bank OWNS the car actually having purchased it from a dealer. The Bank can sell it for whatever price it wishes to. Consider it as a normal business transaction i.e. I buy an iPhone from the US appstore for $600 and sell it on the grey market in the next week for $1400. Would you consider the extra $800 which i sold the phone for as Riba (interest)? No, you wont. Its a simple business transaction you conducted by using your own resources.

The key distinguishing factor between Islamic Banks and COnventional Banks is that conventional banks mortgage the assets rather than OWN them. Islamic Fiqh clearly states that you cannot make profit over a financial instrument (money) i.e. interest. Therefore the Islamic Banks, IF they actually buy the car/house themselves and hold the ownership under their name it is a valid transaction under Islamic norms.

However, a major issue people have with Islamic transactions is failing to see these transactions from an independent perspective. Everyone tries to understand these transactions in light of conventional banking operations, which makes it difficult to understand the actual form of these transactions.

 

[youboy]

Now lets come to the Islamic Bank's payment structuring - It asks you to pay $50,000 + $10,000 as additional PROFIT on the car over a period of 8 years. Now that you know that the Bank OWNS the car actually having purchased it from a dealer. The Bank can sell it for whatever price it wishes to. Consider it as a normal business transaction i.e. I buy an iPhone from the US appstore for $600 and sell it on the grey market in the next week for $1400. Would you consider the extra $800 which i sold the phone for as Riba (interest)? No, you wont. Its a simple business transaction you conducted by using your own resources.

Any thing sold and charged extra than the market value which is to be paid over a period of time is considered riba in Islam. This is what normal Islamic bank transactions are which they called they are charging profit.

The example of iphone purchase you gave shows the extra profit you will make on that single transaction. It will come in the category of charging too high profit which is also prohibited in Islam but here you are not getting your original spent plus profit over a period of time.

That is the reason there is no concept of private banking in Islam. The Bait ul maal is held by the government which can lend money to the person in need normally for business (bacause in Islamic government all other basic requirements are taken care by the government like health, education etc.); the person has to return only the original amount taken in full or over a period of time. Or someone (relative/friend) can lend you money on personal terms that you can pay in installments but only the original amount nothing extra.

There are other ways of entering in a contract like Shirakah (partnership) for business or buying a house etc.

 

[Fastandfurious]

Guys, I have heard a little about no interest being there in Islamic Banking system.
Can someone explain how do such banks work?
And also other financial institutions as per Islamic banking systems?
and how do they interact with the other financial bodies who run on the concept of interest?

http://www.islamic-banking.com/islamic_banking.aspx

 

[PetroDollars]

the current system does not allow islamic style finance, the whole economic system is based on Keynesian and that too is totally been corrupted by the greed of the banks by extending the money supply to no limits. Therefore all money is paper money or digital money with no intrinsic value. THERE IS ABSOLUTLY NO WAY TO HAVE HALAL BANKING OR FINANCE IN SUCH A SCENARIO. As the whole islamic system is based on the gold standard, no fiat money, no fractional reserve banking, no interest, no inflation and banks will not be in private control but gov. control.

TBH we will not be seeing such a system not for a long time at least not in our lifetimes anyway, the most closest thing we can get is an implementation of the austrian economics if Ron Paul ever wins the elections in USA, then halal banking will be a possible, UNTIL THEN YOU HAVE NO CHOICE BUT TO INDULGE IN RIBA IF YOU WANT TO SURVIVE

 

[RWAC]

I'm really uninitiated here, but can someone explain how would a person be willing to lend their money without getting anything in return?

 

[anakin]

Suppose you want to buy a car, and the dealer quotes you a price of $50,000.
You go to an Islamic Bank, you request them to purchase the car on your behalf. The Bank purchases the car for $50,000, BUT, the Bank structures your payment such that you need to pay it $60,000 over 8 years. Now this may seem like any other Bank transaction, but the catch here is that the Bank is actually expending its resources (manpower,financial) to purchase the car for you by itself, and therefore it is also owning the car for a limited period of time before selling you this car in a different contract. The Conventional Bank on the other hand, will just hand you over with $50,000 so you can buy the car for yourself, and will not OWN the car by themselves initially.

Now lets come to the Islamic Bank's payment structuring - It asks you to pay $50,000 + $10,000 as additional PROFIT on the car over a period of 8 years. Now that you know that the Bank OWNS the car actually having purchased it from a dealer. The Bank can sell it for whatever price it wishes to. Consider it as a normal business transaction i.e. I buy an iPhone from the US appstore for $600 and sell it on the grey market in the next week for $1400. Would you consider the extra $800 which i sold the phone for as Riba (interest)? No, you wont. Its a simple business transaction you conducted by using your own resources.

The key distinguishing factor between Islamic Banks and COnventional Banks is that conventional banks mortgage the assets rather than OWN them. Islamic Fiqh clearly states that you cannot make profit over a financial instrument (money) i.e. interest. Therefore the Islamic Banks, IF they actually buy the car/house themselves and hold the ownership under their name it is a valid transaction under Islamic norms.

However, a major issue people have with Islamic transactions is failing to see these transactions from an independent perspective. Everyone tries to understand these transactions in light of conventional banking operations, which makes it difficult to understand the actual form of these transactions.

Thanks for a nice example. and i seem to have missed this old thread too.
But my query here is:

The Banks still make profits. Profits are still determined by the Banks.
Why is interest such a sin, in the concept of Islam?
This is a very convoluted way of charging for time value of money, just to escape the term interest.

 

[RWAC]

Thanks for a nice example. and i seem to have missed this old thread too.
But my query here is:

The Banks still make profits. Profits are still determined by the Banks.
Why is interest such a sin, in the concept of Islam?
This is a very convoluted way of charging for time value of money, just to escape the term interest.

Thanks for quoting that post. This seems nothing but a dressing of the transaction in another way to make it 'halaal'.

If the Islamic bank can charge $10k extra for "manpower", isn't that the same thing that a conventional bank does, albeit it terms it as "interest"? There is nothing extra the Islamic bank is doing in this transaction that is different from a conventional bank. The conventional bank also has to use up manpower to structure the deal, do background checks, and ensure terms of the contract are adhered to, etc. It just terms it differently.

Please don't say the Islamic bank "owns" the asset here. This is nothing but a way to structure the books. The bank did not make the car, nor had any hand in bringing in to the market (ex. advertising). This is not what is generally understood by "profit".

 

[Garuda]

really? Is that any diff than charging interest ?

May be the could have just called it Islamic interest to sound halal.


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[shakil]

For those who don't ABC of Riba which is completely different from the concept of interest

From Abu Sa'id al-Khudri : The Prophet, , said: "Gold for gold, silver for silver, wheat for wheat, barley for barley, dates for dates, and salt for salt - like for like, and hand-to-hand. Whoever pays more or takes more has indulged in riba. The taker and the giver are alike [in guilt]." (Muslim, ibid; and Musnad Ahmad)

From Abu Sa'id : Bilal brought to the Prophet, , some barni [good quality] dates whereupon the Prophet asked him where these were from. Bilal replied, "I had some inferior dates which I exchanged for these - two sa's for a sa'." The Prophet said, "Oh no, this is exactly riba. Do not do so, but when you wish to buy, sell the inferior dates against something [cash] and then buy the better dates with the price you receive." (Muslim, Kitab al-Musaqat, Bab al-ta'ami mithlan bi mithlin; also Musnad Ahmad)

Musharaka is a way around the problem of Riba (more cash from cash) by introducing a commodity in a transaction to avoid riba as described in the hadith above. The main criticism of Islamic Banking is the financing part which many times involve getting loans from a center bank at an interest (and giving interest on getting certain transactions processed) which is mostly unavoidable I think

 

[Analyst]

I use it in Pakistan v regularly. I know it is not perfect but still it is better to usse it than other conventional bank services. Plus there is a qualified shariah board in every bank who devices the products. If they are not following any shariah rules/regulation than the whole responsibility lies with them

 

[MenInG]

The Federal Shariat Court (FSC) on Thursday ruled that the elimination of interest (riba) is a legal obligation as per Islamic injunction as it ordered the government to eradicate the interest-based banking system by the end of 2027.

The decision was made on petitions against riba after the Supreme Court referred the case back to the court in 2002 following the appeals against the decision of the FSC.

In its order after hearing the case for at least 17 years, the federal court said interest-free banking was possible all over the world and it disagreed with the government’s argument which had cited negative impacts of the interest-free banking model.

It said the elimination of interest was a religious and legal obligation as parliament had already agreed to make sharia-compliant laws. The ruling read out by FSC Justice Syed Mohammad Anwar said the amount received by the banks that exceeded the actual loan fell under the category of interest. “Every kind of interest of banks is called riba,” it added.

The ruling said that the Islamic banking system was “risk-free and against exploitation” and added that eradication of riba from society was one of the basic Islamic injunctions. The court also banned the payment of interest over late payment of bank loans. “The government should immediately remove the word ‘interest’ from all laws,” the decision said

The court further directed the government to take internal and external loans under an interest-free system and added that an interest-free system would be more beneficial.

It declared the West Pakistan Money Laundering Act and the Interest Act 1839 against Shariah. “All laws and regulations that facilitate interest are considered illegal,” the court said, adding that such laws should be abolished from June 1, 2022.

The Shariat Court said it was understood that the transition towards an Islamic system would take time but the bank's deposit "could be cleared of riba immediately". The court also said it could not understand why the government needed more time to eliminate the riba system since the case had been pending for 17 years.

In its arguments, the federal government had argued that the interest-based could not be eradicated as it would damage the already fragile economy. It had supported a parallel interest-free banking system already functioning in Pakistan. It had also urged the court to leave this matter to parliament as it had far-reaching consequences.

Express Tribune

 

[Clueless]

The Federal Shariat Court (FSC) on Thursday ruled that the elimination of interest (riba) is a legal obligation as per Islamic injunction as it ordered the government to eradicate the interest-based banking system by the end of 2027.

The decision was made on petitions against riba after the Supreme Court referred the case back to the court in 2002 following the appeals against the decision of the FSC.

In its order after hearing the case for at least 17 years, the federal court said interest-free banking was possible all over the world and it disagreed with the government’s argument which had cited negative impacts of the interest-free banking model.

It said the elimination of interest was a religious and legal obligation as parliament had already agreed to make sharia-compliant laws. The ruling read out by FSC Justice Syed Mohammad Anwar said the amount received by the banks that exceeded the actual loan fell under the category of interest. “Every kind of interest of banks is called riba,” it added.

The ruling said that the Islamic banking system was “risk-free and against exploitation” and added that eradication of riba from society was one of the basic Islamic injunctions. The court also banned the payment of interest over late payment of bank loans. “The government should immediately remove the word ‘interest’ from all laws,” the decision said

The court further directed the government to take internal and external loans under an interest-free system and added that an interest-free system would be more beneficial.

It declared the West Pakistan Money Laundering Act and the Interest Act 1839 against Shariah. “All laws and regulations that facilitate interest are considered illegal,” the court said, adding that such laws should be abolished from June 1, 2022.

The Shariat Court said it was understood that the transition towards an Islamic system would take time but the bank's deposit "could be cleared of riba immediately". The court also said it could not understand why the government needed more time to eliminate the riba system since the case had been pending for 17 years.

In its arguments, the federal government had argued that the interest-based could not be eradicated as it would damage the already fragile economy. It had supported a parallel interest-free banking system already functioning in Pakistan. It had also urged the court to leave this matter to parliament as it had far-reaching consequences.

Express Tribune

More ways to isolate your economy and doom it further.

 

[KingKhanWC]

Interest is modern day slavery for people and nations.

It also creates a power inbalance. Those who control the world banks, world financial institutions use their power to keep others down.

Pakistan should look at a long term plan to end all interest in the nation.

 

[JaDed]

Pakistan would taken loans on interest but have a banking that doesn’t have interest , how will that work?

 

[Kianig89]

Pakistan would taken loans on interest but have a banking that doesn’t have interest , how will that work?

A genuine question are Islamic banks interest fee nope its a paradox

 

[KingKhanWC]

A genuine question are Islamic banks interest fee nope its a paradox

They should be.

No interest in society will not only help the state not to get into debt but also the people will have a better standard of living. Loans can be given with no interest at a fixed fee when returned or many other ways.

 

[sweep_shot]

A true Islamic bank is all about justice, fairness, ethics, and transparency.

I support Islamic banks not just because I am a Muslim but also because these banks seem to avoid interests (which I consider as one of the most evil things on Earth).

I hope there will be Islamic banks in Canada soon. Not a fan of commercial/traditional banks.

 

[Varun]

Interest is modern day slavery for people and nations.

It also creates a power inbalance. Those who control the world banks, world financial institutions use their power to keep others down.

Pakistan should look at a long term plan to end all interest in the nation.

Islamic Banks charge the same amount of money if not more, over and above loans they give out to customers, as compared to regular banks. They may not call it 'interest', and if that makes you happy, good for you.

For anybody wondering why they have 6% in global assets - they are advised to read posts like yours. Plenty of gullible people around who will fall for all kinds of marketing.

 

[sweep_shot]

Islamic Banks charge the same amount of money if not more, over and above loans they give out to customers, as compared to regular banks. They may not call it 'interest', and if that makes you happy, good for you.

For anybody wondering why they have 6% in global assets - they are advised to read posts like yours. Plenty of gullible people around who will fall for all kinds of marketing.

There is a difference between compound interest and a fixed fee.

Compound interest can turn $1 into $1,000,000. Where do you think this extra $999,999 will come from? It has to be printed out of thin air like they always do.

Check out this video: https://www.youtube.com/watch?v=4WWv8YQHEmk&ab_channel=PracticalIslam.

 

[James]

I invested some of my pension into Islamic-compliant shares a few months ago. They have produced a good return thus far.

 

[MenInG]

While welcoming a decision of the Federal Shariat Court (FSC), Finance Minister Ishaq Dar has said that the government aims at abolishing riba in the next five years.

The FSC declared a number of laws of the country repugnant to the injunctions of Islam, as they have provided for charging or paying interest, which according to the findings of the FSC, fall within the definition of riba.

"Earning money through interest is easy but it is not legitimate," Dar said while addressing a seminar in Karachi on Wednesday organised by the Federation of Pakistan Chambers and Commerce and Industry (FPCCI) and Markaz Al Aqtisaad Al Islami.

The financial czar said that the government aimed at abolishing the prevailing interest-based system in the country.

"If we sincerely decide only to please the Almighty then in five years riba can be eliminated from the country and it can be replaced by a system based on Zakat and Ushr," he added.

Dar said that he had instructed the secretary finance to first seeks loans on Islamic Sukook Bonds and only take interest-based loans when there is no other option.

"I wish that Allah grants me powers so I could eliminate interest in a week or a month but a state has [to conduct] its business and interest-bases system has been in place for the past 75 years," he added.

Welcoming the FSC's decision, he said that the percentage of Islamic banking in the country had already reached 20 to 21 per cent, adding that the government aims to completely implement Islamic banking in the next five years.

Dar expressed concern that two state institutions — the State Bank of Pakistan and the National Bank of Pakistan — appealed against the Shariat court's decision. "Now, we have taken those appeals back."