|
||||||||||
|
|
Money,
Riba, Usury and Interest Click here to see relevant verses from Holy Quran and Hadiths Nature and Different Forms of RIBA Islam is “Din-e-Kamil” a perfect religion. Islam is also “Din-e-Fitrat”, a religion of the nature as its laws and commandments are in conformity with laws of nature. Islam is a complete code of life for salvation and welfare of mankind in this world and afterlife. Famous English writer H.G. Wells (1866-1946) wrote: “Islam established in the world a great tradition of dignified fair dealing and created a society more free from wide spread cruelty and social oppression than any society had been in the world before”. “Islam established in the world a great tradition of dignified fair dealing and created a society more free from wide spread cruelty and social oppression than any society had been in the world before”. _H. G. Wells There are a number of commandments and prohibitions in Holy Quran and the sayings of the Holy Prophet regarding various financial matters. They relate to Zakat, bequests and inheritance, rights of widows and orphans, blood-money, trusts, compensation for work, virtues of charity, spending in the way of Allah for welfare or help of the poor and needy, slavery, trade, weights and measures, loans, trusts, contracts, prohibition for professional beggary, misrepresentation, profiteering and hoarding etc. Nature
of Riba: The word ‘riba’ as appearing in Holy Quran is translated in English
as ‘usury’ by many translators and as ‘interest’ by few. Literally ‘riba’ means
“excess or addition”. The punishment (burning in the fire in hell) for usury is
mentioned in Surah # 2 Al-Baqarah -
verse 275 Nature of Riba is described and prohibited in Surah # 3 Al -i- Imran in verse 130. A painful doom is indicated in the verse 161 of Surah # 4 Al Nisa for those who take usury as also those who devour people's wealth by false pretenses. In Surah # 30 Ar Rum - verse 39, it is indicated that charity is rewarding manifold and usury has no actual increase. When delivering the last sermon at Hajjatul Wida, the Holy Prophet abolished all usury. Although usury is condemned in Christianity and Zionism, in 7th century it had become a lucrative business as poor and needy could not find any other way except to acquire goods on credit from greedy traders on exorbitantly high rates of interest. It was a cruel exploitation of the needy that was abolished by Islam. The question often debated is that whether the interest as charged in the modern banking and financial institutions can be regarded as “riba” which is strictly forbidden in Islam. Federal Shari'at Court in 1999, declared all forms of interest based banking un-Islamic. Hundreds of articles and books have been published during the last century. The majority view of the experts, scholars and Ulemas (at home and abroad) remains that the interest as employed in the modern banking and financial institutions is "riba" which is forbidden in Islam. The view of very small minority is that banking interest is not riba and must be regarded as the price paid for use of money and a business deal. Before you form your own view after studying the verses of Holy Quran and Hadith please consider the following example. Zaid acquired a loan of RS. One million from his friend for building a house. At that time the gold was worth RS. 50 per gram. The loan was treated as 20, 000 grams of gold and it was agreed that every year Zaid would give 1000 grams of gold and the loan would be repaid in 20 years. Examined in the light of different fatwas there is no element of Riba in this agreement and it is admissible under Sharia. On the same date Bakar is sanctioned a Loan of RS. One Million by a bank on the interest rate prevailing at the time and he has to pay the annual installment of RS. 90, 000. Thus in 20 years he would be paying over RS. 18 Lacs for a loan of RS. 10 Lac and the excess of over RS. 8 Lace is considered RIBA by many. (The annuity of RS. 90, 000 per annum would accumulate to much bigger amount than 18 Lacs depending upon the interest earned by the bank.) Supposing this was interest free loan for RS. 10 Lace with annual installment of RS. 50, 000 for 20 years, how the lender would be compensated for loss of purchasing power of money under the installments paid? Will it not be unjust? In verse 279 of surah 2 the need for justice for both the borrower and the lender is prescribed. Some people opine that an agreement under verse 2/282 can include compensation for use of money and that cannot be regarded as riba but this view is not accepted by the majority. Is FSC is likely to accept this view in future? Some hope so. Now let us examine the predicament of Zaid. He is experiencing the increase in the price of gold every year. In the 20th year his last installment of 1000 gram of gold would alone cost him RES. Lac in gold purchase and he ends up by paying over 35 Lacs in gold purchases to redeem his loan, which was worth only RS. 10 Lacs 20 years ago and the excess of 25 Lacs that he spent on gold cannot be regarded as Riba as what he has paid back is 20, 000 grams of gold. This
example leads most of the people well versed with Islam and economics to believe
that the provision for loss of purchasing power of the rupee cannot be regarded
as riba as we are following "a managed paper currency system" without any
backing of gold or other commodity which by itself a usurious practice. Only
when the bank interest rate exceeds the real rate of inflation it becomes riba.
and abolishing banking interest before adopting the commodity backed currency
system would be like putting the cart before the horse. When we understand the
difference between the Monetary systems prevailing in the old days and the
modern age, and how the Modern Monetary System can be regarded as exploitative,
we can appreciate the logic of this conclusion. Of
course under the fiat system of money the banks and financial institutions can
adopt the Gold conversion system as Zaid did for their loans and advances and
other transactions but its administrative cost is quite great and control is
also problematic. The Shariat Appellate Bench of the Supreme Court on Dec 23, 1999, had upheld the judgment of the FSC, and directed the government to eliminate all forms of interest-based banking by June 30, 2001. On an appeal the date was extended to Ist July 2002. But later on a review petition by United Bank on the instance of the Federal Government, the Supreme Court stayed the order of the Shariat Bench and directed the Shariat Bench to re-examine the issue of RIBA and how the problem of business use of money and inflation can be solved. So the issue is not finally settled in Pakistan but in many other countries Interest Free Banking is flourishing. The majority view of the experts, scholars and Ulemas (at home and abroad) remains that the interest as employed in the modern banking and financial institutions is "riba" which is forbidden in Islam. The view of very small minority is that banking interest is not riba and must be regarded as the price paid for use of money and a business deal. This example leads most of the people well versed with Islam and economics to believe that the provision for loss of purchasing power of the rupee cannot be regarded as riba as we are following "a managed paper currency system" without any backing of gold or other commodity which by itself is a usurious practice. Only when the bank interest rate exceeds the real rate of inflation it becomes riba and abolishing banking interest before adopting the commodity backed currency system would be like putting the cart before the horse.
When we understand the difference between the Monetary
systems prevailing in the old days and the modern age, and how the Modern
Monetary System can be regarded as exploitative, we can appreciate the logic of
this conclusion. Quaide Azam when inaugurating the State Bank of Pakistan in 1948 had clearly advised to modify banking practices in accordance with Islamic ideals. And the State Bank and the subsequent Governments must be held accountable for their failure to follow the Quide's advice. FIAT MONEY (PAPER CURRENCY WITHOUT ANY BASE) BY ITSELF IS NEW FORM OF RIBA
Bring hardship to the masses by direct or indirect devaluation of currency or fluctuation in exchange rates.. · Harm financial interests of the masses or group of countries. The Modern Forms of Riba! 1.
Printing of Paper currency without any base. The gold standard was abandoned in
1970s. Printing of currency notes without any base or beyond the reserves required to maintain its stability, causes fall in purchasing power of the money as mentioned below: "By a continuing process of inflation governments can confiscate, secretly and unobserved, an important part of the wealth of their citizens". _John Maynard Keynes (1883–1946), British economist. There are indeed advantages of paper money and it helps in minimizing inroads of deflation and facilitates quicker mobilization of resources. But since the 8th century in China, every experiment with fiat money has generated many ills and ruined many economies destroying the middle class and fixed income groups, that are the backbones of civilization. On International level it is making rich countries richer and poor countries poorer and more dependent on aid and differences in living standards are widening and the need.
International Monetary Fund (IMF) was established in 1944 under the auspices
of the United Nations, and became operational in 1947 with its headquarters in
Washington, D.C. Its objectives are to promote international monetary
cooperation and the growth of international trade, and to facilitate
multilateral payment arrangements among member states. But after Arab-Israel war in 1960s the oil producing Arab countries resolved to rationalize the oil production and prices. That caused a big upheaval in international trade. It was estimated in late sixties that 80 % of the world’s wealth would go the oil producing countries within a decade or two. Among various measures to obstruct that flow of wealth to Arab Oil Producing Countries, United States suspended gold payments of U.S. dollars in 1971 as the quantity of dollars held by foreign governments began to exceed U.S. gold holdings by large amounts.
Since then the United States has had a fully managed currency system, one with no metallic base whatsoever. Under this new system aside from the currency in people’s pockets, most of the money consists of entries in the books of banks. In the continuing evolution, as more money is exchanged and transferred electronically, the supply of US dollars will increasingly be represented by entries in computer data banks. IMF Stops Operation in U.S. Dollars linked to Gold since 1972! IMF used to operate in U.S. dollars linked to gold. But since 1972 the IMF has used the special drawing right (SDR) as its standard unit of account, valued in terms of a weighted “basket” of currencies. Since 1971, IMF rules have been progressively adapted to floating exchange rates that are controlled by the big economic powers. It is alleged that the liabilities of the third world countries are inflated and the liabilities of the G 7 countries are reduced by jugglery of exchange rates. IMF requires its members to follow a managed monetary system without any gold or commodity base. This can be termed a new kind of ‘riba’. IMF allows standby loans to members in balance-of-payments difficulties. To be eligible for a credit quota or the loan, the country must agree to take certain corrective measures besides paying interest. The IMF also operates other drawing facilities, including several designed to provide preferential credit to developing countries with liquidity problems. Group of Seven (G7): Seven leading industrial
nations; the United States, Japan, Germany, France, the UK, Italy, and Canada
formed this group ostensibly with the aim of coordinating international
management of exchange rates after the collapse of the old system of fixed
rates. During the middle of sixth decade Arabs started using their oil production to strengthen defense against expansionist designs of Israel. The hegemony of these powers over the economic affairs was threatened. Since 1975 the heads of government of G 7 countries have been meeting once a year to discuss economic and political matters. The president of the European Commission is also invited to attend their annual summits. Russia has been a partner in political consultations since 1994. The group has been blamed for the 1987 stock market crash in which most of the oil producing countries lost money in their investments abroad. G 7 (which is now G 8 after inclusion of Russia) is also blamed for economic exploitation of Asian tigers and Far Eastern countries in 1996/97. There has been growing criticism of the group for its policies of manipulating the exchange rules to maintain their economic supremacy and to obstruct the flow of funds to oil rich Islamic countries by unfair means. It is worth remembering that during Iraq-Iran war both the countries bought weapons secretly at exorbitant prices from the leading nations of G 7. Subsequently, the attack of Iraq on Kuwait and the ensuing events have helped the G 7 countries in restricting the flow of wealth to Islamic countries. In quite a few developing countries the organizations like IMF and the World Bank are now hated. They are said to be the agents of the big 7 economic powers who are accused of practicing economic slavery and exploiting the underdeveloped or developing countries. These organizations are considered to be working for the benefit of the US and its economic partners by sacrificing the interests of the countries in debt. The disparity between the wages and salaries of Asian, European and American workers with similar qualifications and expertise, prevails not only in the West but also in oil rich Asian Countries. It is apprehended that similar treatment is meted by the aid agencies in settling the balances of payment. The products and services of Asian and Latin American countries are under-valued and those of the big 7 over-valued. One of the underlying objects of various aid programs developed by US and other developed countries has been to keep the wheels of their expanding industries running by expanding consumer base in developing countries. They were the people like J. F. Kennedy who realized that: “ If a free society cannot help the many who are poor, it can not save the few who are rich.” “The wave of the future is not the conquest of the world by a single dogmatic creed but liberation of diverse energies of free nations and free men.” _J. F. Kennedy International Bank for Reconstruction and Development or generally known as the World Bank, was established in 1944 under the initiative of the United States on the platform of the United Nations. The main objectives of the bank are “to assist in the reconstruction and development of territories of members by facilitating the investment of capital for productive purposes, to promote private foreign investment by means of guarantees or participation in loans and to supplement private investment by providing, on suitable conditions, finance for productive ---“. The World Bank grants loans only to member nations, for specific projects. To ensure repayment, member governments must guarantee loans made to private concerns within their territories. After the loan has been made, the bank requires periodic reports, both from the borrower and from its own observers. Initially the Bank granted loans were granted chiefly to European countries and were used for the reconstruction of industries damaged or destroyed during World War II (1939-1945). Since the late 1960s most loans have been granted to the developing countries in Africa, Asia, and Latin America to help them to raise their productivity and to gain access to such necessities as safe water and waste-disposal facilities, health care, family-planning assistance, nutrition, education, and housing. Continued on next page.
"By a continuing process of inflation governments can confiscate, secretly and unobserved, an important part of the wealth of their citizens". _John Maynard Keynes, British economist. Since the 8th century in China, every experiment with fiat money has generated many ills and ruined many economies destroying the middle class and fixed income groups, that are the backbones of civilization
IMF used to operate in U.S. dollars linked to gold. But since 1972 the IMF has used the special drawing right (SDR) as its standard unit of account, valued in terms of a weighted “basket” of currencies.
The group has been blamed for the 1987 stock market
crash in which most of the oil producing countries lost money in their
investments abroad.
This article was last modified on October 15, 20003.
http://www.netvert.biz/paklink/articles/riba2.html |
|||||||||
