Financial Highlights on Charging Simple & Compound Interest is disastrous for everyone, isn’t it?

Produced By: Rehan AhmedCourse Supervisor: Dr. Abdul Rehman Zaki(Chairman KUBS)Subject: Introduction to Islamic Business & Finance

Disclaimer:

Information, facts, figures that are provided in this case study based on our personal research, observations & opinions. References will be supplied upon request.

1) What is Compound Interest?

2) How much is Compound Interest actually worth?

3) What Islam says about Compound Interest?

4) Some Misconceptions?

5) Conclusion

What we'll learn

Interest(Riba-an-Nasiyah)

Simple (Sood-e-Mufrid)

Compound Interest(Sood-e-Murakkab)

Types of Interest

Definition of Simple Interest

Interest calculated only on the initial investment.

For e.g., Interest on 100 Rupees Interest Rate 10% Interest Calculation Channel: Simple Interest

Annually Tenure Two Years 220 Rupees.

Definition of Compound Interest

Reinvestment of each interest payment on money invested, to earn more interest.

For e.g., Interest on 100 Rupees Interest Rate 10%

Interest Calculation Channel: Compounded AnnuallyTenure Two Years 221 Rupees.

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How much is Compound Interest worth?

How much is Compound Interest worth?

After  Simple Interest Compound Interest

1 year 110.00 110.00

2 years 120.00 121.00

3 years 130.00 133.00

4 years 140.00 146.00

5 years 150.00 161.00

10 years 200.00 259.00

20 years 300.00 672.00

30 years 400.00 1,744.00

40 years 500.00 4,526.00

50 years 600.00 11,739.00

Total: 2,650.00 19,611.00

How much is Compound Interest worth?

How much is Compound Interest worth?

Albert Einstein’s Opinion

What Islam says about Compound Interest?

As mentioned in the Holy Book:

• O you who have believed, do not consume usury, doubled and multiplied, but fear Allah that you may be successful.

Al-Quran (3: 130)

As mentioned in Hadith:

• Abu Hurayrah narrated that the Prophet (P.B.U.H) said: “God would not allow four persons to enter paradise or to taste its blessings: he who drinks wine, he who takes riba, he who usurps an orphan’s property without right and he who is undutiful to his parents.”

Why Islam Prohibits from CI?

Major Causes:

• Embezzlement – To take money dishonestly• Bribery – A gift offered to persuade a person to do

something• Miserliness – Living a life poorly in order to store up

wealth• Callousness – Cruel or Merciless environment• Financial Greed – Non equitable wealth distribution• Bankruptcy – Unable to pay someone’s debt

Some Misconceptions

Misconceptions:

• Only compound interest is prohibited• Simple Interest is permissible

Correction:

• Aim is to terminate the shameful aspect of interest charging• Rather than Limit its Permissibility

Yes, Interest charging is disastrous for everyone, every one should abstain from it – Say no to Simple & Compounding Interest!

Conclusion

For Queries/Suggestions

Email: rehaniltifat@gmail.com

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Special Thanks to

Business Admin. Dept. University of Karachi:Dr. Abdul Rehman Zaki(Chairman KUBS)

MCB Bank Limited IBM Pakistan MobilyNoman Shahzad Burhan Ahmad Fahad SiddiquiSr. Business Analyst Sr. Consultant Sr. Product Manager(Finance Control Division)

WeSeed.com Bank-Al Habib Baghlaf-Al-Zafeer Metal Ind.www.WeSeed.com & Team Kashif Hyder Nasim Ahmed Nagori

Manager Sr. Accountant(H.R. Division)

Link to Video Demonstration

Uploaded at Youtube: http://www.youtube.com/thecompoundinterest