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2. "People think that Islamic Banking system is based on faith, but it's based on justice. The system is based on justice for the two parties and how you get to the justice is extracted from Islamic faith"
A bank generatesprofit from the differential between the level of interest it pays for deposits and other sources of funds, and the level of interest it charges in its lending activities.
Samuelson states that Interest is the price of rental for the use of money
J.M. Keynes did not define interest but mentioned the rate of interest as The percentage of excess of a sum of units of money contracted for forward units of time over the spot or cash price of the sum thus contracted for forward delivery
5. Roy Harrod, regards the abolition of interest is the only way to avert a collapse of capitalism. Not only this, but he speaks with great admiration for an interest-less society in his work on Economic Dynamics(London: Macmillan, 1973).
6. In the Book, the FUTURE OF MONEY, Bernard lietar, he expertly highlights the intrinsic danger of Interest and then mentions how Islam has admirably represented the last bastion of resistance. He illustrates how interest is direct cause of inflation, wealth imbalance contributing rich getting richer and poor getting poorer.
The oldest references to usury are found in religious manuscripts of India, dating back to 2000-1400 BC where the 'usurer' is associated with any interest lender. In the Hindu Sutra (700-100 BC) as well as in the Buddhist Jatakas (600-400 BC) there are many references to the payment of interest, along with expressions of disdain for the practice.
Vasishtha, a prominent lawmaker of the era, drafted a law that banned the high caste Brahmans and Kshatryas from being usurers or money-lenders. In the second century AD, the term usury becomes relative, meaning that interest above the legal rate could not be charged; that would be a usurious loan. But usury in some form or other has continued to the present day, and although in principle it is condemned, the term 'usury' refers only to exorbitant interest, ie well above socially accepted rates. The practice operates in most parts of the world.
Do not charge your brother interest, whether on money or food or anything else that may earn interest. (Deuteronomy 23:19)Do not take interest of any kind from him, but fear your God, so that your countryman may continue to live among you. (Leviticus 25:36)If you lend money to one of my people among you who is needy, do not be like a moneylender; charge him no interest (Exodus 22:25)
The prohibition of usury was adopted as a major campaign by the earliest Christian Church, following on from Jesus' expulsion of the money-lenders from the temple.
9. In the 8th century, under Charlemagne, usury was declared a criminal offense.
Pope Clement V totally banned the practice and declared null and void all secular law defending it.
In 1620, according to the theologian Ruston, 'usury passed from being an offense against public morality, which a Christian government was expected to suppress, to being a matter of private conscience, and a new generation of Christian moralists redefined usury as excessive interest'.
The word Riba is used in the Holy Quran 8 times. In 30:39,4:161,3:130, 2:276,2:278 and 3 times in 2:275.
Those who devour usury will not stand except as stand one whom the Evil one by his touch Hath driven to madness. That is because they say: "Trade is like usury," but Allah hath permitted trade and forbidden usury. Those who after receiving direction from their Lord, desist, shall be pardoned for the past; their case is for Allah (to judge); but those who repeat (The offence) are companions of the Fire: They will abide therein (for ever). (Quran 2:275)O ye who believe! Devour not usury, doubled and multiplied; but fear Allah. that ye may (really) prosper. (Quran 3:130)
This 'demon' governs current global relations, condemning most of the world population to living under the sign of debt: i.e., each person born in Latin America owes already $1,600 in foreign debt; each individual being conceived in Sub-Saharan Africa carries the burden of a $336 debt, for something that its ancestors have long ago paid-off. In 1980 the Southern countries' debt amounted to $567 billion; since then, they have paid $3,450 billion in interests and write-offs, six times the original amount.
12. 1,500 farmers commit mass suicide in India
MrSahu lives in a district that recorded 206 farmer suicides last year. Police records for the district add that many deaths occur due to debt and economic distress.
In another village nearby, BeturamSahu, who owned two acres of land was among those who committed suicide. His crop is yet to be harvested, but his son Lakhnu left to take up a job as a manual labourer. His family must repay a debt of 3000 and the crop this year is poor.
BharatenduPrakash, from the Organic Farming Association of India, told the Press Association: "Farmers' suicides are increasing due to a vicious circle created by money lenders. They lure farmers to take money but when the crops fail, they are left with no option other than death."
13. Difference between Islamic and conventional banking
Islamic banking only deals in halal products and services. Thus, all transactions must be SHARIAH COMPLIANT i.e. must be in accordance with the Islamic Jurisprudence.
consideration of collateral to be looked upon separately. However, if the transaction is based on "joint-venture" basis, there should not be any collateral;
In a default or termination situation, the Bank (or financier) normally demand the outstanding sale price. Generally, the sale price is fixed and comprise "principal and profits" predetermined upfront before a contract is signed.
compounding calculation i.e. to conventional practice of "interest upon interest" element is strictly prohibited under Islamic banking system.
Islamic banks and banking institutions that offer Islamic banking products and services (IBS banks) are required to establish a Shariah Supervisory Board (SSB) to advise them and to ensure that the operations and activities of the bank comply with Shariah principles. On the other hand, there are also those who believe that no form of banking can ever comply with the Shariah. Malaysia, the National Shariah Advisory Council, which additionally set up at Bank Negara Malaysia (BNM), advises BNM on the Shariah aspects of the operations of these institutions and on their products and services. In Indonesia the Ulama Council serves a similar purpose.
A number of Shariah advisory firms (either standalone or subsidiaries of larger financial groups) have now emerged to offer Shariah advisory services to the institutions offering Islamic financial services. Issue of independence, impartiality and conflicts of interest have also been recently voiced.
1) Mudarabah (profit sharing)
Mudarabah is an arrangementbetween the bank, or a capital provider, and an entrepreneur, whereby the entrepreneur can mobilize the funds of the former for its business activity. Profits made are shared between the bank and the entrepreneur according to predetermined ratio. In case of loss, the bank loses the capital, while the entrepreneur loses his provision of labor. It is this financial risk, according to the Shariah, that justifies the bank's claim to part of the profit. The profit-sharing continues until the loan is repaid.
2) Musharakah (joint venture)
Musharakah is a relationship between two parties or more, of whom contribute capital to a business, and divide the net profit and loss pro rata. This is often used in investment projects, letters of credit, and the purchase or real estate or property
3)Qardhassan/ Qardulhassan (good loan/benevolent loan)
This is a loan extended on a goodwill basis, and the debtor is only required to repay the amount borrowed. However, the debtor may, at his or her discretion, pay an extra amount beyond the principal amount of the loan (without promising it) as a token of appreciation to the creditor.
16. Other Islamic banking terms are:
Sukuk (Islamic bonds),
Takaful (Islamic insurance),
Wadiah (safekeeping),
Ijarah thumma al bai' (hire purchase),
Murabahah (cost plus)
17. Islamic equity funds
Islamic investment equity funds market is one of the fastest-growing sectors within the Islamic financial system. Currently, there are approximately 100 Islamic equity funds worldwide. The total assets managed through these funds currently exceed US$5 billion and is growing by 1215% per annum.
Since the launch of Islamic equity funds in the early 1990s, there has been the establishment of credible equity benchmarks by Dow Jones Islamic market index (Dow Jones Indexes pioneered Islamic investment indexing in 1999) and the FTSE Global Islamic Index Series. The Web site monitors the performance of Islamic equity funds and provide a comprehensive list of the Islamic funds worldwide.
18. Why Islamic Banking Is Successful?
Islamic Banking Principles And Sub-prime Lending
The religious teaching underpinning Islamic finance is concerned with justice in financial contracts to ensure that none of the parties is being exploited.
Riba( interest or usury)is one source of exploitation, especially, as in the case of sub-prime lending, the highest