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7/30/2019 Islamic Banking-Lecture 1
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Islamic Banking
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The Debate of Riba /Interest
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Quranic Injunctions on Riba
The Holy Quran verses [2:278-279]
278. O ye who believe! Fear Allah, and give
up what remains of your demand for usury,if ye are Indeed believers.
279. If ye do not, take notice of war from
Allah and His Messenger: but if ye turnback, ye shall have your capital sums; Deal
not unjustly, and ye shall not be dealt with
unjustly
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What is Riba / Interest?
Consensus on meanings- Riba and
interest
Riba- Arabic word means increase
Equivalent to interest paid on loan
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Riba-al Qard
Also known as Riba al Quran or Riba al
nisa
Any thing in excess of principal paid byborrower to the lender
a) As a condition of loan
b) For an extension of Maturity
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Hadith-Relating to Riba al Fadl
Ab Sa[id al Khudrnarrated that the
Apostle of Allah (Peace be upon him) said:
Gold for gold, silver for silver, wheat for
wheat, barley for barley, dates for dates andsalt for salt, like for like, payment being
made hand by hand. If anyone gives more or
asks for more, he has dealt in r iba . The
receiver and giver are equally guilty(Muslim).
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Rationale for Prohibition
A subterfuge for rib al-nasah
Six-commodities (1) Gold (2) Silver
(3) Wheat (4) Barley (5) Date (6) Salt
Gold Silver as Monetary commodities in
past
Medium of Exchange for other commodities
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Rationale Prohibited (Contd)
Four commodities sold by weighing
Characteristics of edibility
Characteristics of Storability
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Other implications of Riba
Not merely restricted to Loan
In sale transactions-Riba al buyu
a) Riba al nasiah- Increase in lieu ofpostponement and delay of payment
b) Riba al fadl-Sale and purchase of six
commodities.
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Controversy on Meanings of Riba
Production and consumption loans
High rate of interest
An accepted fact-Interest is cost of usingcapital
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Riba-According to
Shariat Appellate Bench (SAB)
All prevailing forms of interest in Banking
or otherwise
Any interest on Government borrowings
Present financial system based on interest
need radical changes
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Evils of Riba /Interest
Greek and Roman philosophers prohibited. Non sharing of risk on capital
Creates Parasites in society-Earning withouteconomic activity
Notion that interest increases savings has provedwrong
Rich are becoming richer and poor are becomingpoorer
Credit vs Equity in business
Generates un-employment
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Islamic Economic System
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Islamic Economic System
Vs
Materialistic Economic System
Investor not concerned with the fate of
business rather fixed return Distribution vs concentration of wealth
Concept of Economics as ultimate goal and
necessity for prosperous life
S
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Islamic Economic System
Vs
Materialistic Economic System According to materialistic economics:
"Livelihood is the fundamental problem of man andeconomic developments are the ultimate end of
human life While according to Islamic economics:
"Livelihood may be necessary and indispensable,but cannot be the true purpose of human life
The Holy Quran has enunciated this basic truthvery precisely in a brief verse:
"Seek the other world by means of what Allah hasbestowed upon you" (28:77).
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Islamic Economic System
The Real Nature of Wealth and Property
According to the illustration of the Holy
Quran "wealth" in all its possible forms is athing created by Allah, and is, in principle
His "property".
"Give to them from the property of Allah
which He has bestowed upon you." (24:33).
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Islamic View on Property
(1) Whatever wealth man does possess hasbeen received from Allah.
(2) Man has to use it in such a way that his
ultimate purpose should be theother world
(3) Since wealth has been received from
Allah, its exploitation by man mustnecessarily be subject to the
commandment of Allah.
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Form of Allahs Commandments
a) Allah may command man to convey aspecified production of "Wealth" to anotherman.
b) He may forbid you to use this "wealth" in aspecified way. He has every right to do sobecause He cannot allow you to use
"wealth" in a way which is likely to producecollective ills or to spread disorder on theearth.
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