Islamic Banking-Lecture 1

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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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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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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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.

Documents

Islamic Banking-Lecture 1