Monday, July 17, 2006

How the Banks are Subverting Islam's Ban on Usury
By Tarek El Diwany
Financial Times July 14 2006
www.ft.com


In about 1220 a canonist named Hispanus proposed that, although usury
was prohibited, a lender could charge a fee if his borrower was late in
making repayment. The period between the date on which the borrower
should have repaid and the date on which he did repay, Hispanus termed
"interesse", literally that which "in between is".

Soon, the money lenders of Europe were adding to the church's
theological dilemmas with the Contractum Trinius. Here, the lending
party would invest money with a merchant on a profit and loss sharing
basis, insure himself against a loss of capital and sell back to the
merchant any profit above a specified amount. In isolation each of these
contracts was viewed as permissible by the church scholars, but their
combination produced an interest-bearing loan in all but name.

Today, those who wish to make a living from lending money are adopting
the same approach to defeat the usury prohibition in Islam. Combining
Islamically permissible contracts to produce interest-bearing loans has
become the specialism that is "Islamic banking". The fact that some
leading Islamic scholars are being paid hundreds of thousands of dollars
to give religious judgments by the very institutions whose products they
are judging is, to say the least, a conflict of interest. But the
problems run deeper than this. Even if 98 out of 100 scholars judge that
a product is prohibited, an Islamic bank can employ the two who permit
it. In effect, the banks are able to choose the rules of the game while
telling everyone else that they are only following scholarly advice.

Overarching these issues of moral hazard and legal semantics, looms the
more fundamental question of whether Islamic finance can be practised
within an interest-based monetary framework.

Today's monetary system developed from the practices of European
goldsmiths in the 17th century who accepted deposits of gold coins for
safe-keeping. Receipts for such deposits would often be issued in
"bearer" form and, with growing public familiarity, these came to be
accepted in payment for goods and services. The receipts had become an
early form of "bank money".

The goldsmiths were now in a position to transform themselves into money
lenders, but when the public came to borrow money it was paper receipts
not gold coins that the goldsmiths loaned them. This policy had the
great advantage that receipts could be manufactured at almost no cost,
while gold itself could not be. William Paterson, a founding director of
the Bank of England, was well aware of the commercial implications. "The
Bank hath benefit of interest on all moneys which it creates out of
nothing", said Paterson of his new bank in 1694.

Why, if the banker truly had the power to manufacture money, did he not
simply print receipts and spend them on his own consumption? The answer
was largely one of commercial risk. Spent receipts would in due course
return to the bank for redemption in gold, gold which never existed in
the first place. By lending the receipts instead, the banker could
charge interest on the amount lent. Upon repayment, the receipts could
be destroyed as easily as they had been manufactured, but the interest
charge would remain as revenue. Thus, loans at interest and private
sector money creation became the two core components of commercial
banking.

The gestation of products within this very un-Islamic framework has
resulted in the ultimate mutant, an Islamic personal loan at 7.9 per
cent annual percentage rate courtesy of the Islamic Bank of Britain. How
different this is from the original vision of Muslim economists.

I propose that by segregating the payment transmission and money
creation functions, and by sharing profits and losses instead of seeking
interest payments come-what-may, bankers' motivations would be much more
closely aligned with those of their clients. A link would be
re-established between the financial sector and the real sector, with
beneficial consequences beyond the economic domain.

The resources and infrastructure of whole nations are increasingly being
sacrificed on the altar of interest-bearing debt. If Islamic banking
adopts a genuinely Islamic paradigm it can offer a solution to a world
hungry for alternatives. If it does not, it will enjoy a brief life as a
get rich quick bandwagon and then disappear into the relics of financial
history.

The writer is author of The Problem With Interest
(www.theproblemwithinterest.com)

37 Comments:

Blogger Abū Ilyās said...

al-salamu 'alaykum,

Please could someone give me link me to a site that gives the current value of a gram of gold in pounds sterling?

I need it for a zakat calculation and my own efforts with google just confused me more. (I don't understand what a troy ounce is)

9:16 pm  
Blogger Hamilton70554 said...

That the sexual intercourse of adults appears strange to children who observe it, and arouses fear in http://wowyesaf.info/ro%C5%9Blina+Ro%C5%BCa+%28krzew%29.html them, I dare say is a fact of daily experience.. And now I shall demonstrate to you another subordinate wish-fulfillment in your http://startso11.info/www.Ania+Shirley.pl.html dream.. Then they, hiding behind counters http://storyah44.info/budowa+fundamentu.html and suspended cloaks, laughed and snickered until they reconvulsed the elder's vis-a-vis, who had been making desperate efforts to resume her demure appearance.. For discretionary reasons I have inserted the tin for another material in which the father deals, without, however, changing anything in the http://storyah44.info/prawo+zam%C3%B3wienia+publicznych.html verbal expression of the dream.. Why, I've seen him set Dan'l Webster down here on this floor--Dan'l Webster was the name of the frog--and sing out, Flies, Dan'l, flies! and quicker'n you could wink he'd spring straight up and snake a fly off'n the counter there, and flop down on the floor ag'in as solid as a gob of mud, and fall to scratching the side of his head with his hind foot as indifferent as if he hadn't no idea he'd been doin' any more'n any frog might http://startso11.info/stolarstwo+%C5%9Bl%C4%85sk.html do.. But it is known that no matter what idea the contractor may have in mind, and how desirous he may be of putting it into operation, he can do http://startso11.info/www.welgro.pl.html nothing without capital; he must depend upon a capitalist to defray the necessary expenses, and this capitalist, who supplies the psychic expenditure for the dream is invariably and indisputably a wish from the unconscious , no matter what the nature of the waking thought may be.. Two of the boys glanced slyly at each other, with what Edward Morland comprehended as an expression of pitch-penny http://startso11.info/dar%C5%82owo+info.html and marbles.. He went in to talk with Uncle Billy. http://startso11.info/live+score.html. Gideon stretched himself, and looked out of the window, and http://startso11.info/wwqw.google.pl.html emotion seized him.. A newsboy recognized http://startso11.info/heneza.html him.. The boys threw themselves upon him http://startso11.info/ruskie+piczki.html and ejected him.. It must suffice to state that we obtain matter enough for the resolution of every morbid idea if we especially direct our attention to the unbidden associations which disturb http://startso11.info/dogika+specjalna.html our thoughts --those which are otherwise put aside by the critic as worthless refuse.. It forms part of a cycle of http://startso11.info/adidasy.html dreams, and can be fully understood only in connection with the others.. I stepped into the next office in the street, and a mild-faced, genial man, also a large and opulent merchant, asked me my business in such a tone, that I instantly looked through my spectacles, and saw a http://startso11.info/spos%C3%B3b+na+upie%C5%BC.html land flowing with milk and honey.. It was thus her wish that I should be in the wrong, http://startso11.info/bghjvghjvjgbgi.html and this wish the dream showed her as fulfilled.. It would have been much easier if he http://startso11.info/fmea-zarzadzanie+jakoscia.html had been a bob-tailed horse.. Buller, on the other hand, was now lively http://startso11.info/grononet.html and alert.. Among these indestructible and unincumbered wish feelings originating from the infantile life, there are also some, the fulfillments of which have entered into http://startso11.info/www.rejesacja.pl.html a relation of contradiction to the end-presentation of the secondary thinking.. Brede vanished as http://startso11.info/British+American.html he shook that grimy hand in manly fashion.. Elder Brown's step began http://startso11.info/www.mapy.eholidey.pl.html to lose its buoyancy...

10:05 pm  
Blogger barb michelen said...

Hello I just entered before I have to leave to the airport, it's been very nice to meet you, if you want here is the site I told you about where I type some stuff and make good money (I work from home): here it is

7:24 am  
Blogger adam brown said...

Hi again, see tthis is the site i told you i signed up to. It has some nice information about how to make money using OPP, i think you might find it interesting. here it is. bye!

10:18 pm  
Blogger Um Abbas said...

A brand new discussion forum to the topic of islam, islamic clothing, including questions and answers for muslim and non-muslims is being opened right now.
Help us to make this commnity nice and active!
http://umabbas.net/forum/index.php

Thank you and have a great day, Um Abbas

12:16 am  
Blogger Annuity said...

Quality information is provided in the blog.
Fixed Index Annuity

8:39 am  
Blogger Sardar Law Firm said...

Islamic Finance needs to be more available to individuals and smaller businesses who are burdened with interest.

12:35 am  
Blogger Author said...

Good day,

I would like to have you review my newest book in exchange for a small 50 word posting back to my site.

The book, "Business after the Crash" is packed full of management and organizational improvement information for businesses that are trying to cope with new global demands.

If you are interested I can send you a pdf copy for free. Don't be afraid to contact me at muradenterprises@yahoo.com and I will send you the book.

The book can be bought at http://www.magconsulting.biz/magitems.html

Thank you for your time.

Sincerely,

Murad Abel

8:14 pm  
Blogger sidra said...

A totally different topic discussed here M very glade to read this type of writing on banking system as I was looking for data home loans..
Really appreciative effort..

10:28 am  
Blogger Tariq said...

May be someone can help me understand the interest as it was defined in the earlier Islamic day and it how the old definition is still valid.ever since i started reading about the common wisdom behind behind the "Interest is not allowed in Islam", I have become very discontent about the state of affair of the Islamic banking as business, Islamic scholar who support the idea and Islamic Mullas and Zealous who are absolutely rigid about the definition of Interest. As someone who has studied and worked in Finance many years, I have learned to know that financial contracts can unbundled and bundled to change their economic characteristics. That said, however, i have not come across a coherent and systematic definition of interest which make it unique, unalterable and permanent in a way that we can banned it legally and enforce the law. Before, I ask you the specific questions, i do want to say, i find most of the writing on the topic devoid of rigorous and logical arguments. Most of of them, after the fact defense of recently introduced "so-called" Islamic products, most likely sponsored by the banking industry and other half concentrate of the finding fault with the traditional capital system - which I am not here to defined - and as a false induction claim the soundness of Islamic Finance. I believe these so-called scholar have not served the religion well by creating phantom restrictions of the working of the financial and economic system. A system which may have worked well in a barter and simplistic economy was based on set of rules relevant for that time. We have somehow taken those specific rules/laws and elevated them to "principles". Now we are trying concoct a system that fit our vision. The result is very obvious. We have western style financial products masked as Islamic products. We have western capitalistic bank reaping profit by selling to a captive market (Islamic market)product at much higher prices. Anyway, my questions are much more basic than about the current Islamic and non-islamic products.

1) Does financial capital in form of model bank money has a value?
2) Is 100% reserve requirements as proposed by many Islamic economist viable i today economy. Please draw from the Bretton Woods experience.
3)Is the fixed payment rate on lent capital is prohibited?
4) Is the high rate beyond what is considered fair is prohibited?
5)Is the distinction is made between consumer loans (non-productive loans)and investment loans (productive loans)?
6) Is free financing of the needy is viable by poor Islamic countries?

7) If the investor has to share risk, what risk he must share, a) total business risk, market risk (opportunity cost) or risk of default?

8) Is the unbundling of risk and yield completely prohibited?

9) If yes, Insurance contracts must also be prohibited?

10) If yes, nationalized health care must also be prohibited?

11) How would you defend the legitimacy of Zakat fund fr social welfare of the community? It is a form af an option/insurance that all individual are force to buy and payoff is the a sort of binary option.

here are two more practical problems.

If one can only invest in business, how do we solve the exit problem. How should business be valued if the operator is not willing to accept the new partner.

How can one avoid problem of moral hazard when investor/lender is not business operator and cannot monitor.

11:12 pm  
Blogger Carl said...

see my article on this topic at:
http://www.associatedcontent.com/article/2205039/islamic_finance_the_contracts_instruments.html?cat=3

12:24 pm  
Blogger jonathan said...

I am owner of large portfolio of premium Islamic financial domain names.

The Islamic bank or country who will buy and own those domain names will DOMINATE Islamic Sharia complaint banking, services and products globally forever and will be global leader in Islamic finances on the biggest markets of all - World Wide Web.

Sharia compliant financial products and services are getting developed every day and there is a huge trend about it globally. Only in England, there is already 4 Islamic Sharia banks, first is just open in Switzerland, there will be firts in Germany this year, sharia credit cards are being developed, debit cards, Islamic mutual funds, hedge funds, all other sharia financial products and services... There is more then 700 sharia financial institution around the world with app 7 trillion USD in capital and the one that buys my domains will make a huge step forward in front of competition.

Domains are now new and not developed to web sites, but once they developed, most of them will be in the 1, 2, 3... place of the first page of Google search results for every Islamic, Muslim, halal, sharia, shariah financial term. Globally.

Potential of those domains is to have maybe even to several hundred thousand unique visitors per month (!!!) - visitors, international and Muslim investors, banking professional, investment fund managers and other that have business or personal interest for Islamic banking, loans, asset management, stocks, investments, etc...

Any publisher, Islamic bank or country (this domains can be even strategically used by countries to take a leading role in Islamic finances) will dominate search engines in entire search results for Islamic finance, services and products. Forever. And with those domains will be a global leader in further developments of Sharia compliant financial products and services.

ShariaBankAccount.com
ShariaBankAccount.co.uk
ShariaBankAccounts.com
ShariaBankAccounts.co.uk

ShariaCompliant.co.uk

ShariaFund.co.uk

ShariaMutualFund.com
ShariaMutualFund.co.uk

ShariaMutualFunds.com
ShariaMutualFunds.co.uk

ShariaBroker.com
ShariaBroker.co.uk

ShariaBanks.com

ShariaCredit.co.uk

ShariaBrokers.com
ShariaBrokers.co.uk

ShariaDebitCard.com
ShariaDebitCards.com
ShariaCreditCards.co.uk

ShariaInvestments.co.uk

ShariaAssetManagement.com
ShariaAssetManagement.co.uk

IslamicAssetManagement.co.uk
IslamicMutualFund.co.uk
IslamicMutualFunds.co.uk
IslamicHedgeFund.co.uk
IslamicHedgeFund.co.uk

IslamicBroker.co.uk
IslamicBrokers.co.uk

IslamicShares.co.uk
IslamicStocks.co.uk


HalalAssetManagement.com
HalalAssetManagement.co.uk

HalalMutualFund.co.uk
HalalMutualFunds.co.uk

HalalBankAccount.com
HalalBankAccount.co.uk
HalalBankAccounts.com
HalalBankAccounts.co.uk

HalalBanks.co.uk

HalalForex.co.uk

HalalPensions.com

HalalPesnionFund.com
HalalPensionFund.co.uk
HalalPensionFunds.com
HalalPensionFunds.co.uk

HalalShares.com
HalalShares.co.uk
HalalStocks.co.uk

HalalBroker.com
HalalBroker.co.uk
HalalBrokers.com
HalalBrokers.co.uk

MuslimAssetManagement.com
MuslimAssetManagement.co.uk

MuslimFund.com
MuslimFunds.co.uk

MuslimMutualFund.co.uk
MuslimMutualFunds.co.uk

MuslimHedgeFund.com
MuslimHedgeFund.co.uk
MuslimHedgeFunds.co.uk

MuslimBankAccount.com
MuslimBankAccount.co.uk
MuslimBankAccounts.com
MuslimBankAccounts.com

MuslimBanks.co.uk

MuslimBroker.co.uk
MuslimShares.com
MuslimShares.co.uk
MuslimStocks.co.uk

MuslimForex.com

MuslimDebitCard.com
MuslimDebitCard.co.uk
MuslimDebitCards.com
MuslimDebitCards.co.uk

MuslimPensionFund.com
MuslimPensionFund.co.uk
MuslimPensionFunds.com
MuslimPensionFunds.co.uk

plus 100 more with Sharia, Shariah, Islamic, Muslim keywords....

5:10 pm  
Blogger 免費看a圖 said...

jp成人 -
百分百成人圖片 -
成人文學 -
八國聯軍成人 -
成人漫畫 -
成人論壇 -
成人貼圖站 -
成人光碟 -
台灣成人網 -
免費成人影片 -
情色交友 -
a片下載 -
av片 -
月光論壇 -
台灣辣妹貼圖區 -
辣妹自拍區 -
成人聊天室 -
色情聊天室 -
視訊辣妹自拍 -
日本辣妹自拍全裸 -
ut聊天室 -
辣妹視訊 -
美女視訊 -
日本熟女人妻自拍 -
美女視訊 -
18成人 -
免費視訊聊天 -
成人網站 -
成人影片 -
成人交友 -
成人貼圖 -
微風成人區 -
成人文章 -
日本美女寫真集 -
色情遊戲 -
成人小說 -
成人圖片區 -
色情a片 -
色情網站 -
色情聊天室 -

7:51 am  
Blogger Jameel Jamali said...

Assalam alaikum,
I am a student of Islamic Banking and Finance in Karachi, Pakistan.I need following information about Qatar International Islamic Bank :

1) Its ownership structure 2) area of specialization 3)its performance after Financial Crisis and 4)Future plans.

I have to complete an assignment and need the above information. I will be Thankful to anyone who helps me out with this information/sources.

regards,

Jameel Ahmed Jamali
email : jameel.jamali@gmail.com

6:19 pm  
Blogger robin said...

Banking, finance and market place are amongst some of the very complex category of services. Software making process with maintaining the integrity at each level can make the things easy to deal for us.

11:26 am  
Blogger Careem said...

Great Article

Great Article.

Rushdi Siddiqui, the Global Head of Islamic Finance for Thomson Reuters, USA, and a prominent personality in the Islamic Banking & Finance (IBF) Industry, will deliver the keynote address at the 2nd Islamic Banking and Finance Conference scheduled for the last week of July. For more details http://catchadvertising.com/blog/2010/07/21/global-head-of-islamic-finance-to-attend-sri-lanka-islamic-banking-finance-conference/

8:28 am  
Blogger Florida said...

Nice to read this piece.
Keep writing more about it. It is really gracefully and very well written skill.
Thanks for sharing.
Florida Residential Mortgages

6:27 pm  
Blogger victoria said...

I have visited lot of blogs but yours is very nice to visit.I regularly visit your blog.Great job.Keep up dating such a nice blog..


saving

6:32 am  
Blogger Richard said...

Great blog post! Really enjoyed reading it because there are so many useful information in there. Also thanks to Victoria for sharing borrowernews.com

11:35 am  
Blogger admin said...

islamic economics research www.ie-research.blogspot.com

1:00 pm  
Blogger dinesh parikh said...

IT IS VERY HOT USEFUL INFORMATION!

Here is more information related ONLINE FREE MONEY EARNING,NO FEES TO JOIN,

MAKE MONEY BEFORE YOU PAY-90 DAYS FREE TRIAL-NO CREDIT CARD INFORMATION REQUIRED

IF YOU ARE READING THIS & HENCE YOU CAN DO THIS 100%:

Please visit and join free immediately(do not think)to earn A LOT at:

http://123-on-line.blogspot.com/2010/07/hrefhttpsmart.html

12:41 am  
Blogger new said...

Hi im a university student, doing a project on (islamic finance) conventional vs islamic banks, money creation vs economic evelopment, role of speculation.
i need some help on the topics , i hope u'd be able to provide some info on newbie380@gmail.com
i'd appreciate ur response.

1:28 pm  
Blogger free online slots said...

Nice and thx for this greta article, where you offer us some of the best info about economy. It a release to know that mortgage lenders , its a competitive market and neds serious and professional peoples.

12:42 pm  
Blogger Allen Sawyer said...

I'm glad I have read your points here. Good discussion. Thanks for posting.

Allen Sawyer
Dealer | Credit Card Machines

7:05 am  
Blogger SeMo said...

السلام عليكم
قمت مع مجموعة من الأصدقاء بإنشاء عدد من المدونات ، ووضعنا بها إعلانات جوجل أدسنس، وبالفعل نحقق دخلا مش بطال
فعلى جميع الأخوة الكرام سواء عنده مدونة أو لم ينشئ مدونة بعد، وكانت له رغبة في الاشتراك معنا في هذا العمل، برجاء مراسلتي على الإيميل niletrader@gmail.com
والله الموضوع مثمر، وبالفعل وصلتنا دولارات من أدسنس ، فالموضوع ليس وهمًا
برجاء نشر هذا الموضوع لتعم الفائدة
مع تحياتي
Aslamo Alikom
We are a group of Egyptian guys who established some blogs where we added Google Adsense codes so we make some money on monthly basis, as a way of coming over our financial problems!!
if you would like to help us through allowing us adding the Adsense code to your blog and share the profits with you, pls contact us niletrader@gmail.com
Yours
Ash

9:18 am  
Blogger shoeb said...

Sharia Compliant Ijara financing is available now in the US and Canada for Masjids, check out http://ijaraloans.com

4:50 pm  
Blogger kadz said...

yeah interest is still haram though
http://haram2halal.com/2011/08/mosques-and-masjid-7/

2:36 pm  
Blogger Ali said...

Alsalam alaikum,

Financing and investing for Muslims in the west can be at time frustrating. For anyone who wants to network together to discuss solutions and opportunities, you are welcome to join my Muslim Finance Forum.

6:47 am  
Blogger Scott Davidson said...

Thanks for your posts, Iam looking forward for future posts on Risk Free Day Trading. Please share new post on your blog that would be very helpful for me and other visitors.

I am a big fan of yours and waiting for new posts.

Scott

4:55 pm  
Blogger jazaafinancials said...

hello Admin http://jazaa.org work on Islamic finance, Halal credit cards, Islamic investments, Major prohibitions, Maisir and Riba, CASEF Islamic Securitization, Islamic Economic System, Middle East to Spur Sukuk Sales,find on http://jazaa.org/A contemporary, intuitive, intriguing and informative blog specially focused on Islamic Finance. Through this blog we plan to provide the readers interesting insights and platform for discussion on the Islamic Finance

8:03 am  
Blogger natasha khan said...

In our daily matter how we can personally have the Shariah Adviosry from the scholars?

11:46 am  
Blogger Gexton said...

The information in this blog is extremely useful for the people.
Mortgage Advice Bournemouth

6:19 am  
Blogger Eva Karea said...

This blog is further than my expectations. Nice work guys!!!lexington law

6:44 am  
Blogger Muhammad said...

Nice blog. Do visit mine on http://financialadviceme.blogspot.ca/2015/01/investment-options-for-muslims-in-canada.html

10:17 pm  
Blogger Muhammad said...

How to Avoid Interes

10:33 pm  
Blogger U Salmon said...

Good afternoon,

Congratulations on your informative and well-written blog.

I am writing from the University of Salford, where we are looking for internships and placements in Islamic Banking and Finance. We have around 10 MSc students each year, on the "MSc in Islamic Banking and Finance". Our students are eager to take up a work-based, 3 or 6 month internship. Would it be possible for us to write a post for this blog, to encourage your readers to get in touch so that we can organise a placement?

Kind regards

Udeni

Udeni Salmon
Employability Officer
Salford Business School,
Room 101, Lady Hale Building, Salford, M5 4WT
Tel + 44 (0)161 295 5146
E u.salmon@salford.ac.uk |www.salford.ac.uk

11:58 am  
Blogger Paramount Payment said...

Decent blog.

Fascinating and significant data.

A debt of gratitude is in order for offering to us.
Retail Financing

6:44 am  

Post a Comment

Links to this post:

Create a Link

<< Home