Monday, March 17, 2008

An Islamic Economic Rule Proven Over The Years

An Interesting finding....

In Islam, one of the things that are prohibited is Riba .

The general meaning of Riba is:

"The literal meaning of interest or Al-RIBA as it is used in the Arabic language means to excess or increase.
In the Islamic terminology interest means effortless profit or that profit which comes free from compensation or that extra earning obtained that is free of exchange.

"Riba` is a loan with the condition that the borrower will return to the lender more than and better than the quantity borrowed
."

Nowadays, some muslims might argue that bank interests (i.e. saving accounts) are not prohibited (especially in some cases where people have no other option to live on), which is understandable in some specific (no other option) cases.

Putting that aside, here's the interesting finding...

An economic methodology and finding:

The lower the interest rates Banks give, the more flourishing the economy will get. Because, everyone instead of saving money in banks, they'll invest in the market.

Hence in the USA, interest rates are extremely low.

Equation: Little (or no) interest = better economy.

In other words, 1400 years ago a ruling came out (as part of Islam) that prohibited interest rates (from loans for instance), and only recently economists found out that it is actually better for the economy to have little (or even no) interest rates!!

Sob7an Allah! Islam is GREAT!

Mood: mmm...

15 comments:

Arima said...

Another great post...I think that this applies to many many things though. At first we don't ubderstand why Islam makes a certain rule but then with experienece and life we realise the wonderful logic of it. Islam is a wonderfully practical religion :)

Fadfadation said...

Exactly,

"Every rule God sent has a reason behind it.
We should follow it even if we don't understand it (at a certain point of time or situaion)".

That's what Islam taght us.

But what can we say about people who just want to bend rules just to "please" the western veiws (or to be like them) or even just to please their own desires and preferences....
wala 7awla wala kowata ila belAh :\

Thanks

Shimaa Gamal said...

Hello :)
I am not going to argue if bank interest is Riba or not, because I am not qualified to do. But I have studied economics and the rule of law interest rate is better for your economy isn't right. Interest rate is a tool to regulate the economy. There are lots of books to explain how to use interest rate as tool of regulation. It is complicated as terms like inflation will get into the equation. Plus, banks plays an important role in investements and savings. Comparing the Islamic rule of no Riba with the economy of the USA isn't feasible, because the economy of the USA is complicated and diversified.
But you mentioned that the low interest rate lead to more investment in the market which is true, but this market is the huge stock market. Which will lead us ba2a le film el speculations ... etc.

My point is, Islam is great mn 3'ier lama nedakhal el interest rate fi el mawdoo3. lw tele3 theory delwa2ty ye2ool nekhaly el interest rate 3alya and this is better, ma3na keda en Islam isn't great? wala handtar nerga3 fi kalmna we ne2ol asl interest isn't riba?
If there is something about Islamic economy elly molfeta lel nazar fa heya the theory of ownership. Islam is a set of regulations, we 3ashan keda el rule wad7a fi el ownership 3aks el economic theories.

I hope I made my point clear

Best Regards
Shimaa

Fadfadation said...

Hi Shaima,

You made yours clear, but obviously i didn't...lol

"Islam is great mn 3'ier lama nedakhal el interest rate fi el mawdoo3"...

Maybe it was my mistake that i wasn't clear in my post:

1- I am not debating if Islam is great or not (it is GREAT with or without anything i say). And we don't need to find TALAKEEK to prove it!

2- It wasn't my intention to Justify my religion or how good it is using this simple example.

I was just stating an Interesting fact about something "specific".

---

Now, for what i have mentioned in my post. I'll try to explain...

"The lower the interest rates Banks give, the more flourishing the economy will get. Because, everyone instead of saving money in banks, they'll invest in the market.
"

What i said is correct as a general note (as you have stated about more investment in the market...etc.).

But, of course economy is very complicated and there are many things that impact it.

A simple example (in simple terms)...

I have money (a person). I either put it in a savings account (bank) or i invest in the market (open a company, stockes...etc.).
If interest rates in banks are low...then i as an individual will put my money in the market.
More money in the market, means more companies, more jobs, more capital for companies....etc.

I am talking from a indivuals perspecive... interest rates WILL divert my investment to or from banks. And having low rates will make me place my money in the market...which is good for many if you think of it.
----

As for “Comparing the Islamic rule of no Riba with the economy of the USA isn't feasible...”
that wasn't a comparison 7adretek asasan! ...

I was just mentioning that USA has low rates on Bank interests.
And as you said yourself, they use interest rates as a way to control the economy (amongst other things)... which actually validates my point.
Maybe i should have used the words: "One of the ways to" or "An aspect to"... but at the end…it is valid.

One can not compare the Islamic economic system to the USA system (in ALL terms)...they are totally different and that would take a Zillion aspects to talk about...etc. and I am not the one to talk about it.

Believe me, that was not my intention.

I hope I made myself clear.

Anonymous said...

I think i got your point...

Lowering interest rates is a way to divert money into the market which works fine for companies, jobs…etc”.

The Prohibiting Riba rule in Islam leads to the same results ( divert money into the market which works fine for companies, jobs…etc).

Which means, Islam had a rule that does exactly what economist use (besides other ways) these days.

Good point, keep it up :)

M

Fadfadation said...

That's what i meant M.

What happens in the whole economic system and how they control it (and comparisons) is not what I was talking about.

Although now i know who to ask when i want to dicuss the whole system (Shaima..hint hint)...lol

You've put it in a simpler more direct way.

Thanks :)

Shimaa Gamal said...

It is me again :)
Actually there is no comparison between an economic system and Islam. Because Islam is a constitution, while economic systems are just trials to make optimum use of resources.
You have a point, only if we agreed that interest is Riba. And as an eternal student of economics I can’t agree with that explanation. Interest isn’t an effortless profit. Interest is the price of money when money becomes a good. And money is the crucial good for any given economy.
If we assumed that interest is “Riba” we will put the whole economic system at stake. For the very same reasons you mentioned as an argument for no or low interest rates. If we have no banks and no interests, corporations and huge economic entities won’t find sources of finance. People who don’t have knowledge about investment portfolios won’t have a way to make use of the money they saved. Banks are important as they basically work as collection pools for excess money, i.e. saving and then give this unused excess money to those who want it. The money owners are being paid as a price for this money; those who lent the money pay interest for the bank that kindly collected this money for them.
Setting aside the complexity of using the interest rate as a monetary tool to regulate the economy, interest is important for a modern economy to function, so if it turned out to be riba and 7aram I guess we should propose a substitute else Islamic economies haterga3 lel 3osoor ma qabl el wosta each one in his own with no chance of worldwide competition.
I like enak you related both things to each other, bas I can’t go with the interest is riba explanation.
Btw, ana ah darstely kelmtien economics wel mafrood ya3ny eny fadely khatwa wakhod masters degree fi el economics bas mesh ma3na keda enak tegy tes2alny :) enta 3aref el ta3leem el masry mesh bey3amar fi el dema3’ LOOL

Fadfadation said...

Well hello again :)

Actually, Islam is a all in all system (not only a constitution). It is part in every aspect in life, even economics.

Maybe it is not a detailed "to the comma" type of system (which gives it flexibility if you think of it).

---

I haven’t said that all Interests are Riba, please read my lines carefully.
There are different opinions about Interest rates in banks.

Let me define what I mean by interest rate when talking about Riba (which is from what I read about Riba):

Besides the definition that I stated in my post…
“Riba would be any transaction without goods involved or that has a profit rate defined upfront!”

The banks interest rates that (as far as I have read) the vast majority of scholars have agreed are Riba is “Bank Loans” and “Saving Accounts” (and others).
Although (as I mentioned in my post), things are permissible in some cases (where there is no other option or it is inevitable).

The reason why Islam is against profit that is pre-defined is that “it is not fair” to people.

Profit and loss should be balanced for all parties!
It makes no sense of fairness that if a project fails, the bank gets the pre-defined profit no matter what, while the project owners (partners) get slaughtered.

---

As for no interests then no banks…who said so?! Tab3an Banks are important!

Bosi, I am no Islamic economic system researcher, but when I think of it, a simple example would be…

Banks can still work but lend money as partnership not as a loaning with interest rate institute.
Ya3ny… banks invest their money in projects or companies through non-interest loans (they go in as partners).

In this way, winning and losing is a balanced equation for both the company owner (people) and the bank (institute), and this would suffice the way islam sees how trade and partnership should be (per the definitions of non-Riba).

You might say, "yeah…but why would people put money in Banks then (if there is no interest\profit)"…
my answer would be: ”who said they won’t make money (profit) from it?”

An example of how this would work for me (masalan):

I (a person who wants to stay away from Riba as much as I can), would put my money in non-interest rate banks (interest rates defined as “Riba would be any transaction without goods involved or that has a profit rate defined upfront!”) to invest my money and not go off doing investment myself, simple because I DO NOT KNOW MUCH ABOUT TRADE AND INVESTMENT.

So, the odds of the bank with all its experts using my money in the right projects (after enough research and studies) is higher… that is why I’d let them do the investment on my behalf.

---

What you are talking about is :”interest rates are profits full-stop”.

I am talking about:” interest rates that are “PRE-DEFINED” are Riba, and anything else besides that (define it as interest or profit or whatever economists want to name it) is fine” (that is per my readings).

Walaho a3lam.

Da7’altena fy seka Tanya 7’ales 3’eer mawdoo3 el post… lol

Yaaaaaaaaaaaaaaaaaaaaaah wee Masters Kaman! Ya 3am inta motamaken bas bee te7’zy el 3een… :P

Queen O'Danile said...

Another great post and interesting dialogue. OK, I hate to do this to you but... ;-)))

I got tagged and so I am tagging you! Please visit here for details: http://amreekia.blogspot.com/2008/03/ive-been-tagged.html

Shimaa Gamal said...

Hello, It is me again :)
Though I have been suffering from a continuous headache and I have been trying to write this reply wanna fay2a :) but seems that mafeesh fayda so, if it didn’t make much sense, ma3lesh it is all because of the spring :)
First I think that we are both agreeing on the concept. Which is Islam is a set of rules. I called it a constitution and you called it an all in all system. It is an all in all system of guiding. It guides while leaving the flexibility to adapt. That’s why I called it a constitution. It is not a strict law, at least not when it comes to day to day aspects. Economics is a day to day aspect, that’s subject to change over time. The amazing thing about Islam is its flexibility. It is not just like people think, it is not rigid, that’s why it is fit for all times. Just like what you said. It is not detailed to the comma. If it was so it was going to fit to a certain time.
So, we are tuned at this point ;)
You said that NOT ALL interest rates are Riba, and this is the point where I will not agree. Because, for me things are either 7alal or 7aram. We can’t just say that it might be ok for certain people in the time it is not ok for the others. Why? Because it is not rokhsa, for instance like rokhset el fetar fi Ramadan or qasr el sala fi 7alet el safar. If interest is Riba, so it is Riba for everyone and in all cases, if it is not so it is not.
Now, if savings accounts are Riba, so the banks will never function as people won’t deposit their money in savings accounts, i.e. the money pool function won’t function. If loans are Riba, then again the role of banks in financing giant businesses won’t function too. As simple as that, these two functions if turned to be Riba Banks won’t function.
As for the example you have given, I have news for you. These banks that claim themselves as Islamic banks are just other banks bas using other terminology. They are using the term morab7a instead of interest and things like that. They are using a fixed interest rate but they make it seem as a fluctuating profit. Mafeesh far2, you place your money and you take profit the same way any other bank function bas the difference enohom they use Islamic pill. Which is e7na sho3’lena 7alal wel nas el Tanya sho3’laha 7aram. E7na ben3mel investment and others mesh bey3melo. Enta el 7aga elly meday2ak en el interest is predefined, for banks interest paid to you is a cost. So, as any other business costs bete7esb mn el awal.
My point is, if interest is Riba, so the whole system should be revised. The example you gave would function well but not through banks, investments are held through stock markets. So anyone who believes that loaning and saving accounts are feehom shobhet Riba the solution will be in investment portfolios, we di el return beta3ha depending on the performance of the stocks beta3et el companies elly fi el portfolio. It is the safest kind of investment, le2n lw wa7ed kheser el mafrood el ba2y maykhsarsh bas still it is not pre-determined and the risk of khosaret kol 7aga mawgooda. If you wondered tayeb as far as en companies beyakhdo finance through capital, i.e. stock market whenever applicable eh elly beykhaleehom yakhdo loans mn el banks, hena yegy el so2al el mohem which is cheaper to borrow or to use capital we haza kalam shar7oh yatool : and I know I have got this discussion bara el topic enough
I wish I made my point clear, I am sorry for being long
Shimaa

P.S
I am not saying whether el interest 7alal wala 7aram :) ana maleesh da3wa ana bas bawada7 concept 3am fi el business wel economics

Fadfadation said...

“We can’t just say that it might be ok for certain people in the time it is not ok for the others.”

Actually we can. And I can prove it.

1-
فَمَنِ اضْطُرَّ غَيْرَ بَاغٍ وَلا عَادٍ فَلا إِثْمَ عَلَيْهِ إِنَّ اللَّهَ غَفُورٌ رَحِيمٌ

2- Al Imam Al Shafe’ee when he was in Iraq, he used to confirm divorce (as a mufti and judge) between married couples by a one time “You are divorced” sentence from a man to his wife.
When he moved to Egypt (with Egyptians being so emotional and using “you’re divorced all the time”, he changed his verdicts to 3 times (man has to say the sentence 3 times before divorce is %100 done for).

3- Think of this scenario:
An old woman with no children a bit of money left over from her husband. She has no idea about trade and investment. She knows no one whom has a company which she can trust enough to put her money in.

The only (valid like) option she has is to put her money in an institute that knows how to invest money…hence a bank account.

So, don’t you think that a woman like her is one of those “MODTAREEN” (have no other option) and can invest her money in a bank (riba or non).
Of course it would be better for her to put in a non-riba bank, but masalan in the west (if she lives there) there is no other option (non-riba ones)!

To summarize: “Not all cases of 7alal and 7aram apply to all people, because some people can full under the “have no other choice” group”.

Walaho a3lam

---

“Now, if savings accounts are Riba, so the banks will never function as people won’t deposit their money in savings accounts”

I already answered that part in my previous comment (the example of me not knowing what to do with my money, so I give to a non-riba bank to invest for me).

People WILL still invest in banks (may be not as much but the target should be applying Shar3 Rabena, not masla7et el bonook fela7'r!)

---


“I have news for you. These banks that claim themselves as Islamic banks are just other banks bas using other terminology.”

I never said that Islamic banks (that call themselves that) are Islamic…!

Someone calling himself a muslim, does not mean he is applying Islam as it should be.

The Islamic banking I was talking about and the non-riba banks: “are the ones that apply what I was talking about to keep away from the Riba definitions I used in my post and comments”.

So anyone who doesn’t do that (even if he calls himself EL HAG Mohammad 7abeeb Allah), does not represent anything that I am talking about!

---

“I am not saying whether el interest 7alal wala 7aram :)”

La2 inty bet2oly ino kolo 7alal!

Heheheeeeeee… talbeees moot ba2a :)

kidding.

HALAKTINI! lol

Shimaa Gamal said...

Howa meen elly halak meen bas... LOL
This could take us forever :) but I can’t fight the temptation of commenting
I will try to make this one be short points straight to the point and I promise you I won’t comment on that post anymore :) or at least I will try ;)
1- فَمَنِ اضْطُرَّ غَيْرَ بَاغٍ وَلا عَادٍ فَلا إِثْمَ عَلَيْهِ إِنَّ اللَّهَ غَفُورٌ رَحِيمٌ
This means en e7na salemna en el interest 7aram, and so elly yelga2laha lazem yekoon modtar. Wel edtrar hena ba2a astek matat. Ana kont batkalem enaha fiha shak. It is 7alal 3and nas keteer, and I personally believe enaha 7alal. Else the whole system should be revised. And I personally believe en as far as enaha 7aga el common sense bey2ool enaha tet3mel so it is not 7aram. El deen wel common sense 7aga wa7da, lama yekhtelfo either fehmena lel deen 3’alat or the thing el mokhtalaf 3ailha isn’t divine in the 1st place.

2- The point you mentioned about el Imam el Shaf3y proves my point. En madam el 7aga ta7tamel el tafseer wel sa7 wel 3’alat, fa el a3’alb en e7na benakhod belly fih el sale7. Neshoof el sale7 el 3am fi eh we yet3mel. (wana lessa 3and ra2ey en el 7aga either 7alal or 7aram, 7alet el Imam el shaf3y proves it, howa magash fi 7aga ma3roof enaha 7aram we 7aleleha wala 7aga 7alal we 7armha, howa a2a3ad seya3’et el tafseer bema yonaseb el zoroof, fi el 7agat elly mesh sabta we takbal el takweel).

3- About your example, this woman lw el interest 7aram momken te3mel investment fi ay ma7faza estesmarya fi el borsa. Laken ya 3azeezy, el set betfadal el bank 3ashan betdman en fi 3a2ed haygelha, laken el ma7fza mahma kanet madmoona bardo fi e7tmal enaha tekhsar. Fa lw basena lel fekra mn el manzoor dah, wel interest 7aram fa el set di 3’ier modtara ella fi 7alet 3adam tawfor ma7afez estesmareya. Which isn’t the case for ay dawla eslameya.

4- Again, mafeesh 7aga esmaha bank rebawy we bank mesh rebawy. I told you, they both function the same way, elly enta bet2ool 3alieh 3’ier rebawy dah bey3’ayar el asamy. Ya3ny masalan ana esmy shimaa we fi nas te2oly ya meshmesh, we nas te2oly ya misho we nas te2oly ya shosho, hal dah 3’ayar el fact eny shimaa? NO and so it goes for the banks.

5- I will give you a scary thought :) if interest isn’t 7aram . Or if el feloos el metshala fi bank elly enta mesameeh 3’ier ribawy yeb2a el mafrood el feloos di maytla3sh 3alih zaka 3ala asas enaha zeyada, yetla3 3aliha zakat el tegara. You made an investment welly beygelak menoh dah reb7. Fa betdfa3 3ala el reb7. Lieh ba2a betdfa3 zeka 3ala el feloos elly fi el bank elly enta mesameeh 3’ier el ribawy? Tayeb lw el interest 7aram wenta masha2allah ragel 3andak feloos matnfa3sh tetshal ta7t el balata or ma3ndaksh balata 3ashan 3amel el ard barkieh ... LOL, yenfa3 te7ot el feloos fi el bank we terfod takhod el interest? Tayeb lw 3amalt keda, mesh hayb2a enta farat fi 7a2ak? Ya3ny el bank 3amal feloos 3ala 2afak we el nas elly akhdet loans we 7atetha fi masharee3 3amlet feloos 3ala 2afak wenta 2olt asl dah riba fa ana mesh hakhdoh? Eh ra2yak ba2a?? this is how I think of things :) tab3an 3’ier eny bafakar ezzay arodelak el gemeel we ahlekak kalam :) :)
Kefaya ba2a, ana te3bt :) )
da ana 7ata sam3a el nas fi el share3 bet2ool kefaya 7aram :)

Fadfadation said...

“. It is 7alal 3and nas keteer, and I personally believe enaha 7alal”

Actually, a lot of people see it as the opposite.
You know, I noticed that it all depends how you interpret the transaction in banks… I mean, how you define them.

BOsi:

Riba in the time of the prophet was a MORABi give money to people who need it and then takes it back after a while with more money on it.

If you look into the LOANS transactions between banks and people, THAT IS EXACTLY IT!

Al Azhar (and many others) said that “if there is no intermediate tangible thing in the transaction, then this is prohibited”.

Ya3n:” Car loans, House loans…etc that is ok”, but putting in mind that the ownership of the tangible is under the Banks ownership, TILL all money is paid and then it is the buyers property~

---

“Else the whole system should be revised”

Like who 7adretek? Do you actually think that our government or people in the SULTA, will\would change (“REVISE”) anything because it defies what God said…. Lol 7elwa dy 

The simplest example: “Casios (salaat omar) are legal in our SO CALL ISLAMIC COUNTRY!”. And that is the simplest example!

Albek abyad :\

---

About EL Shafe’ee:
“En madam el 7aga ta7tamel el tafseer wel sa7 wel 3’alat “
“howa magash fi 7aga ma3roof enaha 7aram we 7aleleha wala 7aga 7alal we 7armha”

As long as there is no NAS (direct narration) then you are right.

But in the case of LOANS… “THAT IS EXACTLY WHAT RIBA IS” as I mentioned above. Faa dy is Riba… ana mish shayeflaha zawya Tanya.
As for Savings account, you are right… you can adjust per el masla7a el 3ama (because this is not an obvious one).

BUT,….

Who said that El Masla7a el 3ama (benifiet of the masses) is by having Saving Accounts???
Who said that “not defining profit upfront and both bank and people take the burden of loss and profit together” wouldn’t be beneficial?

Think of it.

---

“el set betfadal el bank 3ashan betdman en fi 3a2ed haygelha, laken el ma7fza mahma kanet madmoona bardo fi e7tmal enaha tekhsar”

Aaaaaaaaahaaaaaaaaaa! We came back to the point of: “Does she or WE want to do what is right (7alal) as much as possible or do we just want “MADMONA” profit!!

There is a 7adeeth that goes (meaning of, sort of): “Al 7alal bayen, wal 7aram bayen. Waa baynahom motashabehaat. Faman taganab al shobohat, bare2a lee deeneh”!

So, if you “CAN” stay away from what is SHOBHA…Then do it! Do not just go and take the “Madmoon” profit from something that is gray (rule wise)!

---
“Again, mafeesh 7aga esmaha bank rebawy we bank mesh rebawy. I told you, they both function the same way”
Laa 7awla wala kowata ila belAh. Did I say that!?!

I am talking abut : “WHAT SHOULD BE” or “How things should be”… I never said that there is a Bank that is non-rabawy, simpley because I know non!

---
“I will give you a scary thought :) if interest isn’t 7aram . Or if el feloos el metshala fi bank elly enta mesameeh 3’ier ribawy yeb2a el mafrood el feloos di maytla3sh 3alih zaka 3ala asas enaha zeyada”

Not a valid point because as I said above (I am talking abut : “WHAT SHOULD BE” or “How things should be”… I never said that there is a Bank that is non-rabawy, simpley because I know non!)

And that is why 7adretek people (many) prefer to put their money in Current accounts (trying to keep away as much as possible from Shobhit riba)!

--

"yenfa3 te7ot el feloos fi el bank we terfod takhod el interest?"

Again: And that is why 7adretek people (many) prefer to put there money in Current accounts (trying to keep away as much as possible from Shobhit riba)!

And some people who have money in SAvings accoutns, actually pay the interest part away as "Tabre2a"!
---

"Ya3ny el bank 3amal feloos 3ala 2afak we el nas elly akhdet loans we 7atetha fi masharee3 3amlet feloos 3ala 2afak wenta 2olt asl dah riba fa ana mesh hakhdoh? Eh ra2yak ba2a??"

Ya sety bel hana welshefa... the difference between i (if i am a person who thinks Saving accounts or loans are 7aram) and between the people and banks who made money "3ala afaya" is that... Ana 3awez ardy rabena wee dameery wee mish 3awez maal 7aram....

it is their problem not mine :)


3omooman, ana mish mofti...i just say what i read and understand :p

---

Last the part i was waiting for:

“I will try to make this one be short points straight to the point”

????????????????????? la2 tesada2 fe3lan you did exactly that! lol

i will not post for a while now.... ana sawab3y te3bet :)

Shimaa Gamal said...

heya sawab3ak enta bas elly waga3etak :)
di sawab3y we 3ieny we dahry :) ya3ny mn el akhier hab3tlak fawateer el doctor tedfa3aha plus INTEREST LOL

Fadfadation said...

loooooooool...mashy ya Shaimaa ya Morabeya :P

Good one :)