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Yes from your perspective (there is nothing wrong with Interest) and I'm fine with that

Reader comment on item: Be Careful Investing in Islamic Financial Institutions
in response to reader comment: There is nothing wrong in interest

Submitted by Malik Abdul Rasheed (Qatar), Nov 21, 2011 at 23:35

Prashant,

You are conflating payment approaches that are not necessarily "interest" based, nor do they have to be interest based to fulfill the business transactions you mentioned (renting a house, a car, etc) . When you rent me a car or a house you are not adding interest. Maybe the mortgage behind the house loan or car loan (and it doesn't have to be interest based) could be tied to interest (which is prohibited in Islam), but barring the assets have been acquired without interest then the payments in and of itself are not riba. That's profit. It would be interest if I rented the car at $200 dollars a day and the rental firm said we are going to charge you 3% a day to rent the car for 5 days.

Day 1: $206 | Day 2: $212.18 | Day 3: 218.48 | Day 4: $225.03 | Day 5: 231.78

payment with interest: $1093.47

payment without interest: $1000.00

Your "renting" of money makes for a nice and tidy analogy but it comes up short in explaining how compounding interest does not have it's short comings. Let me clarify what Riba (interest) means from an Islamic perspective. It's accruing money on top of money based on an arbitrary rate. Not profit, we are talking about compounding interest type profit. Let me pull a quote from Brian Kettels' Islamic Finance in A Nutshell on interest:

Making money out of money is not acceptable, pg 7 (compounding interest)

"Making money from money is not Islamically acceptable. Money, In Islam, is only a medium of exchange, a way of defining the value of a thing. It has no value in itself, and therefore should not be allowed to generate more money, via fixed interest payments, simply put in a bank or lent to someone"

I now live in Doha in Qatar where 99% of the business transactions are non-interest based. The economy is humming along quite well. While you have mentioned subjective and anecdotal arguments for interest, I have yet to see you provide a resource that makes that case that an interest-based run economy is superior to a non-interest based economy. As I said earlier many interest-based economies would have run out steam a long time ago without a fiat based currency. Fractional reserve banking (yet another form of interest) in the U.S. is killing the value of the dollar. I'm not sure why you are defending an investment approach (regardless of the religious ruling on that investment approach) that is bleeding Western-economies dry. They whole point of interest is to protect the value of the principal that you lent way back when. If you can't appropriately peg an interest rate that protects your assets then what is the point? Why print all this money (UK and United States) to cover up the inability of Central Banks to peg an appropriate interest rate for the economy? The five largest banks in America (and I was born there) inaccurately pegged interest rates against their loans for decades and had to beg the Federal government for more bailouts? How is this a success? Without that printed money (more interest) those economies and companies would collapsed?

I have provided many resources in this entire thread to give you or anyone food for thought on why interest is prohibited in Islam, the short-comings of interest and the benefits of a 100% profit-sharing investment approach. As I said earlier read Brian Kettell's Islamic Finance in a Nutshell. If you want to see the short-comings of interest-based/fiat currency run economies read This Time is Different: Eight Centuries of Financial Folly by Carmen M Reinhardt and Kennth Rogoff or A Nation Deep in Debt by James Macdonald.

For the sake of clarity, I never said that interest is "evil" or that xyz investment approach is good. I'm merely stating that interest is prohibited in Islam and we have an investment approach (profit-sharing) that has been allowed so we can do our day-to-day business transactions. There are six main approaches to investment in Islam and they are the following: Murabaha, Mudaraba, Musharaka, Ijara, Istina'a, Salam. In addition, Islamic Finance has it's short comings, but over the long run it's an extremely lucrative, equitable, and a clear investment approach. A strictly you lose I lose, you win I win approach encourages prudent investment and discourages speculation.

At the root of my argument is interest encourages an environment of value distortion and rogue speculation. Never a good thing if you want to make money. Read Kenneth Rogoff' article Global Imbalances without Tears touches on this. The current Islamic Finance market is 1 Trillion dollars and growing. This market still needs more time to mature but the seedlings have been planted. It's really a matter of awareness and understanding the nature of Islamic Finance. Too many people equate Islamic Finance as some "Islamist" approach and that is a huge mischaracterization of Islamic Finance. It's prudent, it's clear, balanced, and leverages the risk equally on both sides of the transaction. Investigate the resources I mentioned earlier. As I said earlier please send me any resources you know that explain why an economy needs to have interest to survive. I'm here to learn.

Submitting....

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Reader comments (10) on this item

Title Commenter Date Thread
German Federal Financial Supervisory Authority open to Islamic Banking [21 words]mythAug 21, 2012 06:21198083
There is nothing wrong with Islamic Finance [376 words]MalikJan 8, 2010 08:16167025
What is wrong about Islamic finance is the word 'Islamic' [255 words]PrashantNov 17, 2011 22:56167025
Islamic Finance is just a word.. [263 words]Malik Abdul RasheedNov 19, 2011 23:32167025
1There is nothing wrong in interest [163 words]PrashantNov 21, 2011 01:58167025
Yes from your perspective (there is nothing wrong with Interest) and I'm fine with that [868 words]Malik Abdul RasheedNov 21, 2011 23:35167025
Thanks for a good discussion [574 words]PrashantNov 25, 2011 13:29167025
Banks are being subsidized by Central Banks and Fractional Reserve Banking [1089 words]Malik Abdul RasheedNov 29, 2011 04:37167025
Muslim Zionism!? -- An oxymoron. [27 words]M.D.Jul 18, 2009 16:44158994
JUSTICE, JUSTICE, SHALT THOU PURSUE ! [25 words]GRAHAM R-BJul 15, 2009 10:50158871

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