Thanks for a good discussion

Submitted by Prashant (United States), Nov 25, 2011 at 13:29

Dear Dr Pipes:

Malik reponded to my defence of interest as "rent for money" in a sensible fashion. I thank him for that but his arguments are incorrect. First, Malik's non-dogmatic response proves my original point. If the principles of 'Islamic finance' are so good objectively then they can be adopted into our financial systems without the Islamic tag. Attacking or defending them because of the word 'islamic' is what is objectionable. And, that is what I had originally said: 'what is wrong in Islamic finance, is the word islamic'. I will not be able to answer to Malik's entire message but will respond to some of his points.

Malik said that Qatar's economy is not interest based and is doing just fine: Qatar and other oil-rich middle eastern countries cannot be treated as typical examples of financial systems. The flow of unprecedented amount of oil revenues into these economies would make them exceptions to almost any economic theory.

Malik said that charging exorbitant interest is bad. I agree. So is charging excessive rent/price for a house, a car, a camel or a cow. So it is not interest that is bad, it is the 'excessive' that is. Assuming that Islamic is a synonym of virtuous, it is not interest that is unislamic, it is the 'excessive' that is. Either by accident or to highlight his point, Malik assumed a 3% daily interest rate in my example. That interest rate is indeed excessive.

Finally, let me come to my original example. I will repeat that interest 'within limits' is virtuous. You want to borrow/rent $200 from me for an urgent need of yours (such as to pay for medicine for a sick relative). If I have that money and do not give to you, I am a bad person. If you rent my money and do not compensate me for my favor, you are bad. If we exchange a small amount of interest we are both responsible, virtuous and Islamic (assume Islamic = virtuous). Now let me explain to Malik why even compounding interest is virtuous. Assume that you borrowed my $200 for one month and agreed to return me $201 at the end of the month. Assume further that when the month ends, your relative is still sick and you are still not able to return me my money. How much do you owe me at the beginning of the second month? $201. Yes $201 is not only correct but also virtuous. Because if you do not update the loan amount to $201, you will be depriving me of the value that I will derive by from that $1.00. Recall that I an a responsible person and I put all my money and the returns that I get from it to good use. So even compounding interest is virtuous.

The current turmoil in the US/Western economy is not because of interest but because of excessive and irresponsible use of interest. We are now paying for our mistakes.

So I repeat. 1) Too much of anything is bad. Lot of things that are good in moderation become bad in excess. The same is true of interest. 2) There is nothing wrong in interest. In fact, giving and taking interest enables human beings help eachother and so it is virtuous. 3) Criticizing interest just because it is 'unislamic' is what is bad. 4) Those who oppose interest have not thought deep enough on the issue.

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