FEATURES OF ISLAMIC ECONOMY Dealing in interest, liquor, pork, gambling or pornography are prohibited under Sharia law Islam forbids all forms of economic activity which it deems morally or socially harmful Individuals must spend their wealth judiciously and not hoard it, keep it idle or squander it Muslims have a duty to contribute a percentage of their wealth to deprived and poor sections of Muslim society Experts in Islamic finance believe their way of doing business has shielded them from the global credit crisis. But how does it differ from conventional Western finance? A former executive director of the International Monetary Fund, Dr Abbas Mirakhor, says wider Islamic economics relies on God's guidance, handed down almost 1,400 years ago. There is a "consciousness of a supreme creator and a system that he has provided", he says. What we know as the conventional Western way does not have that, which is "really the major difference between the two", he adds. In practical terms, the most significant difference is that charging interest is not allowed in Islamic finance. Neither are most forms of speculative investment permitted, such as hedging or derivatives trading. "We don't recognise the concept of interest... to look for some profit from trading money," explains Dr Bambang Brodjonegoro from the Islamic Development Bank. "In the Islamic concept, money is strictly for the purpose of exchange or storing value, but not for the transaction of looking for excessive profit," he says. Sharing risks How then, does an Islamic bank, and a customer who puts money in that bank, make a profit? A man reads a copy of the Qur'an The Qur'an contains principles Muslims must follow when they do business The system is asset-based, with tangible assets or commodities at the heart of it. There are buyers and sellers, not borrowers and lenders. Here is a comparison. In Los Angeles a customer who wants to borrow money to buy a car would go to a conventional bank and agree a loan. The bank would hand over the money. There would be regular repayments, which include interest accrued on the loan. In Lahore a customer could go to an Islamic bank and sign a contract with the bank to buy a car from them. The bank would not loan the money but buy the car itself. Then it would sell it to the customer at a mark up. The customer would agree to pay back the cost in instalments over a regular period. One of the core principles at the heart of Islamic economics is risk sharing. The bank and the people who put their money in it share any profit, or loss, from investments. "In Islam we appreciate merit, so if someone works harder in a business...they (the bank) will get the sharing benefit," explains Dr Brodjonegoro. "The more important thing is that there will be no bank that rules everything. It will be bank and borrowers at the same level and they share the risk and benefit." complete article http://news.bbc.co.uk/2/hi/business/8025410.stm
Islamic finance is the best option but it wont happen simply because it is called "Islamic Finance", Islam as a brand has a severley tarnished reputation in the west so the ignorant people assume it is something bad.
Well you must explain this point. This is not every Muslim Duty only duty of those who can offered this and have money to help poors. Every year around the world Trillions of money gave to poor buy Muslims specially in the Month of Ramzan. Remember not Only money if you are a former you may give wheat or rice and so on.. BTW thanks for sharing
Not only that, Western system has its roots in Interest, whereas Interest is strongly prohibited in the Islamic Eco System @Vebtools Of Course it is for those who can afford and have more then a certain level of affluence
You say that, but it looks like this islamic system of finance simply bends the rules. What they are doing is, essentially, exactly the same. They provide money and make profit from that loan. They have just found a not so clever way of circumnavigating their religions rules. It's the equivalent of having a rule that says you can't sell drugs and then trying to get around it by selling plastic bags, plastic bags which just happen to contain drugs. I think if anything Islam see how great the western form of finance was and then tried to figure out a way to join in without actually directly breaking islamic rules.
I hope that you are not reaching to conclusions about the Islamic Economic system by just reading the article that I quoted, they have oversimplified the things here. I am not aware of the exact details but I have been told that the none of the banks which to claim to be 'Islamic banks' are truely following the Islamic system, they are just offering a sugar coated version of the western system. In fact today no society or country is safe from interest, whereas in Islam it has been prohibited in strictest of terms and has been termed as wagging a war against God. But everyone is so badly strangled in this system that it just seem impossible to get rid of it
Well Islam has got a bad name because of the terrorist who claim to be doing "Jihad" which in NO WAY means to blow yourself up... Suicide is NOT allowed in any way...
so? that doesn't change anything. The problem in US was that money was lent to people who couldn't repay and the collateral was high overvalued. This would have happened in Los Angeles even if US had Islamic Banking: ============================== Mr John Smith wanted to buy a home priced at $300,000. He didn't have the money. So he went to a bank and the bank bought the home for $300,000. The bank was to sell the home to Mr John Smith for $360,000 spread over 10 years. However, Mr John Smith lost his job after 12 months. He had repaid $36,000 to the bank by then. The bank still had to recover $324,000 from him. Mr John Smith couldn't repay. and by then the value of the home had fallen to $200,000. How does the bank recover its investment in the house? The bank still has the losses....!!!
Very good article, it clearly shows that Islamic finance system is the best and far superior than the "western" model.
I was wondering how in islamic bank makes it money. I guess it really is the same price after paying interest or just paying more for a car then paying the bank back in installments but isn't it really the same principle? The bank is making money with there money from people paying ininstalments. How is this any different in principle?
Does it even bother you that your praise words to the "islamic finance" are not connected with the reality not even in the most hypothetical sense? Now lets look at reality: Amongst the muslim countries of the world, the rule is: Have Oil? = Possibly Rich. Don't Have Oil = Extremely Poor. Why possibly? Take Iran for example. World's 2nd in : natural gas reserves, oil exports, oil reserves. The country is so damn poor, that it can't even refine its own oil! they export it, and buy it again, refined. The people are very poor. It can get worse, ofcourse, if you don't have oil. The illiteracy rate in egypt is 46%. Yes, you read correctly. 46% of the egyptian population can't even read and write. There is ONLY one muslim country that break the above rule. That's turkey. Reason? very simple. Turkey is a secular country. No sharia law but state law. So please forgive me for not being impressed by the "Islamic Finance" .........
NO Muslim country has shariah law just elements of it, you'd know that if you knew what shariah law was.
What a discovery, we didn't know about all these facts Where in the world Shria law is implemented? Shria isn't that you implements its and bits from here and there , that is like taking the medicines of your choice from what the Doctor has prescribed you The most basic point of Islamic Economic law is that interest is COMPLETELY FORBIDDEN now which country follows that rule?
I m not an expert in Islamic Finance system but I can tell it has major differences from the Western system, a person need to check case by case, for example, what would happen if a person using Western system, took a loan to buy a house, and what would happen if he used Islamic finance system, and what may happen in both if he failed to pay after some successful payments? in a true Islamic finance system, the man still owns a part of this house even if he failed to pay later, he can sell this part back to the bank, in Western system, I think he will start to pay more interest, until he is no longer able to pay then he would lose all, same in case if it was a loan for a business, what would happen in both systems if the project failed, in a true Islamic finance, both the bank, and the person who took the loan share the risk, if the project failed, loss will be on both, in Western system, the bank would try to take over whatever this person owns, the bank is subject to loss here only if there was nothing left owned by that person, then he either declare bankruptcy or get punished in some way, the major point which is the weakness point in Western system, is they trade money with money, so the goods here is the money, in Islamic Finance money can never be the goods/item/product, money itself is not a product, it is the way to obtain goods, that's why interest is completely forbidden. unlike what been said by the little non-Muslim experts here in Islamic Finance, it is not just buy the house for the client, instead of giving money to the clients to buy it himself, if so then the U.S. treasury would not be interested in teaching Islamic Finance 101 check the link above little experts. far from religion and prejudice, a person, no matter what was his religion, will have two options, he can study both, and choose what s/he feels is better for her/his needs.
Interest is completely forbidden also in Judaism and also in Christianity. http://en.wikipedia.org/wiki/Usury Actually, for that reason, it was the jews who were the only ones allowed to lend money for interest in the middle ages/new era in europe, and that had a major contribution to the "classical" european antisemitism. In Israel, there is a very cute invention to "bluff" god, that makes interest loans "religiously legal". Its called Pruzbul (the wikipedia article related to the broader subject). Everyone who knows a tiny bit in economics know, that absurdly, interest makes the economy better for everybody, and not the other way around. This is the "trick" of religions: The people must stay poor (=uneducated, blindly follow the words of the priests/rabbi/sheikhs), but at the same time assure they don't starve to death. Islam, Christianity, and Judaism are very similar in the financial sense. Their rules are made to acheive the above goal. Judaism goes even a step further: to make sure nobody starve, one must give 10% of his income for the poor. The ultra orthodox jews do that until this very day. This is one of the reason that we did not disapear as a people albeit 2,000 years of prosecution. http://en.wikipedia.org/wiki/Maaser
The point Chaos, is you, me, shaikh, priest, rabbi, president, whomever, can say whatever they want, I can tell you fill your car with orange juice, it will make it run faster if you were dumb enough to do it, you will find that it damaged your car engine, don't feel bad, congratulations, you learned a lesson, will you listen to my advises regarding your car or anything else later? at the end, only what works will stay, anything else will be gone. was wondering why Jews were lending money for interest in mid ages when its completely forbidden in Judaism? and from what you know about Islamic finance, is it same as Prozbul?
About the orange juice: No. Not only things that works stay. There are thousands of habits and beliefs of people (astrology, graphology, tarot cards, whatever) that do not work, and stay. And will stay for many years. In case your argument was "Islamic Finance is here because it works", then you would also mean that tarot cards future telling also works? and how can you claim that it works but not supply even one example? I remind you again: the muslim countries are poor, or they have oil (and still can be poor). In Judaism and Christianity, it is not allowed to lend for interest to a fellow jew (christian), but its ok for people not from your religion. The jews were always a very small minority and this was the perfect occupation: easy money! Shakespeer even wrote a play about that . I recently read a book about how this situation lead to the fact that jews played a crucial role in developing modern finance, as we know it today. I suspect its the same in Islam (ok to lend for interest to a christian?) because from this thread I learned that the so called "Islamic Finance" is remarkably similar like the jewish rules. And yes. The jewish "Pruzbul" is exactly like the "risk sharing" bullshit described in the original thread. Excatly the same! Except that "risk sharing" is a misleading term: The "islamic bank" can't really loose. It will always earn. The initial post of the thread is a very amusing "public relations" for Islam. The funny thing about it, is that it glorifies the mentioned primitive principles, not even knowing that all other religions have the SAME principles. The finance system should be based on research, on learning, as it is today, and is a very successful system. "holy books" written by people living in primitive ages can not possibly be "the answer". Before looking for "the answer", you have to define a problem, no? A small piece of comedy: Well... when the national annual income is 47,000$ per person (USA) in comparison with 3,000$ (Jordan)... who needs favors from god? Is there anything on earth more stupid than to claim that the best economy in the world is not working and needs to be replaced with "islamic finance"? the economic system that brought the internet and all the miracles that we take today for granted? I sometimes can't understand how people think.
Islam is becoming more and more like Communism. Ideology seems beautiful, but when it comes to implementation, it becomes much worse than it's adversaries. Peace,