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Islamic and Non Islamic Financing - Difference?
09-26-2003, 09:25 PM
Post: #16
 
Hi fellows

Islam provides ways for financing to happen free from interest, which would bring about much greater justice and indeed really produced Ewealth in the world. Wealth comes from applying our minds and bodies to developing the natural world so as to produce benefits for people. It doesn’t come from the endless speculations of systemically crisis ridden financial markets, with their booms and busts created from fictitious wealth. Interest, through its legal separation of investing money and the use of that money, detaches the financial markets from physical, human, and moral realities. Treasury bonds are a cornerstone of this system if not the very foundations. Without treasury bonds, the financial world would lose the most certain form, of interest based investment. Without the right to buy treasury bonds for invented money, the banking elite would lose one of their most profitable (literally) money making schemes.

This will not happen easily of course, the power of this elite is established not by a mythically benevolent invisible hand of the market, but by cold hard power politics. The power of the banking elite is quite capable of persuading rulers all over the world to carry out all kinds of oppression if it keeps the interest payments flowing.

Sajjad dar
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09-29-2003, 09:02 PM
Post: #17
 
Assalam-o-Alikum

Guys I would like thank all those who have participated in this debate and brought such important stuff to ppl like me who are not updated.

My point of view on this is bit different as I think we have started from the wrong point and are feeling bit confused. Before comparing the to systems of financing we must compare the basis of the two viz “Islamic Economic System” and “Capitalistic Economic System”. Our system is based on the “Welfare of Mankind” and the other is on “Profit Motive”. That very distinction makes the two systems incomparable, as ultimate goals of the two are poles apart.

As for the currently practiced systems of Islamic financing I would like to say that they lack the spirit of Islam. And the people Incharge of these organizations are trying to balance the returns under the two systems so that they can continue to receive the deposits form the investors for onward investment opportunities. Its like matching the earnings of a thief with that of an honest worker which all of us know is not possible as it will eliminate the motive for theft. The picture, which comes out, is that we have a SUZUKI car and want to fit the engine of BMW in it???? And that’s the reason we have unanswered questions form other ppl as presented by smraza in his post of 26 Sep 2003.

Raza u have raised a question which is quite common and I would like to explain that the difference is not interest or Riba, its inflation which changes the prices of the commodities over the period of time. Now if we are in an economy in which all transactions are asset backed then we have no inflation and will not face this problem of losing the value of our assets over the period of time. In view of orthodox scholars of Islam the paper money is not allowed means of transaction. As we all know that in general for every 20 paisa asset we print a rupee which leaves us with 80 paisa’s which don’t exist and still are there to buy assets which are also not there and will push the prices up and create difference in society which amounts to causing “fitna” (dispute) and is ranked above by Quran over murder and Quran also say that murder of one human is the murder of whole humanity. One may argue that demand and supply will push the prices and will cause the inflation. Under such case we resort to the basic principal of “welfare of mankind” and will convert our loan or portion of it as “Sadqa” (charity) and wave off the extra portion or whole amount to get its return from Allah on the Day of Judgment. Here I would like to bring to the knowledge of the readers that our Prophet (PBUH) has advised us to plan new cities when the size of existing one goes out of hand. This very instruction has the tendency of working as pressure valve for demand and supply force and ultimately for inflation.

I must say that this whole Idea of bringing the change through the ppl who are involved in current days banking system (that includes me) will not work. We have to start these organizations from scratch to bring the true picture of Islam and its beauty to the general public.

Now there is a proviso to the above argument as it all may fail if we could determine the true nature of the kinds of contarcts entered into by the muslims in the time of their glory as I have heard that there were 36 different kinds of contracts practiced by the Muslims and out these only 6 or 7 are used by the banks these days. I would appreciate if any one could guide me to the books or sites from where I could learn about these contracts.

Regards

Faisal Bashir
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09-30-2003, 07:42 AM
Post: #18
 
<BLOCKQUOTE id=quote><font size=1 face="Verdana" id=quote>quote<hr height=1 noshade id=quote>Raza u have raised a question which is quite common and I would like to explain that the difference is not interest or Riba, its inflation which changes the prices of the commodities over the period of time. Now if we are in an economy in which all transactions are asset backed then we have no inflation and will not face this problem of losing the value of our assets over the period of time.<hr height=1 noshade id=quote></BLOCKQUOTE id=quote></font id=quote><font face="Verdana" size=2 id=quote>
Thanx dear,
Yar I have already told you that I have seen a financing arranged by a company through consortium of banks, in this consortium, both (self claimed islamic and Non Islamic Banks) are present. As the repayment, interest, securities terms are same for all the banks, but "Non Islamic Bank" shows the same amount under the head interest, which the "Islamic Bank" is showing it as profit, so what is the difference, is it interest for Non Islamic bank or its the effect of inflation for Islamic Bank ????????????????
My question is, If all the banks (islamic and non islamic) doing the same financing then why do they call themselves "ISLAMIC BANKERS"??????????

S M R
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09-30-2003, 07:45 AM
Post: #19
 
and one question more, "why do people feel satisfaction while doing job in these self claimed Islamic Banks?????"
Satisfaction = Self satisfaction that they are far away from Interest.

S M R
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10-04-2003, 05:09 AM
Post: #20
 
Salam to every body

Its my first time here on accountancy forum and the topic was also interesting but its very sensitive also. Therefore, I request you all that before making any kind of comments please be sure what you are commenting.

I have been involved in the audit of a reputable modaraba and the difference I perceived between Islamic and interest based financing is the form of contract. In Islamic mode of financing the asset pertains to the lessor and the lessee does not have any bargain purchase option.

In Chapter 2 “Al-Baqarah” of Quran, Allah strictly prohibited interest and specifically allowed the profit.

Here comes the concept of Islamic mode of financing.

The essence of this type of financing is that you are buying a THING “not money” on a credit basis. If you buy that thing on cash basis, you have to pay less but if you buy on credit, you will have to pay more (and it happens in normal course of any business, i.e not only financial institutions)

The other difference between them is, for making this transaction under the norms of Islam, the price of that good must be fixed in advance and the islamic financial institution cannot charge over that price. Therefore, in the early stages, modarabas and other financial institutions did not take late payment charges but this facility was abused by some defaulters therefore they started to charge late payment charges on nominal rate and for your information, these late payment charges cannot be the income of that financial institution and they have to be utilized on a charitable purpose.

I agree that there is a hair line difference between interest based and Islamic mode of financing but unfortunately, our knowledge regarding islam is very limited but we cant keep ourselves from commenting on issues which we don’t know. Therefore, for guidance, I use the work of “Moulana Taqi Usmani” who has vast knowledge backed up by research on this topic.

To answer the question of Zubair, who asked if the interest was forbidden before Mohammad (PBUH) or after. The simple answer is that interest is prohibited in quran which means it must be in the life of him.
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10-04-2003, 05:10 AM
Post: #21
 
Salam to every body

Its my first time here on accountancy forum and the topic was also interesting but its very sensitive also. Therefore, I request you all that before making any kind of comments please be sure what you are commenting.

I have been involved in the audit of a reputable modaraba and the difference I perceived between Islamic and interest based financing is the form of contract. In Islamic mode of financing the asset pertains to the lessor and the lessee does not have any bargain purchase option.

In Chapter 2 “Al-Baqarah” of Quran, Allah strictly prohibited interest and specifically allowed the profit.

Here comes the concept of Islamic mode of financing.

The essence of this type of financing is that you are buying a THING “not money” on a credit basis. If you buy that thing on cash basis, you have to pay less but if you buy on credit, you will have to pay more (and it happens in normal course of any business, i.e not only financial institutions)

The other difference between them is, for making this transaction under the norms of Islam, the price of that good must be fixed in advance and the islamic financial institution cannot charge over that price. Therefore, in the early stages, modarabas and other financial institutions did not take late payment charges but this facility was abused by some defaulters therefore they started to charge late payment charges on nominal rate and for your information, these late payment charges cannot be the income of that financial institution and they have to be utilized on a charitable purpose.

I agree that there is a hair line difference between interest based and Islamic mode of financing but unfortunately, our knowledge regarding islam is very limited but we cant keep ourselves from commenting on issues which we don’t know. Therefore, for guidance, I use the work of “Moulana Taqi Usmani” who has vast knowledge backed up by research on this topic.

To answer the question of Zubair, who asked if the interest was forbidden before Mohammad (PBUH) or after. The simple answer is that interest is prohibited in quran which means it must be in the life of him.
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10-04-2003, 06:51 AM
Post: #22
 
Dear, i agree, that interest if forbidden in Islam, not the profit,
but do u know the difference b/w these two?
let me tell you,
if you are know about the return before investment, it is interest,
but if u will get something due to result of an activity after a time, it is profit. got that ???



S M R
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10-09-2003, 09:19 AM
Post: #23
 
Asalamo Alaikum All,

There has certainly been a lot of "debate". The question I guess is whether we have really learnt much by the discussion so far.

For those who are interested, I found a sites which go into "Islamic Finance" a bit more-
http://www.islamic-finance.com - run by an ex-Merchant Banker in the UK and writer on Islamic Finance.

I recall that when the currency crisis hit the Far East Nations a few years back, Dr.Mahatir of Malaysia took the bold step of ignoring the IMF and similar organisations and fixed the exchange rate of the Ringgit thereby protecting the country from currency speculators.

Malaysia seems to have benefited greatly by ignoring these institutions which frankly have no interest (No pun intended) in promoting an interest free society.

Just to reiterate, that RIBA is a sin for the RECEIVER (See Surah Baqarah - the second Surah - Ayah (verse) 275 as well as the PAYER - see Surah Baqarah - the second Surah - Ayah (verse) 278 - 281.

Ultimately though, you cannot have an Islamic Economic System within an international framework that is Non-Islamic or if Shariah does not exist. In other words a global Islamic system needs to be established before we can have a truly Halal financial system without feelings of doubt.
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10-10-2003, 05:32 AM
Post: #24
 
I have just gone through the Quran pak.... Verse 275 prohibts Riba in general... Verse 278-280 specifically warns the person who receives (benefits from the recipt of Riba).... My dear friends since we are talking about Quran pak..... please be careful when you reply to my message.....
It is my understanding that (for obvious reasons of poverty) the beneficial interest is probhibited... but the person who pays is forced into this arrangement... there is no reference to him.
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10-13-2003, 04:42 AM
Post: #25
 
ok

here is a scenario. a family with a couple of children, young under 5 years of age. the husband dies.

the widow has no source of income left. the savings are there. lets say Rs.300,000. she cant do any business.

what options does she has. the best option in my view is National Saving Schemes. paying regular monthly income while preserving the capital for future consumption by the children.

in this the case the widow is recieving the interest. it can be said the circustances has forced her into recieving interest. and the NSS is not forced into it.

dont get me wrong. i am not trying to defend interest. i am just asking the question that came to my mind?

Farhan Ali
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10-13-2003, 06:14 PM
Post: #26
 
Re Farhan
Your question is the one which comes to mind quite often---- and it needs detailed answering. I give you an outline now and should you wish will come back to details later on.

In a state like ours, it is the responsiblity of the state to ensure that widows and orphans are properly catered for, not the responsibiity of the NSS. If the state fail in its duty, then Allah promised the food and shelter and trust me it comes to everyone. Look around yourself and you will find the examples. There could be a question of social injustices but then social injustices happened everywhere and at all times. numerous examples are available.

Quran also provides a framework of who should look after the widow... it starts from your immediate family members and the state. I myself have gone through such sitution, but it doesnot mean that we are justified to do something which is specifiacally probhibited in verse 287-281 of Surah Baqarah (excuse the spellings).

Its all to do with the belief and understanding. Keep your belief firm, aim high, and be honest and problems like the one you mentioned will disappear.
zubair
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10-13-2003, 06:24 PM
Post: #27
 
Re Farhan

sorry I forgot to mention one main thing...

In the scanerio you have given,,, In my opinion, it is NOT appropriate for the widow to deposit and receive interest on money from NSS even with all the problems you mentioned and the ones you didnot mention.

The role of NSS----- well, it is a grey area. though it appears that NSS is safe in this case, but is unsafe when it will reinvest he funds and receive interest to pay interest to widow.

Thanks
zubair
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10-14-2003, 02:44 AM
Post: #28
 
<BLOCKQUOTE id=quote><font size=1 face="Verdana" id=quote>quote<hr height=1 noshade id=quote>
In a state like ours, it is the responsiblity of the state to ensure that widows and orphans are properly catered for, not the responsibiity of the NSS.<hr height=1 noshade id=quote></BLOCKQUOTE id=quote></font id=quote><font face="Verdana" size=2 id=quote>

Hi Zubair

Dont want to sound blasphemous, but your above statement seems an over-simplification of the situation. The situation you have described is an ideal scenario and has not been followed ever in history except for a brief period in the times of the prophet and the four subsequent caliphs. Money does not grow on trees for the governments that they may spend it everywhere without any proper and regular source of income.

I say that we should strive to attain this ideal, but until that time, less perfect options will have to suffice. As the saying goes that in the times of utter desperation, even Haram meat is allowed and can be eaten. Allah is Rehman and Raheem, he understands all of our problems. He surely will not punish ppl for such desperate acts. This does not mean that we (the sahib-e-haisiyat) should put all our money in NSS and similar schemes. The scheme was initially meant for ppl like widows, disabled and old ppl and it should remain for those ppl.

<BLOCKQUOTE id=quote><font size=1 face="Verdana" id=quote>quote<hr height=1 noshade id=quote>
If the state fail in its duty, then Allah promised the food and shelter and trust me it comes to everyone. Look around yourself and you will find the examples.<hr height=1 noshade id=quote></BLOCKQUOTE id=quote></font id=quote><font face="Verdana" size=2 id=quote>

Zubair, kidhar ki baat kar rahey ho bhai??!!! I have personally seen ppl literally die of hunger in the Thar area of Sindh. As ive said before, you have over-simplified the situation. The above statement about god taking care of us all is nothing but a statement to shirk away our social responsibilities. The saddest part of this discussion is that all of the readers will shake their heads in affirmation to your above statements and then go with the usual routines of their lives becuase most of them belong to middle and upper classes and dont get to see the hardships which the lower classes have to face everyday.

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10-14-2003, 04:40 AM
Post: #29
 
Well,
I wrote my own understanding, which is very limited. If you hold a different view, fair enough. But unfortunately, your comments doesnot hold any references, so I am unable to alter my position.

If you experienced people's suffering in Thur, its social injustice. It is not acceptable in any situation whether muslim or non muslim to die of hunger or poverty. I believe its our collective responsiblity to ensure that this type of situation doesnot occur or atleast we do our part to eridicate this.

Thanks
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10-15-2003, 12:06 AM
Post: #30
 
<BLOCKQUOTE id=quote><font size=1 face="Verdana" id=quote>quote<hr height=1 noshade id=quote>I believe its our collective responsiblity to ensure that this type of situation doesnot occur or atleast we do our part to eridicate this.<hr height=1 noshade id=quote></BLOCKQUOTE id=quote></font id=quote><font face="Verdana" size=2 id=quote>

Thank you Zubair for realizing my point that its not the government which has to bear the total responsibility of taking care of all its citizens, because even the richest government in the world would not be able to do that. We Pakistanis have developed this habit of putting the responsibility of everything on the government's shoulders and totally ignoring our own.

Does anybody still remember the word 'Huqooq-ul-ibaad' over here???

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