07-10-2005, 04:48 PM
It is worth to present an example to start with the subject, a factual example from existing interest based banking methodology that is valid and current, which can be well understood by a common person. One should consider the following facts before going through the example. The facts are
Only Banks create money.
The created money is then supplied in to the economy only in the form of loan at some specified interest.
There are no other institutions that create money other than banks.
The example - an astonishing fact
As all the banks are creating money and supplying in to the economy on interest and without any doubt all of them are practicing the same technique, so let us consider there is only one bank in our example that creates some money and supply in to the people's economy.
Suppose Bank XYZ creates Dirhams 100,000 and supplies it at an interest rate of 10% per annum to several entrepreneurs and governmental units active in the economy, remember there is no money available in the economy from any other source. The bank has taken substantial collateral or guarantee as security of its money from each borrower. See in the following diagram - the borrowers intake loan and repayment liabilities at the end of the first year
Only Banks create money.
The created money is then supplied in to the economy only in the form of loan at some specified interest.
There are no other institutions that create money other than banks.
The example - an astonishing fact
As all the banks are creating money and supplying in to the economy on interest and without any doubt all of them are practicing the same technique, so let us consider there is only one bank in our example that creates some money and supply in to the people's economy.
Suppose Bank XYZ creates Dirhams 100,000 and supplies it at an interest rate of 10% per annum to several entrepreneurs and governmental units active in the economy, remember there is no money available in the economy from any other source. The bank has taken substantial collateral or guarantee as security of its money from each borrower. See in the following diagram - the borrowers intake loan and repayment liabilities at the end of the first year
