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Over the past year I have invested a lot of time investigating the real
possibility of Interest Free Finance. This investigation has included the
Qur’an and Hadith. As these are the source of the rules for the prohibition
on interest this was obviously the first place to study in some depth. It is
my belief that, if this idea is such a non-compromising command in the
Qur’an, then it is possible.
For Christians who think this is some type of Muslim only and ridiculous
idea then it would be a good idea for you to check the Bible as the wording
against interest is just as strong there.
Another part of my research involved analysing the various forms of “Sharia”
approved finance available around the world through various Islamic banks
and other financial institutions. It became evident to me very quickly that
interest free finance is virtually impossible. There are a few systems
operating in the micro-finance areas that are proving to be successful and
of huge benefit to those able to access them. To expand these systems into
the housing and even larger finance is the impossible dream.
To explain the above statement a little further most financial institutions
are the middle man between the depositor and the borrower. If they take the
deposit at no interest for 12 months then loan it to the borrower for 12
months interest free then both the depositor and the financial institution
will lose money because inflation over the 12 months will mean the original
sum will be worth less. The current inflation rate in Australia is around 4%
so both parties will actually lose $40 on an investment of $1,000. Obviously
this is not sustainable and the depositor and the lender would eventually go
broke.
During the mid 20th century the Muslim nations decided to start
Islamic banking. Among the problem they faced were:
- All banks that existed in the Muslim countries at
that time were foreign banks based on the British system of interest paid
to depositors and interest charged to borrowers
- The banking laws of non-Muslim “Western countries”
would not allow a true interest free bank to trade.
The solution to these problems was to make “Sharia Law”
fit into the interest system of banking *** more on this later ***
At the time the Muslim nations were establishing their
new identities many were also bringing in vast amounts of money through oil
revenues. These nations had a very small window of opportunity to force the
start of true interest free finance but they failed totally. Instead of
starting a true Islamic banking system based on the Qur’an and Hadith they
set about forcing the Qur’an and Hadith to fit into the existing banking
systems by using “Sharia Law”. With the combined effort of all Muslim
nations in establishing systems throughout these nations they would have had
such power in world financial markets that the rest of the world would have
been forced to accept the new ideas. The problem then was the same as it is
today. The Muslim nations have been so well divided along ethnic and
sectarian lines that they cannot combine to agree on any single idea. If
Muslims cannot agree on exactly what day Ramadan should start (usually three
different days on Australia) or even how to calculate prayer times which are
two of the five pillars of Islam how can they ever agree on anything of real
importance such as when interest is or is not interest. The latest that I
have read is that the Saudis have come up with new “Sharia Law” that allows
them to receive interest provided that the interest is used to finance
“Sharia” approved projects. I can only pray that articles I have read on
this subject were written by people trying to totally discredit the
integrity of “Sharia Scholars”.
This now leads into my view of what I have seen of various “Sharia”
compliant lending systems.
Firstly there are two very basic principals of the Qur’an and Hadith.
- Interest free finance. I have never read anywhere in
the Qur’an or Hadith the idea that it is permissible to simply use another
word other than interest.
- Certainty of the conditions of finance. Where is the
certainty when “Sharia” approved finance (interest free) fluctuates with
the fluctuations in market interest rates?
Below are a couple of examples of current practices
that I have seen with full “Sharia” approval.
·
The bank’s customer requests finance to
purchase a car. The bank purchases the car for $10,000 and they then sell it
to their customer for $14,000. The customer then repays the increased amount
over 4 years. The repayments are called lease. The original purchase price
paid by the bank was retail and the same amount that the customer originally
negotiated to purchase the vehicle. In other words the customer approaches
the bank with the price and the vehicle he is going to purchase.
·
The bank’s customer requests mortgage finance
on a property. The property is worth $500,000 and the customer pays a
deposit of $100,000 leaving a balance of $400,000. The customer then pays
the bank a rental amount of $3589.90 over 20years. This rent goes toward the
repayment of the loan.
I have shown both of these and many other so called
“Sharia” approved arrangements to both Muslims and non-Muslims. Of course
the non-Muslims just laugh as they can see the slight of hand straight away.
They are not blinkered by their beliefs. Muslims do have a slightly
different reaction however 90% of them state that they only see it as adding
interest at the beginning of the transaction. The other 10% are those who
are of the opinion that it is “Sharia” approved so it must be correct.
Mortgage finance on properties even gets worse because rent will fluctuate
with the fluctuations in the market interest rate.
My own personal view is that “Sharia Law” does not make something correct as
“Sharia Law” is man’s law. Man invariable deals in black and white then adds
various shades of grey to prove a question to be black or white.
I for one do not want to stand before Allah (SWT) on the day of judgement
and try to argue the finer points of “Sharia Law”. To those who think they
can convince Allah (SWT) that their interpretation of His law is correct all
I can say is “best of luck as you will need all the luck you can get”.
In this life you may have enough money and power to have anything included
in “Sharia Law”. On the final day you will have nothing. From the number of
opulent palaces and other royal residences that are obvious when travelling
around Saudi and other Muslim countries while so much of the world’s
population lives in abject poverty with millions starving to death it is
obvious that the day of judgement is no higher in the minds of many Muslims
as it is with many non-Muslims.
For those who have continued to this point without
trying to get rid of me by to declaring a Fatwa against me I will get back
to the earlier section. ***more on this later***
The Qur’an and Hadith say no interest. If Allah (SWT)
has made this the law then it must be possible to offer true
interest free finance but where is the answer to the dilemma that has
haunted “Sharia experts” since the beginnings of Islam? The answer is in the
Qur’an and Hadith as that is the law of Allah (SWT).
As I said at the very beginning of this article Islamic banking systems were
designed to fit into the British style of interest based finance. Where
Islamic banking did not fit new “Sharia Law” was written.
If Islamic banks had stopped for one second and gone back to the Qur’an,
Hadith and also looked at the systems in place at the time of Mohammed (SAW)
they would have found a system that worked then and will work just as well
today. Mohammed (SAW) was renowned throughout the Arab world as a very
honest and highly successful trader. He also combined many separate nations
into one Islamic nation. This was done by using the laws of Allah (SWT) that
he was given in the Qur’an. He did not use “Sharia Law” as
that was written much later.
Over the past year I have looked back and put together what I consider to be
a complete financial system that is interest free. I have presented my ideas
to both Muslims and non-Muslims and they have all agreed that it will
succeed. Even Muslims who have studied “Sharia Law” have not been able to
find fault with the overall concept.
To start this system in Australia would require $AUD3million for initial
infrastructure and related costs and $AUD100million in financial backing.
All money invested plus shared profits could either be returned to the
investors within two years or the investors can continue their investment
over a longer term if they desire to.
Over the first year the system would be improved to the extent it would be
proven successful and ready to expand throughout the world.
There are many advantages to starting in Australia. To name just a few from
a long list:
1.Australia
has a smaller population than most other countries so the establishment
costs would be proportionally less
2.Australia
has a stable government and economy
3.Once
proven to work in Australia it will work in any other non-Muslim country
4.The
Muslim population will test the true value of the system and that will mean
it will be able to be used successfully in Muslim countries.
For further investment information please contact me by
email at
jalal@aiic.com.au
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