NOTE 4: don’t
forget Muslims like me who
“find
banking repugnant”
because banks create money out of nothing, at no or little cost, and
make
society repay that money plus a ton
of interest. This
method of money
creation is
cheating … not riba. But the banks would not find it profitable to
cheat in this way unless they could charge riba.
OK, so
the
theory might be
wrong, but at
least give it
a
mention.
Remember how many others argued in this way
(Franklin, Jefferson, Jackson,
Lincoln
…to name four US presidents for
example)
NOTE 5:
What if inflation is negative. Is money taken away from depositors, and if so to
whom is it given? What is the Islamic contract type that allows indexation to
take place. What is the measure of inflation … retail inflation, house price inflation, food
inflation? Something should be said
on this, if only briefly.
NOTE 6:
a man who had borrowed
money from Abu Hanifa had a
tree which provided shade. Abu
Hanifa refused to stand
under this tree for fear that the benefit of the shade would
be riba on the loan that he had given.
If lenders of money
ultimately benefit in any way from the
lending of their money, then this is riba, and on that we agree.
Now I understand
that the bank is not the
lender in this
scenario. But the bank staff are paid salaries from the borrowers’ fees, am I
correct? These fees
are paid by
borrowers
because they borrowed
money. This is dangerous territory. I
therefore
think that there should be at least one reference to a scholar who allows borrowers to pay
fees in order that they may borrow money, even if those fees
are not paid to the lender.
(Transparent, inflation-protected, and operating under conventional banking laws) ·
by
A.L.M. Abdul Gafoor ‡
Commercial banking has become an essential sector of the
modern
economy. Whilst in some countries the commercial
banking sector
it may be smaller than in others, rarely can a country can do without its services
completely. In the
advanced economies, bBanking
has become an essential necessity sector of the
economyof modern-day life practically every gGovernment departments, business organisationes,
institution s
and private individuals all
needs the services of
a bank. True, it is an
absolute necessity in some countries and not so
essential in others, but rarely
any country can do without it.
Practically
every individual in an advanced country needs, and
has, a bank account.
In the developing countries too t, and the trend is in
thisat
direction
in every country, including the developing
countries. Muslims, who follow the
religion of Islam, and who form nearly one fifth of the world’s population and live in all parts of
the world, are no exception to this trend.
However the Muslim community has a problem with the banking system as it
exists today and this essay aims to address their concerns. But before we come to address their special
concerndo
so, let us briefly examine the services banks provide and how they do it,
so that we can determine exactly where the problems lie. Then we can devisce solutions to
address the specific issues that concern Muslims.
The main functions of modern conventional commercial banks as they exist today include providing what is called current account facilities, money transfer services, accepting funds into savings accounts, granting loans and advances, facilitating import-export transactions, and buying and selling foreign currency.
Current account facilities include accepting cash deposits into your account and allowing you to withdraw from it as when you require the whole of it or a portion. You can also use a cheque to instruct the bank to pay another person or entity a stated amount of money and debit the same from your deposit in the bank. Similarly, you can receive payments made by others into your account. This ability to pay and receive without having to personally carry notes and coins is a great boon to transacting business — personal and institutional. Private individuals use the current account to receive their salaries and wages and to pay their bills. Businesses and institutions use the current account to make payments for the goods and services received and to receive payments for the goods and services provided. It saves time, and is safe and less expensive. The transactions through cheques can be made whether the payer and the receiver use the same bank or different banks, and whether the concerned banks are miles away in the same country or continents away in different countries.
Money can also be transferred from one person to another, even without having a current account with a bank, through the banks’ money transfer arrangements — money orders, pay orders, bank drafts, mail and telegraphic transfers, electronic transfers, etc. — both within and outside the country. There are also other bank guaranteed payment facilities, especially the letters of credit and bills of exchange, which greatly facilitate import-export trade. In fact such trade is practically impossible without this facility.
Banks also accept funds from the public and institutions
into savings accounts, keep them safe, and pay interest on such funds. In turn, they use these funds to grant
loans and advances to borrowers, to whom the bank charges an interest. This service provides the savers with a
known income, while their capital remains intact. On the other side, it provides the
borrowers access to funds, which they would otherwise not have. The borrowed funds may be used for
setting up a new business, to expand existing business, to provide working
capital for a running business, or for consumption purposes including buying
consumer durables, to rtide over through a difficult period and to meet an
unexpected expenditure.
They also provide many other services including agency
services, business introductions and , credit reports, etc. Another important service is in the
foreign currency field — buying and selling foreign currency, issuing travellers
cheques and credit cards.
Some of the above are paid services, others are not.; Ssome involve paying
or receiving interest, others not.
But the commercial
banks (henceforth the
‘banks’) and banking their services have become an integral part of the
present-day world.
The nearly 1.2 billion Muslims in the world are scattered
all over the planet. There are 56
member-countries in the Organisation of Islamic Conference, and there are Muslim
minorities, large and small, in practically almost all countries. There are over 100 million Muslims in
India, more than an amount similar to that of all the Middle-eastern
countries put together, though they are a minority in that country of over one
billion people. The countries and
people are also at various different stages of development and advancement. A major characteristic of the Muslim
population distribution is that the majority are in the developing countries,
with all the associated infrastructure deficiencies, including low levels of
literacy. But they all Many of them need modern
banking facilities, and most
of them they all have one a common concern — avoiding
riba (interest) in their dealings.
A banking system designed to address their concerns has to take into
account this main concern as well as the other factors.
In common with most developing countries, the Muslim countries also face extreme levels of inflation. Conventional banking deals with the inflation problem tacitly – by incorporating it into the interest rate. Since that is not possible in a riba-free system, we have to address the problem explicitly.[1]
The main concern of the Muslim community is its desire to
avoid dealing in riba, because riba is strictly prohibited in their
religion — Islam.[2]
As far as money is
concerned, Rriba is loosely
translated as interest. Whether
this translation is accurate or not — whether the Arabic word riba and the English word interest mean
the same thing — is the subject of a long-standing debate. This question needs to be satisfactorily
resolved in order to find a proper solution to the problem. In the meantime, onea comprehensive and
commonly accepted definition formdefinition of riba ??? the ribawi items include more than just money …
perhaps mention riba al-fadl/riba al-nasia, or just keep my amendment as inserted ???
(in matters of money)
is that: when one lends some money
is lentto
another, if the lender demands more than his principal to be
returned, the excess amount so demanded is riba. Islam strictly prohibits demanding
and/or receiving riba, paying riba, and witnessing or writing such a transaction.
In the context of modern banking, the depositors receive
interest, borrowers pay interest, and the bank both pays and receives interest,
witnesses
writes
and perhaps also
witnesses ??? ‘perhaps
also witnesses’
because maybe the bank cannot act as a witness to its own
transaction??
the
transaction and as well as keepings account of it. It is on this account basis that modern banking is
repugnant to the Muslims.. Their dilemma is that it is
difficult to be part of today’s world without the medium of modern banking. Hence the search for a riba-free alternative.
We can begin by asking whether all the operations of a
commercial bank are unacceptable to the Muslims on account of the riba prohibition. Can they make use of some and seek
alternatives for others? To do
that, we need to first look first at the working of a conventional bank in some
detail.
The sources of funds available in a bank can be categorised by the type of deposit account in which it is held as well as by the purpose for which it is held. Similarly, the use of funds too can be categorised by type and purpose. A schematic representation is given in the table below.
Table:
Sources and use of funds and their
uses, by purpose
|
Source of funds |
Purpose of deposit |
Use of funds |
Purpose of the use |
|
Current account deposits |
Safety and ready availability; transaction convenience |
Money transfers, short-term advances |
To facilitate receipts, payments and transactions; to accommodate short-term financial needs |
|
Ordinary savings account deposits |
Safety, easy availability; temporary holding and possible compensation for inflation |
Short- and medium-term loans |
<P c |