मुस्लिम Status On Economic System Interest-free Islamic financial system is partially followed and partially not followed in Muslim countries round the world. the sole country, which has followed this technique completely in every minute detail is Malaysia. therefore the application methods during this post are mostly those implemented in Malaysia following the Interest-free Islamic financial system .
The main feature of the Islamic financial system is that it’s Interest-Free. because the Qur’an says in Sura al-Baqara Chapter 2 Verses 278 & 279, “O ye who believe! fear Allah and provides up what remains of your demand for usury if ye are indeed believers. If ye roll in the hay not notice of war from Allah and his Apostle: but if ye turn back ye shall have your capital sums; don’t deal unjustly and ye shall not be addressed unjustly.”
मुस्लिम Status On Economic System
Qur’an condemn all evil deeds, but never has the Qur’an warned of a war against Godhead and His Messenger except within the case of taking Interest and Usury.
There are several evils of the interest based economy, the rationale why Islam has prohibited it.
For example, if an individual takes a loan from a bank and says the value price of a particular article is 10 dollars and he wants to a profit of 1 dollar. therefore the asking price would come with the ten dollars cost price one dollar profit and one dollar interest and therefore the asking price would be 12 dollars. The asking price would go up due to interest and when the asking price goes up the demand comes down and when the demand comes down the availability comes down and as supply comes down production comes down causing labour problem and unemployment.
मुस्लिम Status On Economic System
There is Social Injustice.
For example, if an individual takes a loan from the bank and regardless of if he earns a profit or goes in loss he has got to pay that fixed amount of interest. albeit some natural calamity befalls his family, like flooding or earthquake, the person still has got to pay the loan with the interest and a delay would only increase the quantity of interest. it’s social injustice.
मुस्लिम Status On Economic System
There is no social consideration.
Suppose, if two businessmen come to invite a loan from a contemporary bank and one businessman wants to start out out a social or hospital while the opposite businessman wants to start an alcohol factory or a gambling house . But natural the businessman, who wants to start out an alcohol factory or a gambling house would have better returns and therefore the loan given to him would be safer and he would provides a higher rate of interest as compared to the business, who wants to open a faculty or hospital. Modern banks are only curious about recuperating and better returns. That’s why they finance gambling dens instead of schools or hospitals. that’s why within the 80s thousands of gambling dens were financed by modern banks worldwide. For name sake only a couple of social projects are financed by modern banks and therefore the majority of their loans are supported better interest.
मुस्लिम Status On Economic System
Modern banks encourage people to store money and keep the cash idle for little fixed return thereon per annum . within the end, power is concentrated during a few hands, the bankers.
In the same way there are several benefits of Islamic banking.
As there’s no interest involved, there’s profit and loss sharing. So if an individual wants to sell his goods, it might only have the value price and profit within the asking price and rather than 12 dollars, his asking price would be only 11 dollars. If the asking price comes down, the demand increases and if the demand increases the availability increases and as supply increases the assembly increases leading to more labour for the people and better employment. As a result encourages people to figure and earn their living.
मुस्लिम Status On Economic System
There is Social Justice in Islamic banking.
If a business takes a loan and goes in loss, the loss is shared by the bank and if he earns a profit, the profit is shared by the bank. If just in case any natural calamities befalls him, the Islamic bank gives him longer to repay, unlike the fashionable bank, where the longer you’re taking to pay the more interest you’d need to pay. many an times if the Islamic bank finds things very bad, they even abandoning off that loan.
There is Social Consideration in Islamic banking.
Islamic bank can’t provides a loan to any businessman, who is doing any activity, which is causing harm to the society. for instance , if a businessman wants to start out an alcohol factory and approaches an Islamic bank for a loan, the Islamic bank won’t lend him one penny, not albeit he promises to offer 100% profit to the Islamic bank. In Islamic banking there’s social consideration and that they encourage projects beneficial for the society, like building schools, hospitals and nurseries. In short, the Islamic bank encourages the society to enhance .
In the Islamic bank, you’re not encouraged to stay your money idle. you’re encouraged to take a position your money and be a partner within the business and within the end, power isn’t concentrated within the hands of a couple of individuals. Because within the Islamic banking the profit and loss are shared by the business, the banker also because the depositor. the facility is equally shared among all the people.
The great philosopher, Aristotle has beautifully defined Interest as “An earning supported the utilization of cash and not on labour, and every one such earnings(interests) are against nature.”
Lets quickly analyze the objectives of the Islamic economic order before we analyze the idea and application of the Islamic financial system .
मुस्लिम Status On Economic System
The Objectives of the Islamic Economic Order
1- Economic well-being
Islam encourages an individual to enjoy the bounties of Godhead , to figure for his living and refrain from begging.
2- Universal Brotherhood and Justice
Qur’an says in Sura al-Hujurat Chapter 49 Verse 13, “O mankind! We created you from one (pair) of a male and a female and made you into nations and tribes that ye may know one another (not that ye may despise each other). Verily the foremost honored of you within the sight of Allah is (he who is) the foremost righteous of you.”
From this we come to understand the standards that the standards of judgement within the sight of God isn’t wealth, not sex, not color, not Caste, but it’s “Taqwa” God consciousness, piety and righteousness.
Qur’an says in Sura an-Nisa Chapter 4 Verse 135, “O ye who believe! stand out firmly for justice as witnesses to Allah whilst against yourselves or your parents or your kin and whether it’s (against) rich or poor: for Allah can best protects all.”
According to this we’ve to face for truth and justice be it against anybody even against our own selves and sacrifice your own interests.
मुस्लिम Status On Economic System
3- Equitable Distribution of Wealth
Islam is against the philosophy that the wealth should be concentrated during a few hands. The difference between the rich and therefore the poor should be reduced. Otherwise they might become enemies unto one another . For this, Islam has devised a system of “Zakat” that each Muslim, who has excess wealth exceeding the quantity adequate to or quite 85 grams of Gold. This amount is spent on the poor, orphans, needy then on. If every individual within the world practices this technique of “Zakat”, not one person within the whole world would die of hunger. Islam teaches to seek out lawful employment for the unemployed and to pay him an honest remuneration.
According to Islam if an individual dies his wealth should be distributed among his heirs consistent with the rules laid down in Qur’an and Ahadith and it shouldn’t attend only one or two individuals within the society because it is completed today.
4- Individual Freedom within the Context of Social Well-fare
According to Islam man is born free and no-one not even the state can abrogate his freedom nor subject his life to strict regimentation. Every individual is free as long as he doesn’t harm the society because in Islam the larger welfare of the society takes precedence over the individual freedom.
Working and labour also because the benefit in business are both important principles of Islam, but working and labour take precedence over the benefit in business. If you’re doing business, an enormous loss can’t be inflicted to alleviate alittle loss, nor can an enormous profit are often sacrificed for alittle profit. In short, Islam believes in individual within the context of welfare .
मुस्लिम Status On Economic System
There are mainly four factors involved in production;
1- Land
In both the trendy and Islamic theories, you pay rent on the land.
2- Labor
You pay wages on the labour in both the trendy and Islamic theories.
3- Capital
In the Modern theory, you pay Interest on capital, while within the Islamic theory there’s profit and loss sharing.
4- Organization
In the fourth factor of production, Organization, there’s profit and loss sharing in both theories.
So the major difference within the four factors of production is that the third factor of Capital. the trendy Theory says that a hard and fast interest should be charged on the capital, while the Islamic theory says that there’s profit and loss sharing on capital. Because Islamic theory doesn’t differentiate between the third factor Capital and therefore the fourth factor Organization because the cash lent by the bank doesn’t belong to the bank itself, it belongs to the depositor. The depositors are the a part of Organization and therefore the money deposited within the bank (the capital) should be included within the Organization. within the Islamic theory Capital and Organization are clove together and there’s profit and loss sharing on the capital.
मुस्लिम Status On Economic System-When you need to do business, there are naturally two sorts of units. One is that the surplus unit, who have more than wealth, but don’t skills to spend it. Second is that the deficit unit, the people that don’t have money, but have good ideas for business. the simplest samples of a surplus and deficit unit within the Islamic history is Lady Khadijah (may Allah be pleased with her) had more than wealth, but lacked avenues to spend in and being a female she couldn’t travel abroad an excessive amount of to deal in business transactions. The deficit unit, in terms of wealth, was Prophet Mohammed (peace be upon him). He had good ideas and access to business avenues, but didn’t have wealth. So Lady Khadijah (may Allah be pleased with her) gave wealth, which Prophet Mohammed (peace be upon him) invested in business avenues on her behalf and therefore the profit was shared on a hard and fast predetermined ration.
मुस्लिम Status On Economic System
The System of Islamic Banking and Modern Banking
Lets analyze the choices open for individual depositors to deposit their money in an Islamic bank.
Current Account
The money you deposit in an Islamic bank is employed together with your permission, but if the bank goes in loss, the loss isn’t shared by the depositor. If the bank goes in profit, neither is that the profit shared by the depositor. The depositor is curious about only the security of his money, not profit. The Islamic banks gives you a check book and an error book with the functions as that of a contemporary bank.
Savings Account
Even here the depositor is especially curious about the security of his money. because the bank gets a take advantage of this money, the bank can gift some of that profit to the depositor, if the bank wants, but the depositor can’t demand a hard and fast portion.
In Islamic banking, if a bank goes bankrupt then the depositors get their money first then , the creditors. While in Modern Banking creditors get their money first and majority of the depositors lose their money. So albeit you would like your money safe, the Islamic banks are preferable and safer than Modern banks.
मुस्लिम Status On Economic System
Investment Accounts
They are almost like the Fixed Accounts of recent banks and are further divided into several types
Mudariba (Profit & Loss Sharing)
The depositor deposits a hard and fast amount of cash within the bank for a hard and fast period of your time , which maybe a multiple of three or a multiple of 4 . Here the excess unit is that the depositor and therefore the deficit unit is that the bank. The bank uses this money to try to to business with the businessmen and whatever profit the Islamic bank makes, it’s divided on a pre-determined ratio, which may be negotiated. within the Islamic Banking of Malaysia, the ratio is 7 part to three part, meaning 70% goes to the depositor and 30% is kept by the bank. So there’s sharing of profit, the greater the profit the greater the share of every .
Suppose, if there’s a loss of 100 dollars, then hundred would be deducted from the depositor’s money. So theoretically only the depositor bears the loss. Practically analyzing even the Islamic bank goes in loss because they’re paying money for the rent, administration and salary, but the ratio of the bank is a smaller amount than that of the depositor, as even the profit of the bank is a smaller amount than that of the depositor.
मुस्लिम Status On Economic System
Project Financing within the Mudariba System
If a businessman approaches an Islamic bank with a project idea and asks for a loan for a hard and fast period, the Islamic bank analyzes the project, then the businessman and therefore the Islamic bank negotiate the profit ratio. In Modern banking interest is negotiated, in Islamic banking profit ratio is negotiated.
Suppose, the businessman takes a loan of $5000 from an Islamic bank for 6 months and therefore the pre-determined profit ratio is 60% to the bank and 40% to the businessman. If the businessman is functioning for his business, even his salary would be included therein $5000 and suppose the salary of the businessman is $200 per month.
Suppose, if the businessman earns a profit of $5000, the business would get (his 40%) $2000 from the profit and therefore the businessman would get paid $200 salary per month from the $5000 loan, amounting $1200 for six months. therefore the businessman gets his profit also because the salary for his labour, if he’s working for his business.
But just in case of loss, the bank bears the entire loss and successively passes the loss to the depositors. But technically even the business also goes in loss because he’s only purchased labour, not for his thinking and concepts .
In Mudariba System, the bank can’t interfere within the management of the business. The business can’t tell the businessman to create a 12 story building rather than a ten story building. The bank can’t tell the business to supply a particular article rather than another article. The bank can’t interfere within the administration of the business.
मुस्लिम Status On Economic System
Mushariqa System (Partnership)
In Mushariqa system or Partnership the Islamic bank can interfere within the management of the business. The bank can tell the business to create a 12 story building instead of a ten story building. The bank can tell the businessman to form a particular product rather than another product. In Mushariqa system the businessman has a part of the capital and therefore the other part he takes from the bank. The profit is shared on a pre-determined ratio. Suppose, if the businessman and bank give 50-50% capital, they might get 50-50% profit. But just in case of loss, loss is shared on pre-determined ration and therefore the Islamic bank bears more loss. The Islamic bank may need to bear 60% loss, while the businessman would only bear 40% loss.
मुस्लिम Status On Economic System
Mudhaba System
Suppose, you would like to get a specific machinery from abroad costing $10000, within the Modern Bank you open a LC (Letter of Credit) or a TR (Trust Receipt/Sales Slip) and you deposit the cash within the Modern bank and therefore the Modern bank charges you a hard and fast amount of interest on the time it takes for the transaction. If you deposit the cash in an Islamic bank and ask the bank to shop for the machinery on your behalf, the Islamic bank would charge you a service charge/commission.
If you are doing not have money to shop for the machinery, you’ll combine Mudhaba System with Mudariba System or if you’ve got the cash you’ll combine the Mudhaba System with the Mushariqa System and share the profit on selling that machinery with the bank on a pre-determined ratio.
मुस्लिम Status On Economic System
Ijara (Leasing or Higher Purchasing)
Suppose, you do not to shop for a car, you would like to rent it. The Islamic bank charges you a particular profit and rents you the car. the worth of the car and therefore the profit are divided by the lifetime of that car to calculate the per month rent. The Islamic bank provides you Ijara ending with sale and also buying back facility. If you do not the car, the Islamic bank buys back the car, a facility which Modern banks don’t provide.
Interest-free Loan
It is the loan the Islamic bank gives to the poor to try to to business without charging any Interest in the least . there’s nothing like Interest-free loan in Modern banking. within the Islamic system of banking in Malaysia 10% of profits are kept separately/ reserved for Interest-free loan for the poor. In Islamic terminology it’s called “Karze Hasana” meaning “the good loan”.
