Question about Interests/Riba/profit/loans etc

[Raja.Pakistani]

^^^ There is no real answer to your question, because I asked the same earlier in anothe thread( when somebody asserted islamic banking would not have led to current financial crisis)

There is a standard fake answer many of them give though: Islam is a full system which encompasses all facets of life, including importantly, politics and governance. Without changing that, you cannot have an islamic financial system'

There is no doubt that Islam is a complete way of life and the only problem is banking sector is getting evolve with time and I guess peoples should know the reasons why riba/fixed interest were forbidden and then should see whether those points still applicable to current banking system..Its not black and white..Financial crisis could come either way..sure if bank lend you money and you cannot pay it back then it will bring financial crisis

 

[Raja.Pakistani]

Its not the case at all. They all charge intrest even in Pakistan which was suppose to be Islamic republic we are using this banking model from the west which involves intrest. and their is no justifcation what so ever of that .

There exsist a model in this world which is intrest free. The intrest rate is literary 0% on whatever money you take.So i would call that model the praticallly implemented to be follwed by Islamic states.

And This so called islamic banking its just using the name islamic but the things remain the same. U get profit or loss in your bussiness you have to pay the bank that is their profit no matter what...........

You are looking for interest free model. I guess nothing in this world comes free. Will you lend me one lakh rupees and take back same amount after ten years? Is it fair to use your money for ten years and make it double or triple with investment and then give you same money back when its worth will be much less than it was ten years ago.. such selfless banking system probably don't exist

 

[Awesome]

What about individual who need money for non business purpose. For example, fixing your house, medical emergency. I have no chance of getting money from anywhere then(apart from friends and families)

Fixing house can wait unless it was hit by a disaster in which case its the responsibility of the state but medical emergencies are almost always the responsibility of the state. Almost all first world non-Islamic nations also practice free medical care. This amount does not have to be paid back.

When it comes to paying back an amount, that amount would always have to be more than what received to make business sense.

Also, this will mean islamic bank has to be expert in all the fields of business, and need to see profit potential because they are buying your shares. That makes the deposits risky. Should I make deposits in banks which indulges in such risky behaviour.
In UK, they are ringfencing retain banking so depositors money will remain safe.

Sure, and that's why Islamic banks only lend to a set of predetermined fields and usually where they operate they have a good idea of the local businesses. All banks have experts when they step into specific facilities (as such facilities lend higher amounts and/or lower interest rates like home loans and auto loans).

There are some areas where quick funds can be accessed through Islamic banking as well.

There is a concept of Islamic credit cards. Which is a very attractive option if you are someone who always remains in credit card debt

No interest is charged, except for a flat fee that you have to pay. A monthly minimum fee is charged on your outstanding and of course late payment fee is charged whenever you miss a payment.

 

[Awesome]

But imagine a old guy who has saving of 10 lakh which he saved after working hard all his life and he try to go for islamic way of banking which mean islamic bank will invest his money in some business and will give him share in profit and loss..but in that case if business loss then they will cover that loss by taking money from his balance which dont benefit it as much as non islamic banking where there is no loss..so my question is how islamic banking is more useful option for him in this scenario ?

Is it also riba when Government take loans from IMF to run the country?

First of all I think the jury is still out on whether or not is it so bad to take/give interest especially considering the risks involved. This is one of the only things in Islam which has not been explained in detail that why interest is haraam. A few conclusions related to risks and financial system going haywire comes to mind.

Anyway, yeah for an old guy, the best options are usually to spend money in government saving certificate (like Pakistan's Defence Saving certificate which gives a return of 20%). But don't think the money is secure still. Islamic banks will promise only a smaller return on profit and usually they have done their homework much better than non-Islamic banks so that profit will not normally go into a loss. The non-Islamic banks will however take your money and lend it to a different party take interest from them and pay you some interest back. Now given a scenario where the banks source of income is just that (usually it is not they have a diverse income stream), if the other guy fails to pay to the bank the bank should not be able to pay it back to you either.

Saving certificates are the same on a bigger scale, governments are usually safer (including Pakistani government). Usually the finance field of treasury management comes here. Within banks they make money out of money

If a bank has 100 million in cash lying around, to put this money to good use it needs to lend it to someone. Bank A calls Bank B, I need a quick cash flow of 100 million for 5 days (after 5 days the bank A expects to get their own money), bank B will put its money to good use.

 

[Hyde]

Just want to add this for general knowledge and have not read most of the long posts yet:

I think the concept of Islamic banking is simple but we have made it difficult after different interpretations. As far as I know you are not allowed to lend/borrow money on 'interest'... Period... so you have the option to become his partner while lending your money. So basically your profit does not have to be fixed like in the case of interest rate and you should be able to earn profit or make losses depending upon the person's business progress.

For example my friend wishes to start a new business and has 90% of his savings to buy the goods for his business but he borrows 10% from me. Now I technically have 10% shares in his business and if I want to take a profit (and not interest) whatever profit he will make from his business, I could claim 10% of his profits for my share... and he if he makes losses I should also be bearing the losses for his business. It's simple as that

Now when somebody borrows a money for non-business matters, you should only lend your money without interest rate. The purpose is to eliminate poverty and make everybody independent so if you have enough money to lend somebody you should be helping him to bring change in his life by giving him interest-free loan. If you cannot, then don't lend your money simple as that...

Imagine if a person wishes to marry her daughter and borrows 20,000 dollars from you, you should only take back the money you have lend to him. If in case the person is not able to pay the money back and you feel the person is very poor and will never be able to pay back and the zakat is not wajib on that person --- then you should forgive that money to him and you have the option to deduct the money from the zakat of 2.5% that every 'able' Muslim is mandatory to pay each year. The concept of zakat could be interlinked in this scenario I guess

 

[MastanKhan]

Interest is not forbidden in Islam. Usury (Riba) is. Usury and interest are quite different things.

Hi,

Thank you for sharing that with the pakistanis. As a matter of fact 'usury' was forbidden in the united states of america as well---I believed it changed in the late 80's or early 90's. There is nothing wrong with interest that the banks pay or charge---. The fixed interest rate is for 'consumer' protection---either given or taken---. a consumer may pay off an interest loan any time he or she wants to and only pay finance charges for the term of the duration----meaning if a 60 months loan is paid off in 12 months----only 12 months finance charges are paid.

Lastly---but not least----usury is sood dar sood----which must not have any place in a civilized society.

A lots of things have been declared 'haram' on the basis as to how they were being praticed in arabia and by the arab tribes.

 

[MastanKhan]

As I said, interest and usury are quite different things. Dictionary defines usury as "extortionate interest", or "the practice of taking exorbitant or excessive interest.".

Arabic language also makes distinction between interest (Fa'eda) and usury (Reba). Koran forbids Reba, or usury. Earning interest and paying interest is perfectly acceptable, as the Koran has not prohibited interest.

The circumstances which may fall among Reba (usury) are for example unlicensed or illegal moneylenders (mafia as a well known example) who charges usury, excessive interest compared to market rate. Or simply black market lenders.

In practical terms as long as someone are dealing with any state-licensed institution like a bank, Mortgage Company, Credit Card Company, etc., he/she is not violating any Islamic commandment as these institutions usually follow the law of the land and do not charge excessive interest (usury).

Hi,

Thank you again----. It again comes down to the law of the land---and then law of the universal business---. You have to follow the law of the land and in order to survive---you have to follow universal law----.

In a supposed islamic banking---a certain amount is pre determined to be the 'interest'-----whichwas basically a pre-computed coontract----california auto loans contract #552----.

Basically---whenever there is any sum of money added on top of the principal as payback---it is 'interest' one way or the other---you can give it any name---but it is what it is----interest---and it is not sood ( sood / usury as practised by the arab tribes of prophet Mohammad's era ).

 

[rohailmalhi]

You are looking for interest free model. I guess nothing in this world comes free. Will you lend me one lakh rupees and take back same amount after ten years? Is it fair to use your money for ten years and make it double or triple with investment and then give you same money back when its worth will be much less than it was ten years ago.. such selfless banking system probably don't exist

There exist an intrest free system in reality. In Japan u can have loan at 0% loan so it is possible.
The thing is money depreciate but what abt gold ...........many other things can be used which are not depreciable.

So Yes i am looking forward for this model to become a reality in Pakistan coz this intrest thing is killing alot of middle class people.

right now i am in sweden guess what is the intrest rate here just 4-6 percent that is for covering the bank expenses. Then these banks do the investment on the money they have and they earn their profit from these investment not from intrests.....

 

[livingdead]

There exist an intrest free system in reality. In Japan u can have loan at 0% loan so it is possible.
The thing is money depreciate but what abt gold ...........many other things can be used which are not depreciable.

So Yes i am looking forward for this model to become a reality in Pakistan coz this intrest thing is killing alot of middle class people.

right now i am in sweden guess what is the intrest rate here just 4-6 percent that is for covering the bank expenses. Then these banks do the investment on the money they have and they earn their profit from these investment not from intrests.....

Well it is so low in sweden because their bank rate is low. The central bank takes a decision based on the local needs. For example in India, the base rate is kept so high to keep inflation in check. Any easing of money supply will create stock market bubble(also housing prices increase).
So banks charge high interest in India( or pakistan) because cost of borrowing is high. Also, higher number of bad loans make loan dearer to all.