To Lucky and for economists

[mustafa]

First of all I think you are a good muslim, following every requirement of shariat.

So my question is if interest is haram in islam how should we live? how should economy, businesses, stock markets, people work?

It is not secret that interest rate is everyday factor affecting our lives, Ive tried to imagine a world without interest rates. Ive only got to something like iron age or so.

What do you think?

this issue is for other economists as well. I know something like "modarabah" and "ali-jarah" which are basically defining interest in some other way.
What is the effects of this. all in all how does the arabic ecoomy work?

Mustafa

PS. potom anekdot budet

[Akhee-Abdullah]

WOW, What a question "Mustafa"!!! Do you wanna butcher me with this question ?! LOL The acceptance of my answer will depend on your intention of asking the question. :) If that was to argue for the sake of argument, I am not gonna argue. After reading the "tips for debate" (some of them were really mean) I made up my mind not to discuss the "Islamic stuff" or any other issue over here, in MB. There are individuals among the participants of the MB who ask you questions not to find the "truth" or understand your way of thinking, but to argue and disgrace you, and indirectly others who think like you. There are multiple ways of conducting debates and discussions in a much better civilized fashion but not in our MB, 'cause there are some individuals as I mentioned, but still I hope for the positive result and outcome from this post. Ok let's get to the point:
First of all, as mentioned earlier in other posts I am quite new to Islam and do not know lots of stuffs. However, I consider myself an eager proponent of Islamic civilization and zealous student of Islamic thought.
Second, this is an economics, not the religion discussion and to do that we need some tools to use.
Third, I am an economics major, but still a student and make lots of mistakes in the way I think, so be patient and tolerant.

The correct way of addressing this question on your part would have been "Is Islamic economics compatible with the modern economics thoughts?" (not just interest free rate system).
Answer: Yes, Islamic economics system is quite compatible with any existing economic system and by far outweighs any of them concerning the social and economic results. It would never be a suitable condition to put an aircraft engine in a motorboat and demand it to work. The same is with your question. Interest free Islamic economic system works only in socially, psychologically, economically and politically Islamic esatblished society and economic envirionment. It will never work, in my opinion, in an un-Islamic environment. There are conditions, in any school of economics. The same applies with Islamic economics. There are conditions : among them are prefernces of consumers. The demand of the consumers in, Islamic society, is based on the needs not the wants contrary to the Classical economics (this itself takes pages of papers to explain). Another condition is individulas, their beahaviors are tainted by Islam nothing else. The other condition could be the difference in the approach to Tax system (contrary to Western tax system, Islamic tax charges very little from the income of the economic agents) I spent endless hours with my Professor discussing Islaimic Economics. "Given the conditions, Islaimic economic system is quite compatible with any existing system", was the conclusion of my teacher. He is a non-Muslim, however an economist, and does not care about the religions. All he cares is economics. From that, we could talk about the condions themselves. The condions that we posed are observable and practical, and they are not just theories. So in other words, Free-interest Islamic economic system can be applied and practiced given the conditions, while summarizing the conditions the basic tenet would be the Establishment of Sharia in the society by the free acceptance of the Muslim economic agents (the really practicing ones). Your questions is so big that one can't cover it here, in MB. However, there are some pretty good jobs done by some economists, if you are really interested I can refer you to some of them:
"Essays in Islamic Economics M. Fahim Khan "- a really tough book unless you have taken master's classes in Micro-Macro-Managerial economics. And he uses a rigorous approach by using lots of calculus. Another more accessible text would be "Islamic Economics: Theory and Practice." by PhD in economics, Muhammad Abdul Mannan of University of Michigan, and Professor at "Islamic Resaerch and Training Institute" and "Islamic Development Bank" in Jeddah. The book was revised and highly recommended by Dr. Charles S. Benson of University of Berkeley. There are numerous of books many of which you can find in libraries or on sales in the bookstores.

Mudarabah, Murabaha, and Musharaka are more of a Money and Banking stuff. They are not in any form the other type of interest, you'll discover it after reading the suggested books.

I am a future economist, and the future economists have limited time like any other people. Economists (I include Financial Economists and Financial Managers in this category) are the only creatures on the face of the earth who can really understand the true value of time in terms of $, that's why I prefer not to waste my time copying the stuff from the text and leave it up to you to discover and understand the Magic that Islamic economics does to raise the living standards of active individuals in the Islamic society.

Cheers, :)

[Freestyler@]

Hi, guys! Interesting topic! Just to add a few arguements:

I think <Lucky> remembers' that I've already asked a similar question.

You, <Lucky>, then argued that economies can function without interest rates because statistics showed that most of the finance of the firms (about 70%) came from retained profits, and only the rest being from equity(stocks) and debt.
From Finance I know that financial markets' primary purpose is to maximise the efficiency of funds through channelling excess funds to those who lack them. The whole theory is based on the time-value of money.
This, as far as I see it, is in total conradiction with Islamic economics.

However, another arguement is: Japan currently has interest rate = 0% !? How could this happen. (However, knowing the following it does not seem that impossible: 1.Japan has vitrually zero inflation rate, at times even apppreciation; 2. Japan has positive trade saldo (ie., net exports)).

Another phenomenon: inflation. If there were no interest rates, how can then Islamic system of finance compensate for inflation? Who would like to lend money if he knows that in future it will be worth less then now? Or am I wrong?

[Akhee-Abdullah]

Islamic economics takes into account inflation rate. If the inflation for the year was 5% and you lent money, let's say $1000 a year earlier, you'll get $1050. It has no contradiction with sharia, what matters is a real interest rates. The businesses, in capitalistic society, as you mentioned Freestyler, raise about 25% of their funds externally, and 75% of that 25% which is 20% of the total raised by issuing debt notes, or simply by borrowing at interest. The other 5% is raised by issuing stocks. Common stocks are halal according to the Islamic economics but not the Preferred stocks. There is an incentive for firms to borrow at interest rather than issuing stocks, 'cause it is less costly and there is something called leverage. Besides that, the whole Capitalistic economic system is based and designed the way that it is virtually impossible not to borrow at interest. However, one could get a long with that even in the USA. Many banks are offering Islamic services for Muslim consumers, since there are 6 milion Muslims in the USA, besides there are Islamic banks operating in the UK, the USA and numerous other Western countries. Islamic banking system is one of the fastest growing financial sectors in the financial institutions. The old (in another thread) argument was based in the context of Capitalistic economics, in this thread the condition is: Islamic society, and muslim economic agents who'd love to lend at 0 interest rate, and who'll never borrow at positive interest rate even if they go bakrupt, because of future expectations (hellfire). Japan is an interestin' phenomenon, actually what is happeneing over there is that people are not spending, government even introduced couple of new holidays in order to induce people to spend however it is not workin, my teacher mentioned that there was instances of negative interest rates in Japan. This instance is apparently different from Islamic economic system. In Islam the total amount of tax you pay is 2.5% of the annual profit not the income, this is very miniscule compared to the capiatlistic economies. Another thing in Islam consumers will spend, Quran constantly urges them to spend in the way of Allah (swt), they do not hurdle the money, which is the opposite of Japanese economic agents. High demands for goods and services shifts the investment demand further, causing rapid economic growth. Because the monetary system based on gold and silver monies, historical accounts show very little inflation rate over a long period of time, for many reasons. (This topic itself takes a book to calrify, and there are many arguments for and against monetized system) Basically, this depends on the psychology and preferences of the economic agents as long as we go beyond the basic minimum requirements for survival: Shelter (Krisha nad Golovoy), and a piece of bread (kusok xleba). Please ,read those books, I do not wanna argue, and waste my time. Whoever really needs to understand will find out
Cheers, :)

[cute]

Lucky,
bro I would like to see how would you explain these to our mullas, qoris, imoms and etc. Believe me, every qori, mulla I've ever seen in masjit says that interest rates are haram. And you are actually "sudho'r" if you do something related to this. Sometimes even kafir is mentioned.

P.S. Just comments.

[Javanmard]

Interest is offically not allowed in Islam....

It is strictly not allowed but people still do it because...it is a good system...

[Akhee-Abdullah]

Cute, you do not what you talking about. Clear up the steretoype that you have in your mind. I got all these stuff from the very Muslim Ulamos, so take it easy, they are not accusing anybody for inflation premiuim, and this is not interest at all. Forgot, to tell somth else if the inflation was negative 5% that is 5% appreciation of money (or we could say defaltion) the borrower won't pay you back $1000 that he/she borrowed from you. You'll get $952.380 which is equal to $1000 in a previos year's nominal term.
Cheers, :)

[PADLA]

a

[cute]

Well hi everybody,
Lucky I know what I'm talking about. I'm not new to these things. Yes, there are many people who really know this stuff. But the point I want to make is that only 5%of so called mullas are educated (If I'm not wrong by the %). Nobody and noone is perfect, except HIM. So don't try to defend these who are really problem, by occupying the place that they've got.

[t_rex]

read on how muslim controlled financial institution (BCCI bank - one of the biggest in the world 10 years ago) operated in western environment:
http://www.fas.org/irp/congress/1992_rpt/bcci/03hist.htm


take care