The Islamic Solution
The Islamic solution to the issue of interest rests upon
two basic principles:
(1) If an individual wishes to lend money to
another in order to help the latter, this act must be based on “brotherly
principles” and it is absolutely unacceptable to charge any interest in such a
case. It is not helping another individual to put him into a cycle of debt
where he has to pay more than what they borrowed. This principle applies as
well to Islamic international relations. If this important principle were
applied today, countries would truly give “aid” and assistance to other
countries, rather than sucking them into a pattern of dependency and debt
burden.
(2) If an individual wishes to use his money to
make more money, then he must be willing to put his money at risk. In other
words, he cannot guarantee for himself a fixed return (whose amount keeps
growing over time) regardless of the result of the investment that his money is
used for. If he puts his money at risk, he is deserving of some share of the
profits. However, this also means that he must accept losses if losses occur.
This is a system that is based on justice. It also has numerous benefits to it.
The one who invests becomes concerned about the results of his investment and
cannot demand his “pound of flesh” regardless of what may occur to the debtor.
This Islamic solution works for individuals as well as
for society as a whole. Banks are essentially financial intermediaries. They
take money from those who have excess money (savings) and turn it over to those
who need money for investment purposes. Interest is not necessary for such a
system to work. The bank and its depositors (shareholders) invest, rather than
simply loan, their holdings. The money is put at risk and the return to the
depositors will be based on the amount of profits made in the respective
investments. Under normal circumstances of a growing economy, if the bank is
big enough and it diversifies its portfolio, the bank is virtually “guaranteed”
a positive return on its total investments. Thus, those who invest their money
with the bank will also receive a positive return on their money without it
being guaranteed or fixed ahead of time.
Numerous “Islamic” financial institutions have been set
up throughout the world today. They have been established on the principle of
avoiding interest and some of them have flourished.
Conclusions
For the most part, “modern civilization” has decided to
turn its back on Divine Guidance (mostly due to the experience in the West with
Christianity) and have attempted to construct their own economic systems,
political systems, international laws and so on. When doing so, though, they
have to admit that they are attempting something that is beyond their means. The
social sciences are very different from the physical sciences. There are no
labs in which humans can be entered to determine what may be the best results
under different scenarios (and even that would have to assume that humans will
always react the same under the same circumstances).
In the realm of economics, the first thing that may come
to mind is the collapse of the theories of socialism and communism. One
should, though, also take a closer look at capitalism and how far its reality
is from what it is supposed to be. The early capitalist theorists envisioned a
theory that would lead to “the best of all possible worlds.” However, their
theories were based on assumptions that never were and will never be fulfilled.
They assumed perfect competition, perfect knowledge, free trade and so forth. Once
these assumptions are violated, which they inevitably are, they do not lead to
the “best of all possible worlds.” Instead, they easily lead to a world of
exploitation, wherein the rich get richer and the poor get poorer. One of the
diving forces behind this system is the institutionalization of interest.
God has blessed humans with the guidance of the Quran—a
book that has been minutely preserved since its revelation. This book contains
the guidance that humankind needs to lead a successful life in both this world
and the Hereafter. It is therefore no surprise that this book absolutely
prohibits and condemns interest in the strongest fashion.
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