Contemporary Issues Part 7 (Interest & Islamic Banking)

Bilal Philips


Channel: Bilal Philips


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Bismillah R Rahman r Rahim, the name of Allah, the Beneficent, the Most Merciful, like to welcome your viewers to our program, contemporary issues.

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And this segment of our program, we are shifting now to the area of economics, economics,

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a field which Islam addresses, there are laws within Islam which govern human economics, how their economic dealings should function. When we look into Islamic legal requirements of business deals, etc, etc, sale purchase these type of things trade,

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we find that one of the basic principles is that it should be free from deception. Anything which involves deception, where you're deceiving the buyer of really what you're selling, you know, he thinks he's by one finger, in fact, selling something else, you know, however, this may come in all different forms. From a sound perspective, all of that is forbidden.

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The other basic principle we can see there is that the the issues of interest where business dealings involve interest. This is not another area where things again are strictly forbidden. So what we know today is modern mortgages, people buying home with bank loans, and they have to pay back the bank over this period of time and this kind of thing, or taking out loans for cars or a variety of other purposes, where you end up paying back the money plus an additional amount.

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This has been forbidden in Islam. And really, it is not something new that you can find even in the

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Old Testament, in ancient beliefs of the followers of Moses and others, that interest is forbidden. And we find in Deuteronomy

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23, verse 19.

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Thou shalt not lend upon interest to your brother, interest on money, interest in victuals that's food or provisions.

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interest on anything that is lent for interest

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is a basic prohibition.

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However, and this has been understood, however, this prohibition for the Jews, they there was a modification there in verse 20, goes on to say to a foreigner, you may lend upon interest, but your brother, you shall not lend upon interest. So interest became for Jews forbidden to take from themselves from each other. But it was okay to take it from the Gentiles, the others, right. And the prohibition of interest actually existed in the Christian world, right up until the Middle Ages, you know, the

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13th 14th century otherwise, prior to that it was banned, we find, you know, Shakespeare writing about The Merchant of Venice, bound to flesh, individual lending and interest in seeking upon the flesh in return for those who couldn't pay it. You know, this idea, this was the evil Jew, this is what he was, how is functioning, taking people's flesh even, you know, that's a so it was opposed thority in Western society, but eventually,

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though, the people were able to influence

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the the

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religious beliefs, the economic segment was able to influence it under the Jewish influence, to a certain degree that they introduced it eventually interest on a low scale, and eventually that spread spread spread until it became the foundation of Western economics. Interest dealings became that foundation. However,

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in the 70s, of course, Islam totally prohibits interest a lot makes no uncertain terms about its mission, even talking about the fact that people will compare it to trade. Right? You know, that they will say that trade is just like interest. Interest is just like trade really no difference. You know,

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you lend somebody a property, they pay a fee for it, you lend somebody money, they pay a fee for it. It's not the same, but the trade in money, a law says is devoid of any good, it's cursed, whereas

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proper trade is blessed by a law.

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So, dealing interest is forbidden for Muslims, and Muslims have functioned economically over the centuries, without dealing with it. However, once the Muslim world became conquered by Western civilization, mainly out of Europe, England, France, Germany, etc, conquered various Muslim lands, Holland, Indonesia.

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Then they introduced with with their conquest, interest based governmental systems.

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And the banks were introduced into the countries and interest in the belief and the practice of it spread.

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With the revival of Islam in this century,

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we find that the proposals for Islamic banks, the alternative, you know, came up, especially in the early 70s. They the concepts are being proposed, you know, things have been worked out, the plans for it have been identified, you know, he finds those son, brother, Muhammad Faisal,

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working on it, when it's the idea was first broached in the West, the western economists etc, they scoffed at the idea, this is ludicrous, the idea of banking without interest, what kind of bankers this cannot possibly work, though, in their own books, in their own theories, they will tell you that the lower the interest rates, the healthier the economy, the better the economy is, the higher it is, the weaker the economy, this is well known. But the idea of zero interest, you know, you see getting lower and lower and Lord gets this economy gets better and better and better. But the idea of zero interest could not be dealt with and want to deal with it. That idea was forbidden. Why?

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Because the elements that control the banking systems of the West,

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they will be put out,

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if they shifted to interest without banking without interest. So

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they, you know, keep that concept in, they're strong, and they continue to teach it absolute necessity, whereby people can just live no effort on their part. People take their money, they have to pay back more money, you know, no effort involved here. Well, what we find today,

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you know, after some 30 years have passed,

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that the majority of the major banks of the West now carry Islamic portfolios. They offer business in without interest, banking, without interest, they're offering it now bank, all the various big banks, Bank of London, etc. They're all offering it Now, why? Is it just to capture Muslim money? Because they don't want to lose their clients? No, because a bank is not going to do that.

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Just to maintain this reputation, no, because it's not going to involve itself in what it sees as clear financial loss. The only reason why they're getting involved in it is because they have seen its successes. The Islamic banking has reached a massive state of success.

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This is the what was thought impossible, has actually been implemented. Today, you have more than 200 Islamic financial institutions worldwide, managing funds of over 150 billion US dollars. You know, and even with its strict codes, Islamic banking is growing at a fast rate of some 15% annually over the last 10 years. In recent years, Iran, Sudan, Pakistan, you know, and others have banned traditional commercial banking, you know, based on interest and adopted Islamic models.

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Of course, Pakistan is not complete as it has been in Iran and Sudan etc. But there are more and more countries are broaching this idea Malaysia is experimenting with it also is having banking is developing there quite strongly. And we find Muslim

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Wherever we go, looking into this calling for this as an alternative to the

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the other banking is interest based banking institutions. So

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how does Islamic bank function? Well, you know, there are different

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means by which the bank maintains its money. One of those means they referred to as murabaha. You need to buy something the bank goes and buys it for themselves, it's for you sends it to you at a higher price, buying commodities and selling them right, based on demand.

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Secondly, you have what is known as moussaka, where to financers their partners they come in they put their time, effort money together, and they share the

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the profits

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proportionately, then we have what is known as mudaraba

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where, again, two parties come together, but one is bringing all the money, the other ones making all the effort, and they share proportionately again, the

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profits. But in all of these cases, they also share the losses, the point which makes them different, that if there are losses, they all share in the losses. In the case where it is a matter of one person providing money, no effort, another one just providing the effort.

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Obviously, the financial loss will be borne by the one who put in the money, whereas the one who put in the effort, of course, to be the last of the value of their efforts, but were their equal partners or similar partners sharing, then they both are going to share in the financial losses. And you'll see when a person invest in a financial Islamic institution, the profits are not fixed, they cannot be given fixed amounts every year, you'll get this much, you know, returns on your money know, this may vary from month to month, you know, half your copier annually vary. And as such, the profits

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cannot be fixed. And the difference between Islamic banking

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and Western banking is that it's about credit, you know, what is your credit, if you have money, you have a reputation, you have contacts, whatever, you can get loans. And you pay these loans back is what the bank is interested in, you pay the loan back, it doesn't matter what you're going to do with this money. If you're going to build something corruptive which is going to hurt the society or you want to squandered whatever, as long as you pay that money back. That's what's most important to the bank. And through these mortgages, systems, and, you know, this

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systems, interest based systems, you find that people, you know, run into financial loss and courage to live on a credit system, you know, whether it's the, the banking cards and things like this, you buy more than you have the money to pay, and then you end up paying up with interest in this type of thing. Eventually, much of this becomes a dead weight on the backs of the people, you know, and they find themselves in financial crisis, the bank steps in repossess their car, their homes are kicked out in the streets. So that you find in America as this estimated way back in the early 90s, there are over two and a half million Americans living in the streets.

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They have no homes, no place to go. They live in the streets. This is something normally we associate with the very poor countries, the third world, you know, the black hole of Calcutta, you know, this, the British used to write about it, you know, Calcutta, you know, people are living there and just dying in the streets. While it's happening in America. People tend to associate America with you know, ultimate success in which is the skyscrapers glittering buildings. But nobody bothers to look at the bottom. You know, the night when time comes, people leaving the work and going to sleep you see all these people coming up, putting their pieces of cardboard on the ground

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and sleeping right there. Went to chill catches them, sometimes they freeze to death, they're in the streets.

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So you have some two and a half million Americans living in the streets. Most of them you'll find when they got into look into the circumstance, what happened to them, how do they end up in the streets, it was due to interest based problems. Either they could make their bank loans, or they had some kind of medical problems, which causes the money to be gone, they can make the payments anymore, so their stuff is repossessed, and they're out on the streets, living in the streets themselves, man, their wives, their children, these kind of things happening.

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terrible situation so unimaginable the richest country on the earth. You know, having this kind of situation where they don't have homes, they cannot provide homes, they cannot deal with the situation of their homeless is something which shows the kind of heartlessness in that system, though, people like to talk about mercy and love and all these different things. The interest system is a very harsh system. It doesn't take into account the contingencies of life. A man borrows money for his farm. His intention is to grow products, which people are going to benefit from from his profits, he will pay you back. But now something happens in natural phenomena. You know, some

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disaster natural disaster comes and destroys all his crops. And you're still going to ask him for that money back with interest. Regardless, I don't care. I don't want to hear your problems, just pay some money. If you can pay it, then we're gonna come in and take your farm get out of that farm, we'll sell it and get our money back.

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This is the

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interest based heartless interest based system whereas Islam is based more on sharing our difficulties then sharing our profits, sharing our successes, you know, or you have what is known as part of the house and you know, the good liloan which is an interest free loan people lend and you pay back what you have borrowed.

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They're also the instruments of ijarah, where the bank is sort of being developed to purchase something and leases it to somebody who wants to own it. They pay rent or whatever over a period of time, and then eventually, it can come into their possession. But in any case, what we're talking about in the end is an alternative to the interest based system, that there can be found a variety of alternatives. Islamic bank banking is the most popular one present today. And we said it is expanding rapidly.

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And something which the West, as we said, is initial contact, rejected, scoffed at. But today in Harvard University in the United States, you know, the top universities in the United States, they have a chair of Islamic banking, they're teaching Islamic banking, their Islamic Finance, their professors, Western professors were specialists in it, teaching, you know, Western students, etc. Because it is a part and parcel of the future. Islamic economics is a part of the future. And this shows the relevance, again, that we spoken before of Islam, to all aspects of our lives, we're not left in the lurch left on our own modern circumstances developed, what do we do? How do we handle

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it? Can we handle it? No, Islam provides guidance in all of these various fields, fields of, of learning, all these various contingencies of life, different new developments taking place, Islam does provide guidance in dealing with these things. So from looking at that, you know, we can see the greatness of Islam, that it is not limited, you know, in the sense of human beings life, you know, its, its ideas, or whatever, are not suitable for contemporary life. Because oftentimes, this is the issue that people raise, how can a system which was developed 1400 years ago, be of relevance today? how, you know, when they look at the other systems, they're totally irrelevant, they don't

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cover they cannot handle with modern developments. However, Islam being the religion of God,

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providing guidance for human life in general. And then all of the knowledge of modern science being ultimately from God. By accident, people discovered this at the outset, but in fact, is really from God.

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These things don't necessarily clash at all.

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So, from the sonic perspective, there are ways and means of dealing with anything which happens in this life. Islamic banking is only one example of such things.

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Without their viewers would like to thank you for being with us in this segment of our program,

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which in which we have looked at basically, Islamic banking, banking without interest, we looked at some of the issues of interest and the harm that it has produced in society. And we looked at the alternative, which Islam offers that's of interest free banking, which is user friendly, as we say, today, you know, it does take into account the needs of human beings tries to solve them, resolve their problems, help them, as opposed to milk them to squeeze them to take the blood, sweat, and tears just gobble it up, which is what the interest system does. Islam provides Islamic economics, which we said was opposed to any form of deception. And at the same time, it provides a system by

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which people can get access to capital. And when they get that access, they will be accessing what is good. Because if a person comes to the bank and says this, I got this plan to build something which is against Islam, the bank will say no, or they plan to build something which is useless, it's not going to produce anything good. They'll say no, you know, or it's not effectively planned out. They'll say, listen, we need some planning, let's get some planners, you know, to help you with this project. So it's a good idea in general, but you just haven't planned it properly. So they care whether the people will succeed or not. So they will share it with them from that perspective. And

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in that way, the bank and the society are directly linked. It's not like the banks thing, one and just trying to milk the Society of everything it has. So Islam is the answer.

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That's the bottom line. Islam has the answer.

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So the viewers, I hope that this this brief reflection on the issue of banking and Islam, interest systems, etc. You know, is of some enlightenment to you, and I hope that inshallah you continue to follow our programs as we look at some of the other contemporary issues facing the Muslim world today. With that, the viewers I now bid you farewell.

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The Islamic greeting was Salam aleikum wa rahmatullah wa barakato. And may Allah peace and blessings be on each and every one of you