"The best way to destroy the capitalist system is to debauch the 
currency. By a continuing process of inflation governments can
confiscate, secretly and unobserved, an important part of the 
wealth of their citizens."

Why should a government do that? This is answered by another quote.

"The first panacea for a mismanaged nation is inflation of the 
currency; the second is war. Both bring a temporary prosperity; 
both bring a permanent ruin. But both are the refuge of political 
and economic opportunists."
_Ernest Hemingway (1899–1961), U.S. author

Korean and Vietnam wars were misadventures of American Politics. That left deep scars. People of America were made to pay heavily by their own leaders. US had had its own share of inflation which was described by Ronal Reagan as under.

"Inflation is as violent as a mugger, as frightening as an armed 
robber and as deadly as a hit man."

In Pakistan the purchasing power of Rupee has been declining since 
1947 when the Rupee was worth more than a Riyal and you could have got a US Dollar for less than RS. 4/-. The 10 gram gold piece was worth about RS. 70 or so. The value of Rupee has regressed against them by almost 15 to 18 times. At one time you could have bought 16 loafs of bread in a Rupee and now the bread of the same weight costs about RS. 3/- 

Right from 1947 our imports have been exceeding our exports. We can blame our trade deficits for devaluation of the Rupee but there are many other reasons. Our dependence on IMF loans to meet the obligations of our trade deficits has been growing and the cost of living has been going up and up adding to the miseries of the people. 

Devaluation of money constitutes as a breach of trust of the people according to the standards of trust, measures, weight and balances as prescribed in Quran-e-Hakim and the Sunnah. It can also be termed as a practice akin to indirect form of 'Riba' strictly prohibited by the Holy Quran.
 

Before abolishing Interest, our money system needs be modified to eliminate root cause for fall in purchasing power of money and to meet the standards of trust, measures, weight and balances as prescribed in Quran-e-Hakim and the Sunnah.

Several thousand books and articles about Islamic Banking have  been published during past 30 years. The number of books on Islamic Banking is impressive but not the quality of contents. Click here to read more about books on Islamic Banking.. 

Click here for 
Verses of Holy Quran and Hadiths relating to Riba

For evolving standards for paper and credit money there appears to be the need for Ijtehad for the Holy Quran advises again and again to ponder over its verses and various point mentioned therein. Our currency may have to be linked to gold or silver with ample reserves to maintain stability and to make good the promise to convert the currency to silver or gold on demand.

Riba means Usury - Not Interest

Islam is “Din-e-Kamil” a perfect religion. Islam is also “Din-e-Fitrat”, a religion of the nature as its laws and commandments are in conformity with laws of nature. Islam is a complete code of life for salvation and welfare of mankind in this world and afterlife. 

There are a number of commandments and prohibitions in Holy Quran 
and the sayings of the Holy Prophet regarding various financial matters. They relate to Zakat, bequests and inheritance, rights of widows and orphans, blood-money, trusts, compensation for work, virtues of charity, spending in the way of Allah for welfare or help of the poor and needy, slavery, trade, weights and measures, loans, trusts, contracts, prohibition for professional beggary, misrepresentation, profiteering and hoarding etc. 

Nature of Riba: The word ‘riba’ as appearing in Holy Quran is translated  in English as ‘usury’ by many translators and as ‘interest’ by few. Money paid for use of money is Interest, usually a percentage of the amount loaned. Usury is the business of lending money and charging the borrower interest at an exorbitant or unreasonably high rate.

Literally ‘riba’ means “excess or addition”. The punishment (burning in the fire in hell) for usury is mentioned in Surah # 2 Al-Baqarah - verse 275 after the verses advising charity and spending in the way of Allah. In verse 276, it is shown that Allah has blighted usury and made alms giving fruitful. Verses 278 & 279 order giving up what remains from usury or else have war with Allah and his messenger. 

Nature of Riba is described and prohibited in Surah # 3 Al -i- Imran in 
verse 130. A painful doom is indicated in the verse 161 of Surah # 4 
Al Nisa for those who take usury as also those who devour people’s 
wealth by false pretenses. In Surah # 30 Ar Rum - verse 39, it is indicated that charity is rewarding manifold and usury has no actual 
increase.

When delivering the last sermon at Hajjatul Wida, the Holy Prophet 
abolished all usury.

Although usury is condemned in Christianity and Zionism, in 7th century
it had become a lucrative business as poor and needy could not find 
any other way except to acquire goods on credit from greedy traders 
on exorbitantly high rates of interest. It was a cruel exploitation of the 
needy that was abolished by Islam. 

The question often debated is that whether the interest as charged in the modern banking and financial institutions can be regarded as “riba” which is strictly forbidden in Islam. Federal Shariat Court in 1999, declared all forms of interest based banking un-Islamic. 

Justice Maulana Mohammed Taqi Usmani in his book, “Historic Judgment on Interest Delivered in the Supreme Court of Pakistani” has discussed the problem of continued fall in purchasing power of Rupee and opined that even that does not justify employment of interest in our financial institutions. He and the Supreme Court, however, urged the Islamic ideological Council and the Commission for Islamization of Economy and other experts to deliberate on this problem and recommend a solution. The progress made in this regard is not known. However the inflation is playing havoc with the common man specially the retired people, widows and other people in fixed income groups.  The income under National Saving Schemes have continued to be reduced and is now almost 50% of what one used to get on investments some five or six years ago.  That has multiplied  the problems for retired people and widows.

Hundreds of articles and books have been  published during the last century. The majority view of the experts, scholars and Ulemas (at home and abroad) remains that the interest as employed in the modern banking and financial institutions is "riba" which is forbidden in Islam. 

The view of very small minority is that banking interest is not riba and must be regarded as the price paid for use of money and a business deal. Before you form your own view after studying the verses of Holy Quran and Hadith please consider the following example.

Zaid acquired a loan of RS. One million from his friend for building a house. At that time the gold was worth RS. 50 per gram. The loan was treated as 20, 000 grams of gold and it was agreed that every year Zaid would give 1000 grams of gold and the loan would be repaid in 20  years. Examined in the light of different fatwas there is no element of Riba in this agreement and it is admissible under Sharia. 

On the same date Bakar is sanctioned a Loan of RS. One Million by a bank on the interest rate prevailing at the time and he has to pay the annual installment of RS. 90, 000. Thus in 20 years he would be paying over RS. 18 Lacs for a loan of RS. 10 Lac and the excess of over RS. 8 Lace is considered RIBA by many. (The annuity of RS. 90, 000 per annum would accumulate to much bigger amount than 18 Lacs depending upon the interest earned by the bank.) Supposing this was interest free loan for RS. 10 Lace with annual installment of RS. 50, 000 for 20 years, how the lender would be compensated for loss of purchasing power of money under the installments paid? Will it not be unjust? In verse 279 of surah 2 the need for justice for both the borrower and the lender is prescribed. Some people opine that an agreement under verse 2/282 can include compensation for use of money and that cannot be regarded as riba but this view is not accepted by the majority.  Is FSC is likely to accept this view in future? Some hope so.

Now let us examine the predicament of Zaid. He is experiencing the increase in the price of gold every year. In the 20th year his last installment of 1000 gram of gold would alone cost him RES. Lac in gold purchase and he ends up by paying over 35 Lacs in gold purchases to redeem his loan, which was worth only RS. 10 Lacs 20 years ago and the excess of 25 Lacs that he spent on gold cannot be regarded as Riba as what he has paid back is 20, 000 grams of gold. 

This example leads most of the people well versed with Islam and economics to believe that the provision for loss of purchasing power of the rupee cannot be regarded as riba as we are following "a managed paper currency system" without any backing of gold or other commodity which by itself a usurious practice. Only when the bank interest rate exceeds the real rate of inflation it  becomes riba. and abolishing banking interest before adopting the commodity backed currency system would be like putting the cart before the horse. When we understand the difference between the Monetary systems prevailing in the old days and the modern age, and how the Modern Monetary System can be regarded as exploitative, we can appreciate the logic of this conclusion. Morover, Holy Quran advises us to be fair to each other in our dealings and in verses 2.278 and 2.279
return of original capital sum in fairness is advised. 

FIAT MONEY (PAPER CURRENCY WITHOUT ANY BASE) BY ITSELF IS NEW FORM OF RIBA as explained later.

Of course under the fiat system of money the banks and financial institutions can adopt the Gold conversion system as Zaid did for their loans and advances and other transactions but its administrative cost is quite great and control is also problematic. 
In many Western countries the Governments regulate the interest rates and do not allow the banks to charge interest beyond the prescribed limits.

The Shariat Appellate Bench of the Supreme Court on Dec 23, 1999, had upheld the judgment of the FSC, and directed the government to eliminate all forms of interest-based banking by June 30,  2001. On an appeal  the date was extended to Ist July 2002. But later on a review petition by United Bank on the instance of the Federal Government, the Supreme Court stayed the order of the Shariat Bench and directed the Shariat Bench to re-examine the issue of RIBA and how the problem of business use of money and inflation can be solved. So the issue is not finally settled in Pakistan but in many other countries Interest Free Banking is flourishing.

Purchase of Goods on Installments:
There are number of shops from where you can buy electric appliances and variety of other items even vehicles on installments. Some leasing companies are also doing this kind of business. Usually the thing you could buy in RS. 10, 000 cash would be made available to you for RS. 800 per month payable in 24 monthly installments. That means installments would accumulate to over RS. 18000/- or so 

These businessmen say that they are not charging any interest and doing business in legitimate Islamic way. "We are not prohibited to sell an item of RS. 10, 000 for RS. 18, 000/ - and we fix the monthly installments to cater for our profit." They assert.

If you had taken loan of RS. 10, 000  from a bank on 12 % interest for that purchase  you would be paying for 24 months  much smaller installment. than RS. 800/- pm. But these days though Bank pay hardly
8 % interest or profit on deposits, they charge 20% or so on loans and call it service charge, rent or something like that but rarely interest!  You can call it exploitation of consumer in the name of Islam and disorting the Islamic values.

People in USA and most other countries get loans for purchases of 
cars, houses, appliances etc. hardly at 3 to 9% interest. Here in Pakistan we have to pay much higher interest or the socalled rent or something like that under Islamic banking. The idea of common Muslim is that under Islamic Banking we should get Loan without any Interest or Mark Up.That ofcourse is not commercially viable - only the State or charity can do that. But if in the commercial banking one has to pay more than what we used to under convential banking then object of saving us from exploitation would be defeated. If we have to pay rent on the loan under Islamic Banking and if the rent is higher than the conventional banking interest, it would be akin to Riba and tantamount to consumer explotation in the name of Islam. 

If you obtain a loan from a bank and because of your own ingenuity and hard work you make large profit and the Islamic Bank cuts much larger share from your profit than conventional Interest then the object of Islamic Banking is defeated in a way. Nevertheless it is upto the Islamic Banking to allow you to retain larger profit than the pro rata in consideration of your ingenuity and labor. But the good thing is that if you suffer a loss the Islamic Bank may not be able to recover the  amount lost in your venture whereas under conventional banking you have to pay back loan and interest irrespective of what happens to your venture.

If the Interest rates are regulated by the Government, then it can be regarded only as a provision for covering operating costs and a reasonable margin for inflation and profit and not as Riba or usury.
Usury must be defined in our laws such as a rate of interest 10 % higher than the bank rate fixed by the State Bank and like developed countries we should fix maximum limits beyond which the banks cannot charge Interest. In many countries the maximum limits are prescribed by law beyong which the banks cannot charge interest. 
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As we will see later in this article, there are New Forms of Riba that:

• Bring hardship to the masses by direct or indirect devaluation of     currency.
• Harm financial interests of Islamic and third world countries.

Continued on next page

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