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Can Islamic banking end recession?
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E-mailMade Popular May 12 2009
In the times when the recession is gripping the world hard, no measures seem to provide the world with speedy recovery. In such a situation, Islamic finance is what everyone hasn’t so far, knowingly or unknowingly, considered as one of the solutions. Islamic banking is a different kind of banking wherein charging interest is not allowed. Banks buy things for the borrowers than lending money and then bank and borrowers share profit or loss and risk and benefits. It makes (little if not good) a sense at present. Therefore, should the Islamic banking be given a chance in a fight against economic crisis?
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Islamic banking is not really suitable for the present day. Religion and public life, matters of finance and economics are best kept separated.
Even if interest is charged by banks today, but that is how they run. Let’s say a bank has 100 billion dollars. It gives it on a loan of 10%, and gets back $110 billion.
Out of this money, some amount goes in for paying employees, advertising, marketing and other stuff, lets call them bank expenses. That will be like 4 billion if we consider all banks today and their expenditures, I am still taking a higher figure. It has 106 billion $ in hand.
What about this 106 billion $? It will go back in public. The 100 billion $ that went into loans to the public will now be 106$. It will keep on growing to certain extent.
A noteworthy point is that this 100 billion$ or 106 billion$ will always be with the public, NOT WITH THE BANK.
I think there is no better and practical way to be charitable than this. And banks do give loans based on certain parameters like income, house rent, mortgage etc.
Basically, middle class came into being only after the advent of the banks. A major reason why eastern European countries progressed was banks. You won’t find the same with Arab or Muslim countries. There is a staggering high unemployment and very high poverty. People living in Muslim countries are the poorest on earth. A glimpse of that is enough to see how the whole world will look like.
Apart from concept like Zakat (which actually came after the ghazwas or rather when ’holy’ raids ended) and this Islamic banking, Muslims are still starving in their countries. There is a very high amount of money with all monarchs of their countries, but the average person is poor and unemployed. If you want money to be spread in public (i. e. prosperity for the public), bank loan is the key.
Also, Islamic banking is a concept that was suitable around the time of 7th - 9th century in the age of peasants and their practices.
Also, if there is no interest being charged, why should one ever return a loan? I’ll take a loan of say 10,000 $, why should I return it when there is no interest being charged? And, on what basis will the loan be given? I can ensure you a lot of bureaucracy, people with political contacts would get a preference over an eligible loan taker.
Even if interest is charged by banks today, but that is how they run. Let’s say a bank has 100 billion dollars. It gives it on a loan of 10%, and gets back $110 billion.
Out of this money, some amount goes in for paying employees, advertising, marketing and other stuff, lets call them bank expenses. That will be like 4 billion if we consider all banks today and their expenditures, I am still taking a higher figure. It has 106 billion $ in hand.
What about this 106 billion $? It will go back in public. The 100 billion $ that went into loans to the public will now be 106$. It will keep on growing to certain extent.
A noteworthy point is that this 100 billion$ or 106 billion$ will always be with the public, NOT WITH THE BANK.
I think there is no better and practical way to be charitable than this. And banks do give loans based on certain parameters like income, house rent, mortgage etc.
Basically, middle class came into being only after the advent of the banks. A major reason why eastern European countries progressed was banks. You won’t find the same with Arab or Muslim countries. There is a staggering high unemployment and very high poverty. People living in Muslim countries are the poorest on earth. A glimpse of that is enough to see how the whole world will look like.
Apart from concept like Zakat (which actually came after the ghazwas or rather when ’holy’ raids ended) and this Islamic banking, Muslims are still starving in their countries. There is a very high amount of money with all monarchs of their countries, but the average person is poor and unemployed. If you want money to be spread in public (i. e. prosperity for the public), bank loan is the key.
Also, Islamic banking is a concept that was suitable around the time of 7th - 9th century in the age of peasants and their practices.
Also, if there is no interest being charged, why should one ever return a loan? I’ll take a loan of say 10,000 $, why should I return it when there is no interest being charged? And, on what basis will the loan be given? I can ensure you a lot of bureaucracy, people with political contacts would get a preference over an eligible loan taker.
””Also, if there is no interest being charged, why should one ever return a loan?””
I thought of something like this too, like when people buy a car and they cannot make the payments, technically it is the bank’s car and the bank can resell it...right?
But after the car has been used, the bank cannot sell it for the same amount as is owed.
Cars always go down in value, so the risk of getting money back is much greater than the risk of say a house, so they would have to charge much higher for the car percentage wise.
Wouldn’t that make less cars available to the average person? I don’t know about other countries, but America is HUGE!!!! the cities are very far apart and most people live outside of big cities, so cars are a necessity.
I thought of something like this too, like when people buy a car and they cannot make the payments, technically it is the bank’s car and the bank can resell it...right?
But after the car has been used, the bank cannot sell it for the same amount as is owed.
Cars always go down in value, so the risk of getting money back is much greater than the risk of say a house, so they would have to charge much higher for the car percentage wise.
Wouldn’t that make less cars available to the average person? I don’t know about other countries, but America is HUGE!!!! the cities are very far apart and most people live outside of big cities, so cars are a necessity.
Nuya, there are no different loans for women. Simply the bank prefers giving loans to women. And they compel to put their children ion schools or something like that is also one of the considerations while giving a loan.
And yes, cars are a necessity in the US as you don’t use mass transport/trains for commute. Banking like this is only going to ensure that people remain poor.
And Shari’a banking is no where recession - proof. Saudi Arabia and Iran have both been hit by recession and there unemployment figures have gone up, above 15% officially. The real figure is always more than that.
And yes, cars are a necessity in the US as you don’t use mass transport/trains for commute. Banking like this is only going to ensure that people remain poor.
And Shari’a banking is no where recession - proof. Saudi Arabia and Iran have both been hit by recession and there unemployment figures have gone up, above 15% officially. The real figure is always more than that.
Oh ok, I see, it is a way for the women to build credit. Good idea!
You are right about recession and unemployment, it is always higher than the ”Official” figures.
You are right about recession and unemployment, it is always higher than the ”Official” figures.
I don't think Islamic banking would be of help as this will never favor the poor and the 3rd world countries will have to suffer.
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Well, that is a very good argument you brought up. OF course, farmers can’t keep their farms with banks. In the earlier days, peasants use to do the same. This is like going back to medieval ages.
In my view, a practical option to this is micro - financing. Grameen Bank of Bangladesh gives loans of very small amount to the poor people of the country. Their loans are like 100 taka (the local currency there), 500 taka which are helpful to the poor farmers for their survival. But, there is an interest charged to it, and that is a whopping 20%!! That’s the highest I’ve ever heard but still that is a very good way to help the poor. It’s founder even got a Nobel Peace Prize.
Also, their preference while giving a micro - loan is to women, so that people would not abuse women at home, which is kind of a high occurrence in the Third World countries.
Please tell me more about the loans for women, I would really like to know.