I am currently reading a book called "The Issue of Interest" by Mufti Taqi Usmani who is a respected scholar, has expertise in matters of Islamic economics, has a law degree and was judge on the shariat bench of the Supreme Court. He is also on the board advising Meezan Bank (Islamic). The main text of this book was written by his father Mufti Muhammad Shafi which he revised and augmented to. His father wrote mostly on Interest in personal loans while he completed it with the discussion on commercial loans. I had read a little on this issue and had a basic understanding but this book has brought to my knowledge a number of things I found pretty confusing earlier. The basic reason for the prohibition of interest is that it is a means of hoarding wealth and creating ill-distribution of wealth in society. If you don't see the importance of these two problems, then consider this: Twentieth century has seen communism because of these two reasons! The whole effort behind the the marxist economic theory was to create an equal (artificial) distribution of wealth by taking it away from everyone and distributing it through the central authority. Islam has tackled this problem much earlier. To see the importance of this issue with respect to Islam, here is the Islamic perspective on this:

Hazrat Abdullah Ibn-e-Masud has reported that the prophet said, "The ill effects of interest are of 73 kinds. The least intense of these is like someone commiting adultery with his mother."

That! is how strictly it is forbidden to participate in any dealings involving interest. Now with the importance of this issue in mind lets see how Quran refers to interest. The Quran uses the word 'riba' to describe the interest that is forbidden in Islam. The dictionary meaning of the word riba is: "The dictionary meaning of riba is increase and the reference in the verse is to every increase against which there is no exchange or consideration" (Ibn-e-Arabi, Ahkamul Quarn) This is how the word riba used in Quran is defined but apart from a literal definition there is also a context in which a word becomes popular. The time of the Prophet(PBUH) and before that is the context where we must look for further understanding of this term. According to the prophet: "Every loan which brings a gain is a riba based loan" "exchange of gold with gold, silver with silver, wheat with wheat, barley with barley,  dates with dates and salt with salt should be of equal quantities and spot. Anyone who varies quantities or allows one side of the exchange to be deffered , indulges in riba for which both the buyer and seller are equally responsible." About the lending methods of  'Jahiliya' or before Islam: "Riba Al Jahiliya which has been prohibited by quran is that people would lend on the condition of obtaining more than the amount lent. Upon expiry of the agreed term, the tenor would be extended and the interest increased. This is the riba which the prophet declared null and void during his last pilgrimage" (Ibn-e-Rushd Maliki, Bidaya Al Mujtahid) The purpose of riba is to increase wealth but without risk. To do that you need to a) protect what you have (principal amount) and b) gain some more. This is the understanding of riba I had earlier which was validated by this book but it adds some more to the rules which define riba. They are a) any increase whether simple or compounding, b) charged against extension of time period not something of value and c) defering of payment from any side (credit). When the bank or a person lents you money and has the security that you will return as much was lent (gurantee of principal amount), additionally you would pay them some markup (for credit/extension of time period) and service charges (against the facility of time extension or failure of compliance in returning installment). All these gains fall under riba. I knew that part correctly but what I did'nt know was the fact that delaying payment from any side (credit) is also not allowed. Now that was an eye-opener for me. The priciple is to not indulge in any kind of financial activity where gain is without risking what you have. For example, in buisness there is equal chance of gain or loss from it and buisness is allowed and preferred in Islam. The extereme form of taking risk is gambling, which is also prohibited. Why? not because of riba but because of its other social ill-effects. Gambling is prohibited alongside drinking in Quran, so that puts the rationale behind it in context. Can we invest in a profit or loss account? We cannot because if the gain is earned through riba then it is prohibited. This is like doing the buisness of selling drugs where buisness is allowed but selling drugs is'nt. So, any gains from that are also prohibited. What does Allah require from us? First, no greed for money. So there goes the risk free earnings where the pricipal is safe. Reduce your needs. Don't defer payments, defer needs. Sounds difficult, even impossible. Yes it is but thats the deal, no good comes without sacrifice. "O believers fear Allah and give up that interest which is still due to you if you are true believers; but if you do not do so then you are warned of the declaration of war against you by Allah and His Messenger. If, however you repent even now (and forgo interest), you are entitled to your pricipal; do not wrong and no wrong will be done to you." (Albaqarah 278-279) Lastly charity is the way of muslim, not gathering and hoarding. Allah says: "The interest that you give in order to increase the wealth of the people, does not  increase in the sight of Allah; and the Zakat that you pay in order to win Allah's approval, its payers do indeed increase their wealth." (Surah Rome 39) I will follow this up with a post on commercial interest and some of its detail.

I just finished reading Dr Mahathir Muhammad's book Reflections on Asia. The book discusses mainly how the current currency trading system destroyed the asian economies in 1997. Malaysia set out on an open policy toward currency trading and stock exchange investments but short-selling and pull-out of investment brought the whole Malaysian economy down.

 

I particularly loved the last chapter that discussed the nature of european nations and how the asian nations should make progress in the next century. Apart from that he also discussed how they adopted the japanese management model and the differences between eastern and western management ethics. I find that there are important lessons in this book for the asian countries and Malaysian success is a case in point. Although their mistakes led to some loss and difficult time but they recovered and are moving forward. They learned the lesson and we should learn from them. Success is not in blindly following western schemes or in the dictation of IMF or World Bank but in self-reliance and in understanding of needs and capabilities of our people and utilizing it to the maximum.