How Islamic Union Will Affect the Economic Development

Contemporary world politics make it necessary for nations to integrate into international unions in the interest of their own national security and economy. In these international unions, which are usually based upon geographic location, such factors as natural resources, trading blocs, and even cultural values play an important role. Many neighboring countries combine their resources under the auspices of such organizations, create defensive alliances, and cooperate on a wide array of issues. The goal of such unions is to preserve peace, control the arms race, resolve disputes through diplomacy, promote socioeconomic development, and protect fundamental human rights and democracy. At the present time, NATO, the OSCE, the EU, NAFTA, OPEC, ASEAN, the G-8, the D-8, and APEC are the foremost international political, military, and economic unions.

These institutions are subject to organizational reforms because of new members or a widening of scope. All of these organizations, formed in the aftermath of the Second World War, have contributed to creating stability and order in the world and have played a major role in global socioeconomic development. Member nations protect their economic and military interests, and also acquire a stronger regional and international position. Even the developed world perceives the necessity of such partnerships. The creation of free trade zones, regional trade agreements, abolished customs controls, and even a common currency (as in the EU) safeguard the future of member states. Defensive pacts enable member states to reduce military expenditures and to divert those resources to cultural and educational fields.

A similar organization will provide considerable benefits to Muslim nations. For those that are desperate for technological as well as economic development, the foremost step toward stability is the creation of a central organization or, in other words, a unified Islamic world under the auspices of the Islamic Union.

Economic Development and Increasing Prosperity

Economic cooperation is necessary on two counts: stability and development. Muslim nations must bring stability and solidity to their economies. Developing industries and making the required investments is vital, as is the need for a comprehensive development plan and the simultaneous development of education, economy, culture, science, and technology. While various sectors are developed technologically, the labor force's educational levels and standards must be raised accordingly. Society must be motivated to become more productive, and the resulting economic cooperation will play a major role in eradicating poverty, illiteracy, the unjust distribution of wealth, and other socioeconomic problems rampant in Muslim countries. This partnership can be formed only by the creation of free trade zones, customs unions, and common economic areas.

Most Muslim countries have geostrategic importance as well as rich natural resources (e.g., natural gas and crude oil). These resources and strategic opportunities, however, are not being used effectively. In the Islamic world, 86% of the population's living standards fall below $2,000, 76% under $1,000, and 67% under $500 per year. When the Islamic world's total resources are considered,(1) this is quite a paradox: Roughly half of the petrol consumed in the West is exported from the Islamic world, as is 40% of the world's agricultural production.(2) Many economists and strategists freely admit that the world economy depends upon the Islamic world's oil and gas exports, in particular those of the Persian Gulf.(3)

The Persian Gulf holds two-thirds of the planet's discovered crude oil reserves. Data obtained from research concludes that Saudi Arabia alone holds 25.4% of the world's oil reserves, or 262 billion barrels. A further 11% is found in Iraq, 9.6 % in the UAE, 9.2 % in Kuwait, 8.6 % in Iran, 13% in other OPEC member states. The rest is distributed across the remainder of the world.(4) Research commissioned by the U.S. Department of Energy shows that between 2000 and 2020, oil exports from the area will increase by 125%.(5) This means that the world will continue to meet most of its energy needs by imports from the Gulf region. Moreover, the Middle East has 40% of the global natural gas reserves; 35 % of these reserves are in the Gulf region.(6) Algeria, Libya, and other North African countries have 3.7 % of the world's reserves.

The Caucasus and Central Asia are also rich in oil, natural gas, and other natural resources. For instance, Kazakhstan has between 10-17.6 billion barrels of proven oil reserves, and its natural gas reserves are estimated at between 53 and 83 trillion cubic feet. Turkmenistan hasbetween 98 and 155 trillion cubic feet of natural gas reserves, making it the fourth largest producer.(7) Some other Muslim countries have valuable mineral resources. For instance, Uzbekistan and Kyrgyzstan are two of the world's leading gold producers. Turkey has one of the world's richest boron reserves, only recently discovered to be very important, and Tajikistan has the world's largest aluminum producing facilities.

These advantages will become more important in the twenty-first century, which some have already christened the "energy century." Energy is an essential element of modern society in terms of the military, industry, urbanization, and transport. Given that economic activity and manufacturing depend primarily upon energy, nations will do their best to achieve control over these energy resources. The Islamic world is not using its resources effectively, for many of its members lack the infrastructure and technology to increase the production and use their natural resources to develop their industries. Therefore, the resources' contributions to the country's economy are limited to export earnings. These countries do not have the means to process their own crude oil, use it in their industrial complexes, or to develop their industries. Worse still, some Muslim nations do not even have the necessary means to explore and research their natural resources or to discover and extract them. Explorations undertaken by foreign companies reveal that other Muslim nations have oil and gas reserves, but they cannot benefit from their resources.

Naturally, the ineffective use of natural resources is not the Islamic world's only economic problem. However, solving this problem can begin the process of solving many other problems. The economies of Muslim nations contain differences in structure and functioning. Some nations' economies depend upon mineral resources, such as the members of OPEC, while other nations' depend upon agriculture. These differences are also reflected, to some extent, in their social structures, such as the widely varying degrees of rural and urban populations. Developing complementary relationships and helping each other in their respective areas of expertise can turn these differences into a source of riches. All of this will be possible with the Islamic Union.

Joint ventures and project partnerships will be an important step in the right direction, for they will enable countries to benefit from one another's experiences and the income earned from investment projects will benefit all of the participating countries. Such mutual financial support is compatible with Islamic morality, for helping the needy and having a sense of social responsibility are important characteristics that Muslims strive to acquire. Many verses in the Qur’an remind Muslims to watch over the needy.

Society's internal cohesion must be extended to international relations. As international cooperation within a partnership cannot be one-sided, employment and income levels will rise in both countries. For example, one country will produce oil and another one will process it, and agriculturally dependent countries will be able to import the food they need from agriculturally developed countries. A manpower-poor country’s need will be met by another Islamic country, while rich countries will be able to invest in and help out a manpower-rich country that does not have enough jobs for its people. This will be to the benefit of both. Sharing know-how and experience will increase prosperity, and all Muslims will benefit from technological developments.

Joint ventures that realize the Islamic world's unification of opportunities and means will enable

Muslims to produce hi-tech products. The Islamic common market will enable Muslim-made products to be marketed in other Muslim countries without the hindrance of customs, quotas, and other cross-border obstacles. The marketplace will grow, the market share and exports of all Muslim nations will rise, industrialization will speed up, and economic development will bring progress in technology. The living standards and wealth of Muslim nations will increase, and their existing inequalities will disappear. Some free trade agreements are already in place between countries in the Gulf, the Pacific Rim, and North Africa. Trade agreements signed by Turkey are already operational in the Islamic world. Bilateral cooperation exists in some regions; however, their scope must be widened. Such cooperation will safeguard the rights and interests of all Muslim nations and lead to all of them becoming developed—a result from which all of them will derive a far greater benefit than if they do not cooperate with each other.

All of these can be realized only under a central authority's leadership and coordination. Achieving this will be possible if Muslim nations adopt the Qur'an's values and the Prophet's (May God bless him and grant him peace) Sunnah, or, in other words, if they adopt Islamic culture. The Islamic Union must lead the way to this cultural awakening, as well as the resulting political and economic cooperation.

Mutual cooperation among Muslims, part of the Islamic code, must be adhered to by all Muslims, for God commands people to refrain from avarice and to guard the needy and support one another. In fact, destitute people have a due share of the believers' wealth (Qur'an, 51:19). As the Qur'an proclaims:

Those of you possessing affluence and ample wealth should not make oaths that they will not give to their relatives, the very poor, and those who have migrated in the way of God. Rather, they should pardon and overlook. Would you not love God to forgive you? God is Ever-Forgiving, Most Merciful. (Qur'an, 24:22)

He who has plenty should spend from his plenty, but he whose provision is restricted should spend from what God has given him. God does not demand from anyone more than He has given it. God will appoint ease after difficulty. (Qur'an, 65:7)

Our Lord also reveals that believers are one another's guardians (Qur'an, 9:71). The word "guardian" conveys such meanings as friend, helper, mentor, and protector. It also expresses the importance of cooperation and solidarity between Muslim nations. The cooperation that will arise from this fraternal awareness between Muslim nations will bring prosperity and wealth to Muslims and eradicate poverty, an important problem of the Islamic world. Societies that follow the Qur'an's values will not experience famine, destitution, and poverty. Muslims will develop their nations by following rational and long-term policies, establishing good relations with other nations and people, valuing trade and development, and learning from other cultures' experiences. This was so in history and, God willing, under the Islamic Union's leadership it will be so once again.

Author: Harun Yahya

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Using Islamic microfinance to alleviate poverty

Poverty alleviation has traditionally been the domain of the interest-based development agency and profit generation has always been the mainstay of the corporation. Rarely have the two overlapped: corporate shareholders have no interest in giving money away and development banks have little to offer profit-oriented investors. Until microfinance. For perhaps the first time in economic development history the poor are seen as potentially profitable.

Microfinance is a financing tool that sustainably provides very small loans to the working poor. A handful of borrowers, usually 5 to 20 individuals, assemble themselves into groups. The first set of loans are extended to an initial subset of individuals within the group, for instance 2 out of the group's 5 individuals, and once these loans are repaid, a second subset of individuals receive their loans. This continues through the entire group, circulating until a final loan is extended to a designated group leader.

Variations of this general theme abound but the basic underlying principle remains the same: a borrower is much more likely to repay on time if not doing so affects one's selected group partner, usually an acquaintance. The fear of a faceless bank is replaced with the mercy for one's own neighbor. This non-traditional concept of "social collateral" banking allows the poor to break out of the poverty cycle: the provision of capital allows for greater business investment, which leads to increased income,resulting in higher household savings and eventual financial independence.

THE ORIGINS OF CONVENTIONAL MICROFINANCE

Microfinance grew out of the failure of cooperative movements and government-sponsored initiatives for concessional individual lending. With some of these heavily subsidized programs yielding repayment rates as low as 40%, there is little wonder they were short-lived.

In the1970s, Bangladesh's Grameen Bank revolutionized the development world by extending small, interest-based loans to the extreme poor, an economic group commercial banks refused to lend to and development banks found difficult to sustain acceptable repayment rates with. But by assembling individuals into self-selected borrowing groups, particularly in homogeneous settings, peer pressure and peer assistance lead to a form of informal monitoring that paved the way for continued success.

What began as a $26 loan to 42 village women is now a major industry in Bangladesh, with 4 million Grameen borrowers and over $4 billion in disbursed loans, of which over $300 million is currently outstanding. All collateral-free.

… ITS PROBLEMS …

But critics of Grameen and other conventional micro financiers cite Draconian interest rate levels as a major impediment to many borrowers becoming truly self-sufficient; an astronomical 22% interest rate charge at Grameen (measured on a declining basis), and as high as 50% elsewhere. Anathema to Muslims, for whom taking even the smallest amount of interest is forbidden, evidenced by a number of Qur'anic verses (2:275-279, 3:130, 4:160-161, 30:39), numerous rigorously authentic traditions of the Prophet, may God bless him and give him peace, the consensus of the four schools of jurisprudence, and the ravaging effects of decades of low-interest development loans to poor countries.

The single biggest problem with conventional microfinance, and for that matter all interest-based finance, is that the borrower has to make his interest payments even if he is unable to meet them. If his business succeeds, he pays; if his business fails, he still pays.

At a time when a young business should be concerned with innovation and expansion, an interest payment looms unavoidably large at the end of the month. Putting it off only exacerbates the problem, as interest payments often become larger than the original loan principal with the passage of time. It makes little sense for small, under-capitalized micro-entrepreneurs with nothing to fall back on to assume debt instead of equity. In a protracted market downturn, when large groups of borrowers are unable to meet their repayment requirements, this precipitates heightened levels of market volatility. End game: debt forgiveness on the lender's part or increased impoverishment on the borrower's, means bonded labor in some countries.

Further, interest-based transactions tend to focus attentions on the process-oriented task of repayment rather than on the result-oriented task of increasing profit. And because no direct causality exists in an interest-based transaction between the size of the payout and the profitability of the business (since interest payments are already fixed), conventional microfinance requires additional technical intervention on the part of the lender in order to promote business efficiency. Equity-based investments, on the other hand, already assume an effort toward business efficiency because both the investor and the worker share the same goal: increasing profit.

… AND ITS ISLAMIC ALTERNATIVE

Islamic microfinance provides an innovative interest-free alternative to conventional micro- finance. Perhaps not so innovative since interest-free, equity-based investing has already proven itself as the predominant corporate financing tool for decades, from Wall Street investment banks to Silicon Valley venture capitalists. And while the players may change, the transaction dynamics remain largely the same, whether the transaction is worth billions of euros or hundreds of rupees: an investor takes a stake in a business for a share of the business's profits, undertaking commensurate levels of risks.

Based primarily on the profit-sharing principles of equity-based finance, Islamic micro- finance offers greater resilience than conventional microfinance. If a business fails, nothing is paid; if a business succeeds, profits are shared. Risks and rewards are always pro- proportionate to equity shares. So while any return on capital in the form of interest is completely prohibited in Islam, there is no objection to getting a return on capital if the provider of capital enters into a partnership with a worker or entrepreneur and is prepared to share in the risks of the business.

The key dynamics of conventional microfinance arrangements are, however, still retained in Islamic microfinance, with small groups of self-selected individuals providing each other with emotional, technical, and financial support. By assembling themselves into their own groups, clients choose as partners only those individuals they trust most, filtering out to large extent poorer credits.

Author: Adam Garrick

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Means of Expenditure in Islam: No Poverty: No Riches

Spending in the way of God is defined in terms of the right of the poor and the needy in the wealth of other Muslims. It is prescribed in two ways:

a. Al-Zakat which means alms-giving which is incumbent on every Muslim who has wealth. It represents in al-Shari‘a a fixed 2.5 per cent yearly. The Arabic Qur'anic denotation of al-Zakat is literarily ‘purification', that is to say ‘purifying one's wealth and self from sins and dutiful obligations and responsibilities towards God by giving the needy.

‘And in whose wealth there is an acknowledged right, for the beggar and the destitute.' 70: 24-25

‘And be steadfast in prayer, practice the Zakat, and bow down with those who bow down (in worship).' 2: 43

b. Al-Sadaqa means charity. In this respect there is no limit for giving in charity.

Beneficiaries of expenditure

The following categories benefit directly from spending in terms of alms-giving and charity:

‘It is not righteousness that you turn faces toward East or West; but it is righteousness: to believe in God and the Last Day, and the Angels, and he Books, and the Messengers; to spend of your subsistence, out of love for Him, for your kin, for orphans, for the needy, for the wayfarer, for those who ask, and for the ransom of slaves; to be steadfast in prayer, and practice al-Zakat, to fulfil the contracts which you have made, and to be firm and patient, in suffering and adversity and in periods of calamity. Such are the people of truth, the pious.' 2: 177

‘Alms are for the poor, and the needy, and those employed to administer the funds, for those whose hearts have been reconciled (to Islam), for those in bondage and in debt; in the cause of God, and for the wayfarer: (it is) ordained by God. And God is all Knowledgeable, all Wise.' 9: 60

‘Eat you thereof, and feed such as beg not and live in contentment, and such as ask.' 22: 36

‘Then eat you thereof and feed the distressed ones in want.' 22: 28

‘For those in need, who, in God's cause are restricted and cannot move about in the land, seeking (for trade or work): the ignorant man thinks, because of their contentment abstaining from asking, that they are free from want, you shall know them by their faces: they beg not importunately from all and sundry. And whatever of good you give, God knows it well.' 2: 273

‘The righteous… and they feed, for the love of God, the indigent, the orphan, and the captive, (saying). We feed you for the sake of God alone: no reward do we desire from you nor thanks. We only fear a Day of distressful Wrath from Our Lord.' 76: 5, 8, 9, 10

If Muslims comprising the islamic Ummah (Islamic community) rating now at 1.4 billions of Muslims, then there shall be no poor Muslims and rich Muslims.

This ensures circulating the wealth of Muslims everywhere in the world today among all Muslims.

Adverse poverty is observed now among Muslims in Bangladish, Pakistan, India, Sudan, Nigeria, Somalia while absolute wealth and riches are concentrated in the Hands of Few money-mongers like the Saudi Family ( 12 billions of Dollars private fortune of King Saud), Kuwait, the Emirates, Sultan of Oman, Sultan of Brunei ( 25 Billions of Dollars and five hundred wives).

How far away Muslims now from having their own money distributed equally among them all?

This explains the frustration, the need, the hatred of those who have not against those who have in Islam.

Where is brotherhood, equity and justice. It all begins in the economic juctice. Then social and political justice follows as a consequence.

This explains the anger manifested in the rebellion and armed violence of those who do not have to restore their legitimate rights in sharing with other Muslims in the wealth of Muslims.

Author: Mardini

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Opalesque Launches New International Key Publication on Islamic Finance

Islamic Finance is steadily moving into the mainstream of conventional financial systems and has remained largely insulated from the global credit crisis. Even in the midst of a global economic crisis, Islamic banks have weathered the storm to great effect, thanks to the specific framework and rules administered by Islamic law, or Sharia.

The Islamic financing system is expected to grow faster than previous projections which were in the 15 to 20 percent per annum range. Not only Muslims are looking at the new Islamic finance paradigm as an alternative to western models, which are in turmoil now. Islamic Finance is expanding not only in the Muslim world, but also in other countries where Muslims are a minority, notably Britain, France, the US and even Japan.

There are now over 300 Islamic financial institutions (IFIs) spread over 75 countries and 300 Sharia-complaint mutual funds, whereas just one Egypt-based Islamic bank existed in 1975.

About $800bln of assets are currently deposited in Islamic banks, mutual funds, insurance schemes and Islamic branches (windows) of conventional banks. By contrast, the market was valued at only $140bn in 2000.

McKinsey & Co estimates Islamic financial assets could reach $1 trillion by 2010. Moody’s Investors Service predicts that this relatively young industry could boast worldwide assets of $4 trillion within the next five years.

Opalesque's experienced staff monitors the news and global markets carefully to present this essential daily update, which can be subscribed as daily email newsletter or by RSS feed at http://www.opalesque.com/IslamicFinance_Briefing/

The Opalesque Islamic Finance Briefing news are sorted into 18 detailed categories like:

l Islamic Accounting and Audit

l Islamic Banking and Finance

l Islamic Bonds (Sukuk)

l Islamic Capital Market (Equity, Mutual Funds)

l Compliance, Tax, Legal, Regulatory

l Emerging Trends

l Islamic Financial Instruments (Credit Cards, Debts, Loans, Mortgage, Funds)

l Islamic Insurance (Takaful)

l Islamic Investment

l Islamic Hedge Funds

l Islamic Law / Economics

l Market Moves

l Performance

l Private Equity

l Property, Projects, Infrastructure

l Research

A large archive with hundreds of articles, fully searchable, is already available under http://www.opalesque.com/IslamicFinance_Briefing/?page_id=3

About Opalesque:

In 2003, with the publication of its daily Alternative Market Briefing, Opalesque successfully launched an information revolution in the hedge fund media space: "Opalesque changed the world by bringing transparency where there was opacity and by delivering an accurate professional reporting service." - Nigel Blanchard, Culross. This hybrid financial news service, which combines proprietary industry news stories and filtered third party reports, has been credited by many industry insiders with delivering precise, accurate, and vital information to a notoriously guarded audience.

Each week, Opalesque publications are read by more than 500,000 industry professionals in over 100 countries. Opalesque is the only daily hedge fund publisher which is actually read by the elite managers themselves (http://www.opalesque.com/op_testimonials.html).

Author:Nisha Mittal

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The Economic Structure in Islam: Poverty and Riches Abolished

The economic structure of the Islamic Umma, as is in the political and in the social structures, is based entirely on the man-God relationship. It is based on belief in God who provides mankind with their sources of sustenance and wealth and seeking the favour of God in order to attain the felicity in the hereafter.

The Qur'an informs us of the principle of economy in Islam:

‘And seek the abode of the Hereafter in that which God has given you, but do not neglect your portion of this world, and be you kind as God has been kind to you, but do not seek corruption on earth. Verily, God does not love corrupters.' 28: 77

Wealth and possessions are described as test and trial:

‘Assuredly you will be tried in your property and persons.' 3: 186

Humans are described as lovers of wealth:

‘And you love wealth with inordinate love.' 84: 20

The general idea of ownership in Islam is that God has bestowed it as a favour on whomever He pleases.

By doing so God has raised people in ranks according to their portions and their response to the message where they will be awarded in ranks according to their deeds in the hereafter:

‘Is it they who apportion your Lord's mercy (wealth)? It is We who have apportioned among them their livelihood in the life of (this) world, and raised some of hem above the others in rank that some of them may take labour from others; and the mercy of your Lord is better than (the wealth) that they amass.' 43: 32

‘See how We preferred some of them above others, and verily the hereafter will be greater in degrees and greater in preferment.' 17: 21

The main principles of the economic structure in Islam which the Islamic Umma ought to apply are:

a. Distribution of wealth among Muslims in a welfare community.

b. Expenditure in the way of God.

c. Middle way expenditure.

d. Forbidden income.

e. Platform-ceiling formula where poverty and riches abolished.

This schema ensures justice, equality and creates a pltafrom-ceiling formula where both poverty and riches are abolished for circulation of wealth among the totality of Muslims is an incumbent right.

Author: Mardini

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Islamic banking

Islamic banking is simple.Qruan forbibds fixed rates of INTEREST but acknowledges a banking or lending system which involes a sever planning and participation of the lender in a trade.He can be a sleeping partner and his share of profit or loss not fixed but estimated at the end of the year.Thus share selling of a bank may not be unislamic .It is the interest only which is forbidden.

This is a banking system in accordance with the law of SHARIA.

Histroy

During Islamic golden age Islamic banking and economy was in force.The bills of exchange,forms of partnerships called mufawada.ledgers,,mudraba,al-mal,nama-al-mal,cheques,loaning,promising note,trusts,waqf,assignments,Even the modern day business corporations existed independent of state in Islamic empire.Thus one conclud safely deduce tht ISLAMIC BANKING has a history and no matter has been the pioneering banking system innovation.

It has of late been overtaken by the interest bearning old Jewish system where the interest and it compound interest was making a real business loanee over burdened and the lender to enjoy without any risks. During the era a stable circulation system existed.The dinar was the currency.

MORDERN ISLAMIC BANKS

The first Islamic bank came in Egypt.Its founder was Ahmed el-naggar .This attempt has been in small town of Mit Ghamr.It was initiated in 1963 and lasted for few years upto 1967. exercise continued and succeeded in nine other branches and from 1972 this mit gramr saving has become a part of NASR SOCIAL BANK These axperiments led to the Islamic Development Bank and first modern Islamic bank is Dubai Islamic Bank opened in the 1975.Islamic Banking is on rise at @15% ANNUALLY .

On date we have 300 banks in 51 countries.A branch in Univerty of Michingan.In 2005 a total of 0.5% OF TOTAL WORLD assets are managed by Islamic Banking.The vetican too has recommended Islamic banking to undo failing markets.The loaning agaist mortgage is accepted and garuentee the repayment.The mortgage transactions are simple the bank values it and purchases it without any other penalities and liability and sells it to a prospective buyer .They facilite him the buyer with loans too.

THE SYSTEM CAN BE EXPLINED AS.

If you wish to have a loan from an Islamic Bank for the purchse of a vehicle.The vehicle cost with profit shall be evaluated b the bank and sold to the buyer.The amount so agreed upon shall be paid to bank in instalment aginst mortigaing this vehicle and the vehicle shall be in his name from day one..No monthly or annunl interest charges .He has to return the money in time or lose vehicle mortigaed which may be resold by the bank.May we accede here some of the extracts obtained from websites in original for general information of our viewers

"An innovative approach applied by some banks for home loans, called Musharaka al-Mutanaqisa, allows for a floating rate in the form of rental. The bank and borrower form a partnership entity, both providing capital at an agreed percentage to purchase the property. The partnership entity then rents out the property to the borrower and charges rent. The bank and the borrower will then share the proceeds from this rent based on the current equity share of the partnership. At the same time, the borrower in the partnership entity also buys the bank's share of the property at agreed installments until the full equity is transferred to the borrower and the partnership is ended. If default occurs, both the bank and the borrower receive a proportion of the proceeds from the sale of the property based on each party's current equity.

This method allows for floating rates according to the current market rate such as the BLR (base lending rate), especially in a dual-banking system like in Malaysia." FLOATING INTEREST RATES. The Islamic bank can lend the money on floating interest rates.The companies raising money from Islamic bank pay rate of retuns and not a fixed rate at loaning.The difference between the the normal banking in vogue and Islamic banking is the participation of the technocrat s of the bank in the business management of the company and share profits and losses both.For sound global economy free of recession this Islamic banking is the only solution to undo recession tremers ruinig the global economy and forcing powerful to vage warsin Iraq or Iran or Afganistan to either divert attension of falling economy at home or simply to recover it through proxy by looting others resources.

The Islamic banks can not invest in wine,women,pork or im moralventures like gambling thus curing the mafia and underworld social erosions .This is thus going to bring morality in this immoral world ,where balck money rune rackets and is responsible for all evils of politics,administration and regime changes.The technical assessment as revealed by some in the web publication can be quoted as. "In theory, Islamic banking is an example of full –reserve banking with banks achieving a 100% reserve ratio.However, in practice, this is not the case, and no examples of 100 per cent reserve banking are observed" Islamic banks have grown recently in the Muslim world but are a very small share of the global banking system. Micro lending institutions founded byMuslims notably Gamen Bank of Bengladesh, use conventional lending practices and are popular in some Muslim nations, especially Bangladesh, but some do not consider them true Islamic banking. However, Muhammad Yunus, the founder of Grameen Bank and microfinance banking, and other supporters of microfinance, argue that the lack of collateral and lack of excessive interest in micro-lending is consistent with the Islamic prohibition of usury (riba).

Potential Drawbacks

While Islamic financial institutions have made rapid progress in the US in a relatively short time, to date most of the opportunities are only suited for wealthy or upper middle-class customers. Minimum investment for membership in MSI is $1000, while the marketing strategy of BMI Inc. is geared towards Muslims with a net worth of over $200,000. Muslims with middle to lower incomes, who most need assistance with major purchases, are largely unable to partake of such programs. MSI President Masood Ajazi explains the contradiction by pointing out that because there is no guaranteed profit in such transactions, only "low-risk" investors can be considered. Four years ago, he notes, there were no alternatives at all for Muslims in the US desiring interest-free transactions For more reading readers are requesyed to go through the following references. • World Database for Islamic Banking and Finance • Risk and Compliance Management in Islamic Banking - Kit • Islamic Banks and Financial Institutions Information • Islamic Financial Services Board • AIBIM - Association of Islamic Banking Institutions Malaysia • Accounting and Auditing Organization for Islamic Financial Institutions •

Reviewing Islamic Banking •

Muslim Investor:

A community site on Islamic investment, banking, finance and insurance • Value matter of Money - Unfair to Islamic Banking & Finance by Qazi Irfan • Riba and Islamic Banking •

Islamic Banking references •

Institute of Islamic Banking • Islamic Banking Portal • Islamic Finance Directory and Portal • Islamic Banking and Finance symposium podcasts from La Trobe University on iTunes • Islamic Banking / Finance / Takaful Directory • Islamic Banks Directory • References • ^ The Cambridge economic history of Europe, p. 437. Cambridge University Press, ISBN 0521087090. • ^ Subhi Y. Labib (1969), "Capitalism in Medieval Islam", The Journal of Economic History 29 (1), p. 79-96 [81, 83, 85, 90, 93, 96]. • ^ a b Jairus Banaji (2007), "Islam, the Mediterranean and the rise of capitalism", Historical Materialism 15 (1), pp. 47–74, Brill Publishers. • ^ Robert Sabatino Lopez, Irving Woodworth Raymond, Olivia Remie Constable (2001), Medieval Trade in the Mediterranean World: Illustrative Documents, Columbia University Press, ISBN 0231123574. • ^ Timur Kuran (2005), "The Absence of the Corporation in Islamic Law: Origins and Persistence", American Journal of Comparative Law 53, pp. 785–834 [798–9]. • ^ Subhi Y. Labib (1969), "Capitalism in Medieval Islam", The Journal of Economic History 29 (1), pp. 79–96 [92–3]. • ^ Said Amir Arjomand (1999), "The Law, Agency, and Policy in Medieval Islamic Society: Development of the Institutions of Learning from the Tenth to the Fifteenth Century", Comparative Studies in Society and History 41, pp. 263–93. Cambridge University Press. • ^ Samir Amin (1978), "The Arab Nation: Some Conclusions and Problems", MERIP Reports 68, pp. 3–14 [8, 13].

Author:  G. M. Wani

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Uk Students Can Now Achieve Islamic Finance Qualifications

The concepts of Islamic Finance are different in some key respects from those of its traditional western counterpart and demand for Islamic banking services is growing in popularity in the UK, especially since experts in the subject have suggested that its underlying principles have protected many Islamic investments from the global financial crisis.

Islamic Finance is a way of providing and receiving finance in compliance with Sharia law and has many notable features such as: - No dealing in any goods, services or products prohibited under Sharia law such as gambling, pornography, alcohol or pork - A prohibition on the payment or receipt of interest when borrowing or lending. - Individuals must not hoard their wealth, squander it, nor keep it idle, but must use it judiciously - Anything that is morally or socially harmful cannot be funded or supported by Islamic finance - Muslims are required to give a percentage of their wealth to help poor sections of the Muslim community

Among the consequences of these prohibitions are that traditional borrowing is not allowed nor is the use of derivatives for hedging or trading.

As illustrated, moral purchasing and ethical investing are fundamental principles of Islamic finance, but delve deeper and the nature of the subject it is extremely complex, and for those trained and schooled in western finance it can be very different indeed. This difficulty is compounded when it is understood that the way in which the precepts of the Qur’an are interpreted and implemented differ in different parts of the Islamic world. Because of the recent surge in interest in Islamic Finance a few universities and other higher education institutions in the UK are now offering formal qualifications in the subject, in some cases working with academics and scholars from other countries, for example, the International Centre for Education in Islamic Finance (INCEIF) and offer courses such as the full-time MSc in Investment Banking and Islamic Finance which can be accompanied by appropriate professional certification.

Formal education in the subject includes extensive study of the principles of Islamic Finance, as well as intensive learning about the mechanics and practice of the subject as practiced in the Middle East and in Malaysia, which has a very highly developed market in Islamic Finance. Indeed, some courses also offer a placement in an Islamic financial institution as part of the course, where students will get to see how Islamic finance works as an integral part of the economy.

Study of the subject can either supplement existing accountancy and finance qualifications or be studied in isolation without any prior knowledge, as it is a self-contained unit. The best courses recognise that Islamic Finance has to operate alongside its conventional counterpart and, therefore, require full study of western financial concepts alongside their Islamic counterparts. One thing is for sure, well designed courses in this vibrant and rapidly developing subject in the UK will be very popular.

Author: Paul Buchanan

[Read More...] - Uk Students Can Now Achieve Islamic Finance Qualifications

Zakat Planning

Another important issue that can be brought about in the management of wealth in Islam is the paying of Zakat. Every Muslim who has the ability to pay the Zakat is obliged to do so. It is one of the five pillars of Islam. So now, you can see the great importance of paying the Zakat. Mostly in Islam Zakat is paid by the wealthy Muslims. Allah made the paying of Zakat compulsory for a reason. This was in order to help the poor and the needy Muslims or the Muslims who are completely unable to support themselves. I say paying the Zakat is a form of wealth management because the wealthy Muslims will be able to deliver some of there wealth to other needy Muslims. Therefore, in doing so the wealthier will not become more and more wealthy, but moderate. This is why God (Allah) made some people in this world rich and some poor. Wealth can be a very dangerous element because once a human being becomes possessed with this wealth. He will forget about his religion and God altogether. In order to get rid of this, Allah made compulsory for every Muslim to pay the Zakat.

However if you look at the conventional or the capitalist advocates, you will discover that most people have became inclined to their wealth that they do not have or follow any religion. In short they have become pagans. They also do not believe in the hereafter. This is so, because there is no form of wealth management such as paying the Zakat to the needy people around the world. This is why, the capitalist always concentrate on material satisfaction and not spiritual. They only seek material satisfaction and think of maximizing there wealth through all the means available, weather the right or wrong way. They also have this misconception of saying that their scarce resources and unlimited needs in the world. It is like saying that God did not know what he was doing. Because God created this world and made sure that people would be satisfied with whatever there is available.” The imposition of Zakat is to purify oneself as well as one’s own property.” “Islam believes if a wealthy person is accustomed to paying Zakat, his infatuation for wealth will be softened and it will be a source of advantage to him and the society in the end.”

“Alms are for the poor and the needy and those employed to administer the (funds); for those whose hearts have been (recently) reconciled (to the truth); for those in bandage and indebt; in the cause of Allah; and for the wayfarer: (thus is it) ordained by Allah and Allah in full of knowledge and wisdom”.                    (9: 60)

Prophet Muhammad (PBUH) is reported to have said, “Zakat is not permissible for someone who is not in need except in five cases; someone fighting in the way of Allah, someone who collects Zakat, someone who has suffered (financial) loss (at the hands of debtors), someone who buys it with his own money, and someone who has a poor neighbor who receives some Zakat and gives some as a present to the one who is not in need.”

Zakat is obligatory on all Muslims capable of paying it. Capability is referred to as nisab, a taxable minimum. It is used for specific purpose and paid to specific groups of people or individuals. The Quran lists eight (8) recipients as in the above verse. The role that Zakat plays in the distribution of wealth and income is, without doubt, very important. It reduces the gap between the haves and the have-nots, and induces saving and consumption behaviors in addition to the fact that it helps mobilize income for redistribution.

Islam discourages funds to remain idle, simply because there is no interest, as compared to the conventional system which makes up for earned income with no effort involved. If we look at the saving decision, we notice that idle savings in Islam are penalized because a Muslim is expected to pay Zakat. At the end of the day he remains worse off because for every RM100 that he saves, he loses RM2.50 (2.5% Zakat ratio). Hence, his rational option would be to incorporate investment expectations into his savings decisions. Assuming he sees no light in the direction of investment expectations, he might cut savings and increase consumption in the process, which does not go along with the poor investment expectations. Thus, inclusion of these expectations in the savings decision paves way for a balanced system. Zakat allows a minimum living standard for all residents in an Islamic society, unlike in the capitalist system where the savings of the haves double and multiply through interest, and the have-nots have no social insurance because there is no Zakat.

In a capitalist system an individual might give out part of his wealth if and only when he denies to do so with out clear guidelines as to what, how, and how much he should give, because there is a possession kind of ownership. In an Islamic framework, Zakat illustrates a utilization kind of ownership and not that of a possession kind. The former kind of ownership accrues when wealth is utilized for its purpose and benefits derived from that wealth, else, the right of ownership is withdrawn, more especially in the case of land ownership.

Islam on the other hand, has clear guidelines as to what should be given out as Zakat, who should give out Zakat and how much he should give out (see Zakat at a glance). Zakat is obligatory on every eligible Muslim male or female, and is given for the pleasure of god and to earn his grace. On the things liable for Zakat, the prophet (PBUH) is reported to have said,

            “There is no Zakat on less than five Awsaq of dates, there is no Zakat on less than five awsaq’ of silver and there is no Zakat on less than five camels. And in another Hadith, the prophet (PBUH) is reported to have said,  “On’ land that is watered by rain or springs or any natural means there is (Zakat to pay of) a tenth. On irrigated land, there is (Zakat of) a twentieth (to pay).”

Author: Prof. Dr. Mohd. Ma’sum Billah

[Read More...] - Zakat Planning

Ruling on taking possession of haraam wealth by means of inheritance

Islamic laws of inheritance

While modern reforms and changes have influenced several fields of Islamic law, the detailed classical inheritance structure has been one of the enduring legacies of classical Islamic law or the Shari’a.

The formal inheritance rules have several distinctive features. First, there are predetermined percentage shares for pre-selected beneficiaries while at the same time allowing some flexibility through bequests and legitimate estate planning. Second, a Muslim’s ability to bequeath is restricted to only one-third of an individual's estate under certain rules with the remaining two-thirds devolving according to the compulsory inheritance rules. Third, the scheme of mandatory fixed shares is remarkably inclusive and provides access to property to a range of family members. Finally, the inheritance rights cannot be generally taken away. Rather than a set of abstract rules, Islamic inheritance rules are intended to facilitate distinctive Islamic conceptions of property, family, community, empowerment and justice.

What property may be inherited?

The Islamic law of succession makes no distinction between different kinds of property. It is immaterial whether property is real (land) or personal, movable or immovable - it covers all assets.

Who may inherit property?

Given the wide range of beneficiaries that the Islamic inheritance system seeks to cater to through a sophisticated balancing process, the results can turn out to be hairsplitting permutations and combinations varying according to a given scenario. There are some differences in Sunni and Shi’a positions.

Benefits of the rules for fixed shares

There exist some easily perceived potential benefits to a scheme of specified shares, as compared with systems of inheritance which provide greater apparent legal freedom to the individual seeking to control devolution of his/her property upon death.

Fragmentation of property vs. cohesiveness of the extended family

The fixed inheritance share rules – which apply to big or small estates, residential or commercial property, liquid assets or investments – can lead to minute divisions, making fragmentation of property a problem, particularly, although not exclusively, in relation to agricultural land.

INHERITANCE RULES AS PART OF ISLAMIC INHERITANCE SYSTEMS

A variety of legal tools have developed in different contexts to permit individuals to make arrangements for the transmission of property, according to their own determination.

Islamic wills (wasaya)

Gifts can be made to take effect upon death, by means of a will, but only up to one-third of an individual's estate can be bequeathed in this manner with the remaining two-thirds devolving according to the compulsory rules.

Women's inheritance shares as part of a wider property system

Female relatives and spouses are accorded shares, but half that of a male in a similar position and male relatives are more likely to inherit and to enjoy a greater share of the estate. This difference in treatment between men and women is usually explained by reference to the fact that it is also a feature of Islamic law that a wife is entitled to maintenance from her husband, in terms of shelter, clothing, food and medical care. Despite the argument that women are compensated for their unequal inheritance shares through such material obligations on the part of husbands to their wives (and other tools such as dower and gift), the apparent formal paper inequality remains a matter of vigorous debate and gives rise to calls for legal reform.

Unborn, illegitimate and adopted children and orphaned grandchildren

Since a child is deemed to be in existence from the point of conception, a child in the womb is competent to inherit within Islamic law. However, an illegitimate child whose paternity was contested may not inherit from the wife's husband, although that child may inherit from its mother and its mother's family.

Adoption is not recognised under Islamic law (Shari'a), so inheritance through legal adoption into a family is not feasible. A bequest in favour of an adopted child may not exceed one-third of an estate, under the rules. An orphaned grandchild is unlikely to inherit from a grandparent under Islamic inheritance principles.

'Estate planning' and lifetime transfers

There are a variety of legal techniques that a person contemplating death may deploy as a form of 'estate planning', in order to avoid the strictures of the compulsory inheritance rules. These include the lifetime transfer or gift (hiba) and the establishment of a family endowment (waqf ahli). The tools deployed for estate planning are subject to debate but the modernisation of Islamic societies has resulted in a propensity towards several kinds of estate planning.

Family endowments

Another legal strategy for an individual seeking to control the devolution of his or her property is to establish a family endowment (waqf ahli). A major source of women's historic wealth appears to have arisen from beneficial interests in endowment (waqf) properties, but these endowments have now either been abolished or subjected to severe limitations in most countries.

Non-registration of land to avoid inheritance rules

There is evidence in some Muslim communities that individuals keep their property outside the formal land registration system, because of the costs involved and to avoid giving women their allotted shares under the Islamic inheritance rules.

POST-INHERITANCE ADJUSTMENTS

Women, law and custom

Inheritance law often lies at the heart of discussions about gender equality and women's property rights.

Consolidation of property

In a process known as consolidation, the division of an estate into fractional shares may be followed by a series of sales and exchanges designed to reduce the number of co-owners. It is women who usually exchange their rights in land for movable property, cash or gold and it is women in the main who decide to give up their fractional shares, particularly in land.

Renunciation of inheritance rights

There is a widespread practice after the inheritance shares are distributed whereby a person, typically a woman, may renounce her inheritance rights (tanazul). While gender rights’ advocates are justifiably concerned over women being forced to renounce their limited property rights, the reality may be far more complex. It may be a choice over empowerment through property or enhanced family support.

LEGAL REFORMS TO INHERITANCE SYSTEMS

Codification and secularisation

There has been little legislative interference with the compulsory inheritance rules and daughters continue to enjoy only half as much as their brothers from the estate of a parent, which is a cause of concern for some women's organisations.

Changes regarding adopted children, grandchildren and others

One example of a change in inheritance law in several countries, though subject to juristic debate, which has been widely justified on the basis of the Qu'ranic "verse of bequest" and social practice is the obligatory bequest for orphaned grandchildren.

Islamic inheritance systems and the equality debate

The differential treatment on the basis of gender regarding inheritance shares, on the face of it, violates international human rights. A number of NGOs and liberal personalities in Muslim countries have called for equal inheritance rights. However, a more dominant position is the general position, even from Muslim women, that what God has ordained for shares cannot be changed.

Opportunities for empowering women

The Islamic inheritance rules despite their apparent discriminatory nature, where implemented in letter and spirit and construed holistically, provide a solid starting point for women – and other members of the family - in asserting the full range of their property rights.

STRATEGIES FOR EMPOWERMENT THROUGH INHERITANCE RIGHTS

Demystify Islamic inheritance

General knowledge of the basic legal system pertaining to inheritance appears to be embedded within Islamic communities, but the specific rights are generally not publicised, and certainly not widely articulated or agitated. This is due to several factors, the widespread illiteracy of particularly Muslim women in some societies, a perception that the rules are complex, which is deliberately reinforced by authority figures and the marginality of certain categories within families and communities. Though inheritance is only a part of the wider Islamic property regime, inheritance rules are presented as a complete divinely ordained code without room for compensation through other tools. With regard to entitlement of shares and the impact of estate planning, consolidation of property and renunciation of shares, those involved and affected must have the fora and opportunities to discuss and deal with the impact of their decisions.

Promote Islamic reasoning (ijtihad)

Islamic inheritance is closely associated with Islamic identities and social structures and a general concern about secularisation as a threat to Islam. As such, there is widespread resistance against anything other than very limited state intervention into this area, even amongst women. The reforms – towards materialising the egalitarian and distributive aspects of Islamic law- have to come primarily from within the community and be compatible with the Islamic frameworks. The main features of the inheritance rules appear to be clear-cut, particularly when they are deemed to be clear, and unambiguous (qat’i) and not readily open to any modification. However, any set of Islamic principles are to be re-interpreted and applied in the backdrop of the objectives of Islamic law (maqasid e sharia). Despite the limited forays into the realm of Islamic inheritance rules, the return to first principles and continuing development of these principles suggest that several inheritance practices may in the near future be subjected to ijtihad (interpretation as an Islamic jurisprudential tool) leading to newer forms of interpretation.

Facilitate social legitimacy

Inheritance rules have to be understood within the myriad systems of property relations, including such matters as dower and maintenance, and within inheritance systems, of legitimate methods of estate planning. Legal techniques, notably lifetime transfers and the establishment of family endowments, have developed to enable individuals to determine the devolution of their property to meet perceived social needs, to avoid fragmentation of agricultural land and family businesses. In some communities the lifetime transfer is seen as a means of adjusting for discrimination against women under the inheritance rules, but in other contexts to prevent family property moving out of male control or into the hands of 'outsiders'. Where these ‘legal’ techniques serve to achieve progressive and inclusive results, efforts to enhance their social legitimacy must be facilitated.

Resist abuse of consolidation and renunciation

The transfer of property through inheritance is only one point in the cycle. The subsequent processes of consolidation and renunciation of the inherited property must also be queried. Given the propensity towards consolidation of family property and its smooth intergenerational transfer, property- particularly farmland or a family business- is likely to be transmitted and retained in the hands of men. The social convention being to the effect that, men as the producers should manage and control both the business and the land it sits upon. Moreover there are compelling pressures on women, of affection, notions of honour and shame, and economic necessity, which have a bearing on whether they will assert a claim upon a share in an inheritance, agree to sell a share, whether for cash or symbolically, or whether to renounce a share. These are not Islamic principles but socio-economic and cultural practices which have to be tested for their utility and legitimacy, in view of the evolving family and community structures.

Promote Security of land tenure

Strategies designed to enhance security of tenure and to relieve poverty within Islamic societies, inheritance law and inheritance systems, particularly as they pertain to women, should not be regarded as a peripheral matter. Inheritance is an essential component in access to land. The inheritance process is not dependent on formal legal decrees on inheritance which are only one element of the picture. The specifics of the inheritance system in any context must be demystified, including the dominant legal techniques of estate planning in that context, the motivation for using those legal techniques and the social meanings attributed to the use of estate planning methods. However, in many political and social contexts the full implementation of the inheritance rules under Islamic law could be a realisable goal and a good starting point to extend rights in land to less powerful members of society.

Author: UN-HABITAT

[Read More...] - Ruling on taking possession of haraam wealth by means of inheritance

Charity to whom

Zakat or giving 2.5 percent of one's earnings as charity is an important religious tenet laid down by the Koran. It is customary for Muslims who live away from home to come back during Ramadan to perform Zakat during the Ramadan celebrations after feeding the poor and needy or send their Zakat contributions back to their home land to disburse to the poor.

Mercy Mission UK has brought a new perspective to this age old practise by asking British Muslims to make their Zakat offerings in the UK itself. The mission was set up 3 years ago to encourage Muslims to play an active role in the local community instead of remaining insulated. It launched the National Zakat Foundation this week to encourage British Muslims to contribute to local causes rather than overseas to endorse their affinity with the local community.

Azim Kidwai GM of Mercy Mission backs his request to do local charity with a religious sanction which says that Zakat should be given locally. Opinion however seems to be divided among Muslim Charities in the UK, while British Charities such as Muslim Aid and Islamic Relief UK are encouraging Muslims to pay Zakat to help fund their overseas relief operations including Pakistan in the grip catastrophic floods. The National Zakat Foundation started by the Mercy Foundation however points out to the high number of Muslims living below the poverty line in Britain and is more inclined to spend Zakat funds received from British Muslims on their welfare. Kidwai of Mercy Foundation expressed that while there is naturally a stronger urge to donate to Pakistan especially by Pakistani immigrants settled here in view of the terrible floods there, Zakat as laid by the scriptures should be given locally. He expressed that Muslims should also donate to the Pakistan flood relief as extra measure of charity after meeting the Zakat obligation of 2.5 percent in the UK. Haroun Atallah, Finance Director of Islamic Relief while agreeing that there is a religious ground to do Zakat in the land it is collected said that there is a strong Islamic belief that if Muslims were settled in a land of plenty Zakat can be moved to another land. He explained that while they do spend some charity in the UK, when disasters occur elsewhere as in Pakistan and when there is an overwhelming sentiment among donors for that cause they as a charity facilitate the transfer of Zakat funds to the said regions.

The spokeswoman for Muslim Aid spoke in almost similar lines, she explained that while her organisation spends a lot of Zakat funds on education and social ills in the UK they need to address a grater responsibility in the developing countries where 1.02 billion or one sixth of humanity go hungry. She explained that Zakat has to be channelised into more deserving areas of the world taking into consideration elements of proportionality and maximising beneficiaries.

Author: Cheers

[Read More...] - Charity to whom

Presentation of Financial Statements

Since accounting is very much to do with providing information to assist users of financial information to make sound decisions, financial reporting needs to be different in order to serve the different users.

Major groups of financial report users for a financial institution are:-

1. Shareholders
2. Account holders and depositors (Clients of the bank)
3. Borrowers and others who transact with the bank
4. Regulatory bodies.

Now that Islamic banking uses a different set of accounting principles, mainly due to their different product characteristics and participation levels, it is just natural to expect different disclosure requirements within the financial statements for Islamic banks. This does not mean a reject of conventional accounting and reporting standards but rather requiring disclosure of additional information for the different sets of users.

In addition to the many user groups mentioned above, there are 2 additional distinct groups of users who are specific to Islamic banking, namely (i) Holders of investment accounts and (ii) Zakat agencies.

Given the many user groups, reports within the financial statement of an Islamic bank need to be broad enough to address the different requirements of these groups. They can be summarized to 7 sets of reports:-

1. Income Statement
2. Statement of Financial Position (Balance Sheet)
3. Statement of Changes in Shareholders' Equity
4. Cash Flow Statement
5. Statement in Changes in Restricted Investments and their Equivalent
6. Statement of Sources and Uses of Zakat and Charity Fund
7. Statement of Sources and Uses of Qard Fund

While the first 4 reports seemed the same as conventional banking, presentations are rather different mainly because of certain distinct definitions of items within Islamic banking environment. The last 3 reports are unique to Islamic banking.

Author: KL. Management

[Read More...] - Presentation of Financial Statements

Riba And Mortgages

We speak to bankers, both Islamic and conventional, and laymen, both sincere and cynical, and compile twenty-one of the most commonly asked questions about riba and mortgages:

He's a good Muslim. He prays, he fasts, he pays zakat. He regularly performs voluntary acts of obedience. He's a caring family man and a respected member of the community. By every outward measure, he appears to be leading the life of an exemplary Muslim.

But, somewhere along the line, he reconciled his views on interest-based finance, particularly in relation to conventional mortgages, with his religious beliefs. He became convinced, like countless other Muslims, that Islam permits one to take a conventional mortgage to finance the purchase of a home.

The question is not whether riba is impermissible; the verses in the Quran are clear enough. The question for many is: "Is the riba in the Quran the same as the interest on my home loan?"

We spoke to bankers, both Islamic and conventional, and laymen, both sincere and skeptical, and compiled twenty-one of the most commonly asked questions related to conventional mortgages. We confirmed the answers with qualified scholars who referred back to the Quran; sunna of the Prophet (Allah bless him and give him peace); the scholarly consensus of the traditional schools of jurisprudence; and the Shariah standards of the world's largest regulatory body governing Islamic banks, the Accounting and Auditing Organization for Islamic Financial Institutions (AAOIFI).

The following are actual questions posed by genuine Muslim homebuyers and industry practitioners:


1. How is the riba Allah has forbidden the same as ordinary interest? I thought riba refers only to usury.

The Quranic verses and hadith are clear on the prohibition of riba. What is not clear to some is the meaning of the word "riba."

Understanding this is particularly relevant to understanding the permissibility of conventional mortgages.

The present answer seeks to show that differences in interpretation do not originate from a substantive change in the nature of the circumstances since the time of the Prophet (Allah bless him and give him peace), as some claim, but rather from a change in the common usages of the words "usury" and "interest." So while the original meaning of the word "usury" referred to any charge over the principal according to Old English Law1, the modern meaning of the word underwent a process of evolution.

Essentially, a change in language, not a change in commerce.

Allah deems only two sins worthy of a war from Him: enmity with His friends and dealing in riba. Few Muslims doubt the enormity of dealing in riba, clear in Allah's words in the following verse:

"Those who eat of riba shall not rise (on Judgment Day) except as those arise who are smitten by the Devil with madness—which is because they say that trade is but like riba, though Allah has made trade lawful and has forbidden riba. So whoever is reached by a warning from his Lord and desists may keep what was before (Allah forbade it), and his affair is with his Lord. But whosoever returns, those are the denizens of hell, abiding therein forever.

"Allah extirpates (all benefit from) riba, but makes charity bounteous, and Allah loves no sinful ingrate.

"Verily, those who believe and do righteous works, who perform the prayer and give zakat, they possess their wage with their Lord: no fear shall be upon them, nor shall they grieve.

"O you who believe, fear Allah, and give up whatever remains of riba, if you be believers.

"But if they do not, then be apprised of war from Allah and His messenger, though if you repent, you may keep your principal, neither wronging nor being wronged" (Quran 2:275-79)

And the words of the Prophet (Allah bless him and give him peace) found in this and other rigorously authenticated (sahih) hadith:

"The Messenger of Allah (Allah bless him and give him peace) cursed whoever eats of riba, feeds another with it, writes an agreement involving it, or acts as a witness to it." (Muslim)

And the expert legal opinion (fatwa) of one of the world's leading Islamic finance scholars, Justice Mufti Muhammad Taqi Usmani, defining riba:

"The concept of riba was widely recognized among the addressees of the Holy Quran, and it is that concept which is reflected in the legal definition provided for riba either in the hadith or in the later literature of Islamic jurisprudence. According to this definition, any transaction of loan where the payment of an additional amount on the principal is made conditional to the advance of such a loan is called riba."2

Confusion, spread primarily by the more modernist readings of the Islamic Sacred Law in the first half of the 20th century, arose on whether riba refers to usurious levels of interest alone, or refers to commercial interest as well, the kind found in conventional mortgages.

Two issues are involved here: 1) the incorrect and widely-held belief that interest was, in previous times, only usuriously excessive by nature; and, 2) the popular notion that pre-modern forms of finance served primarily consumptive, not commercial, needs.

A brief look at history is instructive.

Commercial interest, as practiced today even at single digit rates, was well-known and widely-practiced among Abrahamic societies, even over four thousand years ago, mostly as a form of institutionalized agricultural finance, not just as a form of usurious consumption finance, borne out by substantial historical proof.3 Later, even the concept of credit risk became well understood, with Byzantine traders contemporary to the Prophet (Allah bless him and give him peace) borrowing on standardized rates of interest, rates that varied by profession.4

The Prophet (Allah bless him and give him peace), his Companions, among whom many were previously moneylenders, and all those trading in the Arabian peninsula during the 7th century were thoroughly familiar with the widespread practice of commercial interest-based lending: charging for the use of money with an additional sum over the principal amount.

Modernist Islamic discourse on the inadequacies of an interest-free economy is highly reminiscent of the arguments favoring interest given by medieval Christian theologians. Three centuries before pro-interest Calvinism reached its full stride, the slippery-slope justifications that marked the beginning of the end of the Church's interest prohibitions began, most openly, in the 13th century with the introduction of a time-based penalty charge on an interest-free loan.

The charge was called "interesse."

About a hundred years later, this charge evolved into one that could be incorporated into the contract itself as part of the loan, not just as a penalty for late payment, but as a charge just for the use of the funds.5

The last stage of this recidivism came in 1920 when the Church itself issued the following statement: "…in lending a fungible thing, it is not itself illicit to contract for the payment of the profit allocated by law, unless it is clear that this is excessive, or even for a higher profit, if a just and adequate title be present…"6

Even the modern dictionary attests to the true origins of the word "usury": "1. the practice of lending `money at an exorbitant interest rate. 2. an exorbitant amount or rate of interest. 3. Obs. Interest paid for the use of money…"7 The first two definitions are the norm, the third, the point. That it became obsolete ("Obs.") is testament to the fact that usury was once regarded as none other than non-exorbitant interest.

From the beginning of Islam to the present day, the overwhelming majority of Muslims, both scholars and laymen, have regarded riba, usury, and interest as but one in meaning. To follow this is to follow the words of the Prophet (Allah bless him and give him peace) to "adhere to the jama'a (overwhelming majority of Muslims)." (Ahmad)


2. How does interest harm society? Isn't it a necessary part of every economy.

Muslim societies are a living example of the debilitating effects of interest-based finance. Most sadly reflected in just about every Muslim country in the world, with daily-ballooning interest payments to the World Bank, International Monetary Fund, and other industrialized nations' agencies; notably, at low rates of interest. Interest payments that, quite unproductively, draw valuable funds away from healthcare, education, sanitation, infrastructure, and any number of other governmental responsibilities.

Debt creates dependence, and dependence provides the opportunity for control.

The following two passages are particularly relevant for those who claim that interest-based development actually works:

"According to UNICEF, over 500,000 children under the age of five died each year in Africa and Latin America in the late 1980s as a direct result of the debt crisis and its management under the International Monetary Fund's structural adjustment programs. These programs required the abolition of price supports on essential food-stuffs, steep reductions in spending on health, education, and other social services, and increases in taxes. The debt crisis has never been resolved for much of sub-Saharan Africa. Extrapolating from the UNICEF data, as many as 5,000,000 children and vulnerable adults may have lost their lives in this blighted continent as a result of the debt crunch."8

"Debt is an efficient tool. It ensures access to other peoples' raw materials and infrastructure on the cheapest possible terms. Dozens of countries must compete for shrinking export markets and can export only a limited range of products because of Northern protectionism and their lack of cash to invest in diversification. Market saturation ensues, reducing exporters' income to a bare minimum while the North enjoys huge savings. The IMF cannot seem to understand that investing in…(a) healthy, well-fed, literate population…is the most intelligent economic choice a country can make."9

Further, price inflation and increased market volatility, the usual concomitants of a highly leveraged economy, affect poor and rich countries alike. To add to this, poorer, debtor countries typically find their currencies devaluing as they struggle to repay loans in their creditor's currency.

The realistic alternative to debt is the one already employed to good use in successful Western economies: equity, upon which most Islamic finance products are based. In comparison to debt, equity provides the most resilient and least damaging source of capital for individuals, businesses, and economies.

Besides the ravaging macroeconomic effects of debt, problems also appear at the level of the individual. A 2001 study at Bath and Exeter reveals that students who fear they may fall into debt are four times more likely to suffer from depression.10 For those students who are actually in debt, the numbers may be worse.

The correlation between indebtedness and illness is particularly alarming given the widespread use and social acceptability of interest-based consumer finance, including home financing, which also offers the all too convenient option of multiple mortgages.

Debt finance expands the range of possibilities available to us, and for some, to unsustainable levels, making it possible to own things one cannot afford with money one may never have. Allah's command, after all, is not intended for His benefit, but for our own.

Islam recognizes that the choices we make as individuals affect all society, and that to support an interest-based institution, even with a seemingly benign conventional home loan, is to support the broader framework of banking institutions largely responsible for today's widespread global poverty.

3. Does Islam permit conventional mortgages?

A conventional mortgage is a loan of money on which interest is charged. It constitutes a cash loan advanced by a bank or mortgage agency to finance the purchase of a property. The homebuyer agrees to repay the principal in addition to making an interest payment, while nonpayment of either entitles the bank to seize title. Some money today for more money tomorrow.

The lender takes no equity position in the property. The lender provides no service. There is no usufruct of the lender's assets. The lender provides only some cash today for more cash tomorrow. Riba, no less, and forbidden.

Author: Aurowlinton

[Read More...] - Riba And Mortgages

Give charity apart from Zakat

(In the Name of Allah, Most Gracious, Most Merciful, all praise and thanks are due to Allah, and peace and blessings be upon His Messenger)

Islam teaches us the lesson of helping the poor and the needy in the time of need when they are most deprived of things that are otherwise the necessities of life. In the Holy Quran, Allah Almighty has mentioned at different places the significance of Zakat, but at the same time, the word charity has also been used as an important task that we should perform every now and then.

"Amongst them are men who made a covenant with Allah, that if He bestowed on them of His bounty they would give (largely) in charity, and be truly amongst those who are righteous."(Surah At-Taubah)

So, apart from Zakat, charity is also equally important. Although Zakat is a farz worship and has to be carried out by people who are able to pay Zakat. Charity is something which is optional but if given, it is ‘ahsan' meaning it is liked by Allah Almighty.

"Allah will deprive usury of all blessing, but will give increase for deeds of charity: for He loveth not creatures ungrateful and wicked."(Surah Al- Baqarah) (Quran Online)

The purpose of mankind in this world is to carry out actions of community service and to help other creatures of GOD, apart from worshipping Him. When people are helped without an expectation of the reward, it is most liked by Allah and he has great rewards for people who shoe humility. He says in the Holy Quran:

"In most of their secret talks there is no good: but if one exhorts to a deed of charity or justice or conciliation between men, (secrecy is permissible): to him who does this, seeking the good pleasure of Allah, We shall soon give a reward of the highest (value)."(Surah An-Nisa)

This verse means that if you do some good, then you must refrain from bragging about it because the goodness in it dies and the whole act is compromised.

"That which ye lay out for increase through the property of (other) people, will have no increase with Allah: but that which ye give for charity, seeking the Countenance of Allah (will increase): it is these who will get a recompense multiplied."(Surah Ar-Room)

Through the act of charity, the property of a person is blessed, and as the verse explains, if it is done for seeking countenance, then Allah Almighty compensates the giver with multiplied returns.

At one other occasion, the Holy Quran says:

"And stay quietly in your houses, and make not a dazzling display, like that of the former Times of Ignorance; and establish regular Prayer, and give regular charity; and obey Allah and His Messenger. And Allah only wishes to remove all abomination from you, ye Members of the Family, and to make you pure and spotless."(Surah Al-Ahzab)

This verse encompasses the whole concept of a charity. May Allah help us with the understandings that He blessed us with to perform the actions that please Him. Quran Online is a place available on the internet from where one can learn how to read the Holy Quran via Internet.

Author: Asadasrar

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Zakat Pay by Muslim

Zakat is the practical recognition of this fact through the expenditure of money. Islam requires man to consider his personal wealth as belonging to Allah and, therefore, to set apart a portion for Him. No maximum limit has been prescribed, but a minimum limit has definitely been fixed. According to , each individual must abide by this and spend a fixed minimum percentage of his wealth every year in the way prescribed by Allah. In so spending his wealth, he is permitted neither to belittle the recipient nor to make him feel obliged or grateful to himself. His wealth must be given to the needy in the spirit of its being a trust from Allah which he is making over to the genuine title-holders. He should feed others so that he himself is fed in the Hereafter, and he should give to others so that he himself is not denied succor by Allah in the next world.

Zakat is a symbol of one's obligation to recognize the rights of others and to be in sympathy with them in pain or in sorrow. These sentiments should become so deep-rooted that one begins to regard one's own wealth as belonging, in part, to others. Moreover, one should render service to others without expecting either recognition or recompense. Each individual should protect the honor of others without hope of any gain in return. He should be the well-wisher of not just friends and relations, but of all members of society. Zakat, first and foremost, makes it plain to people that their entire ‘possessions' are gifts of Allah, and, secondly, dissuades the servants of Allah from living in society as unfeeling and selfish creatures. Indeed, throughout their entire lives, they must set aside some portion for others.

One very wrong way of conducting oneself in any social set-up is to live in expectation of worldly gain from the services rendered to others. An example of such behavior is to lend money in the hopes of getting it back with interest. Where this is a common practice, exploitation becomes rampant, with everyone trying to subjugate and plunder others. As a consequence, the whole of society is plagued with disorder. No one, be he rich or poor, can be happy in such a set-up. If a man is correctly motivated, he will be of service to his fellow-human beings only in the hope of receiving a reward from: he will give to others with the divine assurance that he will be repaid in full in the next world. In a society where there is no exploitation, feelings of mutual hatred and unconcern cannot flourish. A climate of mutual distrust and disorder is simply not allowed to come into being; each lives in peace with the other, and society becomes a model of harmony and prosperity.

On the legalistic plane, Zakat is an annual tax, or duty, in essence and spirit: it is recognition on the part of man of the share which Allah, and other men, have in his wealth.

Wealth or asset on which zakat is payable or on which zakat will be determined

Minimum Possession

Rate of Zakat

Gold, Silver or ornaments

85 grams of gold or 595 grams of silver

2.5% of the Value

Cash in hand,stocks, bonds, trading goods or any other liquid asset

Amount equivalent to 595 grams of silver

2.5% of the amount

Agricultural Produce

653kg per harvest

5% of the produce of irrigated land, 10% in the from non-irrigated land

Product of mines

any amount

20% of the value

Camels

5 camels

1 sheep or goat

Author: Alsmuslim

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