The Roots of Financial Crisis, An Islamic Analysis

BANGLADESH-BORN AMARTYA SEN wrote The Argumentative Indian in 2005, seven years after winning the Noble Prize in Economics. His purpose seems to have been to condemn the communal violence fueled by the new Hindu cultural chauvinism as foreign to Indian history and identity, and to advocate for a return to native traditions of intellectual pluralism and public debate. Yet many of his arguments remain thoroughly relevant in our contemporary world, India and elsewhere.  He contends, for instance, that the global re-emergence of the value of “doing one's duty” an ethic that ought to be recognized cannot be blind to its own obvious outcomes. Priority must be given to the moral consequences that may follow from carrying out the responsibilities that we feel or that society tells us are our “just” communal obligations.  Sen concludes that the virtue of any economic argument or principle is really determined by its moral merit, that is, by its ultimate consequences for people and creation. He warns us, as well (like none but an honest economist in our wealth-conscious times can) that many financial theories that do good on paper may well be detrimental to society when put into practice.  My contention is that what Sen is saying ought to be extended to the economic principles practiced by most of the world today. Economists and the rest of us should evaluate the worth of these policies not exclusively by their detached numerical accuracy, but first and foremost, by the morality of their fundamental impact on people's lives. To put it another way, our economic theories and practices should be judged on the basis of the quantum social welfare they generate. Do they help or hurt the most vulnerable among us? Do they free the common man and woman or enslave them? Do they stimulate human integration in society and creation while preserving the life, liberty, and individual choice and dignity of man, beast, and earth? Or do they corrode the structures of communal life and erode the natural, delicate balances that God set for all things?  When we assess generally accepted modern economies by this standard, we must accept that it has been an utter failure. The mathematical and statistical equations of its conjectures may all be accurate. But their definitive results have led to catastrophic social instability, egregious exploitation and persecution, and suffering on a scale so steep and pervasive as to be at once unfathomable yet unmistakable. According to the date provided by the experts from our affluent capitalist countries, that results of the accumulating debt mandated by the present economic system is nearly 7 million dead children in underdeveloped countries every year due to preventable starvation and an unconscionable lack of proper medical facilities. That's about 20,000 needless deaths of helpless human being every single day. Let's put that in emotional perspective. Hundreds of thousands of hearts come to lifelong grief over the loss of little, loved ones with every sunset, their lives inhumanly shattered such that no sunrise promises the light. Imagine the death of your own child for no other reason than his or her life is held cheaper than some banker's silk tie.  The same system is also the culprit behind the single greatest period decline in history of the only thing it purports to be focused on increasing Per capita income. Take Somalia, for instance, the most obvious nation in need of wealth-per-person rise. The average Somali's income, already small, has shrunk by nearly a third, from about $891 to just $600 within a span of 40 years. That's the very period in which the worldly philosophies promised heaven on earth for all people if we just ejected God from the world. Do we wonder, then, at the emergence of piracy in so economically plundered and unsustainable a country as Somalia?  The astounding fact that many times mores people have been killed in the last century than in all prior human history combined is the single most devastating indictment of the nature of today's political-economic system. Nor can this be statistically airbrushed away by population arguments.  Whether politicians and finance men face up to it or not, we have reached the terminal stage of modern economics. Hope is now lost that the system can continue providing disproportionate prosperity even to the fraction of favored people who live in the developed nations.  An ever increasing crime rate, an alarming rise in the number of failed families, a surge in the number of beds in psychiatric wards, a growing Mafia culture, and steep decline in moral and ethical values across the board are all byproducts of a financial system � not only unable, but � not structured to do anything substantial for the welfare of the very societies that have propagated it in the world for their own lopsided benefit. Â


 ????ON TOP Of these mounting social ailments comes the meltdown of the financial markets and dreaded recession. The loud cries of those who have lost their homes, jobs, and luxuries fill the already disturbed social air.  ????Investment experts and economic scholars, till recently gloating over the accuracy of their predictions and projections, now claim shell shock in our present precipitous economic plunge. Most still account for it as an unforeseeable "Black Swan Event," an improbable occurrence of extreme social impact. There is still little acknowledgement that modern political and economic material philosophies long ago merged in the interest of the few. The arrogance (or sycophancy) of our specialists' and authorities' blatant excuse-making merely makes it all the more painfully clear that our current global financial system was in no way ever meant for the ultimate welfare of its end victims, mankind and the fellowship of creation. These were merely its productive wealth reservoirs, to be trammeled, channeled, and drained. ????If it is humanity's welfare that is the legitimate criteria for evaluating a humane economics, if it is the development of a social atmosphere conducive to a contented and upright society and a healthy earth that is the legitimate end of economics, then the global wealth system �not merely propounded, but �actualized by Islam prior to the modern materialist period definitely scores full marks.  ????The main capital ascendant systems-communism and capitalism, and their hybrid socialism-have all been exposed as illusory. The 1991 collapse and break up of the Soviet Union and its aftermath has proved that the 70 year experiment of communism failed to produce its declared goals of social justice, welfare, and equality. Indeed, communist intellectuals themselves now affirm that the socialist principles were nothing but a Marxian utopia.  ????Capitalism has likewise shown itself a futile control over the capital human vices of lust, greed, gluttony, sloth, wrath, envy, and pride, Inequality, the retreat of civility, and alienation, have in fact, come to define its societies, deadly sins vaunted in them to the status of virtues. Capitalism has not been able to provide the safe haven it promised, now not even to those who championed its theories.  ????It is here that the relevance of Islam in the modern world is reaffirmed; or rather it ought to be by Muslims, if we care for others. A number of examples in our history show that when Muslims implemented this religion's economic principles, their social structures engendered widespread happiness and contentment among the common folk of their societies and that of others-and that is the true mark of a successful economic strategy.  ????Rich or poor, Muslims and non-Muslims enjoyed incredibly fulfilling spiritual, familial, and civic lived in Dar al-Islam, along with a standard of social security that no pluralist society since has replicated for more than handful of generations. Both employed and employer joined hands for the welfare of all. Nations from the Scandinavian Vikings, to the Indian Ocean peoples, to the Pacific Islanders, to the Sub Saharan African traded freely and securely under the international protections of an Ummah, not necessarily politically unified, but with important overarching principles that bound its peoples together.  ????It is because we have before us the illustrious examples of these societies, wherein people lived in prosperity and total harmony under the shade of Islam's economic system that we ought to be able to say out loud and in public, without hesitation, that Islam deserves serious examination from the world's economic and social scholars, in light of the volatile state of global security and the dire need of people today.  ????During the caliphate of Umar ibnul Khattab, for instance, Mu'ath ibn Jabal was sent to Yemen to apportion and distribute zakat. When he had done his duty, he returned one-third of the collected zakath to Madinah. This infuriated Umar and he said: "I have send you to Yemen not to collect jizyah (a poll tax on non-Muslims). I send you to collect zakath from their rich and distribute it among their poor." To this Mu'ath responded: "I wouldn't have send anything to you if there were even a single deserving person left here to receive zakah."  ????The very next year, he send fully half of the collected amount to Madinah, and in the subsequent year the whole amount collected was send to Madinah. He explained the situation to Umar ibnul Khattab saying: "There, i could not find a single person who deserved to be paid anything."  ????A similar situation prevailed during the time of Umar ibn Abdul Aziz, the celebrated Umayyad Caliph, often called the Fifth Righteous Caliph. Within the short period of 30 months, he transformed his far flung lands of governance, stretching from the shores of the Atlantic to the Steppes of the Caucuses, into dominion that were one to describe as having no person deserving zakah, on would nearer the truth than not. This is another instance of a state genuinely operating for the welfare of the common people because of its fastidious concern with implementing the principles of wealth, its uses, and distribution, as Islam prescribes. This government for the commonweal of the people.  ????Such occurrences do not happen by accident. They take governance established on the firm foundations of divinely revealed principles with meticulous transparency and accountability. In fact, the Prophet, sallallahu alayhe wa sallam, prophesied the establishment of such Muslim states functioning in behalf of the people by way of the practical application of Islamic laws. Harithah ibn Wahb al-Khuza'i narrated that heard the Prophet Muhammed, sallallahu alayhe wa sallam, say: "O people! Pay zakah [while you have the chance], for a time shall, indeed, come when one will carry his zakah from place to place and find none to take it. Whomever he shall request to take it will reply: 'Had you brought it yesterday, I would have taken it. But today, I am not in need of it'" (Bukhari).  ????A situation in which there is no one to receive zakah does not signify that people have no suffering or hardship, Rather it ensues from a generalized condition in which all such problems are solved satisfactorily within the system itself. Our examples express this. They are circumstances in which all community members attained self-sufficiency in their financial aspects, in accordance with the altered outlook of civil society and the genuine needs of contented life.  ????There were employers, laborers, rich and poor people. But the disparities did not lead to major forms of exploitation and oppression. They built a welfare state, in the best sense of this now much-maligned term, to meet everyone's need, through their combined efforts and mutual cooperation. Everyone in the society succeeded in attaining self sufficiency without depending on the nation to share any of his or her burdens.  ????It is instructive to remind that this means debt was eliminated among the Yemenis in three years, and among the people under the rule of Umar ibn Abdul Aziz in just 30 months. And lest anyone suspect that people succumbed to abnormal states of asceticism, know that under the latter, every poor, unwed young man was given mahr, the bride's dower payment, to marry, Every farmer was offered interest-free, long-term loans to improve his land. And non-Muslims were given special funding exclusive to them so that they would recognize their sacred worth and preserved place in the eyes of the Shari'ah.  ????If we agree with Amartya Sen, among a growing cadre of economic and social thinkers, that the real yardstick by which an economic system is to be measured in its ability to create an environment in which all citizens attain satisfaction and fulfillment, then we should learn thoroughly about that divinely ordained system which has been historically proven to be successful in this. We should, moreover, think deeply of how those principles can be put into practical use for the betterment and welfare of humankind.  ????Unless the visionaries, intellectuals and statesmen of the world display the tolerance and liberalism to accept this truth and recognize the universality of these divine principles of wealth, there shall be no end to the existing malignancy of the financial markets. Unless the world moves in this direction � the direction of divine justice universally applied � there shall never come into existence a society that truly acts and inures to the benefit of all its people. Â


 ????THE MEETING OF the G-20 leaders as the Summit held in Washington November 14-15, 2008, headlined as Financial Markets and the World Economy, attempted to discuss the root causes for the emergency of the serious challenges to the world economy and financial markets. The leaders endeavored to itemize these underlying reasons for the economic plague threatening the world. Here's conclusion: "During a period of strong global growth, growing capital flows, and prolonged stability earlier this decade, market participants sought higher yields without an adequate appreciation of the risk and failed to exercise proper due diligence. Policy-makers, regulators and supervisors, in some advanced countries, did not adequately appreciate and address the risks building up in financial markets, keep pace with financial innovation, or take into account the systemic ramifications of domestic regulatory actions. Major underlying factors to the current situation were, among others, inconsistent and insufficiently coordinated economic outcomes."  The Summit resolved to take strong remedial actions to put a halt to the crisis. The "strong and significant actions" planned to stimulate economics are as follows: Provide liquidity, strengthen the capital of financial institutions, protect saving and deposits, address regulatory deficiencies, unfreeze credit markets, and try to ensure that international financial institutions (IFIs) do provide critical support for the global economy. The Joint Statement made at the end of the meeting bore a not of cautious optimism. But thus far the hopes of these leaders is not yet being translated into a reality that adequately relieves the people.  Time, perhaps, will tell us differently, but that hope seems as risky as the financial practices that got us here: Growth of the housing bubble, easy credit conditions, sub prime lending predatory lending, deregulation, increased debt burden or over-leveraging, financial innovation and complexity, false credit ratings for the big corporations, boom and collapse of the shadow banking system, and a commodity bubble are the causes of the current financial crisis, according to the economists of the capitalistic countries. But are these the symptoms or the root causes?  Egyptian economists Samir Amin, John Bellamy Foster, Editor of the Monthly Review (New York), and John Bogle, founder of the famed United States investment management company The Vanguard Group all say that the current financial crisis is merely a symptom of another, deeper crisis, which is the systemic crisis of capitalism itself.  If not, one wonders why capitalism exhibits crises so often? The Bankers Panic of 1907, The Great Depression of 1927, the Black Swan Event of 1987 (including the Savings and Loan Crisis of 2000 are all major and Loan crisis), and Dot Com Crisis of 2000 are all major economic crises that hurt the world economy. And all were more or less made in the USA, the flagship of capitalism.  The economists and statesmen of the United States and other G20 nations are trying to analyze the present crisis and find a solution to it, standing within the parameters of their present system. This in itself could make them unable to see the root causes of the problem. Unless they see things in a broader perspective, they will not be able to fully realize the origins of the malady that has afflicted the world.  It is here that insight into Islamic economic principles in relation to the present economic principles in relation to the present economic crisis becomes relevant. Islam is the only religion in the world that has comprehensive economic beliefs of its own. We have already stated that the principles established as part of its way of life have already proved successful in practical reality.  To clearly ascertain the roots of the present problem and the ways to solve it, we have to learn from Islam's two major principle sources, the Qur'an and the Sunnah. Many Muslims economists claim that learning the economic system in Islam can also help us appreciate, at least in part, the anxiety America and the West have shown with regard to Islam. And this, is turn, explains why Islam's financial remedy is not allowed a reasonable chance even in the economically ailing Muslim world itself.  The upshot of this antagonism is this: Islam as an economic system would not only break the grip that capitalist nations have secured over the considerable wealth and resources of Muslim lands, it would reorder material morality throughout these societies, which would necessarily upend the status of their social-power elites. Further, it would cause a major reconsideration of the goals and purposes of life throughout these societies, which would lead, inevitably, to massive policy and social model toward the destiny of the previous system it has come to most resemble: The Feudal system.  Here are just a few things that a serious consideration of revealed economic morality would end in our capitalist world: First and foremost, the unremitting avoidance of acknowledging that there is a sole Creators who decrees for man and the world and who is humankind's individual and collective judge. Related to this, it would end the unspoken secular moratorium on openly reflecting singly and together what this means for us, as individuals and as societies.  Second, Islam's economic revelation would reassign greed in this life to its deservedly shameful place in the darkened corners of society and replace it with ethics of liberality and munificence, generosity and charity.  Third Islam's economic revelation would reattach morality to wealth, and this would necessarily lead to a reassertion of two related ethics lost in capitalist society: Modesty and abstinence. And here we come to a significant challenge, for modesty is irrevocable connected to chastity, sexual propriety, and the alteration of dress-all of which have everything to do with marriage and the reassertion of families rights over that of the state, and parental, specifically paternal rights over that of the corporation.  As for abstinence, it empowers the individual conscience and reduces the hold of others (marketers, for example) on one, as well as establishes moderation as a prime ethic in life.  Islam's economics would, in a heartbeat, stop the spread of worthless debt notes, otherwise known as money as in currency, and terminate the system of interest, which are the twin evil underpinnings of the capitalist enterprise. Truth be told, these two are the root cause of the crises going on in the capitalist hemisphere and the world.


 ????WHEN WE SAY that the spread of worthless money and the interest based system are the root causes, capitalism itself becomes the real defendant, Gold and silver have been the cornerstones of the world's economies and wealth storage systems right from the earliest times. Even after the arrival of the barter system, men used to trade their merchandise by calculating its worth in gold or silver. When coins were introduced into the systems, they were initially made of gold or silver.  ????In due course, banks came into being and they issued paper receipts equivalent to the value of the gold or silver deposited with them. These receipts were the forerunners of the currency that we use today. Although in modern times paper money has no intrinsic value, its acceptability originally depended on its being backed by gold or silver. For instance, on the earliest five-dollar bills was printed: "Five Silver Dollars," promising to pay that much of silver in exchange for that currency note.  ????The currency notes of different lands represented either gold or silver equal to the value mentioned or the currency. With the outbreak of the First World War in 1914, Britain decided to withdraw gold from internal circulation and other countries also broke the link with gold. The United States, However, kept the link to gold and after the Second World War the US dollar replaced the pound sterling as the key global currency.  ????Other countries fixed their exchange rates against the dollar, the value of which remained defined in terms of gold, In the early 1970s, the system of fixed exchange rates started to break down as a result of growing international inflation Tempted by the promise of windfall profit and accounting razzle-dazzle, the United States abandoned the dollars link with gold in 1971.  ????Right from the time of the introduction of the currency notes, the system became prone to fraudulent activities. Since no one knew how much gold or silver a bank had in its vaults, in became easy for them to cheat the public by printing as much currency as they needed. That, in fact, became necessary since it was needed for survival in a interest-based system.  ????Eventually, this became the monopoly of governments, which gave the false notion that they were printing currency in lieu of the gold and silver that they had in their exchequers. People continued to believe that the government held at least something as a security for the currency that they printed.  ????This came to an end with the introduction of the fiat currency in 1971. Fiat money or fiat currency is money whose value is not derived from any intrinsic value or guarantee that it can be converted into a valuable commodity such as gold. Instead, it has value only by government other (fiat).  ????Thus arose the situation in which governments could print as much currency as they wanted-money became money just because the government said it was money. This introduction of fiat money can be considered the prime reason for the recent financial turmoil all over the world. When we factor in the reality that this right to mint the coin of the realm has been given over by politicians to private banking interests in the world (the Federal Reserve, for instance, in the United States, which is about as federal as Federal Express) one can easily see the causes for the current global economic crisis and the inordinate influence just a few bankers hold over politicians and thus the nation.  ????When that nation is the United States, that influence is global. Virtually the entire world linked their currency with the dollar. Agencies like the World Bank and the International Monetary Fund (IMF), controlled by America, gave loans to the so-called Third World countries only in line with their GDP (Gross Domestic Product) growth. But not the United States. It could print currency without any such limitation. It has continued to print dollars in abundance and lend it to other nations. Thus vast regions of the world became indebted to the United States. This directly led to the evolution of a US-dominated world order.  ????Any currency that would re-link itself to gold, or another precious resource, would almost instantly break the economic chains that link other currencies to the dollar. It is this fear that accompanies the emergency of China's Shanghai Cooperation Organization, who are said to be seeking to demote the dollar as the currency of international trade, or the recent panic that drove gold to record levels when it was said that oil would no longer be sold only based on the U.S. dollar.  ????For this reason, agencies like the World Bank and the IMF sanction loans to countries without getting any security from them. These agencies themselves and the nations they avail of the loans know very well that the chances of the full settlement of these loans are quite remote. But as long as the supremacy of the dollar and interest based economic system prevails, other countries have had no option but to avail themselves of these loans.  ????The debts of the developing countries are increasing at an exponential rate, doubling every decade. According to the statistics published by the IMF overall external debt of developing countries in the year 1980 was to the tune of $52.54 billion. It rise to $1,259.8 billion in 1990, and $21,406 billion in the year 2000. The interest and the repayable principal amounted increased to $73.4 billion in 1980, $140.6 billion in 1990, and $337.8 billion in the year 2009.  ????The United Nation laments that the amount could have been sufficient to save 21 million children of Africa from death due to starvation and to provide elementary education to 90 million female children. It is estimated that everyday $700 million flows from developing countries to the developed countries.  ????Unrestrained printing of currency and the interest-based economy led to the dollar dominating in the world financial markets and other nations taking the brunt of it. The economic crisis that the United States is facing at this juncture is nothing but the natural consequences of its policy maker's own policies. It must have been their overconfidence that the supremacy of the dollar would continue forever and that the bubble of the stock market's boom would keep on growing that allowed them to create derivative notes (an exotic kind of pyramid scheme that few understand and that banks play with one another) worth $100 trillion to be transacted in the United States at a time when the overall GDP of the entire world was only $78.5 trillion. The current financial crisis has seriously eroded confidence in the Western world and has exposed the "free" market. Currently, when looking at alternatives, the Western world only sees remnants of Socialism or some state intervention in economy as feasible and workable systems. If the OPEC nations and the developing countries join hands and work in a cohesive manner, they could put an end to the situation of supremacy of one particular currency and rescue the nations that the suffering under the yokes of external debt. Look at what the Qur'an says regarding the importance of wealth and how carefully it should be handled: "But do not give those who are {mentally} incompetent your wealth, for God has assigned you to maintain this {yourselves}. Rather, provided for them from it. And clothe them. And say to them a gracious {and comforting} word. [4:5]  Also: "Whatever Allah has restored to His Messenger from the people of the towns, it is for Allah and for the Messenger {to disburse}, and for the near of kin and the orphans and the needy and the wayfarer, so that it does not merely circulated between the wealthy among you. Thus whatever the Messenger gives you, accept it, and from whatever he forbids you, keep back, and be careful of {your duty to} Allah surely Allah is severe in retributing {evil} [59:7]  Prophet Muhammad, sallallahu alayhe wa sallam, sternly warned his followers against exploitation of any kind in commercial activities and to maintain transparency in all transaction: "Gold for gold, silver for silver, wheat for wheat, barley for barley, dates for dates, and salt for salt like for like, equal for equal, and hand to hand, if the commodities differ, then you may sell as you wish, provided that the exchange is hand-to-hand" (Muslim). This single command of the Prophet, sallallahu alayhe wa sallam, is pregnant with protection that would have prevented the kind of behind the scenes derivative (purely innovated instruments that do not exist that "derive" their value from credit from other assets with no organic link to them) markets.  It is the duty of scholars to learn more deeply about the legitimacy of the transactions made using the fiat currency, which has no intrinsic value other than the value of its paper. In the light of the Islamic injunctions that all kinds of transactions should be transparent, we should examine how much the promises of the state that prints the currency should be believed. Is it possible to make 100 percent legitimate transactions with currencies that have no intrinsic value? Won't the systems that carry out interest-free transactions be adversely affected when dealing with currencies that are perennially losing their value due to inflationary trends? Is it not unreasonable to expect men who have money to serve humanity by suffering the losses incurred because of the depletion of the value of their money? These facts point out that the concept of fiat money is against the principles of financial transaction in Islam. Â


 ????THE ASSURANCE OF repayment of their currency notes that nations other than America provide the holders of their currency is based on the value of the dollar. Whatever the dollar is worth as it relates to their currency, they will pay. The dollar itself, however, has no intrinsic value and is built on flimsy foundations. Why did America do this to itself? More accurately, why did the government of the people do this to its people? The immediate reason for the introduction of fiat money by the Nixon government was that Britain asked the U.S. Administration in 1971 to honor its commitment to issue gold for the dollars that the British government had. By detaching its currency from gold that pay out was ostensibly sidestepped. Yet even renowned Western economists have questioned the legitimacy of fiat currency. One of the most important economists and political philosophers of the 20th century and the winner of the Nobel Prize in Economics in 1974, Friedrich August von Hayek, has found fault with the system of fiat currency. The renowned German economist Ludwing Lachmann, American intellectual and economist Murray Newton Rothbard, British economist Israel Muir Christner, Dr. Chario Lavoy, Professor of Economics in New York University, Peter J. Boettke, an American economist and the Editor-in-Chief of Review of Austrian Economics are but a few among the great economists of the world who have raised doubts about the resilience of the world who have raised doubts about the resilience of the fiat currency and advocated the use of a currency with intrinsic value. The Austrian Economists, known for being vocally against the prevailing world economic structure, are generally of the opinion that in monetary economics, fiat money is an intrinsically useless good as a means of payment and that fiat currencies ultimately destroy themselves and their nations with hyperinflation. Former presidential candidate Sen. Ron Paul's The Case for Gold, which is based on the Report of the U.S. Gold Commission, laments the fact that many people in American public life argue for the quality theory of money and for a currency which is based on its equivalent worth of gold but to no avail. Those who still maintain the capitalistic mindset and yet argue in favor of the quality theory of money uphold the belief that this would put an end to inflation and related problems. Inflation is a rise in the general level of prices of good and services in an economy over a period of time. The prominent factors that cause inflation are that the money in circulation increases, the availability of commodities decreases, the availability of commodities decreases, the value of money decreases, and the demand for commodities increases. If the governments can print currency only based on gold or silver that they actually have in their coffers, they would not be able to print currency indiscriminately. This itself would curb inflation and decrease the burden of the common man. It would motive countries to produce in excess of their needs and earn gold-guaranteed money in return for the goods they export. It would lead to real economic advancement among people as opposed to the progress-on-paper that the world is accustomed to. This is how the world can really put into practice the divine principle that prosperity can be attained through sincere efforts. Interest is one of the greatest banes of humanity. It necessitates suffering in this world and invites God's wrath here and in the Hereafter. According to several ahadeeth in Sahih al-Bukhari and Muslim, interest is one of the seven deadly sins. The Prophet, sallallahu alayhe wa sallam, said: The receiver and the payer of interest, the one who records it and the witnesses to the transaction have been cursed. He said: "They are all alike in guilt"(Muslim). The Companion Samurah ibn Jundub reported that the Prophet, sallallahu alayhe wa sallasm, "saw in his dream a man standing in a river of blood. On the riverbank, there stood a man who had stones, with him. Each time the man in the river wanted to come out, the man with the stones would throw a stone into his mouth, which would drive him back to his position. The Prophet, sallallahu alayhe wa sallam, asked about this man in the river. He was informed he was man dealing in riba (Bukhaari) The earliest bankers used to lend commodities charging interest for them. The traders who borrowed had to repay the debt by returning more stock to the bankers. But the clever bankers knew that this business would not last for long. This was the reason they came up with the idea of representative money, the forerunner of today's currency. The people who borrowed never realized how dangerous it was going to be. It has to be mentioned here that it was the introduction of currency that led to the tremendous growth of the banking industry. The greatest obstacle to advancement for developing countries is the huge amount of interest that they have to pay every year for the dollars that they have borrowed for the World Bank and IMF. Heeding the words of advice voiced in favor of urbanization by the paid intellectuals of the West, most developing countries borrowed illogically and became victims of the debt trap,. It is almost impossible to escape from the trap once you have fallen into it. Hope gives way to disillusionment and frustration. Suffering, starvation, malnutrition, and erosion of moral values are the immediate consequences. It is as if they are falling, falling-falling into a bottomless pit, and there is no one to send a search party. The governments continue to borrow to survive and live another day. The fact that almost 7 million children killed every year due to starvation and malnutrition should open the eyes of everyone. The per capita income of the United States rose from $9,983 in 1960 to $34,100 in the year 2000, an increase of about 400 percent. Remember the dwindling per capita income of Somalia in the same period $891 to $600? Similarly, the per capital income Madagascar decreased from $1,013 to $800, and that of Zambia came down to $750 from $1,172. This pattern is no mystery. It is ubawy debt that is the tool of their enslavement. It is by the interest collected from these poor nations that "the great powers" have prospered and flourished. The total amount of debt of the developed countries in the year 2005 was $290 billion. The repayment amount for that year amounted to $57.3 billion. Will these countries ever be able to repay their debts in full? Any sane person knows that they will not, forever. The politicians and rulers of the developed countries amass huge wealth through corruption, and their corporate houses reap rich harvests through shady business deals, At the same time the vast majority of human beings in the world suffer under the yoke of the heavy interest burden laid on their feeble shoulders by the World Bank and the IMF, which are the agencies of the developed nations. The first cause of the financial crisis that has hit the entire world is the interest system. This system, which was deployed by the developed nations in order to exploit and subjugate other countries, has now begun to boomerang on them. They themselves call the crisis by another name � Credit Church 2008. World Economic Outlook 1998 published by the IMF states that countries burdened heavily by excessive short-term borrowings will have to struggle greatly because of external and internal crises. The neo-liberalists of the developed nations had never anticipated that the interest system that they had anticipated that the interest system that they had employed so successfully to exploit poor countries would one day turn its serpent's head against them and attack them so viciously. Yet many still do not realize that they are succumbing to the same fate that any society based on interest is bound to suffer. The practices of the modern banking system are in conflict with the principles of Islam. Islam strictly prohibits taking or giving interest. It opposes exploitation in every for and stands for fair and equitable dealings among all men. Interest-based economies depend on the growth of money for their survival and expansion. Money does not grow of its own accord. It has to reach the hands of efficient entrepreneurs that make it grow, But the present system induces the entrepreneur to borrow relentlessly to aid the growth of the banks. The modern banking system is organized on the basis of a fixed payment called interest. They take away a huge portion of the profit that is made as a result of the hard work of the entrepreneurs. Even if a business they have invested in runs at a loss, they consider none of their money at risk. They still demand payment, regardless. But bank not only reel in huge profit from the ungodly amounts of interest they receive, they also resort to the "creation" of credit. This process begins with banks lending money out of primary deposits. Primary deposits are those deposits that are deposited in banks. Through credit creation, banks are able to lend amounts much larger than the deposits that they have with them. For every $10 they have on land, they can give out $90 they don't have, purely by the fabrication of numbers in a computer. No paper money. Nothing. And even this $10 they have, can come to them another bank that has created it through just $1 it received from another bank, and so on up the chain to the Federal Reserve, who simply charges the American government for it, who is inventing it in the first place by fiat. You or I would be arrested for doing the same. The mad rush by banks to make maximum profits is said to be responsible for the 2008 Credit Crisis. The prophecy made by Prophet Muhammed, sallallahu alayhe wa sallam, is reported to have said that the "intensity of ruin in store for those who increase their riches using interest will be in accordance with how much [interest] they received"(Ibn Majah). Any same person who understands the fiat money fiasco and the credit creation scam we are in to turn real assets over to bankers who simply push buttons and make money out of thin air will immediately begin searching for an interest-free system. And that will naturally take him or her to the Islamic banking system. In the 1980s, discussions about the alternate banking system began. In the last four decades, it is the Islamic banking system that has emerged as the "surprise" competitive and viable substitute for conventional banking. In the Indian peninsula, some efforts have been made in this direction. But the first modern experiment with Islamic banking was undertaken in Egypt under cover without projecting an Islamic image. The pioneering effort, led by Ahmad Elnaggar, took the form of a saving bank based on profit-sharing in the Egyptian town of Mit Ghamr in 1963. The establishment of Bank Islam Malaysia Berhad (BIMB) in July 1983 marked a milestone for the development of the Islamic financial system in Malaysia. BIMB carries out banking business similar to other commercial banks, but attempts to be consistent with the principles of the Shari'ah. Dubai Islamic Bank, formed in 1973, is the most famous banking house of this category. By the year 1986, 27 such unconventional banks started functioning in various Muslim countries. In due course, the existing conventional banks opened their windows to associate with the Islamic banks for the convenience of the account holders in both the sectors. By the year 2000, about 200 such unconventional banks came into existence. Their paid up capital amounts to $8 billion and total deposits have crossed the meaningful $100 billion mark. Elimination of riba, interest, in all its forms is an important feature of the Islamic financial system. Islamic banking is much more, however. At the heart of Islam is a sense of cooperation, to help one another according to principles of goodness and piety. Islamic finance may be viewed as a form of ethical investing or lending, except that no loans are possible unless they are interest-free. The Islamic financial system promotes the concept of participation in a transaction backed by real assets, utilizing the funds at risk on a profit-and-loss sharing basis. This by no means implies that investments with financial institutions are necessarily speculative. This can be minimized by careful investment policy, diversification of risk, and prudent management. The concept of profit and loss sharing in an enterprise, as a basis of financial transactions, is a progressive one, as it distinguished good performance from bad and mediocre. The Islamic banks have reportedly weathered the storm of the recent "credit crisis" very well. What is important is that this capacity is solely do to the humane nature of their investing and lending enterprise. It is Islam's principles of ethical wealth acquisition, disbursement, and gifting that have shielded the Islamic banks, Allah alone is the Provider, and Allah alone is the Protector.


????IN A WORLD neck deep in the lethal interest system, the emergence of the Islamic banking system offers a handhold of hope. Yet honesty and fear of God compels us to admit that many of these institutions do not, for various reasons, function in complete accord with the Islamic principles of blessed and moral wealth. They have their limitations not least of which is the sheer viciousness of the league they operate in. They are forced to follow the same monetary policies evolved over the past few countries. But they have been able to make some effort to make at least a few changes in the present world economic system and show the world that there is a viable alternative that can be followed. The first major effort by these Islamic banks to add momentum to this change is to adopt a currency based on its equivalent value of gold, silver, platinum, copper, or similarly precious commodities. If the electronic money that is inevitably going to be widely used in the world in the near future is given the guaranty of a value of commodities, it will be a great beginning. In such a scenario, poor and developing countries will become primary beneficiaries of the Islamic banking system and they will surely recognize this. It is high time that the world realize that the present economic system is based on myths and frauds. Let the nations that Allah has blessed with real, commodity wealth, then, rethink their financial policies and invest in value based commodities in order to be able to lead the world down the financial straight path. Then they will be able to rescue the developing countries from the debt interest booby trap that they have fallen into. The world is craving change and the key to that change has been placed in the hands of the Muslims. The current crisis represents an opportunity for Muslims to present the Islamic economic system as an alternative. Are Muslims ready to transform themselves and the world using the knowledge that God, the All-Knowing, has entrusted to them? Are Muslims courageous enough to declare to the world, as Prophet Joseph did to the Egyptian king facing catastrophic economic crisis though Joseph must have appeared the most unlikely candidate to do so, a slave coming for the from the depths of prison: "Appoint me over the treasuries of the land. I am a good keeper and well knowing" [12:55]? The world, then, was at his command.