Interest Socialist Principles Issues in Islamic Finance Islamic Banking Concept Mudarabah and Musyarakah Time Value of Money Globalization

Interest Islam forbids both the taking and giving of interest. Modern economists, too, have slowly begun to realize the futility of interest. Keynes suggested the possibility of a zero rate of interest in stationary States, while Harrod advocated its total abolition, A number of modern economists have evolved the maintenance of a banking  system without interest. A large number of failures in industrial and commercial enterprises in modern times is due to the high rate of interest charged on the money invested in them. A time comes when the borrower crumbling under heavy  interest cannot borrow more money which results in the failure of his enterprise. Hence this institution is responsible for fluctuations in a number of ways. The  well-known economist Marshall in his principles of Economics (Book IV, Chapter  XIX) states, "the danger of not being able to renew his borrowings just at the time when he wants them more, puts him (the borrower) at a disadvantage relatively  to those who use their own capital much greater than is represented by the mere interest on his borrowing. And the failure of this renewal may cause him to  succumb to what would have been a passing misfortune if he had been using no capital, but his own". The depression and crisis in trade mostly results from the  payment of high rate of interest. The socialists have wrongly attributed such crises  to capitalism. In fact interest is the greatest evil of capitalism and it is rather the worst form of capitalism, The Islamic economy which accepts a form of capitalism  without interest has almost eliminated its harmful aspects. The Holy Prophet of Islam has advised Muslims to avoid seven harmful things and the third among  these is interest, He stated,' Although interest brings increase, yet its end tends to  scarcity'. The Holy Quran says, "That which ye give in interest in order that it may  increase other peoples' wealth hath no increase with God; but that which ye give in growth tax, seeking God's countenance hath increases manifold" (XXX-39). Even such well-known Economists as Piogu and Fisher have acknowledged the harmful effects of interest in causing commercial fluctuations and industrial crises. Islam favors the formation of joint stock companies and the Arabs were the first to start such companies. Trade partnership was very popular even in the days of  the prophet of Islam. He himself had been the business partner of Hazrat Khadija,  who later became his wife. Business shares could also be purchased. Thus the Islamic economic principles if strictly followed would eliminate the possibility of accumulation of wealth in the hands of a few and would ensure the greater circulation of money as well as a wider distribution of wealth. Broadly speaking these principles are (1) Zakat or compulsory alms giving (2) The Islamic  law of inheritance which splits the property of an individual into a number of shares given to his relations (3) The forbiddance of interest which checks accumulation of  wealth and this strikes at the root of capitalism. The sound economic system evolved by Islam if given a fair trial would solve the basic economic  problems which have been troubling the modern world. Socialist Principles                    The Islamic economy, is to a great extent based on socialist principles which aim at  maintaining the equality of man and eliminating too much disparity, between the rich and the poor, Its ideal economic principles have raised the general standard of living and have prevented the exploitation of the poor at the hands of the rich.                    Islam has struck at the root of the principle of making the rich richer and the poor poorer, which has been followed in the capitalist and imperialist states of the world since time immemorial, The early Caliphate proved the words of the Holy Prophet of Islam that if Muslims faithfully pay their Zakat, a time would come when there would be no needy person to receive the same. The unequal distribution of wealth is the basis of all human conflicts both individual and social. Islam has evolved its economic principles on such lines as to minimise these disparities and eliminate distinctions in the distribution of human fortunes. The wealthy people are heavily taxed in order to help the poor and this taxation forms one of the cardinal principles of Islam which no true Muslim can violate. Islam has steered midway between Capitalism and Communism--a mean between two extremes. Capitalism thrives at the cost of society and aims at building up private property. Communism has no place for private enterprise and economy. Islam while recognising one's right to build up private fortunes enjoins upon its  followers to voluntarily part with 2.5% of their wealth every year for the benefit of the poor. This has greatly contributed to the removal of social inequality among Muslims in the past. It has, thus eliminated the defects of both Capitalism and Communism while retaining most of their virtues. Ensuring equitable and fair  distribution of wealth, the Islamic economical system discourages the hoarding of  wealth as idle wealth is also taxed 2.5% a year. It thus provides an incentive to the investment of capital in commerce and industry which means wider circulation of money, more employment and greater prosperity. Islam thus lays certain obligations(both moral and legal) upon its rich members which reduces the  possibility of accumulating fabulous fortunes on their part. The Holy Book condemns hoarders in the strongest language. It says, "To those who hoard up  gold and silver and spend them not in the way of Allah, tell them the tidings of grievious chastisement on the day when it (wealth) will be, heated in the fire of Hell, and their foreheads, their sides and their backs shall be branded with them. Moreover it will be said to them: 'This is what you did hoard (in the world) for yourselves; taste, therefore the fruits of what you hoarded there."l Contrary to this, the persons who spend in the ways of God and keep the money in circulation are entitled to Divine blessings. The investment of wealth in useful pursuits and healthy trades does not only bring greater prosperity to oneself but also contributes to the well-being of others. So says the Holy Quran, "The likeness of those who spend their wealth in the ways of Allah is similar to a grain which groweth seven ears and in each ear are a hundred grains. And Allah giveth manifold increase to those. He willeth, for Allah is all encompassing and all knowing. Those who spend their wealth in the cause of Allah, and afterwards make not reproach, their reward is with their Lord and they should not be afraid or aggrieved" The individual and the community are dependent upon one another. The prosperity of one means the prosperity of the other. Instead of ranging the interests of the  individual and community against one another as is found in the economic systems of Communist and Capitalist states, Islam has recognised the interests of both. It has evolved such a healthy economic system that it has to a great extent minimised the conflict between the interests of the individual and that of the community. The laws of inheritance evolved by Islam further eliminate the possibility of the accumulation of wealth and property in the hands of a few individuals. Contrary to the Hindu laws of inheritance in which the female members of the family have been denied property rights, Islam ordains the distribution of property among the members of the family both male and female. Apart from ensuring a fair distribution of property among the family members, the Islamic laws of inheritance build a social harmony and maintain an uniformity in the standard of living. It  breaks up property into family shares and thus prevents property from becoming  the monopoly of a few. Instead of accumulating fortunes, the Islamic laws of inheritance lead to dispersal and distribution. Islam recognizes one's right of private ownership of wealth, but at the same time enjoins upon the faithful to earn wealth through unquestionable means. The Holy Quran states: "Allah permitted trading and forbade Usury" (11:275). It further states, "Give full measure and be not of those who give and weigh less. Do not deceive the people in matter of their goods" (26: 181-183). Islamic economic principles control both the production and consumption of wealth. Recognizing one's right of building private fortunes, it stresses that wealth  in reality belongs to Allah which has been put in the custody of the individual, hence it should be spent in the ways of Allah which means in healthy pursuits. The Holy Quran states, "The wealth is of Allah which He hath bestowed upon you". (24:33). In an Islamic Economic system, ample subsistence to the individual is assured and it is for the Creator to provide livelihood to His every creature. The Holy Book states, "Slay not your children, fearing a fall to poverty, We shall provide for them  and for you" (17:31). Again, "We have given you power in earth and appointed  therein a livelihood. Little give ye thanks". Thus in an Islamic State, the State is to fulfill this guarantee of the Creator by providing subsistence to the poor out of the  Zakat Tax.