Interest Free Economy Promulgated by THE QUR’AN

Presented by:Mohammad Aamir Khan2K10IB13

RIBA

• RIBA IS MENTIONED 8 TIMES IN THE QURAN• RIBA means :an addition to, an increase, over and

above the original size.• In other words: interest• Interest: amount paid for amount lent• The practice of lending money is known as usury

or interest• According to islam: unlawful addition• Any act of interest is prohibited in islam

What does the QUR’AN say about riba(interest)

• Surah Baqrah chapter 2 verse 278• O you who believe! Fear ALLAH, and give up

what remains of your demand for usury, if you are indeed believers

• Allah says in the QUR’AN that HE has allowed trade but prohibited USURY.(RIBA)

Types of Riba

• RIBA NASIYA: Loan for bussiness on which interest is charged

• RIBA FADAL: Exchange of a superior good in return of larger quantity of inferior goods.

• BOTH TYPES OF RIBA IS STRICTLY PROHIBITED

System of Zakat• Compulsory on all muslims who are sahib-e-

maal• 2.5 % per year• Should be given to the poor ,needy , debtor,

traveller , feesabeelillah (in the way of allah)

Objective of Zakat

• To prevent the wealth from circulating among the rich and wealthy

• The serious issue of hunger and poverty would be in control if everybody in the whole world starts giving out zakat

Modern banking interest • Increases the cost of living• if Firm takes a loan and goes under loss, it has

to pay the debts + interest• A bank will prefer giving loan to an alcohol

producer rather giving it to a social cause

1980’s

• 1980’s saw the world become a gambling den• All financed by banks• Huge and consistent returns• Power is concentrated in the hands of few

people

• Principles of islamic banking• Tawheed• Divine origin of nourishment • Khilafa• Taskiyaa• Accountablity

Islamic banking

• No interest• Profit and loss sharing• Reduce the cost of living• Social justice• Social consideration (loan wont be given to an

activity against society)• If the debtor is unable to repay, they let go

Factors of production• Land - rent• Labour - wages• Capital - interest• Organisation (entrepreneur) -profit/loss

ISLAMIC FACTORS OF PRODUCTION

• Land - rent• Labour - wages• Capital - profit/loss• Organisation (entrepreneur) -profit/loss• Islam does not differentiate between the

entrepreneur and capital

Types of business unit

• Surplus unit• Deficit unit• Best example of the two units coming

together in islamic history is of• Our beloved Prophet Muhammad(s.a.w)• And his wife Khadija(r.z.a)• Shared their profit in predetermined ratio

How do islamic banks workOptions available • current A/c (Amanat)• ( no interest)• With the depositor’s permission, the bank can

utilize the money• No profit and no loss will be shared between

the depositor and the bank• As the primary motive of an account is safety

of the money

Savings a/c• Safety• The bank invests your money in businesses • In return bank may give u share of the profit• The shariya allows it(sadqa)

Investment account(mudariba)• Profit and loss sharing• Fix period• The depositor (sahibe-maal) (surplus)• The bank (sahibe-amal) (deficit)• The ratio of profit is 7:3• The depositor gets 70 %• The depositor bears the loss

Project financing• Mudariba • All loss is burdened by bank• Profit is shared • The bank has no authority over the

management

Project financing• Musharika(partnership)• Profit is shared on capital ratio• More loss is burdened by the bank• The bank has a control over the management

of the firm

Project finanacing• Murhaba• The bank buys an asset on behalf of the firm• And charges service charge over it(negociable)• It can be combined with mudariba(full

finanace) or musharika(partnership)

Project financing

• Al ijra( hire purchase)• Machinery is bought by the bank and lent on

life span basis

KARZ-E-HASAN• 10% of bank’s profit is reserved of karz-e-

hasan• Lent only to the poor and needy for bussiness• The bank cannot ask for any profit• The business man can give some profit if he

wants

• Quran is not just a book• It’s the word of GOD almighty• Islam is not just a religion • It is the way of life