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Islamic Interest Free Banking:Is It Feasible In The Western World?

2104 words - 8 pages

"Need car finance for either a new or used car? We can accept people with or without previous credit problems. With rates as low as 6.9% APR (Annual percentage rate) there has never been a better time to use an Easy Loan to buy a holiday home, get a new car or simply pay off your existing debts," says an advertisement on the MSN website. Who doesn't need banking services? At different instances in our lives, we need banking services for various purposes: to finance new business ventures, buy a house, to buy a car, facilitate capital investment, undertake trading activities, and to offer a safe place for savings. However, whether interest should be charged on the loans or deposits is what differentiates Islamic Interest-free banks from the Western Banks. Islam forbids Muslims from dealings involving interest, not profit though (will be discussed later). But, in this modern world in which almost all the financial institutions are interest based, what option it leaves for the Muslims? Should they deny what their religion strictly forbids? Why are they strictly ordered to abstain from the method of financial dealings that the whole world has adopted? Why not they put efforts to introduce Islamic interest-free Banking in the western world which has dominated the entire globe? If that happens, are there any chances of success? Well, there are. Islamic interest-free banking can be a success and might prove even more beneficial to the financial institutions and the economy of the Western world than the current system of interest-based banking.Islamic interest-free Banking has been very successful especially around the middle-eastern countries in terms of monetary growth as well as the number of Islamic financial institutions that are currently functional around the globe. "Currently, there are more than 100 banks operating 40 countries with multi-billion dollar deposits world-wide. Islamic banking is widely regarded as the fastest growing sector in the Middle Eastern financial services market. Exploding onto the financial scene barely thirty years ago, an estimated $US 70 billion worth of funds are now managed according to Shari'ah (Islamic canon). Deposit assets held by Islamic banks were approximately $US5 billion in 1985 but grew over $60 billion in 1994." states an excerpt from an article Nida'ul Islam. Undoubtedly, it can be established and be viable in the Western world too.Modern, present day banking operates mainly by giving interest on the money deposited by people in the banks and, after keeping a small percentage of those deposits as reserves, lends or invests the remaining money at a higher rate of interest or return and keeps the difference as profit. This is the major source of revenue for banks.The Koran, however, condemns today's modern banking concepts. Mohammad Asadi quotes:"And what you give in interest [riba in Arabic] that it may increase on (other) people's wealth, increases not with Allah (God)" (Koran 30:39).The Koran clearly...

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