Re: Does adjusting for inflation count as riba?
better ask a scholar who can give you reference why it is Not ok or Ok...
for example, forward this to: [email protected]
Re: Does adjusting for inflation count as riba?
Inflation is due to the excess amount of money given to the public. Sooner or later everything becomes more expensive. I don't know how this can relate to interest though. Inflation and prices are positively correlated. Now, inflation will play a huge role if you are already in a riba transaction (mortgage etc.).
Re: Does adjusting for inflation count as riba?
The bigger question should be, is charging interest haraam? If it is, all the world is guilty, and absolutely no economy can run without interest rates charged on money. So does this make economic progress haraam, and in effect, make struggle to acheive better standard of living for people haraam??? Its too confusing. Why do all muslim countries not ban interest rates if they are so big o Islam and Shariah Law? Why back down when Islam conflicts their own interest? Isnt that hypocrsy? This has always bugged me greatly. I have no faith in todays muslim integrity.
Re: Does adjusting for inflation count as riba?
^^
Economies can run without interest. There are many interest-free ways of financing, both at the private, corporate, and state levels.
Many Muslim countries such as Malaysia are slowly moving towards an interest free economy. It's quite common for Malaysian companies to issue interest-free bonds, and investors happily buy them up.
Interest-free financing is in fact so lucrative that all the big investment banks (Citibank, Deutsch Bank, HSBC, JP Morgan) operate Islamic banking divisions.
Interest-free does not make profit-free. It's simply loan-free. There are plenty of ways for a bank to profitably finance someone/something without making profit on a loan (the definition of riba as laid down in Hadith).
Re: Does adjusting for inflation count as riba?
But there is simply no incentive for banks and funds to provide capital to anyone if there is no cost for borrowing money. You are basically describing a scenario where there is a 0% interest rate but that won't fly. Banks charge each other overnight rates when exchanging money. For larger assets, such as homes and cars, people would have to poney up the cash up front. And before you so cooperative ownership, please examine what that is exactly. It's not so different than an interest pmt + principal. Larger corporation borrow funds, sell bonds and other instruments to procure funds to build a natural gas power plant for example. If you are going to have an equity market, you have to have a bond market to provide some certainty to the market and to serve as a mechanism for hedging. The model you are describing is not Islamic; it's illogical. People don't just hand out notes; no matter how fantastic the idea, you need a venture capitalist or lots of money to start creating it in large numbers. Without interest rates, banks have no incentive to loan money and that kills the entreprenueral spirit. Any economic system must allow you to obtain funds easily lest you will have 0% growth or growth simply based on public expenditures, which describes the Muslim world in a nutshell.
Re: Does adjusting for inflation count as riba?
Doesnt sound convincing Mad Scientist. Interest rates are whole part of govt. control named monetary policy. They are used to step up or step down economic activity. Thats the the reason why people give loans. I dont know how someone can give loan without interest. Some loans maybe interest-free but thats an extreme minority. Without loans, business activty becomes very very difficult. Long-term financing is difficult without loans, thus restricting expanison and economic growth. Overdrafts cant be taken, so short-term insolvency will become very difficult to control and could force the business to stop trading. Start-up capital for business is often made up of loans, without loans, most business could not even start, let alone run. They are quite important. I dont see the reason why interest on money is banned. Perhaps if a reason is known, a roundabout way can be worked out to avoid whatever disadvantage they cause?
P.S. Even if an economy manages to survive without charging interest, it can in no way compete with those that will charge it. Not charging interest is just too uneconomic.
Re: Does adjusting for inflation count as riba?
There are ways to profitably provide long-term financing without resorting to interest bearing loans.
A case in point is the kind of Islamic bond issued a few years ago by a Malaysian telecommunications company.
A conventional 5-year bond would have involved the company borrowing money and paying it back with interest on top.
The Islamic bond was a zero-coupon bond secured against the company's fixed assets.
In short, the company sold something like $20million of its assets to the bond buyers, with the obligation that it would buy those assets back 5 years later at a much higher price.
This transaction was lucrative for the bond buyers whilst being completely interest free (no money was lent; instead assets were sold and bought).
Islamic interest-free financing is all about finding profitable ways to finance without lending money and making profit on the loan - the latter being the definition of riba.
Interest-free financing does not mean profit-free. Take the case of one form of Islamic mortgage.
Let's say you want to buy a house woth $200,000. With a conventional mortgage, you would borrow $200,000 from the bank. You would buy the house with this money, the house would be your own property but the bank could take it back if you didn't pay up the money on time. You pay it back over 25 years, paying interest on the loan. The interest is the bank's profit.
With an Islamic mortgage, the bank is not allowed to charge you interest. So how does the bank turn a profit? Simple. The bank itself will buy the house for $200,000. The house will legally belong to the bank. The bank will sell the house to you for $300,000 (for example), allowing you to stagger your payments over 25 years and not charging you any interest on that period. The bank will allow you to live in the bank's house for that time period. Once you have made the final payment, the bank will transfer ownership of the house to you.
No interest at all would have been charged in such a mortgage. After all, no money was lent by the bank to you.
Nonetheless, the bank still made a tidy profit... a profit that is about equal to what it would have made form an interest bearing mortgage.
Like I said earlier, interest-free financing is so profitable that all of the world's global Investment Banks want a piece of the pie and have Islamic banking subdivisions.
Re: Does adjusting for inflation count as riba?
Interest-free financing has reached the point where even a predominantly non-Muslim economic powerhouse is adjusting its government policies to try and position itself as a centre for Islamic financing.
http://www.bernama.com.my/bernama/v3/news_business.php?id=194460
“Singapore is positioning itself as a new hub for Islamic finance by capitalising on its status as a major Asian financial centre and on its strengths in areas such as asset management, insurance, REITs (real estate investment trusts) and project finance,” he said.
In its fiscal 2005 budget, the Singapore government announced two new tax incentives for Islamic finance.
First, the government waived the double imposition of stamp duties in Islamic transactions that involve real property. It then extended to sukuk (Islamic bonds) the same concessionary tax treatment available to conventional bonds to encourage local and foreign issuers to issue Islamic bonds.
Also, the Singapore Exchange (SGX) has teamed up with the FTSE Group and Yasaar Group to create a new Syariah index series.
To move up the ladder, Singapore has opened talks with several Middle Eastern banking groups to shift their regional operating base from Malaysia to the island republic.
Singapore is also hopeful that its growing trade and investment ties with the Middle East countries – flushed with oil dollars – and other countries with large Muslim populations like India and China, will help it to develop an Islamic finance industry, the analyst said.
Re: Does adjusting for inflation count as riba?
Ok, this does sound plausible now, but only just. So can people do this; when loaning money, calculate the rate of interest that will be charged, then sell an asset to the wouldbe-loan-taker at the loan value price and then buy it back at the time of return at the interest-added-loan ammount. This is just a round about way of charging interest using assets instead of banknotes, since the value of the resource taken back is more than the value of the resource provided. The asset could just be thought of as 200,000 $ banknote and the return a 300,000 $ banknote. Money is a liquid asset, house is fixed asset, interest on them is not very different economically, but perhaps, Islamically, only money interest is banned?
Secondly, the government makes use of its ability to control interest rates to control the level of growth in the economy, to prevent it from inflation and/or recession. If interest was charged in this Islamic way, wont govts lose an important tool which they were using to protect their people and their economy?
But what I really want to know is why govts that can go as far as implenting shariah law can not ban interest-charging, as per the shariah? Shows how Islamic we really are...when it comes to profit, there is no Islam...? Malaysia is doing a good job, what about the Arab countries? Pakistan? Turkey? What are they doing?