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Islamic topics- Articles in Danish Magazine (article 5)- Islamic Perspective of the Global Financial Crisis
In the Name of Allah, The Most Gracious, Most Merciful  

 The world’s banking sector relies heavily on interest payments from money borrowers to sustain itself and generate profits. But what happens when borrowers default on their payments in record numbers? The system spirals downwards out of control.
 In the Islamic banking system, financial institutions are forbidden from paying or charging interest. While money can be loaned, the loan is based on an exchange of existing collateral, that is, a commodity; no interest charges are levied.
 Perhaps if this practice was widespread and financial institutions managed their transactions differently respecting the criteria outline in the Noble Quran - the current fiscal crisis might have been averted.
 Money, which replaced the barter system, is considered by many to be one of society’s greatest inventions.
 Used as an indicator of value for goods and services worldwide, we use money to conduct transactions for the purchase of commodities and services. Consequently, it seems neither logical nor reasonable to exchange cash without the exchange of a commodity.
 When people start exchanging cash for cash, money itself becomes the commodity- and the commodity is then controlled by a select few - the rich and the strong. Recognizing this reality, Islamic laws forbid usury, that is, the charging of interest for monetary loans.

 Interest, centralize the control of cash in the hands of a few and limit its availability to the
 Islamic laws strictly forbid such practices. In the Noble Quran God threatens that those who practice usury will suffer grave consequences:

"O ye who believe! Observe your duty to Allah, and give up what remained (due to you) from usury, if ye are (in truth) believers.(278) And if ye do not, then be warned of war (against you) from Allah and His messenger. And if ye repent, then ye have your principal (without interest).Wrong not, and ye shall not be wronged.”

(Al-Baqara surah: 278)

 The Noble Quran also warns that God will ensure that money derived from the practice of usury will be lost.

"Allah destroys usury and grows alms-giving. Allah loves not the impious and guilty."

(Al-Baqara surah: 276)

 When one observes the West’s financial crisis, it seems that the value of money is indeed being lost - with asset values declining by more than 95 per cent, U.S. banks are facing a severe crisis in which their value has been reduced significantly.
 Usury is defined as charging exorbitant interest for the loan of money, in Islam any fee charged for monetary loans is considered exorbitant consequently one is forbidden from charging a fee for a monetary loan. The natural way to generate profit is through transactions that involve an exchange of money for the purchase of goods or services. Islam recognizes that the provision of goods and services benefit a wide range of individuals, directly and indirectly. For example, a Renault car factory in France liaises with more than 200 vendors.
 Numerous people benefit directly and indirectly from the selling of vehicles.
 In today’s world, less than 10 per cent of the world’s population owns more than 90 per cent of the world’s wealth.
 Generally, we find lavish lifestyles in the northern hemisphere and poverty, famine and widespread unemployment in the southern parts of the world. Countries with great imbalances of wealth, where the wealth is concentrated in the hands of a small percentage of the population while the masses live in poverty, are often plagued with conflict as well. Usury, when used as a primary means of financial gain, seems to undermine the original role of cash and restricts commodity exchange.
 While, in the short term, it may enable commodity purchase, it creates a false reality that can have severe consequences -like those we are witnessing in global markets today. The consequences: severely limited commodity-production capacity, reduced economic efficiency, increased unemployment and the widespread practice of unreasonable and unsound financial transactions.
 French economist Maurice Allais, the 1988 winner of the Sveriges Riks bank Prize in Economic Sciences in Memory of Alfred Nobel observed that usury-based credit processes can lead to the creation of unrealizable payments. He noted that while depositors view their deposits as readily available cash entrusted to the bank, the truth is that the bank uses the deposit as security for a loan to someone else, replacing it with an undertaking of payment that lacks true material coverage.
 Transactions of this nature contributed significantly to the bankruptcy of various banks and insurance companies during the current financial crisis.
 Sound economic systems strive to achieve a balance between saving and investing that guarantees a certain level of income and ensures investment in non-usury activities. Economists believe that a usury based investment system weakens the motive for agricultural, commercial and industrial investment. This, in turn, leads directly to the decrease of general investments, that is, monetary transactions which are essential to generate prosperity. Furthermore usury-based investments by those with limited income cause them to reduce their spending; reduced consumption in turn causes markets to suffer and the money remains in the hands of a few -the rich moneylenders.
 Generally banks offer a guaranteed fixed interest rate for deposited money. Through this system, those who deposit money can earn money, without any effort and with no investment.
When interest is paid to someone for simply putting their money at the bank’s disposal – that individual is earning money without contributing to employment.
 The current financial crisis suggests there are critical flaws in the general approach currently being used by money borrowers and lenders. It is an ideal time to consider options.
 Financial transactions based on Islamic principles offer a fascinating and viable option that world leaders must explore.
 As Islamic banking opportunities continue to gain momentum in the Arab world, their ability to shape a new global approach is not to be overlooked.

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