Islamic Banking: Can it Inject Strength into American Capitalism?

As someone living in a country which was one of the pioneers of Islamic banking, I believe your suggestion has a strong merit. My country is affected by the global economic crisis but the effects are not as serious as that experienced by many countries. An indicator is the constant inflow of illegal immigrants who want to earn some money here. Not many people are affected. Government servants received their year end bonus in mid December. The failure of conventional banking should be an excuse to try an alternative banking system which has shown to be more resilient. all the best, rosdimy

No. It was not the interest being charged by the companies but the insistence that the banks loan to those that cannot possibly pay them back (thanks a lot Democrats). You touched on the reason that Islamic banking may have been successful, petrol. By controlling the oil trade, those countries can make money as long as the world runs on gas. That being said, I hardly think you can call Islamic banking in Islamic countries successful when those with money are the elites and the monarchs. The average person is far poorer than those in the west.

It is an interesting idea and right now works well in those Islamic countries which are actually oil producing. What happens when the world finds a different source of power for vehicles etc or even the wells run dry? Then there will be ni income from oil for those nations so where do they get their money from then? The other thing is consider is that the standard of livng for many (not all) of those in the Arabic countries is much lower that it is in other developed countries. The housing and roads are not as good and in some instances are actually non-existant. So while many developed countries are spending money on roads, housing, medical and educational facilities, the same cannot be said for many of the Islamic countries. Most banks in the western world are owned by either the government or their shareholders. In order to keep operating under normal conditions they have to have money to pay the staff who work there as well as the shareholders who have invested their money. Where is the money for that to come from? The current global economic crises came about because people got greedy. They wanted bigger and better material things like houses, cars, holidays etc and so they borrowed more than they should have. Demand saw rising prices for all of these things and then some/many people found that their finances were stretched to the limit and before long they couldn't meet their committments. Throw into the financial mix the natural disasters that occurred, substandard product being produced by siome greedy manufacturers eager to make a quick $. Aid given to other nations, civil wars and so the list goes on and on but they all affect the economy. As an international community what affects one country will affect others particularly when some nations are major producers and exporters whose goods are no longer in demand. In fact interest rates are considerably higher in my country, Australia, than the US, UK or many other developed countries but we are in a better financial situation than they are. Many of those Islamic countries rely heavily on their oil production for their income but what will they do when it is no longer there? It might not happen in my lifetime but sooner or later the wells will run dry or an alternative found.

there was once also an prohibition against charging interest on loans in the Christian world, and the only bankers were Jewish. It was called "usury" and is now applied to charging too much interest (like some credit cards I could mention) but was illegal for Christians to charge it for a long time in medievil Europe. It also means that the banks don't earn any money, and how can they support themselves, pay their employees and other costs of doing business if they aren't propped up by petrodollars?

Our form of banking could indeed profit from following the Islamic formula! While I never had a gripe about reasonable interest rates, banks and lending institutions made money from them and that led them to actively entice people to borrow, which led to a lot of debt for people who wanted things but couldn't afford them or didn't have the patience to save for them. I think the Islamic banking methods would turn this country around. I also think that we should get back to basics--don't buy anything you can't afford, don't live beyond your means and if you want something you have to save up for it. By adopting these ideas, I doubt we would have any more financial disasters.

Hello my friend bantilesroger Ji, If one finds and expects better results, there is no harm in implementing at trial basis and watch closely for its out-come, it may be restricted to some part of country and if found practicable/workable/suitable, there is no harm in its implemantation at wide range. After all, every country is interested to have better life for its citizen. may god bless You and have a great time.

I'm not really sure. I do find this very interesting though. Thanks for sharing with us.

It is implemented to provide exponential growth in financial instruments. Where sharing of profits from banking business done in not at fixed rate, but maybe higher or might be less than conventional banking system. Same thing to the lender, where monthly repayment figure higher at the beginning period of time and become lower towards the last monthly payment as full payment. The main thing is borrower knew their borrowing capacity and repayment capability with consent between both parties; lender and borrower. Let say, you NED to buy one pencil for $1, but no cash in hand at that particular time. So the system works this way. The bank will buy the pencil on behalf of you at the price of $1 and sell back to you at reselling price of $1.30. So you have to take it or buy from the bank at $1.30 and repay the full amount of $1.30 in days, if agreed. Meaning that, you have to pay daily as your repayment at $0.20 on the first day, second day for $0.18, third day for $0.15 and the reduce sequences till full amount for $1.30. Very clear there, gross profit from that transaction that bank getting is $0.30. From that amount, of course, the bank used it as part of its management costs; staffs salaries, office management, statutory obligations, and etc.. At the end, the nett profit would be or let say for $0.10. This $0.10 of money will be contributed as sharing profit to all bank's account holder every after one year audited account. From this point or way of transaction, the cycle of money exchanging hand-to-hand, does generate firm ownership from one point to another. Encouraging account holders to discern themselves with the friendly capital bearing and earnings sharing. Thus, it stimulate the personal and business cashflow towards exponential growth when it involved trillion or more figures of money circulating in the system.

MAny investments and loans comes with an interest.. IF there's no interest to be eanred, how do all those banks come up with so much money to loan to everybody for investments purposes?? Growth, boom and bust are part and parcel of economy.. WHat goes up must come down eventually.. There's nothing that can stay high or even stay the same forever.. IF that's the case, it means they are not making nay improvements..

Well I do not really understand this system but I cannot see how it could function if profit sharing is done rather than charging interest. This would work for loans to start a business but how could it work for anything else? How would a person borrow money to buy a home for instance? Or are they not able to buy a home unless they have the total amount in cash? If that was the case then only a very few very rich people could buy homes and what do the rest of the people do?

It would be Ok if the USA would lower the interest rates on all credit cards. Make them but they can't. As most credit place are now in India. So we are stuck with the high rates. I have now cancelled my credit cards and only have one. I will no longer deal with them. I am back to living by what I can afford with cash. And I mite add that is not much. How would you get a home loan? If they didn't charge you any interest pay cash for it. How hard is it for you to get a loan? We as in the west will make it once again. Other then that I'm not getting the hole thing. but you have a great day. Your friend onlydia

I'm not sure that too many of the readers of this site will actually understand the difference between Islamic and Western banking. Islamic banks do not charge interest, as you say. The essential principle of interest-free banking is profit/loss sharing. By this means both the supplier of the capital and the borrower share in the risks; both prosper when returns are favourable and suffer together when returns are poor. The bank loses its money, and the business-man his efforts and his livelihood if things don't go well, unlike in the West, where the businessman goes bankrupt and the bank gets all his assets. But there are other aspects which are quite different to Western banking. For instance, Muslim governments make private ownership subject to the interest of the community. If the state considers that it should reserve for itself the ownership of some specific property, then the ownership of such property cannot be acquired by the individual. This is one of the guiding principles of the shariah (Islamic laws) which decrees that the private interest of the individual should be secondary and subsidiary to that of the community as a whole. Contrast that with the free enterprise system if you will. Islamic banking also has a stong underlying religious principle. Tazkiyah [purification] demands that preservation of moral and environmental integrity, cultural strength and the practice of such vital Islamic concepts as ijma (consensus of the people), shura (co-operation for the good) and istislah (public interest) must be the cornerstones of science, technology and economic policy. On a national level in many Islamic countries, the practise of tazkiyah dictates that growth policies must have four basic components: self-reliance, self-sufficiency, social justice and cultural authenticity. It is not possible for a society to purify its wealth unless it is equitably distributed within the various segments of society. Now while I agree with these principles wholeheartedly, I very much doubt you could ever convince Westerners in the main that these principles would work in their system. Many of them go agaisnt everything these people know, and perhaps this could be seen as part of the 'clash of civilisations' that is sometimes mentioned in relation to the Western/Islamic split. Lash

In Islam taking interest against loan is HARAM(strictly prohibited).I think Islamic banking system is a trick.In the name of reinvestment the Islamic banks are taking interest from the customers.THe Islmic bankers are deceiving the Muslims in disguise of religion law.

I do not think Islamic banking can inject strength into American capitalism. Islamic banking system is too traditional to be followed by today's fast developing world. In today's world, we need such banking systems that are in tune with the heavey consumerism of today. Profits and more profits should be the only goal in banking.

We have some loans that are fixed interest rate loans. In fact most of the older loans for homes where fixed interest rate and then the banks got greedy and stopped giving fixed interest rate loans to people who had certain credit scores. The thought was also that there was a cap on the interest rate they could increase to so you could still afford your house payment. Well the banks went back on their words and raised the interest rates higher then expected or agreed upon. They also lent money to people who could not afford the payment.

In Islam taking interest against loan is HARAM(strictly prohibited).I think Islamic banking system is a trick.In the name of reinvestment Islamic banks are taking interests like other banks.This type of bankers are cheating the Muslims.

Islamic banking is just another sign that Islamic Islam is working toward the takeover of America. Islamic banking must be stopped!