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about Islamic banking. There is not need of correcting the typo because
the premise of Islamic banking is nothing but banging the economy anyway,
where banging should be interpreted in slang.
has many siblings - Keynesian economics, Marxian economics, classical
economics, etc. etc. and the new kid on the block is Islamic economics,
based on the concept of ďRibaĒ or interest free banking system. May be comical but itís not economical at all. The new fashion of
Islamic financing does not comply with modern economics or the Quran,
itís kind of transsexual, neither a male nor a female.
The macro economic
concept of Quranic law gave birth to so-called interest free Islamic
banking at a micro economic level.
in the mid-forties and
in the late fifties introduced small-scale interest free banking system.
However, these two pre-matured babies did not survive. In 1963, Ahmed Al-Najjar
tried the system one more time and managed to outlive along with
conventional banking. Soon at the beginning of seventies, abundant petro-dollars
inspired bigots to create Islamic banks. In 1974, IDB (Islamic Development
Bank) was formed by the OIC (Organization of Islamic Countries) to help
member Muslim countries with a desperate attempt to isolate Muslim
countries form rest of the world.
Until recently, more
than 100 financial institutions are involved in this freaky business.
Muslim apologists claim that Islamic banks of the world altogether
have around $200 billion dollars in assets. Big deal! Itís a negligible
amount compared to any other conventional banks. Bank of America of USA
alone has over $700 billion dollars in assets. Conventional Banks are not
supported by free money; they have evolved from natural economic
phenomena. Whereas, Islamic banks are mostly state sponsored, if not
fueled by free petro-dollars.
Islam is not the only
religion that talks about Interest free banking; Christianity also has the
same formula, hidden in their religious books. While interpreting, Matthew
13:12 and 25:29, Luke 19:26 and 8:18, Old Testament, Exodus 22:25, many
scholars agree that accepting or paying interest is hazardous to
peopleís health. Seldom, they protest with a faint ďm..e..o..wĒ like
a cat but never try to make it an issue. They understand the impact of
interest on modern economic machine.
The Federal Reserve
System, shortly known as "the Fed," is the central bank of the
. Itís not a profit-making organization and it works independently
within the government. Fed conducts nationís monetary policy, regulates
banking institutions, maintains the stability of the financial system and
provides certain financial services. In order to maintain a fiscal
discipline, Fed often changes the short-term interest rate that makes a
tremendous affect on domestic economy and international market as well.
Dr. Alan Greenspan,
the chairman of ďFedĒ is considered the God of monetary world. He
carefully reviews different factors of economy with the board members and
decides to change the interest rate. Dr. Greenspan is an admirer of Ayan
Rand, the pioneer of ďObjectivist movementĒ who advocated capitalism
social and economic philosophy. Dr.
Greespan has set a milestone in modern economics and he has been showered
with honorary degrees from Harvard,
, Leuven (
), Notre Dame,
, Colgate, and
universities. According to Islamic law, Mr. Greenspan will definitely go
to hell and turn into Red-spank i.e. he will be spanked until he becomes
red. More importantly, Dr. Greenspan is aware of interest free banking
system but he would not dare to propose the stone age idea, because he
does not want to turn
into a poor Islamic country.
Islamic banks are practicing
a twisted concept of current interest based economic system. Usually,
Investment financing is done in three different ways.
Musharaka- Sounds like mushroom but it did not grow like
mushrooms. Itís a joint venture between the bank and a business farm.
They split loss and profit in a pre-arranged fashion. Bank may withdraw gradually
after a certain period of time. However, Bank is making money out of the
Mudarabha- Another idea of
murdering the economy. In this peculiar system, bank contributes the money
and the entrepreneur provides expertise, management and labor. Profits are
shared by both the partners but lose is carried by the bank.
Estimated rate of return-
The bank determines an estimated rate of return on a specific project. If
the project makes more than estimated amount, the client keeps it but bank
will take a lower amount if lose occurs.
The objective of a
traditional bank is lending and securing money, itís not a bankís job
to poke its nose in all ventures. When an entrepreneur submits a plan to
build an industry, bank reviews the viability of the project but they are
more concern of enough collateral. Itís the entrepreneur, who takes the
risk with his/her last penny. On condition of receiving a percentage of
interest, Bank will comfortably loan any amount of money as long as itís
Profit and Loss
Sharing or ďPLSĒ (not PLO), is the sweetened name of Islamic
financing. The goal of an Islamic bank is ensuring the profitability of a
project. An Islamic bank will never lend a dime unless itís guaranteed
that the project will make money. They surely donít want to take a loss.
A bank should finance various types of projects; it may be a chemical
plant or a charcoal project, candy factory or panty hosiery. When an
Islamic bank takes the position of an entrepreneur and tries to oversee
each and every project, they become ďJack of all trades-master of
noneĒ. Itís impossible for a bank to have knowledge on various types
of business. Nonetheless, Islamic banks are making profit a.k.a. interest
on their invested money.
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