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Trade financing of Islamic banks is the most deceitful technique. They use Mark-up, Leasing, Hire-purchase and Sell & buy back procedures. In each case, clients end up paying more than the original price, which is nothing but mirrored image of traditional interest based loan system.  

An example will expose the true picture of Islamic banging. Mr. John Doe buys a nice car and gets the financing from a traditional bank. The price of the car is $30,000 and he agrees to pay $588 a month for 5 years at the rate of 6% interest. After 5 years he will pay $35,280, out of which $5,280 is interest.  

Now, Mr Mohammad Akkelmond buys the same car and he decides to deal with an Islamic bank because of his religious pregnancy. Islamic bank will buy the car for $30,000 and Mr. Mohammad will agree to pay an amount of $35,280 after 5 years. Obviously, He will not be able to pay $35,280 at a time. So, they will agree that Mr. Mohammad would pay $588 per month for 5 years. Did the bank accept any interest? Naujibillah! (God forbid!), there is no such thing as interest.  

Islamic banks also have loans with a service charge. Is service charge a form of interest? Islamic bowlers, I mean scholars will shake their beards and violently say, “NO”. Any reasonable person can see that the interest is merely hidden and relabeled, if not redefined.  

Money has a time value. Today’s $30,000 is worth less the amount after 5 years. Also, many economists consider “interest” as “rent” on money. Therefore, when money is borrowed, we have to pay the rent to compensate the time value. Just like any rental, the interest is subject to change to reflect market conditions. The flexibility of changed interest may or may not help the consumer; lower rate is more auspicious than higher rate. However, the flexibility of changing rate is influenced by many factors and it’s the outcome of free economy.     

Quran, the moronic book of Islam talks about prohibiting usury in four places (see ref. below). Interestingly, all of these verses mentioned “Riba”, which means usury and not “Faida”  meaning interest. What is usury? According to Webster dictionary it does mean “interest” but it also classifies as, “an unconscionable or exorbitant rate or amount of interest; specific: interest in excess of a legal rate charged to a borrower for the money”.  

Keeping the technicality aside, Quran is more specific about the topic, verse 30.39 dictates, “That which ye give in usury in order that it may increase on (other) people's property hath no increase with Allah….”. In other words, money should not increase when borrowed. Aren’t the Islamic banks are doing exactly the same thing? Also, verse 3.130 confirms, “O ye who believe! Devour not usury, doubled and multiplied; but fear Allah; that ye may (really) prosper…”. Despite Allah’s warning, western countries are prospering very well with the help of interest based economy.  

Verse 2.275 is very clear - “…..but Allah hath permitted trade and forbidden usury…”. Inspired by the verse, Islamic banks are pretending to do trade while investing the money to rip off the interest. According to most of the scholars, only one loan is acceptable in Islam and it’s called “qard-el-hassan” or literally good loan, where the lender does not charge any interest or additional amount over the money lent.   

Mohammad was an unsuccessful businessman and he did not learn anything from his first wife Khadija, which inspired him to take a short cut and start “no money down-prophet hood” business. When Mohammad made all those verses, he had no idea of sophisticated interest-based banking system. While Islamic banks are taking interest under cover and professing “Profit & loss sharing” system, they are still having trouble in financing in different areas, such as, a) participating in long-term low-yield projects, b) financing the small businessman, c) granting non-participating loans to running businesses, and d) financing government borrowing.  

Western countries are extremely flexible in adopting new system that seems to be beneficial. As mentioned earlier, Islam does not have the sole proprietorship of interest free banking system; Christianity shares the same proposition too. Yet no one talks about the hypothesis because modern economic machine is running very well.  

In contrary, Islamic countries do not have the luxury to experiment new economic system. They should follow the proven system and recover from the current economic turmoil that they are going through. Not surprisingly, they won’t buzz because Islam takes top priority and not the citizen. Everything has to be Islamic, even if it leads to destruction.  

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References:

030.039 PICKTHAL: That which ye give in usury in order that it may increase on (other) people's property hath no increase with Allah; but that which ye give in charity, seeking Allah's Countenance, hath increase manifold.  

004.161 YUSUFALI: That they took usury, though they were forbidden; and that they devoured men's substance wrongfully;- we have prepared for those among them who reject faith a grievous punishment.  

003.130 YUSUFALI: O ye who believe! Devour not usury, doubled and multiplied; but fear Allah; that ye may (really) prosper.  

002.275 YUSUFALI: Those who devour usury will not stand except as stand one whom the Evil one by his touch Hath driven to madness. That is because they say: "Trade is like usury," but Allah hath permitted trade and forbidden usury. Those who after receiving direction from their Lord, desist, shall be pardoned for the past; their case is for Allah (to judge); but those who repeat (The offence) are companions of the Fire: They will abide therein (for ever)

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