Why or Why Not Interest-Free Banking? Essay

According to the first school of thought in Islam, “interest” in Arabic is “riba” which, means interest charged on the money lent for a fixed time. The borrower has to return the main amount with the interest that can become too much with the passage of time. Islam permits trade without interest. It means that those who invest in a business or lend money to others for business should share its profit or loss.

According to the second school of thought in Islam, “riba” actually means interest that is too much or is very oppressive (harsh or very difficult to bear). If the interest is reasonable and bearable and is like normal profit on the money invested, it is not “riba,” prohibited by Islam. Consequently (as a result), the government or the State Bank should regulate or modulate rates of interest or profit for banks and society at large to facilitate business and monetary transactions in the country and outside it.

Importantly, the loans taken by Islamic countries from world monetary agencies like the World Bank, the International Monetary Fund and the Asian Development Bank are based on fixed-term-interest rates. International imports and exports and investments in foreign markets proceed on clearly defined interest rates. The house-building, business-investment, agricultural-development, tractor and vehicle purchase, and other bank advances again proceed on fixed-interest rates. A very clear and definitive monetary policy, based on reason, common sense and public welfare, will have to be adopted by us.

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The principles of life and social dealings enunciated (set forth) in the Holy Quran are generally directive and directed toward the promotion of individual good and general social welfare. These principles will have to be applied to economic and social matters inductively (starting from particular facts leading to general principles) and deductively (starting from general principles leading to particular facts) to develop a consensus (general agreement) of reason and common sense. We should not forget the dynamics (changes and adjustments) of society that is co-extensive with that of religion which caters for (provides solutions to) all kinds of situations and has a futuristic framework of references for society. The society in itself is always in flux (continuous movement and change).

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