Interest Free Banking in Islam English Essay

The banking system is the barometer of economic progress in the country. Pakistan has a well-organized and well-knit banking system. It supplies the necessary credit and loans to the businessmen and industrialists on a certain rate of interest. The banks accept deposits in form of savings and then invest the money in productive channels. The depositors get interest on the deposits at a fixed rate. They funnily call is profit. In fact interest has been the main impetus for the depositors. The whole banking system works on earnings in the form of interest. It can not be called profit in the Quranic sense.

According to Islami Teachings the return on direct and normal business transections is called profit (Baei). It is a direct income from acts of buying and selling. There is no such activity involved in interest (Riba). The Quran prohibits Interest or Riba. The basic tenet of Islam is the elimination of interest. It is to be taken as an axiom, a law that forbids interest. Interest is unislamic or Haram (forbidden). Only, profit is considered correct return and remuneration. Earnings from bank deposits and savings come under dishonest earnings.

According to the Islamic system there are only three factors of production-capital, land, and labor. Capital and entrepreneur become one and the same. Their share is profit and not interest. This is the basis of interest-free banking. Condemnation of interest and justification for normal business and profit has been recognised as correct remuneration. Interest is not a correct and justifiable payment in Islam. So ‘Interest has been substituted by the institution of ‘Profit and Loss’ sharing known as interest-free banking. It is a partnership between capital and enterprise. This is in accordance with the tenets of Islam.

Interest free banking has been part of the Islamization Process in Pakistan, started after 1977. It was the first step towards the Islamization of our economic system. It was started in 1979 and completed in 1985. The old system has been replaced by PLS Banking System. The system can succeed, only when we sincerely practice Islami in all the walks of life, private and national. But our people and the government appear to be non-serious about it.

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All earnings and money earned through dishonest and foul means like bribery, smuggling, hoarding, and high profiteering are prohibited in Islam. Hardly 5% of people live by honest earnings. How can the new system work and succeed? It is rather impossible without fear of God and belief in Reward and Punishment. Islamization has become a farce.

By prohibiting interest, Islam has eliminated many evils of a capitalistic economy and closed the doors for the importation of tyrannical and unnatural economic system of socialism. The French orientalist Mr. Louis Massignon has rightly remarked:

“In this conflict between capitalism and socialism, only that culture can be assured a secure and bright feature, which not only prohibits interest but also makes people abide by this prohibition.” The system is given by Islam only.

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