Interest

Investment, Interest and Islam

QUESTION It is very important in Islam not to hoard money but to keep it working. How does Islam view placing money on the capitalist stock market system? Answer: The Islamic economic system runs on a different principle and you have to understand that system before you can get an answer to the question which you have specifically asked. There are two possible ways of drawing capital into the working machinery of the economy – to circulate capital so that it can turn the wheels of the economy and keep it going. One way to do this is to reward capital with profits so that you can draw capital and utilise it as you please. That means, there are two tools created in society – one is the smaller pull of capital magnates and the other much larger and diffused pull of the society as a whole. To draw money from the profits of a society and direct it to economic 43The Review of Religions – July 2004 The 4th Head of the Ahmaddiya Muslim Association in Islam, Hadhrat Mirza Tahir Ahmad (may Allah have mercy on him), made himself available, at various times, to his community and to others to answer any questions that they put to him. We present below a transcript of two questions from a session recorded at Nasir Baagh, the Ahmaddiya Muslim Centre in Germany on the 11th September 1993. This was first published in The Review of Religions, February 1994. Transcribed by Amatul Hadi Ahmad. Investment, Interest and Islam channels requires banking magnates and these banking magnates work on people’s greed for profit on their capital. The fundamental principle that can be understood to apply in this capitalist system, is that money gives ‘birth to children’, that is, it creates money directly. In itself, it is believed to have that quality. Islam refuses to accept this notion. The Holy Prophet of Islam (peace and blessings of Allah be upon him), once asked the question of someone who had enquired about interest: ‘does your money give birth to children”, i.e. if you keep it idle will it reproduce by itself?’ Of course, the answer was, ‘No’. From this we see that Islam considers money to be an inert factor in an economy. A factor indeed, but an inert factor which can play both positive and negative roles depending on who is utilising that money. So human values must be wedded to money before it produces any results. If those human values are negative values and if irresponsible people get hold of money, that money would be wasted and the whole capital would be sunk into nothingness. In other cases, if the users or usurpers of that money are clever enough to put it to some advantage in the economy, then they will gain from it, but the gain of the person who channels this money into the banks, etc. will be a limited gain and a fixed gain. It will be unrelated to the results. If someone who gets your money on the condition of interest, loses it all, then either he has to pay through his nose for the rest of his life or he would have to declare himself bankrupt. Thus this system also invites all kinds of cheats and that is what you come across in everyday life in Europe. In England, particularly these days, many fraudsters use this system to their advantage to eat up the money as best they can and then declare themselves bankrupt. With them sink the economies of millions of people. Islam does not believe in the principle of money reproducing by itself. So Islam promotes share-holding – a contract where 44 Investment, Interest and Islam The Review of Religions – July 2004 the lender of money will share in the outcome. If it results in a loss, he would suffer the loss and if it turns a profit, he will share in the profit. Now, that requires very cautious decisions on the part of the lender and a higher standard of honesty and integrity in the economy, otherwise the system cannot work. So this is a resultant benefit for the society – only those stay afloat in the market who are honest and have earned the reputation of integrity. The rest are just wiped out. This is the Islamic attitude. But the second part of the question is still to be answered: ‘How would Islam force capital to be pushed into economic channels?’ Islam uses the approach of exacting a progressive fine on idle capital. Thus, according to Islam, capital is created to run the wheels of the economy and nobody has the right to hoard capital. In this aspect, capital is the common property of the nation. It can be individual property only as long as it is serves some purpose. When it becomes idle, then it is to be fined. The Islamic system of Zakat is exactly that fine imposed on idle capital. In Islam, if the capital owned by individuals is not employed in some economic projects, it decreases in value for that individual, that is, the cost of hoarding is paid to the nation by those who hoard money. So they are compelled to push it into the economy and there, as already explained, it requires better people, more honest people, more capable and competent people to utilise that capital. Now, if you go back into the history of Islam, you will begin to understand that the most honest and the most pious people were the greatest ‘capitalists’, if you want to call them that, who put capital to good use for the e c o n o m y. Hadhrat Imam Abu Hanifa(rh), one of the most highly revered jurists in Islam, whose system of jurisprudence is followed by the largest number of Muslims today, was also an astute businessman. People used 45 Investment, Interest and Islam The Review of Religions – July 2004 to throw money at him. Some would leave pouches full of money at his doorstep with the message, ‘For God’s sake employ it and let us share the profit.’ So, if he could employ that money he would share equally in the profit. Mostly, people benefited from his intellect and his experience and this also happened in many other cases. Integrity was supported by the economic system of Islam while on the other hand, dishonesty and the capacity to cheat came to the fore and were supported by the system of usury. However, I think the question requires a little more exploration in one particular area. The comparative advantage or disadvantage of the two systems comes into the limelight during economic crises such as we have seen recently in England. Those companies that run on money borrowed against interest, during the idle days of the economy, must collapse. There is no chance of survival for them because they must pay through the nose, although they are not earning anything and not benefiting from the money they had borrowed. In Islam, it is the other way round. If the money becomes idle in the hands of the one who had borrowed it, and production has to be lowered, due to a crisis, then the lender will also have to share the burden with the borrower. The lender will not be paid anything. Such companies will be given much longer breathing periods like those animals who hibernate during winter periods. So, the Islamic system provides the possibility of hibernation, while the western capitalist system has no provision for this. QUESTION Why does Islam forbid the use of interest? Answer: This is a short question which requires a very long answer and I doubt if we have sufficient time in this forum as I cannot devote 46 Investment, Interest and Islam The Review of Religions – July 2004 the entire time to one single question. Although I cannot be exhaustive, I will attempt to give a satisfactory, but brief answer. The question relates not only to an individual’s requirements – the question of interest and its forbiddance in Islam is a much wider issue of a much greater impact in kind as well. All those financial systems that are run on usury and interest are called capitalist systems. They all have an inherent weakness not only one, but many inherent weak- nesses which always ultimately make the people living in those areas suffer from the conse- quences whether they themselves directly participate in the system or not. I can’t speak at length on this issue but I can give you a single example to illustrate my point. A society that can borrow money on interest is given permission to spend its future in the present time. What happens is that if I, for example, need some money to spend on a luxurious car, a good hotel, a house or some other article of luxury and the rate of my earnings is too low but my impatience is without limit and I can’t wait until I have earned enough to fulfil my desire, the system based on u s u r y, or the interest system provides an opportunity to borrow money from the banks. Apparently, what I am doing is that I am borrowing from my own future, so I become poorer with the passage of time and sometimes it becomes almost impossible for me to service the debts which I have got myself burdened with. Now this is not just an individual problem. From then on, it becomes a national problem and continues to become more complex. Industry that flourishes on this system is, in fact, catering for the requirements of the day or the year and expands itself on a requirement that is not natural but artificially boosted. After a while, buying power becomes reduced more and more until it reaches a point of stalemate. The buying power of the country as a whole becomes very little and the 47 Investment, Interest and Islam The Review of Religions – July 2004 servicing of debt itself becomes a huge problem for the country to overcome. Industry suff e r s heavily and so does trade. The result is that at such times, economic crises appear. Now, those countries that have enough avenues of foreign trade to support themselves in times of crises can see themselves through for a while. But when a l a rge number of advanced countries reach a crisis at the same time, then it is impossible to support such a false economy. The financial crisis that recently occurred in England was in fact predicted by me in my lecture some years ago at the Queen Elizabeth II Hall when I clearly stated that their system of interest was going to land them in much deeper trouble than they believed. ( I s l a m ’s Response to Contemporary Issues by Hadhrat Mirza Tahir Ahmad, Al- Shirkatul Islamiyyah) That is exactly what happened and the problem will expand further. Because of the political changes in Eastern Europe, the crisis in Western Europe has been delayed for a while for certain reasons that I do not wish to enlarge upon here. But it will come. Foreign markets will remain limited. Their buying powers are also reducing. Blood is being sucked out of Africa so rapidly now that they are s u ffering from anaemia – and pernicious anaemia for that matter. If the race in Europe for acquiring more foreign markets is realised, say, in five years or so, then you will realise how intense the problem will be and how threatening it will become. Germany itself is passing through a phase of rebuilding its economy and absorbing the large number of Germans from the East. Among them is available excellent know-how and expertise which has been paid very little in the past. They are now a part of the vast German economy and stand on an equal footing and so the level of production, after an initial shock, will rise so rapidly that the rest of Europe will find itself 48 Investment, Interest and Islam The Review of Religions – July 2004 shuddering at the prospect of the boosted German economy. Then the race for foreign markets will really begin in earnest. Also, Russia will not remain the Russia of today which is still s u ffering from the aftermath of the destruction of the communist system. Russia is regrouping itself. Its economy will start breathing again. The state of Russia today reminds us of the great work of Milton, P a r a d i s e R e g a i n e d, in which the armies of Satan regroup themselves after the initial shock to re-capture paradise again. So, don’t consider Russia out of the competition. The USSR is a huge country, or a number of countries grouped t o g e t h e r, whose economy is potentially stronger than that of many European countries. Once they have had the breathing time to regroup themselves and to change their system to a capitalist one then a course of events similar to that of Germany would follow. So now, imagine the situation of Europe with lessening buying power, increas- ing economic problems and increasing competition. Such crises always lead to war and this is a fundamental principle that can never be negated. That is why in prohibiting usury or interest, the Holy Qur’an says that if you do not desist from usury, then be ready to go to war with Allah and His Prophet, which means that the divine system would be at odds with you and you are bound to enter a situation of war. So this is the shortest possible answer that I could give but there is far more to be said. 49 Investment, Interest and Islam The Review of Religions – July 2004