Lets bank the Islamic way?

[Zarvan]

that is a wrong idea.

Sir that is not the wrong idea that is the great idea and that is why many Banks in America has started doing Islamic Banking and also starting Europe too

---------- Post added at 02:57 PM ---------- Previous post was at 02:56 PM ----------

i dont think it is spreading, there might be a few, but to say it is spreading is giving wrong information.

It is growing their many Banks have started it and many have adopted its ways but still it will take lot of time but as many people are knowing about it they are trying to have it

 

[nForce]

Sir that is not the wrong idea that is the great idea and that is why many Banks in America has started doing Islamic Banking and also starting Europe too

---------- Post added at 02:57 PM ---------- Previous post was at 02:56 PM ----------


It is growing their many Banks have started it and many have adopted its ways but still it will take lot of time but as many people are knowing about it they are trying to have it

Sir,
Let me clarity at this point, that I have got nothing against Islamic for of banking.
What is the basic difference between Islamic banking and prevalent form of banking?
1.No interest rate.
2.No volatility.
I would be extremely happy as an end user if I can borrow endless sums of money without having to pay any interest.I will keep on borrowing,build an empire out of it and I dont have to worry since I have to pay back the same amount in currency,in this case which would be gold.
Say,I buy 2 cows with the amount of gold that I borrow,keep on waiting until those two cows become 4,sell those 2 cows and pay back the gold.The price is not varying ,so no problem.I can keep on doing that,until one fine morning I wake up to notice that everybody wants to do the same.The buyer thinks,why buy cow from me when they can borrow money and raise some on their own??The lender thinks why lend money when I have nothing to gain from this?I should rather buy some cows,raise some more,sell them and raise more gold.The transactions come to a standstill and the economy collapses.

Regarding your post,well this idea works in small closed societies where inflation is very less(read developed countries)and over a very short term(meaning inflation having very negligible impact).Its more like kitty funds,where housewives donate money to each other without considering the interest rate,inflation etc.so that they can have a big some at one point of time and may be able to buy that new furniture/jeweleries/car etc.I assure you the standard financial institutions don't follow this practice,simply because none of them are philanthropic organizations and they have nothing to gain from it.
I would very much like to know which bank follows this practice.

 

[S.M.R]

Those who are saying there isn't any difference between "profit" earned in Islamic banking and "interest" charged in conventional banking, will also say there isn't any difference in slaughtering animal the Islamic way and non Islamic way when there is a HUGE difference.
What if I slaughter an animal with knife but doesn't take Allah's name. It looks similar to another guy slaughtering an animal using knife taking Allah's name but you can see there is a big difference.
So these subtle differences (which may seem similar to naked eye) makes huge difference between these two systems.

No techman, your example doesn't fit here. Interest in Islamic Banking system is just like if take alcohol by saying that doctor has advised me to take some in order to keep myself active.

 

[S.M.R]

allow me..

you are advocating the use of gold as a currency.
In this case you will not be secure from inflation.See, inflation is the rise in price of commodities.
Say,you could have bought a bag of rice for that 1000 gm of gold when you had lended it.But a draught follows after that,and rice goes scarce.So people want more gold for the same bag of rice which used to cost 1000gm of gold before.Hence the value of gold has now reduced by the time you are getting back your 1000gm.

It does not really matter,what you are using as currency,be it paper,be it gold.It is not like the gold,being a metal has some supernatural magical properties to defy the natural course of economy.No matter what you call your currency,they will all follow the same rules sooner or later.

I was not advocating the use of gold as currency. But in fact if you compare both, a money having its real value within, e.g. full bodied coins, is far better than that being circulated with 'govt' stamp i.e. present paper money who has no real value but just govt. guarantee that a 1000 Rs. note is actually worth 1000 Rs., if govt. announces that it has withdrawn 1000 Rs. note, then it is just a piece of paper, nothing else.

 

[S.M.R]

I get your point.
As a matter of fact,what you are saying is what happened during the recession of 2008-'09 that had affected US.
But,I hope if you go through your post,then you will understand,that drawing interest from deposit has got nothing to do with it.It is dependent upon the Mr C who goes bankrupt.

Let us consider a system where there is no interest.A lends to B,B to C.C goes bankrupt.So all go bankrupt!!
What has the system of interest got anything to do with this? How are you relating the two?

I work for a company,I provide my services for the company,and in return I would like to get paid for my services at the end of the month.Nobody is doing any charity here,neither me,nor the company that employes me.
Similarly,if I provide my services to a financial institution,I would like to get benefited from it,would you not?

I gave example in which people's source of income is just interest. Suppose if the bank would have used that money in production, means it would have replaced that 100 k with the thing of a real value i.e. produce of that production activity.

 

[S.M.R]

You people pay 19% VAT in Netherlands? wow..thats really high..

it's 20% in the UK, but i personally dont have a problem with it.

10.2 % in India.... I have a problem with it...

Here in Pakistan I pay income tax (direct tax) as well as VAT both. I have a problem with it, that why should i pay double tax.

 

[Ahmad]

Here in Pakistan I pay income tax (direct tax) as well as VAT both. I have a problem with it, that why should i pay double tax.

yea, same here. both income tax and vat.

 

[S.M.R]

yea, same here. both income tax and vat.

The reason in Pakistan which I understand is the undocumented economy, like my sabzi wala was saying that he earns net 2000 to 2500 Rs. per day. I we take lower side then he is earning Rs.720K P.A. but no tax.

 

[nForce]

I was not advocating the use of gold as currency. But in fact if you compare both, a money having its real value within, e.g. full bodied coins, is far better than that being circulated with 'govt' stamp i.e. present paper money who has no real value but just govt. guarantee that a 1000 Rs. note is actually worth 1000 Rs., if govt. announces that it has withdrawn 1000 Rs. note, then it is just a piece of paper, nothing else.

Well I must say,this thread is getting more and more interesting,and its of course a certain degree of pleasure talking to you

Lets go back to the roots.How paper currency was started? There have been many attempts in the middle ages,some of the earliest forms of paper currency was found to be used in China around 900 AD,as noticed byb the esteemed traveller,Marco Polne failed attempt was made by one of the emperors of this sub continent,Muhammad -bin-Tughlaq.It took more of the present shape in the hands of Stockholm Banco,Sweden,which would hand over cheques in exchange for silver coins as it was inconvenient and risky to carry them around.Then came the dollar.In US,it was decided to replace the gold coin dollar with an equivalent cheque that certifies the bearer to have a sum of money equivalent to what the bank note says.say,if you have 100 coins,yo can exchange them for a bill of 100 dollar.So,it holds the same value what 100 gold coins could have.So,the value remains the same and your buying power is as good as what could have been with those gold coins.

Thats how the evolution happened.It made transactions easier.See,we should not have any problem,as long as that currency is acceptable across everywhere.It really doesnt matter what you call it,gold coin or a dollar,whats in a name?

Regarding the withdrawal of banknote part.Yes,yo are right,it has happened before in the past,where one country changes its currency.Not too distant past,many European countries changed their currency to Euro.Say Germany,they used Deutsch mark.But then those Deutsch marks were exchanged by the bank for Euro.So again,the bank has the liability,so,no problem there.

At the end of the day,what does it matter,by what name you call your currency?You should not bother as long as it has buying power.

---------- Post added at 04:45 PM ---------- Previous post was at 04:43 PM ----------

I gave example in which people's source of income is just interest. Suppose if the bank would have used that money in production, means it would have replaced that 100 k with the thing of a real value i.e. produce of that production activity.

The bank is liable to pay back your money as per terms and conditions.

 

[nForce]

Here in Pakistan I pay income tax (direct tax) as well as VAT both. I have a problem with it, that why should i pay double tax.

Precisely my point.....Once I had gone into a very long and extravagant debate with one of my economist friends regarding this.

 

[InFn-0]

In simple words... lets say i am the Islamic Bank and John is the borrower. When John borrows $100 from me and makes a 20% profit on his business, I get back $120. And if in case John makes a 20% loss, i get back $80. This is what we mean by profit or loss sharing. In some ways it is similar to buying the share of a company.

 

[InFn-0]

yea, same here. both income tax and vat.

Wow man if income tax and vat were the only taxes life would be awesome(comparatively). If we look into things, there are taxes on every bloody thing we buy/do. Starting from car taxes, institutional taxes, tariffs, environment tax and what not.

Imagine this... lets say i own a company and make a $100 000 profit. Now institutional tax cuts up 30% so i have $70 000. Then income tax comes which cuts up 40%... so i have $42 000. And then when i buy some thing i am paying for the tariff and also the vat...when you add up that you are pretty much paying at least 60-70% money on taxes. So you actually get to spend 30-40% of you work money and rest goes to the government, that is kind of a rip off dont you think?

 

[JustForFun]

In simple words... lets say i am the Islamic Bank and John is the borrower. When John borrows $100 from me and makes a 20% profit on his business, I get back $120. And if in case John makes a 20% loss, i get back $80. This is what we mean by profit or loss sharing. In some ways it is similar to buying the share of a company.

But what is Microsoft loans $100 million from 5 different Islamic banks because of some temporary cashflow problems, but end up making a $10 billion profit ?
I think your example is the most simple one and probably less realistic than mine.

 

[JustForFun]

Wow man if income tax and vat were the only taxes life would be awesome(comparatively). If we look into things, there are taxes on every bloody thing we buy/do. Starting from car taxes, institutional taxes, tariffs, environment tax and what not.

Imagine this... lets say i own a company and make a $100 000 profit. Now institutional tax cuts up 30% so i have $70 000. Then income tax comes which cuts up 40%... so i have $42 000. And then when i buy some thing i am paying for the tariff and also the vat...when you add up that you are pretty much paying at least 60-70% money on taxes. So you actually get to spend 30-40% of you work money and rest goes to the government, that is kind of a rip off dont you think?

the real rip off is the VAT we pay on some exice duty! Paying VAT on TAX

 

[InFn-0]

But what is Microsoft loans $100 million from 5 different Islamic banks because of some temporary cashflow problems, but end up making a $10 billion profit ?
I think your example is the most simple one and probably less realistic than mine.

I am not the most educated guy when it comes to Islamic banking, but from what i understand, microsoft surely wont be taking 100% investment from banks. If they take $100 million and total investment was $1 billion(10% loan to investment ratio), and they end up making a $10 billion profit, then they would have to pay the bank $1 billion (10% loan to investment ratio). In my understanding, Islamic banking can be extremely profitable when economy is on a boom, and extremely "loss-able" during recession times. This way banks dont get to hoard up the wealth of the nation and they share the gain or pain of the other businesses.