Well Islamic banking economy overall is more than a trillion dollar now, the end user is not taking loans contrary to Islamic faith at least. But yes at end even those banks get affected by interest and have to deal in it in one way or another. The case is to provide a system in which our finances are compliant to shariah as much as possible.
Brother IMO the difference between what normal banks call “interest” and what Islamic banks call “murabaha” is trivial, murabaha is just the same as the current banking system’s concept of interest but with extra steps.
The only legitimately Islamic thing about Islamic banks and finance is their prohibition of immodest industries, alcohol or tobacco, gambling etc. Even that isn’t unique to Islamic banks, plenty of secular organisations don’t lend to these businesses. Green and ESG finance often excludes these industries too.
But essentially, banks don’t lend for free. They don’t provide banking services for free. Some banks charge fees or commission, others charge interest, the difference is often trivial. If you are familiar with the concept of “time value of money”, it basically says that money isn’t free. Nobody lends for free (unless it’s charity or family support etc.), to rent money you have to pay a return. Put it this way... in a normal shop, you go in and look at products on the shelf, the price is quoted in cash. But you go into a bank and you want a stack of cash that is lying on a shelf (loan), the price is not quoted in cash, for convenience it’s quoted in interest.
So banks can lend you 100 dollars today, they can say the cash price is 5 dollars, the yearly fee is 5 dollars, the interest rate is 5 dollars, murabaha (Islamic banking) is 5 dollars. It’s all the same thing.
IMO Islamic prohibition of interest dates from a time when interest lending was a predatory practise by and large, used to fleece people, prey on the vulnerable. It used to be that a debt contract could land you in indebted servitude or slavery. Today you know what happens if you don’t pay a bank a loan? As long as no collateral was pledged and you are validly broke, you can simply say “I’ll default on the loan” and walk away.
And when it comes to monetary economics, all money that exists in this world, with the exception of things like cryptocurrency, is all issued by central banks. They quote the price of money as an “interest”, only for convenience. Central banks do NOT make any money, they don’t generate profits, they are civil servants. Fiat currency requires a system where money has a time value, you can quote that time value as interest, some weirdly complex version of murabaha, in cash price etc. It doesn’t matter, it has nothing to do with profit, exploitation or immorality, it just has to do with trying to set a value for cash across time.
Anyway, IMO if we want to do away with interest. First we must understand why and how, and what is this interest that we want to ban, or is something called interest that has nothing to do with the Islamic prohibition context, will naming it something else make it halal, or was it just trivial to begin with?
We must also understand the context of the global financial system. When Pakistani companies, government agencies, even the military, and banks, interact with the outside world, they use the international convention of quoting in interest. Nobody in this world exists in a bubble. Countries like Britain were one of the first to introduce modern finance into their economies, they made laws to protect both borrowers and investors, they established a central bank before most of the world did, they created the concept of the national debt, which was then used to fund their national objectives. It’s partially upon this system that they built their empire.
Anyway, I digress. There are some smart ways in which I believe one can change the system to either remove all mention of interest. Or more radical experiment ideas. However what we can’t do is somehow make a financial system that runs on kindness and not profit. Getting rid of interest for the most part would just be getting rid of what others call interest, and calling it something else. Please excuse the long post. Not a rant, just an interesting conversation.
