dr. husain husain shahata

professor in al-azhar university

consultant expert in the islamic financial transactions 

relative verses from the holy quran and the prophetic traditions

allah the almighty said:

{allah will destroy riba (usury) and will give increase for sadaqat (deeds of charity, alms, etc.) and allah likes not the disbelievers, sinners} (al-baqara: 276).

{that which ye give in usury in order that it may increase on (other) people's property hath no increase with allah; but that which ye give in charity, seeking allah's countenance, hath increase manifold}(ar-rum: 39).

the prophet – peace be upon him – said:

((if adultery and usury "riba" prevail in any country, allah the almighty will destroy it)).

[narrated by abu ya'la from abdullah bin masoud].

((when any people deal with usury "riba" lunacy will appear in their society))

introduction to signs of collapse in new international economic system.

the international financial system crisis aspects

the main reasons behind the international financial system crisis.

the opinion of the islamic economy regarding the international financial system crisis.

stability & security rules in the islamic economy.

the method of overcoming the crisis by applying the islamic economy rules & regulations.

summary: the islamic economy rules & regulations are the only way for salvation.

call for the economists & businessmen.

call for the muslims in general.

finally, all praise be to allah the almighty.

introduction:

the economists of the man-made economy have predicted the collapse signs of the socialist economic system because of its concepts & principles which contradict the human nature and conflict with the islamic rules & regulations. similarly, the economists of the capitalist economic system have predicted the collapse signs thereof because of its concepts & principles which contradict the orders of allah the almighty and undermines the values & morals. it is relies upon the monopoly and the usury interests (credit and loans against interest) which are the most vicious evil in the earth and the motive behind worshiping money, controlling the borrowers by the lenders, restricting their freedom, stealing their business & homes and causing dangerous social & economic effects.

many people are asking themselves:

what are the reasons behind the international financial crisis?

what are the reasons behind the bankruptcy of the banks dealing, selling and purchasing loans & debits?

what are the reasons behind the bankruptcy of the large companies taking finance from the banks under the interest system? is it expected to confront a new international stagnancy under capitalism and its tools like globalism and interest system?

moreover, many arab and muslim people are asking themselves about the perspective of the islamic economy & banks for this crisis?

these inquires and questions will be the substance of our study from the islamic economy point of view.

aspects of the international financial system crisis

the signs & symbols of collapse in the international financial system emerged and caused panic, fear and worry for the money-makes & wealthy people, left the financial institutions & brokers confused in setting up the salvation plans and made the governmental officials afraid of losing their positions and calling for the scientists, specialists and experts to find the way out.

here are few examples about the financial crisis signs:

the hurry in withdrawing the deposits from the banks because the capital is coward as stated by the mass media.

several financial institutions have stopped giving loans to the companies & individuals fearing the difficulty of recovery.

shortage of liquidity negotiated by individuals, companies and financial institutions and this caused a severe deflation in the economic activity and all other aspects of life and made the borrowers unable to repay their debts.

drop of the negotiations in the financial markets and the resulted confusion of rise and fall indexes.

the decrease of power level used by the companies due to the shortage in liquidity and freezing the loans by the financial institutions except under high interest rates and difficult guarantees.

the decrease of sales, especially in the real estates, cars and other sectors due to the low liquidity.

the increase of unemployment levels due to the bankruptcy and liquidation, and every employee or worker fears dismissal.

the increase demand for the social subsidies from the governments.

the decrease of consumption, spending, saving and investment levels which caused stagnancy, unemployment, liquidation and bankruptcy.

all this invite us to ask: what are the main & real reasons behind this crisis?

the main reasons behind the international financial crisis:

the right diagnosis of the crisis is the master key for finding the right remedy. it is only the accurate, right, neutral and objective view which can introduce the perfect solution for the difficult problems.

the famous economists worldwide, including winners of nobel prize like maurice allias, said: (the capitalist economy system is depending on certain concepts and rules which are the main cause of its collapse if not amended immediately).

there are several known economists predicted that the new international economic system is founded on principles leading to its failure.

here are some of the reasons mentioned by them for the current crisis:

first: the economic morals corruption such as: monopoly, deception, the fabricated rumors, lies, fraud, exploitation and the delusive transactions which all caused injustice treatment by the wealthy people and creditors against the poor and debtors. this injustice will make the wronged people complain from injustice and the creditors will complain from debtors and the result will be social revolutions when they refrain from repaying their debts and loans.

second: money became the substance of tyranny and the weapon of the tyrants for controlling policies and taking the sovereign decisions in the world to the degree that the materialists became worshippers of money.

third: the usury banking system relies on the interest rate system and operates within the frame of dealing, trading, purchasing and selling of debts. whenever the interest rate of the deposit increases, the interest rate of the loans given to individuals and companies will increase similarly and all of this will benefit the banks and financial brokers while the borrowers will suffer injustice in paying the loans taken by them for the purpose of consumption or production. some economists, like adam smith, the father of economists, said: "the real development and the rational use of the production factors will not be achieved unless the interest rate became nil" and they considered the alternative method is the system of sharing profits and losses because it enhance stability and security. they further said: "the interest rate system will make the money goes to the hands of small group of people who will control the wealth totally".

fourth: the traditional financial and banking system relies on the method of scheduling the debts against a higher interest rate or replacing the due loans with new ones of higher interest rate, exactly like what the arab before islam was saying: (pay now or increase the interest rate). this process will cause additional liabilities on the borrowers who were unable to repay the first loan due to the higher rate of interest.

fifth: the international financial system and the financial markets system are mainly depending on the financial derivates system which, in turn, depends on delusive transactions which, in turn, depend on probabilities & possibilities i.e. there are no true exchange of goods and services, it is just gambling and betting. not only this, some of these transactions are depending on credits taken from the banks in the form of loans which can lead to a financial crisis in case of loss.

sixth: the bad manners of the financial brokerage institutions which induce people to take loans, deceive them and exploit their ignorance to take loans from the financial institutions. they request high commissions if the risks were high and the borrower alone will bear the adverse consequences thereof and this ultimately will lead to the financial crisis.

seventh: the expansions in applying the credit cards system (overdraft) which caused high financial liabilities on the users who will bear higher interest rates if he could not repay the debt until he is put to jail, mortgage his car or house. this is exactly what happened to many holders of such cards, caused them confusions in the budget of their homes, and led finally to a crisis in certain usury banks.

the destructive effects of the international financial system crisis

until this sensitive stage of collapse signs  in the international financial system which suffered a severe paralysis, the following adverse effects have appeared:

first: the panic, fear and confusion of all people, including:

the presidents, rulers and ministers.

owners of the financial institutions and the in-charge of the financial markets.

owners of the financial brokerage institutions.

owners of the deposits in the banks and otherwise.

the borrowers from banks, the clients of banks and owners of the deposits.

the consumers who are threatened with price rise waves.

the employees and workers who are threatened of losing their positions.

the poor who are living under subsidies and charity.

this crisis became like the cancer of the blood, all the time circulating in the economic life arteries.

second: bankruptcy of some banks and financial institutions due to the lack of liquidity and the withdrawal of the deposits by its owners; consequently, some governments, through its central banks, were obliged to rescue the remainder in order to avoid the total collapse of the economic life which may cause bankruptcy to the country as a whole.

third: bankruptcy of the companies which were dealing in loans against interest and some of them stopped certain production lines and began executing the mortgages and guarantees available with it; consequently, this causes disorder in their cash flows.

fourth: losing the employment and the rise of the percentage of people who are looking for the social and governmental subsidies which, in turn, caused extra burdens on the budgets of the countries and delayed several new investment projects.

fifth: some countries have imposed more taxes in order to compensate the deficit in their budgets due to the rise of support budgets toward the companies and banks which are close to bankruptcy or to support the deposits and otherwise.

sixth: the borrowers have lost their assets and homes which were mortgaged against such loans. they became homeless, helpless, poor and immigrants.

the effect of the international financial system crisis on the islamic economy & islamic banks:

many people are asking themselves: what are the effects of the international financial system crisis on the islamic banks, islamic financial institutions, the islamic investments and the islamic finance institutions?

the opinions of the islamic economists and the experts of the islamic institutions should not just react to the financial and banking international crisis; contrary, they should highlight the islamic economy rules and regulations and demonstrate the applications thereof by ensuring that such crisis was a natural result for the incompliance with the islamic economy rules and regulations. we will take this topic in detail in the following paragraph and will concentrate on the rules of security and stability in the islamic financial and economic system which guarantees avoiding such crisis.

the rules & regulations of the security & stability in the islamic economy:

the islamic financial and economic system and its financial institutions are relying on several regulations which guarantee stability & security and reduce the risks resulting from the man-made regulations which rely upon the interest system and the financial derivates. here are the most important rules & regulations:

first: the islamic financial and economic system depends on set of values, virtues and morals like: trust, credibility, transparency, clearness, facilitation, cooperation, integrity and solidarity. this set of values and morals are the main guarantee for achieving the security and stability for all clients. the islamic sharia prohibits the financial and economic transactions which depend on deception, lies, gambling, fraud, prejudice, ignorance, exploitation, monopoly, greediness, injustice and taking the money of people wrongfully. the compliance with the islamic morals and values is considered a worship to allah the almighty which entails reward from allah and regulates the manners of the muslim, whether he was producer or consumer, seller or buyer, and whether in case of activity or stagnancy, stability or instability.

second: the islamic financial and economic system depends on the principle of sharing profits and losses and the actual negotiation and exchange of money and assets under the islamic regulations which ensure realizing the permissible benefits, the actual interaction between the businessmen, money makers, and expert and working under the rules of justice, right and exert all-out efforts to reduce the severity of any crisis; therefore, there is no party who is always winner and there is no party who is always loser; it is the just sharing of profits and losses.

the economists and scientists of the islamic economy have set up a group of islamic investment and finance contracts abiding with the islamic regulations, such as: finance by way of speculation, sharing, murabaha, istesna', salam, ijara, muzara'a, musaqa and otherwise (for more information, kind visit the website of dar al mashora www.darelmashora.com).

the islamic sharia has prohibited all finance contracts by way of investment depending on the loans and interests which are considered one of the main reasons behind the current international financial crisis.

third: the islamic sharia has prohibited the financial derivates which depend on delusive transactions, prejudice and ignorance. the scientists of the islamic economy considered such transactions as prohibited gambling.

moreover, the experts and scientists of the man-made economy confirmed that one of the reasons of the international financial crisis is the financial derivates system because it does not motivate or create actual economic development; contrary, it is a bad mean for earning money and causes inflation & rise in prices. consequently, this will cause bad morals and will accelerate the collapse of the financial institutions which depend on such system, exactly like what happened to the markets of east asia countries.

fourth: the islamic sharia has prohibited all kinds & forms of selling debts against debts, like: discounting bills and the post date cheques. moreover, the islamic sharia has prohibited the system of re-scheduling the debts against increasing the interest rate. the prophet – peace be upon him – prevented selling debts against debts.

moreover, the experts and scientists of the man-made economy confirmed that one of the reasons of the international financial crisis is trading in debts by certain financial brokerage companies.

fifth: the islamic financial and economic system is depending on the principle of facilitating the repayment by the debtor who is not able to repay for reasons beyond his control. allah the almighty said: {and if the debtor is in a hard time (has no money), then grant him time till it is easy for him to repay, but if you remit it by way of charity, that is better for you if you did but know} (al-baqara: 280).

the experts and scientists of the man-made economy emphasized that one of the main reasons behind this financial crisis is the inability of the debtor to repay, increasing the interest rate by the creditor or revolve the loans with higher interest rate or against mortgage on the debtor, then the creditor will leave the debtor homeless, helpless and will cause social and human difficulties causing several psychological, social, political and economic problems.

applying the islamic economy rules & regulations is the only way out of this crisis:

the results of analyzing the current financial crisis demonstrated that the crisis was the outcome of the following man-made regulations:

the interest system (riba) on the deposits and paying interests on the loans.

trading in debts.

scheduling the debts by increasing the interest rates against increasing the repayment period.

debts sale system.

the financial derivates system which depends on the probability and luck.

the islamic economy, with financial institutions and banks, prohibits all of these systems which were the main reasons behind the current crisis and the main source of contradiction with the natural attitudes of the human being and their legal rights.

the islamic sharia has prohibited the system of imposing interests on the loans and credits and permitted the finance and investment on the basis of profits and losses sharing.

the islamic sharia has further prohibited all forms of prejudice, ignorance, deception, fraud, lies, rumors, exploitation, monopoly, taking the money of people wrongfully and emphasized on honesty, trust, clearness, demonstration and transparency.

summary: the rules & regulations of the islamic economy are the only way out of the crisis

when the people comply with the rules and regulations of the islamic economy they will find their way out of this serious crisis. allah the almighty said: {if there comes to you guidance from me, then whoever follows my guidance shall neither go astray, nor fall into distress and misery * but whosoever turns away from my reminder (i.e. neither believes in this quran nor acts on its orders, etc.) verily, for him is a life of hardship, and we shall raise him up blind on the day of resurrection}(taha: 123, 124. he said also: {allah will destroy riba (usury) and will give increase for sadaqat (deeds of charity, alms, etc.) and allah likes not the disbelievers, sinners} (al-baqara: 276).

a call to the economists, money-makers & businessmen

to the scientists, experts and judges who wish to reform the man-made financial and economic systems which caused the misery & misfortune to the human beings and caused serious crisis every time and then, hurry up to the islamic sharia, the islamic rules and regulations, the religion of guidance, mercy and charity. allah the almighty said: {indeed, there has come to you from allah a light (prophet muhammad pbuh) and a plain book (this quran) * wherewith allah guides all those who seek his good pleasure to ways of peace, and he brings them out of darkness by his will unto light and guides them to a straight way (islamic monotheism)}(al-ma'eda: 15, 16).

to the economists, money-makers and businessmen, hurry up to the islamic economy, its rules and regulations. it is the only way for security, stability, prosperity and development. avoid dealing in riba (usury & interests) which is the most vicious evil in the financial and economic transactions so that you can spare yourselves the consequences of the war with allah the almighty & his messenger. allah said: {o you who believe! be afraid of allah and give up what remains (due to you) from riba (usury) (from now onward), if you are (really) believers * and if you do not do it, then take a notice of war from allah and his messenger but if you repent, you shall have your capital sums. deal not unjustly (by asking more than your capital sums), and you shall not be dealt with unjustly (by receiving less than your capital sums)} (baqara: 278, 279).

to those who wish to reform the international banking system, hurry up to the islamic banking system. the scientists and economists confirmed the failure of the international banks which deal with usury and interests. allah the almighty said:

{allah will destroy riba (usury) and will give increase for sadaqat (deeds of charity, alms, etc.) and allah likes not the disbelievers, sinners} (al-baqara: 276).

the prophet – peace be upon him – said: (if adultery and usury "riba" prevail in any country, allah the almighty will destroy it)). [narrated by abu ya'la from abdullah bin masoud].

a call to all muslims

to the people who are confused in their life, straying in darkness of the nights, hurry up to islam again.

to those who wish to reform society and get rid of its problems, difficulties and rescue it, hurry up to islam.

to those who are standing at the door of reform and hesitant about the right way to be taken, hurry up to islam.

to those who were confused with means and lost their aims, hurry up to islam, it is the right way.

to those who spent their life in fruitless experiments under the instructions of hesitant minds and confused thinking, hurry up to islam.

to those sincere & faithful people, hurry up to islam. 

to all of you, i address this quranic call:

allah the almighty said: {o people of the scripture (jews and christians)! now has come to you our messenger (muhammad pbuh) explaining to you much of that which you used to hide from the scripture and passing over (i.e. leaving out without explaining) much. indeed, there has come to you from allah a light (prophet muhammad saw ) and a plain book (this quran) * wherewith allah guides all those who seek his good pleasure to ways of peace, and he brings them out of darkness by his will unto light and guides them to a straight way (islamic monotheism)} (al-ma'eda: 15, 16).