Another Scene of the Scene

Thursday, May 5th, 2011 | Posted by Syawal

Editor’s comment;

This post is an extension to earlier post about the Riba (interest); written once again to advise the Ummah as dangers of riba may not be apparent or it may seem that the harm will be avoidable at the time a transaction is made, but it is perilous to lose sight of the fact that Allah (swt) has declared engaging in riba to be a major sin and the consequences of disregarding the warning of the Lord and Master of the Day of Judgment are far beyond the limited vision and intellect of human beings. Read here; Riba is not the Solution.

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“Those who devour (take) usury (riba) cannot stand except as the one whom the Satan, by (his) touch, drives him to madness. That is because they say: Trade is just like riba, whereas Allah permitted trade and forbade riba. The one to whom an admonition from his Lord comes and he refrains (in obedience thereto), he shall keep (the profits of) that which is past, and his affair (henceforth) is with Allah. As for him who returns (to usury), such are rightful owners of the fire. They will abide therein eternally.” TMQ 2: 275

The Qur’an likens the one who lends money with interest to a madman. Just as a madman loses his sense on account of his disordered intellect, in the same way the lender is so obsessed with making money that he divorces himself from common sense. He is so senselessly foolish and does not mind how his selfishness and greed are cutting at the very root of love, brotherhood and feelings for fellow human beings, and destroying the common good of mankind. He does not care a bit that he is gaining prosperity at the expense of many.

“… That is because they say: Trade is just like riba, whereas Allah permitted trade and forbade riba.”TMQ 2:275

This argument is based on a theory that does not see the fundamental difference between profit and interest. Their position is this: When profit on capital is lawful in trade, why then should interest on money invested in loans be unlawful? The bankers and money-lenders of today also put forward similar arguments for charging interest. They argue that a person, who lends a sum of money to another, could himself make a profit from it and that the debtor actually invest it in a profitable business. Why should not the creditor, then get a portion of that profit from the debtor for his productive credit? However, what they forget is that there is no business in the world where there is a fixed and guaranteed profit without any risk. In trade, commerce, industry, agriculture etc., one has to spend both labor and capital, while at the same time one has to face risks, without any guarantee of a fixed profit. On the contrary, the money-lender (Bankers), who lends his capital only, goes on receiving a fixed amount of profit without any risk whatsoever. By what reasoning and on what principle of logic, justice and economics is it right for him to receive a fixed amount of profit? How can one be justified in lending on a fixed rate of interest to a business today for twenty years, when no one can say what rise and fall in price may take place in those twenty years?

To eliminate some of the wiggle room for the consumers, the 2005 bankruptcy bill was written by and for credit card companies. Credit card debt reached $735 billion by 2003, more than 11 times the tab in 1980. Approximately 60 percent of credit card users do not pay off their monthly balances; and among those users, the average debt carried on their cards is close to $12,000. This “subprime” market is actually targeted by banks credit card companies, which count on the poor, the working poor and the financially strapped to not be able to make their payments. According to a 2003 book titled The Two-Income Trap by Warren and Tyagi:

More than 75 percent of credit card profits come from people who make those low, minimum monthly payments. And who makes monthly payments at 26 percent interest? Who pays late fees, over-balance charges, and cash advance premiums? Families that can barely make ends meet, households precariously balanced between financial survival and complete collapse. These are the families that are singled out by the lending industry, barraged with special offers, personalized advertisements, and home phone calls, all with one objective in mind: get them to borrow more money.

“Payday” lender operations offering small “paycheck advance” loans have mushroomed. Particularly popular in poor and minority communities, they can carry usurious interest rates as high as 500 percent. The debt crisis has been blamed on the imprudent spending habits of people buying frivolous things, but Warren and Tyagi observe that two-income families are actually spending 44 percent less on clothing, 22 percent less on food, and 44 percent less on appliances than one-income families spent a generation earlier. The reason is that they are spending substantially more on soaring housing prices and medical costs.

In 2003, the average family was spending 69 percent more on home mortgage payments in inflation-adjusted dollars than their parents spent a generation earlier, and 61 percent more on health needs. At the same time, real wages had stagnated and declined. Most people were struggling to get by with less; and in order to get by, many turned to credit cards to pay for basic necessities. Credit card companies and their affiliated banks capitalize on the extremity of poor and working-class people by using high pressure tactics to sign up borrowers they know can’t afford their loans, then jacking up interest rates or forcing customers to buy “insurance” on the loans. People who can make only minimal payments on their credit card bills wind up being “sharecroppers” to the banks.

The supposed justification for allowing lenders to charge whatever interest the market will bear is that it recognizes the time value of money. Lenders are said to be entitled to this fee in return for foregoing the use of their money for a period of time. That argument might have some merit if the lenders were actually lending their own money, but in the case of credit card and other commercial bank debt, they aren’t. They aren’t even lending their depositors money. They are lending nothing but the borrowers own credit. This was made public because of what the Chicago Fed said in “Modern Money Mechanics”:

Of course, [banks] do not really pay out loans from the money they receive as deposits. If they did this, no additional money would be created. What they do when they make loans is to accept promissory notes in exchange for credits to the borrower’s transaction accounts. Loans (assets) and deposits (liabilities) both rise [by the same amount].
Here is how the credit card scheme works: when you sign a merchant’s credit card slip, you are creating a “negotiable instrument.” A negotiable instrument is anything that is signed and convertible into money or that can be used as money. The merchant takes this negotiable instrument and deposits it into his merchant’s checking account, a special account required of all businesses that accept credit. The account goes up by the amount on the slip, indicating that the merchant has been paid. The charge slip is forwarded to the credit card company (Visa, MasterCard, etc.), which bundles your charges and sends them to a bank. The bank then sends you a statement, which you pay with a check, causing your transaction account to be debited at your bank. At no point has a bank lent you its money or its depositor’s money. Rather, your charge slip (a negotiable instrument) has become an “asset” against which credit has been advanced. Your bank has done nothing but monetize your own I. O. U. or promise to repay. The bank turns your promise to pay into an asset and a liability at the same time, balancing its books without actually transferring any pre-existing money to you.

“Allah has blighted usury and made almsgiving fruitful. Allah loveth not the impious and guilty.” TMQ 2:276

You can see from this Ayah that Allah (swt) treats usury and charity as opposites. From the above credit card example you can easily see the contrast. When one gives in charity they take nothing in return. The practitioners of usury only take but give nothing in return.

The spiraling debt trap that has subjected financially-strapped people to usurious interest charges for the use of something the lenders never had to lend is a fraud on the borrowers. In 2006, profits to lenders from interest charges and late fees on U. S. credit card debt came to $90 billion.
From the above it becomes quite clear that even from the economic point of view, trade helps construct society but interest leads to its ruin. As for the moral point of view, interest, by its very nature, creates parasitic behavior, selfishness, cruelty, hard heartedness, money worship etc., and kills the spirit of cooperation and feelings for fellow human beings. It is therefore, disastrous for society both morally and economically.

source: www.aljunnah.com