[GJM] Fw: “Islamic Economics”–Islam less, economics more-1 & 2 MUST READ

[Dr.Muhammad Mukhtar Alam]

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--- On Mon, 14/7/08, javed jamil <doctorforu123 at yahoo.com> wrote:

From: javed jamil <doctorforu123 at yahoo.com>
Subject: “Islamic Economics”–Islam less, economics more-1 & 2 MUST READ
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Date: Monday, 14 July, 2008, 6:48 AM







In His Name
Scientific and Social Theories
Derived from Quran-63
By
Dr. Javed Jamil
Executive Chairman
International Centre for Applied Islamics
India
Part 3
Theory of Economics – 19
 
“Islamic Economics” – Islam less, economics more-1
 
“Islamic Economics” is of course an attractive term, not only for the pious who want to be governed by the Shariah but also for the non-Muslims who aim to cash in on the Muslim proclivities. We are living in a world where economic fundamentalism rules; it is an ideology based on the supremacy of economics in the world affairs. Now that the economic fundamentalism almost everywhere in the world is practiced as market economics, markets are the ultimate judges of what is good or bad for society. If something suits the markets, even the human weaknesses can be commercialized to the hilt; if something threatens the market, it cannot be allowed even if it protects society from medical and social hazards. Morality and healthiness have no standing in the face of profitability. When I penned “Islamic Model for Control of AIDS” in 1996 and included circumcision as part of the programme to control AIDS, along with an effective campaign against promiscuity,
 prostitution and pornography, I was ridiculously asked by a Hindu sociologist, “Do you now want to circumcise all Hindus?” “Yes I want”, I replied, “because it can protect them against a killer disease.” “No way”, he retorted. “But my dear friend”, I argued with him, “you will see that out of all the components of my programme, circumcision is the only one that will be accepted by the world bodies in due course of time. All others will be rejected.” He looked amused and asked, “Why?” I told him that circumcision would be accepted because it was the only component not detrimental to the interests of the market; it could in fact open a new business. Other components like ban on prostitution and pornography would never be accepted because any such ban would mean a death blow to a number of trades. After about 8 years of the publication of that book, the WHO accepted circumcision as part of AIDS control programme. On the other
 hand, sex trade has grown ten times in that period. 
 
Recently one of my friends had a long argument with me about my theory of economic fundamentalism. I was explaining to him how economic fundamentalism was fusing with different ventures to give rise to new programmes and concepts. He wanted some examples. I told him that the latest is what we were witnessing right now in India: fusing of economic fundamentalism with Cricket to produce IPL 20-20 bonanza. He asked me if there was any way religion that can be fused with economic fundamentalism. “Why not”, I told him, “if you ask for the complete fusion of a religion with economic fundamentalism, the result is the fusion of Hinduism with economic fundamentalism leading to the religion of Rajneesh.” “Can there be a fusion of Islam with that also. “ “Yes, it is already in the progress at a partial level.” He jumped in his chair, “where and how?” “Though there are many smaller examples” I said, “the most glaring one is what is being
 called Islamic Economics. It is no wonder that not only Muslim corporate are leaving no stone unturned in making it a hit, the non-Muslim market forces have realized its great potential, and one country after another is planning to introduce Islamic economics as soon as possible. Muslims after all are no small community. More than 1400 million people and more than half living in wealthy countries – how can such a big junk of consumers can be ignored?” 
 
That “Islamic Economics” is a tiny part of the true Islamic Economics and is growing only because it befits globalization will be examined shortly. But the truth remains that, whatever the reasons may be, it is growing fast.. According to, Saleh Kamil, a prominent Saudi businessman and a pioneer in the field, Islamic banking is growing at an annual rate of 35 percent worldwide with assets of Islamic financial institutions amounting to a staggering $600 billion last year. There are more than 470 full-fledged Islamic banks and financial institutions around the world. “Their number rose from 276 in 2005 to over 470 in 2007, Islamic banking, which started as experiments of individuals like Prince Muhammad Al-Faisal and Kamil, the founding chairman of the Jordan Islamic Bank for Finance and Investments, the Arab Union Investment Company of Egypt and the Islamic Arab Insurance Company, has now become a full-blown industry recognized by international
 bankers and economists. There are more than 300000 employees working in the Islamic financial institutions.  A report entitled Islamic Banking: Is It Really Kosher?by Aaron MacLean says:
“A. Hassan of Deutsche Bank predicts that Islamic finance will be the world’s fastest-growing banking sector for years, based on what he calls a modest estimate of 20 percent annual increases in deposits…. Governments are getting in the game, too: Japan is planning to become the first non-Muslim country to issue sharia-compliant bonds; the UK, Gordon Brown announced last summer, is revising its laws to make London the “gateway” for Islamic finance in Europe; and Malaysia has proposed substantial tax incentives in its 2007 budget for its Islamic financial sector. …..Deutsche Bank, Chase, and HSBC, the giant London-based financial institution with an extensive presence in Asia, have all entered the sector within the last ten years. Their moves coincide with rising oil prices, echoing a phenomenon three decades ago. When the 1970s oil boom gave Muslims and their governments wealth that seemed barely countable, Islamic financial institutions
 bloomed: the Islamic Development Bank (1975), the Kuwait Finance house (1977), the Faisal Islamic Bank of Egypt (1977), the Jordan Islamic Bank (1978), and others. In 1979, Bank Misr, a conventional financial house in Egypt, became the first mainstream bank to build a halal subsidiary, which in the late 1990s began to attract more capital than its chief domestic competitor, the Faisal Islamic Bank…..Oil prices and religious fervor are both on the rise again. This time, Western financial firms have noticed that you don’t have to be Islamic to bank in accordance with sharia. All you need is a board of religious scholars to approve your operation. Muslim is as Muslim does.”
The last remark in the report sums up what “Islamic Economics” is all about. As we will see below, “Islamic Economics” is only a tiny portion of True Islamic economics, the portion that is acceptable to Muslim and non-Muslim protagonists of globalization, and should better be called “Muslim Economics”. True Islamic Economics has to be an economic system for the whole world, the current model of Islamic Economics is nothing more than a world economic system for Muslims. If Muslims are celebrating, it is only because it is helping some of them in reaping huge benefits and is satisfying the religious concerns of some others, for whom Islamic economics is nothing more than an interest-free economy..
To understand the true nature, scope and extent of the Islamic philosophy of economics however, we will have to discuss in detail what Quran intends and how the aims of Islamic philosophy are different from the current philosophy.
1.    The current economic philosophy that rules the world revolves around economic fundamentalism, which dominates all the spheres of life. Its overriding influence can be seen in all the programmes at every level and in every field. Islamic economic philosophy is based on the supremacy of peace, which is a comprehensive state covering individuals, family and society; human peace, health, security and welfare are the guiding factors, and howsoever strong are the economic reasons, any activity that threatens comprehensive peace cannot be permitted. 
2.     In Islam, economics cannot be seen or developed separately from the grand objectives of the system; the economic system has not only to work within the framework of Fundamental Rights, Fundamental Duties and Fundamental Prohibitions but has to play a proactive role in achieving those objectives. In the current economic scenario, market forces rule and play the most decisive role in determining what is good or bad for society; their interests are often directly opposite to the interests of a healthy, secure and peaceful society.
3.     In Islam, all actions are economic activities but it makes a clear distinction between prohibited, undesirable, desirable and highly desirable activities depending upon their effects on society. An activity that is prohibited cannot be allowed to take place; if it takes place, the culprits will have to be punished in accordance with the procedure of Law, the punishment being proportional to the dangers posed by the activity. In the current international system dominated by the market, only an activity that is supportive of the market interests is a desirable economic activity; other activities are either totally disregarded or are given minimal importance. I will give a few interesting examples. Suppose, a patient comes to a doctor friend and receives medical care worth 20 dollars. But the doctor obliges him by not taking any charges from him. In return, the patient, a Car mechanic, rectifies his car, an activity for which he would normally
 charge 20 dollars. But he obliges his doctor friend by not charging anything. Now, these activities will not find any place in the Gross Domestic Product of the country, as no currency has been exchanged. If on the other hand, the mechanic would have given the doctor 20 dollars and the doctor would have given the mechanic 20 dollars, an economic activity of 40 dollars would have been recorded. If a woman serves food to her husband, she performs no or an insignificant economic activity but if she serves food to a customer in a hotel, this becomes a significant economic activity. If one sleeps in one’s own house, howsoever palatial it is, he does not perform a significant economic activity, but if he sleeps in a hotel, howsoever cheap it is, it again becomes a significant economic activity. 
4.     The aims and objectives of Islamic philosophy of economics are for the whole world, not just for the Muslim world. Its aims are: (1) To ensure the overall peace in society at every level: individual, family, national and international; (2) To ensure that no individual or group of individual indulges or is made to indulge in any activity that is dangerous to their own health or the health of others or for the general level of peace and security of society; (3) To ensure that all the activities are duly rewarded in accordance with their benefices for society or punished in accordance with their hazards. (4) To ensure that while individuals are given adequate freedom to engage in economic activities of their liking, society acts proactively to reverse any large scale disparities and prevent all forms of exploitation; (5) To ensure that the disabled, the less privileged, the needy and the ones who sacrifice themselves for larger aims are duly
 protected, socially and economically; (6) To ensure that the diverse abilities of individuals are given societal and economic support.  
Unfortunately, “Islamic Economics” has been reduced to Islamic finanaces meant for Muslims and has failed to address the needs of the world. An article, “ Islamic economic jurisprudence”, appearing on Wikipedia and “Islamic Economics” says:
“Islamic economics is economics in accordance with Islamic law. Islamic economics can refer to the application of Islamic law to economic activity either where Islamic rule is in force or where it is not; i.e. it can refer to the creation of an Islamic economic system, or to simply following Islamic law in regards to spending, saving, investing, giving, etc. where the state does not follow Islamic law.” The definition fails to capture the Quran’s philosophy of economics and does nor indicate the basic aims of the Islamic economics. In the following definition, I have tried to capture the true nature of Islamic Economics:
”Islamic Economics refers to the establishment of a world order where people, individuals or groups, are free to earn their livelihood through rightful use of the provisions of God and their abilities, natural or acquired, without the violations of the true goal of Comprehensive Peace that Quran envisages, that is within the boundaries of the three-dimensional system of Fundamental Rights, Fundamental Duties and Fundamental prohibitions, and the establishent of a system that ensures comfortable living for each and every human being including those who are in a disadvantageous position, temparily or permanently, due to some reason.”
It needs to be emphasised that economics is not just about the currency but isalso about the work and services; it is not just about the goods and services produced by the big idustry but also about the services of all kinds and goods of all kinds produced by all the individuals and all the groups, small or big; and it is not just about the calcualtion of Gross Domestic Product, Annual Growth and Per Capita Income but also about the effects produced on individual’s health, family peace, social order and mational and international peace. The position taken in the above statement is quite different from the current international definitions of economics as well as from the so-called Islamic Economics. The modern economic system dominated by market economics is not ready to accept anything that restricts its functioning, does not care about the adverse effects of  economic activities and is not interested in helping the needy at the cost of the interests
 of the market; if it makes any concessions it is only for political reasons so that their position does not face any substantial challenge from society. “Islamic Economics” on the other hand is nothing but the continuation of the modern economic system with minor adjustments to suit the religious requirements so that the money of Muslims can be attracted and the clerics are kept in good humour. Islamic finnace simply  involves legal tricks to make it look compatible with Shariah in finer details without changing in any substantial degree the economic philosophy behind the system, which continues to be nearly the same as that of the market economics. It is only a legal exercise, nothing better than the other famous Shariah tricks like Halala and Tamleek. The effects of such a financial system, especially in absence of a coexistent fiscal policy based on the spirit behind the Quranic directives, are only marginally if at all different from that of
 the modern finnacing systems. In addition, it is an abysmal failure in influencing in any way the direction of the globalisation, which revolves around the commercialisation of not only human strengths but also of human weaknesses.
(Note: Tamlik is a dubious method used by Islamic clerics and madrasas to use the collected funds in a way that their use is justified on the basis of Sharaiah. The collected amount is packed in a bag and the bag is gifted to a poor but loyal person who knows in advance what is expected from him. He is then asked to sell the bag to the madrasa for a paltry sum. Now as the madrasa has purchased the bag, it can use the money the way it likes. Halala is another method to take back a divorced wife to justify the Quran’s directive that after three divorces a woman cannot be taken back by her divorcing husband except if she happens to marry another man and he happens to divorce her. Now Halala is an exercise in which the divorced woman marries a man who knows what is expected from him. After some tine, often within days, he divorces her and thus makes her legally acceptable for her former husband. Similar legal tricks are used in Islamic Finances, which will
 be discussed later in this work. In short, all these are the legal tricks that follow the shariah in letter but kill the spirit behind the letter.)
We will return later to the full-fledged development of the Theory of Peace Economics based on the Quranic principles and its application in the current world. We will also see that the present day Islamic Economics is mainly related to microeconomics while macroeconomics is totally ignored; furthermore it is being presented for Muslims without any serious attempt to present an alternative Economic model for the world. First of all, we will focus on banking, stock market, tax system and the price mechanics. Rather than studying the technicalities, we will try to focus on the political aspects,  hidden motives, ultimate aims and the effects of the systems. We will then try to develop the basic concepts of an alternative socio-economic system based on Quranic teachings. 
Note of caution
I will like to clarify that I am not trying to undermine the positive developments taking in the field of Islamic Economics. However, if Quran’s philosophy has to dominate, much bigger and more revolutionary steps will have to be taken without which Islamic Economics will only remain an eywash aimed at getting the support of clerics. 
To be continued…
Send comments and suggestions at javedjamil at rediffmail.com
 
 
In His Name
Scientific and Social Theories
Derived from Quran-64
By
Dr. Javed Jamil
Executive Chairman
International Centre for Applied Islamics
India
Part 3
Theory of Economics – 20
 
“Islamic Economics” – Islam less, economics more-2
 
 
MONOPOLISING ECONOMY THROUGH BANKING: CONVENTIONAL AND “ISLAMIC”
 
                   It will not only be unrealistic but absolutely nonsensical not to recognize the importance of economics and to deny it its rightful place. Economics can be called the digestive system of the world. The digestive system, beginning from tongue and ending and anus, is an essential part of the body; for it is the supplier of energy to various organs. But, it would be disastrous to impart the functions of the heart and brain to it which unfortunately the economic fundamentalists are hell-bent upon doing. Still more disturbing is the fact that not only the capitalists but also the socialists tend to put economics at the top of the agenda, though their motives are contradictory. And still more unfortunately, the champions of “Islamic Economics” have done little to stem the tide. They have been busy in trying to make adjustments in the current economic model so that the religious sensitivities of Muslims are kept in
 control. The capitalists adopted economic fundamentalism as their central ideology, their sole aim being to exploit the needs, desires and weaknesses of human beings to enhance their own economic status. They never had any genuine concern for human plight and, whatever sympathy they pretended to possess, was aimed at silencing the critics, vanquishing socialism and serving a long term or short term purpose. The socialists had genuine concern for the lot of the common man and endeavoured for their economic empowerment through equitable distribution of money. The extreme form of socialism, communism, had Soviet Union and China as its best representative. Both manifested initial successes in terms of economic development as well as equitable distribution of wealth. Till the time the revolutionary fervour was at its zenith, the men controlling the government had dedication and turpitude was not rampant, things did not go awry. But, the system was bound to
 show decadence with the passage of time as the revolutionary fervour is always short-lived, and because the system itself had the propinquity to ignore the humanness of human beings. Communism dealt with men not as men but as machines who had no choice but to work in accordance with the commands issued by their superiors; they had neither the right to own nor the right to earn privately; their future was planned and their needs determined by the state. Thus they had very few personal rights and the burden of duties was exacting. As there were no incentives for work, entrepreneurship did not exist. Furthermore, Socialism too did not understand the true meaning of Peace and for them it was limited to equal distribution of wealth. People slowly lost interest in work. Religion was dispatched into oblivion at the time of the Revolution; the people had no spiritual aims. Despondency prevailed in society and immoralities took control of the lives of the people
 Alcoholism destroyed the character; an overwhelming percentage of people in Russia became addicted drinkers; they drank even at the time of work. The production suffered heavily shattering the entire economy. The confederation of nations that acquired the superpower status began to crumble. The other superpower fished in troubled waters, ultimately leading to the disintegration of the Soviet empire into several small sovereign states. China did not suffer the same fate, because it succeeded in keeping moral corruption in check and made certain essential modifications in its economic structure, opening it in some sectors. 
                   The capitalists steadily gained successes, because they did not hesitate in using every possible trick, every method of exploitation and all possible means--good, bad, legal or illegal, and moral or immoral for their growth. As has already been elaborated, their fundamentalist approach had modified every department of social and political life. They had succeeded in popularising secularism and democracy, which gave them immensely greater space to manoeuvre. The marginalisation of religion and remodelling of social values had opened new vistas for their growth. While, they persisted in their endeavours to transform the whole of society into either the consumers or the consumed, they also took well-calculated steps to monopolise wealth by restructuring the economic system. The plan comprised liberalisation of economy, popularly know as laissez faire, adopting of a tax system that helped the cause of the industrialists
 and not that of the common people, establishment of a banking system and stock exchange that mobilised public money for their use, construction of  such economic structures as would accelerate the upward mobility of wealth (from the poor to the rich), complicating the science of econom­ics so that the common people, not even the intelligentsia, except the experts, can comprehend what happens at the economic level, using the economists to devise such criteria of economic development as suit their strategy and multiplication of demands by transforming treachery, dishonestly and falsehood into art.
                   From the above-mentioned components of the plan, it is evident that the ultimate goal of the economic fundamentalists is to concentrate, as much as possible, the wealth of the whole world into their own hands. “Islamic Economics” did hardly do anything significant to reverse this trend, as it failed to apply zakah system as the basis of Tax system and could not challenge the commercialisation of human weaknesses, use of Stock markets and banks in helping the monopolisation of wealth, any significant steps to redefine inflation and its use in the increase of the wealth of the rich, redirection of wealth to morally and religiously beneficial activities and regulation of the velocity of circulation. 
 
Banking System: the politics behind
 
One significant step taken for the purpose of monopolising money in the hands of a few was the establishment of the banking system. The banking system-- private or nationalised has hardly helped to bring about the economic betterment of the poor. It has done just the contrary. The little money that the labourers, the artisans, the peasant the clerks, the lower middle class people and the upper middle class servicemen are able to save by curbing their desires and curtailing even some essential expenses is mostly deposited in the banks. The businessmen get hold of this mammoth money, (which becomes mammoth because it is contributed by millions and billions of peoples) in the form of loans to establish mills, factories, agencies, departmental stores and companies. With this money, they earn huge profits, ranging sometimes from 50 to 300%. A very small portion, usually between 8- 15%, of what they amass is given back as interests to the banks, and a smaller
 portion, 4- 12%, of that interest is distributed among the real owners of that money. This small interest is used as a decoy to trap the naive commoners. The common people have no other option as their money is not big enough to be turned into an asset (gold, property) or to set up any business, and the security problems compel them to put their hard-earned money into the reservoirs of banks. If the ordinary people even contemplate to start their own business with the assistance of bank loans, they either fail to fetch it on account of their inability to submit sureties or if at all they succeed in getting some loans, they have to run the great risk of getting entangled into a debt-trap; for their incomes are usually not high enough to simultaneously fulfil their routine requirements and pay regular instalments to the bank. In case their business fails, the probabilities of which are considerably high in the face of hard competition with the big
 businessman, they do not have sufficient financial backing to make up for the losses; they often have to clear their loans by selling whatever little assets they have. So, in effect, even if it is conceded that the banks do often give loans to small businessmen and professionals, it often ends up in their losing whatever wealth they had. Moreover, the loans too are more likely to be given for those activities that ultimately benefit the big industry, like for purchasing cars, motorbikes and other electronic items. The private banks, wherever they exist, accentuate this upward mobility; for, while the incomes from the nationalised banks is utilised, at least, partially, for the welfare activities, the whole profits of the private banks are credited to the owners. The industrialist, themselves do not believe in keeping the majority of their money in the banks; they either invest in profitable ventures or convert it into movable or immovable assets, the
 cost of which keeps on rising. These assets prove to be of great utility in procuring further loans. Their business continues to expand with the help of people’s money and the value of their assets continues to show an upward trend. Inflation, which is the outcome of the conspiracy by the industrialist and their cronies in the government, ensures that whatever they pay as interest on the loans (and taxes) is compensated and whatever the public gets as interest on their money is more or less recruited; inflation recycles the money back to the industrialists. The poor account holders, in effect, get virtually nothing, while with their money the big businessmen and of course the bank owners build palaces and companies. In short, banks have become mere vehicles for transferring wealth from the less-moneyed to the more-moneyed. Businessmen also run big financial companies where again the depositors' money is used to give loans at much higher rates of
 interest to those seeking it. Finance companies do not only earn themselves but also help the industries by increase in sales of consumer items of all kinds including vehicles, air conditioners, TVs and refrigerators. The insurance companies are also booming; these companies are able to compete with banks, because they cash in on the personal fears of the people. The common men are always wary of accidents and sudden deaths, and to ensure financial safety for their survivors, they oblige the insurance company despite the fact that these companies often pay inter­ests even less than what the banks do. 
 
It is also important to note here that banks can normally do a business ten times of the deposits they have. This is because Central Banks can provide them ten times the money they have as their deposits. This means that if a depositor deposits 100 dollars in a bank, the bank can be earning 60-90 dollars from that money in one year. And out of this the poor depositor gets just 5-10 dollars, 4 to 10 percent being the normal “interest” in different categories. More often than not, this gain does not even cover the annual inflation rate. The net gain to the depositor is almost none. And when the depositor happens to be a Muslim, the clerics tell him that these few dollars are Haram for him, as they are “interest” forbidden by Islam. Instead of banks being told to give a substantial portion of their earnings to the depositors, depositors are told not to use this money for their personal needs; even if they give it to the poor, this money will neither
 be included as any form of charity nor should they hope for any reward in the Hereafter.
 
Interests of banks: is it Ribah
 
Quran has expressly forbidden ribah. But, can we describe the interest given by banks as ribah? Both, interest and profit are the amounts taken in excess of the original amount. Normally, it is argued that interest is the amount taken not for services or exchange of goods, which is called profit, but just for providing money. This is an oversimplification. Money in the form of currency is nothing but a replacement for a service or good, the value of which is determined by the authorities governing society. If, instead of money, a lender for example gives 100 kg of wheat and takes back 120 kg after a year, will it not amount to interest? “Interest” in fact involves exploitation of the needy who takes a loan out of his specific need and not for making profits; if the component of exploitation is missing, it cannot be called ribah.   The ribah declared forbidden in Islam and the “interest” in the banking system are totally different in
 implications.  Banks involve two types of interests: one given by the banks to the depositors and the other taken by the bank from the loan takers.  In the first case, as has been seen above, the money is given by the depositor to the bank on the conditions determined by the bank, and the banks earn huge profits out of that money. The one that gives the money is therefore not in advantage but the one who takes the money. It is the latter that exploits the former and gives very little in return. That very little is normally not even enough to meet the rate of inflation during that period. Ideally the depositors should have been given at least half the amount earned by the bank; but the banks multiply money in astronomical terms and give attractive salaries to those working for them; the poor depositor gets virtually nothing but a guarantee for the capital. And the Islamic clerics tell him that whatever he takes as “interest” is forbidden for him
 because banks have named this surplus amount as “interest”..  The second case that is the case of banks giving loans to the loans-seekers involves two types of situations. One is, which the case in most situations is, the loans are given to those who are taking them not for meeting some urgent necessity but for doing business or for buying some item of luxury. In most of such cases, they take loans not out of compulsion but either to avoid taxes or to increase their turnovers and assets. They know that they will make more profits than the interest they pay. The big business maintains inflation, as it helps them increase their turnovers and neutralise the interest they have to give to banks.  In these cases, neither the lender nor the loan taker is exploiting the other. In small number of cases, the loans are taken for the purpose of earning some livelihood or for same urgent needs. These are the cases that mostly suffer and often are unable to pay
 their loans in time; often they are deprived of whatever they had given to banks as mortgages. Except the last one, all the other situations hardly fall in the category of “interest” because the component of exploitation by the giver is missing. 
Another argument given by the proponents of Islamic Banking is that of the sharing of profit and loss. Superficially, it looks plausible; but banks are smart enough not to share them equitably. They hardly give money for something where the risks are palpable; they are of course more than eager to share which the depositors any losses that banks can suffer. So the PLS is more a guarantee to the banks than to the people. 
 
It can be seen that the international banking sector is a big vehicle in the upward transfer of money from the less moneyed to the more. It helps the big business by 

Giving them loans that help them swell their coffers;
Giving loans to the common people for buying the luxurious products, which again helps the big business;
Helping them in preserving their immovable assets, the value of which increases with higher rate than the rate of interest.
 
Islamic Banks fail to revert, even slow down any of the above trends. Neither do they play any role in diminishing Economic disparity nor any significant role in promoting Desirable trades and services. They are also unable to provide significantly bigger profits and lesser charges than the conventional banks. There are no net gains for the people except that they have got something which the clerics have declared Halal. Instead they join the party just by playing some dubious legal tricks to make the transactions look Shariah-compliant. Let us have a look at these tricks. These are aimed at undoing “interest” and giving consideration to the element of risk by introducing Profit and Loss Share. They have been given attractive Arabic names with attractive English substitutes. 
Some of these concepts are as follows:
(a) Musharaka
Here a bank makes an agreement with another entity to set up a joint venture. Both parties participate in the various aspects of the project in varying degrees. Profit and loss are shared in accordance with a pre-arranged agreement. This is not very different from the joint venture concept. The bank may withdraw gradually after an initial period. 
(b) Mudarabha
Here the bank provides the finance required while the client provides the expertise, management and labour. Profits are shared by both the partners in accordance with a pre-arranged proportion. The notable condition is that when a loss occurs the total loss is borne by the bank. This is another matter that banks are normally too clever to let this happen.
(c) Financing on the basis of an estimated rate of return
 Under this scheme, the bank makes an estimate about the expected rate of return on the specific project it is asked to finance and provides financing on the understanding that at least that rate is payable to the bank. If the project ends up in a profit more than the estimated rate the excess goes to the client. If the profit is less than the estimate the bank will accept the lower rate. In case a loss is suffered the bank will take a share in it. It is to be noted that the major decisions are being taken by the bank and clients are normally not in a position to dictate terms.
Trade financing 
This is also done in several ways. The main ones are: 
a) Mark-up 
Here the bank buys an item for a client and the client agrees to repay the bank the price and an agreed profit later on. This is nothing more than a trick and does not have any advantage for the client over what he has in conventional banks. Suppose a person wants to buy a car. Conventional banks will allow him to buy it and give him the required money. He will then pay an extra amount labeled as “interest”, the total amount to be paid within a specified period. Islamic banks will buy the car itself, will then sell it to the client at a higher price, and an agreement will take place binding the client to pay the price within a specified period. More often than not, the sale-purchase takes place only on the paper.
 b) Leasing
Hhere the bank buys an item for a client and leases it to him for an agreed period and at the end of that period the lessee pays the balance on the price agreed at the beginning an becomes the owner of the item. This again is nothing but a trick to satisfy the shariah without any real benefit to the client.
 c) Hire-purchase 
Here the bank buys an item for the client and hires it to him for an agreed rent and period, and at the end of that period the client automatically becomes the owner of the item. Again, nothing more than a legal trick.
d) Sell-and-buy-back 
Here a client sells one of his properties to the bank for an agreed price payable now on condition that he will buy the property back after certain time for an agreed price. In this also the difference is only in the names of the amounts.
e) Letters of credit 
Here the bank guarantees the import of an item using its own funds for a client, on the basis of sharing the profit from the sale of this item or on a mark-up basis. 
Lending 
Islamic Banks provide loans on “no interest” basis but the truth remains that in almost all cases the clients have to pay an extra amount. Main forms of Lending are: 
a) Loans with a service charge where the bank lends money without interest but they cover their expenses by levying a service charge. 
b) No-cost loans where each bank is expected to set aside a part of their funds to grant no-cost loans to needy persons such as small farmers, entrepreneurs, producers, etc. and to needy consumers. 
c) Overdrafts also are to be provided, subject to a certain maximum, free of charge. 
In conclusion it can be said that Islamic Banks have some welcome features. First, they attract the religious minded who are otherwise reluctant to deal with banks. Second, the depositors can enjoy the ectra amount without being fearful of God’s punishment, as they are satisfied that they are not taking ribah. Third that they open a new source of income for Muslim bankers increasing the riches of at least some Muslims. This can help the economic position of Muslim community. Fourth that Muslims who find it difficult to takes loans from conventional banks or are reluctant on religious grounds can take loans from Islamic banks. But slamioc banks do not have any substantial role in changing the direction of the flow of money or giving clients any extra advantage. The supremacy of banks continues unabated and clients are in no position to influence the policies of the banks. As in conventional banks, banks take all the decisions and make rules and banks
 whatever type they are cannot be expected to be courteous to their clients.. With the highly qualified and technically equipped staff and advisors at their disposal, banks can hardly be expected to substantially share with the losses of their clients. And with the fast growing introduction of ribah-free banking by conventional banks for Muslims, the Muslim bankers will find it harder to compete. Last but least, the current Islamic Banking system is in no position to become an alternative banking system for the whole world, with which common people can deal with greater confidence and expectations of greater benefits and concessions in their transactions.  How Islamic Banks can become vehicles of significant transformation will be discussed later.
 
To be contd…
 
 



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