1. SPECIAL TOPICS IN FINANC Why has Islam prohibited interest‭
SPECIAL TOPICS IN FINANC Why has Islam prohibited interest‭?‬ Rationale behind the prohibition of interest M.Umer Chapra DONE BY Sajedah ALMARZOUQ

2. Outline Introduction ‭ ‬Establishment of justice‭
‭ ‬Interest in Islamic economics
‭ ‬The implications of justice
‭ ‬Need-fulfillment
‭ ‬Economic stability
‭ ‬Equitable distribution

3. why Islam has prohibited interest? Is there any solid rationale
Introduction international‭ ‬financial‭ ‬system‭ ‬is‭ ‬based‭ ‬on‭ ‬interest‭ ‬
why Islam has prohibited
interest?
Is there any solid rationale
behind the prohibition?

4. ‭ ‬Establishment of justice‭: ‬ the central goal of Islam
The Quran and the Sunna have both placed tremendous stress on justice, making it one of the central objectives of the sharia’a
Quran
Sunna
justice

5. ‭ ‬Establishment of justice‭: ‬ the central goal of Islam
According to the Quran, establishment of justice is
one of the primary purposes for which God has sent His prophets
The Quran places justice nearest to taqwa
Righteousness is naturally the most important because it serves as a springboard for all rightful action, including justice.

6. Injustice Risk undermines brotherhood and solidarity Conflict Crime
aggravates human problems
“Beware of injustice for injustice will lead to absolute darkness on the Day of Judgment.”

7. ‭ ‬Interest in Islamic economics‭ ‬‭ ‬
Ibn Taymiyyah
“considered justice to be an essential outcome of tawhid
or belief in one God”
Ibn Khaldun
“it is not possible for a country to develop without justice”
-pundits of development economics
“oppression brings an end to development and the end of development becomes reflected in the breakdown and destruction of the state”

8. ‭ ‬The implications of justice
Justice is a comprehensive term in Islam and covers all aspects of human interaction it relates to :
Family
Society
Economy
Polity
1.The resources provided by God to mankind are a trust and must be utilized in such a manner that the well-being of all is ensured.

9. ‭ ‬The implications of justice
2. economics one could assert that justice demands the use of resources in such an equitable manner
general need-fulfillment
optimum growth
full employment
equitable distribution of income and wealth.
economic stability are realized.

10. The main core of this paper
The humanitarian goals cannot be realized without a humanitarian strategy.
the injection of a moral dimension into economics in place of the materialist and self-indulgent orientation of capitalism.
Canceled of interest is a part of this moral dimension
P#97

11. rate of interest during the days of the Prophet,
some Muslims who try to argue that bank interest is not prohibited by Islam.
rate of interest during the days of the Prophet,
led to the exploitation
Poor people

12. is necessary to reorganize the economic system accordingly.
Financial intermediation on the basis of equity and profit-and-loss sharing is an essential part of such reorganization.

13. ‭ ‬Need-fulfillment
Financial intermediation on the basis of interest tends to promote living by the private and public sectors.
Financial resources become available to borrowers on the criteria of their ability.
financial resources go to the rich, who fulfill both criteria, and also to governments, it is assumed, will not go bankrupt.

14. Table 6.1‭ ‬Interest payments as percent of total‭ ‬ central government expenditure in some selected‭ ‬ countries‭, ‬1997

15. not borrow only for investment but also for consumption and taxes
‭ ‬Need-fulfillment
not borrow only for investment but also for consumption and taxes
not only for development and public well-being, but also build-up and white-elephant projects.

16. ‭ ‬Optimum growth and full employment
The basic ingredients for growth
Saving
investment
hard work
technological progress
creative management
government policies.

17. ‭ ‬Optimum growth and full employment
there should be a positive effect of Islamic values on saving
High-saving countries like Japan and Germany have tax systems that tend to discourage consumer borrowing.
these findings, hoped that the adoption of the profit-and-loss sharing system would help raise saving of credit to the public and private sectors.

18. ‭ ‬Optimum growth and full employment
Islam does not, however, deny a return on savings. While it
has prohibited interest, it has allowed profit.

19. ‭ ‬Optimum growth and full employment
Islamic values would tend to have a positive effect on investment. Zakat collection should also help because it
penalizes idle savings
discourages hoarding
Motivate investment.
All things being equal, this may be the only way for a businessman or an industrialist to reduce costs and raise honestly earned (halal) income.

20. ‭ ‬Equitable distribution
A number of Islamic values and institutions are directed towards making :
brotherhood
social equality
Equalize distribution a reality in Muslim countries such as zakat and the wealth.

21. ‭ ‬Economic stability which has not gone at some time such as :
uncertainties
disrupt the smooth functioning of the financial system
create financial fragility
hurt economic performance.

22. ‭ ‬Economic stability
There are a number of internal and external factors that cause volatility in the financial markets It could be
build-up of public
private as a result of relatively easy access to credit, “short-term”.

23. ‭ ‬Economic stability
is well-recognized in macroeconomic literature that the financing of government deficit by bonds or fixed-interest bearing assets promotes instability

24. ‭ ‬Economic stability
Even industrial, and not just developing, countries can face such crises if there is a heavy reliance on short-term credit or inflow of funds.
The 1990s boom in the US stock market has been to a great extent fed by short-term flows of funds just as it had been in East Asia. If these inflows dry up, or get reversed, for some reason, there may be a serious crisis.

25. ‭ ‬Economic stability
The 1990s collapse of US hedge funds like Long-Term Capital Management (LTCM), “Quantum,” and “Tiger” was also due to highly leveraged short-term lending.
for risky speculation. These funds, which are generally blamed for manipulating markets from Hong Kong to London and New York.

26. The dramatic growth in speculative transactions of which derivatives, has resulted in an huge expansion in the payments system.

27. A number of Muslim as well as non-Muslim economists have argued that the shift to an equity-oriented financial system may helps to reduce instability in the financial markets.
It has been argued that while the nominal value of deposits tends to be assured in the conventional system.

28. A further argument is that interest rate volatility defeats all efforts to create stability in exchange rates.

29. Thanks for coming and
listening =)