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The International Financial System Crisis in the

Perspective of the Islamic Economy


Prepared by:
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))
Index
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).