Advantages And Disadvantages Of Riba

In the world of finance and financial services, banking has been around longer than any other segment of that world. For more than two millenniums, bankers have served as “money changers” who aided people in exchanging foreign for local currencies. As this practice grew and many began to throw their funds into the banking system, the services that banks performed multiplied. Loans were granted and bankers collected interest. Most of

The BNA was passed through British Parliament in 1867, and is the Act that produced Canadian Confederation. Nova Scotia, New Brunswick, and Canada were integrated as ‘one Dominion’.The BNA was passed to set legal bylaws for the new country, and to outline the provincial and federal government's responsibilities of Canada, and consists of other laws (i.e., Legal and Equality Rights, Fundamentals of Freedom) and acts that amended or added to the original Act as Canada became independent. Sir John A. MacDonald being a leading figure in the discussions and conferences which resulted in the BNA and the creation of Canada, also resulted in MacDonald becoming Canada’s first Prime Minister.

Similarly the selling of barley for barley is Riba except if it is from hand to hand and equal in amount, and dates for dates is usury except if it is from hand to hand and equal in amount.” (Umar). From an economical perspective, what the Prophet of Islam is referring to here is the idea that only the actual value of dates should exist in any trade transaction. For example, a bank giving out a loan for 100,000 dollars with an interest of 10% means that the 10,000 interest to be paid does not actually exist in the economy and hence to the prophet this is considered riba because the bank is gaining money out of nowhere. In the Sharia, the modern day solution to this banking issue is Islamic banking which offers; “..more just and equitable distribution of resources; more responsible and profitable lending due to the necessarily closer bank-client relationship; less volatile business cycles; and more stable banking systems.” (Evans, 1987)

The beginning of money started with barely when it became a universal measure for evaluating and exchanging all other goods and services in that time of history (181). This set the way for the modern world to use money in the same way. According to Harari “Money is accordingly a system of mutual trust, and just any system of mutual system: money is the most important universal and most efficient system of mutual trust ever devised” (180). This is the foundation on which money was built on and how it works in today’s modern world. The reason for money being such a big part of our modern world is because it “… is the only trust system created by humans that can bridge almost any cultural gap, and that does not discriminate on the basis of religion, gender, race, age or sexual orientation” (186). This quote provides the reason how money has helped the formation of our modern world. It shows how different cultures started to come together through trade of money. This is the positive aspect of the modern use of money. Even though money may have a positive effect on the trade and industry but, the principle of money itself has an evil side. It can effect someone’s traditions, relations, and human values. Many people believe that money can’t buy loyalty, love, or honor but, in today’s modern society it can. An example of this being betrayed is when Harari says,

Holley discusses three conditions for this to happen: both sides are knowledgeable; there was no compulsion on either side, and both sides were able to make rational judgments at the time of exchange (531). With these come degrees of fulfillment, the "ideal exchange" where "both parties are fully informed, fully rational" and enter without coercion; an "acceptable exchange" where "the exchange was adequately informed, rational and free from compulsion" (532). He suggests "the primary duty of salespeople to customers is to avoid undermining the conditions of acceptable exchange" (532). I believe it should go one step above this, in between ideal and acceptable, in what I call, desired exchange- an adequately informed, rational, free from compulsion and with the best intentions at heart exchange.

A bank is an institution that facilitates financial transactions between the parties. Amongst its standard operations are accepting deposits from the customers, lending money as loan (cite). The major source of income for banks is interest income which is earned on loans given to the customers, business firms and corporations. This very nature of it makes banking institutions so crucial for economic development of any country. Strong banking operations and fundamentals paves the way for higher customer and investor confidence in the company.

Traditionally, transactions in the commercial world have been approached on the basis that the parties are presumed to create legal obligations and the creation of meaningless documents are unthinkable.

Islamic banking is a structure that allows conducting banking activities and trades in line with the Islamic Shari’ah laws and principles by avoiding all the haram (prohibited) activity such as interest and financing prohibited businesses.

An interest rate is the amount of profit that is earned over a period of time, the amount of interest acquired is proportional to how much is lent or borrowed. Interest rates give incentives for business and banks to borrow and lend money in order to stimulate the economic activity in any given country. Institutions lend money to borrowers up front in order to receive more money in the future. Some factors to consider when dealing with interest rates are the currency of the amount that is lent and borrowed, the residual term, and the default probability, or the probability that a borrower will not satisfy their debt obligations. Interest rates are extremely important in monetary policy, which is an economic process that has a specific

Goods are sold by description where the purchaser is relying on the description the seller the seller is providing since he has not seen the goods.

The objectives of Islamic banking and conventional banking are similar, however, keep in mind that the Islamic banking system operating under the rule of sharia Islamic law based on the holy Quran and is guided by Islamic economics. In addition, Islamic law prohibits investing in businesses that are considered haram such as businesses that

The main difficulties of applying IFRS in Islamic countries are driven by the difference treatments of interest. Under the conventional accounting, the interest is charged commonly as compensation to the lender, while under the Islamic law, Riba, which refers to the interest, is forbidden and considered as a major sin. Prohibition on charging interest gives rise to several different treatments in Shariah-compliant companies. For instance, in Islamic banking, due to the fact that the interest is forbidden with lending or depositing of capital, in order to prevent the default, the bank may ask for strict collateral, which refers to the concept of Murabahah. In general, Shariah-compliant companies conduct on the risk-sharing principle, while the traditional accounting is more rely on risk-transfer. (PwC,

Revenue focus. Any lending model can only succeed with the injection of adequate capital. The focusing of stagnant funds on revenue effectively removes funds that could be used for lending. The challenge will be to have the lender forego a profit yielding investment. Islamic scholars have identified this predicament as a negative attribute associated with interest; it prevents the creation of interest-free loans as the lender expects to realize a gain (Al-Fawzan, 2005). The

The purpose of this writing assignment is to help you express your thoughts/findings on a subject related to Money and Banking, as well as to gain some greater confidence in the process of scholarly

The prosperity and peace of a society much or less depends on its economy. While for the smooth running of both, there are several instructions in Islamic Shariah and allows what is right and forbids what is wrong. When we talk about financial issues, Islamic Shariah strictly condemns Riba. The question may arise why Islam prohibits Riba? While it was already in practice before the advent of Islam and still it is a part of different economic systems throughout the world. It is simply because Islam gives respect to human beings and condemns all the attempts that are harmful and disgraceful for humanity. Therefore, Riba is not only forbidden in Islam but economic experts are also in search of its substitute. Since borrowing on interest rate creates several issues including: less efficient allocation of resources, indebtedness, unemployment and economic instability. While in society it causes injustices, inequity, poverty and imbalance etc. In this paper we are discussing how Riba causes imbalance in the society and instead Riba what Islam demands from its followers.