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How is interest haram when the time value of money exists?

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  • How is interest haram when the time value of money exists?

    Salam,

    I see a glaring contradiction with Islamic scholars and interest. I'll give you an example of my position, using cows and not even currency.

    I have 10 cows and someone in my village is asking me to borrow those 10 cows so that he can start a wheat farm. I said okay and pay me back in 5 years time.

    Under the current Islamic scholars, the villager is only supposed to give me 10 cows in 5 years. But If I didn't loan him those 10 cows, I could have made another 15 cows in 5 years. So in essence, the villager took away 15 cows from me. How is this right????????

    In modern terms, why should I lend my money to a business with no interest when I can gain 8-13% per year in the markets? I'll charge the business 4% interest, because loaning money doesn't require a lot of work but it has some risk. Now, I can use my time and effort to another enterprise and the other business has startup money. Everyone is better off.

    I have seen arguments saying that if we allow interest, businesses and rich people will take advantage of others. But under the free markets, if someone gives me an unfair interest rate, I can just go to another business and get a fair interest rate. The competition between banks drives the rate to the fair, market price.

    I have also seen arguments that says Muslims should do equity financing instead of loans. This means that if a business is looking for money, they sell a percentage stake of their company in exchange for the investment money. So for example, I want to open a wheat farm but I need $10,000. So I sell 25% of my business to a bank in exchange for $10,000 (which means my farm is worth $40,000). The problem is, in a few years time, my business is successful and is worth about $100,000. Now instead of owning the entire $100,000 of the company, I only own $75,000. My short term loan cost me $25,000!!! Instead, I could have asked for a 10% interest loan and only pay $4,000 in interest expense.

    Sorry for the thoroughness, but I always ask this question in forums and people keep dodging the answer with silly examples that clearly don't work. I think Allah meant that EXCESSIVE interest is haram and not interest itself. The time value of money is a scientific fact like gravity, and interest simply reconciles that fact with modern currency.

    EDIT: I realized I posted this to the wrong forum. Can mods please move this? Thank you!
    Last edited by stpablo; 12-02-20, 12:19 AM.

  • #2
    I don't understand the problem.

    ...I have 10 cows and someone in my village is asking me to borrow those 10 cows so that he can start a wheat farm. I said okay and pay me back in 5 years time.

    Under the current Islamic scholars, the villager is only supposed to give me 10 cows in 5 years. But If I didn't loan him those 10 cows, I could have made another 15 cows in 5 years. So in essence, the villager took away 15 cows from me. How is this right????????...
    Why would you agree to the transaction and then complain it's not fair?

    Comment


    • #3
      Originally posted by Abu 'Abdullaah View Post
      I don't understand the problem.



      Why would you agree to the transaction and then complain it's not fair?
      Then the only other alternative is that the villager can't start his wheat farm and now the economy is becoming stagnant. Interest allows the both parties to profit from the situation and grows the overall economy of the area.

      Comment


      • #4
        Originally posted by stpablo View Post

        Then the only other alternative is that the villager can't start his wheat farm and now the economy is becoming stagnant. Interest allows the both parties to profit from the situation and grows the overall economy of the area.
        I still don't get it. The entire economy in your village becomes stagnant because you didn't lend a villager your cows?

        Comment


        • #5
          Originally posted by Abu 'Abdullaah View Post

          I still don't get it. The entire economy in your village becomes stagnant because you didn't lend a villager your cows?
          Yes because that person would have started their farm and sold the wheat to other villages, therefore bringing in money to your village. But if I didn't lend him the cows, he would not start his wheat farm and now everyone is worse off. The economy of the village is stagnating because there is no new economic growth that would have came from the new wheat farm.

          Comment


          • #6
            Originally posted by stpablo View Post

            Yes because that person would have started their farm and sold the wheat to other villages, therefore bringing in money to your village. But if I didn't lend him the cows, he would not start his wheat farm and now everyone is worse off. The economy of the village is stagnating because there is no new economic growth that would have came from the new wheat farm.
            Wait, women and children in villages around you are going to starve because you didn't lend a villager ten cows you didn't need?

            Comment


            • #7
              Originally posted by Abu 'Abdullaah View Post

              Wait, women and children in villages around you are going to starve because you didn't lend a villager ten cows you didn't need?
              Either you are trolling or you have very low intelligence. Either way, further explanation cannot help you

              Comment


              • #8
                Originally posted by stpablo View Post

                Either you are trolling or you have very low intelligence. Either way, further explanation cannot help you
                I'm just trying to understand the necessity to generate wealth at the expense of allowing your people to go hungry.

                Earlier you said:

                ...I have seen arguments saying that if we allow interest, businesses and rich people will take advantage of others. But under the free markets, if someone gives me an unfair interest rate, I can just go to another business and get a fair interest rate. The competition between banks drives the rate to the fair, market price...
                Using this same model, if a villager, who feared Allah, didn't want an 'unfair' interest rate, he'd get the cows from someone who didn't give an interest rate at all because they also feared Allah. But there's a bigger problem. I mean, there are entire villages suffering due to a lack of... *checks*... cows, and one village hoarding a load of cows and wheat. There's something wrong there. If your first instinct is to plot ways to profit from the misfortune of your brothers and sisters then there's something definitely wrong.

                One of the ways in which the justification and legitimisation of riba manifests is through the desire to accumulate wealth at the expense of others. Don't fall victim to it.

                Comment


                • #9
                  Originally posted by stpablo View Post
                  ..The economy of the village is stagnating because there is no new economic growth that would have came from the new wheat farm.
                  Possibly so .. but the village is blessed in as much that it isn't full of greedy people and skyscrapers

                  He maketh me to lie down in green pastures; He leadeth me beside the still waters - Psalms (Zaboor of Dawood)

                  Comment


                  • #10
                    Originally posted by stpablo View Post
                    Salam,

                    I see a glaring contradiction with Islamic scholars and interest. I'll give you an example of my position, using cows and not even currency.

                    I have 10 cows and someone in my village is asking me to borrow those 10 cows so that he can start a wheat farm. I said okay and pay me back in 5 years time.

                    Under the current Islamic scholars, the villager is only supposed to give me 10 cows in 5 years. But If I didn't loan him those 10 cows, I could have made another 15 cows in 5 years. So in essence, the villager took away 15 cows from me. How is this right????????

                    In modern terms, why should I lend my money to a business with no interest when I can gain 8-13% per year in the markets? I'll charge the business 4% interest, because loaning money doesn't require a lot of work but it has some risk. Now, I can use my time and effort to another enterprise and the other business has startup money. Everyone is better off.

                    I have seen arguments saying that if we allow interest, businesses and rich people will take advantage of others. But under the free markets, if someone gives me an unfair interest rate, I can just go to another business and get a fair interest rate. The competition between banks drives the rate to the fair, market price.

                    I have also seen arguments that says Muslims should do equity financing instead of loans. This means that if a business is looking for money, they sell a percentage stake of their company in exchange for the investment money. So for example, I want to open a wheat farm but I need $10,000. So I sell 25% of my business to a bank in exchange for $10,000 (which means my farm is worth $40,000). The problem is, in a few years time, my business is successful and is worth about $100,000. Now instead of owning the entire $100,000 of the company, I only own $75,000. My short term loan cost me $25,000!!! Instead, I could have asked for a 10% interest loan and only pay $4,000 in interest expense.

                    Sorry for the thoroughness, but I always ask this question in forums and people keep dodging the answer with silly examples that clearly don't work. I think Allah meant that EXCESSIVE interest is haram and not interest itself. The time value of money is a scientific fact like gravity, and interest simply reconciles that fact with modern currency.

                    EDIT: I realized I posted this to the wrong forum. Can mods please move this? Thank you!
                    I am with you. this question always baffles me. the simple answer that somewhat satisfies me is that one should always give or take loans on money which has some intrinsic value in it like gold or diamond. If today the value of the gold you have is 100 dollars and you give it to someone as a loan for one year. After one year the person who took loan from you should return you the same weigh of gold that you gave him irrespective of what the value of that tiny gold piece is. In this way its more likely that your gold would be worth more than 100 dollars at least and you did not charge a single cent on it as an interest. Paper money is the biggest fraud with the world that west has done with the humanity. It has destroyed countries beyond imagination. We are in such a eco system that even if we want to get out of it we can not. In islam paper money has no value since paper itself is worthless.

                    I am no aalim but this is only my understanding and I can be wrong so I am free to discussion on the topic

                    Comment


                    • #11
                      Originally posted by Abu 'Abdullaah View Post

                      I'm just trying to understand the necessity to generate wealth at the expense of allowing your people to go hungry.

                      Earlier you said:



                      Using this same model, if a villager, who feared Allah, didn't want an 'unfair' interest rate, he'd get the cows from someone who didn't give an interest rate at all because they also feared Allah. But there's a bigger problem. I mean, there are entire villages suffering due to a lack of... *checks*... cows, and one village hoarding a load of cows and wheat. There's something wrong there. If your first instinct is to plot ways to profit from the misfortune of your brothers and sisters then there's something definitely wrong.

                      One of the ways in which the justification and legitimisation of riba manifests is through the desire to accumulate wealth at the expense of others. Don't fall victim to it.
                      I'm not saying one should give away their entire source of food. This was just an example. A more applicable situation would be if someone had an excess of 1-2 cows in their village that they loan out. That's how loans work, it transfers excess money from the savers to the investors. Obviously don't let anyone starve because that defeats the purpose, just loan out the cows that you don't need immediately.


                      Possibly so .. but the village is blessed in as much that it isn't full of greedy people and skyscrapers
                      This is even more startling. The fact that you would hinder your village's economic growth just for "piousness" is so detrimental in every aspect. No one is losing out, I don't understand why you think someone is being exploited. In fact, everyone BENEFITS from the loan arrangements. I have extra cows that I don't need, so I'll loan them out to someone who does. We both benefit and increase the economic welfare of our village. Is it so bad to have extra meat and bread for the villages?


                      I am with you. this question always baffles me. the simple answer that somewhat satisfies me is that one should always give or take loans on money which has some intrinsic value in it like gold or diamond. If today the value of the gold you have is 100 dollars and you give it to someone as a loan for one year. After one year the person who took loan from you should return you the same weigh of gold that you gave him irrespective of what the value of that tiny gold piece is. In this way its more likely that your gold would be worth more than 100 dollars at least and you did not charge a single cent on it as an interest. Paper money is the biggest fraud with the world that west has done with the humanity. It has destroyed countries beyond imagination. We are in such a eco system that even if we want to get out of it we can not. In islam paper money has no value since paper itself is worthless.

                      I am no aalim but this is only my understanding and I can be wrong so I am free to discussion on the topic
                      I am with you in regards to reckless money management by Western governments. It caused so many recessions and pain for ordinary people.

                      But my issue isn't in regards to currency or the value of money. My issue is with the value of time. Time is worth money because we have the potential to create goods and services with our capital, in our case, the cows. When you take away the cows, I don't have the option to work with anything and I am essentially wasting time and energy sitting around with no cows. If I did have the cows, I can use my time and energy to breed more cows. That's the essence of the issue. The only way to remedy the situation is to charge a fair interest rate for the use of my cows.
                      Last edited by stpablo; 12-02-20, 04:29 AM.

                      Comment


                      • #12
                        Originally posted by stpablo View Post
                        Salam,

                        I see a glaring contradiction with Islamic scholars and interest. I'll give you an example of my position, using cows and not even currency.

                        I have 10 cows and someone in my village is asking me to borrow those 10 cows so that he can start a wheat farm. I said okay and pay me back in 5 years time.

                        Under the current Islamic scholars, the villager is only supposed to give me 10 cows in 5 years. But If I didn't loan him those 10 cows, I could have made another 15 cows in 5 years.
                        Proof?

                        Comment


                        • #13
                          ...... nvm
                          Last edited by eesa the kiwi; 12-02-20, 04:34 AM. Reason: Didn't realize guys profile says Islam
                          "My servants, you who have transgressed against yourselves, do not despair of the mercy of Allah. Truly Allah forgives all wrong actions. He is the Ever-Forgiving, the Most Merciful." (Surat az-Zumar: 53)

                          Comment


                          • #14
                            You are a Muslim

                            Do you know what a Muslim means. Someone who submits in Islam

                            Allah subhanhu wa ta ala has forbidden interest that should be enough for you

                            Riba is something the harm is pretty obvious. Also you haven't taken into account barakah. Ten dollars earned halal is better than 1000 cursed by riba. Calamities and misery follow and that's just in this dunya
                            "My servants, you who have transgressed against yourselves, do not despair of the mercy of Allah. Truly Allah forgives all wrong actions. He is the Ever-Forgiving, the Most Merciful." (Surat az-Zumar: 53)

                            Comment


                            • #15
                              Originally posted by notEVOLVED View Post
                              Proof?
                              That's not the point of the example... It's supposed to show that having capital (or assets, whatever term you want) is necessary to produce more capital.

                              A real world example may be that a man in Pakistan has an extra 100,000 rupees in the bank. His name is Ahmad and he is a doctor Alhamdillah, he pays his yearly zakat and more, he's religious and prays every day. Every ramadan he gives alms to the poor. But, he has an extra 100,000 rupees because doctors make a lot of money.

                              Now that we have gotten the piousness and the "well he should give that to the poor" yada yada yada out of the way, lets focus on ECONOMICS. Ahmad has two options with his money:

                              1.) Invest in his own side business that generates 5000 rupees per year. He must invest all 100,000 rupees for this business to be viable and it is a reliable business, i.e. not that risky.

                              2.) Loan out his money to another business who needs money to expand.

                              If Ahmad goes with option 1, he generates 5% revenues off his initial investment. Not bad. If he goes with option 2, he will charge a 2% interest rate to the business, which is less than option 1, but it requires much less work and he assumes less risk. Now, why should it be haram for Ahmad to charge 2%? He is charging a fair amount and both parties benefit. The business he is loaning to has no claims of charity, no claims of religion, it's just a business that makes money. It is completely unfair for Ahmad to receive 0% interest when that business is making tons of money off the loan Ahmad provided. Furthermore, Ahmad has tangible use for the 100,000 and to give it out for free means Ahmad is LOSING 5000 rupees per year.

                              This is the argument. In an economy, CAPITAL and TIME are valuable. No one has the right to anyone else's capital and the cost of using that person's capital is baked into the INTEREST RATE.

                              I am capitalizing the words not because I'm angry, but to emphasize.
                              Last edited by stpablo; 12-02-20, 05:00 AM.

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