The Dillema of Modern Islamic Finance

By Omar Javaid

I recently participated in 10th International Conference on Islamic Finance and Economics in Doha, Qatar, one of the largest gathering of its kind. I listened/discussed my views with various top experts in the field. I also presented a paper on how Islamic concept of wealth and modern concept of capital differs with each other.

In a nut shell all the discussion on the problems and solution in the realm of Islamic Finance were revolving around the challenges emerging for misplacing knowledge of Islamic Finance in the modern western institutional framework standing on foundations completely incompatible with that of Islam! ...

Question of Reviving Islam in a (Post) Modern Secular World

By Omar Javaid

The tree was dying, and its death came with a little surprise. The stakes were high though and the concerned tried hard to bring it back to life, but there was too much pollution, in the air, on the ground... someone came up with an idea! "Let’s cut it off into pieces and put these pieces inside the machines in the industry, automobiles etc. let’s put some inside the exhaust of the car for example, and the tree would be resurrected! 

This someone obviously 'didn't knew what these machines were/are and had no idea how the very machines had polluted the environment in the first place. Obviously this innocent someone can be forgiven on the basis of his idea, however one need to worry when this idea is being put into practice by lots of follower of that 'innocent someone' and the entire forest is being chopped off to be placed inside the most infertile and non-conducive place one could find. Another lesser brutal example, let’s consider the sports of hockey is dying in this country, so let’s divide the team and place the hokey players in teams of completely different type of sports, let’s say cricket, football, kabaddi, etc. and expect to revive hockey again.

Strategy to Doctor Islam | Building Moderate Muslim Networks

By Omar Javaid

The famous American think tank RAND (www.rang.org), which seems to have immense influence on global policy framework of the so called developed world, has published a few reports on how to restructure Muslim societies. The notable one is ‘Building Moderate MuslimNetwork’. This report outlines a comprehensive strategy on how to use the Cold War experience to discredit the traditional orthodox interpretation of Islam, and popularize an interpretation which is compatible with modern western ideological framework. 

The phrase ‘War of Ideas’ has been explicitly used for this clash in this report. As the title suggests the idea is to build network of so called ‘Moderate Muslims’ and make them role models for the rest of the public to follow. These ‘Moderate Muslims’ are the ones who believe in Islamic Liberalism or an interpretation of Islam compatible with Liberal philosophical discourse. This would mean that those intellectual, academics, thinkers, politicians, public figures, celebrities, even so called religious scholars who endorse such an interpretation of Islam would be provided with various plate forms and mediums to connect and influence the remaining population through their ideals, beliefs, world view, values, life style, etc, while rendering the traditional and orthodox Muslims as obsolete and irrelevant.

Modern Structure of Knowledge and Critique of Islamic Banking

By Omar Javaid

Islamic banking is growing by leaps and bounds in the world, many sees this as a successful utilization of Islamic principles to solve worldly problems whereas others considers it as a mistake of putting a label of ‘Islamic’ on various things which are prohibited or disliked by Islam. These two groups often debate and counter argue with each other on different forums to prove their points. It is interesting to note that the opponents are often sincere and well intentioned Muslims, and it is even interesting to note that most of their disagreements isn’t on the principles of Islam, rather on their perspective of viewing the banking system (a value neutral structure or a institutionalized form of greed and economic injustice) of the western capitalistic world.

The proponents of Islamic banking seems to stick with the text book description of the banking and economic system, whereas the opponents take a deeper and broader look (not necessary that they are right all the time) and claim to know a little more of an alternative perspective of how system works which isn’t explicitly elaborated in text books. The reason for such discrepancy is worth probing.
The  text books are written not to inform its audience but to prepare their minds and hearts to become a productive tools of the system. Text books indoctrinate the ideas and concepts approved by those in power. The text books in a communist societies would therefore be very different from those found in a capitalistic ones, for example.

The Irony of being 'Islamic' in the Modern World

By Omar Javaid

From Islamic banks, Islamic Insurance, Islamic Funds, Islamic Economics, Islamic Schools, Islamic Democracy, Islamic Nations, to Islamic Music and Islamic swimwear, lots of things which are foreign to Islamic tradition and history are being introduced in the Muslim world with a label of Islam after a little alterations! The term 'Islamic' itself when attached to another term is a proof of that thing being of foreign origin though a little tweaked! we don't hear terms like Islamic nikah, Islamic baitulmal, Islamic shura, Islamic hajj, Islamic salah, Islamic Madarasah, Islamic Masjid; definitely not! because these are terms from the history of Muslim civilization...

The sudden influx of such 'Islamic' things indicates that many assume Islam's historical experience of managing the socioeconomic and political landscape of a world dominating civilization isn't sufficient enough to help solve contemporary problems!

Income Inequality, Modern Financial System and the Islamic Solution

Shaykh Umar Vadillo

Latest figures shared by the State Bank of Pakistan reveal that the top 24,000 millionaire account holders in Pakistan owns Rs 2,118 Billion. The interesting aspect of this data is that in the last four years, which are presumed to be the worst years for Pakistan’s economy, the number of Crorepati (millionaires) in Pakistan increased by 50% to 36,500 from 24,000 in 2008. The new 12,000 millionaires added about Rs 80,000 Crore (800 Billion) in bank deposits in the last three years. Of course they are not depositing everything. There must be properties and other investments involved which are not included in this figure. (Do I need to remind you how much Pakistani investors love to invest in Property). So if we take that ‘unknown’ figure, I’m sure this club of 36,000 elite millionaires will total way more than 70% of Pakistan’s total wealth.

These 36,000 people represents only 0.02% of Pakistan’s total population of 18 Crore people and yet they hold almost 40% of Pakistan’s total wealth in bank accounts. About 24,423 account holders, having an amount Rs 1 Crore and above, made a total deposit of Rs 1,323 Billion at the end of December 2008. The figure of account holders rose by 12,086 to 36,509 by the end of December 2011, taking the total amount to Rs2,118 Billion. The economic growth during last four years hovers around an average of 2 per cent and one might question about the source of income of these 12,000 people who mysteriously became millionaires while Pakistan’s economy was facing joblessness, security conditions, trade barriers and rising fuel costs.

Islamic Banks, the Problem of Takasur

By Omar Javaid

[Takasur 102:1] The craving for excess wealth (takasur) kept you people neglectful.

[Takasur 102:2] Until you confronted the graves.

[Takasur 102:3] Yes certainly, you will soon realise!

[Takasur 102:4] Again, yes certainly, you will soon realise!

[Takasur 102:5] Yes certainly, if you had believed with certainty, you would not have craved for wealth.

[Takasur 102:6] Indeed you will see hell.

[Takasur 102:7] Again, indeed you will see it with certainty.

[Takasur 102:8] Then, on that day, you will surely be questioned regarding the favours.

This surah of Quran effortlessly destroys the driving force behind capitalism and free-market ideology... the story of this ideal gaining mass acceptance and becoming the driving force behind capitalism started from birth of protestantism, enlightenment movement in Europe etc. 'Theory of Moral Sentiments' by Adam Smith established the very notion of modern virtuous (or ideal) man as a wealthy and powerful. Pursuit of self-interest (which Adam Smith proposed in his 'Wealth of Nations') for this very purpose was also declared as legitimate and preferred in Europe during 17th century. Later the same ideas spread across the world by brute force during colonization period. 

Islamic Banks, Un-Islamic Objectives?

By Omar Javaid

Islamic Civilization emerged and took over the world within a few decades of its birth. It dominated as a superpower for almost 1300 years till it collapsed during the 2nd world war with the fall of Ottoman Empire. Before its demise, lots of revivalist movements within Islamic Civilization resisted and tried all what was possible to prolong its survival, however their efforts weren't enough to breathe life in the lost civilization.

According to Tamim Ansari, three types of revivalist movements emerged, 1^st one which out rightly rejected anything which was foreign to Islamic traditions and demanded Muslims to go back to their roots (Wahabi movement); The 2nd one which recommended to pick up the good things from the western civilization and cleanse it through the process of Shariah compliance (Initiated by Jamaluddin Afghani); and the 3rd one, which rejected the traditional trajectory and proposed to find Islam in the western ways (whose torch bearer was Sir Syed Ahmed Khan)...

The Trust Bubble ... Explodes

By Omar Javaid, Sr. Editor, Critic MAGAZINE

Trust is the name of the game, mistrust is the code followed. Today digital currency is the fuel of financial system, and it extracts value from the paper currency (backed by nothing) in circulation. But on the contrary it deems to have the power to purchase anything based on its value derived from the trust in the economy of the nation it belongs to (demand of currency in international market: more economic strength, more demand, and more value). The Economic Strength of the nation? Is only a matter of perception, as proved many time in the history. In present times the economic strength stands over a bubble of debt in the economy. The bubble expands with the ever growing debt, with a fraction of real wealth to back. The ultimate result.... the Bubbles are there to burst, leading to benefit of the few, and disaster for millions. Case in point: sub-prime mortgage crises in America.

Since the time Lehman brothers declared bankruptcy, a plethora of articles with analysis of the entire fiasco, its causes and impacts has been published but probably none (at least I cannot find one) has really disclosed or talked about the real root cause of the entire disaster. When I look at the entire scene, the question that pops in my mind is how a debt of $11 trillion in 'mortgages', alone, is loaned out when there is only $1.3 Trillion of printed notes available? In addition to this Credit card debts, other types of public and private loans mounting to a total of around $50 Trillion, only in American economy? (Total U.S. mortgage debt outstanding was $10.7 trillion at the end of the third quarter 2006. Source: http://www.freeratesearch.com/en/newsroom/mortgage_statistics/)

Out of Thin Air

A common man, uninformed of this jugglery, would eventually ask that how on earth can this ever be possible. The answer is simple but seems like a joke, a nasty one indeed. The Banks creates money out of thin air when they have to loan out to someone? Magic? No! The process they use is called fractional reserve banking and the effect is called Money Multiplier in economics.

"The study of money, above all other fields in economics, is one in which complexity is used to disguise truth or to evade truth, not to reveal it (p15). The process by which banks create money is so simple that the mind is repelled."

John Kenneth Galbraith, Money: Whence it came, where it went - 1975, p29.

This is the most core of the banking business and all the central bank policies are directly or indirectly related with it. Paper Currency is printed in the quantity, desired by Central Bank, is multiplied as it passes through Fractional Reserve Systems of Conventional banks. The CB imposes a Cash Reserve Requirement i.e. CRR is 7 ~ 10% on commercial banks (even Islamic banks) which determines the amount to be loaned out. A CRR of 20% means that a bank can lend 80 rupees if it has a deposit of Rs. 100. The bank in fact transfer this amount to the borrowers bank account, i.e. the same bank (or any other bank) receives it, again make it a part of the deposits (of the banking system) ready to be loaned again. The cycle continues and the money printed or minted by central bank is multiplied many times in the form of loans and the commercial bank expects it back with interest.

No surprise the amount of debt (increasing every year) is more or less the same as the amount of time and demand deposit (demand deposits are saving and current accounts, and time deposits are long term deposits which are not withdrawn at least for one year) during the same period. Thus money is created continuously as debt in the economy. Today in US economy, only 3% is real money and the remaining is just ... Numbers!!! Same is the case with UK. In Pakistan the cash in circulation is Rs. 982 Billion, which is around 21% of the total Money supply (Rs. 4,672 Billion) and 21.6% of total domestic credit (Rs. 4,531 Billion).  These statistics has been taken from http://www.sbp.org.pk/reports/stat_reviews/Bulletin/2008/Sep_08/Money_and_Credit.pdf.

Murray N. Rothbard states in his article “The Case for a 100 Percent Gold Dollar” (http://mises.org/story/1829#_ftn19): In my view, issuing promises to pay on demand in excess of the amount of goods on hand is simply fraud, and should be so considered by the legal system. For this means that a bank issues “fake” warehouse receipts—warehouse receipts, for example, for ounces of gold that do not actually exist in the vaults. This is legalized counterfeiting; this is the creation of money without the necessity for production, to compete for resources against those who have produced. In short, I believe that fractional-reserve banking is disastrous both for the morality and for the fundamental bases and institutions of the market economy.

To read more, please click below ...

Open publication - Free publishing - More money supply

Zakat: A Strategic tool for Economic Deterance

We are living in a world controlled by an economic system that is anything but Islamic. It’s based on Interest / debt based banking systems designed to enslave and dominate the masses and countries so that their natural capacities and wealth can be exploited for the benefit of the few on the top . Being a Muslim it’s our ultimate responsibility to launch a response that can transform this system toward the Islamic Ideals. 

The most pivotal building block and strongest tool of exploitation of the interest / debt based economic system is paper currency backed by nothing. Paper currency (and now digital) is the center of gravity of the prevailing economic system and Alhamdolillah, SubhanAllah Islam has provided us a very strong weapon called Zakat that we can use to hit its lifeline if we use it properly i.e. “Pay Zakat in Gold”.  

To understand this we have to get hold of the economics of paper currency first. Paper currency is not backed by Gold or silver these days. Its value is determined through floating exchange rates resulting in deadly repercussions in following ways: Click Below

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The Trust Bubble … Explodes …

By Omar Javaid, Sr. Editor, Critic MAGAZINE

Trust is the name of the game, mistrust is the code followed. Today digital currency is the fuel of financial system, and it extracts value from the paper currency (backed by nothing) in circulation. But on the contrary it deems to have the power to purchase anything based on its value derived from the trust in the economy of the nation it belongs to (demand of currency in international market: more economic strength, more demand, and more value). The Economic Strength of the nation? Is only a matter of perception, as proved many time in the history. In present times the economic strength stands over a bubble of debt in the economy. The bubble expands with the ever growing debt, with a fraction of real wealth to back. The ultimate result.... the Bubbles are there to burst, leading to benefit of the few, and disaster for millions. Case in point: sub-prime mortgage crises in America. 

Since the time Lehman brothers declared bankruptcy, a plethora of articles with analysis of the entire fiasco, its causes and impacts has been published but probably none (at least I cannot find one) has really disclosed or talked about the real root cause of the entire disaster. When I look at the entire scene, the question that pops in my mind is how a debt of $11 trillion in 'mortgages', alone, is loaned out when there is only $1.3 Trillion of printed notes available? In addition to this Credit card debts, other types of public and private loans mounting to a total of around $50 Trillion, only in American economy? (Total U.S. mortgage debt outstanding was $10.7 trillion at the end of the third quarter 2006. Source: http://www.freeratesearch.com/en/newsroom/mortgage_statistics/)

Out of Thin Air:

A common man, uninformed of this jugglery, would eventually ask that how on earth can this ever be possible. The answer is simple but seems like a joke, a nasty one indeed. The Banks creates money out of thin air when they have to loan out to someone? Magic? No! The process they use is called fractional reserve banking and the effect is called Money Multiplier in economics. 

"The study of money, above all other fields in economics, is one in which complexity is used to disguise truth or to evade truth, not to reveal it (p15). The process by which banks create money is so simple that the mind is repelled." 

John Kenneth Galbraith, Money: Whence it came, where it went - 1975, p29. 

This is the most core of the banking business and all the central bank policies are directly or indirectly related with it. Paper Currency is printed in the quantity, desired by Central Bank, is multiplied as it passes through Fractional Reserve Systems of Conventional banks. The CB imposes a Cash Reserve Requirement i.e. CRR is 7 ~ 10% on commercial banks (even Islamic banks) which determines the amount to be loaned out. A CRR of 20% means that a bank can lend 80 rupees if it has a deposit of Rs. 100. The bank in fact transfer this amount to the borrowers bank account, i.e. the same bank (or any other bank) receives it, again make it a part of the deposits (of the banking system) ready to be loaned again. The cycle continues and the money printed or minted by central bank is multiplied many times in the form of loans and the commercial bank expects it back with interest. 

No surprise the amount of debt (increasing every year) is more or less the same as the amount of time and demand deposit (demand deposits are saving and current accounts, and time deposits are long term deposits which are not withdrawn at least for one year) during the same period. Thus money is created continuously as debt in the economy. Today in US economy, only 3% is real money and the remaining is just ... Numbers!!! Same is the case with UK. In Pakistan the cash in circulation is Rs. 982 Billion, which is around 21% of the total Money supply (Rs. 4,672 Billion) and 21.6% of total domestic credit (Rs. 4,531 Billion).  These statistics has been taken from http://www.sbp.org.pk/reports/stat_reviews/Bulletin/2008/Sep_08/Money_and_Credit.pdf. 

Murray N. Rothbard states in his article “The Case for a 100 Percent Gold Dollar” (http://mises.org/story/1829#_ftn19)

In my view, issuing promises to pay on demand in excess of the amount of goods on hand is simply fraud, and should be so considered by the legal system. For this means that a bank issues “fake” warehouse receipts—warehouse receipts, for example, for ounces of gold that do not actually exist in the vaults. This is legalized counterfeiting; this is the creation of money without the necessity for production, to compete for resources against those who have produced. In short, I believe that fractional-reserve banking is disastrous both for the morality and for the fundamental bases and institutions of the market economy.

To read more, please click below ...

Open publication - Free publishing - More money supply