Crisis free economic justice - economy in the Khilafah - Part 3

Our third instalment of the keynote speech from the Khartoum, Sudan conference organised by Hizb ut-Tahrir…….. Principles 3 and 4 (Islam’s monetary basis and the prohibition of interest (usury).

Third: Islam’s Monetary view

The Prophet (saw) specified gold and silver as the monetary medium of exchange and made these as the only standard benchmark to measure goods and wages of work. All transactions were based on this standard, the units of which were the ounce, dirham, daniq (1/8 of dirham), carat, mithqaal, and dinar. All of these were well known during the era of the Prophet (saw), the people used them and it is established conclusively that the Prophet (saw) approved the usage of these units. All trade and dower were measured in gold and silver as the monetary standard and this is proved by the authentic ahadeeth. The weight of these was laid down on a specific system of the people of Makkah, the Prophet (saw) said: “the standard of weight is the standard of the people of Makkah.” In comparison to the units of cash under Islam, the units of this period are: 1 dinar=4.25 grams of gold and 1 dirham=2.975 of silver.

Thus the Shar’i rules have linked the monetary system to gold and silver and under this monetary system; there was never a fiscal crisis as opposed to the current practice where the currency of one country is tied to a currency of another country. Ever since gold was removed as the sole monetary standard and was taken jointly with the dollar as the standard under the Bretton Woods system at the end of the World War II, and finally replaced with the dollar as the sole monetary standard in the 1970’s, the US dollar became the overwhelming defacto currency of the world and as a result of this, any tremor in the US economy caused a fatal blow to the economies of all other countries. This is because most if not all the cash reserves of these countries is covered by the paper dollar whose intrinsic value does not exceed the value of the paper it is printed on! So much so, that even after the European Union’s Euro entered the arena and nations began to buy currency other than the dollar, the US currency generally retained its position of the overwhelmingly dominant currency.

Therefore so long as gold is absent as the sole monetary standard, economic upheavals will repeatedly occur. Not only this, any crisis related to the dollar would adversely reflect on the economies of other countries, and even any action that America takes to create a political upheaval will reflect on the dollar and therefore the entire world. This can happen with any other paper currency of any influential country.

Fourth: Strong Prohibition of Interest

The Shar’i texts have prohibited usury in the strongest of terms and this prohibition is conclusive both in its implication and narration with no scope at all for any other interpretation or ijtihad. In fact dealing in interest is equivalent to waging war against Allah (swt) and His Prophet (saw), He (swt) says:

“O you who believe! Be afraid of Allâh and give up what remains (due to you) from Ribâ (from now onward), if you are (really) believers. And if you do not do it, then take notice of war from Allâh and His Messenger [sal-Allâhu 'alayhi wa sallam]” [TMQ 02:279]

The intensity of this prohibition comes in such strong terms that the Prophet (saw) cursed usury and those who indulge in it, it has been reported in an authentic hadeeth:

The Prophet (saw) cursed the person who takes interest and its payer, the one who records it, and the two witnesses. [Sahih Muslim]

This curse implies that the cursed person is denied Allah (swt)’s mercy. A proper understanding of the realities of the interest based capitalist economy, reveals that it leads to exploitation and subjugation because of the interest based loans and the consequences are misery, hardship and distress. Therefore the denial of Allah’s (swt) mercy to those who indulge in usury is easily comprehensible. Even the capitalist West has now come to realise that profit through interest was a culprit behind the recent economic crisis and this is the reason that they are now advocating a reduction in the interest rates on loans so that the reduced interest rates will stimulate economic activity, if only they had realised the truth and altogether done away with it!

For these reasons, the economic system in the Khilafah State will be free of banks and interest based financing funds which are the prominent symbols of capitalism. Ensuring a secure economic life for Muslims has three aspects:

The First Aspect: This will focus Muslims’ attention to the production economy or the real economy, which will result in an abundance of goods in the Islamic state in terms of production, imports and exports and thereby will result in real competition. This, over a period of time will develop the markets which have suffered from the communist/socialist system and make the markets of the Khilafah state greatly prosperous.

The Second Aspect: This system will protect the Muslims and non Muslims in the Khilafah state from the loss of their wealth by way of interest. The Islamic system will eliminate the strong protectionism and inflation, which encourages people to mortgage their wealth and cash in banks in the hope of being rewarded with a small margin of interest as witnessed in the capitalist economy. The banks thereby accrue huge profits by impoverishing others through interest based loans and reap huge deposits from the local as well as international markets including from the poorest of the people who suffer endlessly under the clutches of interest, suffering toil and hardship over a great part of their lives trying to repay the accumulated interest. As a result of this we see misery in the capitalist countries which spring from the control of the banking sector over all other sectors since all sectors are intricately entangled with the banking sectors and the interest regime which cause economic threats. All these perils will be unheard of and non-existent in the Islamic context under the Khilafah state. Also the richest of the rich who have amassed enormous wealth mainly through fleecing other people’s wealth will be an unheard of phenomenon in the Islamic economic system. The wealth of the Muslims and non-Muslims will be protected under the system sent down by Allah (swt) which forbids usury and the temptations of the banks which will soon be exposed as a mere mirage which impoverished people and robbed them of their wealth by treacherously invalid means.

The Third Aspect: The long and endless queues that you come across in front of the capitalist banks are of people whose wealth has been evaporated and they have been hopelessly impoverished. This is far from the reality under the system of Islam which forbids and eliminates all banks. Thus it does away with interest based lenders and protects the wealth of the people from being fiddled away by the usury eaters. There are no laws in the Khilafah state to protect interest based banks and invalid companies which declare bankruptcy and continue to indulge in corruption & corrupting.

Thus by forbidding interest and prohibiting it conclusively, Islam has completely blocked any chances of these economic upheavals and crises from leaking into those lands which comply with the Islamic system; thereby the economic life of Muslims is made safe, secure and impervious from such crises.

However, Islam has encouraged Muslims to lend to their brethren and urged them to do so, the Prophet (saw) said: “No Muslim lends to another Muslim twice except that one of these would be like a sadaqah.” This is not only at the level of the individual alone; in fact there is a separate economic department within the Khilafah state which will disburse loans to farmers and entrepreneurs within the framework of the state’s economic policy and this will be to eliminate poverty by finding gainful employment and providing goods. But off course, these loans will have no interest attached and its purpose will not be to make profits because the Khilafah state is a welfare state and not a revenue collecting state.

Part 4 tomorrow (Distribution of wealth, ownership and the Islamic perspective on Stock Markets)