Islamic Economics: An Alternative?

Solving World Financial Crisis

By
Dr.Hussein Shehatah
Consultative Expert on the Islamic Financial Transactions
and Professor at Al-Azhar University.

Causes of the Crisis

Maurice Allais, an expert on world economy and a Nobel Prize laureate in economics, said, "The
world economic system is based on some concepts and rules that will be the very cause of its
destruction unless treated and rectified quickly."

In fact, many economists argue that the neo-capitalist world economic system rests on principles
that will lead to its ruin.

It can be argued that among the reasons that led to the crisis is the spread of moral economic
corruption, such as exploitation, lying, circulation of prejudiced rumors, cheating, monopoly and the
engagement of nominal transactions, with no real value. In this way, the wealthy and creditors
oppress the poor and debtors who, as a consequence of being unable to bear such oppression
anymore or pay back these debts and loans, will grumble and be resentful.

Also, wealth has become a weapon used to dominate and control politics around the world. Money
has become the idol the capitalist economy. Interest-backed banking system inflicts mounting debts
on consumers by working within the framework of the system of trading debts, either by selling,
buying or brokerage.

The more the interest rate on deposits increases, the more the interest rate on the loans granted to
individuals and companies will also increase. Only banks and stockbrokers benefit from this, whereas
the debtors, who take loans for consumption or production purposes, bear this heavy burden alone.

Credit card debt inflicts high costs on the consumer, and when one can not pay back his debts, the
interest rate is continuously increased. Ultimately, consumer's property will be confiscated in order
to guarantee security. This has actually happened to many holders of such credit cards, causing an
imbalance of their house budgets.
Indeed, banks impose additional burdens on the borrower who is not able yet to discharge the first
loan due to the increasingly higher rate of interest. This is similar to usurers in the pre-Islamic period
of Ignorance who would say to a debtor, "Either you repay or augment."

Furthermore, Stock brokerage firms deceives those in need of loans as they claim high commission
payment if there are potential risks, leaving the poor debtors to bear their burden and attributed
negative consequences. Actually, Some economists believe that no real development or wise
employment of the means of production could be achieved unless the interest rate is zero. This view
was held by Adam Smith, the Father of modern economics.

Furthermore, economists think that the alternative is based on participating in profit and loss,
because it brings about stability and security. In addition, interest-based system results in the
accumulation of wealth in the hands of few people who will thus be in control of the world's
fortunes.

In addition, The world financial system rests on the basis of the financial derivatives system that
depends mainly on nominal transactions, with no real exchanges of goods or services. What is even
worse is that most of these transactions are based on credits taken from banks in the form of loans,
and when things develop unfavorably all that collapses triggering the financial crisis.