See discussions, stats, and author profiles for this publication at: https://www.researchgate.

net/publication/340446436

Negative Effects of Interest in our Social Development and its Solution

through Islamic Finance Concepts

Conference Paper · August 2019

CITATION READS

1 6,539

1 author:

Syed Magfur Ahmad

Istanbul University
8 PUBLICATIONS 34 CITATIONS

SEE PROFILE

All content following this page was uploaded by Syed Magfur Ahmad on 16 August 2022.

The user has requested enhancement of the downloaded file.

12-13 Nisan 2019, İstanbul

Bildiriler Kitabı
Proceedings Book
12-13 Nisan 2019, İstanbul
 YEKDER Yayınları - 8
İslam Eğitimi Kongre Dizisi: 04
Uluslararası İslam Eğitimi Kongresi 2019 Bildiriler Kitabı

Hazırlayan / Prepared By
Hafsa Nur Aslanoğlu & Sibel Özil

Tasarım ve Uygulama / Design and Application

Furkan Selçuk Ertargin

Yayın Tarihi / Publishing Date

Ağustos 2019 / August 2019

e- ISBN: 978-605-62640-6-1

Yaygın Eğitim ve Kültür Derneği (YEKDER)

Sultantepe Mh. Cumhuriyet Cd. Fıstıkağacı İş Mrk. No: 39/1-2 Üsküdar / İstanbul • +90 (216) 460 25 50 • bilgi@yekder.org
Bu kitabın tüm hakları YEKDER’e aittir. Kaynak göstermeksizin alıntı yapılamaz, anılan kuruluşun yazılı izni olmaksızın
basılamaz ve hiçbir yolla çoğaltılamaz. Kitapta yer alan bildirilerdeki tüm sorumluluk yazarlarına aittir.

Düzenleyen Kurumlar / Organizer Institutions

Yaygın Eğitim ve Kültür Derneği (YEKDER) | Fatih Sultan Mehmet Vakıf Üniversitesi (FSMVÜ)

Düzenleme Kurulu / Organizing Committee*

Arife Gümüş, YEKDER | Hafsa Nur Aslanoğlu, YEKDER | Kurtuluş Öztürk, YEKDER | Muhammet Öztabak, Fatih Sultan
Mehmet Vakıf Üniversitesi | Sedat Özgür, YEKDER | Yusuf Alpaydın, YEKDER

Sekreterya / Secretariat
Hatice Kübra Kafalı, YEKDER I Hatice Kübra Uysal, YEKDER I Merve Nur Koçak Öztürk, YEKDER

Bilim Kurulu / Scientific Committee*

Abdurrahman Hendek, Sakarya Üniversitesi | Abdur Rehman Cheema, RSPN Pakistan  Abdülkadir Macit, Kocaeli
Üniversitesi  Ahmed Sanusi bin Azmi, Universiti Sains Islam Malaysia  Ahmet Akın, İstanbul Medeniyet Üniversitesi 
Ahmet Avcı, Fatih Sultan Mehmet Vakıf Üniversitesi  Ahmet Koç, Marmara Üniversitesi | Ahmet Turan Arslan,Fatih Sul-
tan Mehmet Vakıf Üniversitesi | Akif Pamuk, Marmara Üniversitesi  Amidu Olalekan Sanni, Fountain University Osogbo
Nigeria | Aytaç Yıldız, Ankara Yıldırım Beyazıt Üniversitesi  Banu Gürer, Marmara Üniversitesi | Cemal Tosun, Ankara
Üniversitesi | Cemil Osmanoğlu, Erciyes Üniversitesi  Cihad Demirli, İstanbul Ticaret Üniversitesi  Emine Keskiner,
Marmara Üniversitesi | Esra Türk, İstanbul Sabahattin Zaim Üniversitesi  Feride Ersoy, Mehmet Akif Ersoy Üniversitesi
 Gülsüm Pehlivan Ağırakça, 29 Mayıs Üniversitesi | Halil Ekşi, Marmara Üniversitesi | Hamit Er, İstanbul Üniversitesi 
Hasan Sabri Çeliktaş, Namık Kemal Üniversitesi | Hicret Toprak, Ankara Sosyal Bilimler Üniversitesi | İbrahim Hakan
Karataş, İstanbul Medeniyet Üniversitesi  İrfan Başkurt, İstanbul Üniversitesi | İsa Kaya, Fatih Sultan Mehmet Vakıf
Üniversitesi  Khosrow Bagheri Noaparast, Tehran Üniversitesi  Mahmut Zengin, Sakarya Üniversitesi | M. Akif Kı-
lavuz, Uludağ Üniversitesi | M. Ali Büyükkara, İstanbul Şehir Üniversitesi  M. Faruk Bayraktar, Düzce Üniversitesi |
Muhammed Esat Altıntaş, Erciyes Üniversitesi | Muhammet Öztabak, Fatih Sultan Mehmet Üniversitesi | Muhammet
Sani Adıgüzel, Fatih Sultan Mehmet Vakıf Üniversitesi  Mohammad Talib, Oxford University  Muhiddin Okumuşlar,
Necmettin Erbakan Üniversitesi | Musa Duman, Fatih Sultan Mehmet Vakıf Üniversitesi  Mustafa Gündüz, Yıldız Teknik
Üniversitesi | Nurullah Altaş, Marmara Üniversitesi | Ömer Türker, Marmara Üniversitesi | Robert W. Hefner, Boston
University | Saidou Zongo, Université Elhouda de Ouagadougou  Şaban Çobanoğlu, Fatih Sultan Mehmet Vakıf Üni-
versitesi  Şükran Fazlıoğlu, Marmara Üniversitesi | Talal al-Azem, Oxford University | Teyfur Erdoğdu, Yıldız Teknik
Üniversitesi | Turgay Gündüz, Uludağ Üniversitesi | Yurdagül Mehmedoğlu, Kıbrıs Sosyal Bilimler Üniversitesi  Yusuf
Alpaydın, Marmara Üniversitesi | Z. Şeyma Altın, İstanbul Üniversitesi | Zohreh Khosravi, Alzahra Üniversitesi

* Ada göre alfabetik sırada. / In alphabetical order by name.

international
congress on
islamic education
12-13 April 2019, İstanbul

bildiriler kitabı
proceedings book

İstanbul, 2019
 Negative Effects of Interest in Our Social Development
and its Solution through Islamic Finance Concepts

*
Syed Magfur Ahmad

Abstract
In the current world context, economics has played a vital role to solve the various economic problem related to
human society. Particularly, in issues like social justice and social welfare. From the historical background of economic
thought, every unethical activity was not supported by any economic system but later they lost their main ideology. The
establishment of uncontrolled capitalism system and the exploitation of capitalism and fascism has established interest-
based economic management in the world. Moreover, it has also expanded the path of exploitation among society’s
people. All the ways of social exploitation have been invented so far, interest as well as the best way to make the rich richer
and the poor poorer. Strategies, methods, results, and the ultimate mischief of the economy in all the judgments there is
no anti-social tool near the interest.
This paper will define how the interest system affects our social development and how it drives society to injustice
situation? And how living people are suffered by this system facing many social existing problems? Finally, this paper
also suggests some solution to the interest-based financial system considering the Islamic finance concept. Descriptive
and Qualitative research methodologies (One-on-One Interview method) are used in this paper regarding reading many
research papers, books, journals some personal experience. This paper also explores the relationship between interest and
social development.
Islamic finance has enabled to show as a fast-growing segment in the business sectors that operates the basis of core
principles from the Quran and the Sharia. The primary objective of Islamic finance is to establish a more equitable financial
and economic order considering the prohibition of interest with transaction-friendly times. According to the analysis
of negative effects of interest in our social development, most of the researchers recommended that exploits people,
burden of debt, unemployment rise, increase price of the commodity, Lower inflation & increase risk, etc are happening
by the interest. And they also recommended the solution through İslamic finance concepts like mudaraba, musharaka,
murabaha, Islamic microfinance, etc.
Keywords: Effect of Interest, Islamic Finance, Social Development.

* İstanbul University, Student, magfurjnu2009@gmail.com

337
 Uluslararası İslam Eğitimi Kongresi

Introduction
From the first time, most of the religious banned interest-based activities. Because it
has a great negative impact on our human life. Although the continuous development
of interest based-economic systems like capitalism that was spearheaded for the
growth of this globalization and privatization era. But evidence of manifests in the
history of humanity and evidence of the various negative impact of the interest-based
economic system from various non-social studies have been found. The interest-based
economic system causes multiracial harm for socio-economic development. And this is
undoubtedly harmful to humans. İnterest-based business damages the development
of the economy and creating discrimination among human beings (Ağri & Orhan, 2018).

For this reason, strictly prohibited this system especially in Islam. Even the interest was
also banned in all religion especially Judaism, Christianity, and Islam. İt is proved that
during the long times in the history where interest has not been used (Zaman, 2001).
According to the terms of interest, the other party is forced to pay extra money. There
is no risk or uncertainty in interest. Interest can never be negative. The lender does
not invest time and labor in the interest rate. Due to these, socially harmed people.
Even The interest-based economy teaches people’s ruthless and inhuman behavior
(Rahman, 2009: 11).

Due to interest-based finance, modern banks have less focus on social

responsibility in the present time. The welfare or development of society is not
their major consideration, but their main goal is to exploit the man and get more
profits. They do invest some in the social responsibility. As a result, interest-based
financial system acts as one of the main obstacles in the development of society (Khan,
2009). Many people believe that interest- based transactions can give us economic
independence or poverty reduction. But in reality, it is seen that it is one of the
medium of exploiting people. So, there is so many countless sinners of the political,
economic, social and moral degradation of people spread among interest.

Literature Review
From the historical background, interest-based activity was not permitted to the
people. All the other heavens books which were sent down before the revelation of the
Qur’an interest were always forbidden. According to the doctrine of all the religions of

338
 International Congress on Islamic Education

the world, including Christian, Buddhist, Hinduism, the system of interest is prohibited,
hated and disgraced. Because it is one of the processes of exploiting society’s peoples.
From the context of the negative impact of interest is unmeasurable to the people. It
is known from the Bible that the part of the Tawrat “Old Testament” the interest was in
the past. From the history, according to the Gospel or the Bible’s “Old Testament”, you
lend money to the poor and oppressed among my people, but do not be as interest-
oriented to them (Rahman, 2009: 12). In the case of interest-based transactions,
Christianity’s view was banned for the first time in 325. The beginning of the reform
movement from the beginning of Christianity and the Church from Rome controlled
from the Pope Interest based economic system were forbidden to discontinue until
the Church was separated. In the middle Ages, the church had assigned different forms
of punishment against the people who were engaged with this such kind of interest-
based activities (Bayındır & Ustaoğlu, 2018).
“Interest, in Judaism strongly considered as contemptible, so contemptible that those who
receive interest are compared to men who commit great sins. For this reason, in addition to
divine condemnation, material punishments such as atonement, fasting or lashing have
been imposed against those who received interest in times of interest ban”(Bayındır &
Ustaoğlu, 2018: 5). Famous philosophers and socialists of ancient and medieval times
stood against the interest and the people who were engaged with interest. Aristotle
described the interest of his book “politics” as an artificial profit, saying that this interest-
based system is a kind of fraud. “The most hated sort (of wealth), and with the greatest
reason, is usury, which makes gain out of money itself, and from the natural objects of
it. For money was intended to be used in exchange, and not increase at the interest of all
modes of getting wealth, this is the most unnatural”(Aristotle, 1999:17).
Plato condemned interest in his “law”. Thomas Eakins said the injustice in the process
of interest. The adoption of interest in Hindu religion was not supported. Critical
criticizer of capitalism and the theoretical proponents of socialism, Karl Marx have
sharply criticized interest and Interest-takers. He expressed his intention to abstain
interest from the economy, to punish Interest-takers and to confiscate his property.
Paul Mills and John Presley said that in the era of history, it is seen that the Jewish
Interest-takers have been condemned to gain profit through society (Rahman, 2009:
13). Al-Ghazali, a great Muslim Philosopher, mentioned that earning money from
trade in money that makes money on the basis of interest which is zulm (oppression)
(Sadeq, 1992). In the religion of Islam interest was banned and mentioned in the
holy Quran, O you who

339
 Uluslararası İslam Eğitimi Kongresi

believe! Do not eat up interest doubled and multiplied, and have piety towards Allah
that you may attain Salvation. According to Islam, the business has been legalized,
on the other hand, interest and interest-based business or activities have been made
unlawful forever.

Methodology
Research Model
Qualitative & Descriptive Research Methodologies are used in this paper regarding
many reading research papers, articles, and books. The descriptive and analytical
process also followed this discussion. This paper relates to the existing problem of
human society and determines the negative impact of interest on social development
and the society people.

Research Method
In this paper the research conducted with the one to one interview method which
is done by ten researcher who is the expert on this topic. At the time of conducting
research, information was taken by the discussion of specific points which are selected
for determining the topic. The researcher gave the information in two way, first of all,
they measured the negative effects of interest in our social development and ranged
the solution way. Secondly, they gave information based on discussion and some
specific question.

Conceptualization and Operationalization

Interest is the charge for the privilege of borrowing money, typically expressed as
an annual percentage rate (APR). According to Umar Chapra, the interest means the
money that has to pay extra, including the principal money of the debtor after the
expiry of the term of the loan (Chapra, 2010). The effect of the interest system not
only affects people on a personal basis but also the effect of the whole life. Exploits
people, the burden of debt, unemployment rise, the increased price of the commodity,
Lower inflation & increase risk, etc those are negative effects of interest in our social
development. The debtor forces for returning money more than they borrowed. By
this way, it affects the life of society’s people. Interest implementation makes obviously

340
 International Congress on Islamic Education

burden for the poor people of the society. I raise another objection about interest
implementation because sometimes it is regarded as an incentive or trigger of the
economy that is not really true (Chapra, 1992). Unfortunately, today’s every transaction
goes with interest that creates pressure on the people. Later this paper will discuss 12
negative indicators of interest that have a great impact in our social development.

Independent Variable & Dependent variable

The interest-based economy always forces the high-interest rate to society’s people.
This high-interest rate (independent variable) generates negative effects on” Credit
society”. Credits cultivate a materialistic society that is easy to find. İn this system
banks always controller and customers always enslaved. Interest financing activities
take place with the component of exploitation. Richer can generate more without
contributing much effort or productive activity. Interest impacts the society’s people’s
issues such as income, debt, consumption, corruption, greed, price, development
(dependent variable), etc.

Data collection and Analysis

341
 Uluslararası İslam Eğitimi Kongresi

According to data collection, most of the researcher (90%) recommend that the burden
of debt is the first and high negative effect of interest for our social development.
Because economic and financial crises can rise for this debt. At that moment the
relationship between debt and economic growth goes into a negative relationship.
Most of the researcher (90%) also recommended that exploits people are another big
negative effect of interest in society. By this process exploitation of people is the act
of treating one’s weakness unfairly for one’s own benefit. According to the researcher
(80%) assumed that unemployment can rise to use interest-based activities. Because
when we use the interest method in our society than job opportunity & business cycle
cannot rise at a minimum rate. Reduce real investment is also one of the affecting
matters of interest in our social development which 80% researcher also recommended.
Another big impact of interest is increasing the price of the commodity in our society
that 80% researcher recommended in the same way. Greed and selfishness give-birth
hatred between the people which occurs due to interest in our social development that
70% researcher recommended. Another major problem is injustice distribution of wealth
and income of interest-based activities in our society that 70% researcher assumed. For
the interest, the business cycle also reduces at a concerning rate that 70% researcher
suggested. The other reason such as reduce consumption, lower inflation & its increased
risk also be happened for the interest rate than 60% of researchers recommended. Finally,
60% researcher regarded that reduce entrepreneurship and increase Social instability
and risk are happening for the interest-based activities in our social development.

Discussion (Effect of Interest in Our Social Development)

Burden of Debt
There is no provision in society to get loans without interest. As a result, the poor and
middle-class people of the society were forced to take loans from the moneylenders at
the peak and compounding rate at the time of the extreme need, danger, and misery
during the crisis. Karl Marx has just said “The borrower, has no occasion to borrow as a
producer. When he does any borrowing of money, he does it for securing personal necessities”
(Marx, 2003). In this situation there is no improvement in the financial condition of the
borrower; rather, this condition makes the money penny harder. In the short term, the
debt burden became enormous and it continued to increase (Checherita & Rother,
2010). Another consequence of traditional finance is the unsustainable debt burden
that emerges in both the private and public sectors (Saraç, 2016).

342
 International Congress on Islamic Education

Increase Exploitation between Poor and Weak

Interest is the most powerful medium or method of exploitation. The interest-based
financial system of society is at the root of economic inequality and corruption. A
group of people is benefited without any participation from the others. The recipient
of the interest is the parasite of society. They live life without sharing everything else
and sharing in others’ wealth and resources. For the sake of the interest, the poorest
of society becomes poorer and richer in wealth (Bayındır, 2016). As a result, social-
level discrimination increases day by day. Interest also impedes the development and
excellence of great qualities like mutual sympathy and cooperation.

Unemployment could Rise

Interest rate surplus is a bad sign for employment and growth. Increased production
costs due to interest, resulting in a decrease in investment. On the other hand,
the overall demand decreased due to the increase in prices. Consequently, the
profitability of the producers decreased and investment was reduced. This results
in unemployment due to the demand of workers decreasing. From a different point
of view, when interest rates are too high, companies or firms do not like to borrow
money from the bank that can raise unemployment between the people (Saleem,
Khan, & Siraj, 2013).

Reduce Real Investment

According to Lord, J. M. Keynes, investment reduces when interest rates increase.
And when interest rates fall, the investment increases. In general, those who invest in
the country do not want to go to a risky investment by avoiding the safe and secure
income path. They keep their savings in the bank without any effort. They are satisfied
with interest, not part of the production process (Khalid, 2016). When interest rates
are high, people prefer to deposit their money into banks rather than spend on
durable goods or luxury products. For this reason, day by day the real investments are
decreased for the high-interest rate.

343
 Uluslararası İslam Eğitimi Kongresi

The Prices of the Commodity Increase

If the trader and producer accept the loan, then he adds the cost of production to
the bank. It increases the value of the goods. And as a result, the prices of the surplus
economy are higher than the interest-free economy. Interest on interest rates = rent +
wages + interest + profit. On the other hand, interest-free economy Price of goods
= rent + wages + profit (Rahman, 1991). It is necessary for the consumer to pay a heavy
price for the interest. In this interest-based economy, there is added interest over the
normal value of the product. For more than three to four times, the interest is added
to the field. Likewise, in everyday life, every one of the essentials of daily necessities is
directly or indirectly involved in interest (Uludağ, 2010).

Create Hatred and Adversity

Interest in society gives birth to hate-hatred and class struggle. The moneylenders
and capitalists of usurer collect the resources of poor people through interest. If the
business is losing money on interest, the borrower cannot repay the loan on time. As
a result, the interest of the lender increases further, which is nothing but oppression
for the borrower and create hatred and adversity between the society’s people. He
has a poor outburst against interest rates, which is very harmful to society (Hossain,
1992). At the beginning of the medieval and reform movements of Shakespeare,
Shakespeare’s famous play ‘Merchant of Venice’, was found to be the blood-sucking
appearance of the moneylenders. Likewise, the image of Hatred and animosity created
in society against the moneylenders has become clear (Hossain, 1992).

Injustice Distribution of Wealth and Income

When a contract is done with the unequal counter value. Financial productive activities
cannot go through properly due to the burden of debt pressure. Another thing is an
injustice to debtor-obliged to pay even no profit or loss. Here the business results
ensure uncertainty versus interest obligations. Interest does also an injustice to the
creditor- in the case of a lot of profits, the borrower returns the equivalent amount
of profits earned. (Bećirović, Plojović, & Ujkanovi, 2010). Daily injustice distribution is
growing rapidly for the activities of interest.

344
 International Congress on Islamic Education

Reduced Consumption
The growth of unemployment, increase in food crisis, rising prices of essential
commodities, etc. are largely considered to be a waste of interest. At the high rate
of interest, some products go out of buying power. As a result, human consumption
decreases at a concerning rate. Capitalists do not invest their capital into business or
productive sectors. He will be waiting for when the capitalist crisis will arise and the
entrepreneurs will borrow higher interest rates. When such a situation arises, he gives
loans at a higher rate. Thus, interest rates adversely affect production, growth, and
employment (Saleem et al., 2013).

The Business-cycle Decrease

The price of the commodity increased, due to interest. As a result, the amount
of purchasing consumers decreases. And due to the decrease in total sales, the
profitability of the producers has a negative impact on the capitalization. Increased
production costs due to interest. And due to the increase in the prices of goods, the
demand for the goods also decreases. As a result, the producers are discouraged to
invest and business-cycle also decreases (Saraç, 2016). Most of the profits are available
in the interest rate system. Unfortunately, the project which is less profitable is public
welfare but it is not loaned.

Lower Inflation and Increase its Risks

The price of the product increases due to the effect of interest. On the other hand,
the interest in the non-productive sector increases the interest to invest in that
sector (Diwany, 2008). And investment in the productive sector decreases. As a result,
the supply of commodities in the market decreased and the price of the goods
again sparked inflation. “It means if there is no increase in interest rate, it will have an
adverse impact on the overall cost of production because borrowed capital becomes
more expensive (Saleem, Khan, & Siraj, 2013: 5).” In addition, when interest rates are
decreasing, consumer spending is rising then it will be kept better contribution to
economic growth.

345
 Uluslararası İslam Eğitimi Kongresi

Reduce Entrepreneurship
When interest used as a tool of money income without any activity at that moment
entrepreneurs discouraged to invest money into productivity (Abdullah, 2015). In
addition to Social entrepreneurship cannot rise properly due to the increased interest
rate. A large group of people heavily burdened with debt has always been forced to
remain in distress and anxiety in the face of debtors’pressure (Abdullah, 2013). As a result,
their vitality can be eaten up slowly and slowly disappearing. Its normal reaction makes
the life of their own and their family miserable and downplays the national production.

Increase Social Instability and Risk

Interest-taker never sees the lack of others and problems in human and sympathy.
Rather than capitalizing money on the weakness of others, it is more stupid work
of greed. Where there is more profit in the business, the interest-takers invest more
capital in these businesses. As a result, anti-liberation activities such as drug trade,
gambling, spread in society and cause moral degradation of society (Saraç, 2016). Due
to the interest rate, without the risk of the transmission, do not want to bear the risk of
an investment that hampers the progress of social development.

Solution through Islamic Finance Concepts

The Islamic Finance System, which is seen as an alternative way to exit from the
crisis in the world economy, is the system in which all kinds of financial activities and
transactions are implemented within the framework of Islamic rules. In this system,
money alone does not have a value, only the means of exchange. Therefore, there is
a partnership relationship, not a creditor-debtor and a banker-client relationship. The
profit and loss of the investment subject to financing are shared in this partnership
relationship (Saraç, 2017). Since the launch of the Islamization of knowledge master
plan, Islamic finance has shown the fastest growing disciplines in the business. The
interest-free financial system is based on basic principles such as partnership, profit
sharing, halal profit, equity and fair income distribution. In the historical course of
this system, some special institutions such as Mudaraba, Musharakah, Murabaha, and
foundation have also been formed (Rethel, 2010).

346
 International Congress on Islamic Education

According to data collection, most of the researcher (90%) recommended that

mudaraba is the first method for establishing interest-free economy for our social
development. Implementation of mudaraba system determine the business profit
or loss but there is no place for interest. Another 90% of researchers recommended
that musarakah is the second alternative for operating the interest-free financial
system. Because it was established based on partnership business which reduces the
probability of loss and interest. Murabaha can be a third option to operate interest-
free financial activities that 80% of researchers recommended. Murabaha is relating to
selling and buying process without interest-based activities.

Islamic microfinance can be a good example against interest system that 80% of
researchers recommended. 70% of researchers recommended Takaful can be an
interest-free insurance technique that is one of the good alternatives for operating
interest-free financial activities. Ijarah involved the rent and acquisition process without
any interest-based activities that 70% of researchers supported as a good alternative
way against interest. By using Qader al-Hasana between the society’s people that can
be another choice against interest that 70% of researchers recommended. Finally, 70%
of researchers also recommended that selem and istisna way can be a good alternative
way against interest.

347
 Uluslararası İslam Eğitimi Kongresi

Mudarabah System
Mudaraba can also be considered as a business partnership or profit loss partnership.
He also puts his labour, knowledge, and experience into service at the same time. In the
Mudaraba contracts, it is necessary to agree in advance on the sharing of profit. An 80%
-20% share agreement can be an example of this. For example, a customer with 1,000 TL
brings his savings to a participation bank. 75% to 25% of the profit to be generated by
the participating bank. The participation bank brings together this accumulation and
the savings of 75% to 25% of the pooled customers and then uses them in the financing
of the projects. The project can be any kind of financing process that is compatible with
phasic banking principles. The resulting profit is shared (Bayındır, 2005).

Musharakah (Joint Venture) System

Musharaka is an Islamic contract for the establishment of a joint venture partnership
without interest basis. In Musharaka, two or more parties participate in a business
with capital contributions and related profits and losses. Musharaka works as a joint
venture that allows the customer and bank to contribute funds for investment or
purchase goods and agree to share income (and risk) on an advance basis (Ayub,
2017). The damage also must be born in proportion to the capital provided by each
party (proportional). In addition, in spite of the fact that the financial loss belongs to
the shareholder, the share of the loss is shared with the capital ratio. For example, 100
million from 100 million of its own equity capitals is used in the trading business by
taking the fund from the participation account holders. Here, while the profit is shared
according to the principles of the agreement, the loss can be incurred according to
the capital ratios (Hassan, Kayed, & Oseni, 2003). When this process does the work
properly, there is no existence of interest.

Murabaha / Markup Sale

Murabaha is an Islamic financing model where the capital owner buys a commodity
freely and puts a profit on it and sells it to its customers. Murabaha works with a supplier
of goods to the customer for the recovery of the customers to include the margin on the
price and to pay for their installments (Bayındır, 2005). When the buyer applies for the
capital or goods from the participation bank. Participation bank investigates whether the

348
 International Congress on Islamic Education

goods are suitable for trading according to Islamic law and the buyer’s ability to pay (Iqbal,
1997). If it is appropriate to buy and sell goods according to Islamic law, participation
bank orders goods from the merchant. Participation bank sells goods to the buyer in
installments. Here is no presence of any interest-based contract. In this process, there is
no interest that can create any haphazard situation between the seller and buyer.

Islamic Microfinance
Microfinance is one of the most important tools in poverty reduction. And poverty
has been also a continuing threating issue for development throughout the world.
At this moment commercial banking activities are based on minimization of risks
and maximization of profits. The existing social problem like poverty, discrimination,
and injustice can be alleviated by the proper implementation of micro-credit, micro-
equity, micro-savings, micro-transfers, and micro-insurance systems according to the
principles from the Quran and the Sharia. Those are can be operated regarding Islamic
finance concepts which do not violate the fundamental prohibition of riba (Obaidullah,
2008). Although microfinance is provided to access the financial services of the poor,
the establishments carry out their activities with interest, and thus an important part
of the Muslims with interest sensitivity cannot benefit from these activities (Rahim &
Rahman, 2010).

Takaful (Participation Insurance)

In the shortest way, Takaful can be defined as “Islamic Insurance “or “Interest-Free
Insurance technique”. In general, Policyholders agree to contribute to a mutual fund
that goes through a negotiation system without guarantee between them. By the
collecting contributions of a fund that constitutes the takaful fund (Hassan, Othman,
Salleh, & Husssin, 2016). Basically, the takaful fund is controlled by a takaful operator,
who agree to charge the covering cost. At the same of the conventional insurance
company, claims management and underwriting are included as a cost (Hassan,
Kayed, & Oseni, 2013). Those funds may be distributed to the participants in the form
of cash dividends or distributions or via a reduction in future contributions. Common
insurances include uncertainty-based activities and practice of interest charging but
Islamic insurance (takaful) does not work based on uncertainty and charging interest.

349
 Uluslararası İslam Eğitimi Kongresi

Others Concepts
In Islamic finance, the concept of Ijarah determines to lease of property conforming to a
contract that specifies admissible benefit according to form of usufruct for a certain time
in return to the basis of definite permissible consideration (Bayındır, 2005). In addition,
it is necessary to deliver the money or the number of goods that will be the sale price
in advance during the contract. However, the quality, quantity and delivery date of the
goods have been determined. Selem is the process of changing the cash in advance with
a standard (miscellaneous) commodity. This is the opposite of the sale in installments
(Ayub, 2017). Istisna, asking someone to do something, means order. This is still widely
available today. Therefore, it is necessary to explain the nature of this contract. The
qualifications, quantity, work, and cost of the product must be determined. If the goods
do not have the desired qualifications, the employer will have the right to be another.
The terminology of the Islamic framework, ‘’Qader al-Hasan’’ which is related to debt
and borrowing. However, who can be defined as interest-free loans for the lenders of
interest; In particular, Qader al-Hasan pays for the humanitarian and welfare purposes
without any profit to the lender (Warde, 2010). The most important responsibility of the
borrower is to pay the borrower to fulfill the promise or contract. And the main duty of
the borrower is not to charge the main amount of the loan because those who charge
interest are compared to those controlled by Satan’s influence in the Qur’an.

Findings
According to the analysis, there are some results when doing this research work. These
results are explained in groups between the points and the bottom:
• The interest creates in people the evil qualities of niggardly, selfishness,
heartlessness, cruelty and greediness. In society, there is the interest-based
economy at the root of social inequality and corruption.
• Lending at interest has a number of negative effects on our social development.
The paramount among these is the worsening gap between the rich and the poor.
• In interest rates, in general, investors are forced to invest only in those sectors, after
paying interest on the capital, where profit rates are relatively high.
• The capitalist system is pressing us. in the interest-bearing economic system,
manufacturers and traders determine the selling price of commodities by adding
transport costs, duty (if any) and normal profit on the cost of production.

350
 International Congress on Islamic Education

• In the current situation, banks and financial institutions are taking steps to charge
interest relatively high, which violate human rights standards.
• Researchers recommended some real negative effects of interest (exploits people,
the burden of debt, unemployment rise, increase price of the commodity, reduce
business cycle, Lower inflation & increase risk, etc) in our social development.
• Researchers also mentioned some solutions (Mudaraba, Musaraka, Murabaha,
İslamic microfinance, etc) through the Islamic finance concept against interest.

• The modaraba contract operates as a profit-sharing contract. So modaraba is

reserved for business, it is not suitable for consumer money.

• Mudaraba & Musarakah based business partnership contract is the sign of a

good alternative financial system against interest in the business world. Islamic
microfinance is another good alternative way for alleviation poverty from the
society.
• Analysis of negative impacts of interest to the western economists are recognizing
the fundamental destructive effects and disasters of interest in their research, and
are recognizing the research of Islamist thinkers about interest without hesitation.

Recommendations
According to the analysis of doing this research work, there are some recommendations
such as:
• Many people believe that interest-based transactions can give us economic
independence or poverty reduction. But in reality, it creates discrimination among
the people and exploits poor people.
• Using interest-based loans has contributed to the financial crisis, each crisis is more
than its predecessor. Small and big debts have cursed for many families, which
leads to death and suicide every day.
• In modern times, the place of moneylenders occupied the foundations of banks
and other lenders, unfortunately. In addition to the prohibition of the interest rate,
the elements of the contract, subject, price, delivery time, etc. should be clear due
to the Islamic rules.

351
 Uluslararası İslam Eğitimi Kongresi

• Profit and loss-sharing can be an ideal of Islamic finance, in fact, it only plays a
second role. Based on partnership business like Musarakah which reduces the
probability of loss and remove the interest.
• Under a loan the settlement date should be specified, the borrower cannot ask for
a former payment, and the lender should not break the terms and conditions.

• Islamic microfinance has brought about moral rectification in their behavior, which
has improved their income, expenditure and crop production.
• Takaful is a unique way to manage future financial needs and protect against
Sharia’s officially unexpected events.

• Interest-free loans like Qadr al-Hasan paid for humanist and welfare work without
any benefit to the lenders.

Conclusion
Even today, that interest is present in society in an unbeatable speed. But history has
witnessed, interest has always been condemned in rigid language, the prosecutor has
been identified as a social enemy, the boycott of the indefinite period has been called
in all age. The program of interest was not supported and was not given legitimacy
in any divine book. Muhammad (peace be upon him), the ambassador of the world’s
peace, did not forget to say about the truth in his last speech. He declared in a steadfast
voice that all the interest of the ignorant era was canceled. First of all, I repealed all the
benefits of our tribe. The interest-free finance system emerged as an alternative to the
elimination of the chaos caused by the unfair order in the modern financial system.
In addition, it is prohibited in this system that only profit is shared without taking any
risks. It is obvious that Islamic finance is based on interest restrictions. Islamic finance
can avoid the loss of conventional finance, among them the widespread and growing
levels of debt - public and private. Meanwhile, the Islamic financial system, which has
identified as a viable financial alternative way to the business world. Today’s world has
a complex financial structure. Nearly every transaction is carried out through banks.
One cannot possibly eliminate the banking completely from one’s life but at least we
can control how much interaction can be carried out.

352
 International Congress on Islamic Education

References
Abdullah, A. K. (2013). Pitfalls of Riba or Interest-Based Financing. International Journal of Advanced Research.
Abdullah, A. K. (2015). Advancing Well-Being with Interest-Free Finance. International Journal of Advanced
Research.
Ağri, T. & Orhan, Z. H. (2018). İslam İktisadı Perspektifinden Faiz (Vol. 1). İstanbul: İslam Iktisadi Araştırma
Merkezi.
Aristotle. (1999). Politics. Batoche Books.
Ayub, M. (2017). İslami Finansı Anlatmak (Vol. 1). İstanbul: İktisad.
Bayındır, A. (2016). Ticaret Ve Faiz. İstanbul: Süleymaniye Vakfı.
Bayındır, S. (2005). Faizsiz Bankacılık. İstanbul: Rağbet.
Bayındır, S. & Ustaoğlu, M. (2018). The Issue of Interest (Riba) in the Abrahamic Religions. International Journal
Of Ethics And Systems, 5.
Bećirović, S., Plojović, Š. & Ujkanovi, E. (2010). The Impact of Interest on the Economy. International Scientific
Conference.
Chapra, M. U. (1992). Islam and The Economic Challenge: The International Institute of Islamic Thought.
Chapra, M. U. (2010). Prohibition Of Interest, Does It Make Sense? (2 Ed.). South Africa: IDM Publications.
Checherita, C. & Rother, P. (2010). The Impact of High and Growing Government Debt on Economic Growth (Vol.
1237). Germany: European Central Bank.
Diwany, T. E. (2008). Faiz Sorunu. M. Saraç (Trans.). İstanbul: İz.
Hassan, M. K., Kayed, R. N. & Oseni, U. A. (2003). Islamic Banking & Finance, Principles, and Practice. England:
Pearson Education Limited.
Hassan, M. K., Kayed, R. N. & Oseni, U. A. (2013). Introduction to İslamic Banking & Finance. England: Pearson
Education Limited.
Hassan, R., Othman, A. A. Salleh, S. & Husssin, M. A. (2016). Islamic Banking and Takaful. Malaysia: Pearson
Malaysia Sdn Bhd.
Hossain, M. S. (1992). Interest, Society. Economy: İslamic Economics Research Bureau.
Iqbal, Z. (1997). Islamic Financial Systems. World Bank Publication.
Khalid, D. I. (2016). Riba (Interest) as a Cause of Imbalance Society and Its Islamic Perspective. International
Journal of Advanced Research, 4.
Khan, M. (2009). Interest-Free Economy. Peace Publication.
Marx, K. (2003). The Capital (Vol. 1). Eris Publication.
Obaidullah, M. (2008). Introduction to Islamic Microfinance. India: IBF Net (P) Limited.
Rahim, A. & Rahman, A. (2010). Islamic Microfinance: an Ethical Alternative to Poverty Alleviation. University
Publication Center, 4, 284-295.
Rahman, M. H. (2009). Interest. Bengal Press.

353
 Uluslararası İslam Eğitimi Kongresi

Rahman, S. H. (1991). In the Economy, the Prophet (Peace Be Upon Him) Has Ten Points. Dhaka: Rajshahi Student
Welfare Association.
Rethel, L. (2010). Whose Legitimacy? Islamic Finance and the Global Financial Order. Review Of International
Political Economy.
Sadeq, A. H. M. (1992). Al-Ghazali on Economic Issues and Some Ethic Juristic Matters Having Implications for
Economic Behavior (Vol. 7). Islamic Economics Research Centre: Islamic Economics Research Series, King
Abdulaziz University.
Saleem, M., Khan, M. & Siraj, S. (2013). The Impact of Interest Based Banking on Socio-Economic Environment.
International Journal Of Scientific And Research Publications, 3 (11), 5.
Saraç, M. (2016). Sürdürülebilir Kalkınma İçin Faizsiz Finans Sisteminin Önemi ve Gereği. Yerel Kalkınma Derneği.
Saraç, M. (2017). Finans Teorisini Yeniden Düşünmek (Vol. 2). İstanbul: İktisat.
Uludağ, S. (2010). İslam’da Faiz Meselesine Yeni Bir Bakış. İstanbul: Dergah.
Warde, İ. (2010). Islamic Finance in the Global Economy. Edinburgh University Press.
Zaman, A. (2001). Interest and the Modern Economy. The Lahore Journal of Economics, 6, 113-127.

354
View publication stats