Pyramid Comment

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Friday, August 26, 2011

Usury And Islamic Student Loans

Note added: 09.12.2011

Everything has gone very, very quiet concerning this potentially huge problem. The odour of some sort of hidden 'silent deal' is pungent. The application of interest is in itself acceptable in order to create a profit, but with a fixed amount of interest declared 'up front'. The difference in the 'western world' attitude is that the applied interest is a mercurial (volatile, erratic, unstable, flighty, fickle) target. Completely unfixed with excessive charging growing at an unreasonably high rate.

The silence in the UK is...


The student loan fiasco has possibly encountered a major snag. The grip on a generation of non-Islamic English students is not enough, but in terms of racial harmony this government has reached a potential impasse. To go head-to-head with the Islamic community (Muslims) as a whole in contravention of the fundamental principles of Sharia: the code of conduct or religious law of Islam.

Abuses in lending
Amortisation: The Monster
Conflict with Islamic law
Muslim challenge

The mechanism of usury can be illustrated by considering Credit Card Debt. A 'loan' is created, but the repayment increases over time. The Sharia concept is fair (a declared and unchanging profit at the beginning of the loan term), whereas the debt-based system involves a changing amount and rate of interest as the loan term progresses and is unfair, immoral and usury. As interest is regularly added, the loan amount increases. Amortisation adds more interest by charging interest on already applied interest.

The criticism of usury in Islam was well established during the lifetime of the Prophet Muhammad and reinforced by several of verses in the Qur'an dating back to around 600 AD. The original word used for usury in this text was Riba, which literally means “excess or addition”. This was accepted to refer directly to interest on loans so that, according to Islamic economists Choudhury and Malik (1992), by the time of Caliph Umar, the prohibition of interest was a well-established working principle integrated into the Islamic economic system. This interpretation of usury has not been universally accepted or applied in the Islamic world. A school of Islamic thought which emerged in the 19th Century, led by Sir Sayyed Ahmed Khan (1817 - 1898), argues for an interpretative differentiation between usury (consumptional lending) and interest (lending for commercial investment).

Islamic banking has the same purpose as conventional banking: to make money for the banking institution by lending out capital, but Islam forbids simply lending out money at interest (riba). Islamic rules on transactions (Fiqh al-Muamalat) have been created to avoid this problem. The basic technique is 'sharing of profit and loss', via terms such as profit sharing (Mudharabah), safekeeping (Wadiah), joint venture (Musharakah), the cost plus profit that is clearly understood and is required to be an "honest declaration of cost" (Murabahah), and leasing (Ijarah).

  • Adding extra interest to this profit (and amortisation) is where it all breaks down. An 'honest profit' does not involve pure greed by profiteering that by definition is unethical
  • It appears that the method might involve the Islamic bank paying the university 'up front', the student then repaying money to the bank and NOT the UK government
  • UK (non-Muslim) students would be forced to enter the (more lucrative profiteering) usury system
    • If such a student took out a personal loan with a lender then it would be necessary to pay back (explicitly) from day-1. Could the Islamic banking procedure defer payment in the same way as the 'nothing to pay up front' system apparently works? (No idea - DA)
    • If a low-paid job were taken that returns less than the threshold £21,000 a year then nothing is required to be paid back. If the career were to be a low-paid lifelong occupation then nothing would be paid back. Ever. The 30-year maximum. It would restrain the progression of the lower paid by encouraging staying under the threshold. This would discourage looking for a well-paid job. They are not generally available. The sword of Damocles. Those in a position of influence can always open doors for 'favourites'Contacts are already established and the average 'joe' does not stand a chance when confronted with nepotism.

This whole ill thought out mess
gets messier by the day and
involves double standards
that simply penalises the 'poor'
UK-resident non-Muslim

  • It could be that it has all been very well thought through and in principle the 'poor' graduate who cannot afford it, is in receipt of an expensive loan and paying for those who can. The wealthy don't pay and only the 'poor' do by way of interest on the debt. The definition of 'poor' is someone who needs a loan.

In an Islamic mortgage, the bank would buy from the seller, and re-sell it to the buyer at a profit instead of loaning the buyer money in order to purchase the item, while allowing the buyer to pay the bank in installments. The bank's profit cannot be made explicit and therefore there are no additional penalties for late payment. If the loan period is extended for any reason the initially declared profit will not change.

  • In order to protect itself against default, the bank asks for strict collateral. The goods or land is registered to the name of the buyer from the start of the transaction. This arrangement is called Murabahah. Another approach is Eljara wa Elqtina, which is similar to real estate leasing. Islamic banks handle loans for vehicles in a similar way (selling the vehicle at a higher-than-market price to the debtor and then retaining ownership of the vehicle until the loan is paid).

Islamic banking is restricted to accepted standards in transactions, which exclude those involving alcohol, pork, gambling, etc. The aim of this is to engage in only ethical investing and moral purchasing:

both generally alien to British
non-Islamic 'business practices'

These are basically profit, profit, profit and little (nothing - DA) else. 'Growth' of something means the demise of something else.

Live or die

Winners And Losers