In the Name of Allah, Most Gracious Most Merciful
Capitalism is an economic and social system that tends towards the accumulation of wealth by individuals without government interference for profit maximization.
To maximize profits, various innovative economic systems have been created for this purpose. It starts with the use of fiat currencies, capital market trading, banking systems, derivatives market trading, structured financing, and even school-based learning institutions and universities.
I do not intend to explain on each of these economic systems in detail but I will try to elaborate as much as possible that capitalism as a whole goes against God's teaching system.
(i) Fiat Currency System
Prior to the existing paper currency, trading was based on a barter system where services and goods are exchanged with orther services and goods on mutually agreed and negotiated basis.
Gold and silver were then melted into a medium of exchange. Gold and silver are precious metals that can be recycled to be molded into a variety of appliances and decorations. It is a tangible asset that can be valued.
However, this was not enough for mankind. The banking system evolved over time to replace gold and silver with fiat money. Although the paper money was originally based on the value of gold or silver deposited, the bank began issuing its own money by borrowing gold or silver to lend to others. The process of issuing this paper continues on the basis that loans are created on top of other loans until now each paper money is no longer based on gold, silver or any other valuable property, but multiple folded of debts or loans.
So what is the true value of the paper currency today? In fact, many banks from around the world issue their own currencies which technically have no real value. This is further worsen when currency trading market was created based on the justification that the value of currencies need to be determined by supply or demand of the currency itself. However, this market does not physically deal with the currency but merely deal with contracts to buy and sell currencies the traders don't possess. There is no physical movement of currencies between buyers and sellers, but the currency traders in this market have significant effect on the value of the currencies.
Basically, the fiat paper money that we believe has real value in actual fact is backed by layers of debt while currency trading is deceptive.
Therefore any profit derived from fiat currencies and the profitability of the currency market trading are in fact profits which are falsely derived. This is the system of currencies and bankings created by the capitalists.
(ii) Capital Market / Stock
The value of a company is essentially based on the net worth of the company 's assets, that is, if all assets are liquidated and all debts and loans are settled, then the remaining value is the real value of the company.
However, in the capitalist system, similar to the currency's system, sellers want to profit more than the real value of the company. Therefore, another method of valuation of the company is introduced based on the ability of the company to generate future wealth and multiply it over and over again. In order to satisfy the greed of surpassing its true value, a stock / capital market is created whereby the value of a company is traded in double value up to one hundred times the profit of the company.
Nowadays, we find that companies that are operating at loss of billions of dollars and are unable to pay dividends are being traded at rediculously high value. As such, stock traders do not have to wait for the company's profit distribution but can still make profits through the capital gains from the stock markets.
For example, Microsoft's share price is now 30 times the company's profit. This means that the buyer of the company will have to wait 30 years to recover the purchase price.
This method is a clear deception of value where sellers are profiteering from the stock markets.
(iii) Derivatives Market
Commerce or Selling of goods and services are encouraged in Islam. However, in the capitalist system there is another type of business that does not involve the exchange of goods or services, but rather exchange of contracts which are labeled as certain commodity. There are also trading of contracts which are purely based on index. The markets that trade these contracts are also known as derivatives markets.
Fundamentally, the profits derived from these markets are either windfall or obtained through deception. Examples of derivative markets are futures markets, options markets, commodities markets and more.
(iv) The Learning System
The capitalist learning system also influences on how one lives the future. Since school days, we were taught that in order to succeed in life, one must have, property, position and power. With this being planted in our mind since our early days, we gradually formed a society based on material greed and greed for position and power.
Riba According to the Al Quran
Riba or usury means "incremental". God forbids riba or this incremental.
Surah Al Baqarah - 2 verse 275
Those who consume riba cannot stand [on the Day of Resurrection] except as one stands who is being beaten by Satan into insanity. That is because they say, "Trade is [just] like riba" But Allah has permitted trade and has forbidden riba. So whoever has received an admonition from his Lord and desists may have what is past, and his affair rests with Allah . But whoever returns to [dealing in riba or usury] - those are the companions of the Fire; they will abide eternally therein.
What does it really mean here to consume Riba or Incremental? As we know, in business, there is certainly an incremental in costs known as "profit". If there is no incremental, then there is no profit. Therefore, those who try to justify Riba will say that the incremental in business or profit is the same as Riba.
The Al Quran explains the meaning of this incremental. The following verses to be pondered: -
Surah An Nissa - 4 verses 160 - 161
For wrongdoing on the part of the Jews, We made unlawful for them [certain] good foods which had been lawful to them, and for their averting from the way of Allah many [people], And [for] their taking of Riba while they had been forbidden from it, and their consuming of the people's wealth unjustly. And we have prepared for the disbelievers among them a painful punishment.
Consuming other people's wealth in unjustly manner is incremental or Riba that God forbids. This is different from a business that is mutually agreed upon. Next verses to ponder: -
Surah An Nissa - 4 verse 29
O you who have believed, do not consume one another's wealth unjustly but only [in lawful] business by mutual consent. And do not kill yourselves [or one another]. Indeed, Allah is to you ever Merciful.
This relats to various forms of deception and unjust consumption of wealth in today's business world. For example, profits from selling counterfeit goods, is an incremental or Riba. Manipulating an account for the purpose of escaping from paying taxes is also an unjust consumption and Riba Winning a tender unfairly or through bribery is also another form of Riba in which the benefits of the project is won through an unjust manner.
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In the case of bribery, it is not only the receiver received incremental or Riba unjustly but those who give bribery are also forbiden by God . Allah's verses explain: -
Surah Ar Rum - 30 verse 39
And whatever you give for interest to increase within the wealth of people will not increase with Allah . But what you give in zakah, desiring the countenance of Allah - those are the multipliers.
Apart from Riba in the form of unjust consumption of wealth, profiteering in multiple manner is also prohibited by God and considered as Riba.
Surah Al Imran - 3 verse 130
O you who have believed, do not consume Riba, doubled and multiplied, but fear Allah that you may be successful.
In my opinion, and based on this verse, profiteering in multipled manner beyond generally accepted amount is also a Riba prohibited by God. For example, if a product typically sells for 35% profit margin, but a business earns 300% profit margin instead, this excessive profit is also a Riba forbiden by God. Such unusual profit margin can normally be achieved only through non arm's length elements.
Capitalism and Riba
Based on the above paragraphs, any gain or profit obtained in a false, fraudulent or unjust manner or unreasonable multipled profiteering can be construed as Riba.
Some of the activities which are Riba include: -
(i) Corruption and bribery
(ii) Non arms length transaction
(iii) Business fraud
(iv) Unrealistic profiteering
(v) Unjust consumption of wealth
(vi) And many more
In the capitalism system, fiat currencies used in business transactions have no real value. Therefore, the profit through the use of these currencies is in fact fraudulent.
However, whether it is a Riba is still a matter of debate. This is because these transactions are mutually agreed.
However, the activities in the stock market are clearly unjust. It is unreasonable for company's shares are traded up to 30 times its profit. This is not only unjust or deceptive, but also profiteering in multiple manner.
So are the Derivative Markets. In these markets, only the names and labels of the products are used as if the tradings involved such products, for example, currencies, soya bean, cocoa, crude oil, gold and silver. However, in reality, there is no exchange or movement of these products from seller to buyer. Therefore, any profit is obtained falsely or unjustly.
As mentioned above, all of these systems are designed for the purpose of fulfilling capitalist's greed to profit despite the fact that these traders do not really directly transact these products.
Riba and Islamic Banking
We have always been made to believe that the interests charged by the bank is a Riba.
One of the bank's business activities is to provide lending or loans anyway. In order to benefit from the loan services, the bank charges interest on the loan at a rate agreed upon by both parties. The longer the tenure of the loan the higher the interest to be paid.
In my opinion, bank interest is an "arm's length" transaction that is agreed upon by both parties for the services provided by the bank. These profits are used to pay all expenses required to sustain the bank including paying salaries to bank's employees and possibly giving back to the community in the form of charity, zakat and more. There is nothing deceptive, fraudulent or unjust about it.
Due to the believe that bank's interest charges are Riba, Islamic banking experts have devised a variety of methods so that banks can still lend and gain profits without being labelled as Riba and therefore halal. Banks that practice these methods are labelled as Islamic Bank or Syariah Complance Bank.
Personally I think the methods labelled as Islamic are more corrupt, deceptive and unjust than the conventional banking.
In the "Diminishing Musharakah" concept for housing loan, the bank will buy the house and resell it to the borrower through a partnership agreement in which the borrower pays the bank in instalments. The percentage of the borrowers share of equity in the house increases as the instalment amount accumulated over the tenure of the instalment until the borrower fully own the house at the end of the tenure. However, resale price of the house by the bank to the borrower is not at the market price, but rather a price which is double, triple or even quardruple of the original price. Basically no one in his or her right mind would have agree to sign as sales and purchase agreement of such value in normal circumstance. This method is clearly a deception and unjust where bank makes multiple profits upfront from the deal. This incremental is Riba based on the explanation of the Al Quran above.
In a conventional banking, one may only need to sign one or two agreements. However in Islamic Banking one has to sign up to five or more agreements merely to work around so that the loan can be labelled as halal and shariah-compliant requirements. The substance remains but the form differs.
Sheikh Imran Hosein describes this scam as "Backdoor Riba".
Other methods that use tawaruq is also based on the same concept.
In fact, there are many Islamic banking methods that resulted borrowers to actually pay a higher incremental than conventional banking. But we've been corrupted that this is justified because it is "halal".
Sometimes, I wonder, who are these smart Islamic scholars and bankers trying to fool. Are they trying to fool God?
As always, I'm very sure that many may not agree with me on this...but again, it is up to you ...or Atahmu.
May we be guided.
Wasslam,
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