Studying Islamic Finance

السلام والازدهار العدالة المجتمعي
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Tuesday, September 25, 2012

Time Value of Money

If God commanded usury be avoided, then it is really not up for debate.  Warde, from the book cited below:


On the issue of interest, one can be dismissive of all of Islamic finance
because ‘time has a price measured by interest rates, and no economic
system can ignore that’.72 The argument of Islamic scholars is more subtle.
Islamic law in fact accepts the notion of the time value of money or
opportunity cost.73 In the words of Fuad Al-Omar and Mohammed Abdel-
Haq: ‘The Shariah does … recognize a difference in value due to a time
element, and does not prohibit realizing the time-value of money. What is
prohibited is any claim to the time-value of money as a predetermined
quantity calculable at a predetermined rate’.74


There may be a theoretical argument for usury (commonly called interest) but if it is forbidden, then the theory is pointless.  The Christian theologians who wrestled with the question did so in view of "faith seeking understanding" not with a view of how to get around the rules.

There are also technical problem, such as in the instance above is the questioner referring only to money, or to credit as well? Proper definitions would no doubt open whole vistas.  The question is not can we overcome God's Will with a good argument, the question is how can we comply?

Usury is condemned because it does damage.  Compliance yields good results.  In between, there is an awful lot of struggle to meet the challenge.

Feel free to email this to three of your friends.

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