why dont they advance finance to developing countries on a profit sharing basis instead of charging interest?

why dont they advance finance to developing countries on a profit sharing basis instead of charging interest?

THE ROLE OF ISLAMIC BANKING IN ECONOMIC DEVELOPMENT IN EMERGING MARKETS BY HAJARA ADEOLA MD/CEO LOTUS CAPITAL LIMITED A PRESENTATION AT THE ISLAMIC FORUM BUSINESS LUNCHEON LA SCALA, LAGOS NOVEMBER 2007 1 OUTLINE Introduction Effects of the Interest Based system The Islamic Solution The Framework Shariah Objectives and Effects Islamic Tools for Prosperity Macroeconomic Efficiency Islamic Banks An Alternative? Effects on the Economy Financial Institutions Global Islamic Finance Industry Conclusion Our Contact 2 The Debt Burden War has been declared on our economies and the weapon is debt relieved of their annual debt repayments, severely indebted countries in Africa could use the funds to save the lives of 21m children in 3yrs and provide 90m girls with basic education- (UNDP Human Dev Report 1997) Poor nations are told that if they borrow and invest wisely, the will be able to repay their debts and more. In 50yrs the debt has just kept growing: 1980 Developing country debt ($bn) Actual payments of interest + principal ($bn) Source: IMF World Economic Outlook 2001 1990 1259.8 140.6 2000 2140.6 337.8 525.4 73.4 3 Real Consequences of Debt The physical consequences of debt through basic indicators of wellbeing: In 1995, industrialized countries child mortality (no of deaths before age 5 per 1000 live births) = 16 South Asia figure = 109; sub Saharan Africa = 169 (UNDP Human Dev Report 1998) Not surprising given that: In Tanzania debt repayment = 6 times spending on healthcare In Uganda, annual healthcare spending = $2 per person whilst debt repayment = $11.5 per person (Jubilee 2000) 4 Contradictions The multilateral banks promote the borrow/invest/export/repay development model Yet, not one developing country has gone into debt with the IMF and World Bank and subsequently paid it off The typical response to budget and trade deficits in the developing world is an austerity program- yet the worlds biggest debtor and holder of the biggest trade deficit does not follow this advice They argue that debt finance is acceptable if projects are self-liquidating If so, why dont they advance finance to developing countries on a profit sharing basis instead of charging interest? There is no discussion of the impact of usury on monetary crises. Instead, the attention is on corrupt dictators and inefficient practices 5 The Islamic Solution The Islamic solution to the problems we face is based on an entirely different philosophy from the profit maximization fixation of the capitalist system Once when Muslims adhered to the rules of Allah, the world was characterized by peace and justice not riba and a debt burden Even for non-Muslims it was a Golden Age that thrived for almost 1300 years Important: If the only difference between Islamic and conventional banking practices is whether the business is interest based or not, then the conventional financial institutions can probably deliver Islamic services more efficiently A distinct aspect of an Islamic enterprise is the social dimension of its operations For Islamic banking & finance to be sustainable, compliance with Shariah principles alone is not sufficient. They must be able to provide a comprehensive range of Islamic financial products and services that are not only innovative and competitive but Shariah Compliant. Quality and added value is key 6 The Framework Islam Aqidah Shari’ah Akhlaq Ibadah Muamalat Political Economic Social Islamic Banking & Finance 7 Objectives of the Shariah The very objective of the Shariah is to promote the welfare of the people which lies in safeguarding their faith, their life, their intellect, their posterity and their property. Whatever ensures the safeguard of these five serves public interest and is desirable. Al-Ghazali The basis of the…;

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