Some Quotes on IGNORANCE:

"The trouble with the world is that the stupid are cocksure

and the intelligent are full of doubt. " ~Bertrand Russell

"To be ignorant of one's ignorance is the malady of ignorance"-A. Bronson Alcott

"The trouble with people is not that they don't know but

that they know so much that ain't so." ~Josh Billings

"Anyway, no drug, not even alcohol, causes the fundamental ills of society.

If we're looking for the source of our troubles, we shouldn't test people for drugs, we should test

them for stupidity, ignorance, greed and love of power." ~P.J. O'Rourke

http://www.guardian.co.uk/money/2006/jun/13/accounts.islamicfinance

Dear Henry:

The entire message in your submission can be summed up in one word: IGNORANCE!

IGNORANCE!! IGNORANCE!!!

The danger about lack of knowledge on a particular issue is not necessarily the lack

of knowledge by itself but rather the lack of awareness of such limitation.

Only an amateur economist or an ignorant lay person would opine as you have

just done that INTEREST is the ONLY backbone which maintains a financial institution or sustains a viable

capitalist economy.

No sir you are wrong; very wrong! Interest is just one of the many ways that a financial institution makes money.

Interest and what is charged on money borrowed takes into account the

current rate of inflation and the projected rate of inflation over the term

of the loan plus an amount which is charged as the cost of money--

the true earning of the depositor for keeping his money in the bank.

Depositing a stash of dollar bills in the bank rather putting them under the pillow

for many years serves two purposes:

1) it protects the owner of the money from devaluation of the worth of his/

her asset (through inflation) over the interval encompassed by the term of the loan and

2) rewards the owner by paying him/her an additional amount (over and above inflation)

to compensate him/her for lending his money to the bank so the bank could also lend the money

to other individuals or corporations either for private use or to conduct a business at a higher interest

rate..

Now who says the payment of interest to a bank by a borrower or by the bank to

the depositor and (the difference between this two) is the only means a traditional

bank makes money after deducting its expenses?

Traditional banks do not only lend money for the sake of collecting interest;

they also sometimes take equity shares in whatever business they are loaning their funds

to (in other words they also invest in these companies in order to

diversify their risks and to have a stake in the operations and profit sharing

if the business succeeds and the shares of the company increase in value.

Traditional banks also charge fees--fees for loans, for ATM access etc.

Banks also invest directly in or sell securities. Banks also make from selling and

buying foreign currencies.

So already, Mr Elemuo--you have now learnt that traditional banks do not depend

only on interest earnings otherwise--banking will be a boring business and the commercial

centres of the worlds capital would be less enterprising if they do.!

Now I will begin your education about Islamic Banking by quoting from a mail

I received only yesterday from one of my friends who is also a Christian and'

a lay preacher:

Quote:

"Ola:

The superiority of Islamic Banking over conventional financial institutions does not lie only in the opportunities it might offer for the moneyed people to make more money through investment, but it lies in its promise to ensure that good returns to investments shall be accompanied by promotion of the good of the moral community as a whole. As you know the Islamic Bank provides capital with no interest, but they work with you to ensure the investment generates profit from where they receive their own revenue. It is a long-overdue alternative banking system for Nigeria. It has worked in several countries. One needs to study the banking industry in Malaysia to see what this alternative banking could offer to the populace. Yes, I totally agree with you that the name Islamic Bank leaves the Nigerians open to speculations and unease. However, negative perceptions could be mitigated if these banks carry names like Ahmadyya Bank, Zumratul Islamiyah Bank etc but with their operations based on Islamic Banking principles. You will be amazed to see an unexpectedly large level of patronage from non-Muslims. In fact, this banking system could further forge a better relationship between muslims and non-muslims in Nigeria. Tag me as one of the first set of Nigerians that will rush in to patronize; and by the way, I am not only Christian but also a senior teacher in the church Bible College". –Olu

UnQuote:

Please check this link: http://www.guardian.co.uk/money/2006/jun/13/accounts.islamicfinance

Your critique of Islamic banking showed a lack of basic understanding about how Islamic Banking works

beyond the superficial fact that it abides by the Sharia Law's injunction that the payment and receiving of interest is forbidden.

However, the injunction against the payment of interest by Islamic banks does not forbid these

banks from making money through other legitimate means. To bring it down to a basic level

so that you can follow my argument I would like to artificially divide two methods by

which a financial institution can either make money (be profitable) or lose money.

***The first is through Passive Investment:

In passive investment either by an individual who deposits his money in bank and

the money is put into either a savings account or he or she buys a GIC, Treasury

Bonds etc, the individual has No interest in whatever is the ultimate use of the money

The depositor's investment is therefore a passive one, as he or she plays no role in and has no stake in whatever use the money is diverted to either by the bank or the customer who takes a loan from the bank

All that he collects is interest on his money! This is what the Sharia forbids.

The Sharia works on the basis that money by itself has no value—beyond the ultimate use of the money.

So in Islamic banking the mere exchange of funds from the loaner to the borrower

without the loaner taking an equity stake in the ultimate use of the money is considered

riba which is forbidden. Thus Islamic Banking does not permit Passive Investment.

***The second method through which a traditional bank makes its money (which is also true of Islamic banks)

is through

Active Investment:

In this scenario a depositor to bank is automatically enrolled as shareowner of the bank

and awarded shares which makes his equity commensurate with the size of the deposit

relative to the banks Total Equity. In the same way when the bank loans the funds to an individual to build

or buy a house (traditionally called a mortgage) instead of the bank simply charging interest over the

Amortization Period of the loan the bank becomes part owner of the building. If for example

the homeowner makes a downpayment of 25% and borrows the balance, the share ownership

in Islamic Banking would be 25% to the homeowner and 75% to the buyer. If the house is sold

5 or 10 years later—the bank's portion of the equity will be 75% while the homeowner

keeps 25% (after taking into consideration what the homeowner had paid in monthly instalments.

The same principle applies to funds loaned to kickstart or expand a business. In each case

instead of the Islamic bank just collecting interest it becomes an active partner in the business

An option that is also open to traditional banks.

As you can see from the above Islamic banks are not charitable institutions. They are also

not in business for the purpose of losing money; they are setup to make profits and are liable

to accrue both gains and losses depending on the fortunes of the individuals and businesses

they chose to lend to.

Apart from the injunction against receiving or payment of interests Islamic banks share many similarities

with traditional banks in that they also make money in the following ways:

All banks, both traditional and Islamic

"also charge fees for services like checking, ATM access and overdraft protection.

Loans have their own set of fees that go along with them.

Another source of income for banks is investments and securities."

I would like to conclude that we start using our brains and not emotions and that we allow

logic rather than preconceived false ideas when approaching issues that we do not know enough about!

It is irrational to maintain that the institution of Islamic Banking will Islamize Nigeria.