The Collapse of Financial Structure
‘Credit finance consumption based growth is always a recipe for disaster’. This is the conclusion of Dr. Pervaiz Tahir in his article ‘The great American robbery’ in Dawn.
It was corruption driven by pure greed wasn’t it.
Now what we are seeing is that the free market economy may not be as healthy as it was made out to be. (It took a century to work that out.) But look at our banks they have had a complete turn around ever since they have been privatized. The Indian economy is booming after they opened up .The list is long. It does motivate the people doesn’t it?
How much should the state Control? What should the state control? What is the Islamic perspective?
What we see in the Scandinavian model of the welfare states is what the Islamic state should look like? How do you compare that to Hazrat Omar’s model as it was evolving?
I believe that consumption on the basis of credit is morally undesirable. One should consume only what one can afford to, unless one is in a tight corner. The existing financial chaos owes itself, to quite an extent, to the unchecked consumption on credit. In most cases it is the immoral behaviour in the marketplace that leads to economic disasters.
However, taking unnecessary loans for personal consumption is one thing and getting funds for furthering business interests is quite another. In the latter case, good businesses should be provided with proper funding on the basis of merit of the projects. The providers of those funds, whether banks or individuals, should participate and take responsibility in the welfare and growth of those projects. That participation can take several forms, but not the form of interest-based arrangement, because of it being morally despicable and because it begets irresponsible attitude towards the borrower’s business. We believe that if a lender is guaranteed the return of his principal amount while he is still allowed the right to participate in the profits, such arrangement is also one of the allowable options in Islam.
According to the Quran, the state can, and indeed in most cases it must, have a public sector component in the economy to be able to discharge its obligations towards the less-privileged segments of the society. Because an Islamic state must also be concerned about the overall welfare of the economy which ultimately affects the life of the common man, it should also play its role to improve the lot of the economy. If regulating the economy to some extent is necessitated, that too should be considered as an important part of its obligations towards the people. However, state intervention in the economy should be restricted to those domains alone where it is felt absolutely necessary.
Indeed the welfare state model experienced in some of the European countries is very close to the spirit of Islamic teachings. Muslims would do well to study it carefully and replicate it. If the Indian economy is doing better than ours, we should study the causes of it carefully and try to bring in the good aspects of its policies into our economy as well. Our religion doesn’t stop us from learning from others. It only requires us to never cross the moral limits imposed by God.