Ninety farmers feeding the nation committed suicide in a month. Ninety homes destroyed, dependents left destitute, worsening social inequity. Reason – inability to repay interest burdened debt. We, who sleep on stomachs full of the food they grow, should stop and reflect. Is this moral?
Lending on principles, honouring moral and ethical values has nurturing capability and benefits society. Lending seeking predetermined reward regardless of consequences is immoral, unethical, oppressive, unjust, destructive of lives, families, even hope. Only that owner of money willing to become a shareholder in an enterprise exposing his money to risk of loss is entitled to receive a return from profits.
Cost of capital is not a fixed, predetermined rate in Islamic banking – a factor of profit alone, it fluctuates. The Shari’ah (Islamic way) prohibits payment or acceptance of interest (riba) for lending or accepting of money. Banking on this basis is called “Islamic” banking. Since “Islamic” can become suspect, here it is converted to “Equitable Banking” – a money lending model for farmers and other producers, for all Indians, across the spectrum, not excluding Muslims.
Equitable banking activities must be practiced consistently with human rights, moral and ethical values and principles, and by applying equity based financial input in farming, we can evolve an equitable solution : partnerships ( mudarabah ) combining capital on one hand with labour and entrepreneurship on the other. A capital-owner contributes money, an entrepreneur manages the enterprise. Each gets a pre-determined share of profits. If there was a loss, the capital-provider loses money and the entrepreneur loses effort. Neither was left worse in debt, nor had mortgaged his everything, nor stood devastated. The entrepreneur was no worse than when he began, and there arose no question of inability to face pressure leading to suicide.
Equity-participation systems are desirable because both parties have a stake in success of the venture, and payment of profit share for renting of money entails risk of losing it if the business runs into loss. The financier loses his money, the entrepreneur loses his effort, with neither destroyed in any sense. These principles are based on simple morality and common sense and respect for human rights, which form the bases of many religions, including Islam, and are universally accepted even in non-Muslim literature. Usury is prohibited in the Old and New Testaments of the Bible. Every Hindi movie has focussed on its evils.
— Truthout (@truthout) October 18, 2013
Equitable banking will finance farming, eliminate debt ridden despair, eliminate suicides, restore hope for a future worth living, protect, preserve and nurture the human rights of those who feed the nation. In debt-financing a businessman borrows capital and invests it in his trade. The capital-owner is to get back his principal and an additional amount on a fixed interest rate, as his compensation. This payment is due irrespective of whether the businessman has made a profit. In the event of a loss, the borrower still has to repay the full principal amount of loan, as well as all accrued interest, from his own resources, while the capital-owner loses nothing. Islam views this as an unjust transaction. As no payment is allowed to labour unless it succeeds, even though it discharges work, so no reward for capital is allowed unless it succeeds; as labour loses its input, effort, on loss in business, so too must capital assume risk of loss of its input, money – that is what equity demands.
In Mudarabah (an equitable investment model) two parties co-operate as in a partnership, where capital-owner provides money and the other party puts skills to work. At the agreed period, the capital-owner gets back his principal amount together with a pre-agreed share of the profit that may arise, the other party getting the rest. In the event of loss, the entrepreneur having already lost his effort, the capital-owner bears the financial loss and his money reduces by the sum lost. The transaction was never a loan – it was an investment. It is the risk of loss that entitles the capital-owner to ‘halaal’ share in the profits. This is the principle of mudarabah.
The treatment of both parties is uniform in the event of loss, since if the provider of the capital suffers a reduction of his principal, the manager is deprived of a reward for his labour, time and effort. Islam sees no justification a person should enjoy increase in wealth from use of his money by another, even in that other’s loss, unless he is prepared to expose his wealth to the risk of that loss also. Islam views justified profit as return for entrepreneurial risk and effort, valuing human effort above capital, objecting to money being elevated above effort. From the ashes of those pyres let India fashion a light that dispels the darkness enveloping its farmers’ families.
By Shafeeq Mahajir