Financial Failures

Financial FailuresFinancial Failures

Issue to be discussedIssue to be discussed
Financial Failure a reality
Exploring reasons
Interest
Taxation
Ethics
Established norms & practices
The future

Financial failuresFinancial failures
The great depress & stock market
crash
The recent financial meltdown in
Europe & USA
WHY ?

Possible reasons givenPossible reasons given
Cyclical
Market correction & Arbitrage Theory
The ugly beauty of Free market
Are these acceptable ?
Or are there other
important factors that
are missing!

A deeper analysisA deeper analysis
Exploited by greedy capitalist
Geared to the advantage of the capitalist powers
The bigger fish eats the smaller fish
In practice the stock market works quite differently that
theorized
Ethics are over-stretched
Creates a hollow market – the bubble!
The underlying fundamentals need evaluation!

The choice ?The choice ?
To succeed or fail?
To play with the lives of million on the basis of trail and
error?
Is the current system the outcome of the wisest men, or
should the system of the Wisest be acceptable ?
To succeed or fail ?

Analysing the building block ofAnalysing the building block of
corporate financecorporate finance
Interest is the basis of finance
Is it justifiable ?
Are there problems associate with it ?
What is the fundamental problem ?
Global warning for interest !

What the Qur’an DECLARES (2:275):What the Qur’an DECLARES (2:275):
Those who eat Ribâ (usury) will not stand (on the Day of
Resurrection)
except like the standing of a person beaten by Shaitân (Satan)
leading him to insanity.
That is because they say:
"Trading is only like Ribâ (usury),"
whereas Allâh has permitted trading and forbidden Ribâ.
So whosoever receives an admonition from his Lord
& stops eating Ribâ (usury)
shall not be punished for the past;
his case is for Allâh (to judge); but whoever returns (to Ribâ),
such are the dwellers of the Fire – they will abide therein
forever.

Soorah Al-Baqarah Ayah # 276:Soorah Al-Baqarah Ayah # 276:
Allâh will destroy Ribâ (usury)
and will give increase for Sadaqât (deeds
of charity, alms, etc.)
And Allâh likes not the
disbelievers, sinners.
RIBA will be DESTROYED !!!!!!

1. Truly those who believe,
2. and do deeds of righteousness,
3. and perform As-Salât,
4. and give Zakât,
they will have their reward with their Lord.
 On them shall be no fear,
 nor shall they grieve.

O you who believe!
Be afraid of Allâh
and give up what remains
(due to you) from Ribâ
(from now onward),
if you are (really) believers.
MUST
give
up riba!

And if you do not do it,
then take a notice of war from
Allâh and His Messenger;
but if you repent,
you shall have your capital sums.
Deal not unjustly (by asking more
than your capital sums),
and you shall not be dealt with
unjustly (by receiving less than
your capital sums).

And if the debtor is in straitened
circumstances,
then (let there be) postponement
to (the time of) ease;
and that ye remit the debt as
almsgiving would be better for
you if ye did but know.

And be afraid of the Day when
you shall be brought back to
Allâh.
Then every person shall be
paid what he earned, and they
shall not be dealt with
unjustly.

Ahadeeth on RIBA:Ahadeeth on RIBA:
Jabir (r) narrates that the prophet (s) cursed the
receiver and the payer of riba, the one who
records it and the 2 witnesses to the transaction
and said: “They are all alike” (Tirmidhi)
Abu Hurairah (r) narrates that the prophet (s) said:
On the night of Ascension I came upon people whose
stomachs were like houses with snakes visible
from the outside. I asked Gibril who they were. He
replied that they were people who had received
riba.” (Musnad Ahmed)
Abu Hurairah (r) narrates that the prophet (s) said:
There will certainly come a time for humanity when
everyone will take riba and if he does not do so, its
dust will reach him (Abu Dawoud)

Is RIBA Haram in IslamIs RIBA Haram in Islam
It is a serious kabair; if not left in hell-
fire forever
It is clearly haram in Qur’an & hadith
There is absolutely no difference
amongst the Fuqahah on Riba
It is a sin in Judaism & Christianity
It is not considered a good practice in
Hinduism, Buddhism, or Maoism

Views on RIBA/INTERESTViews on RIBA/INTEREST
Plato disliked it – “Anti-human”
Aristotle condemned it
Early Roman Empire prohibited it !
Lex Genucia of Rome – Illegal (340BC)
Federal Shariat Court – Anti Islamic

Federal Shariat Court-Contrary to IslamFederal Shariat Court-Contrary to Islam
Government Savings Banks Act 1873
The Interest Act 1839
The Code of Civil Procedure, 1908
The Co-operative Societies Rules, 1927
The Negotiable Instruments Act, 1881
The Land Acquisition Act, 1894
The State Bank of Pakistan Act, 1956
The Insurance Act, 1938
The West Pakistan Money Lenders Rules,
1960
The Co-Operative Societies Act, 1925
(Banking & Finance (For BCom, Part 1), Prof M Amin Khalid, Karachi 2002)

Federal Shariat Court-Contrary to IslamFederal Shariat Court-Contrary to Islam
The West Pakistan Money Lenders Ordinance,
1960
The NWFP Money Lenders Ordinance, 1960
The Punjab Money Lenders Ordinance, 1960
The Sindh Money Lenders Ordinance, 1960
The Banking Companies Ordinance, 1962
The Baluhistan Money Lenders Ordinance, 1960
The Banking Companies (Recovery of Loans)
Ordinance, 1979
The Agriculture Development Bank Rules, 1961
The Banking Companies Rules, 1962
The Banks (Nationalization) Payment of
Compensation Rules, 1974

Consequence of RIBA in the HereafterConsequence of RIBA in the Hereafter
Barzakh: drowning in a pool of blood;
being fed thrown rock until Qimiyah;
Stomaches filled with snakes;
In hell-fire forever;
The Wrath of Allah & His Prophet forever
Cannot stand, beaten by worst enemy –
Shaitan; in a state of maddness

Definition of RIBADefinition of RIBA
Is a Arabic word with means “extra”.
Any amount over and above the principle
amount is RIBA.
Late/penalty fees is also RIBA.
What is the fundamental problem with RIBA ?

RIBA in a controlled environmentRIBA in a controlled environment
Independent in 1948
Very simple life; no complications
Following a barter system
In the case study, all other economic
variable have been removed

5 simple people – use barter system5 simple people – use barter system
Sajid Fish
Abid Wood
Nasir Fruits
Furqan Salt
Salman Entertainer
Not always happy, but cooperate
together in barter system.
Each feels he is cheated, would like to
change the system ?

Loaned money : solution to problem!Loaned money : solution to problem!
One blessed day, Uncle Yahoodi, arrives with
the answer to their problem.
Loaned money, as aid, minimum interest;
for the development of the society
Uncle Yahoodi ready of help out these
people;

Loan taken – is this fair (halal) ?Loan taken – is this fair (halal) ?
Name Principle Interest
Sajid 1000 + 100
Abid 1000 + 100
Nasir 1000 + 100
Furqan 1000 + 100
Salman 1000 + 100
=========================
Total amount given 5,000
Thus total money supply 5000 ONLY
Is there any problem in the above transaction?

RIBA ExposedRIBA Exposed – impossible to return – does not exist!– impossible to return – does not exist!
Loan taken = 5,000
Thus, total money supply 5,000
How will they return 5,500!
The Riba amount 500 – EXTRA does NOT exist
RIBA impossible to return ->ZULM=HARAM

Returning RIBAReturning RIBA
Trying to do the impossible
Every Haram has its price !
In order to achieve the impossible,
the whole society will be affected
negatively!

Negative consequence of InterestNegative consequence of Interest
Inflation (in the long term hyper-inflation/sprilling)
Short money supply
Currency devalued
Unemployment (stagflation),stressful working conditions
Cheating and fraud
Deteriorating quality of good & services
Organized crime, supported by influential people
Foreigners dictating policy
Politically divided
Foreigners acquiring national assets
Foreigner instructing to disable national security
Lawlessness, helplessness
Rampant corruption
Effectively a failed state
WAR!
Interest + inflation =
sprilling inflation =>
Hyper inflation=ACHEIVED

Our progress after 60 years of Riba!Our progress after 60 years of Riba!

5 simple people sit to think5 simple people sit to think
Uncle Yahoodi came to help us ?
AID should be forgiven !
To help us, Uncle Yahoodi gave us 5000.
So we should return 5000!
Uncle Yahoodi gave us worthless paper, in
exchange he took over our country!
Why did we accept his money on his terms?
Why didn’t we buy gold ?
Extremely
Profitable
Business
Transaction

Recent history of bankingRecent history of banking
Jews, were jewelers & goldsmiths
People would keep their valuable, in their
vault, in return for service charge and a
promissory note.
It was noticed that only 1 in 20 people
returned for their valuable. 95% did not
return!
Their promissory note was been circulated
in the whole town, because of the ease of
use.

They began to print NOTES!They began to print NOTES!
If they had gold worth € 100, they could
easily print and distribute € 2000 worth!
They gave loans
They bought real assets: property,
building, farms, horses, gold mines!
They began to keep mini armies!
In the town they became Lords!

At the national levelAt the national level
They gave their allegiance to the king of the
area.
Promised to finance the “war”
In return only they would be allowed to
legally print money in the country.
Whenever the king needed money, they
would freely give, in return for assets of the
kingdom. New kings became slaves in their
hands!

Proof of Jewish instigated warsProof of Jewish instigated wars
Napolean Bonaparte:
The Jews provide troops for my campaign
in Poland, but they ought to reimburse
me…They are a state within the state. The
Jews are master robbers of the modern
age; they are the carrion birds of
humanity …
(Speeches before the Council of State May 7th
, 1806, Book: “Antizion” by William Grimstard)

Winston Churchill, UK Prime Minister:
This movement among the Jews in not new. This
worldwide conspiracy for the overthrow of
civilization and for the predominance of Jews
is even more astounding. The same evil
prominence was obtained in the brief period of
terror …
(Illustrated Sunday Herald, London, February 8, 1920)

Henry Ford, 20th
Century U$ Tycoon:
Get hold of 50 of the wealthiest Jewish
financiers, the men who are interested
in making wars for their own profit.
Control them, and you will put an end
to it all.
(Cleveland News, September 20, 1923)

The Bank of England was established in
1694 to help King William III out his
government’s financial crisis!
(Banking & Finance, Bcom Part 2, Prof Amin Khalid, Karach, 2002)
What crisis ?

Who is authorized to print money ?Who is authorized to print money ?

Another issue of interest!Another issue of interest!
The Prophet (p) said:
“Even if riba is much,
it will end up being a small amount.”
(Reported by al-Haakim (in Mustradak), # 2/37; see also Saheeh al-Jaami’, # 3542).

The stock market in practiceThe stock market in practice
The stock market operates very differently in practice!
There are elements of:
Gharar (uncertainty)
Maisir (gambling), betting, speculation
Riba (interest)
Qimar (one parties loss is another’s gain)
Kazab (lying, and misleading)

Example of RibaExample of Riba
Listing of banks & interest based financial
institution
Solution: Don’t deal with them!

Changes in stock price – more than profit/lossChanges in stock price – more than profit/loss
Expectations & rumors
Future expectations more important than current realities
Big investors have great influence & control
News
P/E value plays a major role – generally over inflated valuation
A company may earn a profit, and the price may go down!
 Expectation & speculation

KSE-Controlled by big fish ?KSE-Controlled by big fish ?
The “big fish” (BF) toy with KSE
AKD
Jahangir Sadiqque
Arif Habib

The stock market gameThe stock market game
Month KSE Siemens Activity
Jan 2006 8,000 1,000 BF begin game
Feb 2006 9,000 1,100 Buying
March 2006 10,000 1,200 Buying
April 2006 11,000 1,400 Buying
May 2006 12,000 1,500 Buying
June 2006 13,000 1,700 Selling
July 2006 14,000 1,800 Selling
August 2006 16,000 2,000 Selling
No more momentum, and the market begin to decline!
Now it’s a BEAR market!
Price increase is not because of company profitability!

Intention of buyingIntention of buying
Not buying because of the profitability of companies
Only because the market is going up & up-speculation (bull)
The analysts of the Big Fish cautiously create a fervor, & mislead
the Small Fish – (Engineering QIMAR!!!)
Gambler’s instinct at work!
The Big Fish make their money, at the expense of the Smaller Fish –
Qimar
The Big Fish safely exit the market, at the expense of the Small Fish
(bursting of bubble – market crash !)
Those trading on margin are wiped out !
Qimar,Maisir, Kazab, Riba & Gharar ALL present in practice!

Big Fish expert planning & controlBig Fish expert planning & control
Month KSE Siemens Activity
August 2006 16,000 2,000 Selling futures options
Sept 2006 14,000 1,800 Selling futures options
Oct 2006 12,000 1,600 Selling future options
Nov 2006 10,000 1,400 Selling future options
Dec 2006 8,000 1,200 Selling future options
Jan 2007 7,500 1,100 Buying
Feb 2007 7,000 1,000 Buying
March 2007 6,500 900 Buying
The Big fish eat all the small fish, & are preparing for
round 2!
Now it’s a BULL market!

The stock market game PROOF -yearlyThe stock market game PROOF -yearly

The Stock market – daily gameThe Stock market – daily game

Other reasonsOther reasons
Ethics
Tax & tax evasion
Concept of civilization flawed
Ends justify the means
Stuck in the financial web ?

Ethics & moralityEthics & morality
It has been narrated in a hadith of the Prophet (s):
Verily, I have been sent to perfect morals.
He (p) was asked: "What is the religion?" He (p) replied:
"The religion is morality."
When asked, "What is woe (or affliction)?"
He replied, "Real affliction is lack of morality."
Nothing that will be weighed on the Day of Judgement will
weigh heavier than moral action. [Abu Da’ud and
Tirmidhi]
The Prophet (s) said:
Verily truth will lead to goodness and goodness will lead to
heaven. A person who develops a habit of honesty will be
accepted by Allah as an honest person. But lying leads to
evil, and evil leads to the Hellfire. A person who lies until
dishonesty becomes habitual will be written off by Allah
as a liar.

Western concept of civilization flawed-Western concept of civilization flawed-
international brotherhood!international brotherhood!
The Messenger of All h, peace and blessings of All h be on him, saidā ā
"A Muslim is the brother of a Muslim;
he does him no injustice,
nor does he leave him alone (to be the victim of another's injustice);
and whoever does the needful for his brother, All h does the needfulā
for him;
and whoever removes the distress of a Muslim,
All h removes from him a distress out of the distresses of the day ofā
resurrection;
and whoever covers (the fault of) a Muslim, All h will cover his sinsā
on the day of resurrection."
(Sahih Bukhari, Book 46, Hadith #3)

Lasting impact of Ahadeeth, unparalled in historyLasting impact of Ahadeeth, unparalled in history
The Messenger of All h, peace and blessings of All h be on him, said:ā ā
"Do not hate one another and
do not be jealous of one another and
do not boycott one another,
and be servants of All h (as) brethren;ā
and it is not lawful for a Muslim that he should sever his
relations with his brother for more than three days."
(Sahih Bukhari, Book 78, nathid #57)

What is the future ofWhat is the future of
interest ?interest ?

Should Interest based loans be usedShould Interest based loans be used
for national development ?for national development ?
Building of Dams ?
Building of bridges, roads, infrastructure ?
To acquire technology ?
For Educational programs ?
To promote Pakistan ?
To spread Islam ?

Which is a greater sin:Which is a greater sin:
Pig farming or Interest based banking ?Pig farming or Interest based banking ?
However, there is hardly any pig farm in
Pakistan!
No export of pig or its products !
Yet, abundant branches of interest based
banks scattered throughout the country !

Financial Failures

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