The thing with interest, there is very little in terms of going back. As mentioned in this thread the entire modern global economy is built on usurious financial instruments. This was not really the case a few hundred years ago where the level and extent of debt was not to the extremes of today.
Abu Huraira reported: The Messenger of Allah, peace and blessings be upon him, said, “A time will come upon people in which they will consume usury.” It was said, “All of the people?” The Prophet said, “Whoever does not consume it will be affected by its dust.”
Source: Musnad Aḥmad 10191
Grade: Sahih (authentic) according to Ahmad Shaki
Maybe we would not be in this mess in the first place if we sustained insights of the past.
When this system was made 2500 years ago it worked, because it was new and adapted to the conditions then. Then guess what, the world changed and those systems stopped working because the assumptions they are built on no longer exist.
If you brought a lifeform from 2500 years ago to the world today it would get sick and die. It's defense system would not be adapted to the threats it would experience. Yet this is the first thing people try to do with the complex systems we create and they will suffer the same fate.
Is this not already the case?
> This is in contrast with a conventional loan where if your property or business burns down, you still have to pay off the loan to the bank.
Isn’t this what insurance is for?
Interest seems like it can be both good and bad. Condemning it completely seems a bit harsh
With a conventional loan, if your borrower sinks, they still owe you the money. Lender would have collateral to possess. There is still an outstanding amount of debt that needs to be paid.
Insurance is not permitted under Islamic finance as it falls under transactions that have excessive uncertainty. There is no guarantee what the outcome is for an insurance transaction. It is like gambling, you make a bet with the insurance company such that you pay $xxx a month. If the contracted event happens (or never occurs), there is a financial winner and a loser. If in total I pay less premiums than the cost of the event, I "win". If I pay more in total for an event, I stand to make a loss and the insurance company benefits.
Interest seeks to empower people who have money by making them more and more richer. It exacerbates price of essentials such that the only way to acquire is through a usurious loan. House price are in the hundreds of thousands because people have been "temporarily" handed have hundreds of thousands. If interest loans didn't exist, then houses would be at prices which people can afford through their salary.
Isn’t this how a mortgage works? Put some money down, and allocate a portion of your monthly salary to pay the remainder.
> Interest seeks to empower people who have money by making them more and more richer.
The largest and most profitable companies in the world are oil/gas and technology. Wealth inequality would definitely still exist
Without a mortgage system, at most a few years of saving to fully buy a house.
I understand what you are saying when you think it is a similar thing, just the scale of numbers is different. Debt is a responsibility, and a really serious one. At all costs avoid it because there is no guarantee you will have the capabilities to pay it back + interest . If we can champion a system whereby buying assets does not involve an individual taking on a life destroying risk and instead they can use their normal income to save up in a reasonable amount of time, then this would be the best way.
Yes there will always be people and entities that are richer than the rest. The aim is not to squash every class into the same income bracket, rather stop the propogation of abuse that rich companies inflict by extracting wealth from the poor.
Stoping usurious interest loans means the economic interaction of rich with the poor. If they want to make money from their hoard, then they have to engage with the lower class on a level playing field (in terms of risk) with investing. In stark contrast to sitting on a throne and receiving guaranteed wealth from poor people who have no choice but to take on soul crushing debt.
An endless treadmill of debt which failing to pay substantially speeds it up until an individual can not sustain themselves.
Perhaps the solution to such a complex problem isn’t as simple as a “do this and don’t do that”. Perhaps a complex problem should be looked at more multi-dimensionally.
Like most things, loans can be good and loans can be bad. Context matters. The rule of law is meant to protect people and keep the economy healthy. The law is ever-evolving. Sometimes it comes up short but in a healthy nation it can adapt itself to the times.
Regarding mortgage, most people in the west use their home as their retirement fund. After 10-15 years of ownership, the house is often worth twice as much as their total mortgage. The difference between what the outstanding debt and the value of the asset is called equity, and this can be quite substantial.
Bizarre statement.
You should look at the cost to build a house. And the cost of maintenance.
Builders don't make obscene profits. You can cherry pick good years, but you need to average over 10-20 years.
You can buy an older/used house for significantly less than its replacement cost.
Are you arguing that without the mortgage system, skilled trades would work for lower wages? Labor is 70% of the cost of building a house. Materials are 25%, Paperwork is 5%.
Would lower wages for skilled trades be a good thing? For whom?
Land cost varies from almost 0% to more than 100% of the build cost, depending on location.
Amusingly enough, California mortgages for purchase are non-usurious and compatible with this definition, because the lender can only go after the property in case of default, not the borrower.
They pay thousands on monthly mortgage, if they are late, they are charged a penalty (more interest). If they fail to pay all together, then the property is gone. All the money the borrower dedicated to paying off the mortgage gives them nothing in return. Essentially robbery.
This is exaggerated to the point of nonsense. I.e. it's literally not clear whether you are hyperbolising for effect, or have no idea what you're talking about.
You pay the bank for the use of the money. After 1 fully-paid year of your 30 year mortgage, you own 1.2% of the property. Or more precisely, your debt obligation is reduced by 1.2%.
After 15 years, you own 32%. After 20 years, 50%. After 30 years, 100%. It's not linear, which upsets people, but it makes perfect sense if you do the math.
In the mean time, if the property appreciates in value, all of that extra value belongs to you.
If you stop paying the mortgage at any time, yes the bank will repossess the house to get the money you still owe them. Not all of your future payments, just the remaining debt. If the sale price is in excess of your remaining debt, they send you a check.
Moral of the story: Do not mortgage short-term housing, except in rapidly increasing markets. And even/especially then, beware.
Corollary: Rental property is a necessary thing, and landpeople provide an essential service.
Reality: Some landthings suck.
Islamic finance is the solution to a balanced and fair economy.
1. It prohibit interest to outlaw debt based exploitation and instead replaces it with loans of generosity (pay back exact amount, no interest ) or fund raising through investment. Whereby the risk of the person receiving investment is shared with the lender. This is in contrast with a conventional loan where if your property or business burns down, you still have to pay off the loan to the bank.
2. Zakat - a wealth tax on every Muslim. The value of 2.5% of cash, stocks, investment each year is given to the most needy of society.
Implement these systems and you will have a just economy that prevents hoarding and exploitation. Literally money is forced to move down societal class and acquiring more wealth is with increased risk. Islamic finance is the solution.