I very well am aware that its too late to touch this issue as for now recession seems to have subsided from the present scenario.It was recession due to which several financial institutions had become insolvent,with the US economy as the most affected one.Now, recession can be defined as a negative growth or a decrease of more than 10% in the GDP of a country for more than one consecutive quarter of a year.In economics,it refers to a general slow down in the economic activities of a country over a sustained period of time or a business cycle contraction.While analysing recession in terms of its causes,it can be consumer debt,low consumer confidence,inflation, over-valuation of assets,large scale unemployment and the most crucial of all that is high interest rates,that can lead to an economic recession.
The cause of recession was the advancement of loans by the banks to people who are not very strong financially.These loans were later converted into bonds and sold to the investors in open market.Later,when the interest rates hiked,repayment of loans became difficult for the people and the loans were defaulted.Hence,the investors lost their money and ultimately the banks crashed and its aftermath is Recession.In this situation,the Federal reserve could not reduce interest rates and the condition perpetually deteriorated.Therefore,interest was the major reason of this recession.So,I say that why not cut off this interest and implement the Islamic Banking System to facilitate recovery.
The literal meaning of interest or Al-RIBA as it is used in the Arabic language means excess or increase.In,other words “Riba` is a loan with the condition that the borrower will return to the lender more than and better than the quantity borrowed.”Hence,all this is considered ‘Haram’ i.e. forbidden in Islam.While elimination of “Riba” or interest in all its forms is an important feature of the Islamic financial system, Islamic banking is much more.In essence, it aims to eliminate exploitation and to establish a just society by the application of the Shari’ah or Islamic law to the operations of banks and other financial institutions.Islamic finance may be viewed as a form of ethical investing, or ethical lending, except that no loans are possible unless they are interest-free.Albeit,the western media frequently suggest that Islamic banking in its present form is a recent phenomenon, in fact, the basic practices and principles date back to the early part of the seventh century.
Muslim theoreticians and bankers have between them devised ingenious ways of coping with the interest problem. One is Murabaha. The Qur’an says you cannot borrow $100m from the bank for a year, at 5% interest, to buy the new machinery your factory needs? Fine. You get the bank to buy the machinery for you — cost, $100m — and then you buy the stuff from the bank, paying it $105m a year from now. The difference is that the extra $5m is not interest on loan, which the Qur’an (perhaps) forbids, but your thanks to the bank for the risk it takes of losing money while it is the owner of the machinery: this is honest trading, okay with the Qur’an.The main forms of Lending in IBS are: a) Loans with a service charge where the bank lends money without interest but they cover their expenses by levying a service charge. This charge may be subject to a maximum set by the authorities. b) No-cost loans where each bank is expected to set aside a part of their funds to grant no-cost loans to needy persons such as small farmers, entrepreneurs, producers, etc. and to needy consumers. c) Overdrafts also are to be provided, subject to a certain maximum, free of charge.
While consistency and sustainability are the foundation to the Islamic banking system, the proof is in the fact that the market meltdown did not take the system down with it. A sustainable growth was witnessed in the system and subject to which, 27 Muslim and 15 non-Muslim nations invited the Islamic banks in hopes of getting sustainability in their financial sector.Islamic Banking system withstood so much of the turmoil that infected other banking systems due to the following factors.The pragmatic interest policy in the Islamic financial system was one of the major factors attracting the affluent investors of Arab, which gave the system a strong base.The internal wealth became the platform to the Islamic Finance, and gathered enough interest and support to sustain the current condition found in the world economies today.The system is transparent, which helps risk-taking and profit-sharing among all, which in turn guides the market in a better direction.
So,Islam definitely has the solution to the problems of the West.