There is certainly much truth in your analysis of the economic situation, and there is also a large measure of easy acceptance of conclusions which are not necessarily true. You have pointed to the problem of indebtedness which weighs heavily on many Third World countries. You have also pointed to the fact that the internal [national] economy cannot be separated from international dealings. Then, you mention the need of businessmen to make use of the facilities provided by banks which present the temptation of dealing in interest. You then ask whether it is justified that the minority of those who want to abide by the rulings of Islam be deprived of the benefits of the interest system, while the majority enjoys those benefits. While your initial analysis is correct, I do not think that you have made the right conclusions.

It is true that many a Third World country is writhing under the pressure of indebtedness. We have recently seen that Brazil has indefinitely stopped payment of interest on its loans, simply because it could no longer see how it can continue to pay it. [This article was published on August 14, 1987.] The interest alone has reached the staggering figure of $12 billion a year. Over the last year or two, Egypt was trying hard to reduce the burden of interest payments on its loans, which amount to $40 billion as some reports suggest. When the negotiations for the reduction of the rate of interest failed, Egypt had to agree to the conditions imposed by the International Monetary Fund, which resulted in repeated devaluation of its currency and its natural consequences of high inflation, which inevitably will afflict the poor. To soften the effects of the "deal" with the IMF, the Egyptian government approved a 20 % pay rise for all government and public sector employees. This is no more than a temporary palliative. The effects of the pay rise will soon be totally eroded by the inflation which has already started on a large scale.

Whatever the reasons for sinking so heavily in debt, it can never be justified. Nor does Islam ever approve it. A little over one century ago, Egypt was occupied by Britain under the pretext of securing foreign loans which the Khedive borrowed with no hope of early settlement. While the tactics of the imperialist powers of the nineteenth century are unlikely to be repeated today, heavy indebtedness does not augur well for any country.

Yet it is universal wisdom that no one should commit the folly of living beyond means. In every community in the world, whenever a person starts borrowing in order to pay for his living expenses, those who love him will always warn him that this course of action will inevitably lead him to ruin. It stands to reason that what is bad for the economy of a single family is ruinous for the economy of the whole society. Nevertheless, indebtedness is an evil which has been common in our modern times to a large number of poor Third World countries.

It is true that loans incurred by any country bear interest. It is equally true that when a Muslim country is so badly indebted to foreign banks, institutions and foreign countries it is less likely to implement an Islamic economic system which abolishes interest altogether. The need to pay the interest on state loans will compel any government to try to raise money in every way possible. It wants to collect interest from the people. Hence, the banking system will inevitably be the Western one which is based on interest.

It is certainly true that when such a system is implemented, it is bound to give benefits to some people. Some will argue that the Western banking system, which is copied by many Muslim countries, gives benefits to the majority of people. They point out to the interest paid on bank deposits and the facilities provided to home buyers and businessmen. It is only the few who badly manage their own affairs who will suffer. But is this argument really valid?

The Western banking system attracts deposits from people by paying them interest. It depends on lending the same deposits to businessmen and other people at a higher rate of interest. This difference between the two rates of interest gives banks and financial institutions their profits. Many an economist will defend this system arguing that it increases trade, creates jobs and leads to a continuous rise in the standard of living.

A close examination of how the whole system works will point out that it is through the cycling and recycling of people's savings that the profit made by banks and financial institutions as well as the interest paid to depositors are created. These amount to huge sums of money. There must be someone or some group of people who are paying them. A company which borrows from a bank to finance a business project wants to recoup the [amount of] interest it pays to the bank and to make profit. It can only do that through passing the charges it pays on its loans to the consumer, i.e. the people. This leads to higher prices and gives rise to inflation. In other words, it is the people who pay the banks their fat profits and it is the individual who barely earns what is sufficient to cover his living expenses that bears the heaviest burden.

You speak of a minority of people who are deprived of the benefits of the banking system by the Islamic ruling against interest, while the majority enjoys the benefits of that system. Allow me to say that the reverse is true. It is the majority of people, who pay higher prices in order to finance charges on business loans, who are actually suffering so that a small minority of financiers and bankers enjoy huge profits. The Western banking system is usurious and Allah tells us in the Qur'an that all usury is evil. We see its evil effects on individuals, companies and countries. We have warnings of its effects everywhere in society. Moreover, we read these warnings in the Qur'an. We must take heed of what Allah tells us. Otherwise, we will inevitably reap the evil results. We need not go very far. We see that some of our Muslim countries, as well as the Third World countries, are unable to find a way to come to grips with the problem of heavy borrowing. Yet there is no way of dealing with such problems except by renouncing this evil system. An individual who finds himself heavily in debt has no choice but to work hard in the profession he knows best and to save as much of his income as possible to pay back his debts. A period of austerity will see him through his problems. When hard work has become second nature to him, he will enjoy the benefits of his work after settling his debts. The same applies to any country. It is important that the natural resources of the country be developed so that they generate maximum income. At the same time, spending should be limited to what is absolutely necessary, while outstanding debts are paid off. Within a few years, the problems of the country will be much lighter. Light will be seen at the end of the tunnel. Prosperity will then be forthcoming.

While there may be some compelling reasons for a person to get a loan to finance the purchase of a house, there is no compelling reason for him to earn interest by putting his money in a deposit account. If one has already bought a house on mortgage and he is paying interest to a bank, he should try to arrive at an arrangement whereby he can put money in the mortgage account above the regular installments and draw it again at a subsequent date. I realize that banks do not like to do that because of the increased administrative costs to them, but if you have an understanding bank manager and you explain to him the situation from the Islamic point of view, he may allow you to do so. This will mean that the bank will charge you less interest when you have put some money in your mortgage account. The interest will increase when you draw some of what you have deposited. In this way, the bank is making the set off directly and you are not involved in taking interest; you are only paying it.

It is true that individuals cannot get involved in providing public services. The interest they receive on their deposit is too small for that purpose. However, they can pay that amount to a society which may be engaged in such work. One could give it to the municipal authority to encourage it to provide such services.