Why existing financial system is doomed, Islam's perspective on Interest, why Interest is bad

1. November 2008

19. The distribution of deposits and advances reveals that the elite few are the main beneficiaries of our banking system while all others are systematically excluded from access to capital and opportunity Source: State Bank of Pakistan Monthly Bulletin; data as at 31 December 2007

21. Of the US$54 trillion global external debt, top 20 countries account for 90%; including 14 European countries External debt (public + private) as a % of GDP Source: CIA Factbook

22. Source: Wikipedia The biggest economy in the world is also the world’s most debtor nation ever, vulnerable to a major financial crisis

24. Effect of low/high interest rate over short/long periods The power of compounding plays havoc with borrowers at high interest rates over long periods of time 0% 5% 10% 15% 20% 25% 30% 1 10,000,000 10,500,000 11,000,000 11,500,000 12,000,000 12,500,000 13,000,000 2 10,000,000 11,025,000 12,100,000 13,225,000 14,400,000 15,625,000 16,900,000 3 10,000,000 11,576,250 13,310,000 15,208,750 17,280,000 19,531,250 21,970,000 4 10,000,000 12,155,063 14,641,000 17,490,063 20,736,000 24,414,063 28,561,000 5 10,000,000 12,762,816 16,105,100 20,113,572 24,883,200 30,517,578 37,129,300 10 10,000,000 16,288,946 25,937,425 40,455,577 61,917,364 93,132,257 137,858,492 15 10,000,000 20,789,282 41,772,482 81,370,616 154,070,216 284,217,094 511,858,930 20 10,000,000 26,532,977 67,274,999 163,665,374 383,375,999 867,361,738 1,900,496,377

26. Source: Independent Strategy Interest-based system has created a mega liquidity bubble which can burst any time

27. Source: Independent Strategy Derivatives market has skyrocketed since 1990s due to globalization of capital and technological advancements

28. From US$20bn to US$230m in 14 months; Bear Stearns experienced a 99% free fall in share price Bear Stearns 1-year share price performance US$

30. Inflation 1923-24: A German woman feeding a stove with currency notes, which burned longer than the amount of firewood they could buy Source: Wikipedia Hyperinflation in 20 th century

44. Low risk, Liquid High risk, Illiquid Muslims today should be ready to forego some return in order to comply with Shariah Deposit in an Islamic bank Shares (via mutual funds) Shares (direct investment) Real estate funds or Islamic REITs Real estate (direct investment) Non-essential Commodities (buy & hold) Private Equity funds Private business as a partner