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Simple and Compound Interest


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Simple & Compound Interest demonstrated at Sheikh Zayed Islamic Centre, University of Karachi. PGD in Islamic Banking & Finance. Course Supervisor: Dr. Abdul Rehman Zaki (Chairman - Karachi University Business School) Subject: Introduction to Islamic Business & Finance Produced by: Rehan Ahmed (Oct, 2011)

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Simple and Compound Interest

  1. 1. Produced By: Rehan AhmedCourse Supervisor: Dr. Abdul Rehman Zaki(Chairman KUBS)Subject: Introduction to Islamic Business & Finance
  2. 2. Disclaimer:Information, facts, figures that are providedin this case study based on our personalresearch, observations & opinions.References will be supplied upon request.
  3. 3. 1) What is Compound Interest?2) How much is Compound Interest actually worth?3) What Islam says about Compound Interest?4) Some Misconceptions?5) Conclusion
  4. 4. Types of Interest Interest (Riba-an-Nasiyah) Simple Compound Interest (Sood-e-Mufrid) (Sood-e-Murakkab)
  5. 5. Definition of Simple Interest Interest calculated only on the initial investment. For e.g., Interest on 100 Rupees Interest Rate 10% Interest Calculation Channel: Simple Interest Annually Tenure Two Years  220 Rupees.
  6. 6. Definition of Compound Interest Reinvestment of each interest payment on money invested, to earn more interest. For e.g., Interest on 100 Rupees Interest Rate 10% Interest Calculation Channel: Compounded Annually Tenure Two Years  221 Rupees.
  7. 7. Your Choice? 1M Rs Now? 1 Rs * ? OR* That doubles every day till 30 days!
  8. 8. 1 Rs –BetterChoice In Just 30 DaysGives 536M
  9. 9. After Simple Interest Compound Interest1 year 110.00 110.002 years 120.00 121.003 years 130.00 133.004 years 140.00 146.005 years 150.00 161.0010 years 200.00 259.0020 years 300.00 672.0030 years 400.00 1,744.0040 years 500.00 4,526.0050 years 600.00 11,739.00Total: 2,650.00 19,611.00
  10. 10. As mentioned in the Holy Book: • O you who have believed, do not consume usury, doubled and multiplied, but fear Allah that you may be successful. Al-Quran (3: 130)As mentioned in Hadith: • Abu Hurayrah narrated that the Prophet (P.B.U.H) said: “God would not allow four persons to enter paradise or to taste its blessings: he who drinks wine, he who takes riba, he who usurps an orphan’s property without right and he who is undutiful to his parents.”
  11. 11. Major Causes: • Embezzlement – To take money dishonestly • Bribery – A gift offered to persuade a person to do something • Miserliness – Living a life poorly in order to store up wealth • Callousness – Cruel or Merciless environment • Financial Greed – Non equitable wealth distribution • Bankruptcy – Unable to pay someone’s debt
  12. 12. Misconceptions: • Only compound interest is prohibited • Simple Interest is permissibleCorrection: • Aim is to terminate the shameful aspect of interest charging • Rather than Limit its Permissibility
  13. 13. Yes, Interest charging is disastrous foreveryone, every one should abstain from it –Say no to Simple & Compounding Interest!
  14. 14. Email: rehaniltifat@gmail.comLinkedIn Profile:
  15. 15. Business Admin. Dept. University of Karachi:Dr. Abdul Rehman Zaki(Chairman KUBS)MCB Bank Limited IBM Pakistan MobilyNoman Shahzad Burhan Ahmad Fahad SiddiquiSr. Business Analyst Sr. Consultant Sr. Product Manager(Finance Control Division) Bank-Al Habib Baghlaf-Al-Zafeer Metal & Team Kashif Hyder Nasim Ahmed Nagori Manager Sr. Accountant (H.R. Division)
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