Abstract

The rule of Islam is simple: if you advance a loan, you are entitled to receive your capital only and nothing more. If you wish to secure profit, you should enter into a partnership and become a shareholder. Prohibitions against interest are not peculiar to Islam.  If we were to trace back through history, a number of examples of such prohibitions can be found in the early Greek, Roman and Rabinnical thought.  As a consequence of the decline of the influence of the Catholic Church and the Jewish aphorism that the taking of interest from Gentiles is a commendable practice, laws were subsequently drafted for legalizing interest transactions. As a result, industrial, financial and commercial power become concentrated in the hands of giant Western corporations and a worldwide dominance of capitalist imperialism followed.  This practice has created widespread acceptance of the practice of charging interest (usury) and has dominated Western law and ethics for over a millennium. But, the Western or capitalist economic system has failed in its quest for economic justice, which serves to benefit all in society, both the rich and the poor. In particular, capitalism is currently causing a terrifying scenario of making the rich richer and the poor poorer due to interest charges.  The fundamental motivation for the paper is to examine whether an alternative banking or economic system could contribute in alleviating the global financial crisis we face.  This alternative banking model is to rest on social justice.  It is necessary to reassert that this banking system is based on the avoidance of all forms of financial exploitation and on having as its principal object the combined purpose of the creation of wealth and alleviation of poverty.

Key words: Islamic banking, riba, usury, charging interest.