Dear br. Omar Afzal Sahib,

Very good and practical questions.

1.     Islamic banks in the Middle East, in Malaysia and other places have devised a solution for that.  They buy the house in cash for you and they sell you in 25-30 year installments with a profit of their own.

Apparently it looks like the same as buying a house on interest-based installments.  But it is not.  For example, consider a case of your failure after 5 years of payment.  Other banks regard all your first payments as Interest for 25-30 years.  You get nothing, even if they have sold the house with good profit to some other buyer.  In case of Islamic Bank, you get back your 5-years’ payments and proportionate profit or loss, depending on what price your house is re-sold to some other buyer.

2.     My answer to your second query is a simple ‘No’. Present American economic crisis is simply not a ‘human greed’.  It is basically due to Usury or Interest.  The mechanism of Usury goes like this. A person or a company borrows for expansion of business. The burden of Usury starts piling up on the borrowed money and goes on eating its profit margin until a time comes it starts running in loss and eventually it has to become bankrupt. All the bondholders of GM and Chryslers got their interest payments as long as these companies were not bankrupted.  All the profits of these companies were eaten up by those who lent money by purchasing, say, GM bonds.

3.     Toyota never borrowed money for its expansion.  It expanded through accumulation of its own profits.  Still it has over 10 trillion dollars of cash reserves and other assets convertible in cash any time.  GM was a No.1 leading automobile company for over 70 years.  Not only Toyota Models of cars were good and marketable but its financial management is also a big factor of its success. It is also a factor why Toyota was able to supersede GM as No.1 in rhe world automobile sales since last year. Toyota expansion was never based on debt or borrowed money. It means Toyota had no Interest burden on its profit margins to pay.   

4.     Because of the lack of such a fixed payment regularly, Toyota cost of cars reduced to that extent.  Those paying fixed interest, like GM or Chrysler, had to add fixed expenses like payment of Interest to their bondholders or their lender banks.  It increased cost of each car they produced.  They could not compete with any Toyota car of a similar standard.   

5.     The accumulation of debt and its constant growth has become a common feature of American economy, from household to corporate businesses to even its government. Each entity is burdened with a lot of interest payments. As a result, every entity is in financial trouble.  

6.     Had the GM, like Toyota, limited its expansion within the limits of its accumulated profits, it would not have bankrupted. All its profits have been diverted to its money-lenders, i.e. bondholders.  That is why in the new GM after bankruptcy, bondholders will get only 10% ownership, US Government about 69%, Canadian government about 12.5%, UAW or past employees or laborers about 17.5% instead of their pensions etc. Bondholders are complaining or rather trying to sue GM as their share is lowest.  It is lowest because that they have already enjoyed profits in the form of Interest payments on their bonds for several years.

7.       In short, the burden of Interest appears very small in the beginning but with the passage of time, the borrower gradually becomes unable to pay it.  In the long run, the borrower has to become bankrupt.  It is not simply human greed.  It is an economic burden which the borrower cannot continue to pay for years and years. For the lender, of course, it is both greed and income without any risk,  as long as the borrower does not go bankrupt. .

8.     Ford is still working without big financial problems like its rivals.  Only bad models of cars that could not be sold is not the problem.  Ford Models are not much better than that of GM. In some countries, still GM models are sold better than Ford’s.  GM’s Chinese branch is still running at a good profit. Fiat is not a Japanese company, but it is financially well-off and now in a position to buy Chrysler assets. It is not simply a question of saleable models. It is also a matter of financial management.  If you are expanding with your own accumulated profits and within its limits, there is no risk in your expansion. But if you expand through paying Usury or Interest, in the long run, you will lose all your potential profits by paying fixed Interest, even if you are in a loss some time.

9.     This burden of fixed payment of Interest becomes so huge that in case of several developing countries, all their export income is swallowed by IMF.  Even though IMF Interest rates or charges may be quite low, the borrowing countries do not generate any Income from their big projects for years and years.  But they have to continue to pay Interest from their other exports. Ultimately, the countries have to go bankrupt as well.  Japan want bankrupt in the early years after the end of war.  All its government bonds became pieces of waste-paper bankrupt.  Argentina, Brazil and Russia also had to declare bankruptcies.  American banks had to forget about their loan repayments to several Latin American countries.

10.  Stiglitz, an American Noble Prize winner and Professor of Economics, a former World Bank Economist suggests bankruptcies as the best solution for all developing countries.  Only after abandoning Interest payments of borrowed money for their development projects, they can continue to develop.  His theory has proved right in case of all bankrupted countries like, Japan, Argentina, Brazil and Russia etc. In case of Pakistan as well, we have to borrow again and again for Interest payments of previously borrowed money, which has mostly gone to our politicians’ foreign accounts in billions of dollars.

11.  In case of USA, initially banks lent and lent generously and unscrupulously against house mortgages even to those who were not able to pay their monthly installments. The borrowers were lured that if they are unable to pay monthly interest and installments, they can sell their houses on a profit in a booming housing market.  The initial or first-lender banks knew all this.  They sold their lending rights in the form of shares to several other big banks in US and in other parts of the world. Initial Interest rates were small.  After a period, these started increasing under the Agreement of Sale-Purchase of a house.  These technicalities were not well understood by the borrowers.  When the Interest rates started increasing according to the not-well-understood clauses of the Agreement, they were unable to continue their monthly payments.  A chain reaction of bankruptcies started, which spread its effects all over the world.  It was all due to inability to pay back the increasing Interest burden on the borrowed money.  ‘Human greed’ was multiplied a thousand fold by the inability to pay back Interest burdens on the borrowed money, which continues to grow with the passage of time until  the borrower becomes bankrupt.

12.  This phenomenon has manifested in the suicides of thousands of farmers in India.  Small money borrowed by their forefathers could not be repaid back even by their grandsons and their grand-grandsons and so on.  Ultimately they had to kill themselves to get rid of Usury burden. For the borrower, it is a real and unbearable burden, which can never quench the thirst of lender’s ever-increasing human greed. That is why Allah has promised extremely painful AZAB to such lenders.

Best regards,

Hussain Khan, Tokyo

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