Wisdom of Islamic Finance: Rethinking Our Economic System #Finance

asalam alaykum and welcome back to the channel today we are having very interesting topics often requested it’s about Islamic banking how do Islamic Banks or Islamic financial institutions make money so make yourself a nice cup of coffee I’m here at the cafe enjoying my coffee

so you make your tea coffee whatever you like and let let’s get into this episode so just before I posted the last YouTube CashNews.co my daughter asked me but how do Islamic Banks actually make money how do they do things differently from conventional so let’s start with a simple

principle when it comes to the Islamic Finance I’ll give you a story that will illustrate this point and then I will show you how if you understand this story you will understand

basically everything or 90% of what’s happening so the story go something like this so one day father and a son decided to go for a picnic to nice beautiful mountain and enjoy their time with the friends but as they arrived to the location it started to rain they they would really have a time

to unpack and prepare themselves so the rain got everything wet and at that same time group of their friends that they were expecting arrived now as it is a custom you normally prepare some tea or coffee for your friends uh but now everything was wet you couldn’t make uh fire so a father said

to his son he says my dear boy why don’t you figure out some way to make us a fire so we can cook some tea son thought about it he wanted to please his father do something that is good make his father proud so he went and looked around but he couldn’t find anything that was dry then he

remembered his father has got a metal box in the tent in a in in a in another box and inside that metal box there is some money and what he knows about the money is made from paper and it is in Secure location so it is dry it in fact is the only thing that is dry around them so he gathered the pile

of that money he sets it on fire and soon after that he prepares the tea now as he was bringing the tea to the father and his friends father was very happy he was very proud of his son and he said to his guest you see how clever my boy is there is nothing dry around us yet he was able to cook us

tea so the question here often becomes what will father do and how he is going to react once he learn the way his son prepare the tea it’s obvious father will not be pleased now the question for you is is it is it problem beer tea or the outcome or the way we have arrived at that outcome so

if we link this to the everyday business economy everybody wants to make money Profit have things that that they want but where is the challenge challenge is how do we get there so specifically in this story what was the problem the problem here was not just that the sun

didn’t understand the value of money it’s that’s not the essence of the problem that’s a mistake but the essence of the problem was that he used the money for the purpose that money was not supposed to be used as money as a medium of exchange something that help us bying

sell has a different purpose now you could use it for burning it and creating the fire but that’s not what money is meant to do what is meant to burn and create a fire is a wood charcoal things of that nature so to use money properly in this case you should go to the store and buy things and

then use those things for their intended purposes so what Islam wants to see is that money performs a function to help facilitate the trade buying and selling and all the other FS they do their function in society now when it comes to the banking the what we are doing with the money these days is

basically we are using money as a commodity for sale so we take money and then we give money to someone and then we expect more money this is the principle where two system conventional and Islam basically diverge in Islam if you want to make money money must become some asset some commodity

something of value that has some benefit or value in itself any that is sold or leased or something is done that is useful to generate Profit for the customer so the idea here is that whenever you buy and sell Commodities you are linking yourself with the productive purposes with

the real Assets whenever you are trading money for money you are basically unlinking yourself from the real economy you are letting Financial economy grow one system then incentivizes work and production in a real economy where other system will basically incentivize the growth of

money and this is how this financial or synthetic economy starts to grow so when it comes to the bank then Islamic Bank and conventional bank would differ in the way that they none;">Finance things so conventional Bank mostly would sell you basically money they would give you money let’s say we’re talking about home Loan you get some money as a Loan to buy by house so the house is not a subject matter of a

contract it’s a collateral so you’re getting money and then you’re returning more money I understand on simple level one could think just in terms of well I’m getting the uh home to buy and I’m just returning the same money like anybody else but it’s it’s a

matter of a principle where in Islamic Bank what you would see is that the bank should actually buy that house and then sell or lease house to you what is confusing a lot of people is that they say but I thought this is interest free yes interest free doesn’t mean Profit free

now Profit a lot of people confuse this part when we say interest is prohibited interest is Profit as well and business Profit is Profit as well so what does interest mean in terms of illegitimate Profit is that it

is result of a transaction where Islam doesn’t want to see gain Profit which is from lending money all this to say basically that Islamic Bank will need to have some skin in the game they will need to connect themselves with the real economy a real asset when they are getting

benefit from their money or from their business where the other bank would basically just move the money around so so on the basic level that might look the same outcome might look the same both might get the same benefit from this at the end of the day but once we start building now this system

what do we get we start incentivizing this movement of money for Profit and then this starts filtering in everything we want to go for Holiday we want to just spend money for whatever we start just we go into the Loaning of money we want to run a business we want

an investment it’s not structured anymore more as something that is connected with the real life real a real business a real investment we start structuring everything just to be money for money so over time investors Banks anybody who has a Capital is now unlink from the

real activities their Profit and everything doesn’t come from real life it comes from just movement of money that generates the Profit so this Starts Now building whole different economy you see in this economy people become more risk averse they’re

looking for easy opportunity to make money they’re starting get to this secure way where no matter they would look at no matter what happened with these businesses they are expecting the same return they don’t want to risk anything they don’t want to be rewarded from the fruits of

the work or a business or anything real they just want to be rewarded from giving you that money so that basically puts people at almost two opposing ends on the other hand and when it comes to Islamic Bank what starts happening is because the bank is now linked with the real life you cannot have

that compounding effect you cannot have that unnatural growth because you are tattered to the real things to the real economy so we cannot have this expansion of the Credit bubble derivatives Financial products leverage that hugely increases this fictional economy Financial economy

that is is not anymore linked with anything now as a banker once you start thinking at a higher level you are increasing this Debt and growing Debt you are incentivizing creation of the Debt and speed by which Debt starts

accumulate everything become opportunity to create more Debt and then you start slicing and selling the Debt and creating more derivatives and betting on thatt and taking Insurance and then you start suddenly seeing what are we creating you are

creating economy where everybody wants to get on the band wagon of creating the Deb and so nobody can compete with that so even the real business start benchmarking themselves against somebody who is making money easy way so why would I grow food or make bread or do real things where I can also

participate in this creation of the death with no links with the real economy so soon your products that you are eating become fake because nobody can compete with this synthetic way of making money so that they would rather make fake products and just sell you something looks real for some

Profit because they have to also return their investors similar return like the people who are doing nothing and getting money more and more money as Return of the growth of this financial economy so this whole thing incentivize the synthetic way of making money and that start

messing up with the real economy because if you want in that economy to grow real food for example do the real hard work expect real return from the ground from the you have a wholesome product it’s not rewarded anymore because nobody now wants to wait be slow be rewarded from the real fruits

of their labor so labor is diminished in terms of how we value labor hard work what what what should be rewarded what is rewarded is these Bankers to more clever ways they can spin money around more clever derivatives they can make out of it and so we end up in a situation like we had in global

financial crisis where suddenly had this whole economy started collapsing because there was no reality into it and who bails the burden average people they get flood of these Loans opportunities they don’t even know what’s happening anymore and the governments take it

further they start doing the same thing and so to cover this they they start printing more money and so we had this whole system where money is printed Financial economy is growing Profits needs to come on on the back of even more financial productss that are being created and so

you now have a situation where even the politicians the way they manage this economy monetary policies is simply by moving Interest Rates up and down and these career politicians just like these Bankers they don’t have any other tool that they know of how to engage anymore in

real things only thing they know is charge more for money or less for money and just take from you Central Bank just increase Interest Rates reach more into your pocket extracts more money for you and they say we’re managing Inflation is spit so you see from

the little principle once you disconnect yourself from the real economy the system becomes completely different it become brutal it become war against the people because the way starts crumbling down incentivizing and moving money it’s a type of modern day slavery that’s why you see

people Shackled with the Debt Credit cards Loans mortgages this inflates price of everything your normal house that you to be uh you know $200,000 will become five times more because of this whole gain nothing is connected with the real economy

everything is built and is leeching from that real economy so what Islam wants to see Islam wants to return us to the Natural State where your Profit comes from hard work providing the benefit from linking yourself with the risk and reward associating with actually liability owning

the asset engaging into business providing some benefit it’s a different world view and that world view is paired with a lot of other layers in between how you are consuming what are your aspirations sense of gratitude content not just jumping like what we see Capitalism

materialism just in incentivizing just owning more and more and more nobody wants what they have everybody wants the latest the new and there is that cycle of materialism people get caught up because easy Debt everything become a flood of ways to consume more

Credit cards buy now pay later all of these schemes are just making you spend more and more and more and you are promised just like our grandfather Adam in Paradise if you just get one more purchase if you just do this you’ll be happy like Angels Immortal this is the promise

of this financialized secular materialistic worldview that wants us to consume because it’s easy to structure these transactions for the banks and the providers that’s why I believe returning us to the original principle Timeless principle seeking out wisdom of God in these things can

reveal reality for what it really is and it can help us chart the way forward to restore economic integrity and build a better Financial system system that is god- Centric that is seeing human with all four dimensions that is building the place that is better place for all of us that rewards the

things that should be rewarded and does not incentivize things that have harmful detrimental impact on the society thank you for spending time to watch this CashNews.co if you would like to learn more about text-decoration: none;">Finance and economy from Islamic perspective head to our new platform Muslim Money Matters where we go in much greater details regarding the content until next next time my name is Al chanam alikum