Sunday, November 9, 2008

The future of banking in a gold dinar economy - A Prescription to Uplift the Ummah Economy

The future of modern-day banking is so uncertain. The sub-prime issues, escalating deterioration of world’s fiat money, the uprising of consumer good prices are a major cause of concern in today’s economic zone. In current turbulence scenarios, looking for a new economic model such as the gold dinar would be justified. Evidence showing that the usage of the gold dinar can curb inflation and loss of fiat money value over time has been proven. However, the gold dinar economy is new in today’s conventional banking system. In fact, it cannot be implemented under the present banking scenario. Banks that exist today are based entirely on the concept of interest-bearing instruments and also the money multiplier principle or money creation. Meanwhile the gold dinar economy is based on ‘real money’ and promotes ‘real economy’. This is because each gold dinar must be represented with actual money that contains a certain weight of gold. In this case the gold dinar will have 4.25 grams of pure fine gold.

Real economy is where factory workers toil, doctors tend the sick, and where teachers teach and where roads, bridges, harbors, airports and railway systems are built. The other economy, the ‘financial economy’, is not the economy of trade but of speculation. Its commerce is in financial instruments. Mostly, it is concerned with the exchange of equities, such as stocks and securities, such as bonds and other forms of debt including currencies. Under the gold dinar system, for every transaction, trades and investments, real physical money do change hands. Therefore, it’s crucial that today’s banking begin to gradually change and become an “Entrepreneur Bank”.

How does an entrepreneur banking system work in this gold dinar based economy? First, banks should change its role from becoming a debt provider to a partnership (Musyarakah). Debt should be highly discouraged and should be avoided whenever possible. As mentioned in a hadith narrated by ‘Aisha, the wife of the Prophet: Allah Apostle used to invoke Allah in the prayer saying “.... O Allah, I seek refuge with You from the sins and from being in debt.” Somebody said to him, “Why do you so frequently seek refuge with Allah from being in debt?” The Prophet replied, “A person in debt tells lies whenever he speaks, and break promises whenever he makes them”. Therefore, banks should become a trustee and a partner in business, instead of just being a debt provider. Secondly, debt should be discouraged especially in doing business. If a customer approaches the bank for a business loan, an entrepreneur bank should treat it as a partnership, in which the bank shall take part in running the business. An entrepreneur bank shall not merely observe from afar and reaps the profit when the business succeeds and left the business in despair when it fails. Banks should provide advice and assistance to entrepreneurs on how to improve the performance of their business. This is the most crucial element in an entrepreneur bank because this may become its major source of income replacing the interest income. Thirdly, an entrepreneur bank should encourage spending on savings instead of spending on credit, which means an entrepreneur bank should encourage the use of debit card instead of credit card. Finally, an entrepreneur bank should encourage its customers to do business which will give its customers an equal opportunity to prosper and to discourage monopoly business. The entrepreneur banking is truly a holistic effort that can uplift the Muslim ummah (community) economy to a much higher respected level, Insya’Allah (God Willing).

Abdul Halim & Iza Azmin


Anonymous said...

Salam my new friends.

"the gold dinar economy ...cannot be implemented under the present banking scenario" - I agree.

One problem as I see it is this: The state isn't a theocracy - it doesn't operate for the 'benefit' of God. {which would actually be for the benefit of US!} It operates to create tokens of wealth so a small, hardly changing group of people can maintain their privilaged status compared to the rest of the population.

This results in the state(political power) and business(financial power) becoming two faces of the same thing, and at any instant in time, the political/business class will always in to maintain that status.

They will deliberately (consciously or not) act to prevent the emergence of the kind of banking system you and I advocate (the theocratic system) because, should it succeed, they will be robbed of the tools they employ to maintain control e.g. money supply, interest rates, Forex rates etc.

There is an argument at this point in which the ruling elite may gain assurance, in that, it's generally said Allah commands the believers to follow their leaders, but when we remember this is only if they themselves follow Islam, you can see why they might not be so happy to accept that mantle. It is a big responsibility to dispense, something ones economics degree doesn't really grant qualification for.

The (illusory/worldly) tempting sweets(to some) of secularism and riba are entrenched in economic systems all over the world.

Therefore, if Muslims believe they are not operating within the code of life God prescribed for them, it is foolish to rely on the nation state and banks (not forgetting so called "Islamic banks") to provide us with the correct(fair and just) system.

In conclusion, and by consequence, Muslims must act themselves, as indeed is our responsibility as God loving creations, to operate free from 'state' or conventional financial systems/organisations in order that we may establish a system of Islamic economics.

That involves Muslims trading Islamic money (gold, silver, dates, sugar, rice, wheat) among themselves, preferably within a 'closed' system so as to minimise the need to trade with the riba based economy.

The beginning stages of this is acquisition of dinars and dirham to a reasonable level and then agreeing to provide goods and services and skills in exchange for Islamic money.

Then of course we have other problems to consider... -more later-

For a bank to be active in running a business(we are assuming a proper Islamic bank here) I also agree the bank should offer to play an active role, the entrepreneur would the one likely to have the passion, insight, ideas and drive that business would need and the bank offering expertise in budgeting/cash-flow/networking(acting as a chamber of commerce) and investment. Interesting if the entrepreneur felt he was better at those things than the bank. The potential for a bank to be a very large and significant part of the community when acting in that way is very high indeed.

You say "spending on savings instead of spending on credit" - again you identify a very important aspect of todays 'e-CON-on-me'. People as little as 50 years ago (not so long on Malaysia) people only spent what they had in savings. Now it's completely changed. The economy has only grown because of debt. It's a massive bubble and were beginning to see it pop right now, as well as panic attempts to let that bubble expand a little bit more.

May God help us.

Anonymous said...

Dear Brother,
Indeed a very much enlightening comments that spur the body of knowledge. Appreciate it very much and keep on posting those so much sought points.Really appreciate it.


Penggerak Dinar Emas said...

Dear intechemistry, thank you for the sincere comments. InsyaAllah we will strive for our own correct system,a system that is based on real Islamic teachings and a system that's full of humanity, not merely profit oriented.