Days Like These

Suppose someone was in a dire situation and was in need of cash. Somebody else had the money and lent it with an interest. For some reasons the borrower could not pay the lender in time, resulting to another interest added to the existing one. The borrower later paid the amount they owed but could not pay the interest. Thus they still owed the lender the interest money, which unfortunately could not be paid at an agreed time. Therefore the lender added another interest on top of the initial interest attached to the borrowing term and further interest because of the late payment. By the time the borrower would have paid the initial + late payment interests, they still had to pay the interest of the late payment interest.

Right, I would like to stop here.

When I was little, I had seen these “lenders” in the local market with their cash flow books. They went around to their “borrowers”, ie. food sellers who were renting stalls. After a little “chat”, their faces looked grim; some drew a long breath and the others just shook their heads timidly. The “lenders” looked unhappy either, jotting down something on their notes or gesturing money. The scene repeated times and wired in my head.

Later some of the unfortunate food sellers came to my mother pleading their cases. Having eavesdropped the conversations, I learnt to understand that they would never be able to get out of their debts. The meagre profit they got would be spent to pay the interest of interests. “How am I going to feed my children?” said a Madurese woman who was raising her five children alone. It made my mother speechless.

To their surprise, my mother lent them money without an interest. “Please settle your debt as soon as possible,” said she. Yet it was too shocking for them to realise that borrowing money in Islam must not be done without strings attached. If for business, a lender and a borrower would share the risk; meaning the borrower would not be held responsible if their business go bust. However, such was not what those food sellers knew of. At least in their world.

Last night my better half and I watched the news about the Greece debt crisis. The government had to pay 15.3% interest to the “investors”; to whom they borrowed the money. Suddenly the memory of the ruthless pawnbrokers sprang into my mind.

“How come they’re asking them [the Greece government] to pay the interest? They [the investtors] know they haven’t got the money,” I said in disbelief. “Because they’ve got to,” answered him briskly. “Why? Certainly they cannot do it,” I responded, my voice rising. “It’s just to make matters worse,” I continued feeling sorry. I went on telling about my childhood story concerning pawnbrokers.

“Honey, the [Greece] government produced the bonds asking for money from the people. They’ve got to pay [them] whatever the circumstance. On the other hand, those food sellers approached the pawnbrokers for borrowing. It’s totally different,” he responded after a long pause. “But if I CAN’T then you’re still demanding such??” My voice became very frustrated. Meanwhile, the broadcaster had changed a topic to the impending UK’s national election.

“Can’t they do something else?” I pressed on. Sighing, he gave me the HOW look. “Nobody wants to lend money to people with bad credits, do they?” he replied. And I agreed. Strictly speaking, “people with a bad credit record” referred to the ones who could not fulfil the agreement. “But how if things go belly up beyond their controls?” I felt my temper flared recalling the stories of the glum food sellers.

“Sadly that’s how the capitalism works,” responded he, his voice was small. He was gazing at me with a please-don’t-go-further-it-was-a-futile-topic expression. “Wrong investment, bad public finance on the part of the [Greece]government,” he added, as if reading my mind. I was speechless. That is it: it is how THE capitalism works. So it is highly likely that German and other EU countries have to bail Greece out to save the Euro while being dragged into deeper crisis at the same time.

To my humble knowledge, it should not be the case. I was not listening anymore to the updates on the campaign trail on TV. For my mind was wandering to the Indonesia’s economy crisis between 1997 and 1999. The country went bust; banks had to pay 60% interest for begging people to put the money therein. It was followed by major overhaul to restructure the banking; a strenous and painful process along the way. As a result, some banks then switched to syari’ah banking based upon shared risks and profits in investment. It means when an investment failed, both lender and borrower shared the burden. It worked. And actually it is thriving as now all major banks and insurance companies offer syari’ah based products. The system enables Indonesia to weather the European crisis. Taking into account the fact that the country has the most populous Muslim in the world, it is arguably easy to see why. Nonetheless I was wondering should Greece benefit from syari’ah banking in future. From financial point of view, I cannot see why it might be unattractive. Forget about syari’ah stereotypes being misled by Orientalists. It is the principle that matters.

What do you think?