Shun the evil of Riba, for God’s sake!

Often there is an argument whether bank interest is allowed, permitted or rejected. The debate is whether the modern banking system can be permitted in our dealings or not? The answer often is, if it is not usurious, we should not worry about it. What did we do about? We did not have a formal Islamic banking system for a number of centuries. It is only recently, in the last few decades that Islamic financial system has been created in some of the Middle Eastern countries and also a co-operative sector in Islamic dealings in other countries.

There are many individuals who completely eliminate element of interest (riba) from their business transactions. They strictly observe the Qur’anic injunctions. One of the experiences and cases I would like to share with you is as to how we have completely eliminated the element of interest from manufacturing activities in our sheet-metal press shop, employing 50 people.

We have a medium-scale enterprise under the name and style Union Steel Industries, situated at Hadapsar Industrial Estate, Pune - 411013. For nearly more than two decades, we constantly kept on borrowing from banks on interest as well as from open market, initially a few thousand and then a few lakh rupees. Always our borrowings exceeded our assets. We manipulated our accounts every now and then to obtain more loans from the bank.

We also borrowed on anticipated orders and in fact we were walking into a debt-trap of our own creation. Wages, salaries and other overheads, specially cost of capital was staring at us, creating a dread. Were we confused? We didn’t know what to do. We didn’t know which financial path we should take. We were aware that the Qur’an prohibits interest.

We set out a target to eliminate riba. at least we did not take interest and didn’t know how to do away with bank borrowings. We often wondered as to how could we run our business without bank borrowings. In fact, we didn’t know how to go about eliminating interest from our enterprise where we had employed 50 persons at that time.

At last we made it a point to see whether the Qur’anic message could come handy and decided to put the words into action. The Qur’anic Ayat, “Allah permitted trade and forbade interest” (2:275). Our decisions and words were soon implemented into action. The Qur’anic Ayats were taken very seriously, specially the ayats, “Allah forbade interest”. “If ye do it not, Allah and His Apostle shall declare war on you” (2:279).

Soon an action plan was chalked out. We resorted to cost reduction. Wasteful expenditures were curtailed. Extra inventory on our shop floor were disposed of. Old machines, dies, punches and castings were removed. Non-profit making jobs were eliminated. Expenditure on travel and entertainment etc. were curtailed substantially.

In order to prevent interest on working capital, attempts were made to see that even a small fraction of reduction in borrowings brought a small relief in our debit balances.

This continued for nearly three years and Alhamdulillah, our bank borrowings were brought to nil. This attempt to pay back brought savings, productivity, profitability and constant efficiency. Soon, through this cost reduction and saving we became our own banker. No liabilities. It was a win-win situation. Everybody prospered, including the employees, local government (by way of contribution in taxes).

This experience we thought to share with you in absence of Islamic financial institutions. One can go around eliminating the element of interest which eats into one’s profits, time and imaan and its elimination is a boon.

Dr. Phiroz A. Poonawalla
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This article appeared in The Milli Gazette print issue of 1-15 June 2016 on page no. 2

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