How Can I Change the World?

We believe that interest is the root cause of most of the world's problems.

If we did not have compound interest, we would not need compound growth. And if we did not need compound growth, we would not have most of the debt-induced poverty, resource-hungry wars, and runaway climate change we now see. All interest — whether simple interest or compound interest, whether at very low rates or very high rates — grows so fast that we simply cannot keep up.

A simple example: Brazil is home to the beautiful Amazon rainforest. This lush wonder supplies us with a quarter of the world's oxygen. Unfortunately, this forest will vanish in our lifetimes. Why? So Brazil can pay off $200 billion of debt. How? With lumber.

Or take an example closer to home. Are you or someone you know crushed under growing personal debt? About half of all American families now spend more than they earn. And this problem gets worse each year for millions of families around the world.

Moneylending has enslaved most of humanity for most of history: directly through compounding interest-based loans, paying with the environment, the economy, and our very lives; or indirectly by reducing the purchasing power of the many while concentrating wealth into the hands of the few.

1. Banks Make Your Money Worth Less

Not only are people spending more money to keep up with debt repayments, but also the interest itself is reducing their purchasing power. When banks lend on interest, flooding the market with cheap cash, they increase the supply of available “money” in the market. What happens when the supply of anything increases? Its price goes down. When the “price” of money goes down, we get inflation: the same money buys less than before.

2. Banks Concentrate Wealth

The rich borrow at low interest rates and invest for high returns: into derivatives, private equity, venture capital, and property development, all the while cushioned by stable assets. The poor borrow at high interest rates and have no extra money to invest, subject to the terrible vagaries of the market. When this cycle repeats itself—with banks taking from the poor and giving to the rich, and the poor essentially funding the rich with cheap cash—the rich get richer and the poor get poorer.

3. Banks Crash Markets

Ninety percent of all investments today are derivatives, highly leveraged financial bets made of thin air, backed by neither asset nor service. Combine this with fractional reserve banking, where banks lend out many times more than they hold, and you create a highly volatile financial world. Ownership in hard assets and actual services, on the other hand, creates a bottleneck that slows transactions and shields against panic runs. You can resell the car every other day, in theory, but you could not resell it hundreds of times a day. But with interest-based transactions, it is all on paper, so you can repeat transactions on the same so-called “money” without limit.

4. Banks Breakup Families

Higher prices mean more people need to join the workforce: women, children, and the elderly, with everyone working longer hours. This drives demand which raises prices further. Accelerated markets atomize society and breakup families.

5. Banks Affect Everyone

Look around you: devastated ecosystems, resource-hungry wars, crumbling social services, corporations chasing quarterly earnings at all cost, venal politicians beholden to foreign creditors, and your own life, accelerated beyond what your parents lived. Interest is the root cause of most of the world’s problems. Bankers, today safely barricaded behind walls, will soon find the barbarians at the gates.

The Alternative to Banks

The inherent flaw with banking is that it treats money as something to be bought and sold. Removing interest levels the playing field. Everyone—rich and poor alike—partners for profit in proportion to their investment.

1. Eliminate interest from your life. Do not pay it. Do not take it.
2. Keep your money in gold, silver, and property, and what cash you need, keep in an interest-free account.
3. Buy and sell real assets and services.

As President Obasanjo of Nigeria put it, “All that we had borrowed up to 1985 or 1986 was around $5 billion and we have paid about $16 billion yet we are still being told that we owe about $28 billion. That $28 billion came about because of the injustice in the foreign creditors’ interest rates. If you ask me what is the worst thing in the world, I will say it is compound interest.”

We believe there is a connection between interest and many of the world's problems. And we believe that Islamic finance can help solve some of these problems.

What is Islamic finance? Ordinary banking is debt, equity, leasing, and trade. Debt is lending on interest, like a bond. Equity is taking a stake in a business, like a stock. Leasing is renting things out. And trade is buying and selling goods and services.

Islamic finance just takes out the debt, leaving equity, leasing, and trade.

The best part is that banks do not crash in Islamic finance. Interest pumps easy money into a bubble, the bubble gets bigger, investors pull their money out, and the bubble bursts. Enough bubbles burst and the domino effect creates a global financial crisis or a long-term depression.

Islamic banks, on the other hand, take ownership in hard assets and actual services. The fact of this ownership creates a bottleneck; bottlenecking that slows transactions and shields against panic runs on the bank. You can resell the car every other day, in theory, but you couldn’t resell it hundreds of times a day. But with interest-based transactions, it’s all on paper, so you can repeat transactions on the same so-called “money” without limit.

But for Islamic finance to happen we need two things: the letter of the law and the spirit of the law. For the letter of the law to work, Islamic finance needs to follow some basic minimum standards. Standards that won't be taken seriously unless central banks start pulling some licenses.

The best standard in the industry – de facto in over 90% of the world's Islamic finance jurisdictions – is AAOIFI (pronounced "a-o-fee"), which stands for the Accounting and Auditing Organization for Islamic Financial Institutions. AAOIFI brings together scholars from all over the world who agree on Shariah standards. And because AAOIFI provides minimum standards, if it isn't AAOIFI-compliant, it probably isn't Shariah-compliant. As one scholar put it, “The closest thing we have to ijma (scholarly consensus) in Islamic finance is AAOIFI.” Ijma, as you know, is the highest evidentiary source after the Quran and hadith in traditional Islamic jurisprudence. We believe that following AAOIFI Shariah Standards – and questioning whether your bank, scholar, or trainer is following them – is a good starting point for following the letter of the law.

But we can't stop there. Islamic finance needs to follow the spirit of the law as well.

We need to promote equity-based structures like Musharakah and Mudarabah and reduce our dependence on expedient structures like Murabaha. We need to eliminate Tawarruq. And at a broader level, we need to address the larger problem of fractional debt-reserve banking. Why do banks get to lend money they don't have? And make money on money that doesn't exist? Does this make sense?

While the reality is that banks aren’t going away anytime soon, a first step to challenging fractional debt-reserve banking is establishing a globally recognized gold-based currency. This immediately forces the market to tie transactions to assets rather than base them on mere numbers inside computers.

So where do we start with promoting the law in letter and spirit?

We believe it starts with you and me.

For starters, get your money out of interest-based banks. They are unsafe. Keep it in gold, silver, property, and, what cash you need, in an Islamic bank. If there is no Islamic bank in your country and an overseas Islamic account is not possible, put a small amount of cash in an interest-free account and keep the rest in something tangible like gold, silver, or property.

If you are a banker, quit. Why war with God? You solve one problem in your life with a good salary, and visit upon yourself every other problem imaginable, in your health, your family, and your livelihood. If you are an Islamic banker, you can start doing two things at your bank: 1) check that your bank's products comply with AAOIFI. The latest standards are available at https://ethica.institute; and 2) start switching to Musharakah and Mudarabah for a variety of activities ranging from liquidity management to trade finance.

If you are a regulator and Islamic finance is already practiced in your jurisdiction, pressure banks to follow AAOIFI or risk having their licenses suspended. At a broader level, support the Islamic microfinance industry. If Islamic finance has not yet reached your jurisdiction, promote awareness with training and educational initiatives.

If you are an entrepreneur, you probably have a skill the Islamic finance industry could use. Dream big: create a company, a community-based institution, a local currency, an ecologically-minded village, or an innovative product. In most countries, people still lack interest-free alternatives to home, education, and healthcare financing. Why is it easier to issue a billion dollar Sukuk than it is to raise a single penny for a Shariah-compliant education financing? How can we better operationalize Zakah? How do we build Waqf-based community-owned trust models?

If you are a student, learn Islamic finance. Think beyond the standard career path and seriously consider starting something on your own. Ask God for guidance, follow your passion, and success will follow.

And if you are an educator trying like us to change Islamic finance for the better, be patient. Lasting change takes years, often decades. Resist the temptation to “throw the baby out with the bathwater” and reject all Islamic finance. The industry is still a work in progress with a long way to go. Be part of this progress rather than embarking on a dazzling new theory of economics that leaves the average customer scratching his head wondering how to finance a small house for his family. Just promote Diminishing Musharakah instead, for instance. The deeper, structural environment that Islamic finance inherits – fractional debt-reserve banking, fiat currency – are not solved by replacing products. They are solved by replacing systems: gold-based currencies issued by Islamic central banks.

We believe this century – indeed, the coming years – will be like nothing before. Global heating will mean less food and water. Peak oil will mean less energy. And repeated financial crises will mean less certainty. We can throw our hands up and walk away in resignation. Or we can identify the root problems and do something about it. God only makes us responsible for our actions. He takes care of outcomes.

We believe that it is time to openly question the interest-based paradigm and promote interest-free finance as the proven alternative. The time has come. But the first step to questioning a paradigm and offering an alternative is to educate oneself.

Only then will you believe. Because if you believe, then so will everyone else.