WHAT IS BANKING!

LET’S UNDERSTAND BANKING


Many apologists of Islam feel much perplexed when they are asked how Islamic system can work in a modern society when it prohibits banking business. These apologists run mad with their excessive enthusiasm and have go so far as to say that Islam is not against the present type of banking system and they sometimes go even so far as to assert that interest is allowed (by keeping and originating other names for ribah). We believe that their defence of the banking system is due to their ignorance or lack of knowledge of this system.


Lest we may be accused of bias in condemning it, we shall describe the money lending process by a very gifted Western writer, Jeffery Mark stated in his book The Modern Idolatry.


To understand the past and present history of banking practice, it is necessary to go back several hundred years and consider the transition of the medieval goldsmiths into money-lenders, the close and indeed exact relation of whose activities to modern banking methods is so ingenuously misrepresented in all the standard text books on the subject.

THE PROCESS


Gold itself being the direct and virtually the only symbol of accumulated wealth in those days it was natural for merchants and private individuals to deposit their gold with gold merchants for safe custody. The goldsmith in return giving a signed receipt for the amount of gold deposited with him. The next stage of development was that these goldsmith’s receipts began to pass from hand to hand in settlements of debts, thus forming the original bank notes, since they had to be met upon presentation by the delivery of a specific amount of gold plate.


So far so good! A great convenience has been affected for all the merchants concerned, and the goldsmith is entitled to make a charge for his service and safe custody.


In practice, the goldsmith discovered that less than one-tenth of the gold deposited with him was claimed and taken out at the same time; therefore he always had more than nine-tenths which he could lend out at interest. He therefore issued to the borrowers his signed personal notes for gold on demand for his nine-tenths remainder. These were used by borrowers to pay their accounts or debts, thereby also passing into circulation as money.


It he could always supply gold on demand for the proportion of notes continually presented for redemption he could maintain the illusion that the whole of his note circulation, receipts and personal notes alike, was backed by gold.


Now come to modern banking system, if we add to the above explained process the fact that ‘these factious’ loans were only granted against evidences of tangible security deposits with the goldsmith in an amount always in access of the loan, and that this security was confiscated by the goldsmith if these ‘loans’ were not ‘repaid’ when called, we have accurate picture in miniature of the modern financial system under whose dictate we all necessarily live and suffer.


PERIOD OF EMPOWERMENT


If these medieval precedents were universally improved and appreciated, the world to-day would have no difficulty in solving its desperate economic problems. Jesus himself condemned usury as stated in Bible, Luke 6:34.


In The Merchant of Venice by Shakespeare the money-lender of medieval or early renaissance times was a despised and hated figure. He was considered as a vampire, who visibly lived by first injecting and then sucking away the very life blood of social and industrial enterprise.


I the meantime, kings and emperors were too busy amongst each other to bother about how money came into existence, and were themselves driven to usurers for money which they needed for wars and other emergencies. The indebted kings were compelled to give note issue privileges to the money lenders.


But the money lender’s rise to respectability and power was definitely achieved at the end of the eighteenth century and the beginning of the nineteenth when the banking house of the Rothschild controlled the destinies of Europe and the profound issue which devolved from the French Revolution. Their position thus acquired was firmly consolidated by their close co-operation with Metternich in his subsequent determination of European policy and the ‘balance of power’. Since then they have been universally accepted by the Church and the State through the silent assertion of their money authority and the sinister nature of their origin has been entirely forgotten.


CONCLUSION


Adam Smith (considered as father of economics by Western societies) remarks when dealing with the subject of banking “these exertions of the natural liberty of a few individuals, which might endanger the security of the whole society, are and ought to be restrained by the laws of all governments of the most free as well as the most despotical.


The description sketched by a gifted Western writer, shows that the modern banker at least in spirit is not very different from the old money-lender. Therefore banking is nothing but money lending and borrowing at interest, and Islam has very justly condemned it. The present bakers are nothing but glorified chartered and licensed money-lender.


 Sahira Uzair