Alternatives of interest and usury Essay Example | Topics and Well Written Essays - 1750 words

Alternatives of interest and usury - Essay Example Sweden has given a thought to implement a variant of an interest free system. As mentioned in Islam (2008), 35000 members of JAK Bank have saved 97 million Euros, of which 86 million were given as loans. JAK does not charge or pay interest on its loans. Administrative and developmental costs are paid by membership and loan fees. JAK has a variety of banking products all of which come into action by balancing the individual's saving point system. Carrie (2004) researched the work of JAK and concludes that the bank provides affordable and responsible finance and enables its members to have a say in where and how their money is invested. This shows that the outcome of interest free banking does not always relates to a dominantly Muslim country and can exist viably in a western capitalist state. Interest is generally thought as an extra amount charged over and above the principal amount which is accepted as unethical or unfair in Muslim world. A borrower is a person who is needy and a le nder exploits them by charging them with interest so a simple question of justifying the ethical basis of interest arises? This question may be answered by another question, is it alright that an already needy person is being oppressed? Our banking systems ultimately covert into an ugly vicious cycle consisting of a borrower and lender thus there exists a genuine need to find alternatives where interest speculation and gambling can be avoided with debt-like financing, futures and option like contracts and insurance/assurance-like products. Now coming over to debt financing, it is a kind of transaction that is solely dependent on interest! for example a person A needs to raise working capital for their company so they only way they have is to issue notes or bonds of, say $1000 to everyone now that investor will receive an interest of 10% of 10000 after four months. In simpler terms you can say that debt is borrowing money from an outside source with the promise to return the principa l, in addition to a agreed upon level of interest. Debt financing is one of the most used methods of financing. The reason why debt financing is so commonly used is that it helps maintain ownership because when you borrow from banks then you have to return the agreed amount on time however here you can choose the time of repayment for yourself without anybody else's interference. Moreover the most attractive factor is that you can decide the amount of interest rate yourself, it is an open option for you according to your budget, but we do need to find ways of excluding interest on it. Here the question is that is this possible? The best alternative is interest free equity financing. Equity financing is an act of raising money for company activities by selling common or preferred stock to individual or institutional investors. In return for the money paid, shareholders receive ownership rights in the corporation. In most cases equity financing is preferred over debt financing especia lly where the company wants to move on an interest free basis. Here there is no interest cost, the company does not has to pay any interest to the amount provided by the owners ( the stockholders) in fact the cost of production remains low as there is no burden of interes