financial accountant journal - sept. 13 extract

7/27/2019 Financial Accountant Journal - Sept. 13 Extract

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ISSN 2226-076

Financial Accountant JournalSeptember - 2013

The Society of Accounting Education(Registered under Societies Registration Act 1860- Section XXI)

Main Campus: 80-S, KB Society, Near Netsol, Airport Road, Lahore.

web: www.soae.edu.pk e-mail: [email protected]


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PARTICULARS PAGE

NO.

Best Source of Guidance

Prophet Muhammad (PBUH)A Mercy for all Creation

1

Messages

From the President 3 From the Chief Editor 3

Articles & Research Work

Riba & its Inverse Effect on theSocietys

4

Planning Key to Success inBusiness Management

6

Impact of Working CapitalManagement on Profitability( A Case Study of the Pakistan

Cement Industry)

9

6-Steps to Handle WorkplaceComplaints 14Success Story

Mr. Shahzad Sarwar-FCFA-Regional Coordinator

16

Events, News Updates and Others

SOAE News & Events 18

SOAE-Affiliations / Recognitions 20 SOAE - Regional Coordinators Team 22 SOAE- International Regional

Coordinators Team26

0HPEHUV'LUHFWRU\ 28

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Islam is not a religion in the commonwords only, it is a complete code of life.It provides guidance for all aspects ofhuman behavior including economicactivities. As such, it deals with allkinds of human life problems andprovides significant solutions to comeout of these problems. According toIslamic point of view, Allah SWT hasmade the resources of this earthavailable to humanity who has theresponsibility to make use of them , tomold them and transform themaccording tohis needs. But human beingsare supposed to observe certain limitsand prohibitions in the exercise of their

freedom.

Islamic condemnation of Riba mayexplain as followings :

1.Riba reinforces the tendency forwealth to accumulate in the hands ofa

few , and thereby diminishes human

beings to concern their fellow men.2.Islam does not allow gain from

financial activity unless the

beneficiary is also subject to the risk

of potential loss.3.Islam regards the accumulation of

wealth through interest or usury asselfish compared with accumulationthrough hard work and physicalactivities.

Inverse effects of Riba on Society:Some very common and severe effects ofRiba on the behavior of individuals,society and economy can be summarizedas followings:

1. Riba deflects money from its basicfunctions:The primary functions of money aremedium of exchange, store andmeasure of value. For empiricalevidence, let's consider an individual whoacquire interest on the trade of twocurrencies by lending one type ofcurrency at lesser rate of interest atpresent and getting higher rate ofinterest in future.

Money is created for buying and selling ofother goods not buying and selling ofmoney itself. Money i s not c r e a t e d toe a r n m o n e y a n d d o i n g s o i stransgression on. In relation to othergoods, unit of money is like 'preposition', which has no color of its own. If aperson is permitted to sell or exchangemoney with money, either in presentor future , then such transaction willbecome his goal, and as result moneywill be hoarded like anything, i. e. moneycould not perform its basic function ofmeasure of value, stock of value andmedium of exchange.2. The Riba-based system may result

in exploitation:Amount payable on interest based loans

doubles and redoubles after specific

periods and this geometric

multiplication continues. The amount

that is returned by previous borrowerscan again lent on interest to new

borrowers and therefor e this process ofdoubling the dues continue despite the

fact that many borrowers are unable

to repay their loans within specificperiod of time . Debts created oninterest usually cannot decay or write-off. According to the recent IMF reports

numbers of people below poverty lineare increasing and many poor

countries have already been trapped

into the interest-based debt trap. It is

being believed that Interest ismechanism to enslave the people and

any law that enforces its payment is

unjustand inhuman.3. Inflation is co-related with Riba:Increase in the rate of inflation (I)

reduces the real interest (R), which

result decrease in the demand formoney. Money supplier, to ensure that

the R does not fall, raises the nominalinterest rate . This act will result in

increase I. Thus, Ir ise as the R rises.

RIBA & its Inverse Effects on the SocietyBy Saleem uddin Faisal - ACFAc 4


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Steven Doldfeld in (1973, 1976) found forthe United State from 1952 to 1973 that a10% increase in interest rates on timedeposits reduces the real demand for M1in the long run by about 3%. He in his nextfindings shows that reduction in moneydemand results decline in GDP.25) Theresult is obviously clear that increase ininterest rates results decrease in the GDP,while no physical objects (goods orservices) were produced.

4. Debt Slavery: one cause is Riba:

Human Development Report 1992 bringsto focus the glaring reality that rich havegrown richer and the poor become poorerat the end of three decades of so-calleduniversal development effort.

The net transfer of resources from thepoor to the rich countries (peoples) of theworld. Poor countries (people in debt in

rich countries) are becoming poorer, forevery $1 that is received in the form ofnew loans and aid by the developedcountries they are paying back $11 .1. Ifthis is not debt slavery what then it shouldbe called.

5. Interest exerts disastrous effects onthe human behavior and society:

Interest exerts disastrous effects on themoral and humanity of the society byreinforcing the tendency wealth

accumulation in fewer hands. It leads toever increase in the risk free capital vies- a-vies risk based equity capital, resulting inbusiness failures, unemployment andultimately to gross inequalities of incomeand wealth that are bound to end-up insocial strife and economic chaos. All divinereligions, especially Islam, are opposed toexploitation in every form and stands forfair and equitable dealings among allhuman beings. It is a ground reality thatthe interest-based system, irrespective tothe rate, is creating "idlers" and "cruel

blood suckers" in the society.

6. Pre-determined rate of return in theinvestment is not justified:

Money while invested in a business thequantum of profit that may occur is notknown beforehand and there is also thepossibility of a loss. Therefore, charginga fixed and pre-determined rate ofreturn on investment cannot be morallyjustified.Justice demands that provider ofcapital should share the risk with theentrepreneur if he wishes to earn profit.

7. View that "interest plays animportant role in promoting

saving"isnot always true:

The general view of the conventionaleconomist has been that interest playsan important role in promoting savings,investments and economic development.However, it is not the case, and theground realities indicate the differentpicture. There are many other factorslike, ability to save, willingness to save,income level, pattern of incomedistribution, rate of inflation, stability ofeconomy and fiscal measurements thathelp to increase the savings. Theseelements are much more important thanthe rate of interest for high savings andinvestments.

8. Interest is not rent on capital:Islam does not recognize an income

without physical effort or risk. The

argumentthat a person when lends outhis money to someone makes a

sacrifice, hence is entitled to get apredetermined reward, is not acceptable

in Islam.

Unlike other physical things, 'Capital' doesnot suffer wear and tear, nor does it facedepreciation in value. Capital by itselfdoes not earn profit. The combined forceof management, labor, and many otherfactors plays active role and contribute

their efforts to run business. Even then,sometimes, business does not yield profit.IMF economists observe that Islamicbanking,based on the elimination of Ribawill to lead to a more stable bankingsystem, thus:

"The Islamic model of banking based onthe principle of equity participation maywell prove to be better suited toadjusting to shocks that result inbankingcrisis and disruption on the paymentmechanism of the country. In an equity-based system that

...

does not guaranteethe nominal value ofdeposits, shocks toasset positions are immediatelyabsorbed by changesin the values of theshare deposits held by the public in thebanks.Therefore, the real value of assetsand liabilities of banks in such a systemwill be equal at all points in time. Inthe more traditional banking systemsince the nominal value of deposits is

fixed, such shocks can cause a diversionbetween real assets and liabilities".

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financial accountant journal - sept. 13 extract

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