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Financial Financial Failures Failures

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Page 1: Financial Failures

Financial FailuresFinancial Failures

Page 2: Financial Failures

Issue to be discussedIssue to be discussed

Financial Failure a reality

Exploring reasonsInterestTaxationEthicsEstablished norms & practicesThe future

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Financial failuresFinancial failures

The great depress & stock market crash

The recent financial meltdown in Europe & USA


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Possible reasons givenPossible reasons given

CyclicalMarket correction & Arbitrage TheoryThe ugly beauty of Free market

Are these acceptable ?Or are there other important factors that are missing!

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A deeper analysisA deeper analysis

Exploited by greedy capitalistGeared to the advantage of the

capitalist powersThe bigger fish eats the smaller fishIn practice the stock market works

quite differently that theorizedEthics are over-stretchedCreates a hollow market – the

bubble!The underlying fundamentals need


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The choice ?The choice ?

To succeed or fail?To play with the lives of million on

the basis of trail and error?Is the current system the outcome

of the wisest men, or should the system of the Wisest be acceptable ?

To succeed or fail ?

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Analysing the building block of Analysing the building block of corporate financecorporate finance

Interest is the basis of financeIs it justifiable ?Are there problems associate with

it ?What is the fundamental problem ?Global warning for interest !

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What the Qur’an DECLARES (2:275): What the Qur’an DECLARES (2:275): Those who eat Ribâ (usury) will not stand (on the Day of


except like the standing of a person beaten by Shaitân (Satan)

leading him to insanity.

That is because they say: "Trading is only like Ribâ (usury),"

whereas Allâh has permitted trading and forbidden Ribâ.

So whosoever receives an admonition from his Lord & stops eating Ribâ (usury) shall not be punished for the past; his case is for Allâh (to judge); but whoever returns (to Ribâ), such are the dwellers of the Fire – they will abide therein


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Soorah Al-Baqarah Ayah # 276:Soorah Al-Baqarah Ayah # 276:

Allâh will destroy Ribâ (usury)

and will give increase for Sadaqât (deeds of charity, alms, etc.)

And Allâh likes not the disbelievers, sinners.

RIBA will be DESTROYED !!!!!!

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Soorah Al-Baqarah Ayah # 277:Soorah Al-Baqarah Ayah # 277:

1. Truly those who believe, 2. and do deeds of righteousness, 3. and perform As-Salât, 4. and give Zakât,

they will have their reward with their Lord. On them shall be no fear, nor shall they grieve.

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Soorah Al-Baqarah Ayah # 278:Soorah Al-Baqarah Ayah # 278:

O you who believe!

Be afraid of Allâh and give up what remains (due to you) from Ribâ (from now onward),

if you are (really) believers.

MUST give

up riba!

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Soorah Al-Baqarah Ayah # 279:Soorah Al-Baqarah Ayah # 279:

And if you do not do it,

then take a notice of war from Allâh and His Messenger;

but if you repent, you shall have your capital sums. Deal not unjustly (by asking more than your capital sums),

and you shall not be dealt with unjustly (by receiving less than your capital sums).

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Soorah Al-Baqarah Ayah # 280:Soorah Al-Baqarah Ayah # 280:

And if the debtor is in straitened circumstances,

then (let there be) postponement to (the time of) ease;

and that ye remit the debt as almsgiving would be better for you if ye did but know.

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Soorah Al-Baqarah Ayah # 281:Soorah Al-Baqarah Ayah # 281:

And be afraid of the Day when you shall be brought back to Allâh.

Then every person shall be paid what he earned, and they shall not be dealt with unjustly.

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Ahadeeth on RIBA:Ahadeeth on RIBA:Jabir (r) narrates that the prophet (s) cursed the receiver

and the payer of riba, the one who records it and the 2 witnesses to the transaction and said: “They are all alike” (Tirmidhi)

Abu Hurairah (r) narrates that the prophet (s) said: On the night of Ascension I came upon people whose

stomachs were like houses with snakes visible from the outside. I asked Gibril who they were. He replied that they were people who had received riba.” (Musnad Ahmed)

Abu Hurairah (r) narrates that the prophet (s) said: There will certainly come a time for humanity when

everyone will take riba and if he does not do so, its dust will reach him (Abu Dawoud)

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Is RIBA Haram in IslamIs RIBA Haram in IslamIt is a serious kabair; if not left in hell-fire


It is clearly haram in Qur’an & hadith

There is absolutely no difference amongst the Fuqahah on Riba

It is a sin in Judaism & Christianity

It is not considered a good practice in Hinduism, Buddhism, or Maoism

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Views on RIBA/INTERESTViews on RIBA/INTERESTPlato disliked it – “Anti-human”

Aristotle condemned it

Early Roman Empire prohibited it !

Lex Genucia of Rome – Illegal (340BC)

Federal Shariat Court – Anti Islamic

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Federal Shariat Court-Contrary to IslamFederal Shariat Court-Contrary to IslamGovernment Savings Banks Act 1873The Interest Act 1839The Code of Civil Procedure, 1908The Co-operative Societies Rules, 1927The Negotiable Instruments Act, 1881The Land Acquisition Act, 1894The State Bank of Pakistan Act, 1956The Insurance Act, 1938The West Pakistan Money Lenders Rules,

1960The Co-Operative Societies Act, 1925

(Banking & Finance (For BCom, Part 1), Prof M Amin Khalid, Karachi 2002)

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Federal Shariat Court-Contrary to IslamFederal Shariat Court-Contrary to IslamThe West Pakistan Money Lenders Ordinance,

1960The NWFP Money Lenders Ordinance, 1960The Punjab Money Lenders Ordinance, 1960The Sindh Money Lenders Ordinance, 1960The Banking Companies Ordinance, 1962The Baluhistan Money Lenders Ordinance, 1960The Banking Companies (Recovery of Loans)

Ordinance, 1979The Agriculture Development Bank Rules, 1961The Banking Companies Rules, 1962The Banks (Nationalization) Payment of

Compensation Rules, 1974

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Consequence of RIBA in the HereafterConsequence of RIBA in the HereafterBarzakh: drowning in a pool of blood;

being fed thrown rock until Qimiyah;

Stomaches filled with snakes;

In hell-fire forever;

The Wrath of Allah & His Prophet forever

Cannot stand, beaten by worst enemy –Shaitan; in a state of maddness

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Definition of RIBADefinition of RIBA

Is a Arabic word with means “extra”.

Any amount over and above the principle amount is RIBA.

Late/penalty fees is also RIBA.

What is the fundamental problem with RIBA ?

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RIBA in a controlled environmentRIBA in a controlled environmentIndependent in 1948

Very simple life; no complications

Following a barter system

In the case study, all other economic variable have been removed

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5 simple people – use barter system5 simple people – use barter system

Sajid FishAbid WoodNasir FruitsFurqan SaltSalman Entertainer

Not always happy, but cooperate together in barter system.

Each feels he is cheated, would like to change the system ?

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Loaned money : solution to problem!Loaned money : solution to problem!One blessed day, Uncle Yahoodi, arrives with

the answer to their problem.

Loaned money, as aid, minimum interest; for the development of the society

Uncle Yahoodi ready of help out these people;

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Loan taken – is this fair (halal) ?Loan taken – is this fair (halal) ?

Name Principle InterestSajid 1000 + 100Abid 1000 + 100Nasir 1000 + 100Furqan 1000 + 100Salman 1000 + 100=========================Total amount given 5,000Thus total money supply 5000 ONLY

Is there any problem in the above transaction?

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RIBA Exposed RIBA Exposed – impossible to return – does not exist!– impossible to return – does not exist!

Loan taken = 5,000

Thus, total money supply 5,000

How will they return 5,500!

The Riba amount 500 – EXTRA does NOT exist

RIBA impossible to return ->ZULM=HARAM

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Returning RIBAReturning RIBA

Trying to do the impossible

Every Haram has its price !

In order to achieve the impossible, the whole society will be affected negatively!

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Negative consequence of InterestNegative consequence of InterestInflation (in the long term hyper-inflation/sprilling)Short money supplyCurrency devaluedUnemployment (stagflation),stressful working conditions

Cheating and fraudDeteriorating quality of good & servicesOrganized crime, supported by influential peopleForeigners dictating policyPolitically dividedForeigners acquiring national assetsForeigner instructing to disable national securityLawlessness, helplessnessRampant corruptionEffectively a failed stateWAR!

Interest + inflation = sprilling inflation =>

Hyper inflation=ACHEIVED

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Our progress after 60 years of Riba!Our progress after 60 years of Riba!

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5 simple people sit to think5 simple people sit to thinkUncle Yahoodi came to help us ?

AID should be forgiven !

To help us, Uncle Yahoodi gave us 5000. So we should return 5000!

Uncle Yahoodi gave us worthless paper, in exchange he took over our country!

Why did we accept his money on his terms?

Why didn’t we buy gold ?

Extremely Profitable Business


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Recent history of bankingRecent history of bankingJews, were jewelers & goldsmiths

People would keep their valuable, in their vault, in return for service charge and a promissory note.

It was noticed that only 1 in 20 people returned for their valuable. 95% did not return!

Their promissory note was been circulated in the whole town, because of the ease of use.

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They began to print NOTES!They began to print NOTES!

If they had gold worth € 100, they could easily print and distribute € 2000 worth!

They gave loans

They bought real assets: property, building, farms, horses, gold mines!

They began to keep mini armies!

In the town they became Lords!

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At the national levelAt the national level

They gave their allegiance to the king of the area.

Promised to finance the “war”

In return only they would be allowed to legally print money in the country.

Whenever the king needed money, they would freely give, in return for assets of the kingdom. New kings became slaves in their hands!

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Proof of Jewish instigated warsProof of Jewish instigated wars

Napolean Bonaparte:The Jews provide troops for my campaign in Poland, but they ought to reimburse me…They are a state within the state. The Jews are master robbers of the modern age; they are the carrion birds of humanity …(Speeches before the Council of State May 7th, 1806, Book: “Antizion”

by William Grimstard)

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Proof of Jewish instigated warsProof of Jewish instigated wars

Winston Churchill, UK Prime Minister:

This movement among the Jews in not new. This worldwide conspiracy for the overthrow of civilization and for the predominance of Jews is even more astounding. The same evil prominence was obtained in the brief period of terror …(Illustrated Sunday Herald, London, February

8, 1920)

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Proof of Jewish instigated warsProof of Jewish instigated wars

Henry Ford, 20th Century U$ Tycoon:

Get hold of 50 of the wealthiest Jewish financiers, the men who are interested in making wars for their own profit. Control them, and you will put an end to it all.(Cleveland News, September 20, 1923)

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Proof of Jewish instigated warsProof of Jewish instigated wars

The Bank of England was established in 1694 to help King William III out his government’s financial crisis!(Banking & Finance, Bcom Part 2, Prof Amin Khalid,

Karach, 2002)

What crisis ?

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Who is authorized to print money ?Who is authorized to print money ?

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Another issue of interest!Another issue of interest!

The Prophet (p) said: “Even if riba is much, it will end up being a

small amount.” (Reported by al-Haakim (in Mustradak), # 2/37; see also

Saheeh al-Jaami’, # 3542).

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The stock market in practiceThe stock market in practice

The stock market operates very differently in practice!

There are elements of: Gharar (uncertainty) Maisir (gambling), betting, speculationRiba (interest)Qimar (one parties loss is another’s gain)

Kazab (lying, and misleading)

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Example of RibaExample of RibaListing of banks & interest based financial institution

Solution: Don’t deal with them!

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Changes in stock price – more Changes in stock price – more than profit/lossthan profit/lossExpectations & rumorsFuture expectations more important

than current realitiesBig investors have great influence &

controlNewsP/E value plays a major role –

generally over inflated valuationA company may earn a profit, and the

price may go down! Expectation & speculation

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KSE-Controlled by big fish ?KSE-Controlled by big fish ?

The “big fish” (BF) toy with KSEAKDJahangir SadiqqueArif Habib

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The stock market gameThe stock market gameMonth KSE Siemens ActivityJan 2006 8,000 1,000 BF begin gameFeb 2006 9,000 1,100 BuyingMarch 2006 10,000 1,200 BuyingApril 200611,000 1,400 BuyingMay 2006 12,000 1,500 BuyingJune 2006 13,000 1,700 SellingJuly 2006 14,000 1,800 SellingAugust 2006 16,000 2,000 SellingNo more momentum, and the market begin to decline!Now it’s a BEAR market!Price increase is not because of company profitability!

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Intention of buyingIntention of buyingNot buying because of the profitability of

companiesOnly because the market is going up & up-

speculation (bull)The analysts of the Big Fish cautiously create a

fervor, & mislead the Small Fish – (Engineering QIMAR!!!)

Gambler’s instinct at work!The Big Fish make their money, at the expense of

the Smaller Fish – QimarThe Big Fish safely exit the market, at the

expense of the Small Fish (bursting of bubble – market crash !)

Those trading on margin are wiped out !Qimar,Maisir, Kazab, Riba & Gharar ALL present in


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Big Fish expert planning & Big Fish expert planning & controlcontrolMonth KSE Siemens ActivityAugust 2006 16,000 2,000

Selling futures optionsSept 2006 14,000 1,800 Selling

futures optionsOct 2006 12,000 1,600 Selling

future optionsNov 2006 10,000 1,400 Selling

future optionsDec 2006 8,000 1,200 Selling

future optionsJan 2007 7,500 1,100 BuyingFeb 2007 7,000 1,000 BuyingMarch 2007 6,500 900 Buying

The Big fish eat all the small fish, & are preparing for round 2!

Now it’s a BULL market!

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The stock market game PROOF The stock market game PROOF -yearly-yearly

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The Stock market – The Stock market – daily gamedaily game

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Other reasonsOther reasonsEthicsTax & tax evasionConcept of civilization flawedEnds justify the meansStuck in the financial web ?

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Ethics & moralityEthics & moralityIt has been narrated in a hadith of the Prophet (s): Verily, I have been sent to perfect morals.

He (p) was asked: "What is the religion?" He (p) replied: "The religion is morality."

When asked, "What is woe (or affliction)?" He replied, "Real affliction is lack of morality."

Nothing that will be weighed on the Day of Judgement will weigh heavier than moral action. [Abu Da’ud and Tirmidhi]

The Prophet (s) said:Verily truth will lead to goodness and goodness will lead to

heaven. A person who develops a habit of honesty will be accepted by Allah as an honest person. But lying leads to evil, and evil leads to the Hellfire. A person who lies until dishonesty becomes habitual will be written off by Allah as a liar.

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Western concept of Western concept of civilization flawed-civilization flawed-international brotherhood!international brotherhood!The Messenger of Allāh, peace and blessings

of Allāh be on him, said"A Muslim is the brother of a Muslim; he does him no injustice, nor does he leave him alone (to be the victim

of another's injustice); and whoever does the needful for his brother,

Allāh does the needful for him; and whoever removes the distress of a Muslim, Allāh removes from him a distress out of the

distresses of the day of resurrection; and whoever covers (the fault of) a Muslim,

Allāh will cover his sins on the day of resurrection."

(Sahih Bukhari, Book 46, Hadith #3)

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Lasting impact of Ahadeeth, Lasting impact of Ahadeeth, unparalled in historyunparalled in history

The Messenger of Allāh, peace and blessings of Allāh be on him, said:

"Do not hate one another and do not be jealous of one another and do not boycott one another, and be servants of Allāh (as) brethren;

and it is not lawful for a Muslim that he should sever his relations with his brother for more than three days."

(Sahih Bukhari, Book 78, nathid #57)

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What is the future of What is the future of interest ?interest ?

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Should Interest based loans be used Should Interest based loans be used for national development ?for national development ?

Building of Dams ?

Building of bridges, roads, infrastructure ?

To acquire technology ?

For Educational programs ?

To promote Pakistan ?

To spread Islam ?

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Which is a greater sin:Which is a greater sin:Pig farming or Interest based banking ?Pig farming or Interest based banking ?

However, there is hardly any pig farm in Pakistan!

No export of pig or its products !

Yet, abundant branches of interest based banks scattered throughout the country !