Often an argument is created whether bank interest is allowed, permitted or rejected. This debate is whether the modern banking system can be permitted in our dealings or not and the argument is, if it is not usurious, we should not worry about it. What do we do about? We do not have any formal Islamic banking system for a number of centuries. It is only recently, in the last few decades, Islamic financial system was created in some of the Middle East countries and also a co-operative sector in Islamic dealings in other countries too.
There are many individuals who completely eliminate elements of interest (riba) from their business transactions. They strictly observe the Qur’ānic injunctions. One of the experiences and cases I would like to share with you is as to how we have completely eliminated the element of interest from manufacturing activities in our sheet-metal press-shop, employing 50 people.
We have a medium scale enterprise under the name and style Union Steel Industries, situated at Hadapsar Industrial Estate, Pune – 411 013. For nearly more than two decades, we constantly kept on borrowing from bank on interest as well as from open market, initially few thousands and then few lakhs. Always our borrowings exceeded our assets. We manipulated our accounts every now and then to obtain more loans from the bank. Also borrowed on anticipated orders and in fact we were walking into our own debt-trap of our own creation. Wages, salaries and other overheads, specially cost of capital was staring at us, creating a dreadful fear. We were confused? We didn’t know as to what to do. We didn’t know as to which financial path we should take? We were aware that Al-Qur’ān prohibits dealing in interest.
We set out a goal and target to eliminate riba, at least we did not take interest and didn’t know how to do away with bank borrowings. How can we run our business without bank borrowings? In fact, we didn’t know as to how to go about to eliminate interest from our business enterprise where we had employed 50 persons at that time. Apart from wages and salaries, overheads and family maintenance.
At last we made it a point to see whether the Qur’ānic message can come handy and decided to put the words into action – Qur’ānic Ayat that ‘Allah permitted trade and forbidden interest’. Our decisions and words were soon implemented into actions. The Qur’ānic Ayats were taken very seriously, specially the Ayats “Allah prohibits interest” and “If ye do it not Allah and His Apostle shall declare war on you.”
Soon an action plan was chalked out. Resorted to cost reduction, wasteful expenditures were curtailed; extra inventory on our shop floor was disposed of; old machines, dies and punches, castings were removed; non- profit making jobs were eliminated, expenditure on travelling, entertainment, etc. were curtailed substantially.
In order to prevent interest on working capital, attempts were made to see that even a small fraction of reduction in borrowings brought a small relief in our debit balances.
This continued for nearly three years and Alhamdulillah, our bank borrowings were brought to nil. This attempt to pay back brought savings, productivity, profitability and constant efficiency. Soon, through this cost reduction and saving we became our own banker. No liabilities. It was a win-win situation. Everybody prospered, including the employees, local Govt. by way of contribution to taxes.
This experience we thought to share with you in absence of Islamic Financial Institutions. One can go around eliminating the element of riba-interest which eats your profits, time and imaan and its elimination is a boon towards multidimensional activities.