interest based finance and global warming (presentation)

5/15/2018 Interest Based Finance and Global Warming (Presentation) - slidepdf.com

http://slidepdf.com/reader/full/interest-based-finance-and-global-warming-presentation 1/56

Interest-Based Finance and Global Warming:Making the Connection



Vast topic: Basic Theme Explained

• Interest compounds faster than nature’s ability tocope with this growth

• Growth of the physical world can never keep pace

with the growth of money compounding on interest

www.EthicaInstitute.com

• s we nar s a s ar ng po n or scuss on

• We don’t have all the answers. But we would like tostart by asking the right questions and raising theissues



• Islam is concerned withthe well-being of society,sometimes at theimmediate expense of theindividual

• A single interest-based* *


harmless, but an entireeconomy based on interestcan have devastatingconsequences



Alcohol is the world’smost dangerous drug(Lancet, British medical journal)




• Most problems are notroot causes; but rathersymptoms of rootproblems

• Global warming is a

symptom of a rootproblem: the problem of


interest and theunnatural demands itplaces on people andcountries, and,ultimately, the Earth



Interest is not ONLY cause.

But a very major cause of

global warming.




Global warmingis caused byhuman inputs to


human inputs tothe environment



Controversy:

Climate modelingSolution: Focus on


Solution: Focus onhistorical, publiclyavailable data




Source: UK Meteorological Office




Source: NASA



Global warming:

Triggered byexcessiveconcentration of


concentration ofCO2 in theatmosphere



CO2 is theby-product ofburning fossil


burning fossilfuels



1980-2007

Arctic ice shrankfrom 10M sq.km.


from 10M sq.km.to 4M sq.km.



Greater incidence

of drought atsubtropical


subtropicallatitudes



Ultimate problem:Inability to growfood and access


food and accessclean water



Irony and Reality:

When it’severyone’s problem,


everyone’s problem,no one doesanything about it




The Problem With InterestFrom Why Islamic Finance: 7 day free course on www.ethicainstitute.com



"All that we had borrowed up to 1985 or 1986 was

around $5 billion and we have paid about $16

billion yet we are still being told that we owe about

$28 billion. That $28 billion came about because of

the injustice in the foreign creditors' interest rates.


If you ask me what is the worst thing in the world,

I will say it is compound interest."

Obasanjo, Ex-President, Nigeria



How Did $5 Billion Become $44 Billion?

Year Debt

1985

1986

1987

1988

5,000,000,000

Example: Nigerian Debt

B orrowed (1985) 5 b il li on

Paid 16 billion

Owe 28 billion

Interest rate 40%

7,000,000,000

9,800,000,000

13,720,000,000


…

…

…

1997

1998

1999

2000

283,469,561,876

396,857,386,627

555,600,341,278

777,840,477,789

…

…

…




Year Debt

1985

1986

1987

1988



Paid 16 billion

Owe 28 billion

Interest rate 30%

6,500,000,000

8,450,000,000

10,985,000,000

5,000,000,000


…

…

…

1997

1998

1999

2000

116,490,425,612

151,437,553,296

196,868,819,285

255,929,465,070

…

…

…




Year Debt

1985

1986

1987

1988



Paid 16 billion

Owe 28 billion

Interest rate 15.6%

5,000,000,000

5,780,000,000

6,681,680,000

7,724,022,080


…

…

…

1997

1998

1999

2000

28,475,018,398

32,917,121,268

38,052,192,186

43,988,334,167

…

…

…



Only 15%

• Interest rate of 15%

– Exorbitant

– Unfair

–


• Banks charge upwards of 30% interest rates



The Islamic Finance Alternative

• Provide $5 billion of finance for:

– Infrastructure

– Literacy

–


–

– Sanitation





Sukuk MurabahaMusharakah,Mudarabah

Istisna




• Products similar to equity, trade, and lease-basedinstruments

• Permits legitimate profit





• Islamic bank cannot charge more than initial premium

– $5 billion cannot increase

– Debt is fixed

• Islamic finance creates a bottleneck by tying each


transaction to: asset or service

• Cash is used to buy, sell, lease, or partner in aparticular asset or service

• Cash cannot be used to simply create more cash




Islamic Finance vs. Conventional Finance:Murabaha vs. Interest



• Poor country.

• $100 million over 20 years.

• Sustainable reforestation project.

• Murabaha with a 10% mark up compared with a soft

loan at 5%.


• With the Murabaha the $100 million becomes $110million. Simple.

• With the interest based loan let’s see.

• We assume the country is not able to repay until year 20.



Year Debt

0

1

2

3

100m

105m

110m

115m

Year Debt

11

12

13

14

171m

179m

188m

197m

Islamic Finance vs. Conventional Finance:Murabaha vs. Interest


5

6

7

8

9

10

127m

134m

140m

147m

155m

162m

16

17

18

19

20

218m

229m

240m

252m

265m



• Tropical forest countriesown roughly 2/3rd of thedeveloping world's debt

• Sub-Sahara Africa’s debt:

• 1980: US$84 bn

•


• Despite franticdevelopment and aconstant stream of refinancing



• Source of 40% of theworld’s oxygen

• At current deforestationrates, there will be

Brazil


hardly any rainforest tospeak of within thiscentury



• Economic productionto meet Brazil’smassive debt burden:$216 billion

•

Interest payments onthis debt force further


deforestation to meetpayments



Ghana:

• One of Africa’s mostindebted countries

• 60% of forests have

vanished since they


egan serv c ng e rdebt to the World Bank and the IMF



Indonesia:

• World Bank lent $500m fora massive logging project,tearing down more of thenatural forest

• Debt-for-nature swap: US


w org ve n ones a orsome of its debt - $30m

• $30m hardly covers afraction of the interestpayment on the $500m loan



“Interest-based projectsfinanced by the World Bank

will release over their

lifetime 37.8 billion tons of


Friends of the Earth

earth’s atmosphere."



• Problem prevalent inmany other countries thataccumulate interest-basedloans and yet play acritical role in the world’senvironments

•


industry must be driven tokeep up with interestbased loans isunsustainable



"The ethical principles onwhich Islamic finance isbased may bring banks

closer to their clients and tothe true spirit which should


The Vatican, March 2009

mark every financial service."



Are we asindividuals


environment?



1. Stop giving your money to interest basedbanks.

2. Start giving your money to Islamic banksand take an active interest in ensuring

5 Things We Can Do Now:


that your Islamic bank’s products complywith AAOIFI.



3. Islamic finance scholars:

• Need to develop a more refined fiqh of the environment.



standard alcohol, interest, weaponsprohibition. Is a particular project bad forthe environment? How bad does it needto be in order to be non-compliant?



4. Write a letter to your jurisdiction: Local bank,national bank, government - requestingIslamic finance to come to your bank, city, or

country, whatever the case may be.



5. Consume less: eliminating the need forsomething, reducing, reusing, and recycling,particularly when it comes to fossil fuelconsumption, such as driving a car.



• Debt and the Environment: Converging Crises(Morris Miller, 1991)

• The Vanishing Face of Gaia(James Lovelock, 2010)

• The Economics of Global Warming

Recommended Reading


(William Cline, 1992)

• The Problem with Interest(Tarek El Diwany, 2003)

• An Inconvenient Truth(Al Gore, 2006)




• Micro perspective: Why interest is wrong

• All major religious traditions including Judaism andChristianity were very strict about prohibition of usury

• The Church reiterated the definition of usury as


rece v ng any n eres on money




• Islam has retained its prohibition of interest, contraryto other religions

• Specific legalizing of interest allowed the current

financial system to evolve




The world’s 3 richestpeople have more

wealth than the


combined GDP of the48 poorest nations



Questions




Can you explain thedifference betweenthe two ways in whichinterest createsunsustainability:Debt a ments vs.


fractional reservebanking?



Can the Islamicfinancial institutionsbe encouraged toadopt greentechnology in theirtransactions?




Currently Islamicbanks do not screenprojects for eco-friendliness. Are thereany stipulations orstandards?




Would it be equivalentto "stop giving my money to interest based banks" to givemy money to theIslamic art of a


regular bank e.g.HSBC's Amanah?



What’s the differencebetween Murabahaand interest?




What about studentloans where theinterest is held off,supposing it is paidoff before interest isincurred?




You say Islamic financeprovides a better solutionfor environmentalpreservation butapparently in business andShariah decisions this

aspect is always neglected


compared to conventionalethical finance andinvestment. Yourcomments please.



I am confused as towhether time value of money is or is notaccepted in Islamicbanking?




Credits

• Cover Image: ‘Earth Egg’ by AZRainman(http://www.flickr.com/photos/azrainman/2047910540/), License:http://creativecommons.org/licenses/by/2.0/

• Chart 1: Courtesy - UK Meteorological Office

• Chart 2: Courtesy - NASA

• - -


- . . . -cartoon.jpg

• Logo © IPCC, AAAS, AMS, and Friends of the Earth respectively




[email protected]

Dubai: +9714 305 0782

US/Canada: +1 858 222 1725

interest based finance and global warming (presentation)

Documents