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In this third edition of The Problem With Interest, evidence arising from the recent financial crisis has been included to support the main themes of the 1997 and 2003 editions. The author's experience in both secular and Islamic finance help him to provide a practical and relevant commentary on the state of the modern financial system and the Islamic alternative. A description is given in detailed but accessible terms of the extent to which interest-based finance is now affecting humanity and a passionate case is made for reform of the fractional reserve banking system. In a critique of modern Islamic banking and finance, some searching questions are asked of the practices that are currently in vogue, and a new model is proposed based upon traditional understandings of Islam. This edition adopts a standard transliteration scheme for Arabic terminology and includes a wealth of academic and popular references for readers who wish to delve deeper into the topic.


The author graduated in Accounting and Finance from the University of Lancaster in 1985. In 1989 he was invited to establish a bond derivatives dealing desk at Fulton Prebon in London where he was responsible for European bond derivative markets. He established the firm's Islamic finance department in 1995, advising on structuring for clients in the Middle East, Europe and Asia. Since 1998 he has worked as a consultant and researcher in the field of Islamic finance for a variety of professional and private clients across the world. He is now a director at Kreatoc Zest Ltd in London. Tarek is the presenter of the film documentary Why are We All in Debt? released in 2009, and in 2010 he completed a reference textbook as contributing editor for First Ethical Charitable Trust entitled Islamic Banking and Finance: What It Is and What It Could Be.
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Chapter 1 Interest and the Physical System
Entropy is a word that is used to describe the amount of disorder in a physical system. A feature of the world around us is that physical systems decay, in other words that they experience increasing entropy. Fruit rots and buildings become dilapidated, unless energy is expended in order to maintain them. Left to itself, the physical world follows the path of compound decrement towards, but never quite reaching, zero. Meanwhile, loans at interest are often structured so as to follow the path of compound increment towards infinity. This chapter contrasts interest and entropy and highlights the contradiction between the laws of interest and the laws of nature. It is proposed that 'short-termism', pollution and resource depletion can be encouraged by the use of interest in the financing of industry.
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Chapter 2 The Production of Money
In this chapter, two forms of money are identified. One is the money produced by the modern state in the form of notes and coins, the other is the money that is produced by commercial banks. The technique of fractional reserve banking, whereby banks create money, is examined and the history of its development described. Banking is seen as an industry and money as its product. The consequences of allowing private firms the authority to manufacture money and lend it at interest are analysed.
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Chapter 3 The Currency Game
A review of the modern foreign currency market is given, focusing upon the means whereby central banks seek to control it. The impact upon economic activity of these various attempts at control is described, with reference to the international gold standard era and the Bretton Woods agreement. Precious metals are proposed as being a better foundation than state and bank money for a monetary system. Conventional bankers and economists often blame the gold standard for economic failures of the past. In fact, these failures resulted from the practice of fractional reserve banking.
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Chapter 4 Wealth Creation and Wealth Transfer
Gambling on a roulette wheel employs resources and people, and so does farming. But whilst farmers produce the food that allows man to live, casinos simply transfer wealth from losers to winners. It is because wealth rots that new wealth must constantly be produced in order to replace portions of the old stock of wealth that have suffered from decay. If mankind were to engage solely in wealth transfer processes, the stock of wealth could not be maintained let alone increased. Wealth creation is therefore fundamental to the survival of mankind. Mechanisms of wealth transfer are examined, in particular the parts played by collateral and leverage. It is proposed that these various mechanisms conspire to promote speculative booms, which in turn can have a dangerous impact upon the allocation of resources.
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Chapter 5 Value Judgements
In this chapter, the normative and positive approach to economics is reviewed. Positive economics tries to be free of value judgements but is not. Normative economics deliberately highlights its value judgements and makes them central to its discussions. The most essential question that must be asked is "where do our value judgements come from?" Revealed knowledge is contrasted with deductive knowledge. It is proposed that economic activity cannot be based solely upon the foundation of materialism. The value judgements of Islamic economics are introduced and their implications for a variety of economic policies are discussed.
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Chapter 6 Trade or Interest?
Here, the Islamic approach to trade and finance is introduced. The prohibition on usury is discussed and the concepts of gharar and maisir outlined. The various forms of Islamic contract that are of particular relevance to economics are summarised and categorised under contracts of exchange, contracts of charity and contracts of investment. The manner in which these contracts are applied in the modern world of Islamic finance is reviewed and criticised. Particular attention is given to a comparison of murabahah and interest. A description follows of the way in which Islamic contract laws might operate so as to prevent some of the economic evils described in the preceding chapters.
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Chapter 7 Banking and Money under Islam
An Islamic banking structure is outlined here. The system relies upon profit-sharing and the eradication of fractional reserve banking. It allows investment and other financial activities to continue in line with the demands of both modern life and the principles of Islam. 'Monetary policy' becomes redundant under this approach. The chapter concludes with a brief discussion of money in Islam and it is proposed that Islamic banking, in conjunction with a precious metal currency standard, would form the basis of a fair and stable wealth creating economy.
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Muslim World Book Review October 1999
First edition reviewed by Muhammad Akram Khan

After much waiting a refreshing book on the subject of interest has finally appeared. In the din of confusing voices for and against interest, this is an enjoyably frank treatment of the subject ... I recommend it as compulsory reading for all those interested in the subject of interest and the Islamic position on money and banking.

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American Journal of Islamic Finance April 2004
Second edition reviewed by M. Syed Hoque

This is a well-researched, practical and comprehensive book on the flaws of the conventional fractional reserve banking system based on riba (interest). Some background in finance is assumed, and yet it is accessible to the lay-person who wants to understand the history of money, the eradication of gold as a legal tender and store of wealth, why certain Islamic financial products are in the early stages of implementation, and why others are not fully Sharia'a compliant yet.

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Amazon Book Review August 2004
H. Shacht

I received this book as a present and, as usual with books I don't really want to read, decided to take it on holiday. I wish I hadn't though because it made compelling reading. Being an accountant I thought I understood money but here was a very interesting Islamic viewpoint which challenges our notions of 'orthodox' economics. In fact, it's not exclusively an Islamic voice but rather the voice of reason.

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Amazon Book Review October 2004
R. Jackson

A comprehensive and fairly complex analysis of economic and monetary systems in the west today, yet an eye-opener to the self-destructive system we live in. Thoroughly recommended.

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Amazon Book Review November 2007
T. Choudhury

This is a fantastic book which really provides a convincing argument for the rational of why interest is forbidden in Islam (and in Christian and Jewish faiths) ... I highly recommend reading this book to open your mind to alternatives in terms of how humanity governs its economic infrastructure.

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Amazon Book Review January 2010
M. Uddin

Highly recommended book from an author who sincerely wants to educate people about the reality of the financial system we live in. Tarek presents compelling evidence for his carefully thought out, intelligent and well presented analysis. Definitely purchase this book, read, re-read and reflect.

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Amazon Book Review December 2010
UK reviewer

What Tarek has been saying since 1997 (year of first edition) is now also picked by others and one gets to come across these ideas more often. To his credit, he got there much earlier and wrote a wonderful book. This is the first book that I know of which made an economic case for Islam's prohibition on lending money on interest. Interestingly, those who favor gold as an investment and as currency from a purely secular point of view also say similar things ... What Tarek should have done in this 3rd edition is update the data and use more new research papers that support these views. For instance, the data for debt and deforestation is quite old, Brazil now has a booming economy and more in depth research is required to establish a clearer connection between debt and deforestation. But it's still the best book on the subject by all means.

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Amazon Book Review March 2012
Rehan J.

If there is one book you must read to understand the modern money system this is it, especially in the light of current developments in the world of finance. I found it quite an eye opener and it is written in a way that is easily accessible yet informative. Highly recommended.

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