Interest Based Finance and Global Warming (Presentation)

Interest-Based Finance and Global Warming: Making the Connection
Vast topic: Basic Theme Explained

Interest compounds faster than natures ability to cope with this growth Growth of the physical world can never keep pace with the growth of money compounding on interest This webinar is a starting point for discussion We dont have all the answers. But we would like to start by asking the right questions and raising the issues
www.EthicaInstitute.com
Islam is concerned with the well-being of society, sometimes at the immediate expense of the individual A single interest-based loan may *seem* harmless, but an entire economy based on interest can have devastating consequences
Alcohol is the worlds most dangerous drug

(Lancet, British medical journal)
Most problems are not root causes; but rather symptoms of root problems Global warming is a symptom of a root problem: the problem of interest and the unnatural demands it places on people and countries, and, ultimately, the Earth
Interest is not ONLY cause. But a very major cause of global warming.
Global warming is caused by human inputs to the environment
Controversy: Climate modeling Solution: Focus on historical, publicly available data
Source: UK Meteorological Office
Source: NASA
Global warming: Triggered by excessive concentration of CO2 in the atmosphere
CO2 is the by-product of burning fossil fuels
1980-2007 Arctic ice shrank from 10M sq.km. to 4M sq.km.
Greater incidence of drought at subtropical latitudes
Ultimate problem: Inability to grow food and access clean water
Irony and Reality: When its everyones problem, no one does anything about it
The Problem With Interest
From 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?

Example: Nigerian Debt
Borrowed (1985) Paid Owe Interest rate 5 billion 16 billion 28 billion 40%
Year
1985 1986 1987 1988 1997 1998 1999 2000
Debt
5,000,000,000 7,000,000,000 9,800,000,000 13,720,000,000 283,469,561,876 396,857,386,627 555,600,341,278 777,840,477,789

Borrowed (1985) Paid Owe Interest rate 5 billion 16 billion 28 billion 30%
Year
1985 1986 1987 1988 1997 1998 1999 2000
Debt
5,000,000,000 6,500,000,000 8,450,000,000 10,985,000,000 116,490,425,612 151,437,553,296 196,868,819,285 255,929,465,070

Borrowed (1985) Paid Owe Interest rate 5 billion 16 billion 28 billion 15.6%
Year
1985 1986 1987 1988 1997 1998 1999 2000
Debt
5,000,000,000 5,780,000,000 6,681,680,000 7,724,022,080 28,475,018,398 32,917,121,268 38,052,192,186 43,988,334,167
Only 15%
Interest rate of 15% Exorbitant Unfair Illegal Banks charge upwards of 30% interest rates
The Islamic Finance Alternative

Provide $5 billion of finance for: Infrastructure Literacy Healthcare Sanitation
Istisna
Musharakah, Mudarabah
Murabaha
Sukuk

Products similar to equity, trade, and lease-based instruments 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 a particular 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 $110 million. Simple. With the interest based loan lets see. We assume the country is not able to repay until year 20.
Islamic Finance vs. Conventional Finance: Murabaha vs. Interest

Year
0 1 2 3 4 5 6 7 8 9 10
Debt
100m 105m 110m 115m 121m 127m 134m 140m 147m 155m 162m
Year
11 12 13 14 15 16 17 18 19 20
Debt
171m 179m 188m 197m 207m 218m 229m 240m 252m 265m
Tropical forest countries own roughly 2/3rd of the developing world's debt Sub-Sahara Africas debt: 1980: US$84 bn 2001: US$275 bn Despite frantic development and a constant stream of refinancing
Brazil
Source of 40% of the worlds oxygen At current deforestation rates, there will be hardly any rainforest to speak of within this century
Economic production to meet Brazils massive debt burden: $216 billion Interest payments on this debt force further deforestation to meet payments
Ghana: One of Africas most indebted countries 60% of forests have vanished since they began servicing their debt to the World Bank and the IMF
Indonesia:
World Bank lent $500m for a massive logging project, tearing down more of the natural forest Debt-for-nature swap: US will forgive Indonesia for some of its debt - $30m $30m hardly covers a fraction of the interest payment on the $500m loan
Interest-based projects financed by the World Bank will release over their lifetime 37.8 billion tons of carbon dioxide into the earths atmosphere."
Friends of the Earth
Problem prevalent in many other countries that accumulate interest-based loans and yet play a critical role in the worlds environments The pace at which industry must be driven to keep up with interest based loans is unsustainable
"The ethical principles on which Islamic finance is based may bring banks closer to their clients and to the true spirit which should mark every financial service."
The Vatican, March 2009
Are we as individuals answerable for the environment?
5 Things We Can Do Now:

1. Stop giving your money to interest based banks. 2. Start giving your money to Islamic banks and take an active interest in ensuring that your Islamic banks products comply with AAOIFI.

3. Islamic finance scholars: Need to develop a more refined fiqh of the environment. AAOIFI: Need prohibition beyond the standard alcohol, interest, weapons prohibition. Is a particular project bad for the environment? How bad does it need to be in order to be non-compliant?

4. Write a letter to your jurisdiction: Local bank, national bank, government - requesting Islamic finance to come to your bank, city, or country, whatever the case may be. 5. Consume less: eliminating the need for something, reducing, reusing, and recycling, particularly when it comes to fossil fuel consumption, such as driving a car.
Recommended Reading
Debt and the Environment: Converging Crises (Morris Miller, 1991) The Vanishing Face of Gaia (James Lovelock, 2010) The Economics of Global Warming (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 and Christianity were very strict about prohibition of usury The Church reiterated the definition of usury as receiving any interest on money

Islam has retained its prohibition of interest, contrary to other religions Specific legalizing of interest allowed the current financial system to evolve
The worlds 3 richest people have more wealth than the combined GDP of the 48 poorest nations
Questions
Can you explain the difference between the two ways in which interest creates unsustainability: Debt payments vs. fractional reserve banking?
Can the Islamic financial institutions be encouraged to adopt green technology in their transactions?
Currently Islamic banks do not screen projects for ecofriendliness. Are there any stipulations or standards?
Would it be equivalent to "stop giving my money to interest based banks" to give my money to the Islamic part of a regular bank e.g. HSBC's Amanah?
Whats the difference between Murabaha and interest?
What about student loans where the interest is held off, supposing it is paid off before interest is incurred?
You say Islamic finance provides a better solution for environmental preservation but apparently in business and Shariah decisions this aspect is always neglected compared to conventional ethical finance and investment. Your comments please.
I am confused as to whether time value of money is or is not accepted in Islamic banking?
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: Source - http://openparachute.files.wordpress.com/2010/03/ipcccartoon.jpg Logo IPCC, AAAS, AMS, and Friends of the Earth respectively
www.EthicaInstitute.com contact@EthicaInstitute.com Dubai: +9714 305 0782 US/Canada: +1 858 222 1725

Interest Based Finance and Global Warming (Presentation)

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Interest Based Finance and Global Warming (Presentation)

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Interest-Based Finance and Global Warming: Making the Connection

Vast topic: Basic Theme Explained

Alcohol is the worlds most dangerous drug

Global warming is caused by human inputs to the environment

Controversy: Climate modeling Solution: Focus on historical, publicly available data

Source: UK Meteorological Office

Global warming: Triggered by excessive concentration of CO2 in the atmosphere

CO2 is the by-product of burning fossil fuels

1980-2007 Arctic ice shrank from 10M sq.km. to 4M sq.km.

Greater incidence of drought at subtropical latitudes

Ultimate problem: Inability to grow food and access clean water

The Problem With Interest

From Why Islamic Finance: 7 day free course on www.ethicainstitute.com

How Did $5 Billion Become $44 Billion?

How Did $5 Billion Become $44 Billion?

How Did $5 Billion Become $44 Billion?

The Islamic Finance Alternative

The Islamic Finance Alternative

The Islamic Finance Alternative

The Islamic Finance Alternative

Islamic Finance vs. Conventional Finance: Murabaha vs. Interest

Islamic Finance vs. Conventional Finance: Murabaha vs. Interest

Are we as individuals answerable for the environment?

5 Things We Can Do Now:

5 Things We Can Do Now:

5 Things We Can Do Now:

The Islamic Finance Alternative

The Islamic Finance Alternative

Whats the difference between Murabaha and interest?

I am confused as to whether time value of money is or is not accepted in Islamic banking?

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