The Islamic Economic System

Interest-free Islamic economic system is partially followed and partially not followed in Muslim countries around the world. The only country, which has followed this system completely in every minute detail is Malaysia. So the application methods in this post are mostly those implemented in Malaysia following the Interest-free Islamic Economic system.

The main feature of the Islamic economic system is that it is Interest-Free. As the Qur'an says in Sura al-Baqara Chapter 2 Verses 278 & 279, "O ye who believe! fear Allah and give up what remains of your demand for usury if ye are indeed believers. If ye do it not take notice of war from Allah and his Apostle: but if ye turn back ye shall have your capital sums; do not deal unjustly and ye shall not be dealt with unjustly."

Qur'an condemn all evil deeds, but never has the Qur'an warned of a war against God Almighty and His Messenger except in the case of taking Interest and Usury.

There are several evils of the interest based economy, the reason why Islam has prohibited it.

For example, if a person takes a loan from a bank and says the cost price of a certain article is 10 dollars and he wants to a profit of one dollar. So the selling price would include the 10 dollars cost price one dollar profit and one dollar interest and the selling price would be 12 dollars. The selling price would go up because of interest and when the selling price goes up the demand comes down and when the demand comes down the supply comes down and as supply comes down production comes down causing labour problem and unemployment.

There is Social Injustice.

For example, if a person takes a loan from the bank and no matter if he earns a profit or goes in loss he has to pay that fixed amount of interest. Even if some natural calamity befalls his family, such as flooding or earthquake, the person still has to pay the loan with the interest and a delay would only increase the amount of interest. It is social injustice.

There is no social consideration.

Suppose, if two businessmen come to ask for a loan from a modern bank and one businessman wants to start a social or hospital while the other businessman wants to start an alcohol factory or a gambling den. But natural the businessman, who wants to start an alcohol factory or a gambling den would have better returns and the loan given to him would be more secure and he would give a higher rate of interest as compared to the business, who wants to open a school or hospital. Modern banks are only interested in getting better and higher returns. That's why they finance gambling dens rather than schools or hospitals. That is why in the 80s thousands of gambling dens were financed by modern banks worldwide. For name sake only a few social projects are financed by modern banks and the majority of their loans are based on better interest.

Modern banks encourage people to store money and keep the money idle for small fixed return on it every year. In the end, power is concentrated in a few hands, the bankers.

In the same way there are several benefits of Islamic banking.

As there is no interest involved, there is profit and loss sharing. So if a person wants to sell his goods, it would only have the cost price and profit in the selling price and instead of 12 dollars, his selling price would be only 11 dollars. If the selling price comes down, the demand increases and if the demand increases the supply increases and as supply increases the production increases resulting in more labour for the people and higher employment. As a result encourages people to work and earn their living.

There is Social Justice in Islamic banking.

If a business takes a loan and goes in loss, the loss is shared by the bank and if he earns a profit, the profit is shared by the bank. If in case any natural calamities befalls him, the Islamic bank gives him more time to repay, unlike the modern bank, where the more time you take to pay the more interest you would have to pay. Many a times if the Islamic bank finds the situation very bad, they even let go off that loan.

There is Social Consideration in Islamic banking.

Islamic bank can not give a loan to any businessman, who is doing any activity, which is causing harm to the society. For example, if a businessman wants to start an alcohol factory and approaches an Islamic bank for a loan, the Islamic bank will not lend him a single penny, not even if he promises to give 100% profit to the Islamic bank. In Islamic banking there is social consideration and they encourage projects beneficial for the society, such as building schools, hospitals and nurseries. In short, the Islamic bank encourages the society to improve.

In the Islamic bank, you are not encouraged to keep your money idle. You are encouraged to invest your money and be a partner in the business and in the end, power is not concentrated in the hands of a few individuals. Because in the Islamic banking the profit and loss are shared by the business, the banker as well as the depositor. The power is equally shared among all the people.

The great philosopher, Aristotle has beautifully defined Interest as "An earning based on the use of money and not on labour, and all such earnings(interests) are against nature."

Lets quickly analyze the objectives of the Islamic economic order before we analyze the theory and practical application of the Islamic economic system.

The Objectives of the Islamic Economic Order

1- Economic well-being

Islam encourages a person to enjoy the bounties of God Almighty, to work for his living and refrain from begging.

2- Universal Brotherhood and Justice

Qur'an says in Sura al-Hujurat Chapter 49 Verse 13, "O mankind! We created you from a single (pair) of a male and a female and made you into nations and tribes that ye may know each other (not that ye may despise each other). Verily the most honored of you in the sight of Allah is (he who is) the most righteous of you."

From this we come to know the criteria that the criteria of judgement in the sight of God is not wealth, not sex, not color, not Caste, but it is "Taqwa" God consciousness, piety and righteousness.

Qur'an says in Sura an-Nisa Chapter 4 Verse 135, "O ye who believe! stand out firmly for justice as witnesses to Allah even as against yourselves or your parents or your kin and whether it be (against) rich or poor: for Allah can best protects all."

According to this we have to stand for truth and justice be it against anybody even against our own selves and sacrifice your own interests.

3- Equitable Distribution of Wealth

Islam is against the philosophy that the wealth should be concentrated in a few hands. The difference between the rich and the poor should be reduced. Otherwise they would become enemies unto each other. For this, Islam has devised a system of "Zakat" that every Muslim, who has excess wealth exceeding the amount equal to or more than 85 grams of Gold. This amount is spent on the poor, orphans, needy and so on. If every individual in the world practices this system of "Zakat", not a single person in the whole world would die of hunger. Islam teaches to find lawful employment for the unemployed and to pay him a good remuneration.

According to Islam if a person dies his wealth should be distributed among his heirs according to the guidelines laid down in Qur'an and Ahadith and it should not go to just one or two individuals in the society as it is done today.

4- Individual Freedom within the Context of Social Well-fare

According to Islam man is born free and nobody not even the state can abrogate his freedom nor subject his life to strict regimentation. Every individual is free as long as he does not harm the society because in Islam the larger welfare of the society takes precedence over the individual freedom.

Working and labour as well as the benefit in business are both important principles of Islam, but working and labour take precedence over the benefit in business. If you are doing business, a big loss can not be inflicted to relieve a small loss, nor can a big profit can be sacrificed for a small profit. In short, Islam believes in individual within the context of social welfare.

There are mainly four factors involved in production;

1- Land

In both the Modern and Islamic theories, you pay rent on the land.

2- Labor

You pay wages on the labour in both the Modern and Islamic theories.

3- Capital

In the Modern theory, you pay Interest on capital, while in the Islamic theory there is profit and loss sharing.

4- Organization

In the fourth factor of production, Organization, there is profit and loss sharing in both theories.

So the major difference in the four factors of production is the third factor of Capital. The Modern Theory says that a fixed interest should be charged on the capital, while the Islamic theory says that there is profit and loss sharing on capital. Because Islamic theory does not differentiate between the third factor Capital and the fourth factor Organization because the money lent by the bank does not belong to the bank itself, it belongs to the depositor. The depositors are the part of Organization and the money deposited in the bank (the capital) should be included in the Organization. In the Islamic theory Capital and Organization are clove together and there is profit and loss sharing on the capital.

When you have to do business, there are naturally two types of units. One is the surplus unit, who have excess of wealth, but do not know how to spend it. Second is the deficit unit, the people who do not have money, but have good ideas for business. The best examples of a surplus and deficit unit in the Islamic history is Lady Khadijah (may Allah be pleased with her) had excess of wealth, but lacked avenues to spend in and being a female she couldn't travel abroad too much to deal in business transactions. The deficit unit, in terms of wealth, was Prophet Mohammed (peace be upon him). He had good ideas and access to business avenues, but did not have wealth. So Lady Khadijah (may Allah be pleased with her) gave wealth, which Prophet Mohammed (peace be upon him) invested in business avenues on her behalf and the profit was shared on a fixed pre-determined ration.

The System of Islamic Banking and Modern Banking

Lets analyze the options open for individual depositors to deposit their money in an Islamic bank.

Current Account

The money you deposit in an Islamic bank is utilized with your permission, but if the bank goes in loss, the loss is not shared by the depositor. If the bank goes in profit, neither is the profit shared by the depositor. The depositor is interested in only the safety of his money, not profit. The Islamic banks gives you a check book and a slip book with the functions as that of a modern bank.

Savings Account

Even here the depositor is mainly interested in the safety of his money. As the bank gets a profit from this money, the bank can gift a portion of that profit to the depositor, if the bank wants, but the depositor can not demand a fixed portion.

In Islamic banking, if a bank goes bankrupt then the depositors get their money first and then, the creditors. While in Modern Banking creditors get their money first and majority of the depositors lose their money. So even if you want your money safe, the Islamic banks are preferable and safer than Modern banks.

Investment Accounts

They are similar to the Fixed Accounts of Modern banks and are further divided into several types

Mudariba (Profit & Loss Sharing)

The depositor deposits a fixed amount of money in the bank for a fixed period of time, which maybe a multiple of three or a multiple of four. Here the surplus unit is the depositor and the deficit unit is the bank. The bank uses this money to do business with the businessmen and whatever profit the Islamic bank makes, it is divided on a pre-determined ratio, which can be negotiated. In the Islamic Banking of Malaysia, the ratio is 7 part to 3 part, meaning 70% goes to the depositor and 30% is kept by the bank. So there is sharing of profit, the greater the profit the greater the share of each.

Suppose, if there is a loss of a hundred dollars, then hundred would be deducted from the depositor's money. So theoretically only the depositor bears the loss. Practically analyzing even the Islamic bank is going in loss because they are paying money for the rent, administration and salary, but the loss ratio of the bank is less than that of the depositor, as even the profit of the bank is less than that of the depositor.

Project Financing in the Mudariba System

If a businessman approaches an Islamic bank with a project idea and asks for a loan for a fixed period, the Islamic bank analyzes the project, then the businessman and the Islamic bank negotiate the profit ratio. In Modern banking interest is negotiated, in Islamic banking profit ratio is negotiated.

Suppose, the businessman takes a loan of $5000 from an Islamic bank for six months and the pre-determined profit ratio is 60% to the bank and 40% to the businessman. If the businessman is working for his business, even his salary would be included in that $5000 and suppose the salary of the businessman is $200 per month.

Suppose, if the businessman earns a profit of $5000, the business would get (his 40%) $2000 from the profit and the businessman would get paid $200 salary per month from the $5000 loan, amounting $1200 for 6 months. So the businessman gets his profit as well as the salary for his labour, if he is working for his business.

But in case of loss, the bank bears the complete loss and in turn passes the loss to the depositors. But technically even the business also goes in loss because he is only paid for labour, not for his thinking and ideas.

In Mudariba System, the bank can not interfere in the management of the business. The business can not tell the businessman to build a 12 story building instead of a 10 story building. The bank can not tell the business to produce a certain article instead of another article. The bank can not interfere in the administration of the business.

Mushariqa System (Partnership)

In Mushariqa system or Partnership the Islamic bank can interfere in the management of the business. The bank can tell the business to build a 12 story building rather than a 10 story building. The bank can tell the businessman to make a certain product instead of another product. In Mushariqa system the businessman has part of the capital and the other part he takes from the bank. The profit is shared on a pre-determined ratio. Suppose, if the businessman and bank give 50-50% capital, they would get 50-50% profit. But in case of loss, loss is shared on pre-determined ration and the Islamic bank bears more loss. The Islamic bank may have to bear 60% loss, while the businessman would only bear 40% loss.

Mudhaba System

Suppose, you want to purchase a particular machinery from abroad costing $10000, in the Modern Bank you open a LC (Letter of Credit) or a TR (Trust Receipt/Sales Slip) and you deposit the money in the Modern bank and the Modern bank charges you a fixed amount of interest on the time it takes for the transaction. If you deposit the money in an Islamic bank and ask the bank to buy the machinery on your behalf, the Islamic bank would charge you a service charge/commission.

If you do not have money to buy the machinery, you can combine Mudhaba System with Mudariba System or if you have the money you can combine the Mudhaba System with the Mushariqa System and share the profit on selling that machinery with the bank on a pre-determined ratio.

Ijara (Leasing or Higher Purchasing)

Suppose, you don't to buy a car, you want to rent it. The Islamic bank charges you a certain profit and rents you the car. The price of the car and the profit are divided by the life span of that car to calculate the per month rent. The Islamic bank provides you Ijara ending with sale and also buying back facility. If you don't the car, the Islamic bank buys back the car, a facility which Modern banks do not provide.

Interest-free Loan

It is the loan the Islamic bank gives to the poor to do business without charging any Interest at all. There is nothing like Interest-free loan in Modern banking. In the Islamic system of banking in Malaysia 10% of profits are kept separately/ reserved for Interest-free loan for the poor. In Islamic terminology it is called "Karze Hasana" meaning "the good loan".

Folding Business Card Designs - Pros and Cons

Folding business cards are one of the current top trends in business card design.

They are designed to fold to the size of a standard business card, so easily fitting in a regular wallet or card-holder, but have twice as much space to fill. You can choose between the long fold, which will look like a mini greetings card, or the short fold, which allows it to stand vertically and fold out into a long bookmark shape. There is also the offset fold where the front is shorter than the back revealing the lower panel of information both open and closed. Well designed, all these formats can be appealing, functional and cutting edge, but there are also pitfalls to avoid.

Pros
You get a whole lot of extra space to include more information on products or services. You can add pictures, maps and all sorts of details on the inside of the fold, even making your cards into dual function mini-brochures.

The fold makes the cards self-supporting, so they can stand up and stand out on a table display making them far more noticeable and eye-catching than ordinary flat cards.

This format allows for plenty of creative design ideas and making your business cards into useful giveaways that people might want to keep longer - think about printing a reference guide relevant to your business in the middle: perhaps a weights and measures conversion guide; keyboard shortcuts list; a calendar; a planting guide; a colour chart, anything that your contacts might like to prop up on a desk or kitchen counter as a long-term reference.

You might prefer this format just because it allows for a whole lot of blank space inside to scribble notes. Some people print on the outside and leave the whole inside blank - especially in a business where the personal element is important. You can then scribble a twitter handle, a blog address a personal cellphone number inside before handing it over - whatever information is most relevant to that particular contact thus making your conversation more memorable.

Cons
Folding business cards can get too cluttered, as you try to cram in as much information as possible into what is still a relatively small space. Don't forget the prime design mantra of the business card - less is more.

These cards will cost more than ordinary business cards - they are effectively twice the size with twice as much printing and design involved, as well as the scoring for the fold. Weigh up whether you are saving money on other flyers and informational material by having the extra space inside - it could still be cost-effective if it saves you printing and giving out several other pieces of printed paper.

At double the size they are double the bulk, so you will have to carry more weight around in your pocket to have the same number of cards on hand: a small consideration, but worth remembering if you like to travel light.

In a similar vein, if you are going for the green approach they might not be your best bet - they use double the amount of card and ink, so even if you do choose recycled card stock and natural vegetable based inks, you are doubling the amount of resources used in your business cards.

If you decide to go for a fold, then make sure your designers make the most of it, so that it really does stand out from the crowd.

Safe and Efficient Business Records Management Ideal for Every Modern Organization

Records management is regarded as both a management and discipline function that includes the secure document storage of the business records that any contemporary organization owns and keeps.

There are storage companies that also offer online document storage of essential business records at competitive rates.

Financial records are documented transactions that are needed and used by the organization in the regular course of business. They are also legally considered as evidence for every transaction entered into. Transactional records include, but not limited to, orderings, receipts, loans, contracts, notifications and schedules.

A record is defined as the business information that is created and received by a person or organization. It is also maintained as evidence pursuant to the legal obligations of the business.

A record is therefore something that can be taken into a court of law. If called upon, the record must be authentic, reliable and usable, complete and unaltered, so it can fully and accurately represent the facts that it attests to.

Records and Information Management

Records have a distinct life cycle that begins with creation or receipt, processing and distribution. The second phase includes maintenance and evaluation, and concludes with ultimate disposition.

The last phase of the cycle involves either destruction or transmittal of records for permanent housing. The company may either build its own vault, archive or another dedicated facility for the storage of the records or engage the services of an outsourcing storage company.

Recordkeeping systems include people who are directly involved in the creation and use of the organizational records, the policies related to such records and procedures that ensure optimum access to and use of said documents. They also include tools and technologies that are employed in the creation and storage of records in various formats.

An organization with a consistent recordkeeping program can conform itself to statutory requirements specifically for information retention. It has appropriate evidence of its transactions in case of audit and minimizes jeopardy at the discovery phase in case of litigation. There would be continuity of operation in the event of a disaster and costs can be controlled because of the timely disposition of financial information.

A recordkeeping system is required to have reliability, integrity, permanence, comprehensiveness and compliance. Reliability is about the consistent capture and access to organizational documents. Integrity involves no unauthorized alteration, removal and destruction of records. Permanence means that no record can be altered, tampered with or improperly deleted.

With comprehensiveness, it involves the management of all created and stored records that comprises the normal continuous activity that links all the units of the organization. Compliance is the creation and maintenance of the documents consistent with all of the applicable policies and procedures implemented in the organization.

Online Records Storage

Today, any type of financial record can be securely stored online and can be accessed via any web connected Mac or PC anywhere in the world.

As businesses now tend to go global, with employees assigned to various locations locally and internationally, online records storage becomes highly relevant and useful. Employees while travelling or telecommuting will be able to store essential documents and files online and instantly access them when needed.

There are online records storage companies that offer simplified online programs. Employees can easily drag and drop several files and folders and organize them in online libraries and folders. They can then share them with other team members.

There are also online storage systems with collaboration features such as version control, notifications, file locking, commenting and audit trails. Amazingly, there are no restrictions on the type of file to be used like MS Office, audio, images and pdfs.

Online storage programs allow only authorized users to gain access to the stored documents. Also, they save time and money, keeping IT costs low with easy to use online records storage solution that can be used with no software or hardware required.

Records management companies offer secure and efficient storage of documents in their vaults or archiving facilities. They have trained professionals who can handle the storage system, thereby keeping information in its strictest confidentiality. They are also experts in the legal aspects of secure document storage.

Small Business Accounting - How to Keep Good Business Records

Are you tired of scrambling at the last minute to get your financial records to your CPA? Or are you tired of wasting time trying to find an important invoice, or receipt? Or are you just fed up with being fined by the IRS, Worker's Comp, the State Employment or other agencies because you don't have your papers in order?

Then it is time you got organized.

Now I know that finding financial paperwork can be difficult, especially if you don't have a good system in place.

Or if you have the wrong system, you make it worst, by making it really hard for anyone in the business to locate any of your important papers.

Well, here is a system you can use that will help you stay organized, so that you and your team can find your important financial paperwork in a jiffy - or when you really need them.

1. File paid bills, canceled checks and/or bank statements, and other business documents where you can easily find them. Some people use manila folders or an accordion file divided into types of expenses, i.e. "car', "utilities", "entertainment", and so on.

2. At a minimum, stuff receipts in the proper folders throughout the year and total them up at tax time. Staple the adding machine tape to each folder or stack of receipts. If this works, good for you!

3. An adequate record-keeping system for a small business typically includes:

- Check register - preferably from a separate bank account for your business.

- Summary of receipts of gross income - totaled either daily, weekly, or monthly.

- Monthly summary listing of expenses.

- Disbursements record (check register or actual expense journal) showing payments of bills.

- Asset purchase listing (equipment, vehicles, real estate used in business), and employee compensation records (if you have workers).

4. Every time you spend money in the business (or once a week or month), note in your records the following:

- A brief description of the business purpose of the transaction (office rent, new stapler, gas, etc.).

- The amount.

- The date, and

- Whom you paid (Chevron, Kinko's).

5. Keep all business records for at least six years, then make sure to properly destroy any sensitive information before disposal. You may elect to keep records longer, but the minimum required by the IRS is 6 years.

Now, this is a minimal system for a small business, especially in start-up phase. As the business grows, it will need to migrate to a more structured accounting system to track their financial records.