ISSUE:
Some
scholars in Islamic economics argued that the concept of time value of money is
a key to the door or riba which is prohibited in Islam. However, some scholars
are of the opinion that time value of money is a concept valid in Islamic
economics. What are your opinions on this issue?
DISCUSSION:
Islam prohibits riba because riba deprives justice and
discourage people from undertaking real economic activities. Profit earned from
money that is loaned to debtor is considered as interest or usury. Riba gives a
picture that money itself can earn profit (in the form of interest) by lending
it to who needs it. The Quran forbids the charging of interest or riba on money
lent. There are general consensus among Shariah economic scholars that riba is
not only restricted to usury but encompasses interests as well.
Legally, from the Islamic belief, riba is strongly
condemned by Allah. Allah said in the Quran “O you who believe, do not consume
riba with redoubling and protect yourself from God, perchance you may be
blissful.” (Al-Imran: 130). Islam does not recognize the earning from interest
or riba derived from loan/borrowing activity was a fair business transaction.
Capitalist economic considers money as commodity and a
resource for production. Therefore it has value or cost which is determined by
several factors such as time preference for consumption, production
opportunities and inflation. Thus, time preference embodies the concept that
money to grow its value in future from the current time. This concept is called
Time Value of Money.
The Time Value of Money (TVM) concept says that time has
value. The principle of this concept is that money at present time is worth
more than the same amount in the future due to its potential earning capacity. For
example, person X who has money and does not use it either for real-economic
investment activities or commercial trading, but lend it to other person Y
payable in a year with 10% interest. Instead of reaping profit from business, X’s
money grow 10% at the end of the year because Y has to pay X the principal plus
10% interest. The concept regards that the payment of interest is to compensate
X for the opportunity loss he could get if he were to invest on other project.
This means money borrowed for a period of time must pay rent. According to the
Quran, this form of value of money is riba and sinful to anyone to take or give
it.
Contradict to the TVM concept of the capitalist
economy, Islam regards money could not grow because of time factor from lending
activities. In Islam, money should be used for productive economic activities
such as buy and sell or trade so that there is a circulation of money. The
money will have to pay zakat (an Islamic type of zakat) if it left idle in
save. An increase of value due to interest is prohibited but allowed if it
derived from trade. Allah said “Allah has permitted trade and has forbidden
interest” (Al-Baqarah: 275).
However, the time value of money is not ruled out in
Islamic financial perspective as long as it is not part of lending relationship
in which it is claimed as a predetermined value (Ahmad and Hassan, 2004).
Unlike conventional belief that regards money as a
medium of exchange and commodity, Islamic economy defines money as the medium
of exchange not the commodity. Money has no value in itself but represent a
value for the commodity.
The concept of time value of money in Islamic finance
is that called the Positive-Time-Preference (PTP). The consumption and
production activities take time and to calculate the time value of money based
on the real time that used for the activities as we known as ex-post in modern
economics. The concept of PTP is supported by majority of Shariah scholars that
the price for cash sale and credit sale can be varied. The example of the
difference of price for cash and credit sale can be seen in Salam contract
which price paid in advance for future delivery of good is less than cash and
carry price.
Time is considered as a valuable economic resource that
can be explained into two positions (Batcha, 2009):
(1)
Opportunity cost of postponing
current consumption for future consumption; and
(2) Opportunity cost of not being able to
invest funds in productive activity.
Thus, compensation should be made for utility or
possibility of earning a profit on funds.
In line with the Quran and Hadith teachings, Islam
encourages people to pay their debts more than the amount borrowed which is
purely voluntary as a token of gratitude and the incremental amounts denoted
that Islam’s acknowledgement of PTP (Ayub, 2004).
In explaining the recognition of time value of money
from Islamic perspective is that the compensation (conventional finance called
‘interest’) cannot be contractually predetermined because there is no certainty
(gharar) in any outcome and the compensation is derived from the trading
transactions that is ‘profit’ or out of courtesy by the borrower.
Based on the explanations above, majority of Islamic economist
believe that economic agents in an Islamic economy will have a positive time
preference and there will be indicators available in the economy to approximate
the rates of their time preferences, generally determined by the preference in
an Islamic economy, as made in a number of studies on investment behavior in
the Islamic perspective (Ayub, 2007).
The important conclusion view is Islam is time value
of money is acceptable in respect of the pricing assets and their usufruct. It
is not acceptable with regard to any addition to the principal of loans or
debts. Valuation of credit period based on the value of the goods or their
usufruct is different from the conventional concepts of ‘opportunity cost’ or the
‘time value’ (Ayub, 2004).
No comments:
Post a Comment