Breaking the Shackles of Debt

The cause of indebtedness most of the time is the "Economic Sense" that is being inculcated through marketing tactics and promoting theories of finance. The "Economic Sense" is future projections show that it is feasible to finance the project through loan, our inflows are good enough to meet our interest plus installment obligations. It also makes "Economic Sense" to buy a car on lease finance for commuting to a higher paying job than presntly a less attractive. It is also an "Economic Sense" to buy a home on mortgage by calculating and equating interest plus installment to present rent. If it is good economic sense then why this financial turmoil? Why this burst of housing bubble? This false economic sense turns into a nightmare because of buying something that one could not be afford at the time of purchase, possibly bought more than needed and paid interest to acquire the same.

This debt trap affects the Muslim Society in three ways

1. Engage in Riba
2. Potentially consumes Zakat on unproductive activity
3. People don't pay Zakat because debt cancels assets and Zakat pool is smaller than the last year

One of the solution is providing indebted persons non-profit loans instead of charity like "give it and forget it" along with necessary financial planning guidance so that they may be able to shift from Zakat receiving to Zakat paying group. This article is an example of thinking differently than microfinance or microlending in a conventional or disguised way.

Here are few excerpts

Gharimeen are understood to be “those who are over burdened with debts”, “in debt” and “debtors” by some of the most notable translators of the Qur’an, such as, Muhammad Asad, Yusuf Ali and Marmaduke Pickthall, respectively. Throughout this article Gharimeen will be used for those who are either under debt already or are debt-prone until they successfully break out of this particular financial vulnerability and join the ranks of Muzakkis.

Gharimeen are a special segment of the population who may have jobs or businesses but due to debt their net asset value falls below the Nisab threshold and forces them to become potential Zakah recipients instead of Zakah givers or Muzakkis.

The challenge for Muslims is to make sure that the pool of Muzakkis is strong and expanding, instead of weak and contracting. Consumer financing is causing the Muzakki base among Muslims to contract through expanding debt in the community.

As envisioned in verse 30:39, the Zakah fund keeps growing as new money is donated every year, and as the money is repatriated from the interest-free loans given to Gharimeen in the previous years. Verse 9:60 designates part of the Zakah funds for Zakah collectors and distributors. So there are no operating costs which need to be passed on to the borrowers.

There is a need for a non-profit organization which helps Muslims and others eliminate interest as well as unnecessary acquisition of goods and services from their lives. This organization can also guide them in directing their savings towards safer investments than what is available through Wall Street.