Nigeria: Interest-free cooperative: A reliable source of finance

| 15/01/2011 | Reply
Islamic interest-free cooperative societies guarantee reliable source of finance for members.

THE survival of a country’s economy mainly rests on its finance. That finance itself is strongly attached to the political ideology of that country in question. At the same time, the knowledge, experience and exposure of those saddled with the responsibility of managing the economy are also important in the sustainability of that economy. The world economy revolves round democracy as a political ideology and capitalism as a system of financial management.

The concept of interest-free co-operative is an integral part of the Islamic economic system. What we are familiar with is the conventional co-operative system of financing, which according to its operations, is interest-based. The International Labour Organisation (ILO) defines co-operative as “an association of people usually of limited means, who voluntarily come together to achieve a common objective through the formation of a democratically controlled business organisation making equitable contributions to the capital (base) and other inputs required and accepting a fair share of the risks and benefits of the undertakings in which members actively participate.”

This has been modified by the General Assembly Act of 1995, as “an association of people with common economic interest, who have agreed to create a financial pool out of which they lend money among themselves at a reasonable interest rate.

Conversely, Islam enjoins co-operation in all acts of righteousness, as stated in to the Holy Qur’an, Chapter five verse three (Q5:3). The concept of interest or usury, no matter how little, is strongly prohibited by Islam. This is evident in Surat Baqarah verse 275-278.

The Bible, in Deutronomy 21:23-91, also reveals that usury or interest is abhorent to Almighty God. Sincerely speaking, the concept of interest on loans runs counter to common reasoning because in most cases it usually has negative effects on the borrower by its burden of multiply.

Historically, subsequent to the effects of the industrial revolution in Europe, the modern co-operative society can be traced to Rochdale Equitable Pioneer Society in Britain, when, in 1844, they agreed to contribute certain amount among themselves, used the money to purchase goods and provisions in bulk and then shared it without the introduction of the concept of interest. The society operated for a period of 90 years with a remarkable achievement.

The Islamic interest-free co-operative finance system involves coming together to raise halal fund by men and women of similar ideology and orientation, who contribute their gains in monetary terms to establish a business and share both the profit and the loss. They also give loans to members based on mutual understanding without attaching any form of interest (whether overtly or covertly).

There are various sources through which funds can be generated to finance an investment. Some of these sources include savings, bank loans, co-operative loans, money lenders, interest-free loans etc. Out of the aforementioned, the most reliable sources are through savings and loans obtained from interest free co-operative societies. Interest-oriented co-operative societies create a great sense of fear and psychological imbalance on loan seekers and loan-takers in the sense that there is no objectivity in the arrangement. It is based on speculations and uncertainties. This is why it has become a common-knowledge that the conventional co-operative society cannot rescue those who hold headlong to it for salvation from their financial mess.

The so-called economic meltdown that ravage the world today has its origin in the interest-based economic system, which is being promoted by democracy and its advocates.

The basic characteristics of the Islamic interest-free co-operative are: amassing wealth from halal source, engaging in profit-oriented halal investment; prudence financial management and granting interest-free loan.

This has been made practically possible by the virtue of the fact that those who practise it share common ideology. Members are given loans that doubles the amount they already have in the saving scheme of the body they belong and are adequately monitored to repay the loan in due time.

This system is a better alternative to the prevailing interest-oriented co-operative system and that is why those who have tried both conventional co-operative society and the Islamic interest-free co-operative society give kudos to Islam as the best way of life.

•Bello is the immediate past Amir, National Council of Islamic Credit and Saving Scheme.

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Category: Finance & Investment, Middle East & Africa

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