Akhir Sekali Putar Belit Perbankan Islam Terbongkar

I have written countless times that the whole idea of Islamic banking (especially in Malaysia) is false.  It is just re-labelling conventional banking with Arabic names and calling it Islamic banking. Its a joke.

The Quran does not say bank interest is riba.  There is no such thing in the Quran. From understanding the Quran riba is profiteering - making excessive profits, doubled and redoubled and so on. 

Riba is oppressing the people financially.  Monopolies and oligopolies would almost naturally qualify as riba. Yes riba is haram. Meaning monopolies and oligopolies would also be haram. Jadi tuan-tuan yang bekerja dengan monopoli dan oligopoli semua makan duit haram lah. Better understand this well. Sebab itu rezeki pun tak lama.

Anyway the present flap over the banks having to recalculate the interest on the six months loan moratoriums is very telling.

I see it as a failure by Bank Negara and the Ministry of Finance to communicate things properly. It again exposes the false pretenses under which Islamic banking operates.

Banking (or financing) is renting out money. Just like you may rent out a house or apartment or you may be renting a house from your landlord. TIME SHALL BE OF THE ESSENCE. You pay rent according to the time that has lapsed. Rent is due every month, every week, daily etc.

The same applies when you rent money aka a loan. Money has a time value. You must pay the rent for the money. 

You can call it by any name (rent, interest, Islamic profit, fees etc) but it is time dependent. 

Money has a time value. 

Banl loans are all calculated on tenure or the amount of time the money is loaned out.

So for a certainty someone has to pay interest for that six months Moratorium period. 

The banks were "ordered" to postpone loan payments (capital plus interest) for six months. It was a postponement of time.

It cannot be a cancellation of interest for six months. 

Banks make loans by lending out the money we put into our savings accounts and Fixed Deposits. Grandma, grandpa, aunty, retired school teachers etc put their money in banks hoping that the bank will do something useful with their savings and then pay them some interest every year.  So the banks use grandma's money to make loans and the interest the banks earn from the loans is then shared with grandma. 

So if the banks cannot earn 6 MONTH's interest, who is going to pay grandma her portion of the interest in her savings account? How come no one thought about that? 

The problem is the government, Bank Negara and the MOF did not communicate this clearly to the people. Hence the complaints now.

The question is how do you handle this recalculation? 

How do you handle this? How do you treat the issue?

In banking sometimes we used to allow moratoriums on paying back the loan principle.  For example for housing developers. Or industrial projects like power stations and factories that are under construction.

Since it would take some time for the developers to build and sell their houses / power stations (about 24 -  36 months) the developer will not have enough cashflow to start paying back the loans. 

So we will look at the cashflows and give them a moratorium on paying back the principle amount of the loan. Maybe until construction is completed, houses start selling etc. I have seen about 6 months to 24 months.

But usually the borrower must pay the rent on the money aka the interest. 

It is difficult to delay (moratorium) interest payments because the bank has to pay interest on grandma's savings account. Jangan lupa.

There have been cases where even the interest payments were allowed a delay aka a moratorium on interest payments.

OK THIS IS WHERE THE SALAH FAHAM BEGINS.

A MORATORIUM IS NOT A CANCELLATION OF THE LOAN OR THE INTEREST DUE.

PLEASE UNDERSTAND THIS. IT IS JUST A POSTPONEMENT OF TIME.

THE PRINCIPLE AND INTEREST ARE STILL DUE FOR PAYMENT.

The question is how do you calculate this?

In some loans the interest that was allowed a moratorium was added back to the principle amount (aka interest was capitalised). So say after 6 months, your loan amount gets bigger because the interest that you did not pay during the 6 months was added back to the principle amount. This means your interest payable will also increase.

But the bank has given you an extra 6 months WITHOUT HAVING TO PAY ANYTHING. 

I think the people must appreciate that.

Or the interest not paid for 6 months can be averaged out over the remainder of the loan period (depending again on what is the period remaining ie 10 years, 6 months, 2 years etc). So when you resume paying the bank loan, your monthly payments will be higher.

Or can the bank charge penalty interest aka interest on interest? 

This is usually the case when there is a loan default. 

The bank will charge late interest from the time you missed the payment date until you make the payment. The Credit Card people are expert at this.

So how should the banks handle this? 

The answer is be fair and just do what is as normal as possible.

We are not the only country that has given a 6 month loan moratorium. 

The Italians have also given a moratorium on loan repayments.

So there is no need to reinvent the wheel. Just see what others have done.

As a businessman and a borrower I just want to say thank you very much for this loan moratorium.

But all this also creates other issues for the bank. 

The banks Capital Adequacy Ratio will be affected.

Because if the interest is added to the principle it means the size of the loan has increased. Multiply that by the entire banking system and it affects the capital adequacy of the banking system. (I don't know how much exactly but 6 months interest on the entire loans outstanding in Malaysia could run into billions of Ringgit). So Bank Negara has to give some leeway.   

And give borrowers the option to opt out anytime along the six months. 

Once businesses start again on Monday their cashflows will start improving. 

Some businesses may not need the full six month moratorium. 

Now this also exposes the hypocrisy of Islamic banking.

In Islamic banking they say there are no loans. 

Islamic financing is always tied to buying and selling.

They say they are traders. The Islamic bankers buy and sell.

They say they will first buy the house from the housing developer and then they will sell the same house to you at a much higher price but you can pay in monthly instalments over a longer period say 25 years etc. (Its another way of saying it is a simple housing loan.)

But the Islamic bankers do not recognise "interest". 

(They wrongly say interest is riba.)

This means money has no time value for them. 

There is no time value of money in Islamic banking.

So now if there is no tike value of money, why are the Islamic banks asking to recalculate the amunts repayable as a result of this moratorium?

Maka terserlah lah hipokrasi perbankan islam.

At the end of the day suka atau tak suka, they too have to recognise the time value of money.