Time Value of Money from Islamic Perspective
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
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