Tag Archives: profit and loss sharing

This Merry go round of death

In recent months, we have all been regularly jolted from apathy by recurring news about suicides committed by our compatriots. A majority of those who take this extreme step do so after succumbing to the emotional breakdown brought about by unmanageable and surmounting financial obligations. Even though statistics never reveal the depth and intensity of reality, the figure “1 death in every 3 days” is staggering, to say the least. While it is heartening to know that several Government bodies and voluntary organizations are striving hard to build awareness and to help the kin of the victims and support those in dire financial straits, we have to realize that we have to collectively seek and target the root cause of this issue, if we need to arrest this trend. Treating the symptoms alone can only provide momentary relief. Proactivity is the need of the hour and it sternly calls for a mission to identify and eliminate the real reasons behind this quagmire.

Let us dedicate this mission to the memory of our hapless brothers and sisters who have fallen by the wayside. And let us hope and pray that we can keep the rest of our pack together and continue our onward journey without sacrificing anyone anymore….

This mission will have to take its toddler steps by examining the root causes for the existence of poverty. When I pose this proposition to my readers they usually come up with the following answers- Corruption in the system, improper utilization of resources, poor attitude of the people, lack of smart ideas and so on. I don’t disagree with them, completely that is. While these factors can accelerate a nation’s slide towards poverty, there is one key factor that didn’t feature in this list at all. And unfortunately, this undetected stealthy sneaking factor is the grandmother of them all…..

Let me stop building the suspense and reveal the culprit – that dark menacing force that drives individuals, families and nations to poverty, bankruptcy and suicides is the Interest based economic system that we are a part of. And I can categorically state that if this element is present in our system, we will have poverty regardless of whether corruption, mismanagement and the rest of the social ills are at hand or not.

I know that I have just made a mighty whooping statement and that my discerning rational readers would need evidence before coming along with me. Let me try my best to present the same.

You need to get some basic facts first. Here they are.

1)Banks are the only source of money– Every currency in existence has come out of some bank or the other. If you think that your cash has come from your organization in the guise of your salary, go a bit backwards and understand that organizations get most of their funds through bank borrowings. If you think that your cash has come as pensions from the Government, realize that governments cannot create money as even they have to borrow funds from the monetary agencies, in return for bonds that promise to pay more (more about this later). Hence note that that every single unit of currency available in the market can be traced back to some bank.

2)Bank’s give out money only on interest– there is no free lunch in the interest based economy. In other words every unit of currency given out comes with an obligation to pay back more. This is the case even with governments. If the US Government wants to issue USD 1 million into the economy, they have to give the FED, which is akin to the central bank of most countries, Government bonds which is worth more, say USD 1.1 million. Central banks lend to other banks only on interest and thus do these banks lend to customers. To cut a long story short, just keep in mind that every dirham that you see around here comes with an inherent obligation to return more (say 1.2 dirhams) to the bank.

3)Banks give out money only if you provide collateral– This one is a no brainer. We all know this and we also know that banks eat up this collateral if you are not able to pay back.

Now imagine that there is only one bank in the whole world (Tough proposition, since we have over 50 banks in our UAE itself). But I need you to envision this as a simplified model makes it easier for me to make my point. So this means that all the money in the world can come only from this bank and this money will come out with an obligation to pay more (points 1 and 2 above)

Imagine that this bank (Let us call it the ONLY BANK) is getting ready to lend out for the first time (That means that there is no money in the economy yet)

There are three prospective customers. Mr. A who wants USD 10. Mr. B who wants USD 15 and Mr. C who wants USD 20. They have a house, land and farm animals respectively to provide as collateral.

The ONLY BANK gleefully welcomes them in, collects their collateral and doles out the cash with the following directives.

Mr. A gets 10 and has to return 15 at the end of the year
Mr. B gets 15 and has to return 20 at the end of the year
Mr. C gets 20 and has to return 25 at the end of the year

All three go back home to live happily ever after without knowing the sinister trick that has been played. The ONLY BANK has issued USD 45 and is asking for USD 60 at the end of the year. This extra USD 15 doesn’t exist in the economy since it has not been created/printed/released yet (remember point 1 and that ONLY BANK is executing its first lending cycle).

Now the ignorant enthusiasts set out to do things with their newly found prosperity. Money exchanges hands and imagine that the scenario at the end of the year is…

Mr. A makes a loss of USD 5 and ends up with USD 5 at the end of the year
Mr. B makes a loss of USD 5 and ends up with USD 10 at the end of the year
Mr. C (Lucky guy) makes a profit of USD 10 (5 + 5 lost by A and B) and ends up with USD 30 at the end of the year

Please note that even at this point only USD 45 exists in the economy, distributed differently though.

The ONLY BANK comes calling, with their recovery team (He is not as friendly as he was at the dawn of the year).

Mr. A who was supposed to give back USD 15 ends up losing a big chunk of his collateral.

So does Mr. B.

Mr. C (The lucky guy) gives back 25, gets back his collateral and gets to keep his USD 5 as well.

The ONLY BANK gets a triple treat, USD 25 from Mr. C and collateral from A and B. By releasing just USD 45, It has magically and treacherously made a total of USD 60 from the deal.

Hope you got the trick by now. Regardless of how smart you are and how well structured the system is, someone will have to lose money and go bankrupt as the extra money asked back doesn’t exist and is more than what is released (45 released and 60 asked back). Now imagine thousands of banks and millions of lending cycles and you see the damning effect…

No country ever paid back its debt to the world bank and the IMF.

For most countries interest repayments are more than what they spend on education, health care and infrastructure combined

Richest 225 people own more money than 2.5 billion poor

Every 30 minutes, one farmer in India commits suicide and in every 3 seconds one child in this world dies out of hunger

These are some of the byproducts of this corrupted system which has an in built proposition of WIN-LOSE, where the banks win at all costs and someone loses at all costs.

Let us make it more personal now. This is the hardest hitting part. Imagine that you take a loan from this system and you pay back (because, you have a job, or a business and is wealthy), someone somewhere has to lose his collateral and go bankrupt and perhaps, even commit suicide. Because if you become Mr. C, someone has to be A and B. Note that I am not saying “Someone may have to be A and B”- The fact is that “Someone has to be A and B”. That is how the system is built. Period.

Come to think of it, inadvertently and unknowingly, our hands are stained with the blood of these hapless victims who fall prey to this system. Recently a family in the UAE, suffering from the throes of financial burdens elicited by multiple loans and credit cards did the unthinkable. The mother held the little girl while the father smothered her with a pillow. Once her body hung lifeless, they both attempted suicide. The mother survived though. In a way, we may have been responsible for this incident. They may have been pushed to be either A or B when we occupied the role of C. In any of the impending cycles we may have to play a different role and end up as one more victim of this vicious merry go round of pain, defeat, humiliation and death.

Now that the root cause is identified, what do we do against it?

Build awareness: We will be outnumbered and out voiced. Such is the power of this system. But let us reassure ourselves that RIGHT is RIGHT even if one person does it and WRONG is WRONG even if the whole world does it.

Do whatever is possible: Encourage people to live within their means. If they cannot afford something let them wait until they can. If they want funds to invest, let them seek and find alternatives that will work out a profit and loss arrangement- a partner/institution who will co invest with them and partake the outcomes regardless of its implications. Without collateral which will be usurped regardless of the financial state of the borrower.

At the end of the day, it is the purpose that we choose for ourselves that makes us distinct from others. There are many of our co travelers who choose to live a life of Begin, Beget and Be gone, which is in no way different from the lives of lower animals. We become humans only when we choose to use our talents and resources to make differences in the lives of others- those who are in pain, who need our help and support. We may not be able to usher in a new sunrise, but we can at least be a candle that can combat the darkness in its own special way and also provide inspiration and light to countless other candles.

Hope the Mission begins…..


Filed under A new sunrise