# How can a bank lend out more money than it has? *How banks lend more than they hold: an illustration of money creation* - URL: https://muftiabulayth.org/r/ucdrblygy70/s/10/ - Date: 2017-10-19 · Kind: lesson · Transcript tier: machine · Recording: Are Mortgages & Bank Loans Haram? - Mufti Abu Layth (41:39–47:23) - Status: general teaching - Watch from the start of the segment: https://www.youtube.com/watch?v=ucdrbLyGY70&t=2499s - Recording page: https://muftiabulayth.org/r/ucdrblygy70/ **Topics:** Riba, mortgages and loans; Money and finance; Islam and modernity **Summary (not a quotation; machine-made, unchecked):** Banks lending out far more than they hold, though it can be abused, is what allows communities to flourish. Money today is created out of nothing, but spending it enriches others. **Checked position (checked by two independent reviews, not by the channel):** Mufti Abu Layth says that banks being authorised to lend far more money than they hold, although it can be done irresponsibly, is what allowed communities and societies to flourish. **Evidence, his words at 42:12:** “Now, people might see this as a bad thing. But, it allowed the community and societies to flourish.” (https://www.youtube.com/watch?v=ucdrbLyGY70&t=2532s) ## Longer summary Mufti Abu Layth gathers his ingredients, the pursuit of self-interest, dematerialised money and the shared belief in a better tomorrow, and adds that banks were authorised to lend far more than they hold, which he says people may see as a bad thing but which allowed societies to flourish. He illustrates with a story using viewers' names as placeholders: he deposits a million in a bank, a businessman borrows a million to set up a business, pays it to a contractor who deposits it back in the bank, the contractor doubles his price, the bank lends another million, and so on, so that a bank which only ever had one million has lent out three or four million while a business is set up, jobs are created and people spend. He says laws allow banks to lend up to ten times what they hold, acknowledges irresponsible lending and the bust that followed, but says the point is that communities flourish. He describes digital money as money 3.0, created out of thin air by adding zeros, yet enriching a community because whoever has it spends it. ## Sources and names cited - riba ## Transcript (machine tier, 41:39–47:23) [41:17] Because they felt why should we? The chances are tomorrow is going to be miserable. It's going to be abysmal. There's going to be There's going to be just raids and war and battles and diseases and the the promise of tomorrow was never optimistic. Now, with industrialization that changed. So, all of a sudden we've got now hold on to these elements that I'm giving you these ingredients. [41:45] So, the pursuit of self-interest the de-elementizing of money. Right, the promise of a better tomorrow and this promise of a better tomorrow catches on with the collective consciousness. So, people start to buy into this Once again, it's a shared imaginative reality. I'm not saying it's true. We It's just a shared reality. [42:12] No, I'm not on stats. Right, so this shared reality that people started to think, "Well, tomorrow is going to be better." Now, another element the fact that banks were authorized to give out much more money than they actually had. Now, people might see this as a bad thing. [42:35] But, it allowed the community and societies to flourish. Now, let me let me just illustrate that for you. Look. Here is a bank. I go to this bank and I put Let's say I wish I wish make dua, inshallah I become a millionaire. [42:58] So, I put 1 million in the bank. Pursuit of self-interest. Right, so I put 1 million in the bank. Now here is another person. He decides to This person needs a loan from the bank. So, let's just say we're going to take Shall I take some figures? I'll tell you what, I'll use some of you guys right here that are just logging in as some live examples. [43:28] So we've got Hamad. How you doing? I'm going to use you as an example. So, Hamad says, "All right, I'm going to I need a loan. I want to set up a business." So Right, what I'm going to do is I need a million pounds from the bank. So, the bank borrows a lends, sorry. Hamad borrows 1 million from the bank. Okay, so he's got that. [43:51] So, Shakeel has just joined and said 100 trillion. So, okay. Shakeel, I'll use as the next example. Hamad to set up his business needs to hire out a contractor. So, the contractor is a A contractor says that fine to do this job I need a million which Hamad has taken. So, Shakeel now takes that million from Hamad, puts it back in the bank. [44:19] Whilst working away at his bank Sorry, whilst working away on this project Shakeel realizes that wait a minute this is going to cost This project is going to cost double what I thought. He goes back to Hamad and says, "Well, sorry Hamad this ain't going to happen. You need to double your investment." Hamad goes back to the bank. [44:44] In this Feroza bint al-Farsi has said, "I'm supposed to be poor." Okay, Feroza, you get to play the bank. So Feroza, who's the bank, right? Hamad goes back to the bank and says, "Look, I need another million." The bank being generous and capitalistic says no no hay problema. Don't worry about it. [45:10] Right, so he the bank gives another million. All right, so Feroza, you decide to give another million to Hamad. Hamad pays that million to Shakeel, who being a typical let's just say Pakistani contractor was going to double the price anyway. He goes and puts that million in the bank. [45:35] Right. Now you see we've got I go and and then obviously Hamad now let's say owes 2 million to the bank. He pays back 2 million to the bank later on in time to come. But, he sets up a a glamorous business. And that starts to flourish. He has jobs. [46:00] He creates jobs in the environment. The contractor brings his own crew. They have jobs. They work. They spend their money. This million that they've taken off Let's say Hamad, they're spending some of it. They're putting some in the bank. They're taking it out. They're spending. Me I'm I just originally just put 1 million in the bank. I'm taking out mine whatever I want whenever I want. [46:25] But, how much money did the bank originally have? Even if we say I actually had any original money, it was only the bank only had 1 million. Yet, it lent out three, four million. Certain laws allow banks to lend out up to maybe even 10 times what they actually have. [46:49] The question here is and I'm not saying sometimes they can't do irresponsible things. They can and we all know what with the kind of bust and everything what happened. But, my point is you see what this allows is for communities to flourish. So, we are no long like You see wealth and today I spoke about another point. [47:14] Today we spoke I said that we had money 2.0 where it was de-elementized into paper. Now money 3.0 it was digitalized. All right. Money now created out of thin air. ## Cite Mufti Abu Layth Archive, segment ucdrbLyGY70/s/10. https://muftiabulayth.org/r/ucdrblygy70/s/10/ Not a fatwa: these answers were given to specific people at specific times. Ask a qualified scholar about your own situation.