International debt

International debt is crippling developing countries. The world’s poorest countries are currently paying back millions of dollars in debt repayments to banks, lending agencies and the governments in developed countries while simultaneously struggling to provide basic services for their people.

If used wisely loans can enable a country to expand their economic activities. However, most of the loans that burden the world’s poorest countries are ‘odious,’ given irresponsibly by banks in rich countries to regimes known to be corrupt. Despite the loans, these countries have seen no improvement in their economic circumstances and decades later countries continue to struggle to pay the interest on their debts. Had these countries been companies they would have been declared bankrupt, but international law offers no ‘fresh start’ to bankrupted countries.

In recent years much of the debt has been ‘rescheduled’ and new loans have been issued. Although less ‘odious’ these loans came with many conditions. Often linked to ‘structural adjustment programmes’ they have also proved to have many negative consequences. These consequences include, a reduction in government spending on public services such as health and education, an imposition of free trade measures that have flooded markets with foreign, subsidised goods and the privatisation of public companies. This has taken away the control of poor countries over their own economy and has hampered their economic development.

We live in a world where 72 million children never have the opportunity to go to school; a world where over 980 million people live in extreme poverty; a world where 10 million children die every year before they reach their fifth birthday; and where half a million women die during pregnancy or child birth. And there will not be substantial improvements to rectify this situation unless the debt crisis in the developing world is resolved.

As a result of the massive debt repayments that poor countries are forced to make there is less money available for governments to provide their citizens with basic services such as education and healthcare. At present poor countries pay around $13 on debt repayment for every $1 they receive in aid. Until this situation is changed there can be no substantial economic development, and there will be no improvements in rates of child mortality and access to universal primary education.

Our values
In Islam loans can be given to finance economic activity or to mitigate a period of economic hardship. However, all loans are given on the basis of an equitable, risk-sharing partnership between lender and borrower, where reward and failure are shared by both parties. Because interest compounds the difficulties faced by those in debt, Islam prohibits charging or paying interest. Furthermore, there is no risk sharing in the international banking system.  The bulk of loans were given to developing countries irrespective of how they were to be spent and interest rates have subsequently spiralled out of control.

Islamic Relief supports economic development for poor communities and works with them to provide healthcare, education, water and sanitation and promote sustainable livelihoods. However, long-lasting changes can only be made if the root causes of poverty are addressed, which includes undue indebtedness. As an aid agency based on Islamic humanitarian principles and an agency committed to relieving extreme poverty, we believe that it is our duty to advocate for change in order to assist countries crippled by international debt.

Our response
Tackling the problem of unfair and crippling debt is an issue of justice. In line with the Islamic imperative to work towards justice and Islamic Relief’s mandate to alleviate the suffering of poor communities, we support eradicating the debt of the world’s poorest countries.

Islamic Relief believes that unfair and crippling debt is trapping individuals, communities and countries in poverty. To overcome this we support four key advocacy demands:

1. Bankruptcy procedures are created for countries that are unable to repay their loans
2. All un-payable debt is cancelled by fair and transparent means, and the resources that are freed are monitored to ensure they are used for social welfare purposes
3. All ‘odious’ debt is cancelled
4. Trade justice; creditor countries and institutions should re-evaluate their past and present lending practices to avoid future undue indebtedness

In line with Islamic values Islamic Relief will also emphasise the following points in our advocacy strategy:

• Loans should be interest-free – this does not mean that they should not be profitable.
• Risks should be shared between both the lender and borrower. This helps to ensure a cautious lending strategy.
• Repayments should be eased if the debtor falls on hard times.
• Complete cancellation of debt should be considered in the event of a project failing for reasons beyond the control of the borrower. This is applied to our own projects too. Islamic Relief runs successful microcredit programmes in Asia and Eastern Europe that provide individuals and community organisations with interest-free loans and on the basis of equitable risk sharing.