Indexation mean in Islamic Law
S J Tubrazy
The Holy Prophet has said that no damage should be done nor any should be borne. Inflation is a damage to the purchasing power of money. Indexation is a redress against this damage. In order to answer this question it has to examine the applicability of the Islamic law of indemnity in context of indexation. The law provides that a person responsible for inflicting a damage should indemnify the sufferer. The question will arise as to who of a multitude of factors responsible for inflation will be made to indemnify the sufferer. In case trade unions are responsible for a cost-push inflation how a bank can be justified in making the entrepreneur indemnify the fall in value of its loan ‘money? Will it not be a double punishment to the entrepreneur through paying higher wages to the labour and higher cost of loan to the bank? Why a borrower should be made to pay for a fall in value of money that occurs due to demand-pull inflation caused by receivers of foreign remittances or the recipients of high salaries and those charging fabulous profits. In some countries indexation is limited to Government bonds. It means the Government indemnifies only the bond-holders. The question would arise as to on whose expense bond-holders are being indemnified. Public treasury is mostly financed by public taxes. In other words it is the entire society which is indemnifying the bond-holder only, although everybody in the society is equally the sufferer.