 Now that we are moving towards the end of this course, we shall be discussing some of the topics which are relevant to Islamic modes of finance and they have general relevance to Islamic banking and finance and they are also important in a bigger Islamic economic context. Indexation of loans is one issue which has remained under conversation and debate for many, in fact for many decades. What do I mean by indexation of loan? Basically, whenever a loan is extended to someone that is normally for certain amount of time, a loan cannot be just a point. When I give you $10, you give me $10 back that is not a loan, that is a spot exchange. Loan always involves the one party giving some amount now and receiving it after one year, two years, three years, in some cases the number of years could be 15 or 20. During this time, the conditions change, social conditions change, market conditions change, economic reality changes and so on. So, many a times people find that if I have extended $1 in loan to someone for five years after that time period, after five years that $1 is worth a lot less than when the dollar was extended as a loan. A solution to this could be indexation of loan. Benchmarking the loan with something which is more stable in value and price. Normally people say that a loan can be benchmarked with gold. Some other people they say that a basket of commodities like gold, silver and some other such commodities, they can be put into a basket and index can be created around it and the loans should be indexed with reference to that basket. That is called indexation of loans. So, if today I extend $100 to someone, its value in the form of say gold is 1 gram. After one year when the other person is going to pay the loan back, he or she should not be paying me the amount of $100. Rather, whatever is the price of one gram of gold at that time that would be returned to me. The question arises is this Sharia compliant? First thing is, is indexation of loans accepted in Islam? The simple answer is, if this is only for the purpose of benchmarking, just to know what is the value of this loan in terms of this commodity or in terms of this index, this is okay. However, it is not okay if the party is required to pay in accordance with the value of the commodity or index. That is not permissible. If I am extending $100 as a loan to someone else for one year and this is equivalent to one gram of gold today, after one year one gram of gold is equal to $110, I cannot ask the borrower to pay me $110 because that would be considered as riba. So, because of this possibility of incidence of riba, it is not accepted in Islamic law to do indexation of loans. People might say that this is unfair, no it is not unfair because the concept of riba and its prohibition is very strict in Islam, anything, any practice which would contradict with it would have to be left. Now, if a lender is so worried about the deterioration in the value of money over a certain time period, they can always buy one gram of gold and extend that one gram of gold as a loan to the other party or a gram of gold. Of course, people would say that this is inconvenient. This would involve transaction cost on this end and this would cost transaction cost on the other end. Now, every arrangement has its own cost, so if extending $100 has its cost in terms of deterioration in the value of the money, then of course, look at this arrangement buying gold and then getting the gold back and of course, then selling it back in the market, that has its own cost as well. It may very well be the case that doing this activity would be more costly as compared to receiving $100 back with small decrease in its value. So, there are pros and cons of everything. The scholars, economists and Sharia scholars and others involved in Islamic banking and finance, they are unanimous on their view that if indexation of loans gives rise to riba, then indexation of loans is not acceptable.