Asma Hanif
18 Mar 2008Islamic finance is on the rise in what in many parts of the world can be
called an anti-Sharia age, and it has been proven compatible with
Western financial systems and legislation. But challenges have still to
be faced. (True, we are trying to stop this influx of religion into finance)
Although implementation of Sharia law often sparks deep controversy in
today’s world, (yes, Shariah law is a problem) it seems that finance is a subject where the
“Islamization process” spreads at great speed, but with least objection.
Islamic finance is estimated to manage nearly $500 billion. A recent
report by Moody’s, a New York-based company carrying out financial
research, suggests that the amount has annually risen by 15% over the
past three years and predicts an excellent prospective for the coming
years.
“It seems that Islamic finance evolves in a completely independent way
from Islam,” says Imane Karich, a Belgian economist of Muslim descent,
who promotes the implementation of Islamic banking in Belgium. “Money
has neither a smell nor a religion. Once an alternative is proven
profitable, people get interested. (according to whom? What statistics? Who did they interview?”) Even in France, where the climate is
very secular, doors are opening for Islamic finance.” (not according to the French people I have spoken to, who are they asking?)
Lord Edward George, former governor of the Bank of England, was a key
figure who helped implement Islamic banking in the United Kingdom. His
involvement started when he met an “absolutely charming young Muslim
couple” who had just bought their first house in the United Kingdom.
“They were very excited,” Lord George says. (Lord George is a Dhimmi, and everyone is excited when they buy their first home.)
But after talking to them for a while, he discovered the less pleasing
side of their story. “We have a terrible guilt complex,” he quotes them
as saying, “because we had to pay for the house with a Western mortgage,
which is incompatible with Sharia law.” (AH, I don’t believe that, if they hate the West, why live in Britain?”)
Lord George could not see why Muslims should not be able to abide by
their faith and the British financial and legal systems alike. “I could
not understand why, in the United Kingdom, where we have a very
sophisticated financial system, we couldn’t actually find a way in which
mortgages to buy houses could be made compatible with Sharia law and
with British regulations and legislation as well,” he says. (Because it is not a Muslim country-why accommodate one religion? WHY???)
Islamic finance is based on the sharing of profits and losses, and
prohibits any source of unjustified enrichment, one such method being
generating money from money. This justifies the ban on the collection
and payment of interest, Riba. (Interest is charged, it is just hidden, in the end, the lender makes money. Shariah Finance is bogus)
Mufti Taqi Usmani, an eminent Islamic scholar from Pakistan and pioneer
in Islamic banking, draws the line between the Islamic and the
conventional financial systems: “The conceptual difference actually lies
in the distinction between money and commodity,” says the Hanafi
scholar. “The conventional system does not differentiate between them.
Money is as tradable as any commodity. Therefore, in the conventional
system, you can buy money for money.
“Islam, on the other hand, treats money differently from commodity.
Money is not a commodity; it has no intrinsic utility. If you have
money, you cannot eat it, nor drink it, nor wear it. It has been created
by Allah as a medium of exchange.”
Furthermore, the Islamic Sharia law prohibits investment in non-ethical
industries such as alcohol and tobacco, which are considered taboo in
Islam, and prohibits taking unnecessary risks, such as gambling and
speculation. (, sex, birth control, Israel, research into things not “halal”)
“But this in no way means that Islam proscribes taking a risk by
investing,” says Mrs Karich. “Investment is encouraged provided the
person has studied the environment around this investment before
becoming engaged in it.”
The main challenge has been to develop Islamic alternatives to
conventional financial products. In the case of home financing, for
instance, the Islamic alternative is the cost-plus transaction, called
Murabaha. It consists of a contract between the bank and the client for
the sale of a commodity at a price that includes an agreed profit
margin. The bank purchases the good as requested by the client, and then
sells it to the client with a mark-up, which is paid within a fixed
period of time. The bank remains owner of the commodity until the loan
is repaid in full.
Critics have suggested that what is categorized as “Islamic banking” is
not always halal, accusing banks of finding “clever ways to meet
religious strictures.” But Mrs Karich does not agree.
“When Muslim economists search for Islamic alternatives,” she says,
“they look for products that already existed at the time when the Sharia
was implemented, i.e. during the lifetime of the Prophet Muhammad, such
as Murabaha, for instance. Although in the end the client pays a price
that includes a profit margin, this is business. Islam differentiates
between the means and the goals.”
Historical overview
Islamic finance started being promoted by Malaysian and Indian Muslim
scholars at the beginning of the last century, at the same time as the
colonized countries’ struggle for independence. “While, under
colonization, Islam was adapted to economics,” Mrs Karich says, “but
Muslim economists wanted economics to be adapted to Islam.” (The Muslim Brotherhood also worked on this-check under white papers on our masthead)
The first Islamic bank was founded in Egypt in 1963. Although its
activities were free of interest, it was an undercover project that made
no reference to Islam, as the regime in power at the time was hostile to
any form of Islamization. (Not developed by the Koran, )
The real blossoming started in the 1970s, as a consequence of both the
oil industry boom in the Gulf States, which sparked the appearing of
liquidity, and the revitalization of a religious consciousness in the
Muslim world.
“The Dubai Islamic Bank, founded in 1975, was a private initiative,” Mrs
Karich insists. “It was founded by Arab businessmen who were deeply
religious. Initially, governments did not welcome these moves, because
Islamic finance contradicts their investment in the World Bank, where
they collect high interest rates.”
In the 1980s, the first Islamic banks united to form the Islamic
Development Bank (IDB), seen as the “world bank” of the Muslim world.
Covering 56 Muslim countries, the IDB invests in infrastructure and
development projects in the Muslim world, and contributes to developing
Muslim economic thought.
Islam’s political weakness was also a factor that enhanced the system.
The 9/11 attacks resulted in rich Arabs withdrawing their money from US
accounts for fear of having their accounts frozen in the war on terror.
“This created a need for alternatives either in the Middle East or in
Europe,” explains Mrs Karich. “While the system was already functioning
in the Middle East at that time, its development was boosted in Europe
in order to meet Muslim investors’ requirements.”
And today’s record oil prices are another factor widening the scope for
the Islamic banking industry.
Implementation of Islamic finance in the West
On the European scale, the United Kingdom is the leading centre for
Islamic banking, which was successfully integrated into the country’s
legislation after a long debate both within the Muslim community itself,
and between Muslims and the UK authorities.
“The foundation of the Islamic Bank of Britain in 2004 was a turning
point for Islamic finance in the West,” says Imane Karich, who covered
the event for the French national daily Le Monde. “It made the West
aware of the opportunities Islamic banking can offer.”
It was Lord George’s experience with the young Muslim couple that
mobilized him to act. Having discovered that the Sharia product enabling
people to buy houses had first to be standardized, he encouraged Muslims
to “produce a more standardized definition of a Sharia mortgage, which
could then be made compatible with UK legislation and regulation.”
Then he promoted the setting up of a committee under the leadership of
Andrew Buxton, former chairman of Barclays Bank, and including both
Sharia scholars and British experts, to produce a report identifying the
obstacles facing Sharia finance in the United Kingdom.
“In the case of housing finance,” Lord George explains, “one of the
problems was that the stamp duty on the purchase of a house was paid
twice: first by the financier who purchases the house; then when the
ultimate buyer had acquired 100% of the equity, it was payable again.
Given this report, the then chancellor of the exchequer, Gordon Brown,
agreed to accommodate the legislation, and so stamp duty would only be
paid once.”
But standardizing the Islamic finance system still remains a challenge
to Muslims. “Islamic banks need to harmonize their accounting systems,”
Mrs Karich says. “We need to create a platform on which the banks can
communicate with each other.”
Such an initiative has already been undertaken by the Bahrain-based
Accounting and Auditing Organization for Islamic Financial Institution,
which creates accounting standards that are accepted by international
institutions and which Islamic banks have started to adopt.
In the United Kingdom, Lord George says, from the UK perspective, the
move meant “holding a hand out to the Islamic community and saying, if
you can help us by standardizing, to a great extent, the Sharia
products, then we will be able to accommodate Islamic products within
our legal and regulatory system.”
And Islamic finance is not limited to Muslims. “It is in the interests
of the community as a whole, not just the Islamic community,” Lord
George says, “because some of these products are attractive to
non-Muslims as well.”
From the Muslims’ side, when the opportunity is there, they prefer to
comply with Sharia law, so that they have no guilty conscience, as the
young couple had when Lord George first met them.
(From: Asma Hanif’s article in RELIGIOSCOPE)
