Sharia Finance

By Jamie Glazov | 4/15/2008


Frontpage Interview’s guest today is Alex Alexiev, vice president for research at the Center for Security Policy.

FP: Alex Alexiev, welcome to Frontpage Interview.

Alexiev: Thank you, Jamie. It’s good to visit with you again.

FP: I would like to discuss Sharia Finance with you today. Tell us exactly what it is and how Wilders’s recent film touches on it.

Alexiev: Well, the Wilders’s film Fitna touches on it only en passant by mentioning a Halal-Fund Investments for Muslims, but Shariah Finance as a phenomenon, indeed an industry, is already well-established and growing rapidly.

The first thing to note about Shariah-compliant finance (SCF), which is a derivative of Islamic economics, is that both are essentially invented, bogus concepts. Neither one had been practiced or even mentioned much in Muslim history before the 1940s, when the radical Pakistani Islamist Abul Ala Mawdudi made them up. In doing that, his objective was entirely political and had very little to do with either economics or finance, subjects about which he knew nothing. His objective, very simply, was to convince the Muslims that Islam was a complete system of guidance in life in all things temporal or sacral and that the West had nothing useful to offer the Muslims. This was an essential part of his agenda for Islamization, which he pursued vigorously for decades. The fact that the first Islamic bank took thirty years to materialize after that is just another proof of the fabricated nature of the concept.

In theory, SCF is supposed to make it possible for Muslims to conduct financial transactions while observing shariah prohibitions against lending at interest (riba), uncertainty (gharar) and forbidden products and activities such as pork, alcohol, gambling, entertainment etc. In reality, while there are practices in conventional capitalist finance that do not involve interest (venture capital or investment in stocks, for instance) or uncertainty (government bonds), it is simply impossible to have finance and banking that avoid both. So in order to be able to justify peddling conventional products in shariah garb, SCF practitioners and their accomplices, the shariah experts that must bless these transactions, engage in all kinds of more or less transparent legal fictions, ruses, gimmicks and deceptive techniques. Ironically, in doing that, they engage in the age old Islamic practice of legal fictions, known as hiyal, which was originally designed to make it possible to do business transactions while circumventing shariah injunctions, that didn’t make much sense even in the early days of Islam.

Let me give you just a couple of examples. The most common SCF transaction is called murabaha which is the equivalent of a conventional bank loan to finance a purchase. What makes murabaha ostensibly Islamic is that the bank supposedly purchases the good and takes a degree of risk on while holding it prior to selling it to the customer on repayment terms, including a mark-up (interest) for the service. In practice, both operations happen simultaneously, the client is also asked to purchase insurance and there is zero risk for the bank. In fact, the bank also charges in advance penalties for late payment that are refunded if the loan is paid on time. In everything but name, this is a standard interest loan except that it is invariably more expensive. A similar thing happens with home mortgages where the bank purchases the home and finances it by requiring ‘rental’ payments in a transparent scheme called ‘diminishing musharaka.’

After engaging in semantic acrobatics to deny that what’s involved is interest-based mortgage lending, the bank then turns around and tells its clients to take the interest deduction on their tax return, and the IRS authorities, bless their compassionate hearts, fully oblige them.

FP: This brings us to Wall Street.

Alexiev: Yes. The involvement of Western financial institutions in SCF is both essential for the progress it has made to date and a major reason why it has become a major threat to our capital markets and the nation’s security. It is essential, because shariah finance has not done well among the Muslims. There is, of course, a small captive audience of devout believers that would practice it even if they were losing money, but the vast majority looks askance at SCF. Pakistan, for instance, imposed shariah finance from the top down in 1980. Yet today more than a quarter century later only 3.5% of all assets in the country are managed by SCF and this is pretty much the case in most Muslim countries, some of the oil-rich Gulf sheikhdoms excepted. Western involvement is key because most Muslims, rich or poor, do not trust their own banks and need the West to legitimate Islamic finance.

And these Western banks jumped into the SCF fray for one reason only and that is the lure of many tens of billions in transaction fees from an industry that currently has near a $1 trillion under management. This is understandable, but what is neither understandable nor excusable is their willingness to close their eyes and not ask any questions about the nature of SCF, let alone do real due diligence on their Middle East partners or the dozens of hard line Islamists they hire as shariah advisors. Unfortunately for Wall Street, SCF is a house of cards no sturdier than the sub-prime mortgage fantasy world and it will come to the same end, once it becomes clear to the investing public to what extent these Western institutions have exposed themselves to huge liabilities ranging from willful non-disclosure and fraudulent misrepresentation to material support for terrorism. My colleague and veteran litigator David Yerushalmi has written a devastating legal brief exposing the huge liabilities facing these willing water-carriers of the Islamists that will shock the investing public when published.

FP: Is Sharia Finance distinguishable from Sharia itself?


Alexiev: Shariah, its promoters tell us, is a God-given Islamic law that is immutable, indivisible and mandatory for Muslims to follow in all aspects of life. It is definitely not a smorgasbord from which you can pick and choose what you like, when you like it. So to talk about Shariah finance as something apart from shariah law is simply dishonest.


Perhaps a few words about what shariah law really is would help here, because the sad fact is that 99% of non-Muslims, as well as most Muslims have no clue about it. Far from being ‘God’s sacred law,’ shariah is mostly a post-Quranic, man-made doctrine that was not completed in its present form until two centuries after Muhammad. It consists of two basic parts known as ibadat and mu’amalat. The first part deals with a Muslim’s relationship to God and is concerned mostly with devotional and ritualistic matters in practicing the faith. It is largely unobjectionable, except, for instance, the parts that address the Muslim tithe zakat and justify funding violent jihad by means of zakat. Most Muslims’ knowledge of shariah is limited to just that devotional part of the shariah.


Mu’amalat, however, is an entirely different matter. It regulates the believer’s do’s and dont’s on everything else and it is frankly reactionary and obscurantist to the core and implementing it means implementing medieval barbarism. It mandates as a religious obligation, conducting violent jihad against non-Muslims to establish Islam’s rule (caliphate) worldwide, the killing of adulterers, homosexuals and apostates from Islam and severe discrimination against women and non-Muslims, to list just a few of shariah’s tenets that are completely at odds with everything this country and Western civilization stand for. It is also a lot more radical than the Quran itself, which is why the Islamists have made it their core ideology. For instance, there is nothing in the Quran about killing apostates or adulterers and the caliphate is not mentioned at all. Yet, you’ll never see any of this discussed or disclosed by any institution engaged in SCF or the numerous shariah finance acolytes active in the field.


This coming weekend, for instance, Harvard University is holding a big international conference on shariah finance organized by a center for shariah studies at the law school funded by Saudi money some years back. If you went there, Jamie, you’ll sit through dozens of presentations by well-paid shariah apologists on all imaginable SCF topics, but I’ll bet you $100 to $1 that not a single one will touch on the murderous core teachings of this troglodyte doctrine. This is akin to holding a conference on Nazi ideology and limiting the discussion to their successful programs to eliminate unemployment and build autobahns and kindergartens, without once mentioning that Nazism is first and foremost about genocide.


This is what makes this whole industry reeking of dishonesty or worse. I say worse, because if you start studying it as I have, you get this uncomfortable feeling that you are dealing with something bordering on a conspiracy to prevent the public from really seeing what’s going on. One of the latest trends in SCF, for example, is to stop using the term shariah altogether and replace it with ‘ethical.’ And so now you have various outfits springing up which tell you that they are in the business of ethical investment and you need to look closely to figure out that it is shariah finance that they peddle after all. Even that venerable flagship of free enterprise, the Wall Street Journal, recently co-sponsored a conference on “Islamic Ethical Investment.” Bob Bartley must be turning in his grave.

FP: Are Western banks that promote Sharia Finance today aware of what they are promoting? If so, why do they do what they do? If not, how can they be so ignorant?

Alexiev: If they’re not, then it is surely a case of major cognitive dissonance. My feeling is, and I hope I’m wrong about this, that the prospect of huge pay-offs has blinded them not only to the potential risks and pitfalls for their investors, but also to their obligations to truthfully inform them of facts material to those investments.


FP: Give us a real-life example of this phenomenon.

Alexiev: Well, there are many of them, but since space is limited let me mention just one. As I mentioned previously and everybody that has even a passing acquaintance with shariah knows well, since the 10th century and the ‘closing of the gates of ijtihad’ shariah law is considered cast in concrete and for a Muslim to even question it, let alone try to reform it, is tantamount to apostasy. Yet, here comes Union Bank Swiss (UBS), one of the largest banks in the world peddling shariah finance, and tells us on its website that “The sharia is therefore an evolving body and permits Muslims to adapt the practice of the religion to the time and place they live.” This statement, which presents shariah as a flexible legal doctrine capable of adaptation and modernization, is not just plain wrong; it appears to be deliberate disinformation on the part of the bank about what shariah represents.

FP: Our government can act to protect our markets, no? Tell us some things that can be done to reverse the process of Sharia Finance.

Alexiev: There is much the government can do if it wishes. We already have strict regulations – further tightened after 9/11 – that obligate financial institutions to know who their employees and customers are. Yet, you have well-known cases where American institutions, including Dow Jones, employ shariah advisors that openly advocate suicide bombing and jihad against America. Isn’t this a material fact that must be disclosed to investors and shouldn’t the SEC and Treasury force them to do that? To date, they have done nothing and it is high time for the American public to start asking some tough questions of the federal authorities and the banks both. I’m afraid that not much will happen until then, unless, of course, the ambulance chasers get involved in the meantime.

FP: How does shariah finance threaten us in practice?

Alexiev: This is indeed the most important question because it is one thing if SCF was just a garden variety ploy to fleece the investing public, but something very different if it also threatened our national security. And it most definitely does the latter on at least two separate levels.


First, its main political objective is to legitimize shariah in the West in order to further incapsulate Muslim communities from mainstream society and create Islamist enclaves controlled by shariah in the middle of Western society. It has already made major inroads in that direction. You would have noticed that the Archbishop of Canterbury recently opined that introducing shariah in Britain was ‘unavoidable’ because they already recognized the legality of shariah finance. Prime Minister Gordon Brown, in his turn, has proclaimed far and wide that SCF is a wonderful thing for the London financial markets. How would he be able to claim that, while shariah is good for London, it is not good for the British Muslim communities that want to introduce it as a parallel judicial system?


There is yet another important SCF aspect that few understand. If you are a devout Muslim, even an Islamist, living in a Western country in which there are no Islamic banks, you are allowed to use conventional infidel institutions under the shariah doctrine of ‘extreme necessity.’ However, once SCF institutions do exist, you are religiously obligated to patronize them exclusively. Thus, by allowing the spread of SCF in the West, we are, wittingly or not, pushing the Muslims in the hands of the Islamists.


Then there is the direct financial support SCF provides to extremism and terrorism. To start with, SCF employs dozens of radical Islamists as shariah advisors and pays them royally. Some of them sit on as many as two dozen of these boards and make millions of dollars, at least some of which is then donated to extremist causes. Then there is the mater of zakat, the 2.5% or more of income that every Muslim must donate to charity as religious obligation each year. That includes all SCF institutions and the amounts thus derived run into many billions. We don’t know how this is collected or distributed, but last year prominent Islamists like the kingpin behind shariah finance, the Saudi billionaire Saleh Kamel and the jihadist guru, Yousuf al-Qaradawi got behind a scheme to collect and distribute zakat through a central international organization, which has already been approved by OIC. Think of the implications! An organization run by died-in-the-wool enemies of our civilization legitimately collecting billions of dollars from our banks to distribute as they see fit. It boggles the mind.


Then there is a pernicious little scheme called ‘purification.’ Despite their vigorous denouncement of interest, Islamic finance, in fact, allows investment in interest-practicing institutions, usually limiting it to 30% of revenue. But then the investor’s return from such ill-gotten gains must be purified, that is to say, deducted and given to charity. And the amount to be purified is estimated, deducted and donated to charity by the shariah advisors. All of this happens before disbursement to the investor, who has no say in the matter whatsoever. Where this money goes is anybody’s guess since, to my knowledge, no SCF bank has disclosed any information relevant to purification. But it doesn’t take a rocket scientist to figure out that a shariah board like the one running the Dow Jones Islamic Index (IMANX), chaired by the prominent jihadist ideologue Mufti Taqi Usmani, is unlikely to contribute to the Boys Club.


FP: Alex Alexiev, thank you for joining Frontpage Interview.

Alexiev: Thank you, Jamie, for this opportunity to inform your readers of this spreading malignancy.

Jamie Glazov is Frontpage Magazine’s managing editor. He holds a Ph.D. in History with a specialty in U.S. and Canadian foreign policy. He edited and wrote the introduction to David Horowitz’s Left Illusions. He is also the co-editor (with David Horowitz) of The Hate America Left and the author of Canadian Policy Toward Khrushchev’s Soviet Union (McGill-Queens University Press, 2002) and 15 Tips on How to be a Good Leftist. To see his previous symposiums, interviews and articles Click Here. Email him at [email protected].


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