Saturday, 25 January 2014

Islamic finance: be gone from Hong Kong

Yet another spruiker for Islamic finance in Hong Kong.  I've had my go at this in a couple of recent letters which were published in the South China Morning Post (e.g. and another)
Here is another counter by me in submission of Letter to the Editor, I've just sent off:
Davide Barzilai urges the Legislative Council to approve the issue of Hong Kong’s first Sharia-compliant bond or sukuk (“HK should not missout on growing Islamic finance sector”, 22 January).
 I urge LegCo not to approve the issue of Sharia-compliant bonds.
 There are many reasons it should not. Here are two:
 First: Sharia-compliant bonds are costly and inefficient.  Sukuk cannot pay a standard coupon rate of interest since interest is haram or forbidden in Islam. They therefore rely on the sale and repurchase of notional assets, which is inefficient and adds to the costs of their issuance. It is this cost that Hong Kong taxpayers – that is, thee and me – are being asked to pay.
 Mahmoud El-Gamal, professor of Islamic Economics at Rice University has the rare courage to call out these synthetic structures for what they are: “ruses”.  Others might be harsher and call them hypocritical.  For they shadow the interest rates of conventional fixed-income returns like Libor-plus, while claiming not to charge interest.
 Because of the cost of structuring these “ruses”, professor El-Gamal says that  Muslim customers are “paying more for less”.
 Yet, we Hong Kong taxpayers are being asked to subsidise this inefficiency, so that buyers of sukuk do not pay more for less.
 Second, is the bogus claim that sukuk are “ethical”, principally because they allegedly do not charge interest. But as noted above, they create structures which mimic conventional interest rates, an innately costly and hypocritical process.  They also claim to be ethical as they do not invest in industries involving pork, alcohol or gambling.  But why is that “ethical”?  Hong Kong without pork, alcohol or gambling: can you imagine it?  We would go down the gurgler.  As would China.  Or are we all here and in our mother country to be deemed “unethical” because we partake, happily and often, in all of these haram activities?  The “ethical” claim of Sharia-compliant finance is simply nonsense.
 I urge LegCo members to acquaint themselves with Sharia-compliant finance and see it for the ruse it is, and for the bogus ethics it claims.  We don’t want our money to be used to support a religiously-inspired con-trick.