Monday, 29 October 2012

"Islamic finance's ethical base...", now hold it right there!

Letter to South China Morning Post:
Haslinda Amin retails the usual feel-good features of Sharia finance: prohibition of usury, "ethical" bonds that don’t invest in gambling and alcohol, and so on.  ("Islamic finance's ethical base leaves customers less exposed to needless risk", 29 October).
That's not the whole story.  Many Islamic banks promote a ban on usury as being "interest-free".  But no bank can work for free, so deals are structured with sale and buyback of artificial "assets" with profit margins at levels equivalent to prevailing interest rates.  They are an elaborate ploy of form over substance, and inefficient because of that structure: Sharia-compliant mortgages have fees up to 20% higher than standard.
The preeminent Muslim scholar of Sharia Finance, Timur Kuran, notes that all Islamic banks actually give and take interest routinely, using “ruses” to make interest appear as a return to risk.  He says the significance of Sharia banking lies in its symbolism and in the boost it gives to the global movement of Islamism.
Sharia compliant bonds (or sukuk) ban not only alcohol and gambling: they also ban investments in companies that benefit non-Islamic religions; that promote equal rights for women and gays; investments in any western books, films, media, and in any company linked to Israel.
And no, Ms Amin, we do not -- at least I do not -- make the mistake of considering this method of banking to be "archaic".  For I know that Sharia Finance was first promoted by the Pakistani Islamist Sayyid Al-Mawdudi, founder of the radical Jamaat-e-Islami, in the 1960s. Until that time, Muslims had made do perfectly well with standard finance.  Thus Sharia finance is a modern construct specifically to conjoin economics with religion.  It is promoted today by Islamists like Al-Qaradawi as being “Jihad with money” [fn1].  According to Professor Kumar again, "Mawdudi’s aim … was to reassert Islam’s importance … [to] defy the common separation between economics and religion…, to invoke Islamic authority.... [fn2].
Finally, as for Sharia finance's alleged success, I would direct Ms Amin to the Wall St Journal article "Sharia-compliant banking products a 'huge flop' in the UK". The reason for that is that it is innately inefficient and some people, at least, have twigged to this.
I don't for one minute suggest that Ms Amin has Islamist tendencies in her incomplete and glowing overview of Sharia finance.  Just that she hasn't read fully around the subject, its history and how modern Islamists view it.
Yours, etc,
Peter F. Hong Kong

"I like to call it Jihad with money, because God has ordered us to fight enemies with our lives and our money." [towards the end of the article]

[fn2] Timur Kuran, “Islam and Mammon; the economic predicaments of Islamism”.  Princeton University Press, p. 52.