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Posted: 12-Nov-2007
One of the latest additions to such urban legends as the Loch Ness monster, UFO’s and environmentally friendly land reclamation is what is now known as Islamic Finance. A new scam that started in the second half of the twentieth century and only really took off in the last three decades. One could wonder why the Islamic world needed 1,400 years to invent such a system. One may also wonder why we never hear of such terms as Christian, Jewish or Hindu Finance?
How it works?
In a process known as Murabaha a person decides to purchase an asset (car, home) via an Islamic bank which buys it in its own name and immediately “resells” it for a higher amount which ultimately works out to be equal or higher than conventional interest[1]. In the meantime the bank retains ownership of the asset until the client is able to pay back the entire amount plus the finance charges. Basically, Islamic banks make more money and take much less risk, the burden of which rests solely on the Shariah compliant client.
How it started?
The development of this fast growing industry that preys on the religious beliefs of 1.2 billion people is that a few terms were literally translated from English into fancy sounding Arabic words to appeal to the pious. Words such as Lease became Ijara, Bonds turned into Sukuk, Joint Venture changed to Musharaka and Insurance morphed into Takaful[2]. Folks, the truth is, all the above words are literal translations from English to Arabic and have nothing to do with Islam. For non Arabic speakers it is similar to saying flat in British English and apartment in American English which is very acceptable. What is not acceptable however is when one is expected to pay much more to buy the very same flat should the seller decide to call it an apartment in the contract. Also, for those who believe in the sham of Islamic banking, turning a regular bank into an Islamic one by changing its name or logo does not make it an “Islamic bank”. It is clearly set in Islamic principles that if money that was used to start a business was itself tainted then everything that was built upon it is so and cannot be laundered or white washed no matter how many fatwas are collected. There are various reasons behind the emergence of this belief-finance system. In Malaysia it was seen as a way to grab a share from the more developed hubs of Hong Kong and Singapore; in the Gulf, Western banks wanted to offset any migration of long established customers to fledgling banks that have window-dressed their names as well as capture a new slice of the $1.5 Trillion estimated wealth in the region[3]
Is it regulated?
Once again, as in the case of the Arab League, GCC Customs Union and the Peace in the Middle East, it was decided to outsource the establishment of what make up so called Shariah compliant regulations to the Western world[4]. Even so, the current lack of standardization of Islamic Finance came under attack in a recent McKinsey report that called it “an industry that is little more than a collection of national strongholds."[5] For an industry that claims it has $500 Billion dollars under management[6] having "no common approach on regulatory frameworks” as a KPMG report found coupled with a “lack of transparency in operations" doesn’t bode well for its clients[7]. Did you ever wonder why in the Kingdom of Saudi Arabia which is the cradle of Islam there isn’t one openly Islamic bank? And yet the UAE with 20% of KSA’s population has five such banks, three of them white washed. In KSA when a client goes to open a deposit account banks openly ask her if she wants a “riba account” which means an account that pays interest, the majority of clients decline as it is seen as “morally unacceptable[8]” which leaves the banks to rack in the profits. With deposits approaching $150 Billion in 2006 and little interest charges to pay the clients no wonder they are amongst the most profitable banks in the world.[9]
A professor from the Wharton School in the US argued that “it serves little purpose to extend financing with interest charges using a set of tricks that disguise them as something else.[10]” In today’s world, more and more people are looking for salvation, even if it was a trick; in this case salvation got an Islamic disguise.
[1] http://search.ft.com/ftArticle?id=070118009119
[2] http://en.wikipedia.org/wiki/Islamic_banking
[3] http://www.businessweek.com/magazine/content/05_32/b3946141_mz035.htm
[4] http://search.ft.com/ftArticle?id=070703012087
[5] http://www.zawya.com/story.cfm/sidDFT107143CF00A0BB
[6] http://archive.gulfnews.com/articles/07/08/10/10145416.html
[7] http://search.ft.com/ftArticle?id=070523000690
[8] http://web.nps.navy.mil/~relooney/Arabia_MEED35.htm
yes, i do agree what you said. [Report Abuse | Email to a Friend | Reply to this Comment]
Salam
I wrote a book in 2004 in which I lambasted the Malaysian Bank Islam for the fake theories about Islamic banking and finance. The issue is the abandonment of the real Islamic way of supporting businesses and communities with finance, that is the Bait-ul-Maal.
Revive this project and voila a solution is found to the problems that affects the Muslims. It must be accepted too that too many Muslims are stuck somewhere and cannot even get a line of credit to finance their projects.
Islamic Banks - so called they are - are really afraid to venture outside the 'guarantee' terms for even small loans. They are defeated by conventional commercial banks in that matter.
Thanks for your time
Yours Truly [Report Abuse | Email to a Friend | Reply to this Comment]
There was a comment once from an Egyptian Millionaire on Jazeera TV the days of Maher Abdallah on Sharia &Life program, who had tried all different projects, means and styles of implementing Islamic finance and concluded that if Abubakr Alsiddig the 2nd Khalifah in Islam was present today and wanted to practice Islamic finance under the current systems and regimes ruling the Muslim world he would fail!
Yes although there are very few examples striving to implement Islamic finance mainly by adhering to Islamic contractual guidelines and Islamic economic concepts like commodities allowed, risk sharing, no harm and no harming, and this is commended of them as long as they are sincere.
However, the real problem lies in the fact that these small models in the end fall within the bigger system both financially by the world financial rules, systems and institutions, and politically by the governments and the ruling capitalist system. It is this bigger system that is based on Interest (making money from money), driven by greed (benefit of the capitalist), and backed up by the dollar (strength of the US) that will not allow even Abubakr if present to practice pure Islamic finance.
Therefore, the only real solution (while we strive along now) is to replace this system with the Islamic system of governance which encompasses a finance system based on Gold first as a true reserve, no interest in any form or shape, no harm inflicted on the citizen, real commodity trading, and complete adherence to the Islamic contractual principles, and last but not least the system will protect this model and help it prosper. [Report Abuse | Email to a Friend | Reply to this Comment]
The way banks abuse the word of Islamic finance is the actual Myth, its not Islamic finance itself but he APPLICATION of it.
Islam does not allow Muslims to buy money for money and charge higher for it, its unfair and unjust. But when there is a tangible product in between then its allowed. This is a law and you cant just use the professor of Whartons comment to cancel it because it does not make sense!! Why do we wash before praying, we dont have to? why is prayer not accepted without the was Wodo'o? ITS ISLAMIC LAW AND RULE.
dont you think that going into partnerships and sharing profits is part of working Islamic capital and helping people with innovative ideas to work.
Actually at a certain point the Japanese government applied Islamic finance through reducing interest to zero at some point which boosted its economy and allowed its companies to prosper.
Why don't we look at the Myth of profits from interests... How many companies went into bankruptcy because of bank loans throughout the world specially in the United states, companies that may have had potential, if they worked on the profit sharing with banks.
again the problem is in the application not the idea itself. I believe that the abuse of the word ISLAMIC and charging more profit than a normal bank is unjustified. Islamic banks also don't have large sums of money when they want to finance big projects requiring millions of dollars and they have to go to large Swiss or American banks for extra cash which is also not right. I think one solution is to have a union of islamic banks worldwide with a properly identified structure of finance and services, such Union can have access to projects and customers everywhere, have enough liquidity and establish economies of scale hence lower costs, therefore charge lower for its finances.
One final comment about Islamic banks not operating outside the region is that the concentration of Muslims is in the middle east and the far east, so why do they need to go for customers outside your area. The western banks operate largely with capital from the Middle east tycoons, so it does not make sense to go away from them. [Report Abuse | Email to a Friend | Reply to this Comment]
Islamic Banking is just a different way of banking. For some its the only way of banking. If you are sure that conventional or "normal" banking is 100% "haram" and that these new Islamic Banking groups are 1% "halal" then why not? [Report Abuse | Email to a Friend | Reply to this Comment]
Being a muslim, i have seen most islamic banks and banks like HSBC who promote islamic finance have clauses built into the products which are not based on islamic principals. They adverstise early repayment, etc but there are 2-5% charges, 200 dhms charges for various things like getting a letter, giving back the blank cheques, etc.
Also i just saw Emirates islamic bank advertise on one page that its profits have jumped 253% and on another page it says the profit rates for deposits have been reduced by 20%.
Aren't they supposed to distribute profits after cost back to the depositors.
I think its a scam to dupe people taking advantage of their religious beliefs and wholely supported by governments.... [Report Abuse | Email to a Friend | Reply to this Comment]
First, I don't agree that an interest-bearing loan can be made halal by dressing it up or executing the loan through a lease or a sale contract. Put bluntly, trading companies are in the business of metal trading, car dealerships are in the business of selling cars, real estate developers are in the business of selling property and banks are in the business of borrowing and lending money at a margin (halal butchery is not a relevant example). Respected judges (legal systems), regardless of their affiliation (eg Islamic Shariah or English law) always give significant weight to the intention (niyyah) behind an event to determine its legality (eg murder vs manslaughter, marrying a woman after divorcing her 3 times may only happen if the woman has really married another man, etc). Indeed, Judgement Day will reveal true intentions, and the weak argument that lending through tawarruq is permissible is unlikely to fool anyone (and definitely not The One).
In the same manner that most (but I admit not all) of "Islamic" banking is trying to fool people, Banking itself has established itself through deception.
Banking (borrowing and lending with interest) was once (say 100+ years ago) considered a dishonourable activity but today, bankers and banking regulators are (or at least were before the recent banking crisis) considered leading members of society. Banking is now the industry of choice for our brightest youth studying in universities. Nobility once shunned banking (preferring philanthropy, academia and government), but now view banking to be a respectable profession (and of course highly paid).
For example, this latest banking crisis exposes some of the myths of banking: "safe as a bank", "piggy bank"; in reality, deposits made with banks are on-balance sheet loans and not "deposits". One thing that surprised me is that people are not suspicious of an industry which is the most highly geared, benefits from state protection and whose employees are obviously the most over-paid.
From the viewpoint that all banking (both "Islamic" and "conventional") based on the fractional-reserve model practised today is both prohibited and "mythical" (along the lines of the article), then, in order to evaluate and construct solutions and alternatives, it is crucial to first consider and establish the reasons why all God-fearing societies have prohibited interest in all its forms (and this prohibition was re-confirmed by Islam) so that these can be avoided by the alternative (a tawarruq does not avoid the problems of interest).
Before sharing more of my view, recommended reading on banking is "The problem with interest" by Tarek El-Diwany (see also www.islamic-finance.com) [Report Abuse | Email to a Friend | Reply to this Comment]
Dear Sultan,
I find your articles a great eye opener to probably most readers or at least talking out aloud on behalf of many. Probably we are living in an era of ultimate greed with many clear signs all around us. A small correction, Al Rajehi Bank is one of the first "Islamic" banks in Saudi and the region.
A small suggestion, while I find your article shed an excellent background/analysis on the subject but they fall short of recommended actions.
Is the current situation a step in the right direction?
You trigger, I believe, a GREAT idea that can effect positively millions of Muslim and for generation to come ...
How to go about supporting "Islamic Banking"?
How to save the 100s of millions of deposits for the 1.4 billion Muslims around the world and turn it to solve "Islamicly" - like true takaful - our massive problems (unemployment, poverty, lack of education, R&D, etc.) without losing the depositors' capital under many "artificial schemes", etc.
How can we take this further? [Report Abuse | Email to a Friend | Reply to this Comment]
As a non-muslim I have found the article and comments interesting and has added some understanding about Islamic Financing.
But I wish to make a much broader and basic point, one that is applicable to all humanity, not just Islam. What is the view of all the learned commentators on the unacceptable way Dubai treat the foreign workforce 'employed' to build the megatructures of Dubai? While they argue over the rights and wrongs of Islamic banking, the failure of practicing Muslims to speak up for the workers rights is indeed a reflection of the distorted version of Islam that these people practice.
Or is it the case that Islam condones the mistreatment of kafirs (non-Muslims)? [Report Abuse | Email to a Friend | Reply to this Comment]
Islamic Finance does NOT rest on the principles you have mentioned in your commentary.
It is simply a set of rules that regulate the relationship between 2 transacting parties and the market at large. Riba does NOT only refer to INTEREST, it also includes a ban on Monopolies and Market abuse and manipulation.
The ban on INTEREST is one aspect of Riba. It is not, like many believe a ban on earning a return, but a ban on receiving a return on cash as a contractual relationship. If one person lends cash to another for 3 months and demands 5% interest on this money, this is RIBA and is illegal. However if one buys a car for the same value and sells it deferred to another where the sale value includes a 5% increase to be paid after 3 months this is a Sale and is acceptable. What's the difference? Since they both have the same economic effect, why is the latter legal and the former illegal? The answer is simpler than people think, just read carefully VERSE 275 of Surat AL-BAQARA. After a few readings, it will hopefully become very clear.
I am not trying to tease the readers but it's my belief that when one reaches his own conclusions, he will be more convinced.
There are many contractual rules that are different in Islamic Contract Law than conventional law. But there are also many similarities, and this is because much of Islamic Contract Law was well advanced compared to Western legal sytems and many concepts were borrowed, and today it began to seem to some that certain western concepts are truly original. Much of the English Law and the Napoleonic Code were based on Islamic Contract Law. [Report Abuse | Email to a Friend | Reply to this Comment]
I view the debate over Islamic Finance from a simple perspective: What is the intention? My limited understanding is that the roots of Islamic finance rest on three principles. The first is the sharing of risk between borrower and lender. The second is the prohibition against Riba. The third is not investing in underlying assets that do not meet an ethical test. I would be grateful if any more learned readers could advise me if they believe that I am mistaken, or that I have left any principles out.
I will make short comments about the application of these three principles in the practice of modern Islamic finance. These are by their nature limited and do not by any means represent a comprehensive discussion of these complex matters.
With respect to the sharing of risk, I believe that the majority of Islamic structures do not fundamentally allocate risk differently than conventional structures. I have personal experience to base this on in the form of car and real estate loans that I have taken under both systems, and more limited professional experience. While I have seen examples of good risk sharing structures that have met my own personal and subjective criteria, for the most part I have been disappointed with the application of this principle in the modern Islamic finace practice.
To give a practical example, a mortgage to purchase an apartment in the UAE from an Islamic institution has similar default and repossession terms, on a practical level, as conventional loans. The only real differences I have been able to find in my own review have been related to catastrophic events befalling the borrower and late payment penalties. While these substantive differences do exist, my personal opinion is that they are of only marginal substantive impact on the allocation of risk.
On the second principle, Riba, the issue is more complicated because I believe there is a disagreement on the definiton of Riba. I have seen some define Riba as interest, and others define it as usury. If Riba is defined as interest in the sense of recognition of the time value of money or the opportunity cost of money, then its ban has deep implications that I am frankly not fully qualified to discuss. If it is defined as usury, its definition, it seems to me, is by its nature subjective. If usury means charging an "unfair" or "above market" rate of interest that exceeds, for example, the market- determined time value of money, it is hard for me to see how Riba can exist in a competitive banking market, which the UAE is. I therefore conclude that if one defines Riba as usury, then a competitive market structure effectively prevents it.
On the third principle, which is an ethically driven set of criteria for underlying assets that are included in a given investors' universe of investments, I believe that there are important substantive differences between Islamic finance and convetional finance. This is perhaps the easiest of the three principles to define tightly because it does not, it seems to me, involve as much subjectivity as the other two principles. If investment in businesses that derive part of their revenue from the sale of alcohol, for example, is something that a given investor chooses to abstain from, that is a relatively straight-forward matter.
One closing thought - from the perspective of social responsibility, I think that all of three principles above are important. The more we can do to evolve our practice to conform with these principles, in my personal opinion, the better. [Report Abuse | Email to a Friend | Reply to this Comment]
Dear Sultan,
Under Morabaha, ownership gets transferred to the buyer. However, the bank so financing the asset, takes a 'Rahn' i.e. Mortgage on the Asset to secure its Receivables. I have a car financed by an islamic bank and on the Car Registration Card, Registration is in my name and the Mortgagee is the bank from whom i have taken the financing. In case i need to sell my car before all repayments have been made, i need a clearance letter from the bank to this effect.
So, what ever the Asset, ownership gets transferred to the Buyer unlike Ijarah, where the financier retains ownership. [Report Abuse | Email to a Friend | Reply to this Comment]
Dear Sultan
This discussion may continue for a while, but it really is a very important subject that's worth spending time on.
If I understand your central point correctly, you claim that consumers are disadvantaged when dealing with Islamic Banks by paying a higher cost of financing or receiving a lower rate of return on structures that are essentially the same as conventional banking.
Points:
1) Islamic Banks are not a monopoly, either between themselves or versus conventional banks. Consumers can pick and choose.
2) I've done my study many times. There is no evidence that financing rates at Islamic banks are higher than conventional nor are returns on Islamic funds lower than conventional. In fact in many cases, dealing with an Islamic bank is advantageous to consumers.
3) Yardstick: many industries have no yardstick take rating agencies, regulators, fund management, clinics, etc. It is up to the consumer to decide if the values of the scholars of the Islamic bank meet his criteria. There is however a Fiqh academy which is attempting to standardize issues.
4) Ibn Rushd: My friend, he didn't just write about some aspects, he wrote the first legal book ever in any language in any country. He wrote a detailed book on Islamic Contract law, which the West borrowed from, most importantly the aspects of Contract, which is why English Law does not accept a contract unless a Consideration has been paid, that is purely an Islamic convention. Please read his book, you'll be amazed.
5) I do understand however that those who are not fully immersed in Islamic Financing see it as a Black Box and a marketing scheme. It is not. It is pure Contract Law. They don't understand how a conventional structure can become Islamic, such as shorting stocks, hedge funds,and others. Only through understanding contract law can one get a full picture. I'm more than happy to explain exactly how and what makes it Islamic.
6) There is a reason why Islam is called Al-Shariah Al-Samhaa, because it permits more than it forbids. Yes it's open to interpretation, so is every law, based on interpretations and precedents, and we have a 1400 year history of precedents.
7) Even Conventional banks have current accounts on which they pay no interest. In fact conventional banks have more zero based accounts than Islamic.
PleasePleasePlease read Ibn Rushd and Malik's Al-Muwatta, and then tell me Islamic Contract Law is just a scam.
Regards
Nizar [Report Abuse | Email to a Friend | Reply to this Comment]
Sultan
One of the more interesting and honest analysis (yours) I have seen regarding the Shariah compliant industry. Its also refreshing to see a debate between yourself and Nizar AlShubaily. While I agree with Nizar that some religions, like Christianity, had (and still may have residual) scruples on usurious interest, however they have moved on. Not many conventional bankers use the Torah or the Bible as their reference.
I see the future of the Shariah finance industry in the same context of ethical investing, although many players are not in there for the ethics. I do also agree though that there is an exploitation of the word "Islamic financing" or banking, with a great number of players coming into the act simply as a marketing gimmick. A case in point are the numerous hedge funds that are entering this space, impressing us that they have come up with structures that are Shariah "acceptable" - kind of difficult to believe that 'shorting' is now acceptable (?). By the way I think hedge funds do provide value to the system.
Its also unfortunate that many of the providers of "Shariah" acceptable products are in many cases less competitive than conventional products; wondering why the extra spread is there?
Another case that has always mystified me is how Libor, or other interest based references, are used as financing proxies.
Finance and money is fungible, non-compartmental and ultimately, I believe in substance, shariah financing will converge with the conventional. Already we are seeing it, as we try to replicate shariah with conventional structures. [Report Abuse | Email to a Friend | Reply to this Comment]
Thank you for taking the time to read and respond to my article. Also, thank you the valuable advice on reading more. Now turning to your comments, The Merchant of Venice happens to be one of my favourite books by The Bard. One of the main reasons for the economic rise of the Jewish communities in Europe was the practice of lending to non-Jews and charging interest in the 12th century something Christians started doing soon after and Muslims followed. The issue of regulations is the clearest but it seems that you did not understand it (maybe you should read more), my point was that so called Islamic banks throughout the world internally (I repeat: Internally) do not use the same yard stick to measure what is Islamic and what isn’t. Until they do, there will be no such thing as Islamic finance. I actually can’t make it clearer than that.
I will skip replying to the cocaine comment for obvious reasons. Finally with regards to the scholar Ibn Rushd, you are actually right, he did write about certain aspects of finance under Islam, two small problems with that argument, 1- He lived about 400 years after the prophet Mohammed and so there was a significant element of Ijtihad or interpretation in his work, 2- He was a secular thinker living with several different religious denominations in Islamic Spain that have surely influenced his ideas. In any case, the world of finance is too advanced and complex to only rely on 800 year old understandings of buying and selling sheep and cattle. There are the small issues of arbitrage, mortgages, mergers, deposits, bonds, swaps, futures and contracts amongst others that need more updated regulations. Finally, let’s agree to disagree; no matter what I write the Islamic Finance “industry” will continue to grow as it preys on ignorant innocents. Hopefully one day there will be an agreement on what constitutes Islamic Finance, then, people who have been taken advantage of could finally go to court and sue such companies for misrepresentation which will finally hold such firms to account.
One final thought that I came across recently: If the only drug that will cure you contains 10% alcohol, majority view is to use it. If an alternative (marketed as “Islamic”) contains only 5% alcohol, ask yourself:
1– How much more does it cost, and why?
2– If supporting the new product can help finance more R&D, the extra cost may be justified
3– If the institution helps the Muslim community, the extra cost may also be justified
4– If it is just a scam to enrich lawyers and “scholars” (most lacking proper credentials/credibility), perhaps the extra cost is not justified.
I think it is clear which one of Dr. Mohammed Al-Gamal’s theories above I support.
Thank you once again Sir [Report Abuse | Email to a Friend | Reply to this Comment]
Dear Sultan
Your article has so many wrong things in it:
1) Why it took 1400 years: It didn't, it was already discussed and practiced way back then. You really should read Ibn Rushd's the Distinguished Jurist's Primer (you can get it from Amazon)
2) Other Religions: Actually you do hear it, if you care to read. The ban on interest is in fact present in Christianity, Judaism and Hinduism in their religious literature. The Bible is filled with the ban on interest. Even in Shakespear's days the Church banned interest, just read The Merchant of Venice.
3) How it works: There's a lot more to Islamic Finance than Murabaha. You also assume that getting the Same Economic effect make's it the same transaction. It does not. It's the process. Let me give you an example: if 2 people buy objects A and B for 100 and sell them one day later for 200, it's the same economic effect, however one person trades books and the other Cocaine, one is legal and the other isn't. That's the difference.
4) English Translation: completely wrong, these terms were present in the past and many are in the Quran, no scholar today has invented any new terms. In addition the terms are legal terms and are described in detail in Ibn Rushd as well as others. The rules are different.
5) Regulation: all Islamic Banks are regulated using the same rules governing conventional banks, because they are regulated by the same Central Banks.
My friend Sultan, the fact that some banks, especially western banks make money through perhaps not so clean transactions, doesn't mean it's a scam. I recommend you read more, it will certainly be an eye opener for you. You may call me anytime to discuss and I will try to help.
Nizar Alshubaily +966 503 666 397
Regards [Report Abuse | Email to a Friend | Reply to this Comment]
Thank You for your reply but constructive criticism is not enough. We have supporters and critics on both sides but everyone agrees that Quran and Hadith condemn Interest based transaction. We need an alternative. From Your Respected and Professionally opinion is Interest Based Transaction Unavoidable or we have not choice but to embrace it. [Report Abuse | Email to a Friend | Reply to this Comment]
The purpose the article wasn't to provide alternatives. It is just a personal reading into Islamic Finance. [Report Abuse | Email to a Friend | Reply to this Comment]
Dear Mr. Al Qassimi, believe me I was not commenting on your person or your education, I don't know you, but I was commenting on the whol notion you brought in, anyway my apology if you fell that way. I have nothing to gain by commenting on yourself or your education. Oh by the way yes I benefit directly from Islamic Finance in more than one way.
I can say the sam about your article but I am not going to trivialize what you wrot becaus it is dangerous not to help young ambition individual to trully learn and understand why ISLAMIC FINANCE. Seeyou in my next detailed message.
Best Regards [Report Abuse | Email to a Friend | Reply to this Comment]
Once again nobody is trying to be holy, jolly, or tricky. Please give us an alternative to Interest based transaction. You are article offers no alternative. [Report Abuse | Email to a Friend | Reply to this Comment]
First of all you started off with a phrase reveals your total view on the subject "SCAM". Although you may sound an educated individual but it is obvious you are totally misinformed or to say the least, not educated enough on the subject. Before I go any further I would like to state that I am not trying to counter attack conspiracy, I am only trying to clear some points and be objective OK; (1) to clear your wonder why we never hear of such term as Christian, Jewish or Hindu finance? _ Apparently you don't know that Hindus ..... are not people of Book unlike Christian or Jews !!! _ In Christianty and Judiasm you practice mainly in the Church or the Jewish Temple, it is your belief, but it doesn't control your daily life, how, what and when to eat, drink, dress, handling your finance, deal with your parents, neighbours, wife, children ..... etc. etc. etc. In Islam it is practiced in the Mosque, at Home, in the School, at Work, with your wife, your children ........ etc. etc. etc. " ISLAM IS BELIEVE AND WAY OF LIFE". أعوذ بالله من الشيطان الرجيم
( " قل إن حياتى ونسكى ومحياى ومماتى لله رب العالمين" )
(2) I am not going to comment on the very wrong, misleading and obvious ill intention to paint this kind of practice with thoughts and ideas imported from the west, I only need to emphasise why this kind of vicious scrutiny by the west to any and every thing relating to Islam and Muslims. What [is] really sad is people who feel inferior to the Western materialistic civilization when they have everything to be proud of, wealth, education, intelligent, history, civilization and above all being Muslims. (3) At this stage I can't reason with you on the matter at hand because you already have a firm stand influenced by your obvious western education. (4) Let us have a second round when you start to reclaim your true [iden]tity, believe me no matter how you yield to the west and western views and ideas like this you [are] still second class in thier view because of you being Muslim, regardless of all the education, intelligent and wealth you might have. But you are first class by just being a Muslim with heart and mind of a Muslim with the dedication and hard work with honesty and sincerity with what is required to be a true Muslim, then I will be able to learn a lot from you.
Dear Mr. Sultan Al Qassimi, I will give my life for your right to have an opinion, so please give me the same right and don't take this as an attack on your respected person, it is just areading of a much older man who have been around a lot.
Best regards, [Report Abuse | Email to a Friend | Reply to this Comment]
I would like to congratulate you for your courage opening this complicated debate and the professional way you have dealt defending your opinion . My conclusion is the one you have already drawn and the one you are applying in order not to foul out some believers but naive investors : Ethical investments would be ,for the moment, the only way to respect them . [Report Abuse | Email to a Friend | Reply to this Comment]
http://www.sunniforum.com/forum/showthread.php?t=28405 [Report Abuse | Email to a Friend | Reply to this Comment]
Point wel taken sir.
Thanks [Report Abuse | Email to a Friend | Reply to this Comment]
Amazing! ... can you please go back and read it gain!
Why playing with words and what is obvious to try proving own ideas. It's a joint ownership because it was purchased jointly, and there is a escrow account holder (or trustee) that preserve your rights as a customer.
My final comments out of this discussion ... I'm sure that Islamic banking is more sophisticated than trying to decide it's genuine by such short hand comments. Our friend “Sultan” wants to judge Islamic banking using his own views, and even rejecting the idea of referring to a book!!!
I do really respect all ideas and other thoughts ... unlike others here.
Try to convince me not shut my ideas down
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Islamic banks should stop disguising the true nature of transactions. To achive a Islamic banking a paternership should be entered betweene the bank and buyer. What should happen is that a willing buyer wanting to purchase a property should enter into a arms length sale agreement with a "bank" whereby the bank will purchase the property and resell to the willing buyer over a period of time. The resale price can be higher than the purchase price paid by the "bank". Each time the buyer makes payment he/she obtaines a share of the property. For instance if the Banks selling price of the property is $100 and the sale agreement states that the buyer should make 100 payments of $1 each, after 10 payments the buyer will own 10% of the property thus diluting the banks stake to 90%. Share of losses - if the property inccurs damages as a result of acts of god the "bank" and the buyer should share the loss in the same proportion to their percentage ownership. If the cost of the damage is $10, then based on the above ownership stakes the buyer will be liable for $1 of the loss and the "bank will be liable for $9. Repossesion - if the buyer is unable to contiunue to make payments towards the property. The seller should have the first option to purchase the buyer's share in the property for a market value price. If the seller is unwilling to purchase the buyers share the property should be sold in the open market and the proceeds distributed in proportion to their percentage ownership. For example if poperty sold for $120 the buyers share is $12 and the "banks" share $108. I belive that their is place in this world for Islamic finance. [Report Abuse | Email to a Friend | Reply to this Comment]
"At the end of the agreed term, and when all payments have been made, we will transfer the property to you."
I hope the phrase taken form the horse's mouth (or in this case website) proves my point.
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Dear Interested Banker,
Your assesment is not true; in "Islamic financing" the bank does hold the title and it clearly states so on HSBC's "Islamic Home Finance Section"; the same happens elsewhere when the bank "Islamicaly" finaces a house or a car; as I have read the t/c's myself.
http://www.hsbcamanah.co.uk/amanahuk/home-finance/how-it-works.html
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Very well put. Brief and to the point. Personally I have yet to come across any financial product, that I could defend, as Sharia'a compliant in the strict sense. These so called Islamic banks or financial intitutions at best can have the compliment of being, for the most part, ethical institutions, i.e. they do not finance the production or trade of alcoholic drinks & tobacco products, or finance casinos and the like. [Report Abuse | Email to a Friend | Reply to this Comment]
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AsSalamuualikum,
Nobody is looking for salvation but alternatives. Also this article offers only criticism but no alternative. Please give us an alternative to Interest Based Transactions.
-Mujtaba Ali
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P.S. Mohammed H. please refrain from using capital letters, this is not an MIRC chat room, most of us here are adults and can remember words that are not typed in caps. If you want financial advice go to a bank. Just make sure they don't take you for a joy ride. [Report Abuse | Email to a Friend | Reply to this Comment]
Should I understand that nothing prohibits interest in Islam ? [Report Abuse | Email to a Friend | Reply to this Comment]
Dear all,
I am a normal person, with no banking or investment background. And as a simple Muslim, I would like to make sure my MONEY is always HALAL (not touched by the INTEREST or REBA in Arabic) because this is simply what I believe in.
It is really a dilemma, and NONE of us here can judge !!!
Because simply professional Bankers are not SHEIKs and vice versa. And I find it very difficult to believe that we have someone with both calibers these days.
What I am trying to say here, as we have established many proper new Islamic rules that were captured recently and were measured on the basics of ALLOWED or NOT-ALLOWED. We can get Bankers and SHEIKs to sit together and form a non-profit organization and study thoroughly this situation again and pure without any interference from any government or banks. Until then, this organization can approve a bank as Islamic or not all over the world as apparently global banks are into the game such as HSBC-Amana and many others.
By the way, I am trying to be positive here and not against any side, I am just trying to tell you that ISLAMIC BANKING is NEEDED despite of all the objections or the doubts.
So, regardless of being With or Against what is called "Islamic banking", and regardless of a bank is always a bank and will always be the winner in all cases (loan/deposit), which I believe is TRUE.
Is there a way to make a bank Islamic and make 10000000000 of Muslim people satisfied?
SO PLEASE HELP
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What I don't understand is how all this myth has been sustained by religious quotations from the Holy Quran ? Does it mean that the interpretations were falsely used and if so, how were they approved by the Sharia compliance boards ? [Report Abuse | Email to a Friend | Reply to this Comment]
Sultan, you and I both invest money, mostly other people's money. If one of my clients says "give me Islamic" then I have a professional responsibility to seek the best possible Islamic investing. That means buying Islamic investment products from banks, always making sure that the fatawa meet minimum standards acceptable to my clients. Now, you have a lot of gripes about Islamic banking. Some of what you say is true. But, while there are a lot of under-performing bankers out there producing a lot of toxic waste, I believe Islamic asset management turned a corner this year. For the first time in history a Muslim can invest Islamically with no or almost no loss of performance, liquidity and transparency. Yes, it took far too long to get there, and yes the market is still full of trash, but if you do your homework you can find products that will fit a standard allocation under Modern Portfolio Theory and with little or no sacrifices. You know I speak and write a lot about the dismal state of Islamic banking, but in fact just in the last few months I've been beginning to change my tune. Right now, this week, I'm doing some Islamic portfolio investing that appears to be equal in all respects to conventional investing, but with fatawa. I don't think this is a sham, I don't think I'm being fooled by the product providers, I don't think this is theoretically or practically false. What I do think is that greed, laziness and foolishness have darkened the market for Islamic asset management and a lot of people suffer. But, at the same time we really are in an all-new world. I'm going to ask Zawya to let me write a counterpoint article to yours. I'm going to do my best to prove you wrong, or at least in some of the areas you've mentioned. Last note: If pricing and service are the same, why would anyone care if a banking service was Islamic or not? In short, if you buy a Toyota and have the belief it's financed according to your principles, and if the financing is equal in all respects to conventional finance, why would anyone complain? I think the people should have what they want. As long as the pricing and service are the same (and, I suspect it is now getting close to equal with conventional) then let them have Islamic. Live and let live! [Report Abuse | Email to a Friend | Reply to this Comment]
Comparing a 700 word article with a book?
Unbelievable.
Please don't bother yourself with reading any more of my articles. And if you do, please keep your comments to yourself.
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Mahmoud Gemal's book, Islamic Finance: Law, Economics, and Practice, provides a far better argument for the problems with Islamic finance and does more articulately and with far better reasoning.
http://www.amazon.com/Islamic-Finance-Law-Economics-Practice/dp/0521864143/ref=pd_bbs_sr_1?ie=UTF8&s=books&qid=1195573084&sr=1-1 [Report Abuse | Email to a Friend | Reply to this Comment]
Verily you are true. Islamic Banks are more expensive then conventional western banks. Islamic banks here charge a fee when both making a deposit and withdrawing funds. Even the profit accrued is far less than the conventional western banks [Report Abuse | Email to a Friend | Reply to this Comment]
Dear Sultan,
Congratulations. Yours is a good read and thought-provoking discussion. Two things in your argumentation surprised me. Already some nine years back, the GM of BAJ told me on the record that the bank - then the smallest in KSA - had gone Islamic in all departments. I don't see how it could be said that KSA has no openly Islamic bank; nor does SAMA seem to espouse any indifference on Islamic finance when one considers the regulations governing the 18 insurance cos licensed last year.
Secondly, the terms Christian and Jewish finance are not really absent from history. Although they may not play a role in most contemporary debates on rules of finance, the religious rules of Christian and Jewish scriptures and their interpretation once made for an epochal debate -- and heavily influenced the history of European banking and finance.
You are pointing to important issues with unscrupulous practices of finance under an Islamic logo and there is much to be said about scams and window dressing in the hyped-up wave of new products with which international and local banks want to lure in pious or culturally conservative Muslim customers.
Aberrations, however, should not distract from the many positive elements which Islamic ethics and principles of Islamic finance can bring to the global marketplace and its myriad confused practices.
In this sense, Islamic finance, in as far as I had a chance discussing it as outsider with Muslim friends in the industry, seems to me a potential blessing for communities of many backgrounds --- if and as long as it is an expression of genuine identity. [Report Abuse | Email to a Friend | Reply to this Comment]
Fascinating stuff indeed. [Report Abuse | Email to a Friend | Reply to this Comment]
It's called joint registration or mortgage... a practise that is followed by all financers (Islamic or conventional).
In Murabaha, the Islamic bank has to move title ... otherwise it will be considered as abreach to the Shari'ah Principls. Whereas in Ijarah (leasing) ... the title of the assets stays with the bank and the islamic bank assumed all the assets risks.
I wish that we go back to the basiscs and do not build our judgements on individal cases that may not be a good representation of the majority.
Islamic Banking is a mashrum like growing business and the fact in the ground for the sophisticated analyst are so abvious.
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Dear Sultan,
Almost everyone who deals with IBF knows that in any Murabaha structure the bank does not hold title of the assets as you suggested in the first para of your article. Thus, the risk islamic banks hold is the same as conventional one.
Pricing of such products is based on market dynamics and I do not see how IB can be more profitable if monopoly is not a factor.
Thanks [Report Abuse | Email to a Friend | Reply to this Comment]
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I haven't investigated Al Rajhi's deposit products, but I'd be surprised to find they don't have liability products paying a return. In any case, there is nothing un-Islamic about giving a Shariah compliant return on deposits, so if Al Rajhi is not paying depositors, it's not for Shariah reasons.
As for some banks taking people for a ride, that's certainly not unique to Islamic banks (just think predatory lending in the U.S mortgage market). I doubt you'd find a greater concentration of unethical banks in the Islamic market than in the conventional.
I wholheartedly disagree with the suggestion throughout your article that Islamic banking is a farce. It's simply another way to achieve the same objective -- to profitably intermediate between fund takers and fund providers.
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P.S. Have you heard of the new Malaysian Islamic Car? Apparently it points to Mecca. It can now join the list of Islamic hotels, mobile phones and watches. [Report Abuse | Email to a Friend | Reply to this Comment]
Sultan, some may agree with the above analyis but I think everyone acknowledge that investing islamicly (not too much leverage, no alchohol or other unethical activities) is genuinly different from conventional investments. [Report Abuse | Email to a Friend | Reply to this Comment]