Is It Really Kosher?
is an interesting article by Aaron MacLean on the rise of Islamic Financing around the world. Some of the article’s better points:
…â€œmoney always looks for the best deal.â€ if Islamic finance couldnâ€™t provide results close to those of secular institutions, it wouldnâ€™t exist. … The rational profit motive never lost its place as the key factor in investor behavior.
Malaysia has the largest Islamic Financing sector outside of Dubai, if I’m not mistaken. My bank accounts are all structured Islamically, as are my house and car loan (murahaba, explained in the article). There are conventional alternatives, but I chose these instruments instead. I can claim piety was the motivator, but the fact is the terms and conditions are indistinguishable from conventional ones, at least at the layman’s level, so I was not forced to pay a monetary penalty for going halal. If I were, maybe I would have chosen differently. I have eight mouths to feed, after all.
Islamist writers such as Sayyid Qutb and Sayyid Abul-Aâ€™la Maududi envisioned Islamic finance as the economic arm of a new, sharia-guided political order. … But the post-capitalist utopia that reliance on these instruments was meant to inaugurate was dead on arrival.
This point is spot-on. People sometimes seem to be under the impression that an Islamic society is one that will be free of inequality and that Islamic financing will somehow cause every individual to behave altruistically with his money. But neither wealth nor poverty are social ills unless they prevent us from meeting our religious obligations to the Lord. Islam forbids injustice, not inequality. Among the Prophet’s companions were extremely wealthy people and poor. While it is true that many of the wealthy companions gave away every cent in the way of God, it was not because of how they ran their business. Charity and care for the poor is covered under sadaqah and zakat. Business is still business.
The author makes much fun of the similarity of conventional car and house loans to
the Islamic model. In the conventional car loan, the bank gives you money to buy a car, and charges you an agreed rate of interest on the money. In the murahaba loan, the bank buys the car that you want, and then sells it to you at a higher agreed-upon price, which you then pay back to the bank on a monthly basis. In the end, the interest rate on the money is identical to the mark-up on the price of the car. The author calls this a loophole, but whatever – it means to me that interest and riba are not equivalent terms. The Quran does not prohibit interest, it prohibits a thing called riba, the meaning of which is something both wider and more complex.
What the article does not cover well are the areas in which Islamic finance does depart significantly from conventional finance. The article does mention unsecured loans, like to start a business. The bank has to become a partner in the business enterprise, and share in the profit or loss. This puts more risk on the lender and thus the lender will be much more cautious and economic growth will be more measured. I don’t see where that’s a bad thing. Other differences that I see between conventional finance and Islamic finance – Ethical investment: no investment in haram industries like tobacco, alchohol, gambling, etc. Another, and I’m not an economist so correct me, is in the gambling on fluctuations in prices of stocks and such. What’s that called, margins trading?
Another is currency speculation. The Islamic system is based on a gold standard, where all currency is based on a quanitifiable amount of cold, hard gold, and to my mind this is the crucial element of the system that has not been implemented yet, although Malaysia has been actively pushing for it. Malaysia went so far as to mint gold dinars and silver dirhams, but thus far they are just for savings, not legal tender. A lot of the injustice in international trade stems from the fact that trade must be carried out through the medium of the US dollar, which is such a meaningless peice of paper that it is itself forced to acknowledge “In God We Trust” because there is nothing else supporting it. We muslims prefer the saying of the Prophet, peace be upon him, “Trust in God, but tie your camel first.”
Some resources for further reading:
Shayh Abdalqadir As-Sufi’s student Umar Vadillo: