Soccer Dad: Banking On Shariah

December 25, 2008

Banking On Shariah

That seems to be the latest thing, as James Joyner writes about in his article in The New Atlanticist, Islamic Banks Surge, Thanks to Financial Crisis: where he quotes from AP business writer Emma Vandore:

France is becoming the latest country to woo Islamic banks, which avoided much of the damage from the subprime mortgage crisis by following strict principles laid out in the Quran -- as the global financial crisis broadens the appeal of Islamic finance. French Finance Minister Christine Lagarde has promised to make adjustments to the regulatory and legal arsenal to enable Paris to become a major marketplace in Islamic finance. At a recent forum in Paris, she said Western financiers could learn a thing or two from the Islamic world as global leaders try to establish "new principles for the international financial system, based on transparency, responsibility and, I would like to add, moderation." "In this sense, Islamic finance is calling out to us," she said.

Finance that complies with Shariah, or Islamic law, accounts for around $700 billion of assets and is growing at 10 to 30 percent a year, according to Moody's Investors Service. That's grabbing the attention of governments eager to oil their liquidity-strapped economies with money and deposits from the Islamic world. Islamic finance is concentrated in the Persian Gulf and Muslim parts of Asia such as Indonesia and Malaysia but is spreading into North Africa and Europe.

Vandore waxes poetic on the many virtues of Sharia banking

A November report by Moody's shows that Islamic banks have been fairly resilient. No Islamic financial institution has acknowledged investing in Bernard Madoff's $50 billion Ponzi scheme, and Saleh Al Tayar, Secretary General of the Franco-Arab Chamber of Commerce, said the $4.9 billion hit taken by Societe Generale SA from what it calls unauthorized trading by Jerome Kerviel couldn't have happened in an Islamic institution. "If global banking practices were based on Islamic practices then we wouldn't be seeing the kind of crisis we are living through now," he said.

Islamic financial institutions work on a philosophy of prohibiting transactions considered immoral and promoting greater social justice by sharing risk and reward. Investing in casinos, pornography, arm dealers or anything to do with pork is out: long-term investments in projects considered to benefit society are in. Interest payments, short selling and contracts considered excessively risky are also prohibited. That rules out some of the products that got Western finance into so much trouble such as subprime mortgages, collateralized debt obligations or credit default swaps. [emphasis added]

Since the reference to pork is more likely referring to pig than to government appropriations, adding it to the list of risky/illegal investments does seem a bit out of place.

Also, I was under the impression that the Muslim world was not escaping the global recession unscathed. Back in October, The Jerusalem Post reported:

Stock markets across the Arab world experienced unprecedently sharp losses when trading began following the Id al-Fitr holiday earlier this week. The seven stock markets in the oil rich Gulf states shed around $150 billion of their capitalization in the course of the week.

The market in Saudi Arabia sank by 7 percent. In Egypt, the key index fell by around 16%. One Saudi economist quoted by Agence France Presse described the latest developments as a "catastrophe." For a number of reasons, the Arab world may well prove particularly vulnerable to the world economic downturn. This fact has political implications for the region, which are already being glimpsed and acted upon by various regional forces.

This hardly supports the impression that investing and banking according to Shariah provides any insulation from the global market. Nevertheless, the US Treasury Department is also looking into Sharia Banking.

In this regard, Frank J. Gaffney, Jr. has addressed other concerns about Shariah-Compliant Finance (SCF) to the Treasury:

Specifically, we shared with them a detailed legal memorandum written by one of our experts - David Yerushalmi, an attorney specializing in securities law who is deeply knowledgeable about the comprehensive theo-political-legal code that authoritative Islam calls Shariah. Mr. Yerushalmi's memo makes a compelling case that there is both civil liability and criminal exposure associated with SCF.

This is so because, at its core, Shariah is sedition: It explicitly espouses the violent overthrow of all secular governments and constitutions - including those of the United States - in favor of a global Islamic theocracy. The Yerushalmi memo makes clear that Shariah advisors - who play a central role in this industry as it falls to them to determine whether transactions are Shariah-compliant or not - and/or the companies that employ them appear to be involved in one or more of the following: racketeering, anti-trust violations, consumer and securities fraud or material support for terror.

Gaffney gives an example:

In these regards, it might be helpful if, while Secretary Kimmitt is in Qatar, he pays a visit to one of the most prominent of the SCF advisors, Sheik Yusef al-Qaradawi, who serves on, among numerous others, the Shariah advisory board of two Qatari Islamic banks. As my colleague Christopher Holton has pointed out in a recent posting on the Family Security Matters website , Qaradawi has called for the Islamic world to use the present financial crisis to destroy Western capitalism and replace it with "an Islamic economic system."

Inquiring minds among Treasury's experts trying to "learn about Islamic banking" might also be interested to know that, in a 2006 interview with the BBC, Qaradawi also declared that he calls SCF "jihad with money, because God has ordered us to fight enemies with our lives and our money."

The question is whether this particular line of attack on SCF goes too far. David Yerushalmi, one of Gaffney's experts mentioned above founded a group called SANE that opposes the Federal bailout of AIG in a lawsuit. According to an email I received from the group:

The basis of the lawsuit is that AIG intentionally promotes Shariah-compliant businesses and insurance products, which by necessity must comply with the 1200 year old body of Islamic cannon law based on the Quran, which demands the conversion, subjugation, or destruction of the infidel West, including the United States. To help achieve these objectives and with the aid of federal tax dollars, AIG employs a three-person Shariah Advisory Board, with members from Saudi Arabia, Bahrain, and Pakistan. According to AIG, the role of its Shariah authority "is to review [its] operations, supervise its development of Islamic products, and determine Shariah compliance of these products and [its] investments."

Of particular significance is the Pakistani Board member, Dr. Muhammed Imran Ashraf Usmani. Dr. Usmani is the son and devoted disciple of Sheik Mufti Taqi Usmani, the leading authority on Shariah financing who, in 1999, authored a book dedicating an entire chapter on why a Western Muslim must engage in violent jihad against his own country - even if Muslims are given equality and freedom to practice their religion and to proselytize.

Just how easy is it to find a relationship between a Muslim and a relative or associate who is an extremist?

Supna Zaidi, assistant director of Islamist Watch gives another reason for caution:

In the case of SCF, only Sharia scholars can decide whether a financial product is permissible (halal) or not. They are thus the only individuals who can theorize as to why or how a product can become "halal." This removes the ability of all practitioners who are not part of the SSB from engaging in product development beyond doing what they are told to find and prevent any illegality. If questions of fraud, breach of duty, negligence, criminal liability, etc. arise over any transactions, these same individuals will nevertheless remain liable.

...In its worst-case scenario, SSBs [Sharia Supervisory Boards] act just as unilaterally, can go back on previous decisions, or contradict the decisions of other SSBs. Who is right and who decides? What administrative body or court in the U.S. is in a position to question a Sharia-based product? Even if transactions state New York as the jurisdiction for dispute resolution, the courts must invariably rely on Sharia-based decisions from foreign courts for theories and interpretation. If a U.S. court offers a decision based on its own theory, who will make the decision binding since Sharia is divine, i.e., not to be superceded by secular law?

I don't know if anyone has addressed the question of whether such potential legal conflicts are reason for concern.

Joyner concludes his article with an interesting point that seems to have been lost in the middle of all this:

It's worth noting, too, that while Sharia banking has Islam-specific limits, such as prohibing loans to fund "anything involving alcohol, gambling, pornography, tobacco, weapons or pork," most of the practices Vandore emphasizes are age-old and cross religious boundaries: "Charging high interest rates to lend money is repeatedly condemned in the Bible. The Greek philosopher Aristotle denounced it, the Romans limited it, and the early Christian church prohibited it. Western theologians eventually distinguished interest from usury, and it was reintroduced to Christians and Muslims around the time of the Renaissance. " [emphasis added]

This is an issue that is only going to grow, since we are unlikely to see a return to basics when a ready-made solution seems to be available. Unlike steps towards accomodation of Muslims that are based on fear or appeasement, accomodating Sharia Compliant Financing is based on good old fashioned greed.

by Daled Amos

Posted by daledamos at December 25, 2008 9:18 AM

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Comments

B"H
I don't understand why people make such a big deal out of so called sharia banking.
Jewish owned banks post heter iska klali ( http://en.wikipedia.org/wiki/Loans_and_interest_in_Judaism ) contract on the wall declaring that all the loans and deposits are actually partnerships to avoid the violation of Torah prohibition of charging interest from Jewish clients of the bank.
Similarly Muslims have as part of their faith a prohibition of riba - charging interest from anyone plus like we have prohibitions of assisting the wicked and placing the stumbling block in front of the blind they have similar prohibitions that lead to their reluctance to invest in projects that undermine moraliy such as gambling and prostitution.
In a free market firms compete for clients thus major food companies pay to certify their food kosher (and or halal , organic, fat free, cruelty free etc.) ad banks consult Jewish and Muslim scholars to make their products suitable for these market niches.
Sharia compliant banking doesn't automatically mean that money is being used to fund terrorism.
likewise the article's claim that Muslim "divine" law will overrule land of the law is pure false propaganda.
American constitution allows freedom of religion this means that a Muslim who (foolishly) believes that in the end of days the Mahdi will subjigate the whole world to the Muslim rule (or whatever) can be considered a law abiding citizen as long as he doesn't blow up bombs or finance terrorism to hasten this.
Likewise a Catholic who prays that G-d should remove the "veil" from the eyes of the Jews to change to his beliefs is considered a law abiding American as long as he doesn't go around with a gun forcing people to accept his faith.
To demonize every innocent action of Muslims such as sharia banking or the like is no different than antisemites promoting the conspiracy theory of "kosher tax".

Posted by: Ariel Sokolovsky www.bostonchabad.com at December 25, 2008 1:59 PM

Ariel,

I agree that there is probably nothing wrong with Sharia Banking per se. I am more concerned with the possibility of abuse by people like al-Qaradawi who have openly suggested exactly that. Issues of oversight need to be addressed.

What I am not impressed by is the attack on Sharia Banking as being based on "the 1200 year old body of Islamic cannon law based on the Quran, which demands the conversion, subjugation, or destruction of the infidel West, including the United States."

Appeals to fear and bias are not convincing.

Posted by: Daled Amos at December 25, 2008 2:16 PM

We should be hateful and fearful of muslims. Anything associated with islam has evil ends. We ought to be biased against anything to do with islam. I'm surprised you are taking this position Daled. There has never been anything positive to come from islam. The best thing that can happen is to see it destroyed.
==================================================
"Sharia compliant banking doesn't automatically mean that money is being used to fund terrorism."
..............................................
Yes it does. The money goes to zakat, islamic charities that are fronts for terrorism.
===============================================
"To demonize every innocent action of Muslims such as sharia banking"
..............................
There are no innocent actions of muslims. Islam is not simply a personal faith but a political ideology with the aim to subjugate all of us.
===========================================
American constitution allows freedom of religion this means that a Muslim who (foolishly) believes that in the end of days the Mahdi will subjigate the whole world to the Muslim rule (or whatever) can be considered a law abiding citizen as long as he doesn't blow up bombs or finance terrorism to hasten this.
..........................................
It is not simply a belief that everyone should be subjugated to islam, but muslims around the world are actively facilitating this outcome. Honestly I never expected to read such defense and naivete of islam on this site from people who ought to know better. It disgusts me. You are a dhimmig fool Ariel. Though I don't know you, I would expect Daled to know better then to defend sharia finance.

Posted by: Laura at December 25, 2008 8:33 PM

BTW, why were my original comments removed?

Posted by: Laura at December 25, 2008 8:36 PM

BTW, why were my original comments removed? Political correctness isn't something I expected on this site either.

Posted by: Laura at December 25, 2008 8:38 PM

Laura,

The entire thrust of the post was exactly the opposite--not to defend it but to note 3 separate reasons why it is problematic.

The argument that I do not support, as I noted in my comment above, is to say that "the 1200 year old body of Islamic cannon law based on the Quran, which demands the conversion, subjugation, or destruction of the infidel West, including the United States." Extreme statements such as that are not going to further the argument. The fact that Gaffney seems to keep referring to the age of Islam almost implies a distaste for religion in general.

Likewise, there are valid arguments based on statements and direct associations of extreme Islamists. To trace apparent moderates till you come across an Islamist relative or associate is not necessarily convincing.

Posted by: Daled Amos at December 25, 2008 9:30 PM

Laura,

I'm truly disgusted with your comments. For someone to come to an public forum and spew such hatred and animosity that originates from extreme ignorance and a complete victimization to sensationalized and propaganda fueled news sources is shameful. You are no different in your rhetoric than Osama Bin Laden himself. Please grow up.

Posted by: Sara at February 11, 2009 9:55 PM

Not that I give a damn what you think sara, but my comments are based on reality. Open your eyes and see all the evil being perpetrated globally in the name of islam. Whatever I'm saying is simply the truth.

I really can't stand liberals like you who get squeamish about any criticism of islam or muslims, but I'll bet you have spewed plenty of hatred towards president Bush. Liberals want to be nice to our enemies but have no qualms about saying the most vile things about conservatives and Republicans.

Posted by: Laura at February 12, 2009 12:39 PM

sara, morally ambigious people like you are much a part of the problem we have in the west. Not only do you blur the line between good and evil but you actually invert it to where America and Israel are made out to be bad and the islamist murderers given sympathetic treatment. This is what is occurring within the western left, academia and the media.

Posted by: Laura at February 12, 2009 12:48 PM