It is a stupid way of swindinling Allah if this article is correct. Allah must be too stupid to realize that the whole system is based upon the goal of paying the same interests rates, and achieving the same results as Westerners, while using a slightly (very slight) different means:
Sharia forbids earning or paying interest on loans. So Sharia finance is about the ways to get around this prohibition. Sharia finance also concerns prohibitions on using money to finance the pork or alcohol industries.
The first is not a problem for dividend or capital gains earnings because they clearly involve risk which is a requirement of Sharia investments. The problem arises with home mortgages and savings accounts.
Home mortgages are handled by having a Sharia bank buy the relevant house and then sell it back, on a monthly payment schedule, to the mortgagee plus a rental fee on the use of the house. The net result is identical to a mortgage loan.
Pastorius note: This is exactly what we sons of apes and pigs do.
A savings account in a Sharia bank is one where the deposited money is invested in only Sharia investments. The returns are dividends and capital gains which are put in a fund that pays out the regular market savings account interest rate. Again, this is not really very different than a standard bank savings account except for the way the funds are invested (definitely not as secure as a bank savings account and certainly not insured by any government.)
All other Sharia finance is based on equity funds that exclude interest bearing instruments, like bonds, and avoid stocks in inappropriate (pork and alcohol) corporations. (Think socially responsible funds with an Islamic agenda.)
The multiple tools of hedge funds... options, puts, calls and arbitrage contracts are nearly all well suited to Sharia finance (excluding bets on interest rate markets such as Libors.)
The Sharia prohibition on interest was appropriate at the time of Mohammed, as Christianity took the same position. (Jews in both Moslem and Christian societies were relegated to banking.)We now see interest as a rental on money composed of a mix of risk, market pricing (national price index) and the supply of funds.
Okey doke. Well, at least Allah is buying it. Muslims ought to be proud to have a god they can hoodwink like that.
Sharia forbids earning or paying interest on loans. So Sharia finance is about the ways to get around this prohibition. Sharia finance also concerns prohibitions on using money to finance the pork or alcohol industries.
The first is not a problem for dividend or capital gains earnings because they clearly involve risk which is a requirement of Sharia investments. The problem arises with home mortgages and savings accounts.
Home mortgages are handled by having a Sharia bank buy the relevant house and then sell it back, on a monthly payment schedule, to the mortgagee plus a rental fee on the use of the house. The net result is identical to a mortgage loan.
Pastorius note: This is exactly what we sons of apes and pigs do.
A savings account in a Sharia bank is one where the deposited money is invested in only Sharia investments. The returns are dividends and capital gains which are put in a fund that pays out the regular market savings account interest rate. Again, this is not really very different than a standard bank savings account except for the way the funds are invested (definitely not as secure as a bank savings account and certainly not insured by any government.)
All other Sharia finance is based on equity funds that exclude interest bearing instruments, like bonds, and avoid stocks in inappropriate (pork and alcohol) corporations. (Think socially responsible funds with an Islamic agenda.)
The multiple tools of hedge funds... options, puts, calls and arbitrage contracts are nearly all well suited to Sharia finance (excluding bets on interest rate markets such as Libors.)
The Sharia prohibition on interest was appropriate at the time of Mohammed, as Christianity took the same position. (Jews in both Moslem and Christian societies were relegated to banking.)We now see interest as a rental on money composed of a mix of risk, market pricing (national price index) and the supply of funds.
Okey doke. Well, at least Allah is buying it. Muslims ought to be proud to have a god they can hoodwink like that.
6 comments:
I have been blogging about Shariah finance, and recently all our google alerts have disappeard, I just found out that CAIR had google screen us OUT. I am so upset that CAIR can dictate to google what they can post on their alerts. I need help, and you need to be aware that this can happen to you, especially when it gets to censorship.
http://shariahfinancewatch.wordpress.com
I am sorry to hear that, Allyson.
I put up a post on your problem.
Thanks for you fine work.
From an article, or rather, a book-review and summary by Daniel Pipes of Professor Timur Kuran's indispensable study, "Islam and Mammon":
"Islamic economics increasingly has become force to contend with due to burgeoning portfolios of oil exporters and multiplying Islamic financial instruments (such as interest-free mortgages and sukuk bonds). But what does it all amount to? Can Shari'a-compliant instruments challenge the existing international financial order? Would an Islamic economic regime, as an enthusiast claims, really imply an end to injustice because of "the State's provision for the well-being of all people"?
To understand this system, the ideal place to start is "Islam and Mammon," a brilliant book by Timur Kuran, written when he was (ironically, given heavy Saudi backing for Islamic economics) King Faisal Professor of Islamic Thought and Culture at the University of Southern California.
Now teaching at Duke University, Kuran finds that Islamic economics does not go back to Muhammad but is an "invented tradition" that emerged in the 1940s in India. The notion of an economics discipline "that is distinctly and self-consciously Islamic is very new." Even the most learned Muslims a century ago would have been dumbfounded by the "Islamic economics."
The idea was primarily the brainchild of an Islamist intellectual, Abul-Ala Mawdudi (1903-79), for whom Islamic economics served as a mechanism to achieve many goals: to minimize relations with non-Muslims, strengthen the collective sense of Muslim identity, extend Islam into a new area of human activity, and modernize without Westernizing.
As an academic discipline, Islamic economics took off during the mid-1960s; it acquired institutional heft during the oil boom of the 1970s, when the Saudis and other Muslim oil exporters, for the first time possessing substantial sums of money, provided the project with "vast assistance."
Proponents of Islamic economics make two basic claims: that the prevailing capitalist order has failed and that Islam offers the remedy. To assess the latter assertion, Kuran devotes intense attention to understand the actual functioning of Islamic economics, focusing on its three main claims: that it has abolished interest on money, achieved economic equality, and established a superior business ethic. On all three counts, he finds it a total failure.
1) "Nowhere has interest been purged from economic transactions, and nowhere does economic Islamization enjoy mass support." Exotic and complex profit-loss sharing techniques such as ijara, mudaraba, murabaha, and musharaka all involve thinly disguised payments of interest. Banks claiming to be Islamic in fact "look more like other modern financial institutions than like anything in Islam's heritage." In brief, there is almost nothing Islamic about Islamic banking which goes far to explain how Citibank and other Western majors host far larger Islam-compliant deposits than do the specifically Islamic banks.
2) "Nowhere" has the goal of reducing inequality by imposition of the zakat tax succeeded. Indeed, Kuran finds this tax "does not necessarily transfer resources to the poor; it may transfer resources away from them." Worse, in Malaysia, zakat taxation, supposedly intended to help the poor, instead appears to serve as "a convenient pretext for advancing broad Islamic objectives and for lining the pockets of religious officials."
3) "The renewed emphasis on economic morality has had no appreciable effect on economic behavior." That's because, in common with socialism, "certain elements of the Islamic economic agenda conflict with human nature."
Kuran dismisses the whole concept of Islamic economics. "[T]here is no distinctly Islamic way to build a ship, or defend a territory, or cure an epidemic, or forecast the weather," so why money? He concludes that the significance of Islamic economics lies not in the economy but in identity and religion. The scheme "has promoted the spread of antimodern currents of thought all across the Islamic world. It has also fostered an environment conducive to Islamist militancy."
Indeed, Islamic economics possibly contributes to global economic instability by "hindering institutional social reforms necessary for healthy economic development." In particular, were Muslims truly forbidden not to pay or charge interest, they would be relegated "to the fringes of the international economy."
In short, Islamic economics has trivial economic import but poses a substantial and malign political danger."
Posted by: Hugh at February 18, 2008 8:54 AM
Under the nic "Miira", I took the liberty to place Allyson's comment at DW as well.
Anonymous,
Thanks.
I don't write about Sharia finance very often because I don't understand it. The more I read, the more it seems to me it is a total sham based upon inventing new words and applying them to already existing techniques.
That's not surprising.
I noticed that my Google alerts were no longer giving me updates from Allyson's site.
I've bookmarked the site now.
If such censorship is going to continue, then we should all be bookmarking sites and not counting that we'll continue to learn from Google updates.
Heh. I'm not sophisticated enough to have ever used Google alerts in the first place.
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