The Islamic finance industry has often battled with the question: How Islamic is Islamic banking?The question's pertinence was raised in March last year, when Sheikh Muhammad Taqi Usmani, of the Accounting and Auditing Organization for Islamic Finance Institutions (AAOIFI), a Bahrain-based regulatory institution that sets standards for the global industry, said that 85% of Sukuk, or Islamic bonds, were un-Islamic.
The Islamic finance industry has often battled with the question: How Islamic is Islamic banking?
The question's pertinence was raised in March last year, when Sheikh Muhammad Taqi Usmani, of the Accounting and Auditing Organization for Islamic Finance Institutions (AAOIFI), a Bahrain-based regulatory institution that sets standards for the global industry, said that 85% of Sukuk, or Islamic bonds, were un-Islamic.
Recognisable productsThe products that modern-day Islamic bankers have created are very similar to conventional products. So similar, in fact, that to an outside observer they could be considered the same. Islamic banks now offer Islamic mortgages, Islamic car loans, Islamic credit cards, Islamic time deposit and guaranteed return accounts, Islamic insurance and some even offer Islamic managed and hedge funds. This point is conceded by Samir Alamad, Sharia, or Islamic law, compliance and product development manager of the Islamic Bank of Britain. "The industry does not want to alienate its products," he says. "They have to be recognisable, produce the same outcome as conventional products, but remain within the guidelines of Sharia.
Recognisable products
The products that modern-day Islamic bankers have created are very similar to conventional products. So similar, in fact, that to an outside observer they could be considered the same.
Islamic banks now offer Islamic mortgages, Islamic car loans, Islamic credit cards, Islamic time deposit and guaranteed return accounts, Islamic insurance and some even offer Islamic managed and hedge funds.
This point is conceded by Samir Alamad, Sharia, or Islamic law, compliance and product development manager of the Islamic Bank of Britain.
"The industry does not want to alienate its products," he says.
"They have to be recognisable, produce the same outcome as conventional products, but remain within the guidelines of Sharia.
Banking is bankingThis makes it more important to be in the consensus, and so getting a favourable ruling from a leading Sharia scholar is important for a product manager. That is why the top scholars can earn so much money - often six-figure sums for each ruling. The most creative scholars are the ones in the most demand, says Tarek El Diwany, analyst at London-based Islamic financial consultancy Zest Advisory. "To date, most Islamic financiers have been looking at examples of financing in Islamic history and figuring out how to apply them to today's financial products." But banking is banking. It is the taking of a deposit and then using it to finance a purchase or business. The lender pays the depositor compensation for the opportunity cost of his money, and the person borrowing the money "rents" it off the bank. The same symbiotic relationship occurs whether it is conventional banking, ethical banking, Islamic banking or Presbyterian banking. As Majid Dawood, chief executive of Yasaar, a UK-based Islamic finance consultancy says: "Everything that is not forbidden in the Holy Qur'an is OK. "Yes, the industry has to evolve, but it is only 40 years old and its competing with a conventional finance system that is over 800 years old."
Banking is banking
This makes it more important to be in the consensus, and so getting a favourable ruling from a leading Sharia scholar is important for a product manager.
That is why the top scholars can earn so much money - often six-figure sums for each ruling.
The most creative scholars are the ones in the most demand, says Tarek El Diwany, analyst at London-based Islamic financial consultancy Zest Advisory.
"To date, most Islamic financiers have been looking at examples of financing in Islamic history and figuring out how to apply them to today's financial products."
But banking is banking.
It is the taking of a deposit and then using it to finance a purchase or business.
The lender pays the depositor compensation for the opportunity cost of his money, and the person borrowing the money "rents" it off the bank.
The same symbiotic relationship occurs whether it is conventional banking, ethical banking, Islamic banking or Presbyterian banking.
As Majid Dawood, chief executive of Yasaar, a UK-based Islamic finance consultancy says: "Everything that is not forbidden in the Holy Qur'an is OK.
"Yes, the industry has to evolve, but it is only 40 years old and its competing with a conventional finance system that is over 800 years old."
Interesting article.
Firstly, the sheer hypocrisy of this so-called "Islamic" banking shines through. It is simply putting lipstick on the pig. If there is such a thing as Islamic leverage, I have never seen it justified.
Secondly, it repeats the general misapprehension that banks take in deposits and lend them out again. That is not the case: banks create credit (and this is our money) 'ex nihilo' as interest-bearing debt based upon an amount of regulatory capital. "Any economic unit can emit money. The serious problem is to get it accepted" Hyman Minsky
They have to be recognisable, produce the same outcome as conventional products, but remain within the guidelines of Sharia.
Religious hypocrisy rules keep to the Fen Causeway
It is simply putting lipstick on the pig.
Banking makes all pigs halal.
