Islamic banking appeals to Muslims who take their religion literally, but it misses the bigger picture
* Nesrine Malik <http://www.guardian.co.uk/profile/nesrinemalik>
* guardian.co.uk <http://www.guardian.co.uk/> ,
* Wednesday June 11, 2008
Adapting to life in Britain can be a complicated business for a practising Muslim, as I discovered when I moved here a few years ago. In some ways I was lucky, managing to slot in the five daily prayers awkwardly (and often belatedly), between meetings and professional commitments. Fasting during Ramadan turned out to be a non-issue, while alcohol and pork were easily avoided in my remarkably tolerant and politically correct business and social circle.
One of my biggest problems, though, revolved around the Islamic prohibition on paying or receiving interest. I shunned credit cards and loans (with some difficulty) and when I was fortunate enough to earn interest, I duly disposed of it - not without a certain degree of smugness. To many of those who observe the religious prohibition on financial transactions involving interest, fundamental personal finance issues arise.
Interest is forbidden in Islam with the intention of preventing usury or riba <http://en.wikipedia.org/wiki/Riba> - effectively selling money as a commodity to the needy and profiteering from the desperation of others. But the rejection of this fast and easy money is predicated on the affordability of liquidity. What became clear to me was that in a situation where my family would not immediately intervene to come between myself and starvation, credit presented an appealing safety net that could bridge the gap between itinerant student jobs and sporadic transfers of cash from benevolent uncles.
The Islamic finance market in Britain has expanded significantly over the last few years and has now even been integrated into the mandatory tests required for those who practice in financial services. Islamic mortgages - previously the preserve of such institutions as the United Bank of Kuwait - are now being offered by several high street banks such as Lloyds TSB <http://www.lloydstsb.com/legal/mortgages_legal/islamic_home_finance_legal.asp> and HSBC <http://news.bbc.co.uk/1/hi/business/3035292.stm> .
Islamic mortgages - the jewel in the crown of faith-based financial products - are priced very similarly to non-Islamic mortgages that charge interest, but with the interest disguised as "rent yield". They require a larger deposit (usually around 30%) but the remainder of the value of the property is not loaned out to the mortgagee. The bank buys the house outright and charges "rent" instead of interest.
Muslims can now even take out an "Islamic" personal loan where, by sleight, of hand the client borrows money in a six-step process which must be finalised on the same day to "minimise the risk of price movement". In the days when the value of money lay in the very material from which it was created - such as gold - it was reasonable that repaying a loan in gold, when the value of gold had gone down, would involve an additional payment to recompense. In today's economy however, all credit transactions involve risk due to the volatility of everything from currencies to inflation. Therefore, the interest charged by lenders today need not necessarily be considered as usury: the lender is merely underwriting the risk of the borrower's inability to repay the loan while making a marginal profit from the investment.
A specialist in sharia-compliant mortgages commented <http://www.bbc.co.uk/religion/religions/islam/living/mortgages.shtml> to the BBC that "No one says that Islam is an easy religion to follow, but we believe that the rewards of being a Muslim are great as well. Halal food costs more money than regular food, yet nobody thinks twice about buying halal meat. Why would you think twice about doing Islamic banking?"
To any customer who is not merely willing to line the pockets of those who are adept at clever nomenclature and circular investment (rubber-stamped, naturally, by a sheikh in the Islamic finance department of some far-flung university), it becomes clear upon closer investigation that most Islamic products are not in fact - pardon the conflation - kosher: they effectively charge interest under a different mask.
Despite that, British Muslims have been eager to assuage their consciences by subscribing to these financial products. The "Islamic" current account is one of the easiest pickings for high street banks. By not paying any interest it manages to attract clients' money while appearing to offer them some kind of special service. Most of so-called Islamic finance is in a similar vein - trying to dress up 21st century financing in 7th century terminology without any real change. It is unfortunate that clients of Islamic finance institutions, who only want to follow their faith, appear to be exploited this way. However, this preoccupation with interest misses the bigger picture. Without delving into the intricacies of the religious prohibition, the literalism with which the ban on interest is taken, and its superficial observance, is the source of the problem.
The spirit of the Quran is against abusive loan-shark type financing - which is neither unreasonable not impracticable, in fact there are echoes of the hazards of a usurious system in today's credit crunch, measures for tighter controls on lending and curbing the number of mortgages on the market in order to stem the bleed of subprime mortgages in essence mirror the basic premise for the prohibition of unreasonable interest. But when banks capitalise on either the literalist attitudes of Muslim clients or their ignorance this is a double whammy. It is difficult for me to accept that Islamic principles should be extrapolated to mean that all commerce must be limited to basic structures of finance, making no allowances for entrepreneurship, foresight and the right to take a flier on the potential of an individual, business or inspired initiative.
Taking a risk and earning commensurate reward on the either the perspicacity or audacity of the stake is the cornerstone of the globalised economy of opportunity in which we live. Some might argue that Islamic sharia based financial solutions would not exist if there were no demand and that profiteering from this market is not only acceptable but standard business practice. All the more reason for us consumers to remember the principle of "buyer beware" and employ our reason to distinguish between usurers and lenders - and this applies to borrowers both within the Islamic finance system and outside it.
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