Sunday, January 18, 2009

You Have A Friend At Sharia Finance

I don't know if there is an actual financial institution by that name, but some day there may be--in New York perhaps, if the AP has its way:
Big financial institutions have been battered by mortgages gone bad. But a tiny Michigan bank is getting attention in the industry by turning a profit on loans without even charging interest.

Its specialty: financial products that comply with Islamic law. That means no collecting interest, no short selling, and no contracts that are considered exceedingly risky.

It also rules out some of the activity that got Western finance in trouble — subprime mortgages, credit default swaps, and the like.

"When you look at the economic crisis we're in, if you were to follow Islamic or Shari'a financing, you couldn't have this crisis," said John Sickler, corporate director for the bank, University Islamic Financial Corp. in Ann Arbor.
Maybe Sickler is right, but then again--just how did the Muslim world make out? Let's see:

Arabs lost 2.5 trillion dollars from credit crunch: Kuwait
"The Arab world has lost 2.5 trillion dollars in the past four months" as a result of the global financial crisis, Sheikh Mohammad told a press conference following a joint meeting of Arab foreign and finance ministers in Kuwait.

...Falls on stock markets contributed more than 600 billion dollars to the losses, while Arab investors were further affected by a sharp decline in oil revenues, the declining value of property investments and other repercussions of the global downturn.
Come to think of it, just what was the record of Sharia Finance before oil became the lifeblood of the Arab world?

Meanwhile, David S. Rusin, of Islamist Watch, writes about some of the more problematic issues surrounding Sharia Financing:
  • Religious advisors charged with overseeing an Islamic bank possess sole authority to determine which investments and financial instruments are permissible, or halal.
  • These same Shari'a advisors distribute the zakat, charitable donations necessary to "purify" profits. It has not been uncommon for such funds to end up supporting terrorist organizations, meaning that Western banks could be held liable in the event of an attack.
  • Though now-infamous financial contracts like credit default swaps may be baroque, so too are some Shari'a-compliant contracts, as clever engineering is often required to circumvent the ban on interest.
  • Islamic banking was invented in the last century as a tool to advance the Islamist agenda. As such, Frank Gaffney has warned that it represents the "leading edge of the spear for those seeking to insinuate Shari'a into Western societies."
There are a lot of questions to answer before looking to Sharia as a way to make an extra buck.

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