Is Sharia Banking Set To Emerge From the Fallout of the World Economic Crisis?

Economic Crisis Fallout
Shari'a Banking

By Ilana Freedman; Editor & CEO, Gerard Group International, Inc.

A dangerous trend is arising from the failing financial markets, as some of our leading financial institutions look to shari'a financing as a possible substitute or addition to our open market system.

Shari'a banking refers to a system of banking activity that is consistent with the principles of Islamic law (shari'a) and forbids earning or paying interest ('riba') on loans. Also included in the prohibitions of Islamic banking is investment in any business that provide goods or services considered contrary to Islamic beliefs, such as businesses which relate to forbidden foods like pork and alcohol, or forbidden activities such as gambling and commercial sex.

The Short History of Shari'a Banking
Proponents of shari'a finance claim that its principles are based on the teaching of the Koran, and that therefore it is more moral, more ethical, more spiritual, and more fair than conventional banking. In reality, the development of Islamic economics is a relatively new concept invented in the 1940s.

The creator of this system was Syed Abul Ala Mawdudi, a radical Pakistani Islamist whose global aspirations for Islam formed his message: "We cannot expect the rest of mankind to embrace Islam without any effort on our part". According to Alex Alexiev, Vice President for research at the Center for Security Policy in Washington, DC, Mawdudi's objective "was to convince the Muslims that Islam was a complete system of guidance in life in all things temporal or sacral and that the West had nothing useful to offer the Muslims. This was an essential part of his agenda for Islamization, which he pursued vigorously for decades." Reference here.

By the late 20th century a number of Islamic banks had been formed to apply these principles to private or semi-private commercial institutions within the Muslim community. Today, some are calling shari'ah banking called Islamic finance "the fastest-growing of all the financial sectors around the world". In order to avoid the one of the latest trends is one more closely allied to public relations than economics.

When referring to Islamic banking proponents of shari'a banking are encouraged to use the word 'ethical' instead of 'shari'a'. Promotion for a full-day event at Dubai International Finance Center in November 2007, held in association with The Wall Street Journal, was called Islamic and Ethical Finance . called Islamic finance "the fastest-growing of all the financial sectors around the world".

How It Works
Islamic banking principles forbid the paying or receiving of interest, so profits must be derived in different ways, largely through fees and contributions. With the rise of Islam to prominence in world affairs, shari'a banking principles have been more widely adopted throughout the world. In both Iran and Pakistan, the entire banking systems have been Islamized. The phenomenon has been spreading rapidly by global financial institutions. The recent upsurge in efforts by Islamic financing groups to control the US capital markets has reached an estimated $1 trillion.

Competing in the Free Market
In shari'a financing, home mortgages represent a creative adaptation of conventional mortgages. It works like this: a shari'a bank buys a house and then sells it back to the 'buyer', who pays a rental fee on the use of the house plus a monthly payment that is applied to the eventual purchase price. At the end of the term of the mortgage, the 'renter' becomes the 'buyer' and owns the house.

Likewise, savings accounts follow a shari'a compliant formula. A shari'a compliant bank invests the money deposited in savings accounts by its customers in shari'a approved investments (investments that do not involve forbidden products or activities). The returns are dividends and capital gains which are put in a fund that pays out the regular market savings account interest rate. This is similar to a standard bank savings account, but the money is not insured.

Shari'a finance is largely based on equity markets, excluding, of course, interest bearing instruments, such as bonds. The stock of companies whose product relates to pork, alcohol, and corporations are also excluded from these portfolios. Hedge funds are particularly well suited to the rules of Shari'a finance.
The current global economic malaise presents an opportunity to proponents of shari'a finance that is unparalleled. In "Shari'a Finance: a gift from Islam to the world".

Swati Taneja, director of the International Islamic Finance Forum,suggests that, "Now is a golden opportunity for Islamic finance to provide an alternative model which, by its very nature, binds both the real and financial economies - just what the world needs right now . . . There has never been a more interesting time for cautious investors burned in the conventional credit crunch to begin looking at what the Islamic markets have to offer . . Islamic finance is set to make the world a better place".

Shari'a banking is a well-established and rapidly growing industry, which claims to be different from 'regular' banking (which indeed it is), and promotes itself as the financial redeemer that the West, (which it certainly is not).
Most significantly, shari'a banks boast about their charitable activities, while hiding the shadowy links between such charities and the global support to terrorist organizations, which is carried out through the shari'a banking system.

For example, several of the 9/11 terrorists were financed through the banks in Dubai, and Palestinian suicide terrorists have been systematically supported by contributions from the national Saudi Bank. Closer to home, the Safa Group, working out of Virginia until they were shut down several years ago, strung together over 100 'not-for-profits' and 'legitimate' commercial enterprises, provided massive financial resources through shari'a fundraising and money laundering. Organizations like the Holyland Foundation in Richardson, Texas were shut down because of their use of charitable contributions to support terrorist activities.

According to shari'afinancewatch.org, some of the largest American banks and investment houses are now shari'a compliant, including Barclays PLC, Citibank, N.A., Dow Jones & Company Inc., Goldman Sachs Group, Merrill Lynch & Co., Inc., and Morgan Stanley.

As we watch our Western institutions - universities, the military, government agencies , prisons, even our elementary schools and local governments - slowly eroded through the well-organized infiltration by radical Muslims, it should come as no surprise that our financial institutions, which were built on the concepts of free enterprise and free markets, are already threatened by a foreign and dangerous form of economic corruption. The funds that used to go to fire the engines of commerce are now also firing the demons of terrorism and global warfare.

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