Saturday, May 13, 2006

Islamic banks and the financial blockade

Part of the rising tide of Islamism has led to the concept of Islamic banking. The basic need for "Islamic" banking arises from an injunction in the Holy Quran against usury. Under strict interpretations of Islam, bank interests are considered to be a form of usury. So, Islamic banks don't pay or charge interest.

One must not get the impression that Islamic banks are charitable organizations, because they are not. They make lots of money. How, I hear you asking, can a bank make money without charging interest? The answer is to rename interest and call it profit.

Say you want to buy a car, and you don't have the money and you want a halal loan. You go the Islamic bank and they will buy the car for you. Then they sell it to you at a higher price (making a profit on the car) and scheduling your loan over a specified period of time. Typically, the Islamic halal loan is about 25% more expensive than the bank that engages in usury…ooops, I meant charges interest. It is ironic that an injunction meant to protect people from exploitation is used to exploit people. I doubt that Allah would be impressed by this blatant interest laundering, but in the end it is up for Him to decide.

Getting money collected in favor of the Palestinian government to its final destination has been blocked by the refusal of commercial banks to transfer the money. The banks are afraid of the repercussions of angering the US and the EU. The US treasury department has threatened unspecified actions against financial institutions that deal with Hamas or the PA.

Yousef Qardawi has called on banks to break the blockade and suggested boycotting banks that refuse to transfer funds to the Palestinian Authority. A gathering to clerics in Qatar has also called on banks to break the boycott, warning that they "could launch a boycott asking Muslims to close their accounts and move them into Islamic banks".

Of course, the question arises whether Islamic banks are doing anything to transfer funds to the PA. If they did, then the problem wouldn't exist. So, clearly they are behaving the same way as all the other commercial banks.

It seems hypocritical that banks that are using religious cover to rip people off would ignore calls by Hamas and the religious scholars in Qatar. It is not that the US or the EU have the power to put them out of business. They can make things unpleasant and hurt their profits. But isn't the success of Hamas and the survival of the Palestinian cause worth the sacrifice?

Islamists are always challenging Jordan to behave against its interests under some vague ethos of sacrifice (more like masochism). Why don't they put their money where their mouth is?

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5 Comments:

At 8:31 PM, Anonymous Rami said...

Khalaf: very good point - adds to the wafer-thin cover of Islamic Banks. If you look at their financial models, you will realize they are not Islamic at all.

However, the problem with your arguement is in lumping everyone that claims to be Islamic together in one basket. This goes contrary to the infighting between Muslim groups (Taleban vs. Northern Alliance, Shia vs. Sunni in Iraq...etc). We should not commit to this generalization.

Yes, in my opinion, the 'Islamic Banks' are to be condemned for their boycott and they are hypocritical. Those banks are also allies of Qaradawi who sits on their board of directorship. Qaradawi in turn is an ally of Hamas. So it seems an ally's ally is boycotting while no one is scathing the ally's ally.

I wouldn't bet too much on Qaradawi though - he fails to even realize the Udeid base a few kilomenters away which was central to occupying Iraq, but managed to wake up and call on Iraqis to resist after the facts were established. He has his own calculations as to why he wants to jump onto the Palestine bandwagon - it is an excellent vehicle to gain popularity, and the game of offering nothing while seeming to offer the world has been perfected by the Arab leaders before. So Qaradawi (and the state backing him) can count on Palestine to gain them popularity at no cost.

Doesn't Hamas see this? They probably do, but where else could have Ghosheh and Mishal gone when the country they hold its passport kicked them out? Qatar did offer a sanctuary and, more recently, $50 million. That is better than accusing you of wanting to assasinate a king, isn't it?

So yeah, Islamic Banks are hypocritical, and so are the people who awarded them those titles. They are NOT Islamic for very clear Fiqh/Financial reasons. After all, who can claim any of the Islamic Banks is owned by anything but greedy, profit loving and hypocritical persons (like Dallat Al Barakah owned by Saleh Kamel, who consequently owns ART, the propagator of virtue).

 
At 6:08 AM, Blogger Khalaf said...

Rami: Thanks for the additional details. BTW, I don't think that anybody accused Hamas of trying to assasinate the king.

 
At 4:41 PM, Anonymous Don Cox said...

In English, the word "usury" means charging too high a rate of interest, that is, being greedy. A reasonable rate of interest is not usury. It seems to me that the high "profits" charged by Islamic banks might be usury.

 
At 10:51 PM, Blogger Khalaf said...

Don: I was being facetious. Of course you are right.

 
At 12:31 PM, Blogger Ronald said...

I am Ronald I guess some banks always charge high interests

 

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