Islamic finance: Neo-Con madness again



Poor Subramanian Swamy. The prospects of Islamic finance and banking options in India make him nervous as a rain-drenched cat.

He thinks Arab funds will flow like water, endangering India’s financial sovereignty. With Swamy and friends, such paranoid stuff and canards are bread and butter. Without these, they cease to exist. Muslim-bashing is the summon bonum of their existence; Islam a bogey they raise to stay alive. Without this all-important vocation, they are dead and gone.

The JP Morgan Chases, Dow Joneses, Citibanks, Morgan Stanleys and the Stancharts out there however know the exponentially growing Shariah-complaint financial market well and have dabbled in it. Not because of religious requirement. They are in it for the profit. The State Bank of India too offers Shariah compliant products in many Gulf countries. There’s money to be made after all.

But this isn’t about Islam or finance really. This is rather about defending principled Indian liberalism from its sworn enemies.

A vitriolic propagandist, Swamy is one of those right-wing cynics who will have no qualms trampling upon religious liberty.

This is about stopping the misinformation they spread, while reinforcing our own intellectual credentials in battling the neo-CONs — the pun is not intended but incidental.

This is going to be the challenge we will face for a long, long time. Cultural conservatism cannot be allowed to be passed around in the name of political conservatism by near-fraudulent means.

Back to Islamic finance. With at least $500 billion in assets globally managed in accordance with Shariah, or Islamic law, and the sector growing at over 10% a year, according to Standard & Poor’s, Islamic finance isn’t about Islam as much about wealth management for potential investors.

In principle, Islamic finance seeks equitable wealth by banning exploitative financial practices. In practice, it’s about side-stepping paying of interests, gambling on derivatives and excessive risk-taking. Or investing in casinos, pornography and weapons of mass destruction, pornography or pork.

The fundamental requirement of any investment under Islamic finance is to share both reward and risk. So, products are designed in such a way that both profits and losses are equally shared among lenders and borrowers. There cannot be a zero-sum game: one’s profits cannot come from other losses.

Financial institutions love Islamic finance not because of its moral compass but because of something far more basic: its market potential.

HSBC and Citigroup established their global Islamic finance divisions in the 1990s, as did Ernst & Young. Unlike Swamy, they know money isn’t Muslim or Jewish.

Even central banks can’t resist the temptation. London could soon be the hub of Islamic finance in the west. The Japanese and British govts — in an attempt to attract Muslim investors — have announced plans to issue sovereign bonds that conform to Islamic law.

Ford Motor sold its $848-million Aston Martin to Investment Dar, a Kuwait-based Islamic bank, under a Shariah-compliant sale. Why? Because it got a lucrative client. A Shariah-compliant private equity firm based in Bahrain owns Caribou Coffee, America’s second-largest coffee chain, just as Saudi British Bank is part-owned by HSBC and Standard Chartered.

France can’t stand the veil but has changed its tax and legal codes to attract Islamic investors. All leading banks in London have so-called Islamic windows.

Rules have been amended in non-Muslim financial centres, such as London, Singapore and Hong Kong, to facilitate Islamic finance.

A home-purchase plan for the mainstream UK market approved by the UK’s Financial Services Authority has been designed around Islamic finance principles and shows that Islamic finance can inspire sustainable financial products.

The principles of this home purchase plan are the same as those governing Islamic housing schemes in the UK: Risk-sharing, not charging high fees; allowing for part rent, part purchase, sharing equity upside and sharing downside property risks.

Yemen’s Al-Amal bank won accolades of the Consultative Group to Assist the Poor (CGAP), an arm of the World Bank, in 2010 for its innovative Islamic microfinance initiative, a lease-to-purchase arrangement in which borrowers work as salaried employees of the bank they borrow from, while also working on their own plans for which they took the loans.

Islamic financial services need to be seen as an investment product in a broader portfolio bouquet.

The idea is not to foist Islamic finance on the rest of the world economy but to allow a healthy competition between the two. Being a niche product, it cannot, definitionally, supplant conventional banking.

In the context of greedy practices of the sort that led to the 2008 credit crisis, it however merits a closer look.

But more than anything else, it should be there on the table, laid out among many other instruments as an option for Muslims to enhance wealth and the quality of their lives within their religious beliefs.

Global banks are happily offering Islamic finance products and will do so as long as there is a market and demand. Doubting Thomases, such as Swamy, can continue, in the meanwhile, to spread some more scare. That’s how they earn their profits: from hate-mongering.

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