Monday, April 6, 2009

Vatican Recommends Islamic Finance For Western Banks

In yet another act of conciliation on the part of Western religions towards Islam, the Vatican newspaper Osservatore Romano has voiced its approval of Islamic finance. The Vatican paper wrote that banks should look at the rules of Islamic finance to restore confidence amongst their clients at a time of global economic crisis. “The ethical principles on which Islamic finance is based may bring banks closer to their clients and to the true spirit which should mark every financial service,” the Osservatore Romano said. “Western banks could use tools such as the Islamic bonds, known as sukuk, as collateral”. Sukuk may be used to fund the “‘car industry or the next Olympic Games in London,” the article says.

The Vatican article is only one of many articles that have recently appeared on the acceptance by Western governments and bankers of an Islamic financing system. More than accepting it, they seem to be welcoming it, though they are certainly being pressured into this by unnamed forces bowing to the dictates of Islam.

Last December, the French Senate looked at ways to eliminate legal hurdles, particularly levies, for Islamic financial services and products in France and the potential for listing companies on the Paris Stock Exchange. Senate sources said that this area of the financial market is worth from 500 to 600 billion dollars and could grow by an average 11 percent a year.

French Finance Minister Christine Lagarde has announced France’s intention to make Paris “the capital of Islamic finance” and announced several Islamic banks would open branches in the French capital in 2009.

This hearkens back to a video from November 26, 2008 that was posted at many French websites showing Madame Lagarde announcing with (according to some bloggers) visible embarrassment the decision to allow Islamic financing in France. Whether or not this move is constitutional is apparently not even an issue, since European countries change their laws to accommodate Islam. If the “sacred” law separating Church and State can be violated, any law can. The video, with its very soft audio, shows the minister in a strange garb, and struggling to present a happy countenance. There is no way of knowing if this is merely the quality of the video, or an indication of her emotional state. An article from Le Parisien dated November 27, 2008 provides the following information, in addition to the facts presented above:

A revolution in the banking world. After London, where the first Islamic bank opened its doors in September 2004, France could authorize banks respecting sharia law to open in 2009 (...) Hervé de Charette, president of the Franco-Arab Chamber of Commerce emphasizes that “importing Islamic banking into France would help the integration process”. The main obstacle: “Islamic banking arouses fear because it is associated, wrongly, with religious fundamentalism, even with the financing of terrorism,” deplores Elyès Jouini, professor of economics at the University of Paris. (...)

The world economic crisis has changed the ball game. From New York to Hong Kong, all the financial centers on the planet are grabbing the billions of dollars amassed by the oil-rich monarchies of the Gulf. To tap into this manna (...) is the stated goal of Christine Lagarde. “We are determined to make of Paris a great center for Islamic finance,” declared the Finance Minister as she inaugurated the second French forum on Islamic banking.

For another longer English-language article, visit Islam On Line. This article goes back to July 2008, showing that even before the crisis, France had initiated a policy favoring Islamic banking.

Source: Brussels Journal

Related Links:

Will American Capitalism Survive?

Islamic Finance Products

Vatican Says Islamic Finance May Help Western Banks in Crisis

Easing Limits on Islamic Finance in France

Video of Christine LeGarde on Islamic Finance

Blame for Global Financial Crisis

Islamic Banking Principles

5 comments:

Anonymous said...

This is another ploy by the west to loot the middle east. English company earlier sold the concept of credit rating and looted 2.5 trillion dollar from the swf of middle east.

Now they are doing it in the way acceptable to the islamic culture. As islamic finance does not have any interest concept, people can walk away with murder with regard to returns.

As such if you look at the people who are investing they are also becoming concern about the return on asset and security of captial.

If all that is charity, they will all invest in poor countries like somaalia, sudan to develop poor muslim countries.

Anonymous said...

Islamic finance does not have mandatory interest. Following are the impact compared to the traditional banking :

1. Banks technically need not accrue interest
2. Since there is no interest the repayment
amount will not change due to interest rate
variation

These were the two reason which brought out the sub-prime asset issue in america where the consumpiton was more than the income. When the interest rate went up item no. 2 went up and the borrower could not pay resulting in massive bad assets for the bank and the bank itself getting dissolved.

So american and europe would love to have the islamic finance as it will be funded more by wealthy islamic countries and sovereign wealth fund.

NO interest accrual
NO increase in interest rate and emi.

Another round of free lunch probably at the cost of the petro-dollar

Probably if the charity is the spirit and the word islamic finance, they must open up micro-finance in all developing muslim countries leave others. Anyhow that is not going to happen just a wishfull thinking.

Anonymous said...

Islamic finance still run on the traditional banking finance. Every investor would like to know what would be the return on investment.

The interest is re-cycled in such a manner which is acceptable by shariah. But the principle in which it operates is that there is no interest and on activity prohibited by holy book

Riaz Haq said...

Here's an excerpt from a piece by Pankaj Mishra published in Businessweek:

Nov. 18 (Bloomberg) -- During the worldwide depression of the mid-1930s, the poet and Islamic modernist Muhammad Iqbal, often called Pakistan’s spiritual founder, wrote a poem dramatizing the inadequacies of Western political and economic systems.

Democracy and capitalism had empowered a privileged elite in the name of the people, Iqbal felt. But he was not much fonder of Marxism, which was then coming into vogue among anti- colonial activists across South Asia and the Middle East:

But what’s the answer to the mischief of that wise Jew That Moses without light, that cross-less Jesus Not a prophet, but with a book under his arm For what could be more dangerous than this That the serfs uproot the tents of their masters

(Rooh-e-Sultani Rahe Baqi To Phir Kya Iztarab
Hai Magar Kya Uss Yahoodi Ki Shararat Ka Jawab?

Woh Kaleem Be-Tajalli, Woh Maseeh Be-Saleeb
Neest Peghambar Wa Lekin Dar Baghal Darad Kitab

Iss Se Barh Kar Aur Kya Ho Ga Tabiat Ka Fasad
Torh Di Bandon Ne Aaqaon Ke Khaimon Ki Tanab!)
------------
In any case, Tunisians voting for Ghannouchi and Pakistanis flocking to Khan’s rallies are not the radical revolutionaries or closet theocrats they are often made out to be by a paranoid local elite and a global liberal intelligentsia. Rather, these are people who have simply failed to develop the habit of seeing Islam as a purely religious phenomenon, separate from economics, politics, law and other aspects of collective life.

Whether liberal and secular elites like it or not, there are a large number of socially conservative Muslims who wish to see the ethical principles of Islam play a more active role in public life. The mind-numbing division between “moderates” and “extremists” that often passes for profound understanding of Islamic societies in the West simply fails to account for this invisible majority of Muslims, who are unlikely to plump for secular liberalism either now or in the near future.

For many nationalist and reflexively conservative Pakistanis, Imran Khan’s belief that “if we follow Iqbal’s teaching, we can reverse the growing gap between Westernized rich and traditional poor that helps fuel fundamentalism” is not the empty rhetoric it may sound to a Westernized Pakistani.

Indeed, the history of South Asia and the Middle East has repeatedly shown that the failure of modernizing endeavors, and the widespread suffering it unleashes, has always enhanced the moral prestige of Islam. In the eyes of its victims, the debacle of modernization and secularization has also diminished the credibility and authority of local elites as well as their Western sponsors.

The classic example, of course, was Iran. Visiting the Islamic Revolution after the fall of the secularizing Shah, the French philosopher Michel Foucault claimed that “Islam -- which is not simply a religion, but an entire way of life, an adherence to a history and a civilization -- has a good chance to become a gigantic powder keg, at the level of hundreds of millions of men.”

The 1979 Islamic Revolution in Iran that Foucault rashly cheered on has, in another generational shift, run its course. And revolution per se may be far from the minds of young Pakistanis and Tunisians trying to regain control of their national destiny. But the powder keg of political Islam that Foucault spoke of remains dry elsewhere in the Muslim world; and its potency is only likely to increase as Western political and economic systems and ideologies seem, to many Muslims, feeble, and yet so malign.


http://www.businessweek.com/news/2011-11-17/islam-offers-a-third-way-in-pakistan-and-tunisia-pankaj-mishra.html

Riaz Haq said...

Pakistan ranks 8th in the world of Islamic Finance, according to a Guardian story. Here's an excerpt:

How it works

Islamic finance is all about sharing risk between financial institutions and the individuals that use them. To do that, the two parties are tied into a longer-term relationship with each other that is supposed to shift incentives and avoid cut and run financial deals.

So, for example, sharia-compliant mortgages mean that the bank and the borrower share the risks of repayment rather than charging any form of interest. Similarly, Islamic bonds like the one announced by David Cameron today involve both parties owning the debt, rather than a simple promise to repay a loan.

Since it's Islamic, that also means that financial trading is off-limits for things that are forbidden even if no interest is charged - so investments can't be made in alcohol, tobacco, non-halal meat products such as pork, pornography or gambling companies.

You don't have to be Muslim to use Islamic financial services - a fact which has stimulated further interest in the sector. The Islamic Bank of Britain reported a 55% increase in applications for its savings accounts by non-Muslims last year after the Barclays rate-fixing scandal.

In numbers

275: The number of Islamic financial institutions in the world.
75: The number of countries where they have a presence.
US$1.357 trillion: The value of the global Islamic finance services industry by the end of 2011.
US$4 trillion: The projected value of the global Islamic finance services industry by 2020.
£200m: The value of the planned Islamic bond being unveiled by David Cameron today.
11th: The ranking of the UK (up 4 places from 2011) in the Global Islamic Finance Report which weighs up variables like the number of institutions involved in Islamic finance industry, the size of Islamic financial assets and the regulatory and legal infrastructure.

Glossary

bay 'al-mu'ajjal: Instant sale of an asset in return for a payment of money (made in full or by instalments) at a future date
gharar: Describes a risky or hazardous sale, where the details of the sale contract are unknown or uncertain
ijarah: Leasing contract
istisna': Refers to an agreement to sell a non-existent asset, which is to be manufactured or built according to the buyer's specifications and is to be delivered on a specified future date at a predetermined selling price.
mudarabah: Profit and loss-sharing
musharakah: Joint partnership
qard hasan: Interest-free financing
riba' : Usury
sharikat al-'aqd: Contractual partnership
sharika al-milk: Proprietary partnership
sukuk: Islamic bonds
tahawwut: Hedging
takaful: Islamic insurance
wadiah: Safe custody
wakala: Investor entrusts an agent to act on his behalf
zanniyyat: probabilistic evidence


http://www.theguardian.com/news/datablog/2013/oct/29/islamic-finance-for-beginners