Sharia Banks? - No Thanks

A recent article in the Globe and Mail indicates that the Superintendent of Financial Institutions, the organization that regulates banking in Canada, has received two applications for the establishment of banks offering services in keeping with Islamic Sharia law.

I can think of no other activities that should be kept farther apart in a secular society than religion and banking. Yet, as the article mentions, the applications are receiving attention, both pro and con, from authorities.

The following from the Banker's Academy gives a concise description of Sharia banking.

The basic principle of Islamic banking follows the laws of Sharia, known as Fiqh al-Muamalat (Islamic rules on transaction). The term “Islamic banking” is synonymous with “full-reserve banking” and “Sharia-compliant banking.” The most prominent feature of these laws is usury – the prohibition of paying or collecting interest on funds. The Islamic terminology for this is riba or ribaa. The Sharia also forbids engagement in investments that include financial unknowns such as buying and selling futures, as well as businesses that are haraam – dealing in products that are contrary to Islamic law and values such as alcohol, pork, gossip or pornography. These principles apply to all individuals, companies and governments.

The most prominent feature of these laws is usury – the prohibition of paying or collecting interest on funds. The Islamic terminology for this is riba or ribaa. The Sharia also forbids engagement in investments that include financial unknowns such as buying and selling futures, as well as businesses that are haraam – dealing in products that are contrary to Islamic law and values such as alcohol, pork, gossip or pornography. These principles apply to all individuals, companies and governments.

Banks that comply with Islamic law are forbidden to charge interest or late payment fees, which is also considered a type of riba. To minimize risk, banks will often require a large down payment on goods and property, or insist upon large collateral. It is lawful for the Bank to charge a higher price for a good if payments are deferred or collected at a later date since it is considered a trade for goods rather than collecting interest. Sharia-complaint banking products include Mudharabah (profit sharing), Wadiah (safekeeping), Musharakah (joint venture), Murabahah (cost plus) and Ijarah (leasing). Another way that banks work within Islamic laws while trying to turn a profit is by buying an item that the customer wants, and then selling the item to the customer at a higher price.

The Mudharabah is a partnership between an entrepreneur and the bank. The bank is known as the rabal-maal and the entrepreneur as the mudarib. The bank provides all of the necessary capital to start a business and the entrepreneur does the work of managing the business. Profits are split at an agreed ratio until the initial funds of the rabal-maal are paid off. The rabal-maal is also compensated with additional funds based on the profits of the business in terms previously agreed on. In the event that the business folds, the rabal-maal shoulders the cost and the mudarib is not compensated.

Musharakah is similar to Mudharabah, in which an entrepreneur seeks funds for a business venture and pays the bank back with a ratio of profits. However, there are often more than two parties who contribute funds and become partners who can influence the business depending on the amount of money invested. The entrepreneur also contributes funds and shares in the risk. Any loss is proportional to the amount of capital invested in the business.

Wadiah is a system in which a person deposits money into a bank and receives a “gift” from the bank. The bank is the keeper of the funds and will refund the entire amount at the demand of the depositor. The bank rewards the amount of time the depositor keeps the money in the bank with a hibah or gift, which is not guaranteed. The hibah is similar to interest, but lawful according the Islamic law.

Murabaha governs the issuing of home loans or any other type of goods needed by a borrower. An Islamic bank does not lend money to a borrower to buy properties; rather, the bank will purchase the property at the borrower’s request at a freely disclosed price, and mark up the price for the borrower to pay back, therefore making a profit from the investment. The borrower is named on the title and allowed to utilize the property immediately and pays the bank back in installments.

Another type of loan is the Ijara, in which the bank buys the home or item and leases the property to the borrower while retaining ownership of the property. The borrower can either use the property for a pre-determined period of time, or pay off the purchase price and buy out the Bank to attain full ownership of the property.

It seems conscientious Muslim bankers will go to considerable trouble applying Arabic euphemisms to what would be called "interest" in any other culture. It also seems that, as there are no universal standards for these activities, it would not be difficult to interpret them locally in favour of the banking institution thereby "ripping off" the pious believer. I suspect Muslim bankers are no less reluctant to make money than the Christian variety.


As an interesting aside - only 1.71 million out of the total of 176.88 million Muslims in Indonesia use Sharia banks in making transactions and investment, while most of the rest still use conventional banks. Apologists claim that this is a result of the Islamic banks having to develop in compliance with secular banking laws. Nonetheless, it is obvious that the vast majority of Muslim's, more than 99%, in the country with the highest Muslim population in the world find the conventional banks perfectly satisfactory for their financial transactions. It is reasonable to assume that a similar outcome would be the result of establishing Islamic banks in Canada as far as the regular customers are concerned. However, financial institutions, including currently existing Canadian banks, are a different story.

We can be sure that with the potential for incredible profits from the ability to invest in and otherwise deal with Muslim countries, both established and developing, Canadian financial institutions will try very hard to find a way to make the Sharia rules conform to Canadian law including lobbying Ottawa to modify the law. However, they will be treading on very dangerous territory for two reasons.

It is the stated objective of Muslim fundamentalists to establish a world-wide caliphate or Muslim theocracy if not by the sword, then by less violent means. Read, for instance, the plan of the Muslim Brotherhood, the oldest organization of its kind. They are willing to be patient and work within the system, but they mean what they say.

"Perhaps the next conquest [of Europe], Allah willing, will be by means of preaching and ideology. The conquest need not necessarily be by the sword […] Europe will see that it suffers from materialistic culture, and will seek an alternative […] It will find no lifesaver but the message of Islam […] Allah willing, Islam will return to Europe and the Europeans will convert to Islam. Then they themselves will be able to be the ones to disseminate Islam in the world" - Sheik Yousef Al-Qaradawi, a leading Sunni cleric, spiritual leader of the Muslim Brotherhood, and instigator and financier of terrorism in Europe and the Middle East.

Recall, if you will, the failed 2003 attempt to introduce Sharia law into Canada through Family Law supposedly under the guise of "multiculturalism." According to Tarek Fatah, a secular Muslim and founder of the Muslim Canadian Congress:

This is one more ploy to prey on the fears and insecurities of Muslim Canadians. Invoking Islam to make a fortune is only one part of the agenda. The other is to try one more time to make ‘Sharia’ part of the Canadian lexicon. Only this time, it has the backing of corporate lawyers and senior bankers who see big money at the end of the line. The whole concept is a fraud that will further marginalise an already marginalised community.”

Fatah, incidentally, was recently forced to resign from the organization he founded because of death threats resulting from his liberal views.

Secondly, Islamic around the world are also suspected of carrying out financial transactions for al-Qaeda and other internationally operating terrorist networks. Since September 11, 2001, Islamic banks have been frequent targets of secret-service investigations. Sums running into the millions have been seized, and accounts and funds frozen - reason enough to disallow the establishment of Islamic banks in Canada.

Finally, and this is purely a personal opinion, it has been my observation that Muslims, unlike immigrants from non-Islamic countries, do not assimilate well to Canadian culture but remain alienated and distant, choosing to remain within their own circle centred around the mosque. A recent survey of immigrant groups conducted in London, England supports this contention. They appear to be Muslims first and Canadians second. Granted, I am describing the first generation of immigrants. Future generations may be more amenable to mixing with the general population. Nonetheless, it is the responsibility of the immigrant to adapt to Canada, not the other way around. They must understand that Canada is a secular country. To change Canadian banking law for religious reasons is a subversion of Canada's well established and recognized gulf between church and state and must be seen as such. Sharia banking must be discouraged.

2 comments:

The Ranger said...

Dave,

Hello from the UK, where, unfortunately, "sharia" banking is alive and well.

One of the first movers amongst the major banks in this area was HSBC. Keep your eye out on them, no doubt other majors in Canada will soon follow.

I agree entirely that this opens a dangerous back door for sharia "law".

There is an element of fashion, especially amongst younger second generation muslims, using these kinds of issues to assert themselves. I imagine lots of young muslim professionals, quite affluent, who are keen.

I'd have to disagree about your last point about muslims not intergrating. I've heard this argument again again all over the world about immigrant communities. Let's not forget questions of class and racism as well. Whether it's the pub or the mosque or the church or the cafe, people are going to congregate somewhere to get social support. The real challenge is how are we going to provide that support in a secular way.

Back to the banking issue, however, I personally could possibly be swayed by an ethical or moral or economic argument against charging interest, but to say that "my god said so" is rationally meaningless.

all best
Simon

Anonymous said...

Dave,

Hello from the UK, where, unfortunately, "sharia" banking is alive and well.

One of the first movers amongst the major banks in this area was HSBC. Keep your eye out on them, no doubt other majors in Canada will soon follow.

I agree entirely that this opens a dangerous back door for sharia "law".

There is an element of fashion, especially amongst younger second generation muslims, using these kinds of issues to assert themselves. I imagine lots of young muslim professionals, quite affluent, who are keen.

I'd have to disagree about your last point about muslims not intergrating. I've heard this argument again and again all over the world about immigrant communities. The English and French in Canada didn't exactly intergrate with the First Nations, did they? Let's not forget questions of class and racism as well. Whether it's the pub or the mosque or the church or the cafe, people are going to congregate somewhere to get social support. The real challenge is how are we going to provide that support in a secular way.

Back to the banking issue, however, I personally could possibly be swayed by an ethical or moral or economic argument against charging interest, but to say that "my god said so" is rationally meaningless.

all best
Simon