Simon Roughneen, Washington Times, April 13, 2009
Backers of Shariah-compliant finance see an opportunity for expansion amid the global economic downturn, and some Western banks are welcoming this growing source of new business.
“Islamic bankers should do some missionary work in the Western world to promote the concept of Shariah banking, for which many in the West are more than ready now,” Indonesian President Susilo Bambang Yudhoyono said at the World Islamic Economic Forum last month in Jakarta.
Such statements have given rise to fears that Shariah finance is a stalking horse for hidden political or religious aims. Shariah finance is an extension of Islamic law, pushing a faith-based alternative to Western banking.
Key Islamists who advise Shariah financial houses have called for full Shariah law to be adopted in Western countries and, in some cases, have made statements supporting terrorist groups.
Shariah finance means institutions and norms that fit with Islamic law. Fully compliant Islamic financial institutions are prohibited from interest payments and require transactions to be backed by tangible assets.
Speculation and hedge funds are off limits–ditto for anything connected to porn, gambling, alcohol or pork. Shariah finance targets Muslims who want to avoid what are deemed “un-Islamic” Western banks or financial practices, and appeals to clients’ faith as well as their bottom line.
Depending on the measurements used, the Shariah finance sector manages assets of $700 billion to $800 billion, according to the Islamic Financial Services Board, an industry body. Standard and Poor’s estimates that the sector could reach $4 trillion before long.
Shariah banks make up a small fraction of the global banking sector, and they may have suffered less than Western counterparts by being sheltered from the subprime crisis.
Christopher Holton, vice president of the Center for Security Policy and director of its Shariah Risk Due Diligence Project, told The Times: “It is a myth that Islamic finance has provided a hedge against crisis. The FTSE Islamic Index has fallen 41 percent, and the all-world index 44 percent, similar losses over the past six months.”
Despite the varying prohibitions, some Shariah banks find creative ways to make the equivalent of market interest rates by other means, such as by pegging debtor repayment rates to his or her future profits, or when a bank offers a “hibah,” or gift to those who open an account–in essence a way of attracting new customers in lieu of interest accruals on savings.
The IFSL recently published a detailed report on the sector highlighting how “the U.K. is getting ahead of the game, in Europe at least, in facilitating this sector”–as noted by Emile Abu-Shakra, media relations manager at British bank Lloyds TSB.
Lloyds stole a march on the competition by greasing the wheels for Shariah-compliant bank-to-bank transactions, and now Britain has a bigger Shariah finance sector than Egypt or Pakistan.
In total, 22 financial institutions offer Shariah-compliant services in Britain, compared with nine in the United States. However the American financial sector is eager to source and provide new products–among them Shariah finance.
American International Group Inc.’s December pledge to bring Islamic home insurance to the United States was met with a written rebuke by Rep. Sue Myrick, North Carolina Republican, and Rep. Frank R. Wolf, Virginia Republican, who warned that opaque charitable transfers made by Shariah finance advisers could end up funding terrorists.
Most troubling, perhaps, is the appearance of Bank Melli of Iran at the top of a listing of the world’s top 500 Islamic financial institutions, published by the Banker in November 2008 and reproduced in the IFSC report. Bank Melli is under U.S. and EU sanctions for facilitating Tehran’s support of Hamas and Hezbollah and funding Iran’s uranium enrichment program. In total, Iran has six of the 10 biggest Shariah-compliant institutions and double the Shariah assets of any other country.