I've been researching Islamic banking, and I've come to the conclusion that it's the biggest hoax in the world, worth some $200 billion.
Basically, "interest" is not Shari'a compliant, because, well 1500 years back, it use to be exploitative and was thus banned in the Koran. Thus, Islamic banking is theoretically suppose to avoid using interest in order to be halal.
I've never really understood how you can run a modern enterprise without the concept of interest rate. As it turns out, you can't. Islamic banking is about disguising the use of interest rates, rather than eliminating them. So a bunch of products have been invented to do so like:
1. Sale and leaseback: A fixed piece of equipment is given to some one on instalments, and then returned to the original owner after a period of time ... or, a secured amortizing loan!
2. Sale via installments: A fixed piece of equipment is sold via a series of installments ... in other words, an amortizing loan!
3. Income participation: I.e. entitlement to a certain percentage of the cash flow of a business, after a minimum point ... or, a deferrable, non-cumulative interest bearing hybrid bond!
4. The worst ones, though, are based on derivative instruments. Derivative instruments derive their value from some sort on interest rate assumption ... so the VERY concept of derivatives requires the existence of interest rates. How can you possibly have "Islamic" compliant derivative instruments. One of the banks involved even had a Shari'a compliant interest rate swap. WTF?!?
I mean, come on, this is basically a semantics game that is being played out - with very high stakes. It is seriously retarding the growth of some countries (cause all these semantic games cost a lot of money), and not allowing them to partake in a modern global system.
Sorry, needed to vent!
Basically, "interest" is not Shari'a compliant, because, well 1500 years back, it use to be exploitative and was thus banned in the Koran. Thus, Islamic banking is theoretically suppose to avoid using interest in order to be halal.
I've never really understood how you can run a modern enterprise without the concept of interest rate. As it turns out, you can't. Islamic banking is about disguising the use of interest rates, rather than eliminating them. So a bunch of products have been invented to do so like:
1. Sale and leaseback: A fixed piece of equipment is given to some one on instalments, and then returned to the original owner after a period of time ... or, a secured amortizing loan!
2. Sale via installments: A fixed piece of equipment is sold via a series of installments ... in other words, an amortizing loan!
3. Income participation: I.e. entitlement to a certain percentage of the cash flow of a business, after a minimum point ... or, a deferrable, non-cumulative interest bearing hybrid bond!
4. The worst ones, though, are based on derivative instruments. Derivative instruments derive their value from some sort on interest rate assumption ... so the VERY concept of derivatives requires the existence of interest rates. How can you possibly have "Islamic" compliant derivative instruments. One of the banks involved even had a Shari'a compliant interest rate swap. WTF?!?
I mean, come on, this is basically a semantics game that is being played out - with very high stakes. It is seriously retarding the growth of some countries (cause all these semantic games cost a lot of money), and not allowing them to partake in a modern global system.
Sorry, needed to vent!