RBI's idea to bring Sharia Banking into the fray is deeply flawed
It is with astonishment that I read the announcement by the Reserve Bank of India (RBI) last week wherein it proposed the opening of an 'Islamic window' in conventional banks for 'gradual' introduction of Sharia-compliant Islamic banking in the country
It is with astonishment that I read the announcement by the Reserve Bank of India (RBI) last week wherein it proposed the opening of an "Islamic window" in conventional banks for "gradual" introduction of Sharia-compliant Islamic banking in the country. What followed in the RBI announcement was either naivety or appeasement, but it revealed that Islamists within India now had access to the highest levels of the RBI and had managed to secure their place in manipulating the most vulnerable in the Indian Muslim community
The announcement said the introduction of Islamic banking was to ensure financial inclusion of those sections of the society (read radical Muslims) that remain excluded due to religious reasons.
That is utter nonsense. On one hand, India is being pushed into the 21st Century by the wise actions of digitising the economy and discouraging the cash economy, while on the other hand, Muslim Indians are being encouraged to move in the opposite direction towards their medieval past. So what exactly is Islamic Sharia Banking and why is it that hardly any Islamic country on earth practices this system and why should Indians be worried about its intrusion in their financial sector?”
Origins of Sharia Banking
Islamic banking traces its roots to the 1920s, but did not start until the late 1970s, and owes much of its foundation to the Islamist doctrine of two people: Indian-born Abul Ala Maududi of the Jamaat-e-Islami and Hassan al-Banna of the Muslim Brotherhood in Egypt. While these two pillars of the Pan-Islamist movement propagated jihad and war against the West, they also recognised the role international financial institutions could play in carrying out their political objectives.
Since 1928 — when it was created, the Muslim Brotherhood has placed a high emphasis on the creation of a so-called Islamic economic system. Banna and his successor Syed Qutb even laid down principles of Islamic finance. Millard Burr and Robert Collins in their book Alms for Jihad claim that the Muslim Brotherhood watched, waited, and learned the management of money that was essential to finance a worldwide organisation devoted to spreading their Islamist ideology.
But the theory was only put into practice once the US-backed Pakistani military dictator General Zia-ul-Haq overthrew the government of ZA Bhutto and established Sharia law in Pakistan, forcing the country's public-sector banks to run their operations based on Islamic principles and without the role of interest. Two senior Muslim banking experts-turned-authors have written scathing critiques of Sharia banking: Muhammad Saleem has labelled the practice as nothing more than deception, while Timur Kuran has suggested that the entire exercise was "a convenient pretext for advancing broad Islamic objectives and for lining the pockets of religious officials".
Why would Indian banks contribute to this masquerade is a question for ordinary Indians, especially Muslims to ask.
Muhammad Saleem is former president and CEO of Park Avenue Bank in New York. Before that he was a senior banker with Bankers Trust, where among other responsibilities he headed the Middle East division and served as adviser to a prominent Islamic bank based in Bahrain.
In his book Islamic Banking: A $300 Billion Deception, Saleem not only dismisses the founding premise of Sharia and Islamic banking, but says, "Islamic banks do not practice what they preach: They all charge interest, but disguised in an Islamic garb. Thus they engage in deceptive and dishonest banking practices."
"Proponents of Islamic banking say that Islam bans all interest. But an understanding of pre-Islamic and Islamic history and keeping in mind the context would lead one to conclude that what the Quran bans is usury, not interest. Usury can be defined as interest above the legal or socially acceptable rate. Phrased differently, usury is the exploitative, exorbitant interest rate."
Secondly, were these banks able to promote economic development in the Muslim world? In the words of Saleem:
"Sadly, the answer is a resounding no. There is absolutely no evidence that the Islamic banks have made any contribution in either of these two areas."
The fact is that China and India, two countries that have had some measure of success in alleviating poverty and enhancing development, have outpaced all the Muslim countries put together despite their enormous natural resources and strategic locations.
Shariah Banking may not have alleviated poverty or generated economic development, but it has been a boon to the mullah class on one hand and, on the other, to the yuppie Muslim bankers and investment lawyers who have created a niche for themselves at the expense of the larger Muslim masses.
Saleem, who saw the functioning of Islamic banking from the inside, writes:
"In promoting the establishment of Islamic banking, the Sharia scholars have played a critical role. Lacking any knowledge of banking, economics and for many even Islamic history, in interpreting riba, they have confused interest with usury... Secondly, as Sharia advisers to Islamic banks, they have blessed many transactions as Islamic — meaning non-interest bearing — when in fact they are clearly charging interest, but interest payments are masked."
Dozens of Islamic scholars and imams now serve on Sharia boards of the banking industry. Moreover, a new industry of Islamic banking conferences and forums has emerged, permitting hundreds of Sharia scholars to mix and mingle with bankers and economists at financial centres around the globe. In the words of Saleem, who attended many such meetings, they gather "to hear each other praise each other for all the innovations they are making".
There are at least five international conferences every year and these have been going on annually for the past 25 years. Saleem estimates that the cost of each conference exceeds $2 million and so far more than $200 million has been spent just keeping the Sharia Banking circuit alive.
He cites one example of how Sharia scholars only care for the money they get from banks, and are willing to rubber-stamp any deal where interest is masked. Saleem describes one such incident as 'comical':
"I have first hand seen comical cases where the Sharia scholar of an Islamic bank only spoke Arabic, but a lending officer only spoke English and Urdu. A particular financing transaction was structured in English with such terms as x percent over Libor. So we had an interpreter who would translate from English to Arabic, explaining this convoluted transaction to the Sharia advisor. It was at times painful and other times comical to watch the proposal being presented to this religious scholar for his blessings to ensure that it was consistent with the principles of Sharia. The 'Sharia scholar', elderly and partly deaf, had little experience in modern banking and finance. However, mindful of the fact that the bank was paying him a generous retainer, he gave his blessing to the deal, after being fully made aware that the bank wanted to do this deal, even though from the look on his face it was obvious that he could not tell the difference between a trade deal and a leveraged buyout transaction."
In the name of Islam, what amounts to deception and dishonesty are being practiced while ordinary Muslims are being made to feel that their interaction with mainstream banks is un-Islamic and sinful. As the Muslim banker asked:
"Through various devices — mostly cosmetic — (Islamic) banks end up with virtually no risk. If Islamic banks label their hamburger a Mecca Burger; as long as it still has the same ingredients as a McDonald's burger, is it really any different in substance?"
To the Muslim homeowner who out of solidarity with an Islamic institution seeks Sharia Banking, the case of UM Financial, a Canada-based Sharia finance institution gone bankrupt sheds light. The cost of owning a home became substantially more through UM Financial than what he or she would have to pay if they went through a conventional bank. As The Toronto Star revealed, "the purchaser... pays a monthly rental fee equivalent to a mortgage fee. (If the mortgage interest rate is 5.5 percent, the UM Financial/CUCO rental rate is 6.1 percent.)"
Saleem laments the fact that few people are exposing the deception of this exercise in the name of Islam. "We should be able to point out the failures and shortcomings of Islamic banking and economics without being accused of being anti-Islamic," he says.
The Sharia Banking charade is a sad indictment of the Muslim community. Islamic banking is not some resurrection from a golden period — it is a 20th Century creation that flies in the face of reason, logic, and the spirit of Islam, yet it is being thrust on us for no fault of ours.
Islam's essence is its quest for equality and social justice. Muhammad Saleem says that any banking or economic system that purports to be "Islamic" — including the current crop of Islamic banks — should answer two questions: By supposedly staying away from interest and sharing risks with their clients, were they able to help make the economic system more just, fair and equitable, and honest?
The proponents of Sharia banking rest their case on many verses of the Holy Quran, which in their interpretation outlaw any business or personal financial transaction involving interest. There is no unanimity among the Muslims who, in voting with their feet and chequebooks, have overwhelmingly rejected banks that operate in a supposedly interest-free environment. Most Muslims can see through the fog of deception, but we are a billion strong worldwide, and even if a small minority falls prey to the Islamist propaganda, there is lots of money to be made.
Quranic verses that address the question of the role and the question of loans and debts include:
Al Baqarah (2:275): "God hath permitted trade and forbidden usury.Those who after receiving direction from their Lord, desist, shall be pardoned for the past; their case is for God [to judge]; but those who repeat (the offence) are companions of the Fire: They will abide therein (forever)."
Al Baqarah (2:276): "Allah does not bless usury, and He causes charitable deeds to prosper, and Allah does not love any ungrateful sinner."
Al Baqarah (2:278): "O you who believe! Be careful of (your duty to) Allah and relinquish what remains (due) from usury, if you are believers."
Al Baqarah (2:280): "If the debtor is in a difficulty, grant him time Till it is easy for him to repay. But if ye remit it by way of charity, that is best for you if ye only knew."
Al Nisa (4:161): "And their taking usury though indeed they were forbidden it and their devouring the property of people falsely, and We have prepared for the unbelievers from among them a painful chastisement."
Ar Rum (30-39): "And whatever you lay out as usury, so that it may increase in the property of men, it shall not increase with Allah; and whatever you give in charity, desiring Allah's pleasure — it is these (persons) that shall get manifold."
From these Quranic verses, it is abundantly clear that the Quran is addressing the rich moneylenders to show compassion towards the borrower and give him or her more time to pay back the loan. In fact, the Quran suggests to the lender that it would be far better if the moneylender forgave the loan altogether.
To suggest, the onus of complying with Sharia rests on the weaker borrower is obscene and against the spirit of equity in Islam.
I say this because what the imams and self-styled scholars of Sharia banking are proposing makes it easy for the wealthy to be pious simply by not having to do anything, while the poor who need to borrow are told to stay away from banks that lend.
Once more we see an example of Islam attempting to bring justice to the poor while Islamists make it difficult for the poor to access funds they don't have.
Today, owners of Islamic banks are billionaires — the practitioners of Sharia Banking are among the richest men in the world, while the vast majority of Muslims still struggle to eke out a living beyond one dollar a day. Sharia banking fattens the bottom lines of the imams, the bank owners, and the lawyers who pull out their best to Islamicise anything that sustains their handsome hourly rate.
Every translation of the Quran into the English language has rendered the Arabic word riba as "usury," not "interest," yet Islamists have deliberately portrayed bank interest, the cost of borrowing money, as usury. For Islamists, there should be a cost to renting a car and renting a DVD, but when renting money for a period of time, there should be no cost of this capital. Instead, Islamists have created exotic products with names that are foreign to much of the world's Muslim population
This is where interest can be masked under the niqaab of Mudraba, Musharaka, Murabaha, and Ijara — Arabic names given to various banking products to make them appear Islamic.
Whereas interest is the charge for the privilege of borrowing money, typically expressed as an annual percentage rate, usury is the practice of lending money and charging the borrower interest, especially at an exorbitant or illegally high rate.
In his brilliant book Islam and Mammon: The Economic Predicaments of Islamism, Timur Kuran writes:
"There is no distinctly Islamic way to build a ship, or defend a territory, or cure an epidemic, or forecast the weather."
He says the effort to introduce Sharia banking "has promoted the spread of anti-modern currents of thought all across the Islamic world. It has also fostered an environment conducive to Islamist militancy".
Indians will be well-served if the RBI and the Government of India read a bit more on this subject from Muslim critics of Islamic banking before giving the mullahs of India even more power over us than they already have through the Muslim Personal Law Board.
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