I recently undertook the Islamic Finance Qualification offered by the Chartered Institute of Securities and Investment (CISI) offered through Kaplan Financial.
The course provided basic information on the history, framework, techniques and governance of the Islamic Finance Industry, which was interesting.
However, I felt that the course failed to expand upon the fact that many of the Islamic Banks are pale imitations of their conventional counterparts, the latter having merely been “Islamised”. In addition, the conventional framework within which Islamic Banks operate was never called into question; it was almost a given that returns linked to LIBOR were acceptable, and that Islamic Banks could legitimately ‘hedge’ against risk through intricate financial techniques. The (lack of) transparency in relation to corporate governance was also a major cause for concern.
It was refreshing to attend a course this weekend at SOAS, taught by a practitioner at a major GCC Bank, that confirmed my initial scepticism as indeed being warranted.
The picture painted was a bleak one for the Islamic Finance industry. I’m arranging for the PowerPoint slides to be uploaded on this blog in due course for all those interested.
In the meantime, I’d like to share (and perhaps take your comments on) an exerpt of an interview with Imam Abdassamad Clarke:
You have expressed the view that paper money should be abolished and replaced with gold and silver coins. Why is that?
Perhaps abolition is not the correct way to look at it. As with the British pound note, paper money is a ‘promise to pay the bearer on demand the sum of so-many pounds’. Therefore paper money is not itself money. It is an IOU. The IOU is not allowable for use in many transactions, most importantly zakat. An IOU cannot be used in transactions between people except under very strict conditions that are governed by the fiqh of the legal schools.
However, the situation is much worse than that. The human race has handed the right to a group of quite shady people to simply write numbers on bits of paper and then lend them to us at interest. The scale of it is so immense that, if we take strange financial deceptions such as derivatives into account, the amounts that are written on bits of paper hugely outweigh the actual wealth of the entire planet. That is clearly such a monstrous situation that it cannot last. But the people who understand this the best are those who invented and who use the system, because, while it lasts, they are buying up anything of any real value that they can lay their hands on. We experience that as the steep rise in the prices of the basic commodities that we need to live: food, petrol, land, etc.
On the other hand, we know from the famous hadith in Sahih al-Bukhari about the man who was asked to buy a sheep for the Messenger of Allah, may Allah bless him and grant him peace, for one dinar, which was their ordinary price, but was able to buy two then sell one for a dinar and return with a sheep and the original dinar intact, that this same selfsame dinar today would still buy a sheep almost anywhere on the earth, and sometimes two. There is similar evidence of the purchasing power of an ordinary Roman gold coin. Thus gold and silver have not suffered any inflation at all in two thousand years.
Paper money and electronic credit have an insane potential for astonishing and rapid expansion and enrichment, and people are loathe to give that up, even if the downside is famine, depression and intolerable enslaving lifestyles for billions of people.
But we do not suggest that anyone has to abolish paper money or legislate the use of gold and silver; we say that people have to be allowed freedom to use whatever they want, except for usurious instruments. When people are free to choose they have always chosen gold and silver.
The argument is even more compelling for us because of the fact of zakat being an act of worship and not social welfare, even if it has genuine social repercussions. As an act of worship it has to be done the way the first communities and all the generations of Islam have done it, and it was always paid with gold and silver when paid on savings and on goods held for trade. The same thing that has Muslims all over the earth, in the revitalised Islam we see everywhere, taking such care over the performance of their wudu’ and the exact performance of their prayers will, when applied to zakat, mean that the Muslims will put real money back into circulation and that is the thing that will drive the criminal banking system to destruction and that will benefit non-Muslims as much as Muslims.
Stay tuned for the slides, in sha Allah.