Allah or Mammon
The Netherlands wants to become the center of Sharia Banking. The Brussels Journal reports quotes Dutch Finance Minister and Labor Party politician.
[We want to encourage Islamic banking.] In the first place because Islamic banking meets a demand from the Muslims living in the Netherlands. In the second place because we see an opportunity here for the Dutch financial sector. A third reason is that banning Islamic banking from the perspective of fighting terrorism will have a counter-productive effect. Denial of an actual need can lead to money-flows running via alternative channels out of the sight of the government.
Another dhimmi surrender or some sharp operators taking the gullible to the cleaners? At a recent lunch discussion, it was argued that Sharia banking, objectively considered, just another ethical product like carbon trading, in which you can charge a premium for what is essentially psychological value-added. After doing some research it turns out that the key to getting many Muslims to bank at all is to is to rename what Western bankers call interest as something else -- profit sharing, leasing, etc. Forbes Magazine recently ran an article on it (which for some reason is not generally available) titled "Don't call it interest", but fortunately a Sunni forum quoted it in full.
How does a God-fearing Muslim finance a gas well? With sort of a sale-leaseback. If you are a devout Muslim, you can't invest in a company that produces alcohol or pork. The Koran forbids interest, so a conventional home mortgage is verboten. So would be a debt-financed business asset. You can't use derivatives or buy into conventional hedge funds.
It's a tricky business to participate in a modern economy without running afoul of sharia, or Islamic law. But it can be done. For a fee you can get a consultant to arrange financial transactions that would pass muster with Allah. There may be extra steps or additional paperwork, but sometimes the outcome is the same as you'd get without sharia.
Big money is at stake. Moody's (nyse: MCO - news - people ) says $800 billion is available for investing in sharia-compliant assets. UBS (nyse: UBS - news - people ), HSBC (nyse: HBC - news - people ), Barclays (nyse: BCS - news - people ), Deutsche Bank (nyse: DB - news - people ), Standard Chartered, AIG, Lloyds TSB (nyse: LYG - news - people ), Morgan Stanley (nyse: MS - news - people ) and Swiss Re are some of the Western financial institutions rushing sharia-compliant financial products to market. ...
"We have a higher documentation fee because documents are not spit out of some loan production package," says David Loundy, vice president at Devon Bank. "But we price an Islamic financing transaction same as we would a conventional loan." In other words the interest rate--if there were an interest rate--would be about the same, but the closing costs will run a few hundred dollars extra. God forbid you borrow for the extra costs. This is how one mortgage banker analyzes such deals: "The price for getting into heaven is about 50 basis points."
So essentially Sharia banking is the financial equivalent of Halal food. It is money prepared and profits denominated according to accepted ritual. And the attraction of offering it is that you, as a consultant, can get to charge for making sinful old interest wear a pious garb. Forget I said that. Now I know why the Forbes article was not widely distributed.