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Sharia Compliant Finance: Deal or no Deal

January 20, 2009
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Quietly entering the problem-solving mix comes Sharia compliant finance (SCF). It has caused concern with many. “Shariah-compliant finance is coming at us like a runaway train,” wrote Brigitte Gabriel, a Lebanese American journalist who founded ACT! for America, an organization that fights the spread of radical Islam.

So what is SCF? A United States Treasury report, originally published in 2004 and upgraded in 2006, said:

Islamic finance started as a small cottage industry in some Arab countries in the late 1970s. It distinguishes itself from conventional finance in its ostensible compliance with principles of Islamic law, or Shar’ia. (Shar’ia literally means “the way” and is the Arabic term for Islamic Law as a way of life…). Its growth has been accelerating ever since, in terms of the number of countries in which it operates, as well as the areas of finance in which it has ventured. However, reliable data are not available on Islamic finance at the country, regional, or global levels. In recent years, the industry has attracted a number of Western multinational financial institutions, such as Citigroup and HSBC [an international banking corporation], which started offering Islamic financial products in Arab countries (notably Bahrain and the United Arab Emirates), and to a lesser extent in the western world (including the US, where HSBC offers various Islamic financial products in New York, including home financing, checking accounts, etc.). A number of Islamic financial products also involve the acquisition of assets (e.g., real estate, small corporations, etc.) in the west (including the US) in “Islamically structured” financing deals.

The Treasury’s 1970s assessment is challenged by The Economist. In an article published September 2008, they said:

The modern history of Islamic finance is often dated to the 1970s, with the launch of Islamic banks in Saudi Arabia and the United Arab Emirates. But its roots stretch back 14 centuries. Islamic finance rests on the application of Islamic law, or sharia, whose primary sources are the Koran and the sayings of the Prophet Muhammed, Sharia (they say) emphasizes justice and partnership. In the world of finance, that translates into a ban on speculation (or gharar) and on the charging of interest (riba).

But counter-evidence of these Islamic laws is presented by Alex Alexiev, Vice-President of Research at the Center for Security Policy (US):

The Ottoman Empire (1299–1923), whose economic history has been studied in greater detail than that of any other Muslim land, was characterized by both large-scale money lending (sarraf) and consumption-oriented interest lending throughout its history. What’s perhaps most interesting is empirical evidence that even Islamic religious organizations, such as the vakif (waqf) endowments, were themselves involved in lending money at interest. Research by the Turkish economist Sevket Pamuk and others, for instance, shows conclusively that these “cash vakifs: were lending their cash assets at 10% or more interest per annum as early as the 15th century and as late as the 18th century and using the interest proceeds to fulfill their religious obligations.

Certainly, something happened in the 1970s that drew attention to Sharia finance and its proponents. Alekiev called it “the invention of Islamic Economics.” He went on to say: “And invention is not an exaggeration for what happened when the radical Islamist ideologue Maulana Abul Ala Mawdudi took it upon himself in the 1940s to chart out a course for Muslim cultural and political reassertion in the face of what he saw as an onslaught of Westernization that ostensibly threatened Muslims with the loss of their religious identity.”

It took a few decades for the concept of Islamic finance to be developed. Oil prices spiked, and Saudi Arabia, along with other Gulf oil producers, had the wealth to accelerate the plan. “In the ten years following the (1973 oil) embargo, Saudi funding of Islamic activities, couched as ‘overseas development aid’ outside of its borders averaged [US] $4 billion per annum between 1975 and 1987, a truly unprecedented sum at the time,” according to Alekiev.

The same observation was made by London-based columnist Melanie Phillips: “It was not until the mid-20th century that ideologues like Abu ala Mawdudi and Sayyid Qutb (the Muslim Brotherhood) advocated sharia finance as an element of a separate, self-sustained Islamic order with its own Islamic ideology, Islamic politics and Islamic economics that taken together would guarantee an Islamic way of life and ultimately the Islamic state as the first step toward establishing Muslim rule worldwide.”

“The End of Capitalism”

It is no surprise to say that the Islamic world is outspoken in its contest with the United States, “the Great Satan.” Iranian leaders openly celebrated when the financial crisis hit last October. Ayatollah Ali Janati, leader of Iran’s Guardian Council said that the financial crisis “has spread to Europe now, which makes us happy. The unhappier they are, the happier we become.” Iranian President Mahmoud Ahmadinejad called the crash “the end of capitalism.”

Egyptian-born cleric Sheikh Yusuf al-Qaradawi called for the replacement of capitalism with the Islamic solution. “The Western system has collapsed, and we have the complete economic philosophy, as well as spiritual strength,” he told the sixth conference on Jerusalem in Doha, Qatar. His audience included Khaled Mashaal, the head of the Islamist group Hamas, and Ali Akbar Velayati, a senior advisor to the Iranian spiritual leader Ali Khamenei. According to the Middle EastTimes Al-Qaradawi said, “All riches are ours. The Islamic nation has all or nearly all the oil, and we have an economic philosophy no one else has.” (Interesting that he did not single out Saudi Arabia or Iran but lumped them all into one Islamic nation!)

Hamas Prime Minister Ismail Haniyeh said: “Oh Americans, Allah will punish you because you have attacked Palestine, Iraq, Afghanistan, and Somalia, and because you have fought anyone who raised the banner of Islam! The time has come for Allah to declare war on you, oh usurers.”

Commenting on the absence of a united Arab approach to President Barack Obama, Palestinian researcher Dr. Khaled Al-Haroub said, “The current global economic crisis tempts us to consider this Arab absence from a new perspective. The US and Europe need Arab capital to save the world economy from collapse. In return, we might propose a deal…It is time for the Arabs [to learn how] to make significant political demands in return for their capital and investments in the world economy.”


What Israel and the world needs to know are the finer details of zakat, Arabic for “purification” and “growth.” All possessions are to be purified, and this is done by setting aside a portion for charitable activities. However, Muslim Brotherhood spiritual leader Yusuf al-Qaradawi issued a decree as to its use: “Declaring holy war…is an Islamic duty, and fighting…is the way of Allah for which Zakat must be spent.” In his 1999 publication Fiqh az Zakat he said: “The most important form of jihad today is serious, purposeful organized work to rebuild Islamic society and state and to implement the Islamic way of life in the political, cultural and economic domains. This is certainly most deserving of Zakat.”

It is written in the Koran (Muslim religious book), Surah at-Taubah 34–35: “O ye who believe! There are indeed many among the priests and the anchorites, who in Falsehood devour the substance of men and hinder (them) from the way of Allah. And there are those who bury gold and silver and spend it not in the way of Allah. Announce unto them a most grievous penalty. On the day when heat will be produced out of that (wealth) in the fire of Hell, and with it will be branded their foreheads, their flanks, and their backs, their flanks and their backs—This is the treasure which ye buried for yourselves: taste ye, then, the treasures ye buried.”

The concern with the present enthusiasm for SCF is what charities will be recipients of the growing amount contributed as zakat. According to The Encyclopedia of Islam, eligible recipients of zakat would be “volunteers engaged in jihad.” The support is given to cover “living expenses and the expenses of their military service (animals, weapons).”

In October 2007, Dr. Rachel Ehrenfeld, author of Funding Evil, wrote:

In 2003, the UAE (United Arab Emirates) established an independent federal agency collecting Zakat on government tax revenues from companies listed on the Dubai Financial Market and Abu Dhabi Securities Market…oil-producing companies and branches of foreign banks. In 2007, these revenues were estimated at [US] $13.5 billion.

Saudi Arabia, for example, collects [US] $18 billion a year in Zakat―which includes the 20 percent flat corporation tax from foreign companies. The Saudis claim that the money collected develops their infrastructure. However, two-thirds of Saudi men are unemployed, and the infrastructure is crumbling. Yet, since the 1970s, the Saudi government has spent more than [US] $100 billion to build thousands of mosques, Islamic centers and Islamic studies programs in universities worldwide.

On April 30, 2007, the Organization of the Islamic Conference (OIC)―which also initiated Muslim riots after the Danish Mohammed cartoon publications― established the clerical International Commission for Zakat. The ICZ replaces more than 20,000 organizations that previously collected the money.

There appears to be enough history connected to SCF for governments to consider where the zakat will go. As their income grows and the Islamic spread widens, will terrorists in Iraq, Afghanistan, Hamas, Hizbullah, and Iran be the benefactors? One day, buying and selling will require the mark of the beast (Rev. 13:17), and that makes what happens to our financial markets today extremely important.

The West’s Response

The international economic crisis is, without doubt, a window of opportunity for SCF. Among others, the United States and the United Kingdom need answers to their problems, and those answers mean money. In February 2008, the Investor’s Business Daily said:

Citibank and Goldman Sachs are creating investment vehicles that cater to Muslim investors in order to grab some of the billions in management fees in the offing. These products include Shariah-compliant bonds, mutual funds, mortgages, insurance, hedge funds, and soon REITs (Real Estate Investment Trust). Dow Jones has even created its own index for Islamic-correct investments: the Dow Jones Islamic Index…

Wall Street is jumping into this hot new market oblivious to the risks not just to the bottom line, but to national security. It knows little about Shariah law and is turning to consultants to create “ethical” products to sell. Lost in the hype over these Muslim-friendly funds is that they must “purify” their returns by transferring 3% into Islamic charities, many of which funnel funds to terrorists.

A profound article was written by Dr. Rachel Ehrenfeld and Alyssa A. Lappen and published by Armed Groups: Studies in National Security, Counterterrorism and Counterinsurgency. It began…

“The United States and the West cannot win the war against radical Islam merely with the most sophisticated military strategies. Winning requires understanding the role of Shar’ia and the Muslim Brotherhood in developing a global ideological and political movement supported by the parallel “Islamic” financial system to exploit and undermine Western economies and markets. This movement is the foundation and the major funding source for the political, economic, and military initiatives of the global movement.”

For anyone analyzing or observing recent economic events, those comments must raise eyebrows! However, British author and bank investment manager Toby Birch (using the name Hugo Bouleau), who predicted the economic collapse in The Final Crash, strongly endorses Islamic finance as part of the international recovery: “Islamic philosophy may offer a beacon of light in the midst of the global credit slump.” He stressed the West has a lot to learn from Middle Eastern business practices.

But the “watchmen on the wall” are saying, “At what cost?”


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