January 14, 2008
Allah and Mammon
Islamic scholars debate the best way around the ban on interest amid the oil boom.
Capitalism runs on capital. So, what do you do when your religion forbids loaning money, but your economy is flush with cash due to rising oil prices?
Islamic scholars are debating just how to get around the ban on usury, or lending with interest. And a recent ruling by an Islamic scholar has thrown a wrench in what had become accepted practice. The International Herald Tribune reports,
Islamic banking assets outside Iran totaled $400 billion to $450 billion in 2006 and are projected to rise to $1 trillion by 2010, according to a recent report by McKinsey & Co. Total assets, including those in Iran, totaled $750 billion in 2006, a small fraction of global financial assets, but one that is growing quickly.
Experts say growth has been driven by booming Persian Gulf oil revenue, Muslims' growing preference for an expanding range of Shariah-compliant products and increasing acceptance of Islamic banking practices by financial regulators around the world.
Unfortunately for the industry, "one of the world's leading Shariah finance scholars recently rattled the market by saying 85 percent of Islamic bonds, or sukuk, are not Shariah-compliant. Sheik Mohammed Taqi Usmani argued that, in essence, they were structured too much like conventional bonds."
These bonds are structured in a way that gives the lender a share in future profits, but they also include a promise to pay back the original loan. The promise to repay makes the arrangement similar to a traditional bond, Usmani said.
Christians should pay attention to this debate. While the church has long since become comfortable with loaning money with interest, it can be helpful to see another religious group wrestle with modern capitalism. After all, why was it that for centuries Christians forbade usury and then heavily regulated it?
Hmm, maybe the mess created by the sub-prime mortgage lenders has something to do with it.