no interest, no profit?

May 6, 2005 1:07 PM

Islamic finance--doing business according to Shari'a. ...Pious Muslims are not allowed to invest in industries that have ties to tobacco, alcohol, weapons, pornography or pork products. Since the law prohibits banks from charging or paying interest, Noriba and other Islamic Financial Institutions (ifis) instead make money by using a system based on the sharing of capital gains or losses. But even with post-Sept. 11 suspicions that Islamic banks may fund terrorist organizations, demand for the services of ifis is on the rise from the towers of Bahrain to the streets of London. Indeed, they represent one of banking's hottest sectors. ... more here
Socially-conscious investing of a different sort?
posted by amberglow (15 comments total)

The basic principle is: you can't trade within one currency before moving it to another.

So it's not just money off of money.

One of the Prophet Muhammad's companions traded a bunch of small dates for a fewer amount of large ones to give to Muhammad as a gift. When he told Muhammad how he obtained the large juicy ones, the prophet told him to be cautious of such dealings.
posted by b_thinky at 1:35 PM on May 6, 2005

Call me an idiot, but how exactly would a Sharia friendly mortgage work? And why the double transfer?
posted by Keith Talent at 1:36 PM on May 6, 2005

An Islamic mortgage would work almost the same, only they don't call it interest. They call it rent. So instead of the bank lending me money to put the house in my name, the bank buys the house in its own name and I "rent to own" paying pretty much equal to the going interest rate.

You cannot trade within one currency because it is a sin in Islam. The example I gave above about trading small dates for large dates is a sin. However, if I were to sell you the small dates for cash and then immediatley give you the money back for the large ones, that would be OK.

Many muslims do not follow this law because they assume it means you can't profit off of financial transactions. However, as you can see by some of the newer Islamic banks, you only need a little creativity to figure out how to make money.
posted by b_thinky at 4:29 PM on May 6, 2005

Is it not a bigger sin to use loopholes to weasel out of following the word of God than just to break the original sin? It seems to be more honest to just admit to yourself that you're not following the churches teaching rather than pretending to be pious and subverting the intent of the law.
posted by Keith Talent at 4:34 PM on May 6, 2005

intrigued. Thanks.
posted by fatllama at 4:47 PM on May 6, 2005

Aside from not investing in so-called "sin" investments, one of the basic concepts in Islamic banking is that gains cannot be made from financial assets in such a way that risk is avoided. Stock market, OK. Bonds, nope. Taking out a loan to purchase a house is frowned upon because the lender has no risk - they are benefiting from the fact that they have the money in the first place to make more money risk-free. However, if the bank joins with the individual in purchasing the house, and both parties share the risk (say, if the house burns down), and also share the reward (if the value jumps really high before the individual can purchase the bank's share), that's OK. It's all meant to avoid a situation where the rich get richer and the poor get poorer solely because of who happens to own the wealth.
posted by laz-e-boy at 9:53 PM on May 6, 2005

Isn't it a sin for Christians to do this also? It's in the Old and New testaments as well as the Koran. IIRC, it's the basis of that incident with Jesus and the money-changers. In the Middle Ages, when the Christian church was strong enough to enforce its law, there was some weird workaround which involved having the banking be done by Jews. These days, Christians have figured out that they can just ignore the parts of the Bible they don't like...
posted by hattifattener at 10:39 PM on May 6, 2005

you only need a little creativity to figure out how to make money

If by creativity you mean fraud ..welcome to the world of lack of responsability :D ! the way free market wasn't intented to be
posted by elpapacito at 2:17 AM on May 7, 2005

it's the basis of that incident with Jesus and the money-changers

The issue however was the moneychanging and other commercial activities were occurring in the temple, distracting hearts and minds from worshipping God in that place, demonstrating that business was more important to them and their customers even there. They were chased out of the temple, not put out of business.

On the issue of debt the Bible does have a caution, saying the borrower will be the servant of the lender. So the more debt you accumulate the more a servant you become of some other person or business entity which obviously reduces your capacity to serve God in that spiritual sense.

It's all meant to avoid a situation where the rich get richer and the poor get poorer solely because of who happens to own the wealth.

I didn't know that, excellent - well the banks are financial entities, by definition and purpose they intend to, and will, get far richer than their customers. The sole reason may not be their capital ownership and leverage but it's certainly a major reason so this workaround would seem to be a way of defeating the spirit of the law, not just the letter? But I guess that's the argument, probably been going since the beginning. Interesting example of tension between religious principle and practice.
posted by scheptech at 6:54 AM on May 7, 2005

thanks, b_thinky and laz-e--I was hoping someone who knew more about this would chime in. It actually seems like a good idea, but i wonder about foreclosures--how is that handled? and on CNN Int'l yesterday they were talking about all the massive construction projects in Bahrain and other places in the Gulf (those artificial islands and resorts and skyscrapers) being financed this way. How would that work?
posted by amberglow at 8:20 AM on May 7, 2005

Isn't it a sin for Christians to do this also?

I'm not sure if the Bible specifically forbids it, but the Catholic church (back when it was the only game in town) did forbid usury, the charging of interest. Thus, it was kind of hard to make money of loans so for a long time the only people who made them were the Jews, who had no such prohibition. It's the origin of the whole "shylock" stereotype.
posted by TheSpook at 9:24 AM on May 7, 2005

Deuteronomy 23:19 "Thou shalt not lend upon usury to thy brother; usury of money, usury of victuals, usury of any thing that is lent upon usury."

But in 20: "Unto a stranger thou mayest lend upon usury; but unto thy brother thou shalt not lend upon usury: that the LORD thy God may bless thee in all that thou settest thine hand to in the land whither thou goest to possess it."

So for the Israelites, it was OK to charge those outside their community, but not those inside.

Also, there's some discussion of whether usury is any kind of interest or excessive rates.

I think it's safe to say, however, that Credit Card Companies and loan sharks aren't proper Christian enterprises.
posted by weston at 12:31 PM on May 7, 2005

It actually seems like a good idea, but i wonder about foreclosures--how is that handled?

The bank only goes into the project if they concur with the lendee that it is a worthwhile one, so if there is a default, the bank repossesses the project and life goes on - they have the project completed and/or monetize it somehow.
posted by laz-e-boy at 7:05 PM on May 7, 2005

thanks, but putting people out on the street if it was a home mortgage?
posted by amberglow at 7:22 PM on May 7, 2005

Is it not a bigger sin to use loopholes to weasel out of following the word of God than just to break the original sin?

Well, put it this way: it is illegal (sin) to have sex. Yet, if we go through this little ceremony called marriage, sex is suddenly permitted.

Call it weaseling if you want, but its totally legal. I can't trade you small dates for big ones, but we can make that same transaction if we convert to a different currency first. This was the solution suggested by Prophet Muhammad, so clearly we see that it is OK (not considered weaseling) in Islam.
posted by b_thinky at 12:07 AM on May 8, 2005