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Islamic banging


 Sher Khan

 2005/06/06  

Actually, itís about Islamic banking. There is not need of correcting the typo because the premise of Islamic banking is nothing but banging the economy anyway, where banging should be interpreted in slang.  

Economics has many siblings - Keynesian economics, Marxian economics, classical economics, etc. etc. and the new kid on the block is Islamic economics, based on the concept of ďRibaĒ or interest free banking system. May be comical but itís not economical at all. The new fashion of Islamic financing does not comply with modern economics or the Quran, itís kind of transsexual, neither a male nor a female.  

The macro economic concept of Quranic law gave birth to so-called interest free Islamic banking at a micro economic level. Malaysia in the mid-forties and Pakistan in the late fifties introduced small-scale interest free banking system. However, these two pre-matured babies did not survive. In 1963, Ahmed Al-Najjar of Egypt tried the system one more time and managed to outlive along with conventional banking. Soon at the beginning of seventies, abundant petro-dollars inspired bigots to create Islamic banks. In 1974, IDB (Islamic Development Bank) was formed by the OIC (Organization of Islamic Countries) to help member Muslim countries with a desperate attempt to isolate Muslim countries form rest of the world.  

Until recently, more than 100 financial institutions are involved in this freaky business.  Muslim apologists claim that Islamic banks of the world altogether have around $200 billion dollars in assets. Big deal! Itís a negligible amount compared to any other conventional banks. Bank of America of USA alone has over $700 billion dollars in assets. Conventional Banks are not supported by free money; they have evolved from natural economic phenomena. Whereas, Islamic banks are mostly state sponsored, if not fueled by free petro-dollars.  

Islam is not the only religion that talks about Interest free banking; Christianity also has the same formula, hidden in their religious books. While interpreting, Matthew 13:12 and 25:29, Luke 19:26 and 8:18, Old Testament, Exodus 22:25, many scholars agree that accepting or paying interest is hazardous to peopleís health. Seldom, they protest with a faint ďm..e..o..wĒ like a cat but never try to make it an issue. They understand the impact of interest on modern economic machine.  

The Federal Reserve System, shortly known as "the Fed," is the central bank of the United States . Itís not a profit-making organization and it works independently within the government. Fed conducts nationís monetary policy, regulates banking institutions, maintains the stability of the financial system and provides certain financial services. In order to maintain a fiscal discipline, Fed often changes the short-term interest rate that makes a tremendous affect on domestic economy and international market as well.    

Dr. Alan Greenspan, the chairman of ďFedĒ is considered the God of monetary world. He carefully reviews different factors of economy with the board members and decides to change the interest rate. Dr. Greenspan is an admirer of Ayan Rand, the pioneer of ďObjectivist movementĒ who advocated capitalism as a social and economic philosophy. Dr. Greespan has set a milestone in modern economics and he has been showered with honorary degrees from Harvard, Yale , Pennsylvania , Leuven ( Belgium ), Notre Dame, Wake Forest , Colgate, and Edinburgh universities. According to Islamic law, Mr. Greenspan will definitely go to hell and turn into Red-spank i.e. he will be spanked until he becomes red. More importantly, Dr. Greenspan is aware of interest free banking system but he would not dare to propose the stone age idea, because he does not want to turn USA into a poor Islamic country.  

Islamic banks are practicing a twisted concept of current interest based economic system. Usually, Investment financing is done in three different ways.  

1)     Musharaka- Sounds like mushroom but it did not grow like mushrooms. Itís a joint venture between the bank and a business farm. They split loss and profit in a pre-arranged fashion. Bank may withdraw gradually after a certain period of time. However, Bank is making money out of the investment.

2)     Mudarabha- Another idea of murdering the economy. In this peculiar system, bank contributes the money and the entrepreneur provides expertise, management and labor. Profits are shared by both the partners but lose is carried by the bank.

3)     Estimated rate of return- The bank determines an estimated rate of return on a specific project. If the project makes more than estimated amount, the client keeps it but bank will take a lower amount if lose occurs.  

The objective of a traditional bank is lending and securing money, itís not a bankís job to poke its nose in all ventures. When an entrepreneur submits a plan to build an industry, bank reviews the viability of the project but they are more concern of enough collateral. Itís the entrepreneur, who takes the risk with his/her last penny. On condition of receiving a percentage of interest, Bank will comfortably loan any amount of money as long as itís secured. 

Profit and Loss Sharing or ďPLSĒ (not PLO), is the sweetened name of Islamic financing. The goal of an Islamic bank is ensuring the profitability of a project. An Islamic bank will never lend a dime unless itís guaranteed that the project will make money. They surely donít want to take a loss. A bank should finance various types of projects; it may be a chemical plant or a charcoal project, candy factory or panty hosiery. When an Islamic bank takes the position of an entrepreneur and tries to oversee each and every project, they become ďJack of all trades-master of noneĒ. Itís impossible for a bank to have knowledge on various types of business. Nonetheless, Islamic banks are making profit a.k.a. interest on their invested money.        

 

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