Banking on Allah

Islamic banking is becoming increasingly accepted as a viable and fair alternative to the current "Western capitalist" banking system. European governments, including the UK's, are embracing Islamic banking. Gordon Brown recently declared that it was his desire to make Britain the Islamic finance capital of Europe. A number of leading UK banks now offer sharia-compliant financial services and the Treasury is considering the implementation of the sukok, or sharia-compliant, bond. Such moves fail to recognise Islamic banking for what it is — a modern Islamist construct, designed as another wedge between Western Muslims and their societies. 

Since the recession, Islamic banking's supporters have been seizing the opportunity to present it as not only a more moral option, but as an economically safer one. But there are three questions that need answering: How is Islamic banking different? Who are its biggest cheerleaders? Why are they pushing for it?

Among the many justifications for his declaration of war against America and its allies, Osama bin Laden cited the un-Islamic and evil nature of the Western financial system. In a November 2002 "Letter to America", he wrote: 

"You are a nation that permits usury, which has been forbidden by all the religions. You build your economy and investments on usury. As a result, in all their different forms and guises, the Jews have taken control of your economy..."

Prohibiting the use of interest is the raison d'être of Islamic banking, which claims not to deal in such greed — nor in other haram (forbidden) ventures, such as those involving pork, booze and gambling. There is little doubt that in seventh-century Arabia, the poor were exploited through a pre-Islamic tradition of usury, which would often lead to the doubling and tripling of the original debt. As bin Laden pointed out, usury was banned by all the major religions, and riba, meaning exploitative and excessive interest, was banned by the Koran. However, as with many Islamist ideas, an incorrect interpretation lies at the heart of the attempt to apply archaic principles to modern times.

Riba does not apply to the modern concept of interest, but to excessive and extreme rates of interest that present huge risks to the borrower and a minimal risk to the lender. Islamic banking claims that risk will be shared by both the borrower and lender. But the idea that a modern bank lender shares no risk with the borrower is patently ridiculous. A conventional bank has little incentive in seeing its borrowers fail, the obvious reason being that this increases the chances of them defaulting on loans. 

The claim that Islamic banks assume a greater risk is also disingenuous. The most striking thing about the four main modes of sharia financing — mudaraba, musharaka, ijara and murabaha — is how little they differ from conventional finance systems. The first two offer the same services as venture-capital industries where an entrepreneur borrows money from an investor for a specific project and, if successful, returns a pre-agreed percentage of the profits. However, they account for only a very small percentage of the business of Islamic banks.

Ijara is the second most popular Islamic financial service and, like the rest, it bears a startling resemblance to a service that has long been in place: lease financing. This form of lease financing claims to be sharia-compliant because of the risk taken by the bank in itself owning the equipment (for example, a car) that it is leasing to its client. However, in reality, Islamic banks take very little risk as they require their clients to pay a premium for insuring the item and usually the client must also make an upfront payment of a certain percentage of the cost of the equipment.

Under murabaha, which constitutes the main business of Islamic banks, the bank buys goods at the request of a client and sells them the goods at a profit. This extra payment by the client is not labelled as interest, but rather as a "mark-up" or "service charge". Islamic banks claim that this ensures that the bank shares the risk with a client because it initially takes ownership of the goods before they are transferred. However, in order for the murabaha to be legitimate, this ownership need only last for seconds and indeed rarely continues beyond that. The leading economist and expert on sharia finance Timur Kuran is right when he describes murabaha as a "technique that is nothing but interest concealed in Islamic garb". This then raises the question: if the difference between Islamic and conventional banking is negligible, what is the point of it?

The first detailed and comprehensive argument for the creation of a sharia-based financial system was articulated by the Pakistani journalist and thinker Sayyid Abul-ala Mawdudi (1903-1979), one of the godfathers of modern jihad and the founder of the Jamaat e-Islami (JI). For Mawdudi, the answer to the perceived ills of Muslims around the world was to be found in a return to the days of Muhammad. He identified western concepts, particularly secular liberal democracy, as an existential threat to the umma (the worldwide Muslim population, conceptualised as a monolithic political bloc) and his answer was twofold. First, Muslims had to identify themselves first and foremost by their religion and therefore separate and isolate themselves from the "unbelievers". Second, Muslims had to engage in jihad to reclaim formerly "Islamic lands" and eventually establish global supremacy. Mawdudi believed that Islamic finance was one of the essential cogs of a totalitarian Islamic state.

This notion was quickly taken up by Sayyid Qutb (1906-1966), one of the founders of the Egyptian Muslim Brotherhood, widely recognised as a direct inspiration for al-Qaeda. The fact that Islamic economics offered very little change in practical terms was of little significance to Islamist ideologues such as Mawdudi and Qutb. It was simply yet another way of Islamising Muslims and presenting the West as evil, avaricious and corrupt.

For the former Pakistani President Zia ul-Haq, who was a patron of the JI and supporter of the most violent theocrats of the Afghan mujahideen, the introduction of Islamic economics and banning of interest in 1979 was part of a campaign to implement a strict form of sharia across Pakistan. It is telling that another prong of this illustrious campaign was the enforcement of the Hudud ordinance, which are the harshest sharia-based punishments, applied to crimes such as theft and illicit sex. This led to a situation where married women who were raped were almost always punished severely and often executed. According to the Human Rights Commission of Pakistan, "There were hundreds of incidents where a woman subjected to rape, or even gang rape, was eventually accused of Zina [illicit behaviour] and thereby subjected to wrong and unjust persecution and great ordeal." This was recently overturned despite huge protest from the current JI leadership.

In more recent times, sharia finance has been taken up by Europe's leading Islamists, who are enjoying significant success in convincing Muslims and non-Muslims of its merits. Last year, I attended an event called the Global Peace and Unity Conference (GPU), attended by thousands of Muslims at the ExCel exhibition centre in London, despite the fact that its chairman, Mohammed Ali Harrath, was and is the subject of an Interpol Red Notice, and has been convicted in absentia by the Tunisian government for terrorist-related offences. Speakers at the event included sharia advocates, Hamas supporters, Holocaust deniers and 9/11 "truthers". Books on sale included Women Who Deserve to Go to Hell (the answer is: most of them). The event was also attended and addressed by members of all three major political parties. The Conservative MP and Shadow Justice Secretary Dominic Grieve took the opportunity to criticise the organisers, but distressingly the Labour and LibDem contingent, which included party leader Nick Clegg, clambered over each other to pander to extremists and self-appointed representatives of the "British Muslim community". 

Islamic banking, and the Muslim duty of ensuring that all financial arrangements are sharia compliant, was the overarching theme of the GPU. The main speech on the subject was made by Islamist preacher Haitham al-Haddad, famous for his support for Hamas and recommendation that Israeli Jews "go back to their own countries". Al-Haddad held that the cause of the credit crunch was riba, and that the only answer lay in Islam and sharia. He continued, predictably, saying that the solutions to all the world's difficulties lay in sharia and that it was the duty of all Muslims to "pass the message of Islam" around the world or else they will "all be sinful". Al-Haddad ended his speech with the chant, "No to riba! Yes to Islam!" For people like al-Haddad, riba represents all that is wrong and sinful about Western civilisation and it is quite clear what he believes the solution to be.

In October, there will be two major events promoting Islamic finance in the UK. Both will be co-sponsored by sections of the British government and by the Organisation of the Islamic Conference (OIC), which has long promoted Islamic banking and is best known for its recent attempts to strangle free speech around the world by trying to force UN member states to abide by its Combating Defamation of Religions resolution.

One event, called the "Islamic Finance and Trade Conference", is also co-sponsored by the Muslim Council of Britain (MCB). The MCB is an umbrella organisation which has links with the JI and the Muslim Brotherhood. Since its creation, it has been a platform for Islamists and a vehicle for Islamist-inspired political pressure. It rejected the Muslim Marriage Contract intended to give British Muslim women more rights within Islamic marriage. It has also boycotted Holocaust Memorial Day because it claims, incorrectly, that the event does not mention non-Jewish victims of genocide. This raises serious questions about its claim to be anti-Zionist rather than anti-Semitic. Most recently, it supported its deputy secretary-general, Daud Abdullah, who was heavily criticised for putting his name to a declaration that supported violent jihad against Israel, calling instead for Islam to reign supreme in the region. 

An event in Scotland, "Etisal '09: Scottish Islamic Investment Expo", is organised and sponsored by the Scottish government and a group called the Scottish Islamic Foundation (SIF). The stated aim of the event is to build business links between Scottish banks and businesses and their sharia-compliant counterparts in the OIC countries. The chief executive of the SIF, Osama Saeed, is Scotland's leading Islamist and a Scottish National Party candidate for Glasgow South. 

His sympathy for Islamist principles is well documented. Of particular interest should be his description of the suicide murders of Hamas as "martyrdom operations" (he doesn't use inverted commas) and his assertion that an Islamic Caliphate represents a "perfect and just society" that should be interpreted as some sort of harmless equivalent to the EU. 

Rather than helping those Muslims who work towards adapting Islam to the basic principles of liberal democratic countries, the Saeeds and al-Haddads of this world strive for an exact inversion of this, and sharia banking is now a more significant part of their programme than ever before. It has one effect that is strong and unmistakable: it reinforces the perception of mutual incompatibility between the West and Islam. Muslims and Western governments alike have a duty to weigh this dangerous quality against sharia banking's highly dubious religious and economic credentials, before they dance away to the latest tune of the Islamist pied pipers.