Understanding Shari’a Finance: The Muslim Challenge to Western Economics by Patrick Sookhdeo (McClean,VA: Isaac Publishing,2008). This is a further volume in Dr Patrick Sookhdeo’s excellent series of books on Islamism specifically written to inform non specialists, particularly those involved in the development of political policy.
Reading this book I could not help but be reminded of the words of the Abul A’la Mawdudi (1903-79), the leading Islamist writer in the Indian sub continent:
The truth is that Islam is a revolutionary ideology which seeks to alter the social order of the entire world and rebuild it in conformity with its own tenets and ideals...Islam wishes to do away with all states and governments which are opposed to the ideology and programme of Islam. The purpose of Islam is to set up a state on the basis of this ideology and programme…regardless of the rule of which nation is undermined in the process of the establishment of an ideological Islamic state. Islam requires the earth - not just a portion, but the entire planet. (Chapter 1 Jihad in Islam – translated by Khurshid Ahmed, published by UK Islamic Mission 1997).
Mawdudi went on say that:
As soon as the Ummah of Islam (i.e. Muslim community) seizes state power, it will outlaw all forms of business transacted on the basis of usury or interest; it will not permit gambling; it will curb all forms of business and financial dealings which contravene Islamic law. (Chapter 4 Jihad in Islam).
Patrick Sookhdeo’s book Understanding Shari’a Finance: The Muslim Challenge to Western Economics begins by quoting Timur Kuran, a Muslim scholar and Professor of Economics and Political Science at Duke University, who states that Shari’a finance is an ‘invented tradition’ that does not go back to Muhammad’s day. In this book Dr Sookhdeo demonstrates how shari’a finance has in fact been specifically developed in recent years by radical Islamists as means of bringing increasing areas of society, in both Muslim majority and Western countries, under Islamist control.
The basis of Shari’a finance is the Qur’an’s prohibition of what is in Arabic termed riba in Q2:275. Throughout Islamic history there has been debate as to whether riba means the charging of extortionate interest, or, as modern Islamists insist, amounts to a total ban on all forms of interest. Sookhdeo demonstrates that there is ample historical precedent going back to the Abbasid Caliphs (successors of Muhammad as leaders of the Sunni Muslim community) for it being regarded as legitimate to charge interest at up to 7% and within the later Ottoman empire up to 10% or even on occasions 15%. While even in the last 20 years both al-Azhar University in Egypt, the main centre of Sunni Islamic learning and successive Grand Muftis of Egypt have ruled that fixed rates of bank interest are lawful under shari’a.
Prior to the 1970s and 1980s Islamic banks operating on shari’a principles simply did not exist in most Muslim countries. In fact, only in Iran, Pakistan and Sudan has there been any general attempt to islamicise banking activities. Even in Saudi Arabia as recently as 2005 only 30% of bank assets were classified as shari’a compliant. Simlarly, Islamic banks were not created in Muslim majority countries such Jordan until 1978, in Turkey until 1983, Indonesia until 1992 and Syria until 2007. While Oman even now quite specifically refuses to license Islamic banking.
Patrick Sookhdeo traces the origins of ‘Islamic economics’ back to the radical Pakistani Islamist Abdul A’la Mawdudi who argued that Islam encompasses all areas of life including economics. Islamic economics was specifically created to be a vehicle to help establish Islamic law in society and state, until, in Mawdudi’s words ‘the Ummah of Islam seizes state power'. One of Mawdudi’s disciples, Khurshid Ahmed, an economist who was also a leader of Jam’at-i-Islami in Pakistan was sent to the UK to further this vision. It is he who has largely been responsible for the creation of the concept of shari’a finance in recent years. Ahmed stated that
‘Resurgent Islam represents a new approach – that is, to strive to reconstruct the economy and society in accordance with Islamic ideals and values’
‘It is a direct demand of the Ummah’s (i.e. Muslim community’s) position as khalifah (i.e. exercising political domination over non Muslims) that its dependence upon the non Muslim world in all essentials must be changed to a state of economic independence, self respect and gradual building up of strength and power' (Studies in Islamic Economics, 1982).
At first the creation of Islamic economics was a theoretical exercise, but the oil wealth generated in the 1970s allowed the creation of modern shari’a financial institutions beginning with the establishment of the Islamic Development Bank by the Oganisation of Islamic Conference in 1974, followed by a 1977 conference in Saudi Arabia which established shari’a economics as an academic discipline.
In addition to shari’a finance being essentially a creation of radical Islamists designed to foist their own agenda on others, Patrick Sookhdeo identifies a number of other dangers and vulnerabilities relating to sharia finance:
1. Shar’ia finance is based on creating alternatives to interest based financial products, these include various combinations of lease/purchase arrangements that are designed to fulfil the role of traditional mortgages and profit and loss accounts based on short term commercial investments and discretionary bonuses that are designed to be broadly analogous to deposit accounts. However, Sookhdeo observes that even Islamic countries have experienced extreme difficulty in regulating financial institutions that do not overtly use interest. In particular, the use of discretionary bonuses accompanied by large scale fund transfers makes them extremely vulnerable to both fraud and money laundering. This was illustrated by a large scale financial crises that hit Egypt in the 1980s due to massive corruption flourishing in self styled ‘Islamic companies’.
2. These arrangements also make shari’a finance particularly vulnerable to being used for terrorist financing. This was one of the reasons why, in the 12 month period following the 9/11 attacks, the US government found it necessary to blacklist 180 Islamic financial institutions and charities including some of the most ‘reputable’ Islamic banks such as the al Taqwa Islamic Bank and the Dallah el Baraka Group. Patrick Sookhdeo quotes Professor Mahmoud El Gamal, the US Treasury’s principal advisor on Islamic Economics, as stating that:
‘To the extent that shari’a arbitrage Islamic financial practice utilizes the same tools as criminal finance, the industry may be vulnerable to abuse…the current modus operandi of Shari’a arbitrage Islamic financing is too dangerous …the three stages of development of an Islamic financial product bear a striking resemblance to methods used by money launderers and terrorist financiers.’
3. The structure of Islamic financial institutions effectively places them outside of government control, as the board of directors are subject to direction by a council of international shari’a experts whose sole concern is obedience to the Qur’an and Hadith over and above any man made regulatory framework.
4. There are only a small number of international shari’a experts sitting on the shari’a panels of the UK financial institutions currently involved in providing Islamic financial products (Barclays, HSBC Amanah Finance, Institute of Islamic Banking and Insurance, Islamic Bank of Britain, West Bromwich Building Society and Yorkshire Building Society). However, a number of these shari’a experts sitting on the supervisory panels of multiple institutions have strong links to radical Islamic movements and organisations such as the Muslim Brotherhood and Saudi Wahhabi-Salfism. Sookhdeo specifically identifies at least one such Islamist scholar who elsewhere has urged that Muslims should wage an aggressive military jihad against the West.
5. Islamic banks pay zakat, which is a 2.5% tithe on assets owned for more than year instituted by Muhammad to provide both for those in need and for jihad. Whilst the zakat system itself is used for many good, charitable purposes, the author cites a UN security Council report that zakat has enabled al-Qaeda to receive between US$300 and $500 million over a decade from wealthy businessmen and bankers representing about 20% of Saudi GNP through a web of charities and companies acting as fronts with the notable use of Islamic banks.
It should therefore be a matter of much concern that the present UK government has progressively legislated to allow the operation of shari’a finance in the UK. In 2003 the Bank of England changed the rules on stamp duty to recognise sharia’ compliant mortgages and stated that they no longer had any objections to the introduction of shari’a complaint financial products into the UK market; In 2005 the government passed legislation to facilitate the creation of Islamic financial transactions and retail banking services; In 2006 the Financial Services Authority examined the possibility of issuing a regulatory framework to support the issue of Islamic bonds in London, meanwhile Stephen Timms, the Chief Secretary to the Treasury claimed that the government was making good progress towards removing the legal and tax hurdles to the development of shari’a complaint financial products and Ed Balls, then Economic Secretary to the Treasury promised the government would remove any tax barriers that impede the issue of sukkuk Islamic bonds. Meanwhile, Gordon Brown who as Chancellor had overseen the whole process stated that he wanted to make London the natural home for global Islamic funds,
These changes in government policy directly led to the emergence of shari'a finance in the UK with the Islamic Bank of Britain being formed in 2004 and mainstream banks such as HSBC and Lloyds rushing to copy them.
However, the reality was that before the government took these steps there very little demand for shari’a complaint financial products from British Muslims. A 2004 study by Loughborough University found that 75% of British Muslims were indifferent to Shari’a finance. They found that only 5% of British Muslims said they would never use interest based financial products, while even amongst the 25% of British Muslims who showed some degree of interest in shari’a finance, the overwhelming majority were till then quite happy to use interest based finance.
By actively encouraging the development of shari’a finance in the UK, the government has subjected the vast majority of ordinary Muslims to a significant amount of community pressure from radicals to follow a specifically Islamist approach to finance, when previously they were quite happy with interest based traditional western finance.
The author draws two conclusions:
1. 'Shari’a finance is a politically driven Islamist invention masked in religious idiom. It is clear that the Islamist movement have artificially generated the need and demand for shari’a finance.’
2. 'The support given by the government and financial sector to shari’a finance in Britain is aimed more at attracting investment from the huge pool of money in the oil rich Middle East than in satisfying local Muslim demand, which is being used simply as a pious cover.’
Reading this, the question one can only ask is ‘What will be the long term cost to Britain of the present Labour government’s flirtation with Islamist finance?’ Given Mawdudi's comments quoted at the start of this review, we ignore this at our peril.