Islamic Banking - A $300 Billion Deception: Observations and Arguments on Riba (interest or usury), Islamic Banking Practices, Venture Capital and Enlightenment.

by Muhammad Saleem

Islamic banks currently control about $300 billion in assets. This book assesses the underlying rationale of Islamic banking, that the Quran prohibits all forms of interest. The author maintains that, first, a correct interpretation of the Quran, keeping in mind the context, would indicate that what the Quran prohibits is usury -exorbitant interest. Second, Islamic banks do not practice what they preach; they all charge interest, but disguised in Islamic garb. Thus they engage in deceptive and dishonest banking practices. The author also offers some policy recommendations, including the need for Ijtihad, Enlightenment, and critical thinking. Islamic banks, if they wish to practice genuine and authentic Islamic banking, should become more like venture capital firms.

70 pages, Paperback

First published December 31, 2005

Reviews

[Ankit Agrawal · Rating 2 out of 5]

Ideas expressed are rational but core arguments are few. The entire book could have been condensed into a 10-15 page long essay at best. Too much repetition and rambling along with a few arguments and propositions that are ridiculous especially coming from a career banker who also happened to be the CEO of one in his working life.

[Mohammad Abdul]

Reading

[Farhad Ahmad]

1CThe responsibility of governments in the Islamic world and the Islamic banks should be to promote dynamic development, prosperity, poverty reduction, employment generation, expansion of production, science and technology education, health human resource development. Have the Islamic banks played any role in promoting any of these goals in the last 30 years? 1D

1CIslamic banks often cite that the main reason they do not [lend] (invest) on a truly profit or loss basis [venture capital] is that because the business community in the Islamic world has low business morals, that the businessmen cannot be trusted, and more specifically they tend to keep more than one set of books. Second reason cited by my former colleagues is that the bankers lack the expertise and time to monitor the affairs of businesses involved in industries which require technical and specialized knowledge. 1D

1CIf the Islamic banks have chosen to replace the conventional banking system with an Islamic banking system, they must address satisfactorily the following two issues 1D:
1. 1CAre there banking practices adding value? If not, then the contribution of Islamic banks would appear to be zero. 1D
2. 1CAre banking practices of Islamic banks helping to promote justice, equity, compassion and fairness among the Muslim communities? After all that must have been the rationale for the prohibition against riba in the Quran. Again if the answer is no, then exactly what is the purpose of building this industry, this house of cards? Isn 19t it the time to say that if all the Islamic bankers can do is talk the talk but can not walk, they should consider shutting down their operations; it is time to shout that the emperor has no clothes. 1D

1CVenture capital gives the U.S. a creative and forward looking dynamism that few nations can match because it is rooted in the very foundation of the country. in this regard America 19s most important advantage is a willingness to take risks. By contrast if a scientist or an engineer with a new idea or invention wanted to raise financing to develop his idea or invention into a business in the Islamic world it would be virtually impossible t=for him to find funds. He would be to told by a conventional bank or an Islamic bank to first produce some collateral. 1D

1CThe Islamic banks need to truly differentiate themselves from conventional banks. And the only avenue open to is the rout of venture capital. It has two advantages: one, venture capital is consistent with the stated principles of Islamic banking, and second, that promotion of venture capital financing would result in original research, development in science and technology, creation of new businesses and employment. Islamic banks may want to set up separate venture capital funds-the need is for at least $10 Billion 13 within their organizations and use these funds to finance on a truly profit and loss sharing basis individual 13 scientists, engineers, entrepreneurs 13 with bright ideas, and help to transform the Middle East economies into exciting high growth, high tech and full employment economies. 1D

1CIf you like the founder, and you like the technologies, price doesn 19t matter. 1D
1CSo the core point of venture capital is that while ideas are important it is the people that really matter: Venture capital firms invest in people 1D