Alternative Finance - Shariah Compliant

Reading a paper on Islamic finance I find:

It is known, on the other hand, that interest based
financing does not necessarily create real assets, therefore, the supply
of money through the loans advanced by the financial institutions does not
normally match with the real goods and services produced in the society,
because the loans create artificial money through which the amount of
money supply is increased, and sometimes multiplied without creating real
assets in the same quantity. This gap between the supply of money and
production of real assets creates or fuels inflation. Since financing in an
Islamic system is backed by assets, it is always matched with corresponding
goods and services.
(Mufti Muhammad Taqi Usmani, 1998, p.14).

Exactly.  So there are legal claims of ownership of what assets exist, derived from a no-skin-in-the-game participation, that are greater than existing assets.  In fact, in the West, those with legal claims to assets-without-participation are greater than those who created the assets, that is put in the effort and took any risks.

A business person may have gotten nominally rich, but their wealth is subordinated to the usurer.

This paper surveys various practices in Shariah-compliant finance, and finds

Mufti Taqi Usmani has dealt with both types of Islamic rules. Living under
constraints, the Islamic banks are mostly relying on the second set of rules.
The Banking system put forward by Mufti Taqi Usmani is based on the best
possible concessions that may be availed of in the transitory period where
the Islamic Institutions are working under pressure of the existing legal and
fiscal system.

What is the pressure?  Competition for profits or patronage?  Flexibility is admirable, but what if adherence offers better results?

Even with these concessions, the system that has been put forward is in a
collision course with the conventional Banking system and in the future one
of them will have to totally move out of the picture.

How come?  Why cannot both exist at the same time?  Panarchy!  In fact Islam is fairly unique in historically tolerating panarchy within an Islamic theocracy.

With the world economic order tottering, these questions are critical, and even the Pope is taking action, laying down the law...

The announcement on Thursday was only the most recent in a series of firings, replacements, and arrests that have rocked the Vatican’s financial hierarchy. It turns out that for Francis, casting the moneychangers out of the Temple has proven to be a time-consuming task.

I suspect Francis is taking his time because it is so much fun.  Will he move on usury?

Feel free to forward this by email to three of your friends.

Bookmark this post --- Email this post