Islamic Finance: Pork Labelled Beef

In a conversation with a Moslem expert in Shariah-compliant finance, he summarized what passes for "Shariah-compliant" finance in USA as pork labelled beef.   Pithy!

Now here comes a tax case where this charade came back to bite an Islamic nonprofit institution.  Devon Bank is known for writing "Shariah complaint loans".

Well, it seems the Tennessee tax authorities are better at Shariah law than the Imam who declared this deal halal.  The ruling...

In the purchase payment schedule, the monthly payments gradually increased from the initial scheduled purchase payment of $1,560.52 to a final purchase payment of $7,384.83 scheduled for August 13, 2028 in the same manner as principal reduction escalation on an amortization table. This, coupled with a portion of a 2010 “End-of-Year Loan Statement” the taxpayer submitted while the situation was still under review by State Board staff, indicated that Devon Bank was achieving the financial equivalent of a 7.83% annual rate mortgage product structured with equal monthly payments of $7,433.02. It would follow that the portion of each month’s revenue attributed to rent would have gradually decreased from roughly $5,872 in the first month to $48 for the final payment in the 240^th month. As such, the taxpayer might have paid Devon Bank as much as $342,065 in designated rent during the period of August 13, 2008 through October 25, 2013.¹⁰

I care because I think it is true that Shariah-compliant, the same as Christian-compliant loans would lead to better peace and justice and prosperity.  Never mind this particular charade will cost the Moslems plenty, the problem is we have no examples of usury-free to study, especially aggravating when Islam ought to be showing examples aplenty.

A follow on article, by Tim Worstall, the writer gives excellent advice:

Having suggested that in its present form Islamic banking would not solve any of Egypt’s pressing economic problems, let me acknowledge that Islamic banks might bring benefits by abiding by their stated mode of operation. The charters of Islamic banks instruct them to lend on the basis of “profit and loss sharing” rather than for a fixed return. They are to operate like the venture capital companies that have financed the global high-tech industry. Venture capital firms lend to promising entrepreneurs, for a share of any profits, without regard to collateral, track record, or connections. They take genuine risks, losing money when investments that they finance fail.
With its young population and high unemployment, Egypt desperately needs more venture capital. That is why genuine Islamic finance could bring major benefits to Egypt.

Just so.  But his source makes interesting arguments I will counter tomorrow.

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