Global financial collapse - Is Islam the best cure?

Al Rajhi Bank


By Dr. Robert D. Crane

The recent implosion of the Western financial system and its adverse impact on the real economy may have a silver lining if it produces a paradigmatic change in attitudes toward the possibility of avoiding the injustices and inefficiencies of both populist socialism and oligarchical capitalism.

An immediate challenge is to explain in simple and politically sensitive ways the theory and workings of a just third way designed to overcome the mistakes of the past. Reliance on greater transparency and governmental regulation may accomplish nothing more than to solidify the current system rather than to address the fundamental changes necessary to replace its faulty premises with better ones.

As an example of the stubborn challenges, some Muslims do not see the difference between pure credit backed by real goods and the ponzi scheme of debt derivitives. Understanding the difference seems to pose almost a paradigmatic barrier to real change. Of all people, Muslims should be able to see the fraudulent nature of money treated as a commodity rather than merely as measure of exchange, because the nature of money is the absolute core of Islamic economics. The Islamic opposition to riba or financial interest is merely a by-product of more fundamental principles.

Another serious problem is mainline acceptance of the scarcity theory of value, whereby the expansion of population supposedly will outstrip the resources to support it. The Prophet Muhammad said, ‘’For every sickness there is a cure, so find it.’’ This applies to the use of human ingenuity in multiplying the bounties of God available in nature without destroying the source of the bounties. The ‘’limits to growth’’ doctrine, first accepted as mainline doctrine through efforts of the Club of Rome more than thirty years ago, is perhaps the most serious threat to both economic and political justice, because peacefully broadening access to wealth can come not from redistribution from the rich to the poor in a world of scarcity but only by the use of pure credit to assure that the millions of new people in the world will share not past wealth but the many trillions of dollars of new wealth that will be created in the future.

The only way equitably to ‘’spread the wealth around’’ is to create new wealth. Any other approach would violate the sanctity of private property in the means of production, which is the absolute bedrock of any just system of economics and is valued in every world religion as the surest protection against political oppression.

The National Association of Muslim Lawyers is trying to recruit scholars who can think beyond the box to give a paper on Islamic banking next year at the American Bar Association’s annual convention, because the professional Islamic banking experts can not see beyond their own noses. The people already invited to this session of the International Law Section are part of the establishment crowd of well-paid riba advisers - the top dozen earn on average more than a quarter million dollars a year in consulting fees. Perhaps this will provide an opportunity to break open the closed shop of paid professionals who can’t see the forest for the trees.

There is much to celebrate in the field of Islamic economics. Investors are now rushing to shift their assets to the so-called Islamic banking system because it does not allow creating money out of debt and then selling the fraudulent product supposedly with a guaranteed profit from interest. The Islamic banking industry now is approaching a trillion dollars in real assets, led by the three largest biggest Islamic banks, the Dubai Islamic Bank, the Kuwait Finance House, and the Al-Rajhi Bank of Saudi Arabia, which latter provided the early funding for the International Institute of Islamic Thought near Washington, D.C.

A good sign is that the goal of maintaining the fifteen percent annual growth rate that has obtained since the inception of the institution of Islamic banking by Prince Muhammad al Faisal thirty years ago is being surpassed by success. This permitted a veritable revolution in the business since the ninety billion dollar market in sukuk was declared to be un-Islamic a few months ago. This form of commercial paper was good because it is tied to a specific asset and confers ownership of it, but it generates a predetermined return that is identical to interest even though it is called a ‘’profit.’’ Once the sukuk was declared to be un-Islamic, the market in sukuk immediately fell by fifty percent, which shows that ethics can still trump profits in a just world.

During the past twenty years the real experts in Islamic economics, specifically in the branch of the maqasid al shari’ah known as haqq al mal, have been sidelined as threats to the status quo and to the billionnaire investors who like this new way to concentrate wealth because the ‘’experts’’ tell them that they are not doing so. The recent implosion of the Western financial system may prompt scholars outside of the Islamic banking world to take a more careful look at what until now has been merely an Islamic alternative. As a successful survivor in a world of collapse, Islamic banking based on the essential principles of Islamic economics could provide a model for a new generation of central banks and perhaps a world resource bank to address the need for a revolution in both money and credit. The details are readily available in an entire shelf of books available online and in print at the Center for Economic and Social Justice.

The current institution of Islamic banking is half right, but still has another half to go. The real problem may be that the so-called experts have been thoroughly brainwashed by graduate studies in mainline Western universities, so that their real objective is to fit Islamic banking into an un-Islamic paradigm. The result is a phenomenon that waddles and looks somewhat like an Islamic duck, quacks even louder than a Western duck, but really is an Australian platipus.

Source: The American Muslim (TAM)