Archive for June, 2015

I find it remarkable how many non-familiar observers can quite easily spot the obvious spade in Islamic Finance practices, and call it a spade. However, for them to then completely ignore the issue that the source guidance (the final proclaimation and criterion; The Qur’an) never accepted any favourable position on RIBA (not interest, in any form, simple or compound), and that the deceit or falacy here should be put only at the doorstep of the commercial banking industry and its proponents who invented this fraud.

There seems to be too much of an impression that underlying islamic principles are in someway contradictory; with one hand they oppose ‘interest’ and with the other hand, it is condoned in another form, under another name.

This post will not go into the essential issue of what RIBA is (a more fuller all encompassing term) and not interest, however suffice to say, those who are of the above opinion have only a crass, superficial understanding of what they reject whilst at the same time, plenty of effort is put into unearthing great myths from other elements they wish to debunk – that is what I find odd.

One such guilty party would be the Adam Smith Institute. Their article found here, which references Islamic Finance practices makes this obvious mistake. In a partial response to the issue of time value if money and the innate nature of things, I would also like to refer readers to this piece by Tarek El Diwany

But I want to instead highlight an aspect which once again exposes the current industry for its flaws in constructing alternatives which are not too different from the products they are based upon;

For they all (things like Sukuk bonds and so on) depend upon the absolute rejection of interest, that very thing that we insist is part of the fabric of our reality. The reason we so like Islamic finance is because all of he (sic) successful forms of it are actually constructs that, in the face of the religious insistence that there should be no interest, actually operate in a manner to ensure that there is a time value to money and that there is an interest rate, interest which has to be paid 

Another cat let out of the bag, but wait there is more. The article referenced in the above quoted piece, by Jon Fasman reading a book by Harris Irfan, also provides us with more of the truth;

Yet by the end of the book, Irfan seems genuinely conflicted about his industry. Most of these instruments were reverse-engineered from their secular counterparts, and so devised to comply more with Shariah’s letter than its spirit. His protests against such moves echo those of American politicians who condemn “tax inversions”

….Many of the instruments Irfan discusses were sold by major banks that saw them as just another opportunity. This is not surprising: Governments and wealthy individuals wanted financing that complied with their religious requirements, and banks gave it to them….

In a number of posts thus far, I have referred to the way in which our worldview is increasingly shaped by definitions. And who has defined these terms? Certainly politicians over many years have meddled with how to measure social issues, and have then moved the goal posts, sometimes  in their favour in order to ‘solve’ these issues.

I have previously posted articles highlighting the issue of measures such as the official inflation rate – what it includes and even excludes, therefore can it really be an indication of what is happening to general prices in an economy.

The very health of the economy in statistics such as GDP, Quarterly Growth, and National Debt have all been shown to be highly subjective and are more interesting for what they do not capture.

This piece, once again concerns our definition of poverty. In order for the government to tackle this blight, we first need to be clear how we class someone as being poor. It shows that with a few alterations in these parameters, we can potentially get a completely different picture, whilst whatever the reality is, it will not change for the many who are in these conditions.

Riba is not merely interest. Interest itself can take a numbers of forms, remove or change the English term, and the entire issue cannot simply be dismissed. For, whatever term is used, the actual application of this phenomena exposes the real use of Riba itself – a percentage number, applied to a principle amount, which continues to generate more and more of this result over time, a self feeding and ever-increasing to infinity.

Albert Einstein once commented…

Compound interest is the eighth wonder of the world. He who understands it, earns it … he who doesn’t … pays it 

An earlier blog entry showing the ticking debt clocks for many nations public debt shows a profound example of this constantly increasing compound effect, it is a wonder how much more debt will be added to the total by the time you stop reading this piece?

From the above link one can see clearly the overriding effect of compounding interest. Un-payable amounts, totals which need to be serviced regularly just to keep your head slightly above water. Whether it’s a third-world nation spending large proportions of its tiny revenue to make monthly repayments, to some of the strongest economic power houses of today, the debt burden will never disappear, that is not even the intention. The true purpose of debt is to show you can afford the repayments, and that the proportion of it is ‘reasonable’ as compared to the size of your economy. Why would a government choose to waste precious funds on clearing the principle debt? They can easily just generate higher inflation, and erode the value of the loan over time…..there are many tricks of this trade.

Turning our attention to the Islamic Banking industry, their trick is to call interest ‘Rent’ or ‘Profit’. But see that both of these terms appear as percentage rates, applied to principle amounts….giving us clear instances of compounding, ie RIBA by any other name.

Now consider this verse from the Qur’an, and others like it;


O you who have believed, do not consume usury, doubled and multiplied, but fear Allah that you may be successful.

And contrast the language with ayahs such as this


Who is it that would loan Allah a goodly loan so He may multiply it for him many times over? And it is Allah who withholds and grants abundance, and to Him you will be returned.

The concept of compounding is evidently shown in such signs in the Qur’an, proving that Riba must be linked and concerned with avoiding this particular form which exacerbates the problems it causes.

Expanding upon this, the natural order that has been created gives an element of entropy in everything. All things must decay at some rate and reach the end of their useful life. However the effect of compounding is directly opposite to this fact, it continues to grow and grow, never-ending. It goes well beyond the bounds set by our Maker.

Notice too, how the Qur’an contrasts the negative effects of Riba with the positive attributes of giving for the sake of Allah/charity, not expecting a material reward, but deferring your compensation to a point in time not necessarily of your choosing

For further analysis of the Arabic terms in use in these verses, please refer to the RRMCR journals here. Note the links given to works by El-Diwany, Vadillo and others.



In the cause of self-advancement, we are urged to sacrifice our leisure, our pleasures and our time with partners and children, to climb over the bodies of our rivals and to set ourselves against the common interests of humankind. And then? We discover that we have achieved no greater satisfaction than that with which we began.

An excellent article featured in The Guardian paper was brought to my attention. It captures the very deterioration in contemporary society brought about by our ideas of liberty and free markets, and serves to demonstrate how the very value of our life is being almost ”mis-allocated” if seen as the incentive of gaining ever-increasing wealth

In his article written for New Horizon magazine, Mezbah Uddin Ahmad goes through the usual superficial discourse on why Islamic Finance is so unique and innovative (in its deceit), however in his concluding remarks, he lets the camel out of the sandbag and admits;

 The primary concern of the islamic banks is naturally survival, in addition to being Shari’ah-compliant. Customers expectations from banks and their willingness to participate in risk is one of the major challenges in implementing a truly profit-and-loss sharing banking system, as not all customers are willing to take the risk of loss. To ensure the sustainability of the banking model at the initial stage, therefore, Islamic banks came up with Shari-ah compliant financial products that in substance are not significantly different from traditional products. The apparent similarity between the two banking systems allowed the Islamic banking customer, therefore giving it the opportunity to grow.

A regulatory framework that caters primarily for the traditional banking system is another primary factor that forces Islamic banks to structure their financial services in a particular way, often resembling traditional banking services. Even though significant regulatory improvement has already occurred in some countries to accommodate specific needs of Islamic banking, there is a long way to go. 

….you heard it straight from the Camels mouth…

Here is a link to an old article written by Dr. Sahib Mustaqim Bleher, in 2004, however it still stands as a good response to the official arguments put forward commercial banks operating such products.

This is the slippery slope to the destruction of the spirit of Islam, replacing it with a commercialised remnant of ritual practices

I find it useful that the oft abused verse of 2:257 has been countered with the interpretations of 4:46 and 9:37

I feel I should also make a general comment that any argument which relates to the technical workings of the product and its contractual terms should always be put into the wider context of the exact nature of debt and money, which this article rightly does.

A further point is that although the terms have been redefined with these kinds of instrument, there is no argument that a percentage is being applied to a principle sum on a compound basis, doubling and multiplying indefinately (3:130)…..RIBA by any other name

I am in no way supporting the organisation with which the author is involved, named on this website, however another piece which seems to be of some worth is the policy on economics. Of course the most glaring point which I would take issue with, is that nothing can be implemented within the confines of a State structure, itself a post colonial construct which feeds the overriding system, not replaces it;