Posts Tagged ‘Tarek El Diwany’

An article from the 2008 economic crises written by the two scholars above makes for worthy reading.

I see it as evidence of calling the bluff of practitioners who dabble in nothing more than conventional finance twisted to fool millions who are easily swayed by superficiality

Boom, Bust, Crunch..

Platforms are rarely provided to scholars who wish to take one step back and question some of the fundamental concepts that are being applied. Few questions are raised regarding the validity of Islamic debt financing, limited liability structures, speculative methods of market trading, or the nature of the monetary system. Such matters are given little attention in the headlong rush to copy interest-based methodologies and this has resulted in a number of embarrassing paradoxes

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Adding this Imam to the prominent few scholars that truly understand money and the nature of Riba, this lecture demonstrates the misunderstandings of other Muslim commentators when faced with this holistic issue.

The content is not new, much of it has been covered extensively in other posts.

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….

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;

(3:130);

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

(2:245);

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.

The innovation (bida) of Islamic Financial Products continues apace. Next in line could potentially be sharia compliant student finance…how exactly these will be structured is still up for question, however the main point here is that it will give the industry another opportunity to confuse the issue and to pull the wool over the eyes of another core segment of the muslim demographic – students.

Islam 21c’s Sheikh Haitham Al-Haddad, shows he, and many of his peers, only serve to assist the distorted understanding of ‘interest free money’ by calling for community members to show their support for this government initiative. He would do well to acquaint himself fully with the  fiqh on fiat money and on riba itself, something one would assume a Sheikh of his stature would be familiar with. Perhaps he would like to become a Scholar for Dollars one day…

I would personally suggest he begin some serious dialogue with the likes of Shaykh Umar Vadillo, Tarek El Diwany and/or Dr Mustafa Ali of the Bandung2 movement.

Please view the following documentary on the financial system/crises, released in 2013, excellent contributions from regular commentators in this area such as Tarek El Diwany, Max Keiser, Joseph Stiglizt and many other notable mainstream commentators

To quote one of the many phrases seen/heard in this video;

“…to understand something, is to be liberated from it…”

Many have attempted to find a genuine alternative to interest based lending

Please listen to an informative audio discussion with Tarek El Diwany on the true nature of home finance within the so called ‘Islamic Finance’ industry in the context of money creation and debt based fiat money.

An extract of the the audio which can be listened to here;

“…Islam is supposed to be built on issues of justice and on a belief in Allah and following His rules and if we suddenly ignore Allah’s rules and start making fraud permissible then nothing else that we do after that is going to be correct, especially if we build our entire financial structure on an act of fraud which is money creation. So I was quite disappointed really to find that this issue wasn’t being addressed at all in the Islamic banking sector. For the last thirty years we’ve assumed that we should copy western models of banking and finance, and that has involved copying the money creation system as well as copying the system of advancing money now in return for more money later. And again if we try to copy a structure which is built on usury or structure which is built on fraud, and more particularly if we copy both and try to put them together, then we are not going to be successful…”

A possible solution ( as discussed in the above material, while appreciating that as long as this system is still in existence, any solution within the current framework will only be a short term alternative still subject to boom and bust factors, not a complete and permanent answer) could be Ansar Finance

Please view this website and share with other interested parties

http://www.ansarfinance.com/