The Arab's Get it (Islamic Finance)

[jtabeb]

Even the Arabs Get EJ's Thesis, Wish we could do this with "capitalism".

http://www.gulfnews.com/business/Ban.../10259128.html

Business

Banking and Finance

Islamic financial institutions still largely unscathed By Habib Toumi, Bureau Chief Published: November 12, 2008, 23:42 Manama: Islamic financial institutions have been largely sheltered from the present crisis, Central Bank of Bahrain Governor Rasheed Al Maraj said "Because interest-based transactions are prohibited, Islamic finance encourages business and trade activities that generate fair and legitimate profit. The prohibition on speculative activity also helps to ensure that there is a close link between financial flows and productive activities. "These intrinsic properties of Islamic finance contribute towards insulating it from the potential risks resulting from excess leverage and speculative financial activities," Al Maraj said.

[blazespinnaker]

Re: The Arab's Get it (Islamic Finance)

Ah, yes, Bahrain, the pinnacle of modern progress.

[GRG55]

Re: The Arab's Get it (Islamic Finance)

Even the Arabs Get EJ's Thesis, Wish we could do this with "capitalism".

http://www.gulfnews.com/business/Ban.../10259128.html

Business

Banking and Finance

Islamic financial institutions still largely unscathed By Habib Toumi, Bureau Chief Published: November 12, 2008, 23:42 Manama: Islamic financial institutions have been largely sheltered from the present crisis, Central Bank of Bahrain Governor Rasheed Al Maraj said "Because interest-based transactions are prohibited, Islamic finance encourages business and trade activities that generate fair and legitimate profit. The prohibition on speculative activity also helps to ensure that there is a close link between financial flows and productive activities. "These intrinsic properties of Islamic finance contribute towards insulating it from the potential risks resulting from excess leverage and speculative financial activities," Al Maraj said.

The USA is not much different from this any more jtabeb...

Islamic "finance" as practiced in the Gulf is largely the financing, with guaranteed returns [that's the "fair and legitimate profit" part ;) ], of government sponsored infrastructure projects. Power plants are a favourite way to play this game, but it's expanding into water desalination, roads, port facilities, etc. It allows the kleptocrats that run these "nations" to dole out chunks of the national income to their favoured "private sector" associates, and makes sure that the wealth continues to accrue largely to the top 5% in the societies, because they are the only ones wealthy enough to be Islamic finance investors.

Isn't this the same goal that Paulson has? Different methods, same objective. Dole it out to your friends while you can.

Rasheed is an honourable man. But just like Ben "Sub-Prime is Contained" Bernanke, he's a Central Banker. He has to say these sorts of things. You have to provide cover for your masters.

Edit added: As the massive GCC property bubble collapses there will be plenty of investment banks in the region, Islamic or otherwise, that will be showing the strains from "excess leverage and speculative financial activities".

[jtabeb]

Re: The Arab's Get it (Islamic Finance)

Ah, yes, Bahrain, the pinnacle of modern progress.

As compared to what? Say, our financial system?

"It's a corrupt wasteful inefficient unfair system, but IT'S OUR System?"


That speaks volumes, no thanks.

I think I'd actually prefer a better system, one that works, is not wasteful, is not inefficient, and is not unfair. I don't particularly care where it comes from.

(Very sharp of opinion here, sorry it was not meant to be if it indeed came off that way)

[GRG55]

Re: The Arab's Get it (Islamic Finance)

...Edit added: As the massive GCC property bubble collapses there will be plenty of investment banks in the region, Islamic or otherwise, that will be showing the strains from "excess leverage and speculative financial activities".

From this week's Economist...

Dubai
Has the bubble burst?

Nov 27th 2008 | DUBAI
From The Economist print edition
As the sheen comes off glitzy Dubai, the other Gulf states are getting nervous too

“THEY said you couldn’t create islands in the middle of a city,” shouts a property advertisement over a jammed Dubai motorway. “We said, what’s next?” The range of answers has become gloomier by the week, as the debate moves from whether the Dubai property bubble will burst to just how bad it is going to get. Some nervous bankers think property prices could fall by 80% or so in the next year or so. A few months ago, rich foreigners who had bought villas in Dubai were complaining about the quality of the sand on their artificial beaches or the difficulty of getting water to circulate around the twiddly fronds of the man-made island shaped like a palm. Now prices for some smart developments have been cut by 40% since September, shares in property firms have lost 80% of their value since June, and big developers are laying people off.

The region’s banks will suffer too. Gulf policymakers are still making cheery statements about the region’s limited exposure to subprime loans but are quieter about heavy investments in inflated local property markets by regional banks, particularly Islamic ones. But worried banks are sharply reining in their mortgage lending. A series of arrests of senior businessmen as part of a fraud investigation is also making people twitchy. There is even talk of a coming “Gulf Enron”...

[bungee]

Re: The Arab's Get it (Islamic Finance)

I could never figure out in an era of global warming and rising sea levels why anyone would want to buy a house on a man made island just above sea level?

What were they thinking?

[Wild Style]

Re: The Arab's Get it (Islamic Finance)

The USA is not much different from this any more jtabeb...

Islamic "finance" as practiced in the Gulf is largely the financing, with guaranteed returns [that's the "fair and legitimate profit" part ;) ], of government sponsored infrastructure projects. Power plants are a favourite way to play this game, but it's expanding into water desalination, roads, port facilities, etc. It allows the kleptocrats that run these "nations" to dole out chunks of the national income to their favoured "private sector" associates, and makes sure that the wealth continues to accrue largely to the top 5% in the societies, because they are the only ones wealthy enough to be Islamic finance investors.

Isn't this the same goal that Paulson has? Different methods, same objective. Dole it out to your friends while you can.

Rasheed is an honourable man. But just like Ben "Sub-Prime is Contained" Bernanke, he's a Central Banker. He has to say these sorts of things. You have to provide cover for your masters.

Edit added: As the massive GCC property bubble collapses there will be plenty of investment banks in the region, Islamic or otherwise, that will be showing the strains from "excess leverage and speculative financial activities".

Not sure how true it is, but didn't a lot of western banks provide mortgages in the khaleej (gulf)?

I could never figure out in an era of global warming and rising sea levels why anyone would want to buy a house on a man made island just above sea level?

What were they thinking?

party like a rock star?

[GRG55]

Re: The Arab's Get it (Islamic Finance)

Not sure how true it is, but didn't a lot of western banks provide mortgages in the khaleej (gulf)?...

Many of the large international banks like HSBC and Citi have significant subsidiary operations in the region. Lending to commercial interests for residential, commercial and industrial development was, of course, their raison d'etre.

But private mortgage lending by these banks was quite limited. Expatriate buyers of homes and apartments in the Gulf do not have any legal residency rights. None of the GCC states/emirates, including Dubai, ever actually passed legislation granting the right of residency even if you own a home, despite the fact that the developers hyped that tax haven benefit as part of their marketing pitch. In the absence of that security most of the foreign banks would not take a GCC located residence as the sole collateral for a mortgage. Expats had to pledge other security, such as a home in Europe or deposits in the lending banks offshore account.

Private residential mortgage lending by the local banks only started on a widespread basis in the past 5 years or so. Some of these banks were prepared to lend to resident expats against local property in projects the same bank was sponsoring with development finance [depended entirely on your job status, residency sponsor, etc]. Private residential mortgages to locals was also just starting to take off before the credit crisis hit. Huge numbers of nationals work for the governments in the GCC and those incomes, although modest, were considered by the banks to be very secure. Up until very recently locals either sourced funds to build a home from within their own families, or stayed on the waiting list until state housing was provided. However, very, very few nationals in the GCC can afford to buy the properties in the fashionable developments we hear so much about.

[Wild Style]

Re: The Arab's Get it (Islamic Finance)

Many of the large international banks like HSBC and Citi have significant subsidiary operations in the region. Lending to commercial interests for residential, commercial and industrial development was, of course, their raison d'etre.

But private mortgage lending by these banks was quite limited. Expatriate buyers of homes and apartments in the Gulf do not have any legal residency rights. None of the GCC states/emirates, including Dubai, ever actually passed legislation granting the right of residency even if you own a home, despite the fact that the developers hyped that tax haven benefit as part of their marketing pitch. In the absence of that security most of the foreign banks would not take a GCC located residence as the sole collateral for a mortgage. Expats had to pledge other security, such as a home in Europe or deposits in the lending banks offshore account.

Private residential mortgage lending by the local banks only started on a widespread basis in the past 5 years or so. Some of these banks were prepared to lend to resident expats against local property in projects the same bank was sponsoring with development finance [depended entirely on your job status, residency sponsor, etc]. Private residential mortgages to locals was also just starting to take off before the credit crisis hit. Huge numbers of nationals work for the governments in the GCC and those incomes, although modest, were considered by the banks to be very secure. Up until very recently locals either sourced funds to build a home from within their own families, or stayed on the waiting list until state housing was provided. However, very, very few nationals in the GCC can afford to buy the properties in the fashionable developments we hear so much about.

I thought long and hard about moving to Dubai or some where in the khaleej (gulf) back in 2001. The main reason I never ever pursued it was because they don't offer citzenship. I knew if things got bad the non natives would be in deep doo doo one day. Looks like my decision was a good one.

You seem to know a lot about the khaleeji happenings, are you from there?

[*T*]

Re: The Arab's Get it (Islamic Finance)

No interest on debt, limit debt to 30%, a gold Dinar, yes Sharia gets it as I have said in other threads.
We might recall that Christianity once forbid usury...

(for the record I am branded neither Christian nor Muslim)

[Serge_Tomiko]

Re: The Arab's Get it (Islamic Finance)

No interest on debt, limit debt to 30%, a gold Dinar, yes Sharia gets it as I have said in other threads.
We might recall that Christianity once forbid usury...

(for the record I am branded neither Christian nor Muslim)

Truly, I will never understand how compound interest was ever allowed in this world. It is an abomination, and anyone - regardless of religion - can see it is contrary to nature.

[GRG55]

Re: The Arab's Get it (Islamic Finance)

The USA is not much different from this any more jtabeb...

Islamic "finance" as practiced in the Gulf is largely the financing, with guaranteed returns [that's the "fair and legitimate profit" part ;) ], of government sponsored infrastructure projects. Power plants are a favourite way to play this game, but it's expanding into water desalination, roads, port facilities, etc. It allows the kleptocrats that run these "nations" to dole out chunks of the national income to their favoured "private sector" associates, and makes sure that the wealth continues to accrue largely to the top 5% in the societies, because they are the only ones wealthy enough to be Islamic finance investors.

Isn't this the same goal that Paulson has? Different methods, same objective. Dole it out to your friends while you can.

Rasheed is an honourable man. But just like Ben "Sub-Prime is Contained" Bernanke, he's a Central Banker. He has to say these sorts of things. You have to provide cover for your masters.

Edit added: As the massive GCC property bubble collapses there will be plenty of investment banks in the region, Islamic or otherwise, that will be showing the strains from "excess leverage and speculative financial activities".

In a globalized world, financial speculation by FIRE economy interests everywhere on the planet was evidently not "contained"...

Moody's downgrades Bahrain debt outlook

By Robin Wigglesworth in Abu Dhabi

Published: January 6 2009

Moody's Investors Services on Tuesday lowered its outlook on Bahrain's debt rating to negative from stable as oil prices have declined "well below" the Gulf island's budgetary plans and the credit crunch hurts the financial industry.

The credit rating agency warned that with limited currency reserves, Bahrain "may not have the resilience to absorb the price shock and avoid impairment to its credit fundamentals." Bahrain is rated A2 by the agency – five notches above the speculative grade threshold.

Though Bahrain is one of the more diversified economies in the Gulf, the government is dependent on oil for most of its revenue. Although the oil sector accounts for only 15 per cent of gross domestic product and financial services about a quarter, the government is still dependent on hydrocarbons for about 80 per cent of its revenue.

The International Monetary Fund calculated in November Bahrain's fiscal break-even oil price at about $75 a barrel, among the highest of all petroleum exporters in the region.

The island kingdom off the coast of Saudi Arabia is also exposed to the global financial turmoil through its large financial sector.

Though recently put in the shade by Dubai's rise, Bahrain is the historical banking hub of the Middle East. The island is home to more than 400 institutions with total assets 17 times gross domestic product, according to JPMorgan, the US bank.

Contagion from the global financial crisis to the retail banking system seems to have been contained, according to Moody's. However, the credit agency "does have some concerns over the capacity of the authorities to support the country's large banking sector in the event of a systemic crisis," Tristan Cooper, a senior sovereign analyst, said in the revised outlook statement.

Despite the reputation of the central bank, the country's financial regulator, Bahrain-based financial institutions have been among the hardest hit by subprime-related writedowns and credit losses.

Merrill Lynch economists forecast that the island's real economic growth rate will contract to 3.5 per cent in 2009 – among the slowest in the region – from an estimated 5.4 per cent last year.

The Bahraini government, pushed by the crown prince Sheikh Salman Bin Hamad al-Khalifa, has strived to further diversify the economy into logistics, Islamic finance, manufacturing, and aluminium.

However, experts say declining oil revenue may hamper plans and investments in coming years, and the credit crunch has delayed planned privatisations of state-owned firms such as Batelco, the national telecommunications company.

Copyright The Financial Times Limited 2009

[The Outback Oracle]

Re: The Arab's Get it (Islamic Finance)

Er......what's the difference between interest and compund interest???????

[mfyahya]

Re: The Arab's Get it (Islamic Finance)

http://www.islamic-finance.com/item100_f.htm

Islamic finance is not a product to be offered to a niche market. It is a system. It must be promoted and implemented as a system. Where the monetary system is concerned, I am beginning to feel that this is something that cannot be achieved by the private sector alone, Islamic or otherwise. A lead is required from the State since we must redefine the meaning of the words 'legal tender'. We must somehow overturn the monetary system as it is. And that will require us to defeat the monster that faces us.
Some of our scholars have yet to recognise the monster for what it is. They think of the banking system as a necessary part of economic activity. They do not connect the deaths of millions of children in Africa every year with the burden of debt repayments to the banks (the United Nations Development Programme's annual Human Development Reports 1997 - 1999 do show this connection). We need a payment transmission system, a safekeeping service, and investment advisory services. To all these things, yes. To money creation for the sake of profit, no.

Another article on Islamic banking as practiced today:
Islamic Mortage: Paradigm shift or trojan horse

Islam defines riba in such a way as to prohibit any benefit received by a lender for the giving of a loan, no matter how big or small the benefit. (Riba can also occur in certain other forms of trading transaction that we do not deal with here.) The main point for our purpose is that modern interest falls under the scope of the riba prohibition. In contrast, a transaction in which goods are exchanged for money cannot contain riba. This is called trading. It is however possible that such an exchange will be invalid on other grounds, such as coercion or misrepresentation. Muslim merchants are therefore allowed to make a profit by selling goods for more than they purchased them, but they are not allowed to make a profit by lending money. This is the way in which we may understand the Qur'anic injunction that:
"... Allah has permitted trading and forbidden riba ... "
from ayat 275, Surah al-Baqarah

Islamic law also prohibits hila (legal trickery) that can produce a usurious loan from otherwise permissible contracts. For example, a usury-free loan, a promise and a gift are each permissible in Islam. However, if Person A gives Person B a usury-free loan of £100 on condition that Person B promises to give Person A a gift of £10 upon repayment of that loan, then this is clearly a usurious loan when looked at as a whole. It is therefore prohibited by all schools of Islamic thought that we are aware of. In other words, combinations of Islamically acceptable contracts cannot be used to defeat the usury prohibition. In E`lam al-Muwaqi`in, ibn Qayyim al-Jawziyyah comments: “What matters in contracts is substance, not words and structure.”

Speaking of such contracts in a more general sense, the late Arab scholar ibn Uthaymeen described modern day Islamic banking as the "usury of deception". This he viewed as more serious a sin than usury on its own, for the former entails deception as well as usury, while the latter does not attempt to present itself as anything other than what it is. Similarly, at a conference in Dubai during March 2004, Justice M. Taqi Usmani is reported to have said that: “What we are developing now is not fiqh-ul-mu`amalat (the jurisprudence of financial transactions), but rather fiqh-ul-hiyal (the jurisprudence of legal tricks)”.

For those who are interested, there's an introduction online by Taqi Usmani, http://www.darululoomkhi.edu.pk/fiqh...icfinance.html

[mfyahya]

Re: The Arab's Get it (Islamic Finance)

But private mortgage lending by these banks was quite limited. Expatriate buyers of homes and apartments in the Gulf do not have any legal residency rights. None of the GCC states/emirates, including Dubai, ever actually passed legislation granting the right of residency even if you own a home, despite the fact that the developers hyped that tax haven benefit as part of their marketing pitch.

Even if legislation was passed it doesn't mean much. The Dubai govt was offering 3 year renewable residence visa to whoever bought property in the fancy new developments. However, just after the market had peaked, the government stopped issuing visas . Laws here are changed based on bureaucrats' egos and phases of the moon rather than market or social needs.

I don't know what all the mostly Western expats who bought property here were thinking. Thousands are being laid off nowadays, and they get only a month before their work permits are canceled so they have to leave the country as well.