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Conscionable Banking

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  • Conscionable Banking

    This is a split from here.

    Originally posted by siam View Post
    Yes---the business is potentially big---and because making a profit is not haram (bad) the model seems attractive to many (non-Muslim institutions) in conventional banking/finance industry. Also---since the rules in Islamic banking encourage solid asset -based business practices which withstand stress cycles better---governments are interested too.....
    From what I have come to understand, the major hurdle isn't the provision of domestic financing (halal loans) but the raising of halal capital, which apparently is thin on the ground (especially from the most likely Islamic sources). Hence the reluctance of western bankers to enter the halal market = it is perceived as high risk & ultimately of marginal profitability. Catch 22 to my mind.

    For instance: imu, in the UK the major provider of halal banking is the Bank of Kuwait. Their source of funds is from oil, whose existence is dependent on investment by the kafir (mainly the USA & UK) whose funding source has a component of haram. Thus, in pure terms, all their loan offerings must be considered prohibited to a religious Muslim. Hence, a religious Muslim's last appeal is to a secondary or tertiary market that can't meet demand (can't raise sufficient halal capital) which causes price inflation in that market. Which explains the complaints of UK Muslims regarding halal finance which I mentioned elsewhere. A definite Catch 22.

    Imu, there is a qualifier in halal finance = provided the source of investment funds can be proved to be not returned from prohibited activities, then the funds are considered "halal". Thus, any loan that accords to the interpretated rules of Moses is 100% halal. In Jewish terms 100% kosher.

    Unfortunately, all sources of institutional funds have a tendency to be tainted and thus, few financial products in the halal market are in fact "halal". Catch 22 for the religious.

    Even in the west, at least since the end of WW2, there has been a proactive movement towards the accumulation of ethical capital (source of investment funds). A current example is the trend of superannuation funds' divestment in fossil fuels.

    The queston to be asked & answered: "What should be considered halal & haram in the 21st century?"

    Pork (currently haram) these days is safe to eat whilst tobacco (currently halal) is dangerous to health. Catch 22 for the religious.

    A huge (age old) problem has always been the raising of capital for the purchase of a property.

    In my era of personal establishment, here in Oz, when banking was fully regulated (credit companies weren't), the early 1970s, there was a government imposed credit squeeze. As I looked to house my growing family on a marginal income, I had no access to the standard loan market, so was perspectively stuck in the "dead money" of renting.


    There were other options available to me. Albeit at a cost! I could have appealed to shadow financiers (totally legal credit facilitators) to remedy my incumberance.

    For me, there were several options, but at the time I worked for an insurance company that offered (as a loyalty bonus) inhouse housing finance after an x period of employment with them (the catch was the mortgage was terminated at the discontinuance of employment with the company = implementation of a form of serfdom or at the least indentured servantry).

    I had done my qualifing time, threatened to quit, and got my mortgage! Plus via some good advice from my managers acquired additional credit from 3rd parties. Ultimately I attracted finance of about 120% of my prospective property value, simply because my investors (lenders) saw me (as an upcoming professional) as having a growth potential (low risk).

    The reality of this scenario was that for a short period of time (8 years) I didn't have any leisure in my life (3 jobs (2 years), part-time (night) study (8 years), wife & kids) so I could meet commitments. After 12 years I was 100% debt free! Albeit, that took some sacrifice to achieve, but once achieved I had total freedom of life choices! An aspect of life many of the "credit" generation will never comprehend.

    In my perspective, the "post baby boomers" generation (imo, anyone born after 1965) have unrealistic expectations. Imo, this is particularly reflected of late in the "east" vs "west" youth, where the majority of the eastern population is considered impoverished by western standards (especially evidenced where a population has a Muslim or Hindu majority).

    Branding has become a major issue!

    Like it or not "Islamic Finance" & "Halal" have become "market brandings" totally devoid of religiosity (thus haram to the super religous = a Catch 22 in day to day survival = the practicalities of life)...

    My concepts:

    At least one of my sons has adopted my philosophy:

    if you can't afford a "Porche" buy a "VW", both were conceived by Porche. Therefore own either you own a Porche!

    What is it that you are buying?

    Another of my platitudes one of my sons cites, is my cite of an early 20th century Oz entrepreneur: Why is it that a pound of tea sells for 1s or 6p or 3p when each allocation comes from the same barrel? Obviously, some people want to spend 1s or 6p or 3p for a pound of tea!

    What is it that you are buying?

    Originally posted by siam View Post
    Ah! The consideration of practicalities versus the wish lists..

    Originally posted by siam View Post
    As I mentioned previously ---Islam and banking seem an me...
    My research is leading me to the same conclusion but not from an Islamic perspective (moreso from the perspective of a landless proletariate = the concepts of Leninist marxism).

    But then we are confronted by reality! Whether we are talking about corn or gold, the reality is, we are talking abot commodity exchange. and property is simply another commodity whose exchange is only complicated by the magnitude of the transaction.

    Originally posted by siam View Post
    Buy/sell should be contracts that should be freely available to all to engage in.
    (?) Which is the western norm.

    Originally posted by siam View Post
    Banks/finance institutions monopolize these contracts.
    Be realistic...

    In Oz & I presume the rest of the world, the Banks have a range of competitors in the mortgage market = building societies, credit unions, legal shadow lenders (usually insurance companies, pension funds, mega-stores or anyone with a surplus of legal capital) & marginal lenders (usually casinos) & those whose capital sources are dubious (eg: possible drug money and/or money laundering operations).

    Originally posted by siam View Post
    If the market were freed up so that individual sellers as well as developers can offer their assets directly to the customers without the bank as an intermediary agent---then prices would actually reflect market supply/demand.
    Are there lending comstrainsts in Malaysia?

    In Oz, and as far as I know, anywhere else, anyone can legally lend monies to anyone, under a non-compulsive contract...

    In Oz sellers of property are free to do watever is legal to attract buyers without the need for Real Estate Agents. Same with conveyancing, you can elimate solicitors and do it yourself. Likewise with finance. It is becoming common for high=rise developments to offer vendor-finance thus eliminating the financial institutions from the equation.

    As far as I know, Oz has simply followed the international western norm...

    Originally posted by siam View Post
    As long as the laws do not support such competitive and transparent transactions ---but require asset ownership to be conducted through institutions---it is not really a "free" marketplace.....?....

    I'm not aware of any government that requires "asset ownership to be conducted through [registered financial] institutions", though it wouldn't surprise me if a government instigated such a law to combat high levels of corruption, money laundering & other illicit practices.

    Does the Malaysian circumstance fit this frame?

    Originally posted by siam View Post
    Among majority-Muslim countries Indonesia is large---but in terms of Banking and Finance Malaysia is interesting....also, among Muslim-minority countries, Russia, India and China have large Muslim populations....the demographic and income/lifestyle trends will be interesting to watch....
    Russia 8.4m (6.5%), India 172m (14.2%), China 22m-50m (1.8%). Indonesia 205m (87.2%), Malaysia 17m (61.4%).

    Within the prospects of raising halal capital, Indonesia & Malaysia appear (by population statistics) to be better marks than the countries you suggested, which appear to be the prospects of halal lenders. As the economies of Indonesia & Malaysia emerge and per capita discretionary incomes increase, halal capital raisings could increase, which could lead to halal investment in Russia, India, China & other minority Muslim nations. Capitalism at its best.

    Originally posted by siam View Post
    Halal certification---there are 5 major schools of Sharia (law) so certification is not standard. (I personally prefer the plurality) because the differences in methodology of the Sharia schools can produce different results in the rulings/laws. This is most commonly seen in Islamic dietary laws (which itself is a very large market...and projecting to get larger....Australia has been an important player there too....)
    In Oz, "Halal certification" is a societal sore point...

    In Oz, halal certification is generally considered a rort (extortion) imposed upon the majority of the population (97.8%) by an insignifant minority (2.2%) of the population. Why is this so? Good question! I assume the problem stems from foreign ownership of Oz's major commodity exporters (few of Australia's major enterprises are owned by Australians).

    As the MacDonald's fiasco well proved "Halal certification" is one huge unfortunate jest!

    In Oz, I assume the view of the illegitimacy of halal certification stems from the regularity of news reports of open corruption & dubious disposal of proceeds. Another factor often discussed is that, unlike other professions, there are currently no gov't regulations, that have been publicised, that ensure the certifying organisations and agents are legit!

    Imo, halal certification should be a free service. if necessary, it should be sponsored by Islamic society as a form of zakat. That little compromise would go a long way towards harmonisation of Oz society.

    Imo, in countries like Oz. where gov't regulations exceed halal requirements, at the most, halal certification should take the form of an audit of the regulations and the effectiveness of their policing (One of my sons is a "Health Inspector" for the NT govt. He assures me the rules are strict & the inspectors are stricter!)

    Your comment that "there are 5 major schools of Sharia (law) so certification is not standard" is a huge worry! The idea carries with it the stench of corruption! Western commerce has succeeded because it is dependant on industry specific standards - each iteration being a reaction to combat revealed corruption.

    To me "halal certification" should be subjected to Jesus' criticism per Matthew 23:23.

    Originally posted by siam View Post
    Another factor to consider---as Dr Mahathir pointed out---is that of fiat currency vs gold/silver backed currency system and "virtual" money (and virtual markets)...
    Dr Mahathir has always been an interesting fellow but his 2002 projections haven't come to fruition simply because his premises were unrealisticly prejudiced...

    Back in 2014 the "Malay Mail Online" reported that "Islamist hardliners want a return to gold standard as ringgit slumps". The article concluded "...the plan has failed to catch on due to the lack or regulation and backing from traders. Another proponent is former prime minister Tun Dr Mahathir Mohamad..."
    KUALA LUMPUR, Dec 12 — Malaysia must return to a monetary system backed by gold and silver as it is mandated in Islam, the local chapter of global hardline Islamist group Hizbut Tahrir said amid the dropping value of the ringgit.

    According to the group, a reliance on capitalism and the fiat money system allegedly pioneered by the “infidelic” United States has trapped Malaysia in severe, prolonged and cyclical phases of regional currency crises...."

    Advocates of such radicalism neglect a very important fact. Return to a gold standard will not fix declining oil revenues, which is the cause of Malaysia's economic woes. Hopefully, the Malasian govt has plans for economic diversification to reduce the impact of oil revenues (as the Suadi are pursuing).

    Likewise, advocates of such radicalism neglect a very important fact of history = the "Great Depression" of the 1930s and all the recessions/depressions that preceded it occured when the international exchange standard was gold & silver! And, commodities such as gold & silver have never been price stable which is why Franklin D. Roosevelt moved to a more stable mechanism...

    Gold & silver are not fixed price commodities. Their pricing can fluctuate enormously, and when that happens, when a "gold standard" is in force, economic chaos prevails. These days, as with diamonds, the pricing of gold & silver is to some extent artifically stabilised. Thus...

    Russia & China are currently extending their gold reserves to support their currencies. Most countries maintain gold reserves as a currency stablisation mechanism. However, these days "trade balance" is the bench mark for currency valuation in the exchange market, and the US$ is the benchmark currency. It is the latter aspect that inflames discussion...

    Its Economics 101.

    Have a read of the following article "Fiat Currency: What It Is and Why It's Better Than a Gold Standard".

    Originally posted by siam View Post
    Here is a talk about the games the Western finance industry can play with virtual money....
    (around 15 min---he talks about how some people playing in the conventional market made money out of a "virtual asset" (non-existent asset) and got away with it...)
    Which is why international commerce moved away from the "gold standard"!

    It is the reason why countries like Oz, when subject to the "gold standard", made it illegal for anyone (except the federal government) to possess non-artefact gold or silver (I vaguely remember the prohibition extended to solid gold or silver objects above a specified weight).

    The current "currency exchange" system is far from "virtual money". There are solid trade assets backing each & every transaction. What the facile dupes misunderstand is that exchange is on a net global basis. This is where the "virtual money" myth originates. At any point in a trade cycle someone can make a "call" and receive a physical payment. Otherwise, transactions are simply "book entries". Saves having to move solids around the globe and consequent disjoints.

    That said: trading in "futures" and/or "options" especially using "hedge funding" does give rise to "virtual money" but only until a contract becomes due or the debt is "called". Then we are back to solid assets.

    An aside: incorporated trading is a recent development in world affairs and its regulation has been an evolutionary process.

    For instance: in British case law, there is a famous late 19th century incident where an employee of a corporation bought one share in the company that employed him, and then proceeded to embezzle the company.

    Of course, once he was found-out, the other shareholders were upset with this circumstance and attempted to have the rogue hanged!

    Appeal after appeal failed in the courts as barristers argued from a range of laws... In the end, the embezzeler pocketed his proceeds and left the courts free to lead a jolly life.

    At the time, the courts were constrained by a bunch of common law precepts, the most notable being that "a person cannot steal from himself". It was determined, that as the owner of one share in the company, the assets of the company were his to do with as he pleased...

    At the time, the idea of "duty of care" had not been formulated.

    From this one case a heap of laws came into being to define the rights & obligations of shareholders, partnerships, directors, administrators etc...

    What we learn from this tale: The western system of commerce has never been perfect, but aims to be = through positive reaction to abuses to avoid societal conflict. In short: resort to the barbarism of "an eye for an eye" which only causes cycles of vendetta is prohibited. God alone is the final arbitrator!

  • #2
    Your premise is that to buy a large asset, capital is needed---but why?
    If a buyer and a seller engage in a contract in which the buyer "rents" + profit and pays over time---no capital is needed---and therefore no banks....
    likewise---if a developer (seller) can make a contract with buyers (as investors) who pay over time as the project develops and who get full ownership at completion, then there is no need for up front capital either....
    The reason that capital is needed for buying property is because the buyer wants the amount in full---because of the risks. But if there are proper rules/laws so that such contracts can safeguard the interests of all parties---then it might be an attractive option.....

    Gold/silver and virtual money---I agree with some of your points...which is why I feel that Islamic economics---or the ethical principles of Islam cannot be used as plug-ins for a system whose foundations are essentially without ethics. The foundations of the Islamic ethical system are based on a non-interest economy that deals in "real" markets (as opposed to virtual) and does not engage in speculations. I think you under-estimate the manipulations of the (virtual) market and governments involved in the "numbers" game (GDP, and other "economic" indicators)

    I do not have problems with Western Capitalism trying to react to abuses and correcting them. To you is your way....but, if there was a system which was built on a good ethical foundations that benefited all, I would prefer, to me is my way.


    • #3
      Gold price fixing and "paper Gold" (speculative contracts that effect "real" price)


      • #4
        Originally posted by siam View Post
        Your premise is that to buy a large asset, capital is needed---but why?
        If a buyer and a seller engage in a contract in which the buyer "rents" + profit and pays over time---no capital is needed---and therefore no banks....
        Vendors only sell to raise capital.

        For instance: In the practicalities of commerce, a developer cannot build unless they have access to construction materials & labour. Both come at an upfront cost = capital.

        We are a long way from a society where people can accumulate credits & exchange them = virtual money, but we are heading in that direction.


        • #5
          Originally posted by elam View Post
          Vendors only sell to raise capital.

          For instance: In the practicalities of commerce, a developer cannot build unless they have access to construction materials & labour. Both come at an upfront cost = capital.
          Yes---in our capitalist system this is the case---but---what if we imagined another way? ---what if the landholder sold land on deffered payment (perhaps with a credit of 2 or 3 months)---the developer bought materials on deffered payment, and the buyers paid some upfront amount then paid monthly....the capital requirements could be very low...enough so that the developer could use his own capital investment for the other costs such as labor etc....?, the landholder, developer and buyers would all be shareholders/stakeholders of this project....The law would have to support such a system though...

          In the case of war-torn regions that need redevelopment (our previous discussion)---such a system might be effective as the buyers could contribute labor...with an income stream---it would become easier for buyers to buy and for the developer, it would be easier to sell if there is a larger buying pool.....The landowner and developer get a profit, the buyer gets an asset---its win-win....?....If Trusts, charities and volunteers also help, then the public spaces around the development would also be built---so that you have a community....?.....

          ...and if traditional methods of construction and raw materials are married with new technology---costs would come down and the traditional cultural and lifestyle aspects would be maintained.

          some models might be habitat for humanity and innovative architects and developers...

          Why can we not imagine a society where banks are not a necessity but are optional?...


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