DePaul University is teaching Islamic Banking! The newest “racket that exploits people’s religious insecuties” says Professor Mahmoud el-Gamal
DePaul buys into growth of Islamic banking
Classes are teaching financing methods that conform to holy laws as field expands into a global industry
By Deborah Horan
March 13, 2008
Amir Davoodi had read about the meteoric rise of Islamic banking, but the senior finance major at DePaul University didn’t realize how intrigued he would become with the idea of mixing Islam and market finance until he took a course on the subject last fall.
Now Davoodi has accepted an internship with a local Islamic real estate company, Sunrise Equities, and might pursue the banking niche after graduation.
“Right now it’s booming,” Davoodi said. “They’re saying there’s a market out there for it. I know I can learn a lot and it will help with my career.”
Driven by rising oil prices and an increasing desire by Middle Eastern and Asian investors to keep their cash in the region, Islamic finance has boomed into a $500 billion to $600 billion global industry, experts in the field said.
The growth prompted DePaul last fall to join a tiny vanguard of U.S. colleges offering classes or lectures on the subject. On Thursday, the university will sponsor a conference on Islamic banking methods including home financing, private equity, bonds, even derivatives and hedge funds.
“There is a significant demand clicking up for people who understand the field and can design products that are Islamic and can answer the needs of the community,” said Ali Fatemi, chair of DePaul’s finance department, who was instrumental in bringing the Islamic banking course to campus.
After Sept. 11, 2001, Middle Eastern and Asian money came under greater scrutiny, worrying investors in those regions that their money was no longer safe in Western banks, Fatemi said. Many of them chose to invest locally instead, adding to the demand for Islamic banking.
DePaul’s course was offered as an elective to upperclassmen and attracted 14 students, said Karen Hunt-Ahmed, who taught the fall class and plans to teach it this summer. Most were Muslims interested in how bankers have worked around the prohibition against paying interest, which Islam teaches exploits the borrower and the lender. About a third were non-Muslim who wanted to add an esoteric form of banking to their college resumes, Hunt-Ahmed said.
In the class, students learned the history of Islamic banking, the reasons for its global rise and the creative ways Islamic bankers have structured deals. To avoid interest in home financing, for instance, banks buy the home and resell it to a buyer at an agreed-upon marked-up price, and retain the deed until the house is paid off.
“The bank acts as the wholesaler of the transaction,” said Tariq al-Rifai, vice president at IUB Capital in Chicago.
Not everyone agrees Islamic financing is necessary, or even particularly Islamic. Mahmoud el-Gamal, a professor of economics at Rice University who has written extensively on the subject, compared it to the sale of indulgences in Medieval Europe. The prohibition against interest payments is open to interpretation, he said, and Islamic banking often mimics conventional products, only using different terminology, so why employ them?
“It’s a racket that exploits people’s religious insecurities,” he said.
Still, Islamic banking has gained traction as more ordinary Muslim investors look to religious scholars to sanction their financial transactions. Ahmed Khan, a Muslim in Chicago, chose Islamic home financing when he bought four condos on the North Side because the financing had been blessed by a local Muslim religious council.
“That was the most important thing,” Khan said.
David Loundy, corporate counsel at Devon Bank in Chicago, said the bank had financed hundreds of deals, including Khan’s, in Illinois and 35 other states since it started structuring Islamic home financing five years ago. He expects the niche to grow even as home sales slow.
Meanwhile, big banks such as HSBC, Citi and Deutsche Bank have developed sections for clients concerned with Islamic law, al-Rifai and others said. Some institutions are venturing into newer forms of finance, such as insurance and hedge funds.
“Almost everybody wants a piece of the pie,” Fatemi said.
Individual demand has also driven investment in Islamic mutual funds, which refrain from buying stock in companies that sell pork or alcohol, among other prohibited items. The funds have soared to at least an $80 billion industry worldwide since the first ones were created more than a decade ago, Fatemi said.
As the industry grows, students at DePaul said they expect Islamic banking to become more common. Jonathan Chan, a senior who also took the class last fall, said he expects to cross paths with some form of the banking in his chosen career in global accounting.
“As the Middle East continues to prosper, the chance is very high,” Chan said. “It’s so new, everything is growing and adapting and developing. … It’s kind of like watching history in the making.”
Copyright © 2008, Chicago Tribune