Promoters of Shariah-Compliant Finance are fond of claiming that it is either immune to, or even a solution for, the financial crisis.

They base this on the Shariah prohibition against interest. What they don’t say, and what the article from the AP linked below fails to mention is that Shariah-Compliant financial institutions get around the prohibition of interest through convoluted machinations to replace interest with “fees” and other charges. 

In fact–and this should be the real litmus test–such fees are in fact tax-deductible as interest when associated with a mortgage.

So the prohibition against interest championed by the promoters of Shariah-Compliant Finance is actually smoke and mirrors. It’s tough to see how such a mechanism could provide a protection against financial crisis.

One of the causes of the current financial crisis has been a lack of disclosure associated with securitized, bundled mortgage obligations. Full and fair disclosure is widely recognized as one of investors’ and regulators’ chief defenses against investment fraud and other associated problem investments.

Shariah-Compliant Finance is characterized by an astonishing lack of full and fair disclosure about many of its aspects, ranging from the convoluted mechanisms to get around the interest prohibition to concealing the true nature of Shariah and the disturbing associations and writings of paid Shariah authorities.

The idea that Shariah-Compliant Finance is a protection against the financial crisis is an outgrowth of the desire of the Shariah-Compliant Finance industry to market their products as “ethical” investing to non-Muslims, something that would come as a surprise to anyone who has followed the news reports of the world’s largest Shariah-Compliant financial institution, Bank Melli of Iran.

http://www.sun-sentinel.com/business/sfl-flzislam0118sbjan18,0,6667591.story

 

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