The Islamic Bank of Britain is operating in the red so far in 2009, after having posted a loss in 2008.
If you listen to some promoters of Shariah-Compliant banking, you’d have the impression that Islamic banks have all been untouched by the financial crisis. But, that certainly is not the case in Dubai, as we have noted recently. In Qatar, that country’s regime has just injected a huge sum of capital to shore up its banking sector, including two large Islamic banks. So, the news that the Islamic Bank of Britain is operating at a loss comes as no real surprise to those who have been paying close attention.
But what is interesting is the reason given at the article linked below for the bank’s troubles. The director of the Islamic Bank of Britain blames the Bank of England’s slashing of interest rates for their troubles.
This is interesting because interest is forbidden in Islamic banking.
So, why has the cut in interest rates so impacted the Islamic Bank of Britain?
One possible explanation is the fact that, even though Islamic banks don’t call the charges and fees on their loans “interest” they are set up and calculated in such a way as to match up with the prevailing interest rates in the conventional banking world.
This is what is necessary when the whole system of Islamic finance is a made-up system with a convoluted construction in the first place…