posted by Christopher W. Holton
The world economy and financial markets have been beset by an unprecedented collapse brought about by the Wuhan virus pandemic. In such environments charlatans and swindlers often move in to take advantage.
One particularly risk for investors will be promoters of shariah-compliant finance. Shariah complaint finance is a form of investment where decisions are made in compliance with Shariah, Islamic law. These funds are typically overseen by shariah scholars with little or no financial training or experience, and several of whom have known ties to jihadist terrorism.
There is every reason to expect that the shariah finance industry will claim that shariah compliance provides a safe haven from the effects of the pandemic on investors, as well as for the investment and banking industry in general.
These claims will not be based on any facts and will rely on the average investor’s ignorance of Islamic law to obfuscate how funds are managed. While in practice such claims will amount to fraud, they will not be treated as such because the shariah finance industry has largely been untouched by the standards of disclosure, transparency and truthfulness in advertising that are customary in the US in particular, and the West in general.
This prediction is based on experience. As ably documented at the Center for Security Policy’s Shariah Finance Watch Blog, in the wake of the 2007-2009 financial crisis that saw a severe decline in world investment markets and economies, the shariah finance industry was littered with baseless claims that investing according to shariah compliance provided a hedge against that downturn. A typical example were 2011 Saudi state-controlled media claims regarding Islamic bonds.
One of the most dangerous aspects of the claims of immunity from the economic cycle is that the claims are used to convince non-Muslim investors to invest according to shariah compliance. Any economic concern becomes the basis for a call for shariah compliance, including as an attempt to solve America’s debt problems. In some cases, investment firms and banks base major decisions on these unfounded claims of stability.
There is ample anecdotal evidence refuting claims that Shariah finance is more stable and secure than traditional western investment vehicles. These include the massive default in the market for shariah compliant bonds (known as a sukuk) which took place in Dubai in 2010. That default was hardly unique at the time, as in the past nearly ten such markets defaulted at the end of 2009, and the default rate was higher than conventional bonds during the financial crisis. A Qatari shariah banking bail out, and plunging Shariah finance profits from Kuwait to Bahrain all make clear that Shariah is no safe harbor.
There is another vital aspect of sharia compliant finance that Western observers must be cognizant of: shariah compliant finance is NOT capitalism. Shariah compliant finance is in fact a financial and economic system which by its very nature seeks to replace capitalism and our free enterprise system. It is a centralized economic system that runs counter to free market economics. In this sense it is less an investment vehicle than a form of financial jihad, to paraphrase Muslim Brotherhood leader and Shariah Compliant Financing leader Yusuf Al Qaradawi.
Be on the lookout in the coming months and years for claims from these financial jihadists that shariah compliance provided shelter from the economic fallout of this pandemic. Be especially skeptical when those claims are attached to a pitch to convince non-Muslims to invest according to shariah.
