As Western banks fall, Islamic mortgages are on the rise.  It is a more just system.  Read up on it and understand the level of how the pursuit of the American Dream is just that, even after reaching it, it's just a dream for most living in the U.S.

 

 

This will be the first Shari'ah compliant multi-asset class fund to gain admission to the AIM and will provide investors with a diversified pool of Shari'ah compliant assets including Shari'ah compliant hedge fund offerings, real estate, private equity and Sukuk options.  <<<<<<

It would be nice to have this kind of financial news in the U.S. for a change.  Americans don't seem to realize that there is strength in Islamic principles.  When the word shariah is mentioned, one actually gets more of a sense of justice.  Just try and use the Treasury Department, or Dept. of Justice in place of shariah.  You just don't get that sense that your money will be as secure, do you?

The international bankers have succeeded in doing more than just controlling the money supply. Today they actually create the money supply, while making it appear to be created by the government. This devious scheme was revealed by Sir Josiah Stamp, director of the Bank of England and the second richest man in Britain in the 1920s. Speaking at the University of Texas in 1927, he dropped this bombshell:

The modern banking system manufactures money out of nothing. The process is perhaps the most astounding piece of sleight of hand that was ever invented. Banking was conceived in inequity and born in sin . . . . Bankers own the earth. Take it away from them but leave them the power to create money, and, with a flick of a pen, they will create enough money to buy it back again. . . . Take this great power away from them and all great fortunes like mine will disappear, for then this would be a better and happier world to live in. . . . But, if you want to continue to be the slaves of bankers and pay the cost of your own slavery, then let
bankers continue to create money and control credit.

The real truth of the matter is, as you and I know, that a financial element in the large centers has owned the Government ever since the days of Andrew Jackson.
-- President Franklin Delano Roosevelt, November 23, 1933,
in a letter to Colonel Edward Mandell House

Some people think the Federal Reserve Banks are U.S. government institutions. They are not . . . they are private credit monopolies which prey upon the people of the U.S. for the benefit of themselves and their foreign and domestic swindlers, and rich and predatory money lenders. The sack of the United States by the Fed is the greatest crime in history. Every effort has been made by the Fed to conceal its powers, but the truth is the Fed has usurped the government. It controls everything here and it controls all our foreign relations. It makes and breaks governments at will.
-- Congressman Charles McFadden, Chairman, House
Banking and Currency Committee, June 10, 1932

Through a network of anonymous financial spider webbing only a handful of global King Bankers own and control it all. . . . Everybody, people, enterprise, State and foreign countries, all have become slaves chained to the Banker’s credit ropes.
-- Hans Schicht, “The Death of Banking” (February 2005)

Graham Towers, Governor of the Bank of Canada from 1935 to 1955, acknowledged:

Banks create money. That is what they are for. . . . The manufacturing process to make money consists of making an entry in a book. That is all. . . . Each and every time a Bank makes a loan . . . new Bank credit is created -- brand new money.

Abū Bakr ibn Abi Maryam reported that he heard the Messenger of Allah say: "A time is certainly coming over mankind in which there will be nothing (left) that will be of use (or benefit) save a Dinār (i.e., a gold coin) and a Dirham (i.e., a silver coin).” [This prophecy clearly anticipates the eventual collapse of the fraudulent monetary system now functioning around the world.]
(Musnad, Ahmad)

It is both strange and embarrassing that even at this late hour when enemies are about to weld into place the final iron gate of a financial Guantanamo, so many Muslims remain ignorant about the devilish nature of European-created money in the modern world. One has even criticised this writer for having “funny” views concerning money.There seems to be little understanding of the role that a European-created money-system has been playing in delivering to enemies of Islam the capacity to engage in massive legalised theft of the wealth of mankind. Nor is there realization that those enemies have designed a monetary system that would eventually deliver to them financial dictatorship over the whole world. They have already succeeded in enslaving millions of Muslims (as well as others amongst mankind) with slave wages and even destitution, while pursuing a sinister global agenda on behalf of the Euro-Jewish State of Israel. It is truly pathetic to listen to those who blame Pakistanis and Indonesians for miserable poverty in Pakistan and Indonesia.

Download this Booklet here : dinar-and-dirham-islam-and-the-future-of-money-by-shaikh-dr-imran-n-hosein

The most pivotal building block and strongest tool of exploitation of the interest / debt based economic system is paper currency backed by nothing. Paper currency (and now digital) is the center of gravity of the prevailing economic system and Alhamdolillah, SubhanAllah Islam has provided us a very strong weapon called Zakat that we can use to hit its lifeline if we use it properly i.e. “Pay Zakat in Gold”. To understand this we have to get hold of the economics of paper currency first. Paper currency is not backed by Gold or silver these days. Its value is determined through floating exchange rates resulting in deadly repercussions in following ways:

When Sharing Becomes Evil

The most central practice in today’s economic model is Fractional Reserve banking (FRB) which is about lending a percentage of deposits to customers. Paper Currency that is printed in the quantity, desired by Central Bank (CB) is multiplied as it passes through Fractional Reserve Systems of Conventional banks resulting in inflation. The CB

imposes a Cash Reserve Requirement i.e. CRR is 7 ~ 10% on commercial banks (even Islamic banks) which determines the amount to be loaned out. A CRR of 10% means that a bank can lend 90 rupees if it has a deposit of Rs. 100. The bank in fact transfer this amount to the clients bank account, i.e. the same bank (or any other bank)

receives it back, again making it a part of its deposits ready to be

loaned again. The cycle continues and the money generated by central bank is multiplied many times in the form of loans and expects commercial banks expects it back with interest. Britain the Central bank regulates only 3% of the total money generated where as the remaining 97% is regulated in form of loans by commercial banks. In other words only 3 pounds of money exists to pay back 97 pounds to debt in Britain !!!

This phenomenon seems very profitable if seen in context of banking practices, but from macro economics stand point this is most contagious and is the biggest root cause of Monetary Inflation (of course there are others reasons as well) as by practicing FRB, banks gains the capacity to produce and control the money supply in the economy2. Its exploitative nature is evident from Mayer Amschel Rothschild, statement which he made in 1828 "Allow me to issue and control the money of the nation, I care not who writes the law". Fractional Reserve banking is only possible if economy is backed by 1 Confession of an Economic Hitman by John Perkins

"I believe that banking institutions are more

dangerous to our liberties than standing

armies. Already they have raised up a money

aristocracy that has set the government at

defiance. The issuing power should be taken

from the banks, and restored to the people

to whom it properly belongs."

- Thomas Jefferson, 3rd US President

paper currency backed by nothing and its value is determined by floating exchange rates. If it’s backed strictly by gold then it is not possible to do FRB simply because a physical gold coin cannot be passed on to many in form of loan, enabling them to use it simultaneously!

From Paper to Bits

In reality, Paper currency is a hoax (pay orders, bonds, cheques and other receipts included) and digital currency (debt / credit cards) are even bigger hoax, as it was supposed to be backed by gold but it’s not. The reason paper currency superseded gold and silver was that it could be produced effortlessly and multiplied many times over in form of debt by passing it through the FRB system. The digital currency in form of credit and debit cards has even eliminated minor repercussions which paper currency had, like printing and distribution, as now it’s even more easier to generate and multiply it in digital form, thanks to the latest information technology. The result is constant depreciation of currency’s value as it multiplies with time, in the form of debt, when passes through the FRB system of banking (the sugar coated term for this phenomenon in economics is the Money Multiplier Effect). Today 3% of Britain money supply is controlled by government whereas 97% is controlled by banks inform of debt3, even worst is the case in USA. The result is staggering inflation and devaluation / debasement of paper currency and the hardest hit are the poor as their savings disintegrate with the rate of inflation cased by excess money supply, henceforth they have to put additional backbreaking effort just to maintain it. From Islamic standpoint, Ahadith and Quranic verses, describing the economic ruling, are based on Dharam and Dinnars, which has always been in form of gold and silver. By the way 1400 years ago a chicken price tag was 1 dinnar and today it’s still 1 dharam i.e. 3 grams of silver means zero inflation in terms of silver currency. Paper currency is a pivotal element of Debt / Interest based economic environment which enables world powers to accomplish their agenda of Economic domination and slavery (for details of this agenda read the book by Confession of an Economic Hitman by John Perkins who worked at IMF), as it allows the banks to control, issue and devalue the money supply. Devaluation of currency is practiced to keep countries under their economic rule. You must have noticed the devaluation of Rupee in the past and more significantly in recent times. The World Bank occasionally pushes Pakistani government to devalue the currency (source Dawn newspaper) simply because it increases the amount of debt in dollars and the interest on that debt (previously to pay back 1 dollar, we had to earn Rs. 60, now we have to earn Rs. 70) as a result Pakistan has to pay more out of its savings for an even longer period of time.

The Gold Standard of 2.5%

We all know that the currency used 1400 years back was Dharam and Dinnar, which were in fact gold and silver coins. Henceforth Zakat was implied on individuals whose savings were more than a specific amount i.e. 85 grams of gold, 595 grams silver or 653 kilograms of certain grains. Minimum limit of Zakat was 2.5% of the saving in haram/dinar or other trading goods and 5 ~ 10% on grains in stock exceeding the minimum limit. This extracted amount of savings goes to UK Money Supply Has Tripled Since 1997: www.dailyreckoning.com.au/uk-money-supply/2007/10/09/, also see poor and deserving people of the society.

"The dollar is America's greatest success

story, because each one costs less than a

penny to produce and yet, is sold throughout

the world for $1 apiece. What American

export can match that?"

Jim Grant, Grant's Interest Rate Observer, NYC Conference

Today we calculate and pay in terms of paper currency. If the poor guy spends it immediately then he has nothing to lose. However, if he kept it for saving, paper currency disintegrates with the rate of inflation. Please note that Zakat cannot be paid on debt! It’s paid on the Real Wealth if it exceeds then limits defined above. Considering an economy such as of UK as example, where 97% of all the money supply is in the form of debt created by fractional reserve systems of commercial banking, assuming the masses are all Muslim and wants to pay Zakat on their monetary reserves then they will be only able to pay 2.5% of the 3% of real money circulating in the economy. Similar would be the case in United States or any other developed country with similar economic scenario. This simply means that a Muslim economy if gets more and more dependent on the interest/debt based fractional reserve banking system then the masses will become increasingly handicapped to pay Zakat. Furthermore, whenever a person asks for some debt from the bank, the bank in return asks him to pledge whatever real wealth he has so that bank can secure its investment in case the creditor gets bankrupt. Thus pledging further disables the creditor to extract a portion of his savings to help the poor of the society. Little surprise when we say “Richs are getting richer and poor are getting poorer” in today’s debt reddened so called developed countries … On the other side, It's estimated that the amount of gold mined throughout history is about 140,000 tons. At $1,000 per ounce, this is worth about $4 trillion. If the whole world pays Zakat on that amount (2.5%), the result would be $100 billion annually. Wheat production is expected to reach 645 million tons in the 2008/2009 season. If the whole world pays Zakat on that amount (5% for wheat), the result would total more than 32 million tons for this year. Rice production is 421 million tons for the 2007/2008 season. If the whole world pays Zakat on that amount, the result would total more than 21 milliontons for this year.

This amount is many times more than needed to raise all the poor (more than half of the world population) to their feet!!! But the prevailing situation is in fact entirely opposite simply because economies are being driven by interest / debt based FRB system whichare extracting all the remnants of Real wealth from nock and corners of their respective societies, in exchange of debt, making only the rich even richer and the poor to die with hunger; 25 million per year to be exact!!!

The Alternate

Keep in view the above stated points its becomes blatantly clear that if we want to raise the standards of living of the half of the world’s population living below the poverty line then we really need to get rid of interest / debt based economic system operating through FRB. The first and most convenient step would be to get rid of paper and digital currency and replace it with Gold and silver, simply because its not possible to issue, control and devalue it as done with existing forms of currency.

"Banking was conceived in iniquity and was

born in sin. The Bankers own the Earth. Take

it away from them, but leave them the

power to create deposits, and with the flick

of the pen they will create enough deposits

to buy it back again. However, take it away

from them, and all the great fortunes like

mine will disappear, and they ought to

disappear, for this would be a happier and

better world to live in. But if you wish to

remain the slaves of Bankers and pay the

cost of your own slavery, let them continue

to create deposits."
- Sir Josiah Stamp,President of the Bank of England in the 1920's,the second richest man in Britain

As it is clear that the poor in the society are getting poorer with a rate currency is being devalued which is infact the rate of inflation, thus as Muslims our first priority should be to save the poor class from the claws of prevailing evils of the economic engine. The Zakat paid by Pakistanis is 60 ~ 70 billions of rupees. If this is paid in form of Gold and silver, will bring following advantages :

1. Poor class will be able to develop their monetary reserves in form of Gold and Silver, which they are unable to develop due to their egligible income. As we know that the price of Gold and Silver has been increasing with time, thus this will profit poor class in monetary terms.

2. If this much gold and silver is injected at the bottom of the society, it will encourage the use of gold and silver as a unit of exchange. Hence, the circulation of gold and silver will begin in the society, which is a pivotal element of Islamic Economic system. As you might know that in some cities of upper Punjab dollar and pounds are used simply because a member of each family is abroad and send back his savings in form of dollars thus making it a medium of exchange for the whole city. In Malaysia use of Gold as a medium of exchange has already started, so it really happens if people initiate it.

3. This will be a move in the direction to make Gold and Silver supersede paper currency, this will be the strongest blow to the interest/debt based economic system, as it will disable them to dominate and exploit countries that they do through fractional reserve / interest / debt based banking. Fractional reserve will not be possible in presence of gold currency thus their agenda of economic domination will be deterred effectively as they will not be able to control and manipulate the money supply as they do with paper currency.

"I am however starting to think that the plan for the Gold Dinar and support from other Islamic nations is a planned offensive against

the use of the dollar as a settlement currency for oil. It is perceived, and correctly so, that the Islamic world is controlled via the use of

the US dollar as the main settlement currency. When I say "controlled" I mean whatever happens economically in the USA

is exported there via the dollar ... What we are hearing now is that the Gold Dinar will be used as a "measure" settled quarterly in

gold on an Islamic intra- nation basis, but that could change quickly. A review of the trade balances of Malaysia and its intra-

Islamic trade partners indicates that if the Gold Dinar is employed as now suggested, it would tie up approximately 200 tonnes of

gold production equal to 10% of new mine supply. If Malaysia went all the way and went to convertibility with a 15% gold cover,

they would utilize more than 300 tonnes of new production. Either way, this is the Wildest of Wild Cards for Gold."
THE GOLDDINAR: A NUCLEAR WILD CARD - Jim Sinclair,

Tanrange October 28, 2002

_"This Fatwa considers paper-money to be fulus (lower category of currency with limited used), because it only represents money and does not have value as merchandise. It follows that since Zakat cannot be paid in fulus, which has no value as merchandise, it cannot be paid in paper-money, which value as weight of paper is null. On this basis, it becomes clear the urgent need to restore the use of the Dinar and the Dirham as payment of Zakat. If the millions of Muslims who now make their payment of Zakat in paper money would do it in newly minted Dinars and Dirham's, they will put in circulation millions of gold and silver coins into the mainstream of daily commercial activities of our communities. That single act will became the most important political act of the century, opening the path towards the establishment our own halal free currency breaking away from the usurious financial system. The return to the payment of Zakat in gold and silver is an essential part of the reestablishment of Islam. _"
Translated from the "Al-Fath Al-'Ali Al-Maliki" page. 164-165

]]> http://bsimmons.wordpress.com/?p=4963 Sun, 20 Jul 2008 19:20:45 +0000 budsimmons http://bsimmons.wordpress.com/?p=4963 http://www.economist.com/world/europe/displayStory.cfm?source=hptextfeature&story_id=11745570

LONDON LISTING: Global Investment House has raised $500 million in an initial public offering for a private equity fund. (Getty Images)

Kuwait's Global Investment House said on Wednesday it had raised $500 million in an initial public offering for a private equity fund to be listed in London.

Kuwait's largest investment bank by market value, said in a statement it had sold about 252 million shares at 100 pence ($2) per share to European and Middle Eastern investors.

The offer price represented a 5.6 percent discount to Global MENA Financial Assets Ltd's estimated net asset value per share.

Global MENA is to list the shares on the London Stock Exchange on July 18.

"The net proceeds of the offer will be used to acquire from Global Investment House a portfolio of eight financial services sector assets in financial institutions predominantly in the Middle East and North Africa," Global said in the statement.

Global MENA, in which Global will retain a 29.99 percent stake, is a closed-end fund to invest in the financial sector in Algeria, Bahrain, Egypt, Jordan, Kuwait, Lebanon, Libya, Morocco, Oman, Qatar, Saudi Arabia, Tunisia, Turkey and the United Arab Emirates.

Global, which buys into companies and sells them through funds, raised $1.15 billion in May by selling global depositary receipts (GDRs) in London to fund an expansion in the Middle East. (Reuters)

http://www.arabianbusiness.com/525028-kuwaits-global-raises-500-mln-in-london-offer?ln=en

• Story by: Andrew Wragg
• Magazine: FinancialAdviser

 Photo courtesy of IBS Publishing

Islamic products still not widely available through IFAs

 The Middle East Money Summit Award 2008 will bring all together from the financial sector as well as investors & traders around the globe to witness who will take the center stage of Dubai’s spectacular Jumeirah Beach Hotel at a Gala Dinner on Thursday, 30th of October 2008 from the following 8 categories

: 1) Best Investment option

 2) Best Return on Investment

 3) Best Online Broker

4) Best Trading Platform

 5) Best Dealing Room

 6) Best Financial News Provider

7) Best Website

8) Best Alert System

The above categories have been specifically designed to recognize the wealth of ingenuity and creativity from all corners of the regions financial industry.

 Nominees are exclusive only for Exhibitors & Sponsors of the Middle East Money Summit held on 30-31 of October in Dubai.

 The winners selection will be based on an online customer survey and selection from international team of jury in financial news industry. Voting will be completely transparent and allow industry to judge itself and celebrate the huge growth it has witnessed over the past year.

 Hundreds of people will be invited to the award ceremony and awards will be delivered in the presence of major local and international newspapers, magazines & TV channels such as CNN, Bloomberg TV, CNBC Arabia and Al Arabia TV for the live coverage of the event.

“Be inspired. Be the winner and inspire others”

Make sure to take part of this prestigious award by simply exhibiting or sponsoring at the Middle East Money Summit. The awards ceremony, will be a glittering night, and I can think of no better way of celebrating it together by joining us in Dubai.

Arabcom Group Team esm@arabcomgroup.com www.memoneysummit.com If you received a mailing from Arabcom Group, (a) your email address is either listed with Arabcom Group as someone who has expressly shared this address for the purpose of receiving information or (b) you have registered or purchased or otherwise have an existing relationship with Arabcom Group or its partners. If you do not wish to receive any more messages from Arabcom Group, please Click Here.

Al-Hilal Bank becomes the UAE’s eighth Islamic bank. Says it has great plans to dominate the market, planning to launch Takaful arm.

The bank plans to turn in profits by next year and is also in the midst of setting up a wholly-owned Takaful subsidiary, Al Hilal Takaful.

The UAE saw the eighth Islamic bank enter the market with the launch of Al-Hilal Bank. Headquartered in Abu Dhabi, the bank is wholly-owned by the Abu Dhabi government through its investment vehicle Abu Dhabi Investment Council, and has authorised capital of $1.09 billion. It currently has a paid-up capital of $272.3 million. This is the fourth new Islamic bank in the UAE after Crescent Bank, Ajman Bank and Noor Islamic Bank.

http://www.cpifinancial.net/v2/news.aspx?v=1&aid=561&sec=Islamic Finance

Al Hilal becomes the UAE’s sixth shariah-compliant lender and follows the formation of Noor Islamic Bank in Dubai which started operations in January 2008.

Al Hilal will offer a full range of Islamic banking services and is also developing a so-called financial mall next at its Abu Dhabi headquarters which where customers can arrange finance for homes, vehicles and other purchases.

Source: Arabianbusiness.com

Remittances from Pakistanis living overseas increased 23 percent to a record $4.45 billion in the 10 months that ended on April 30, central bank data show. Pakistani exports rose to a record high of $13.9 billion in the same period and imports climbed to a high of $25 billion, according to the Federal Bureau of Statistics.

Meezan, Pakistan's first Islamic bank, will spend as much as 1.5 billion rupees, or $25 million, to extend its network to 200 outlets in 50 cities by the end of 2009, Siddiqui said. Meezan has 64 branches in 21 cities across Pakistan. "The market for Islamic finance is ripe in the most unexpected places across the country," said Siddiqui, who has been at the helm since the bank was licensed in 2002.

The Islamic finance industry in Pakistan may grow fivefold over the next five years to 15 percent of all banking assets, the central bank governor, Shamshad Akhtar, said in January. It is expected to be one of the fastest-growing segments in banking, she said. Six companies, including Dubai Islamic Bank and Emirates Global Islamic Bank, hold Islamic banking licenses and operate 108 branches, according to central bank data.

Meezan Bank is 30 percent owned by Pak Kuwait Investment, an alliance between the governments of Pakistan and Kuwait. Shamil Bank of Bahrain, Kuwait-based Noor Financial Investment and Islamic Development Bank respectively own 26 percent, 16 percent and 9 percent of the bank.

Source: Bloomberg News

London… Ethical-Islamic Investment Hub

"London is the right and safe place for investments, tourism and students from all over the world," said Tikriti. (IOL photo)

LONDON — More than 200 high-profile delegates from across the world of finance and investment came together Thursday, July 10, in London to explore the relationship between ethical investment and Islamic finance."As London is one of the global capitals of economic investment growth, the rise of ethical investments, especially from the Muslim world, provides an opportunity for London to benefit from Shari`ah-compliant investments," Ismail Patel, executive director of IslamExpo, Europe's biggest Islamic culture event, said.

Speaking at the opening of the Ethical Investment in Britain Conference (EIBC), IslamExpo's financial sub conference, Patel said Shari`ah-complaint finance industry rose by 30 percent in 2007 to stand at $ 500 billion.

"Accordingly, the potential for further growth remains substantial."

Anas Altikriti, director of IslamExpo, agrees.

"London is the right and safe place for investments, tourism and students from all over the world," he said.

"Regardless to gaps between the West and he Muslim communities that are based on some political decisions, London used to be a model for multi-culturalism, harmonized co-existence."

Tikriti said that Islamic finance was the theme of EIBC in 2006.

"But this time we are tackling an issue that goes beyond the Islamic finance and the Shari`ah financial rules which is the ethical investment."

Common

Attendees agreed that the Islamic finance and ethical investment have a lot of common grounds.

"There is no real difference between ethical investment and Islamic finance," said Penny Shepherd, chief executive of the UK Social Investment Forum (UKSIF).

"The right terminology should be ethical-Islamic investment."

In recent years, London has established itself as a hub of Islamic finance with increasing number of London banks offering Islamic banking services to borrowers and savers.

There are four licensed wholesale Islamic banks - the only ones in the European Union.

London is also home to 21 conventional banks offering Islamic products, the newest of which is Gatehouse, which has received its license late April.

"The Islamic finance and the ethical investment are both a new phenomenon in UK nowadays," Mohamed Malik, who lives in France, said.

"They have proved a very positive impact on the UK finance and that is why the government usually supports them."

Over the past five years, the British government has been introducing legislation to nurture Islamic finance.

The government has amended finance acts to ensure that Shari`ah-compliant transactions are not exposed to multiple stamp duty tax breaks granted to certain kinds of interest.

The government is also planning to issue sovereign Islamic bonds.

"Not only Muslims in London are getting interested in the Islamic finance," said Thomas, who works as lawyer in London.

"For me, I believe that with saving my money in an Islamic bank, the stability and the increasing

http://www.islamonline.net/servlet/Satellite?c=Article_C&cid=1213871776947&pagename=Zone-English-News/NWELayout ]]> http://theislamicfinanceandbanking.wordpress.com/?p=17 Thu, 10 Jul 2008 20:58:20 +0000 ayah.biz http://theislamicfinanceandbanking.wordpress.com/?p=17 Product development for Islamic banks discussed at MEFX conferences
By: Mike Gallagher

Greater visibility needed if Islamic finance is to become internationally acceptable. International listings and uniformity of standards key to spread say delegates.

MEFX, Islamic real estate investment trusts, Sukuk, Qatar, Alpen Capital, Sanjay Vig, Saadiq, Ghazanfar Naqvi, Mobily Sukuk, standardisation

Delegates at the Future Proofing Your Bank MEFX conference in Dubai on Sunday discussed the vexing issue of product development from an Islamic finance perspective. Standardisation was given the most attention, as it always seems to at conferences where Islamic finance is discussed, but how much progress is taking place with regards to the subject is still not certain.

Sanjay Vig, managing director of Alpen Capital, which was behind several high profile Sukuk, such as the Berber Cement Sukuk in Sudan and the Mobily telecoms issuance in Saudi Arabia, pointed out that the issue of standardisation was not just an issue between regions, but also sometimes between countries. He said that while the Mobily Sukuk was accepted in Saudi Arabia, it was not in the UAE.

Vig also said that sorting out the critical issue of uniformity was vital if Islamic finance wanted to become globally acceptable. Uniformity and replication of products would speed up the process because the complex documentation that is part and parcel of the current trend in Islamic finance was slowing down its spread. Any bank that became involved had to run the product past its Shari’ah board, which also added to the time it took to bring it to market. Uniformity would greatly speed up that process, he said.

Ghazanfar Naqvi, director of Islamic products for Saadiq in the UAE added that very few law firms in the region understood Islamic finance and he said they needed “to gear up” to be able to meet demand. One thing that would help product development, said Naqvi, would be if more conventional bankers moved over to Islamic banking. “You cannot teach banking to everyone, but you can teach Islamic [law],” he said.

Delegates were told that not more than 20 to 30 per cent of Islamic banks portfolios from the GCC are invested outside the region and that more diversification of risk was required. This, they were told, would also help to increase the awareness and popularity of Islamic finance.

Vig said that more international listings of Sukuk on exchanges like New York, Hong Kong and London would increase its visibility and he said would assure investors that by listing there, that they were meeting internationally recognised standards.

There was also talk among delegates about the role of Takaful in markets such as the UAE and Qatar where a huge real estate boom was taking place. Many wondered why Takaful had such a small share of the market, compared to conventional insurance, when so much money was being invested in real estate. Others expressed wonderment at why Islamic real estate investment trusts were not more popular, given that India, Pakistan and Malaysia were actively considering them.

Source: http://www.cpifinancial.net/v2/News.aspx?v=1&aid=431&sec=Islamic%20Finance

In Summer 2005, Michael Chussodovsky wrote an article on LIVE 8 and its campaign to reduce global poverty (http://www.globalresearch.ca). Here is a short extract from that article:
"The concerts are totally devoid of political content. They concentrate on simple and misleading cliches. They use poverty as a marketing tool and a consumer-advertising gimmick to increase the number of viewers and listeners worldwide. Live 8 creates an aura of optimism. It conveys the impression that poverty can be vanquished with the stroke of the pen. All we need is good will. The message is that G8 leaders, together with the World Bank and the IMF, are ultimately committed to poverty alleviation. In this regard, the concerts are part of the broader process of media disinformation. They are used as a timely public relations stunt for Prime Minister Tony Blair, who is hosting the G-8 Summit at Gleneagles, Scotland. Tony Blair is presented as stepping up his campaign to convince other G8 nations 'to take action on poverty' ".

Chussodovsky has identified a methodology here. It is used by the establishment to weaken a potentially threatening movement from within and, because it is a methodology, it can be identified elsewhere. For example, with a few minor alterations, Chussodovsky's words suddenly become relevant to the Islamic banking industry:
"The Islamic banking industry concentrates on simple and misleading cliches. It uses Islam as a marketing tool and a consumer-advertising gimmick to increase its following among Muslims worldwide. Islamic bankers create an aura of optimism. They convey the impression that usury can be vanquished with the launch of more financial products. All we need is to set up more Islamic banks. The message is that Western bankers, together with their friends at the World Bank and the IMF, are ultimately committed to providing an Islamic paradigm. In this regard, Islamic banking conferences are part of the broader process of media disinformation. Leading establishment figures are often presented as stepping up their campaign to convince others 'to level the playing field for Islamic finance' ".

The platitudes and gloss of LIVE 8 are repeated in the award ceremonies at Islamic banking conferences. Interest-based loans with Islamic labels win the top prizes but few people stop to ask who exactly is glorifying this trash. Could it just be that these awards are a means of promoting the type of Islamic finance that the interest-based establishment wants? A type that doesn't threaten the existing financial paradigm? In the UK last year, the banking sector made USD 40 billion equivalent in profit. It will try to guard this profit-making machine against all possible threats, whether commercial or ideological. So what if it costs them a few hundred million to do so? To co-opt Islamic banking and influence it from within may in fact be the cheapest strategy available. A member of the design team that won a recent industry award told me privately that the product "is a sham", that he "can't believe the scholars approved it". I can believe it. The methodology is working.

One of the main factors that has propelled us to this low point is, I believe, a lack of vision and confidence among leading Muslims to develop and implement a distinctively Islamic framework for modern financial activity. It is as if critical sections of Muslim academia and business have been intellectually colonised by the West. Hence one finds little difference in the material used to teach finance courses in the Gulf as compared to universities in London or New York, and the symptoms of this malaise have spread well beyond academia. A suit and tie still seems to earn the kind of respect that a thobe and beard cannot, even in the Islamic banking industry.

During my first week of employment in Islamic finance, I suggested to a director of an Islamic housing organisation in London that we should develop together a diminishing partnership home financing product. I told him we could prove a concept together. My firm's financing know-how plus his operational knowledge would fit together nicely, I thought. We would share capital risk together. His clients need no longer fear negative equity, no longer suffer from debt stress. (This was a true diminishing partnership by the way, not at all like the interest-based loans that were to appear in the name of diminishing partnership a few years later.) After maybe fifteen minutes, the director proudly informed me that he'd recently agreed a 5 year loan at 7.5% through Barclays Bank and wasn't interested in Islamic finance. Looking back I realise the extent of my naivety, imagining that a Muslim director of an Islamic housing organisation would be interested to develop an Islamic financing paradigm. But at the time, the thought uppermost in my mind was that my firm's business plan was in real trouble. If this was the state of the Muslim community, what hope Islamic finance?

The story repeated itself as the years went by. On a visit to a Gulf-based Islamic bank in 1996, I proposed the issuance of bonds with coupons linked to project revenues and redeemable at net asset value. A client of mine needed several million dollars to finance an infrastructure project in a stable Muslim country. I saw this as a great opportunity to launch a genuinely halal financial instrument that could act as a template for years to come. This particular institution had a balance sheet in the billions of dollars, but once again I found myself speaking with men who wanted to do "money-now for more-money-later" transactions, men who seemed incapable of thinking beyond the confines of a McGraw Hill textbook. The idea of tradable revenue bonds switched them off entirely, but when an executive from a big Western bank visited this same institution to propose a commodity cash-and-carry with a limp LIBOR related return, then this was a breakthrough! Truly innovative! Soon a variety of technical sounding product names sprouted in the literature. "Revolving murabahahs" and "notes issuance facilities" became the flavour of the day. Often, there would be a feature in some trade magazine, accompanied of course by the obligatory sentence to inform us that the Islamic banking industry is an exciting niche market worth $150 billion, growing at 15% per year.

In those days, commentators were still arguing that murabahah was just a temporary phase in Islamic banking, something to get by with until a truly Islamic product could be found. People were saying "yes, I know, it's not ideal, but it's a start", "one step is better than no step", and so on. But it is quite possible that no step would have been better than that step because, in the formulation of modern murabahah, principles were established that have led us to tawarruq and a whole new selection of excuses. I am thinking in particular of the use of contract combination in the design of Islamic financial products but also, at a more general level, of the promotion of legal form over substance in so much of what the industry does. The resultant transformation has been remarkable. For decades in the Middle East, much of the Muslim public resisted tempting offers of interest-bearing loans from the banking system. The sinful connotations were sufficiently strong to block the borrowing impulse. But the emergence of tawarruq has changed all of this by providing a convenient fig-leaf for borrowing at interest. This largely explains why, for example, consumer borrowing in Saudi Arabia has leapt by more than 50% over the last year. It is therefore rather ironic to find a scholar who was for many years a leading voice in favour of those questionable legal principles now warning his ex-clients that their products are becoming indistinguishable from interest. The time to warn and prohibit passed long ago, Sheikh. Your fatawa commanded such a high price not because you were more capable than other scholars, but because you were willing to permit what others would not, and because your opinions suited what the bankers wanted to do. The result is that the money-now for more-money-later transaction has become a cornerstone of the Islamic banking business model, just as it is in interest-based commercial banking. The least we can do now is to make sure that those who opened the legal flood gates, so to speak, are not given responsibility for closing them again.

It is rather worrying that the collapse of the Christian prohibition of usury has left behind a similar story, one of jurisprudence and intellectual thought influenced by a powerful banking establishment. That influence has continued up to the present day. For example, the London Business School is a creation of the major British commercial banks and the Citibank Foundation spends much of its funds on financial education. A powerful anti-banking thesis is most unlikely to emerge under the patronage of such institutions, and the executives who grow up on that theoretical diet will know little of the interest-free economic paradigm. Yet such men are invited to develop and manage Islamic banking departments across the world.

The Western range of instruments (overdrafts, fixed income bonds, home mortgages, derivatives) are a fruit that can only grow upon a certain tree (the institutional framework of fiat money, a central bank, fractional reserve banking and so on) and that tree can only grow in a certain soil (the concepts of riba, gharar, speculation). We cannot Islamise this tree or its fruit any more than we can Islamise theft, but I am not advocating that we "go back to the Stone Age" or regress in some other way as orthodox economists occasionally suggest. We must simply plant our seed in a soil of our own, let the tree grow, and harvest whatever fruit results. Dr. Daud Bakar, who has spent many years researching the matter, finds no record of deposit-taking banks in the early centuries of Islam yet the Islamic Empire was advanced in every way given the technological limits of the time. Why then has the Western model of commercial banking been so unquestioningly adopted by the modern pioneers of Islamic banking? Did we really think that we could transplant a model that grew so uniquely in the soil of usury to the soil of Shari`ah? The scheme should have been a non-starter, but it lives, sustained by the smoke and mirrors of the Islamic banking community, producing ever more absurd semantics as the years go by.

I have believed for a long time that the Muslim world can only solve its problems if it first understands what those problems are. This seems an obvious idea to me, in Islamic banking and finance especially, but apparently not so to others. The continuing suspicions and legal confusions in Islamic banking have only reinforced the fact that something is badly wrong in the industry. It is especially sad that the industry has never seriously investigated the theory of fractional reserve banking, or recognised that it consistently predicts the development of the economic landscape around us. Without this vital re-appraisal of the raison d'etre of commercial banking, its Islamic variant will in due course be absorbed by the interest-based sector and disappear entirely. This will happen because there will be no substantive difference between the two. Already those who pull the strings at the conferences are debating whether the word "Islamic" should be dropped from the industry's marketing effort, and Harvard's 2006 conference has the integration of Islamic finance into the mainstream as its theme. Stephen Green, CEO of HSBC, goes so far as to suggest that the success of Islamic banking products "will be their acceptance in the mainstream financial community" (Islamic Banking and Finance Magazine #4, UK, 2004). No Stephen, it's precisely the opposite. The failure of Islamic banking and finance will be measured by the degree to which it is accepted in the mainstream. If such a dreadful thing should happen it will be a victory for usury and a defeat for Islam and for the suffering people of this world.

But if we are to Islamise modern day Islamic banking and finance, a number of radical policy changes are required. Where these policies cannot be implemented immediately, they should at least be put on the agenda for discussion. I do not care whether it is in the Muslim world or the non-Muslim world that such a debate takes place for they are reforms that will benefit all of mankind, as indeed Islam is meant to. Here are some of those ideas in brief:

* Serious moves should be made to reform the present interest-based monetary system. It should be replaced over time with a commodity based currency issued under the supervision of the state.
* A 100% reserve requirement should be imposed on the sight deposit accounts of deposit-taking institutions and the payment of returns on these accounts should be prohibited by law.
* As a transitionary step, securitisation and tradability of real assets should be encouraged so as to provide holders of money with an alternative liquid investment that does not suffer longer term devaluation due to the operation of credit creation by the commercial banks. With the elimination of fractional reserve banking, the need for such securities will diminish substantially.
* Investment accounts should be operated as off-balance sheet items, and should be legally segregated from the payment transmission operations of deposit takers. The investment accounts would carry a 0% reserve requirement, and returns to investors as well as withdrawal rights from the accounts would be subject to the performance and liquidity of the underlying portfolio of assets.
* Interest-based forms of finance should be phased out over time by statute, and incentives put in place to encourage genuine alternatives such as operating leases and installment payment facilities.
* Revenue bonds should be promoted to finance infrastructure projects where an identifiable revenue stream exists (a toll road project for example). These will be easier to administer than profit sharing securities since project revenues can be directly observed, whereas profits can be distorted through creative accounting.
* Diminishing partnership financing (of the kind in which capital risk is genuinely shared) should be promoted for capital investment and financing of large ticket items, in property and transport for example. Insolvency due to an unequal apportionment of risk between the user and provider of funds will then be a far less frequent occurrence, but a legal and financial framework should be established to minimise the negative social and economic consequences of those cases in which investments do fail. I am thinking here of good corporate governance, proper regulation of the financial sector, the establishment of mutual insurance funds, the promotion of good portfolio management practices, and so on.
* Interest-free loans should be provided to lower income groups for home purchase, car purchase and education through a public sector agency. This would be the lowest cost option for society to fund many such purchases, and has been operated successfully in the past. For example, until recently, interest-free loans from the government were a major source of home finance in Saudi Arabia.
* The use of margined transactions on financial markets should be restricted in accordance with Shari`ah such that at most only one counterparty can defer delivery of a countervalue to a future date. This policy will help to reduce speculative dealing in key areas.
* Contract combination in Islamic banking should be explicitly prohibited under industry standards because it allows the synthesis of interest-based loans in the name of Islam. This would include a prohibition on the use of mutual promises for achieving the same ends.
* A wealth tax should be instituted where it has not already been put in place in order to address issues of wealth inequality, and to address the harmful impact of monopolistic control over mineral and other resources in certain countries of the Muslim world. Zakat upon mineral extraction is a right of the Ummah.

Away from the purely financial arena, there is a more general reform that urgently needs to be implemented. Many Muslim countries desperately need a legal framework that an honest businessman can trust, a framework that operates speedily and impartially. The benefits of such a reform for economic and social progress are hard to underestimate. When one sees counterparties based in the Muslim world choosing English law and English courts to mediate their financial disputes, this really says something about the present condition of the Ummah. To think, lands under Islamic rule were once renowned as a place of justice for all. Now, in many cases, they are not even a place of justice for the Muslims.

To move forward we must have the vision to strike out in our own direction, upon our own methodology, to grow our own tree. We should know that the way to achieve a truly interest-free paradigm is to practice Islamic finance for the sake of Allah, not for the sake of profit, not even for the sake of economic development. Then, when that paradigm has been built, the profit-seeking businessmen can join the party and play by the new set of rules. The strategy we see now, however, is the precise opposite of this. The rules are being set by the profit-seeking businessmen and the paradigm builders are being ignored. The longer we travel on this road, the harder it will be to find our way back when the time comes. But let us not be disheartened by the task ahead. Many of the problems we face are the result of an un-Islamic framework. Derivative products are a cause of volatility, not the cure for it. Interest is not a recompense for inflation, it is a cause of it. Take away that which is haram, instead of re-labelling it, and many of our economic problems will simply disappear.

I'm told that Brazil, the world's most indebted country, is cutting down its rainforest at the fastest ever rate in order to meet its debt repayments. The Amazon rainforest produces a large proportion of the world's oxygen supply, and at this rate of deforestation it will almost disappear within three generations. Where have we heard that interest might be the cause of such ecological disasters? Not in many places. It is the truth that dare not speak its name, the one the media doesn't discuss very much. In its present condition Islamic banking will not restrain this monster. Its clients will still have to repay debt at interest, in all but name. They will still have to cut down the rainforest to satisfy their repayment schedules. So it has become a matter of global ecological importance that Islamic banking adopts a different paradigm, that it becomes more of a solution and less of a get-rich-quick bandwagon.

Tarek El Diwany
February 2006

In about 1220 a canonist named Hispanus proposed that, although usury was prohibited, a lender could charge a fee if his borrower was late in making repayment. The period between the date on which the borrower should have repaid and the date on which he did repay, Hispanus termed "interesse", literally that which "in between is".

Soon, the money lenders of Europe were adding to the church's theological dilemmas with the Contractum Trinius. Here, the lending party would invest money with a merchant on a profit and loss sharing basis, insure himself against a loss of capital and sell back to the merchant any profit above a specified amount. In isolation each of these contracts was viewed as permissible by the church scholars, but their combination produced an interest-bearing loan in all but name.

Today, those who wish to make a living from lending money are adopting the same approach to defeat the usury prohibition in Islam. Combining Islamically permissible contracts to produce interest-bearing loans has become the specialism that is "Islamic banking". The fact that some leading Islamic scholars are being paid hundreds of thousands of dollars to give religious judgments by the very institutions whose products they are judging is, to say the least, a conflict of interest. But the problems run deeper than this. Even if 98 out of 100 scholars judge that a product is prohibited, an Islamic bank can employ the two who permit it. In effect, the banks are able to choose the rules of the game while telling everyone else that they are only following scholarly advice.

Overarching these issues of moral hazard and legal semantics, looms the more fundamental question of whether Islamic finance can be practised within an interest-based monetary framework.

Today's monetary system developed from the practices of European goldsmiths in the 17th century who accepted deposits of gold coins for safe-keeping. Receipts for such deposits would often be issued in �bearer� form and, with growing public familiarity, these came to be accepted in payment for goods and services. The receipts had become an early form of �bank money�.

The goldsmiths were now in a position to transform themselves into money lenders, but when the public came to borrow money it was paper receipts not gold coins that the goldsmiths loaned them. This policy had the great advantage that receipts could be manufactured at almost no cost, while gold itself could not be. William Paterson, a founding director of the Bank of England, was well aware of the commercial implications. "The Bank hath benefit of interest on all moneys which it creates out of nothing", said Paterson of his new bank in 1694.

Why, if the banker truly had the power to manufacture money, did he not simply print receipts and spend them on his own consumption? The answer was largely one of commercial risk. Spent receipts would in due course return to the bank for redemption in gold, gold which never existed in the first place. By lending the receipts instead, the banker could charge interest on the amount lent. Upon repayment, the receipts could be destroyed as easily as they had been manufactured, but the interest charge would remain as revenue. Thus, loans at interest and private sector money creation became the two core components of commercial banking.

The gestation of products within this very un-Islamic framework has resulted in the ultimate mutant, an Islamic personal loan at 7.9 per cent APR courtesy of the Islamic Bank of Britain. How different this is from the original vision of Muslim economists.

I propose that by segregating the payment transmission and money creation functions, and by sharing profits and losses instead of seeking interest payments come-what-may, bankers' motivations would be much more closely aligned with those of their clients. A link would be re-established between the financial sector and the real sector, with beneficial consequences beyond the economic domain.

The resources and infrastructure of whole nations are increasingly being sacrificed on the altar of interest-bearing debt. If Islamic banking adopts a genuinely Islamic paradigm it can offer a solution to a world hungry for alternatives. If it does not, it will enjoy a brief life as a get rich quick bandwagon and then disappear into the relics of financial history.

Tarek El Diwany

Tarek El Diwany:
Assalamu `Alaikum Professor Siddiqi.
It is a long time since we last spoke. I hope you are well, insha'Allah.
I read your recent Harvard paper, discussing tawarruq, among other things.
Contract combinations have been practiced by "Islamic" bankers to create quasi interest-based loans for at least thirty years. At first they were doing it with murabahah, now they take the more direct route of using tawarruq. When people like myself risked our careers to state in public that these practices were a ruse, deployed to misdirect Islamic financial rejuvenation, we were mocked for so doing and few grandees came to our defence. In recent months I have noticed that two of the Shari`ah scholars who once opened the door to this Trojan Horse are now calling for a re-evaluation. But what is required is something more fundamental than that. Modern commercial banking grew from the foundation of usurious money creation, it could not grow in a truly Islamic soil, and that is why the Islamic commercial banking experiment has largely failed. Your suggestion, many years ago, for a two tier mudarabah based on genuine profit and loss sharing was a vision that could easily be made to work. But it would need a different monetary and institutional framework to do so and, most importantly, an elite that had the vision and courage to implement it. Alas, some of our elite are signing one page fatwas for tens of thousands of dollars (and sometimes not even looking at the contract). Others make grand-eloquent speeches on the conference floor, but afterwards are found seducing the secretary in a quiet corner of the hotel restaurant. These are some of my experiences from the shop floor. You have your experiences too, no doubt.
Over breakfast in Pasadena, you advised me "not to become involved in what is happening" and to "get on with producing an alternative instead". But look what has happened because of our detachment. A monster has been created, very purposefully, and it will now require a huge effort to overcome. As for the idea that we only need to devise a workable alternative to the present paradigm, this I am afraid ignores the present political realities. The most powerful patrons of Islamic banking are not interested in such a thing. Their whole purpose is to suppress workable interest-free alternatives, and thus protect their golden goose.
Looking forward to hearing your thoughts insha'Allah.
Wassalam
Tarek El Diwany
London

Muhammad Nejatullah Siddiqi:
I am so glad you read that paper.
When I was in Jeddah I had discussions with, among others, the late Sami Homoud, the supposed introducer of murabaha in Islamic finance. From his practical experience in Amman he told me there are things that cannot be done through 2 tier mudarabah. One example: financing the laying down of a sewage system in part of Amman. The benefits for which charges can be collected from users are spread over, say, 75 years but the cost has to be met NOW. Think how problematic it is to mobilize capital on a profit-sharing basis. So they opted for a murabaha model.
Modern financing needs can not all be met by a simple 2 tier model. Secondly debt or credit has always played a role in financing. The real question is of discovering a proper mix, a balanced model.
Many of the ills of modern monetary and financial system can be cured by reforming the monetary system by making new money creation FIRMLY linked to real wealth generation, to production of goods and services. I tried to make this point in my Riba, Bank Interest and Rationale of its Prohibition (available at www.irti.org).
Who are the 2 scholars willing to look back?
M.N.Siddiqi
California

TED:
[Like you] I have also made the point regarding "theory following practice". This has been a typical feature of the interest-based sector for some time. Here, the theories that are promoted most are the ones that provide the establishment with the justifications it needs to carry on with business-as-usual. They are excuses more than theories, of course. Last time I was at the IDB, I witnessed a gathering of scholars responding to a request from upon high that they find a way of justifying a murabahah price that could be fixed after contract signing. The words "according to a benchmark" stuck in my mind especially. You can guess what the benchmark was, and indeed the purpose of the whole exercise.
We both know that monetary reform is a cornerstone of our escape from usury, and it is therefore unsurprising that the major banking organisations are pouring substantial resources into educational propaganda that favours the current monetary system. Hence it is a great disappointment to find that many of the academics and institutions of the Muslim world, far from providing an effective alternative to that propaganda, have incorporated it into their own framework. We therefore face the rather ironic situation in which the most practical opposition against usury comes not from the Muslim world, where the ideology is still formally against usury, but from the West where the prohibition of usury was defeated long ago. So, while the Gulf countries have appointed the ECB to advise upon their currency union, several Members of Parliament in Britain have signed a motion requesting a debate on the use of interest-free money. Isn't it strange that I should be invited to speak in favour of money reform in both the House of Commons and the House of Lords, whilst barely finding an opportunity to do so in gatherings of the Ummah?
What are we to do about this? Write more papers? I do hope that your gentle encouragement towards a re-evaluation will work, but then again people have been writing cogent criticisms of commercial banking for a long time and where did it get them? William Cobbett went to prison for it in London, two centuries ago. The way I see it, you are an academic and so the Islamic banking bandwagon will ignore you. And if a scholar on the inside attempted to implement a genuine paradigm, the Islamic banks would dump him, eventually. What we have is partly a problem of education, but more one of ensuring that the right people are defining the vision for the industry. If we had the latter, practice would begin to follow the theory, and a wholesome institutional framework would in due course build itself.
However, the present Islamic banking establishment will not address these problems for us. They have shown themselves to be institutionally incapable of doing what is necessary. That is why we have tawarruq. It is the end result of applying principles that were established in the formulation of murabahah many years ago, despite opportunities to chart a different course in the meantime. The moral hazard in the selection of Shari`ah has operated frequently here, such that even if ninety-eight out of one hundred scholars judge that a product is haram, the Islamic bank will employ the two who say that it is halal. The banks are in effect able to pick and choose the rules for themselves, while telling everybody that they are only following the rules laid down by the Shari`ah scholars. This is no way to carry on. We cannot leave commercial forces to determine the law. There needs to be a higher imperative.
With regard to your question, I have been told by people close to him that **** has recently been in contact with some of the larger Islamic banks in the Gulf and elsewhere warning them that the direction in which things are moving is not a wholesome one. His remarks are directed particularly at tawarruq, this I know, and perhaps also at the nascent Islamic hedge fund industry. **** has recently commented on the volatility of the Saudi stock market and the fact that such volatility took place despite the widespread Islamisation of the banking sector. He too questioned the direction of Islamic banking, but his substantial participation in its promotion within KSA over recent years does not leave him in a strong position to criticise.
Finally, two specific points arising from your paper and e-mail comments:
1) I occasionally hear the argument that the Islamic banking system is more stable because money is only created against real assets, and that therefore the connection between the real and financial sectors is largely maintained. This is the argument that was deployed by the Bank of England in its defence of money creation during the British government's Bullion Committee hearings of 1810. The Bank's argument was largely rejected by Committee members who found that money creation was not limited by lending against productive assets because entrepreneurs could concoct an unlimited supply of new real-world investment projects for the banks to lend into. The committee found against the Bank of England and recommended curbs on paper money creation for private profit (recommendations that were sidestepped when they were in due course implemented). The Bank's arguments are being resurrected now by Islamic bankers in Muslim countries to justify (or in some cases deny the fact of) money creation.
2) I am in favour of separating payment transmission services from investment management, placing the latter off-balance sheet perhaps and structuring it so that asymmetrical risks are avoided. I don't see any difference between us here. Investors could share profits and losses with the investment manager (tier-one), and the investment manager could invest into various projects (tier-two). Many Islamic banks use a tier-two structure that contains two elements, one in which they fund an SPV using a mudarabah contract, the second in which the SPV in turn funds assets using Islamic contracts (that need not be confined to mudarabah). In the example you cited of funding a 75 year infrastructure project, there need be no problem in using mudarabah if tradability is introduced via securitisation of the tier-two assets. Buyers in the secondary market would bid for the SPV's securities at a price that reflected the increase in present value as the duration of the securities decreased, and this would eventually be sufficient to provide a capital gain for those who bought at issue stage, even if no coupons/dividends were paid in the meantime. Liquidity is already being provided by the arrangers of some Islamic funds, and sukuk are being quoted with bid-offer spreads by the larger banks. If Islamic bankers and policy makers devoted as much effort to improving tradability for Islamic securities as they have done to "perfecting" murabahah, there need be no major problems in funding 75 year infrastructure projects.

MNS:
I confine myself to a single point:
The virtue of tying new money creation to real assets.
I presume you agree to the need for an increasing money supply in a world characterised by increasing population, increasing production of goods and services and expanding market. Ideal would be to match each new unit of money with its equivalent in new wealth, but new wealth comes tomorrow while money for mobilising resources for its production is needed today. We need a proxy for wealth yet to come, that proxy is an existing asset. Whatever the problems involved we have to overcome them.
In the model of narrow banking you are suggesting, the problem does not go away.It is not an accounting problem, it is a real one.

TED:
For the record, I believe that pre-Classical theories are largely appropriate in describing the money supply process under a truly interest-free system. I have summarised this elsewhere as follows:
"In the monetary system I envisage, anyone can produce money. All they need do is go out and dig for it. Then, if the amount of gold obtained by digging is more than the amount of gold that it costs to do the digging, the people will produce money. Otherwise they won't produce money. This is a simple, market-driven mechanism for the supply and demand for money, one that features an in-built tendency towards price stability. It has nothing to do with interest, nor with the arbitrary creation of money for no effort. And if people want to dig for platinum, let them. If one man feels that another will accept copper as payment, let him dig for copper. When the people have true freedom in money, what will they tend towards? Gold and silver, of course. This is because Allah has created us with a love for 'heaps of gold and silver' (Qur'an 3:14). He has created everything for a purpose and the purpose of gold and silver is to act as money (Ibn Khaldun, Muqaddimah)."
The concerns we have as economists in an interest-based monetary system may become far less relevant under a truly interest-free alternative. For example, it is entirely possible that the price level will tend to fall over time, relieving much of the current pressure towards money supply expansion. There would then exist a commercial force that encouraged people to delay their purchases. A nice counter-balance to consumerism, and the death knell for at least one modern argument in favour of interest.

MNS:
I think you got it all wrong.
Digging gold and silver is not possible for everyone everywhere all the time ---- as your ideal would require. Gold mines are very unevenly spread, they tend to exhaust as time goes on and so is silver or XYZ. What a colossal waste commodity money would involve, more so a thousand years from now!
What is more intriguing is that even if all this is ignored, money, any kind of money, cannot manage itself. It has to be managed by us, human beings with all their failings. So we are back to square one.
What pains me most is your quoting Qur'an. That verse does not describe human nature. It describes a kind of person, oblivious of life after death and the Creator, indulging in worldly wealth. Read it in context.
Ibn Khaldun was an empiricist. He wrote what he observed, in the language of his times, stating observed facts as eternal truths. The reality has changed. We are moving towards a money with no corporeal existence. Ibn Khaldun today would have said, Lo! God created computers to usher in electronic money!

TED:
When I presented a paper at the Gold Dinar conference in Malaysia in 2002, I highlighted as part of my presentation various views that oppose commodity money. I was accused then of putting up "straw man arguments" in order to win easy victories in front of the audience. But now you come repeating some of those arguments as intellectual criticisms. Strange world, heh?
For example:
>> Digging gold and silver is not possible for everyone everywhere all the time----as your ideal would require. Gold mines are very unevenly spread, they tend to exhaust as time goes on and so is silver or XYZ.
Surely you recognise the slight element of metaphor in my argument? A person need not physically dig gold himself. He can find someone else to do it for him, for example by buying shares in a gold mining company, or by buying bullion through a dealer. Oil fields are also unevenly spread in this world, but that doesn't stop people using oil for its intended purposes.
>> What a colossal waste commodity money would involve, more so a thousand years from now!
Which is the greater waste. To keep 30,000 tons of gold beneath the earth in the vaults of central banks, or to release it so that people can use it as money? I have not seen the latest figures for global gold production, but let us say it is very approximately 2,000 tons per year. At today's prices this amount of gold is worth less than USD20 billion. We can say that this is the approximate worldwide resource cost of mining, refining and distributing gold bullion to the markets. But USD20 billion is less than the profit that banks in the United Kingdom alone have made in each of the last three years. It is probably less than 3% of the interest spread earned by banks globally on the money that they create out of nothing through credit creation. So if it is a waste of resources to produce gold for use as money, then it is a massively greater waste to use the current system of money creation.
>>What is more intriguing is that even if all this is ignored, money, any kind of money, cannot manage itself. It has to be managed by us, human beings with all their failings. So we are back to square one.
I have always advocated the imposition of suitable quality standards and audit procedures in the event that a commodity currency is adopted, just as we regulate the present monetary system. We are not back to square one. We just have to adopt sensible prudential measures.
>> What pains me most is your quoting Qur'an. That verse does not describe human nature. It describes a kind of person, oblivious of life after death and the Creator, indulging in worldly wealth. Read it in context.
Ibn Kathir's tafsir of verse 14 in Surat al-'Imran ("Beautified for men in the love of things they covet, women, children, heaps of gold and silver ...") gives no indication that it relates to any particular kind of person. In fact he is rather clear that it describes the nature of man in general. Mawdudi's tafsir translates the verse into English as "Men are naturally tempted by the lure of women and children, treasures of gold and silver ...", which is my point precisely.
>> Ibn Khaldun was an empiricist. He wrote what he observed, in the language of his times, stating observed facts as eternal truths. The reality has changed.
When in Muqaddimah ibn Khaldun writes that "God created the two mineral stones gold and silver as the measure of value for all capital accumulations" this sounds to me very much like someone who is stating what he sees as an eternal truth. I remember being in Indonesia in 1997 when the Rupiah fell 50% in a few days, and inflation rocketed. In what form would you have wanted to hold your savings in those days? Paper money, or gold? I know of no instance in history when money "with no corporeal existence", as you describe it, has not eventually been debased to a state of worthlessness by those who had the authority to manufacture it. It is happening today before our very eyes. For Indonesians, and indeed for most of the developing world, the reality has definitely not changed. Commodities cannot be manufactured from nothing, they have a factor cost, and that is exactly the protection that society needs against monetary manipulation.
It would be a sad day if you saw no redeeming features in my position. I can't have got it all wrong, surely? Anyway, if I have, may Allah forgive me and help you to expose the flaws in my arguments. To this end, I would very much appreciate a written record of your responses to the above points.

MNS:
Salam alaikum and thank you for your patience.
I may try a written response later as I am currently very busy researching for a book in URDU on Maqasid e Shari`ah. Meanwhile may I in all humility refer to what I wrote already on this subject. The name of article I will be able to give later as I am not responding to your mail from my office but from another place. But I think it was titled: An Islamic Approach to Economics, presented in Islamabad in 1982, published in my book (Economics, An Islamic Approach) published from Islamabad but also available at Islamic Foundation, Leicester, UK.
About the verse of Qur'an, we face this problem in other places too. Qur'an depicts men as found (especially in the Meccan society of the time) and then says: ...illa al- musalleen[ Quran,70:22] or illa al-lazeena aamanu [Quran,26:227;38:24;95:6 and 130:3].
Someday I may clarify further with reference to Surah and verse, but despite the translation from Mawlana Mawdoodi that you quoted, believe me it is not valid to claim: Qur'an says this is human nature.
If you are in search of human nature go to verses which specifically describe FITRAH (fitratallah allati fatarannas alaiha) [Quran, 30:30].

TED:
I was looking back over our dialogue with the idea of publishing it at www.islamic-finance.com for the benefit of others, with your permission of course.
What comes through rather strongly from the discussion is your dismissal of my position. Most of my points remain unanswered. If the weight of opinion was that one-sided then perhaps such a treatment would be warranted, but I continue to find scholars who support commodity money or view modern Islamic banking as a Trojan Horse. For example, I discussed verse 14 in Surah al-'Imran with a Shari`ah scholar in London. He pointed out that the meaning of the Arabic is that "man has been created" with a love for women and sons, heaps of gold and silver, and so on. Your restriction of inferring man's nature only from verses in which the word "fitrah" appears was something new to him. So can we at least agree there is a case to answer?
By the way, I know you have been described in the past as the "father of modern Islamic banking", so please don't think I'm trying to get at you when I call the industry a Trojan Horse. I just happen to think that's what it has become, despite some honourable intentions at the outset.

MNS:
For the sake of clarity let us first take the issue of commodity money, apart from our discussion on current state of Islamic banking on which my survey article and Harvard paper has already given you my thinking, for the present.
Efficiency and fairness are the two major criteria on which our choice of what should constitute money should be based. If you think commodity money is more efficient you have to counter the arguments in economic literature against it, especially since man did have commodity money most of his history till now. As regards fairness you would appreciate that free working of market is incapable of ensuring fairness. Social authority (exercised in different ways in different times and places) has to intervene and regulate in order to ensure (a degree of) fairness. If you think commodity money is easier to regulate, argue your case, empirically as well as theoretically. I hope you do NOT think no regulation to ensure fairness is needed in case of commodity money. Such a stand is wrong.
I have objected to your ascribing to Islam the position that we should have commodity money. Such a position is not established on the basis of Text, Qiyas, or Ijma'. If you think it can be established on the basis of Maqasid al-Shari`ah or Masalih, you have yet to argue your case.
I do not think agreement or disagreement on the implications of verse 14 of Surah Aal e Imran has much to do with this debate.

TED:
Thank you for this speedy response. I now think I see what the problem is.
You believe that I subscribe to the view that commodity money is required in Islam. In fact, my argument is that the people should have freedom (within the regulations of Islam) in choosing what sort of money to use. If they are given that freedom, they will tend to choose gold and silver because of their natural preference for these items. For me, that is the relevance of the aya in Surah al-`Imran, and it is borne out by empirical evidence across the ages.
Conversely, for much of the last century the British and American governments have prohibited the purchase of gold bullion by domestic residents. They have prohibited what Allah has allowed, which is a certain sign of dysfunction within an economic system. If a man is faced with a choice between selling his goods in exchange for a deflating piece of paper or a piece of gold, he will tend to choose the gold. The commercial banks cannot manufacture gold out of nothing, but neither can their own form of money compete with it. Hence, much of banking history has been about the efforts of the banks to remove precious metals from the circulating medium and replace it with their own token money. A reading of 19th century politics in America strongly indicates the existence of these efforts, as the statements of Jefferson, Jackson and Lincoln make very clear.
There is a great deal of empirical evidence to recommend commodity money over token money as a store of value, from the data in Jastram's "Golden Constant" to the ahadith of the Prophet, pbuh. In the latter we can find a series of dinar and dirham prices for such items as dresses, axes, houses and sheep that wouldn't be out of place today. Such maintenance of purchasing power has never been achieved over even a few decades with a token based monetary system, let alone over 1400 years. Presumably you do agree that a money which holds its value is fairer than one that doesn't? But given your aversion to commodity money, could I ask you to name one period of fifty years in history, anywhere in the world, when token money has held its value as well as gold or silver?

MNS:
A natural preference for any thing does not necessarily imply its suitability as money. Anyway, in the light of your clarification, there remains no quarrel between us. As long as you do not claim an Islamic mandate for commodity money, it is fine with me. The matter is left to what serves MASLAHA best. You have every right to the views you propound. I already indicated to you what little I wrote on the subject. If and when I do more I will send it to you, inshaAllah.
I am not aware of any study of ahadeeth that demonstrates price stability during early Islamic history. What is well documented is that after the influx of gold and silver from conquered regions, prices rose sharply during the rule of Syedna Umer Farooq and Syedna Usman.

Dear Sir,

The esteemed Sheikh Usmani is not the first to cry foul of practices in the Islamic banking industry (Roula Khalaf, Financial Times, 6 February 2008). Sheikh ibn Uthaymeen, Sheikh Haitham Al-Haddad, Professor El-Gamal, Umar Vadillo, myself and others were warning of similar dangers many years ago. However, the criticisms that are currently being allowed to surface by the Islamic banking establishment give the impression that a genuine debate is taking place, when in fact the industry's key failings remain firmly off the agenda.

The core methodology of Islamic banking is to replicate interest-based cash-flows and disguise them as "Shari`ah compliant". Hence, many modern sukuk employ sale and lease-back mechanisms in which the lessee undertakes to repurchase the underlying asset at a pre-agreed price upon termination of the lease. Such products have allowed Islamic banks to adopt the institutional framework and business model of secular banking. The legacy of modern Islamic banking will not therefore be that it helped to build an Islamic paradigm, but rather that it helped to destroy one.

For example, decades of marketing by interest-based banks failed to convince the people of Saudi Arabia to borrow at interest to any substantial degree. The availability of supposedly "Islamic" loan facilities has changed all of that in just a few years, with the result that there has been a huge increase in Saudi domestic consumer debt. No wonder interest-based banks are falling over themselves to promote Islamic banking.

When some of us risked our careers back in the 1990's to urge a more wholesome vision upon the industry, we were met with accusations of extremism and other brush-offs. Meanwhile, AAOIFI, a standards-setter funded by the Islamic banks themselves, was in no position to insist upon the necessary changes. The result has been a products free-for-all in which commercial forces have been uppermost in interpreting religious law. This has never been a healthy thing in any religious community.

So we have arrived at a position in which those who once promoted the industry's legal subterfuges now complain of the consequences. I somehow doubt that scholars who were paid to permit the current range of Islamic financial products will in future be paid to "un-permit" them. Nevertheless, we live in hope that the industry will reform itself. Much of the world is being torn apart by interest-based debt. Genuine Islam has the solution. It's time we had the chance to experience it.

Sincerely,

Tarek El Diwany
Zest Advisory LLP
LONDON