I actually know something about Sharia’h compliant finance and banking systems. They’re roughly similar to those used by orthodox Jewish communities in places like New York state that follow the biblical imperative of no usury. Just as orthodox Jewish communities have long been allowed clauses in laws providing institutions that reflect the no interest imperative, Minnesota had a program to help strict followers of the same Islamic imperative. That is until today when Governor and Presidential Wannabe Tim Pawlenty shut down a program aimed at structuring loans that would be compliant in both faiths. I want you to remember and read his rationale first.
Pawlenty’s objection: “The United States should be governed by the U.S. Constitution, not religious laws,” Conant said.
This is from a man that wants his extremist Christian views defining abortion rights among other things. Here’s some of the background from Adam Serwer who framed the Minnesota Housing program as Pawlenty’s “Sharia problem”.
Abid Lakhani wanted to buy a home.
Unfortunately, as an observant Muslim, his options were limited. Many Muslims hold that the paying or charging of interest is prohibited, which makes it difficult to purchase a home in the United States.
“The house I was living in, I was living in it for 22 years because I don’t believe in getting interest-bearing loans,” the 44-year-old insurance salesman and father of four explains. But after years of renting, he was finally able to acquire a home for himself and his family this month through University Islamic Financial, Corp., which structures house payments so as to avoid charging interest. “For a Muslim living in this day and age, it’s difficult to practice and stay within the rules of the faith,” Lakhani says. “These kinds of options weren’t available before.”
Sharia-compliant financing is a growing industry, particularly when it comes to mortgages. “Traditional secular, money lending banks are setting up Sharia-compliant products because they make money,” says Abed Awad, an attorney who specializes in Islamic law. Companies like Citigroup and Visa have tried their hand at Sharia-compliant products. Usually companies structure the payments in a sort of house-buying layaway plan. “It’s a major moneymaker for banks.” Shariah compliant mortgages allow observant Muslims like Lakhani to buy homes, where previously they were stuck renting to avoid interest payments.
There’s nothing sinister about the growth of Sharia-compliant finance. It is just capitalism at work, an emerging market in which firms are meeting demand for a particular kind of product. But a decision by one 2012 Republican hopeful, Tim Pawlenty, may come back to haunt him in the GOP presidential primary, where any association with Sharia-compliant finance could be toxic.
Yes, there is absolutely nothing sinister about Sharia’h finance or any other numbers of laws that we have that help people’s religious tenets co-exist with modern, secular life. This includes allowing Jehovah’s witness’s to forgo “so help me god” in oaths so they don’t take their god’s name in vain. They can say “I so affirm” instead. This clause lets me–an atheist and vajrayana Buddhist–say the same so I don’t have to violate my Buddhist and atheist precepts. I’m not suppose to do anything that puts any worldly gods ahead of dharma, sangha, and buddha. This includes all the possible monotheistic and polytheistic combinations of gods you can come up with. Every time I have to swear an oath, it puts an earthly god in front of my own beliefs. This really makes me highly uncomfortable. As a matter of fact, having to recognize some one else’s invisible friend creeps me out completely. So, you know that it’s not like I want to establish religious laws. I do believe that we can do things to accommodate various belief systems and this one is no more than an accommodation. Like I said, we have accommodated the same set up for Orthodox Jewish Communities for years. There were three people in Minnesota that used this particular accommodation.
Here’s Sewer’s explanation in The American Prospect which makes it even more sad that it was his article that motivated Pawlenty to remove the program from devout Muslims in Minnesota. Talk about stoking the flames of bigotry and hatred. Pawlenty’s probably afraid it will bite him in his extremist Republican ass; just as the article speculates.
While many conservatives believe Sharia-compliant finance is part of a “stealth jihad” to subvert the Constitution, Islamic finance is no more frightening than Kosher food. “You have a segment of society willing to pay more for products as long as they comply with their religious strictures,” Awad says. “We want to grow our businesses and make more money. This is the American way.” In 2005, when the MHFA issued its plan for increasing minority homeownership, the idea of the U.S. coming under Taliban-style Islamic law was still a fringe conspiracy theory, if it existed at all.
This just makes me sick. Pawlenty can’t rise above naked political pandering or the opportunity to be hatefully macho in the face of right wing republican religious extremists. Not even a subtle gesture of accommodation can ever be made by an ideologue and his fanatical followers.
During the wind down of the financial crisis several years ago, a few people that read my more wonky threads asked me where I thought the next speculative bubble would develop. I answered food more from intuition than any hard core evidence that I had at the time. Now there is plenty of hard core evidence that validates my intuition.
Farm land and Ag. prices have been fairly stable since the 80s and represented some of the few markets that proved relatively resistant to the Global Financial Crisis. However, there was a period of time–2007 through 2008– when some speculative practices influenced food markets. That is why I thought it was likely to recur. Food is, of course, a necessity so that always gives a market a degree of persistence during downturns. It does not make it safe from speculation. The deal is that speculators made a lot of money from their counterbets to the mortgage bubbles and that money had to go some where. I thought it likely they would head for the commodities markets since they did that before with oil, cooper, and food. Since these investors are by nature speculators, they have similar investment behaviors and profiles. The movement of a large number of large dollar investors from one specific clientele into any market is going to have an impact. Speculators moved to commodities and they moved on food. You could see the momentum build and you could trace momentum riders as they entered the market.
Before I get started on the main thrust of this post, I’d like to mention that I know a lot about Shari’a compliant finance and banking because my major professor is one of its leading authorities. Because this discussion is going to include countries where Islam is a major religion, I would like to say a few things about how Shari’a is applied to stock markets, banks, and ‘financial engineering’ in countries where populations may be pushing for these kinds of laws. I’d also like to say that Islamic economists share my concerns even though those concerns are rooted in different philosophies.
It is important to point out that Islamic banks and investment funds were found to be resistant to the global recession compared to their conventional counterparts. This is because gambling and speculation is outlawed in Islamic texts and therefor not allowed in Shari’a compliant institutions. The current U.S. and European corporate form is problematic under Shari’a. The Qu’ran is very specific about the nature of doing business. Most of this is based on the old testament prohibition against usury but the haddith and Q’uran go further. However, the shared old testament roots makes a lot of Islamic financial institutions similar to the ones you find in New York with special banks run by the Orthodox Jewish communities there. We already have religious financial institutions that follow Old Testament prescriptions. I’ve had Jewish students from Orthodox congregations provide me similar information that’s rooted in the Talmud. (Yes, I’m an atheist which makes me extra suspicious of any religious text.)
The Qur’an also promotes shared partnership/ownership and responsibility within a business as a moral imperative between all owners of that business. It does not promote any governmental ownership. It is considered immoral to operate a business with a never-ending, always changing ownership pool like that present in the business form of a public corporation. Preferred stock is strictly prohibited. All owners must have a shared responsibility for the business. That includes the concept of ‘negative’ profits and any negative results. If the business does something immoral or wrong, all of the owners and decisions makers owe the societal retribution and share in the shame and negative profits. No one owner can walk away from illegal activities.
Contracts that are compliant to the Shari’a are written clearly and monitored against gharar (disception) so that gambling and speculation cannot occur and so that any thing bad the business does comes back on all the owners/investors in a business. They all hang or thrive together over long periods of time. That is because a business and trade are supposed to bring good results for the entire community. It’s like the idea of karma. If you do good, every thing thrives. If you do harm, the poison spreads and you are held to account. The contracts are enforceable in courts. In this case, an Islamic jurist and an angry sky god will hold you to account. You’ve undoubtedly read exactly how old testament angry that punishment can be be in the version of Shari’a practiced by the extreme Shia Islam of Iran. Fortunately, most adherents to Islam–like the majority of adherents to Christianity and Judaism–do not adhere to literal interpretations of Old Testament prohibitions and punishments. They hold to the underlying moral view and practices.
Shari’a compliance means no corporate form like we use here with its limited liability financiers and assumed perpetuity. This is probably why you’ve got so many people calling Islam ‘anti-capitalist’ now. It’s not anti-capitalist at all. In fact, it exhorts people to share and run businesses as a moral activity. It’s the speculation and the ability to walk away from liability that is prohibited. It is not about government takeover of private property. It is about holding private property owners to account for the damage they may do to society and preventing that when possible. Of course, the plutocracy hates this.
I want to explain what this means because it’s not a Marxist form or a planned market form like you saw in the Soviet Union. This is not a ‘communist under the bed’ situation. Derivatives and financial engineering are being vigorously discussed by Islamic economists and financiers right now. They are separating out the forbidden, speculative activities. This means that many hedge funds would not be able to get into projects where the owners follow Shari’a because speculation is strictly prohibited. All investments must be matched to “real” assets. Assets cannot be created out of thin air. So, in this situation, forward contracts or futures contracts are allowed. Some of the synthetic deals that characterized the pre-crisis time cannot be used by firms providing investment fund opportunities to people concerned their monies be placed in Shari’a compliant ways. Additionally, the Q’uran has a strict prohibition on hording money. The rich must keep their funds active in the economy to please God. Another edict is that all activities must put aside a portion for charitable activities that support widows and orphans. I hope this gives you enough understand to place this next discussion in context and why some people may find this appealing.
So, maybe you can understand why gambling with food assets is a big concern on many levels for developing nations. First, you have an incredible amount of hungry people. There are tales of hungry people in Africa watching boats be loaded with food they grew being shipped to rich, developed countries. Then, you have a number of regions where gambling is basically seen as doing harm to people and is prohibited by God. I would like to remind you that most fundamentalist Christians and Orthodox Jewish Congregations believe this too. It’s clearly part of the old testament prohibitions. So, modern finance is running headlong into development economics as well as people with literal old testament-based religions. Again, Orthodox Jewish congregants have a separate banking system in New York that would be considered Shari’a compliant. I cannot emphasize this enough.
So with this in mind, there is increasing evidence that ‘Rampant Speculation Inflated Food Price Bubble”. You can see what excessive speculation is now doing to food markets.