Islam Saves Islamic Banks

If one takes the name of Islam, the people in western world twist their nose. The holy word of Quran (pronounced as KoRan) is disdained by many in the western world as a symbol of terrorism. Often 911 related events are considered the outcome of the practice of the extreme religion of Islam.

However, the God who created this world always instilled a virtue in everything. If there was something not acceptable with Islam, there was something in it that averted the credit crisis in Islamic world.

Almost all western countries, from USA to UK to Europe to Japan to Australia, are engulfed in unprecedented monetary crisis. The origin of this crisis was the decade’s long practice of low interest rates, so low, that the investors looking for yield were attracted by the riskiest derivative instruments that offered double digit returns.

Even a modest yield of 6% was considered by investors as major yield, the way a person in the desert looking for water, finds few drops of water as his life savior. The absolute yield offered was less than 2%, but the 90% leverage on interest arbitrage enabled investors to get more in terms of yield from 8% to 12%. That was the catch.

Islamic religion bans the earning by way of interest. It is unacceptable. It was considered the practice against the dictates of God or Allah in Islam.

There was a considered belief in Islam that earning and living on interest income is like sucking the blood of the poor man who pays it though his nose. It is a bane to the society, so the stricture was included in the Quran (Koran), the holiest book on Islam

I am Hindu but studied Islamic Law while I was in Law school. So honestly, I do not claim to be authority on this subject. But only thing that I could deduce is that the stricture in Islam not to thrive on interest income was sufficiently good reason for Islamic Banks not to invest into yield or interest oriented derivatives.

And while almost all Western Banks collapsed, the banks in Islamic countries were almost unaffected. They emerged very strong. Islamic banks in Saudi Arabia, Iran, United Arab Emirates (UAE), and Malaysia have been largely unaffected at this point of time. Not every thing is bad in Islam at all.

The western banks may pick up a few green leaves from the holy book of Koran and use them in their training school to teach the students how not to fall victim to devilish derivatives and control the greed.

The chapter may be titled

“Seek the Money from Allah, not Paulson”

Kalidas, Hong Kong

(Ref: 08-009 of October 21,2008)

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