The Islamic finance and the sharia

The economic tribalism  Islamic finance is the most dynamic sector of global finance.  Each financial product has its counterpart Western Islamic microfinance, loans, investments in oil and gas, construction of bridges, even sponsorship of sporting events can be structured in accordance with the sharia (Islamic law). Islamic finance is innovative, flexible and potentially very profitable. "Operating in 70 countries, with assets worth about $ 500 billion, is set to expand geometrically." With more than a billion customers Muslims eager to participate, analysts predict that before long the Islamic financial system will handle about four percent of the world economy, amounting to a trillion dollars. Similar figures explain the impatience of western banks to take advantage of the financial services of sharia. Citigroup, along with many other Western banks, opened Islamic branches in many Muslim countries. At the end of 2004, the Islamic Bank of Britain, the first bank to offer services to customers in Europe Muslim, has launched its shares on the London Stock Exchange. Paradox wants to climb the Islamic finance has been favored by the three major economic crisis of Western capitalism (the previous one currently in progress, ed): shockpetroliferi the seventies, the Asian crisis of the late nineties and September 11.  The economics Islamic, unlike that of the market, based on religious principles of Islam. Customers Muslims participating in the financial world in accordance with the sharia, the religious law which is derived directly from the Qur'an and governs their lives. Activists, intellectuals, writers and Islamic leaderreligiosi always prohibit riba, interest imposed by moneylenders and from Western banks, and denounce the gharar, any form of speculation. The principle is simple: money can not generate more money. Islamic finance institutions which then refuses glihedge funds and private equity, which simply multiply the money moving it to the high-risk investments and high income. The money is only a means or an instrument of productivity, as they had originally imagined Adam Smith and David Ricardo. This principle is cemented in sukuk, Islamic bonds, which must always be linked to real investments, for example, the construction of a toll motorway, and never intended for purely speculative purposes. This principle is also confirmed in the rules of sharia, which prohibits gambling and all forms of debt and activity that has as its object the risk.  At the end of the nineteenth century, supporters and promoters of Islamic finance repeatedly expressed their discontent against Western banks that have settled in Muslim countries. Are issued numerous fatwas, religious decrees that, to reiterate that the activities of the banks of the colonizers, based on the interest rate, the riba, are incompatible with lasharia. The Western financial institutions, however, are the only banks in the Islamic world and Muslims are forced to use them even if they are based on prohibited activities.  Since the mid-fifties to the mid-seventies of the last century, economists, financiers, sharia scholars and intellectuals studying the possibility - compatible with Islamic law - to abolish interest rates and creating financial institutions that they rest on a 'alternative to riba. Also hope for the incorporation, within the Islamic economic system, zakat, the annual contribution to help the poor, and other key elements of the Muslim religion, such as financing the hajj (pilgrimage to Mecca).  The first projects of Islamic economics applied born in the fifties simultaneously in the countryside of southern Egypt and Kuala Lumpur, Malaysia. The Meet Ghamr, Egyptian Islamic economics project includes a building plan for the poor. The Malaysian government is sponsoring the experiment instead of the Pilgrims' Administration and Fund of Malaysia, organ of supervision of financial institutions. The project consists of the collection of the savings to be invested according to the dictates of sharia, and aims to finance the hajj, that the zakat is one of the five pillars of Islam.  Until the early seventies, the Islamic economy exists only in its infancy and is viewed with deep skepticism by the West. "At the time no one thought that the Islamic banking system would develop," recalls Sheik Hussein Hamid Hassan, one Egyptian scholar involved in the creation of one of the first Islamic banks. "People found the idea strange, absurd as to speak of Islamic whiskey!" The skepticism Western powers also a chronic shortage of capital in Muslim countries. The money needed to start an alternative banking system is scarce and many people think that there will never be, so dismissing the idea of Islamic finance as a purely utopian concept. But this scenario changes abruptly with the oil shock of the biennium 1973 - 1974, which creates a massive influx of capital from western importers in the Arab oil producers. The price of crude oil quadrupled, is the capital necessary to achieve what for decades had remained just an idea.  The first step is the creation of a bank for International Development of the Islamic. This bank enhances the Organization of the Islamic Conference, considered an important springboard for oil-producing countries such as Saudi Arabia and Algeria. At the same time, the bank proves to be a useful tool to distribute financial aid to Muslim countries the rich to the poor brethren in Africa and Asia. The first call for the establishment of the Islamic Development Bank (IDB) comes from the heads of state of Saudi Arabia, Algeria and Somalia. The paragraphs of the Convention of the IDB, prepared for the first time in 1974, which formally established the bank's activities must be conducted in accordance with the sharia.  Economics and Islamic finance come from an extraordinary joint-venture between the rich Muslims and scholars of sharia, a unique phenomenon in the modern economy, which is credited with having laid the foundations of a new economic system. Personalities such as Prince Mohammad Al-Faisal (son of the late Saudi King Faisal bin Abdul-Aziz), Saleh Kamel of Saudi Arabia, Ahmed Al-Yaseen in Kuwait and Sami Hamoud of Jordan sensed the importance of channeling part of the new wealth produced by the first oil shock, the establishment of a new type of bank, the Islamic Bank. Meanwhile, scholars of sharia and religious formulate monetary and institutional structure of the new banks.  At the root of Islamic finance, therefore, there is an alliance between political leaders and religious leaders, the result of the concept of Umma, the community of believers, the central spirit of Islam. For Muslims, the Umma is a single entity and consolidated that breathe, think and pray in unison. The Umma exudes the soul of Islam. In the Muslim religion individualism has no reason to exist, since the individual is not just recognized. Islam subscribes to the traditional tribal values ​​as the strong sense of belonging, the obligation to help friends in need and accepting the authority of the religious leaders. Scholars of Islamic sharia in the economy translate these values​​, the same principles that for centuries have allowed the Bedouin Arabs to withstand the rigors of the desert. In such a hostile environment, the tribal collaboration is a must.  This alliance is also at the heart of Islamic economics. At the base of the system is the philosophy of "risk-sharing" lender must share the risk with the borrower (a practice which in fact makes them members) and in so doing injects a strong social component in the financial system. This perspective separates cleanly from Western finance, that seeks to maximize profits and minimize losses through diversification of risk.  The money should be put to good use. Islamic finance prohibits interest, thus creating revenue from rents, from royalty, from corporate profits and cash flows of goods (a mortgage, for example, represents an agreement of the type "rent to own"). Conceptually, then the Islamic economy contradicts that of the West, which instead revolves around the interests of the individual. Islamic finance is thus the only true global force that actively opposes the entrepreneurs of rogue economics. Has incorporated a code of ethics that prohibits investment in pornography, prostitution, narcotics in, in tobacco and gambling. Just sectors which, as we have seen, from the fall of the Berlin Wall have thrived thanks to globalization gangsterdella under the indifferent eyes of the state-market.  The magic of the market  In his masterpiece, The Wealth of Nations, Adam Smith argues that an invisible hand, relying on people's need to maximize their own gain, regulates the market. This behavior, adds Smith, is rational and perfectly in line with human nature. But the cunning argument is different: while each individual seeks only personal gain, the sum of all these selfish behavior enriches the country. How can this happen? For Smith, the collective selfish behavior ensures that scarce capital resources are always in direct investments that yield the highest return with the least risk. In other words, trying to maximize profits and minimize losses personally, people contribute to the national wealth. This, in short, is the magic of the market.  For economists, Smith's invisible hand is semi-religious icon that anyone with a little 'common sense would dare to challenge. Many believe that this icon also functions in the globalized economy.  The vast majority of economic decisions today is suitable for those first hypothesis that individuals act more or less rationally in their own interests - said in 2005, Alan Greenspan, former chairman of the Federal Reserve (currently considered - not to have supervised the economic behavior which was paid to control and have contributed mightily to consecrate ideas like these - one of the major architects of the ongoing global economic crisis, ed) in fact, without this assumption, the curves of supply and demand of classical economics may not intersect , preventing the market to determine prices. For example, one can hardly imagine that international transactions today would produce the relative economic stability that we experience on a daily basis if they were not guided by some international version of the invisible hand of Smith. (Famous last words: after which, unfortunately for Greenspan and for all of us, the "relative economic stability" has proven the ignorance and foolishness of his words leaving "daily experience" only for two more years, ed)  Adam Smith would agree that outsourcing, the transfer of assets abroad by lucrarvi on lower production costs, is a direct result of the invisible hand of the global market. At the end of the nineties, the Japanese and American industrial transfer some factories in China, so that the low cost of labor can offset the cost of transporting the finished products to domestic and foreign markets. However, in a globalized world populated by multinational and transnational industrial, the invisible hand of Smith no longer operates only within countries, but ends up driving market forces everywhere. The national self-interest, then, can enrich or impoverish large sections of the population worldwide. In the nineties, the transfer of foreign companies in China affect capital flows in Southeast Asia. At the beginning of the decade, this region receives the bulk of foreign direct investment in Asia from Japan and the United States, while the rest goes to China. At the end of the decade, the situation is reversed. The production costs become highly competitive Chinese factories in the laboratory in the world and they close their counterparts abroad. Then there are the competitive production costs in China to affect the economic performance of regions far. In 2002, for example, Royal Philips Electronics closes two-thirds of its production lines of televisions in Mexico to transfer to China.  If you really Smith's invisible hand guide the economic revolution of globalization, then it could be argued that, in the long run, Western capitalism will control the world economy, allowing inidvidui and nations to become rich thanks to a better and more efficient distribution of resources . But a careful analysis of the growth of Islamic finance seems to contradict this prediction. Facilitating trans-national tribalism, globalization has created an ideal breeding ground on which Islamic finance has been able to thrive. This is demonstrated by the Islamization of the Malaysian economy, and that is the birth of a new economic system and potentially antithetical to Western capitalism as governed by principles outside the market economy. Adam Smith would say that to drive the extraordinary adventure of Malaysia was not the invisible hand, but religious factors as tribal solidarity. The economy of the sharia  The birth of Islamic finance is undoubtedly helped by the collapse of the Asian market in 1997 and the events of September 11. The first crisis triggers a withdrawal, while the second causes a closure towards the western economy. Malaysia, a fervent Muslim country, is the precursor of these changes.  The Asian crisis can be described as the classic reversal of fortune caused by schizophrenia and globalized capitalist markets. Well, in fact, by the sudden and unexpected withdrawal of capital by five Asian countries (South Korea, Indonesia, Thailand, Malaysia and the Philippines). Almost overnight, an inflow of capital to the value of $ 100 billion - in 1996, accounting for one third of the world flows in emerging markets - turns into an outflow of twelve billion dollars. The extent of the crisis is unprecedented and cosneguenze are disastrous. At least ten percent of gross domestic product (GDP) of the five Asian countries vanishes into thin air. Ten years after the collapse, investors are still arguing about what really happened. The exceptional growth of the GDP of those countries before the crisis was perhaps a mirage? According to many, the collapse is one of the side effects of globalization euphoria of collective hallucination quell'inebriante money by described by Tom Wolfe in his novel The Bonfire of the Vanities (Mondadori, Milan, 1999) and created by the "masters of the universe" Wall Street.  Although influential economists have tried to give a rational explanation to the crisis, the best interpretations focus on the conduct of the bipolar global markets, what Stiglitz calls "the instability of certainties" and Keynes called "animal spirits." Capitalism has already seen a similar reversal of trust, for example in 1987, when the world stock market suddenly collapsed. Yet "there was a bit of nonsense in the Asian crisis. The international financial manager punished harshly those same Asian governments who a few months earlier had praised. " The disappointment that follows the crisis spreads around the world with a speed and intensity that can match the enthusiasm rampant of the boom years. The euphoria of the early nineties turns into mass hysteria, which soon degenerates into a chronic phobia. Irrational feelings take hold of the market. "We can not trust the companies, we can not trust governments, we can not trust the analysts and we can not trust the manager. Watch out! "Becomes the mantradegli Western financial operators about the former Asian partners.  The distrust affects the Asian economies with the force of a financial tsunami, damaging them severely. "The Thai currency fell by 40%, the Indonesian rupiah by 80% and 30% of the Malaysian ringgit, the Singapore dollar by 15%, the Philippine peso by 50%." Under the pressure of the crisis, stock markets collapsing like ninepins.  While panic is rampant in the halls exchange of global finance, the IMF (or IMF, International Monetary Fund, ed) rushes to the aid of the Asian economies. In agreement with the World Bank and the Asian Development Bank, puts together a foreign currency loan of 112 billion dollars. The objective is to defend the currencies of the three countries - Indonesia, Korea and Thailand - who have accepted the bailout package. But the initiative translates into a disaster, because it fails to restore the confidence of investors or to prevent further weakening of the Asian economies.  While the IMF is desperately trying to avoid the inevitable, that the financial crash of emerging Asian countries, the Malaysian premier Mahathir Mohamad as a surprise to the international financial community and public attacks on foreign currency speculators, accusing them of wanting to destroy a Muslim country prosperous and growing rapidly. Facing to the consternation of global finance plays the trump card of gharar, the Islamic ban on mirror. Malaysia is a victim of greedy traders Western Mahathir complaint to the Muslim world. Rejecting the intervention of the IMF and the World Bank, the undisputed icons of Western finance, ilpremier Malaysian caters to the Muslim Brotherhood to support the economy of his country. The Islamic Development Bank and wealthy Saudi investors created a rescue package with alternative loans and investments. Unexpectedly, Muslim solidarity not only rejects the model of Western finance, but disdains the use of traditional rescue packages of capitalism in the West. While Thailand's GDP continues to fall as a result of the fiasco of the bailout from the IMF, the Malaysian economy attracts a host of rich Muslim investors eager to start commercial ventures in the country: including the Egyptian Mohamed Al Fayed, the owner Harrods of London.  At the end of his journey [in Malaysia], Al Fayed announced that Harrods would open a branch at the international airport of Kuala Lumpur and its 25 stores around the world would sell a line of electric appliances Electric Corporation Malaysia Berhad (Mec ). Mr. Ong Siew Eian, the first chief executive of the company, said he hoped to export to Yemen Malaysian products amounted to 2.5 million dollars (4.1 million Singapore dollars) [in 1998].  The decision to Mahathir, and that is the appeal to Muslims, displaces the IMF. The justification that the Malaysian premier pleads for such radical behavior is even more shocking. In the speech held on the occasion of the withdrawal of an award from Lariba Islamic finance company in the United States, says: About 90 percent of bumiputeras (malay) are Muslims. In terms of wealth and income, bumiputeras were always lagged behind the non bumiputeras. In 1970 we embarked on a new economic policy (NEP) to ensure that the bumiputeras had their fair share of the economic pie. Since 90 percent of bumiputeras is Muslim, NEP is almost synonymous with improving the economic status of the Umma in Malaysia. Many expected that there rivolgessimo the IMF to obtain loans with which to overcome the crisis. But we have not done. Request the intervention of the Fund would have been disastrous for the Umma Malay, because the policies of the NEP are not in tune with the idea of ​​a free and uncontrolled competition, where the strongest takes it all. Monetary Fund equity is not interested.  Maybe Mahathir has learned the lesson of Russia - where in the nineties rescue packages from the IMF end up enriching the oligarchs - and does not want a situation like this happen again in his country.  The cocktail of religion, economics and politics fielded by the Malaysian Prime Minister gives account of the complexity and uniqueness of Malaysian society. A world in which the edicts of sharia shape daily economic life, and religious tribalism is interwoven with that statement. The secret of the success of this extraordinary mix lies in the strong Muslim identity. Religion helps society to define itself. At the end of 2005, a telephone survey conducted on a sample of over a thousand Muslims arrive at these results:  In terms of identity, when asked to choose which of these expressions defining them better, Muslims or Malays, 72.7% responded that they feel Muslim. [...] The results of the survey indicate that the majority of Muslims of the Malay Peninsula is mainly identified with Islam and not with the national identity, but it feels comfortable to live alongside people of other faiths.  The revolutionary challenge of Malaysia is an appeal to the solidarity of the Muslim people, who responds by square around the country. It is an extraordinary example of economic tribalism. Putting the interests of the Muslim community, and that is the welfare of the Umma, above the principles of market economy, Mahathir Investors should note that the strength of the Muslims is the Islamic alliance. The money from the rich countries of the Persian Gulf and then continues to flow while the economic crisis is at its peak. In Malaysia are quickly introduced capital controls, the Malaysian currency is expelled from the international markets (as no more marketable), the government dismisses the Governor of the Central Bank and the Minister of Finance and Deputy Prime Minister Anwar Ibrahim was arrested. At the end of 1998, when the Bank Negara announces the new projections of GDP for 1999, the growth is even negative (minus 2.8%).  In that tragic economic scenario, against all odds and with the disapproval of the international financial institutions like the IMF and the World Bank, Malaysia comes out unscathed from the financial storm abandoning the Western economic model and folding of the Islamic. All this is possible because the country has an alternative, a unique resource that in other situations, such as Thailand, does not exist. In Malaysia, in fact, is already present in the embryo an Islamic financial system, a direct consequence of the radical choice of the Malaysian government to create an Islamic banking system. In 1997, no other state can offer Muslim investors a financial system sophisticated enough in which to channel their funds. He explains Mahmoud Amin El-Gamal, a professor of economics and statistics at Rice University in Houston: Malaysia has always been at the forefront of Islamic finance at least ten years ahead of Bahrain, United Arab Emirates and so on. The country has developed a system before the other interbank money for Islamic bonds. And the size of the Malaysian economy represent a huge attraction for the investor Muslim.  For all the nineties Malaysia, the beneficiary of huge capital flows, working hard to develop an Islamic banking system inside. Already in 1992, the Finance Minister Anwar Ibrahim encourages bankers to offer banking services in line with the sharia alternative. "Make sure that your officials to identify, and devise new tools able to compete with other financial instruments," he repeats in 1996, a few months before the Asian crisis: "Do not be limited by the nature of Islamic products, but they have to be innovative in 'scope of the requirements of sharia. "Encouraged by the success of sharia financial products among Muslim investors and foreign residents, in 1994 Ibrahim had suggested that the Western banking system and Islamic worlds could not coexist without producing serious contradictions. It had proposed the total Islamization of Finance Malaysia.  Soon Malaysia becomes the main country in Islamic finance and attracts considerable investment. Two factors seem to have fueled the flow of capital: interest in the funds Muslims and the transfer of conventional Western finance investments towards Islam. The first is a result of the Asian crisis, the second the result of September 11.  The attacks on the Twin Towers convince investors Muslims to Islamize their portfolio. Until September 11, the bulk of the finance Muslim is parked in the Western traditional investments. The hunt for alternative investments begins in the aftermath of the attacks on the Twin Towers. Fearing tighter controls introduced in the United States by the Patriot Act, visa restrictions and the freezing of assets can Muslims because of new financial policies of counterterrorism, Muslim investors begin to look at countries such as Malaysia. Forced migration from traditional Western investment awakens latent feelings of religious identity. "Many Muslim investors have sought ways to express their identity," says Qudeer Latif, a member of Clifford Chance in Dubai, the British law firm that deals with Islamic finance. "One of these is to choose products that comply with Sharia law."  Countries such as Malaysia, at the forefront of Islamic economics, guide the path of the Muslim capital from west to east, as evidenced by the growth of the Malaysian Islamic bond market. According to Moody's, the international rating agency, 2004 is issued Islamic bonds worth 41 billion dollars, of which 30 - 75% - come from Malaysia, while only 11% comes from the Persian Gulf countries.  The sharia-compliant financial products become key elements of the transnational economic tribalism, whose roots are intertwined religious pride of being Muslims. To be sold, a product which conforms to sharia requires a fatwa, a religious edict issued by an Islamic scholar. The fatwa gives Islamic finance a greater degree of flexibility than the traditional Western finance. At the same time, may offer investors a level of security that Western products have not. The ethical question, central to modern finance, does not exist in Islamic finance because the fatwa in fact ensures the investments against the offense.  It is yet another paradox with which we must reckon.  Islamic finance is the daughter of the propaganda of the "clash of civilizations" neoconservative. In the midst of the "war on terror", which many Muslims perceived as a witch hunt, Muslim investors have greatly reduced their portfolios Western and have turned to Islamic finance. At this lock has been accompanied by a revision of the traditional values ​​that had allowed the ancestors of Arabs conquer hostile environments: cooperation and solidarity. The values ​​of the past and the present come together in an unusual context: the economy. With the blessing of religious scholars, bankers and investors Islamic alliances to conquer another territory deeply hostile global finance. (pp 227 - 239)

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Loretta Napoleoni Loretta Napoleoni Loretta Napoleoni, born in Rome and lives in London, is among the world's leading experts on terrorism and the economy ABROAD. He is a consultant on the BBC and CNN, a columnist for El País, Le Monde, The Guardian, and publishes articles and surveys on D-Repubblica, La Stampa eInternazionale. Among his most important books have been translated into twelve languages​​, remember Terrorism Spa (Tropea, 2005) and Al Zarqawi. History and myth of a proletarian Jordan (Tropea, 2006). Some of the most important Western executive making use of its advice on the strategies and mechanisms of terrorism. He also works with numerous law enforcement agencies, including the Homeland Security United States and the International Institute for Counter-Terrorism in Israel. Source : http://www.scuolanticoli.com/libri/pagelibri_026.htm