In the words of Hussain Al Quemzi, the CEO of Noor Islamic Bank, Islamic finance is a possible alternative to the overheated capitalist system that has been in place for decades, if not centuries. The world’s financial community, he says, believes that an alternative model of financing could have prevented the worst economic crisis of this century and that Islamic finance is the new buzz word of the decade.
These words appear in G20, The Pittsburgh Summit 2009, a publication edited by John Kirton and Madeline Koch and published by Newsdesk and the G20 Research Group.
The main principles on which Islamic finance is based are simple, their application complex. The principles are: profit-sharing and, in accordance with the Koran, prohibition of interest. In the view of Gatehouse Bank, financial services rendered in compliance with Islamic law provide a universal model that avoids excessive risk and speculation in favour of support of worthwhile productivity.
Since the Christian and Jewish religions also prohibit usury, one might expect the non-Islamic dominant banking community to examine the performance of Islamic financial institutions with sympathetic curiosity. Maybe they do. But it would be uncharacteristic of large western banks, which up to now have preferred to overlook the anti-usury provisions in their religions (e.g., when determining the interest rates charged by credit card services), if they were prepared to learn from those who own only a small fraction of the world’s assets. But perhaps, if it can be demonstrated that super-performers like Dubai, Singapore and Kuala Lumpur owe their spectacular success in part to Islamic law, they might reconsider.
One wonders, though, what Islamic law has to say about the shocking exploitation of workers in those countries.
During the Great Depression, and again in the recent recession, the question has been raised whether there exists a financial model that might take the place of western capitalism, which is responsible for so much social injustice.
Hussain Al Quemzi, the CEO of Noor Islamic Bank, says there is.
He may not be the only one.
“The ethical principles on which Islamic finance is based may bring banks closer to their clients and to the true spirit that should mark every financial service,” the Vatican’s official newspaper, Osservatorio Romano, noted early this year.
Eric Koch’s book, The Weimar Triangle, is available at Indigo-Chapters and in your local bookstore. 
It’s interesting that when China moved from Communism to capitalism it moved to the western market model with tradings in bonds, stocks etc. This happened without much planning as far as I can see, and I was in China in 1994 watching the change.
One wonders what Islamic law has to say about trading in slaves.
Western capitalism is largely based on interest. I rather doubt that an alternative system can be devised. However, I will be most interested in further comments by these famous authors. RK
Christianity does not prohibit lending at any rate of interest, and I don’t believe that Judaism does. “Usury” means lending at excessive interest. It is certainly true that moneylenders have very bad press in both the Jewish and Christian bibles, but that condemnation left room for interpretation.
Thus when economic theory progressed by a few centuries, interest could be seen as the price of money, just as other things people valued had a price. Interest had the advantage of allowing for the rental of money, which enabled much good to be built on credit (and of course a good deal of abuse of credit too.)
However, if one’s holy text was dictated verbatim by an angel of God, and it expressly forbade lending at interest, then it is harder to separate the evil interest from the constructive interest.
Islamic finance bends itself into difficult shapes in order to recognize that money has a value over time, without expressing that value as interest.
Clearly it can work, just as one can predict the movements of the planets by Ptolemaic astronomy, but I’m not sure it can be said to be desirable for that reason.
It may be that some forms of Islamic finance permit community risk-sharing and more collaboration in enterprise than a pure bank loan at interest might do.
But cooperatives, mutual benefit societies and other community finance initiatives are found in capitalist, interest-paying societies as well. Islamic finance has no monopoly on such virtues. And financing models where lenders share the risks and the profits are commonplace in “Western” finance too.
Are practitioners of Islamic finance less avaricious than some practitioners of ‘high’ Western capitalist finance? I think that’s a moral question not dictated by the economics of avoiding paying for money with ‘interest’. I suspect it’s partly a matter of opportunity, too.
So by all means let the world consider all sorts of ways to manage economies, including that of the Noor bank. But there is a cost as well as a benefit from having a system so complex that greedy people have a hard time exploiting it (if there is a measurable difference among systems in the greed of the participants.)
Thank you for your publishable reply.
In a competition for the greediest participants in any form of capitalism the Indians are clearly the sure winners. James Stuart told me that it is common practise to starve old ladies to death in the hope of an inheritance. Can we compete with that?