The Economist article on European mutuals
This week's Economist magazine has a nice article on financial mutuals or cooperatives (where the shareholders are the same as the depositors), and their merits during financial market turmoil. In particular, they highlight the inherent risk-management benefits of not having separate shareholders on whose behalf the manager may try to take excessive risk with the depositors' money (they can only lose their capital, and the profit potential is unlimited). The article also talks about how mutuals-of-mutuals have emerged in Europe, to replace partially the need for central banks as lenders of last resort or other ways to bail out failed banks. In my earlier papers and my book on Islamic finance, I have echoed those well known arguments for the benefits of mutuality, and shown that one reading of Islamic jurisprudence is that the forbidden elements of riba are eliminated in the case of mutuals. See three articles of mine on this topic here 1, here 2, and here 3.