Saturday, May 20, 2006

Islamic Jeans

It was only a matter of time after Islamic finance and Islamic cola to see the latest item described today on Al-Jazeera: Islamic Jeans. The jeans, which the news article says was designed in Italy (just like "Islamic finance" is designed in London) has features that make it easier to pray while covering one's backside and safekeeping personal items in appropriate pockets. It has a green trimming (!), and has the word al-Quds (Jerusalem) written in arabic on the change pocket (!!).

The article goes on to say that Jamat-i-Islami had declared in the 1980s that jeans were unacceptable as a dress form.

The funniest part of the report is in the last paragraph, where Grand Mufti Rafi Usmani is quoted to have praised the new jeans, and which states that his only reservation was that its name "al-Quds jeans" (or "Jersualem jeans") was not appropriate (would he favor "Islamic Jeans"?).

Come to think of it, this jeans may actually provide value to customers, unlike Islamic financial practices. The Islamic-finance-style jeans would just cut a couple of inches off the bottom to make it shorter, add the green trim, and cost 20% more than the original jeans (while continuing to expose them to the same or more backside-risks :-).

Peddling Religion Hits the Big Time

In today's Financial Times article on so-called Shari`a advisors, the inflation of fees paid for certifications of Islamicity is attributed to shortage in "Islamic Scholars Versed in Finance":

The fees charged for shariah advice are a closely guarded secret, and much of what is received is reportedly paid to charity. However some investment banks say they have paid up to $500,000 for advice on large capital markets transactions, a dramatic increase from the levels seen a few years ago.

The shortage, of course, is in the market for individuals who can market themselves as "Islamic scholars", and who know how to "play ball" with the bankers and lawyers offering "Islamic financial" products.

What a mockery of Islam this has become.

Monday, May 15, 2006

Micro- or Predatory-Lending?

In today's Wall Street Journal, an article appeared about profitable micro-lending. The story focuses on the pioneer of a more efficient model of micro-lending in India being able to cut costs and capitalize better on the high repayment rates of micro-borrowers. He has thus turned microlending into a profitable enterprise. One of the main financiers of his efforts declared this brand of microlending to be lower risk and higher return.

ICICI Bank Ltd., India's largest private-sector bank in capital, has gone so far as to give Mr. Akula an open line of credit. The bank says its more than $10 million in loans to SKS have been low-risk and give it a slightly higher return on capital than it gets from its corporate borrowers.

If the risk is so low, shouldn't the microlenders charge a lower interest rate to their customers? Otherwise, should we not conclude that this is a thinly veiled predatory lending practice? Citing "benefactor fatigue", the article suggests that this is a good alternative to more traditional forms of microlending. The ability to generate profits is good, since it suggests that the model is sustainable. Should they not have set up the institution as a mutual (credit union, e.g.) to eliminate return on equity provided by large for-profit banks?

Sunday, May 07, 2006

Muslim financial professionals

A bright ex-student at my university asked before accepting a job in investment banking: An acquaintance had told her that his father was an investment banker who knew a lot about Shari`a, and had declared that this profession is extremely sinful (I pointed out the inconsistency that questions that person's knowledge and/or credibility). The ex-student emailed, half jokingly, asking my opinion: After all, she said, she didn't want to work in a profession that is only slightly better (or worse) than running a casino or brewing beer.

Hers is hardly the exception. Muslim finacial professionals around the world are getting the message that they are engaged in a sinful (haram, un-Islamic) industry, and that they need to get out of it as soon as possible. Some merely resent that those who don't understand what they are talking about (religiously or professioally) can pass judgement on them and make others pass similar judgements. Many decide to try their hand at so-called "Islamic finance", only to discover quickly the nature of that racket. For some of those, it may be too late to return to legitimate financial industry, and they feel trapped in a lie. All are left worse off, along with the rest of Muslims who are victimized by misperceptions and abuse both from within the Muslim community as well as from without.

My message to the ex-student was simple: I am not qualified to give fatwas, and she should look elsewhere for a fatwa. My second advice is that as an intelligent and well-educated professional, she should not seek a fatwa (opinion) from an unqualified, lesser educated and significantly less intelligent usurper of sacred authority. As an economist, I argued, I can see how you can behave Islamically or un-Islamically regardless of the contracts used, or the name and certification of the institution within which you work.

For Muslim financial professionals who conduct their craft Islamically, wherever they work -- who are observing justice, fairness and morality, and seek to use their craft for the betterment of humanity -- I wish that next time someone accosts them with uneducated and uninformed charges of un-Islamicity, ... I wish that they will turn the tables and tell that person: "How dare you! Fiqh means understanding of the Shari`a, and from what I see, hear and read from your quarters, you do not understand very much!"

Friday, May 05, 2006

Opium of the people

After returning from the Harvard Islamic Finance Forum a couple of weeks ago, a friend from Canada called to tell me that his friend (a Canadian Muslim lawyer) hated my presentation on mutuality in financial intermediation: "El-Gamal's Marxist view of Islamic finance", he called it.

I was reminded today of Marx's [in]famous statement that religion is the opium of the people as I sat through a khutba (Friday sermon), wherein the khateeb prescribed spending more time at the mosque (praying dawn and evening prayers there in congregation) as the cure to all the ills of Muslim societies. "Opium of the people", I thought to myself. Of course: no one can argue against spending more time in the mosque. I dared once to argue with a fellow parishioner after my khutba that if one spends so much time in the mosque (early mornings and evenings), then one will have no time for one's family, especially children who would wake up to find one in the mosque and go to bed while one is in the mosque. Needless to say, that fellow parishioner was outraged: "they let just about anyone get on the pulpit and give a sermon", he complained, "What kind of a Muslim would argue for not spending more time in the mosque?"

But that is another story: let's get back to Islamic finance. At Harvard, jurists, bankers, and economists were all in agreement: "you cannot expect Islamic finance to solve all the economic problems of Muslims, we are merely trying to help Muslim businessmen live according to the percepts of their religion." I had my own outburst as a response: "if the customer wants the smoke and mirrors circus show, fine, give them the circus show, but for Heaven's sake, try to provide some value in the process". "It is my hope to drive [the current breed of Islamic finance practitioners] out of business, if I can."

The form-above-substance approach is nothing but opium, very expensive opium. The poor still have no access to credit in the Islamic countries, but now the multi-millionaires and billionaires can get their murabahas and sukuk as multinational banks and law firms make their millions, and the jurists-for-hire make their hundreds of thousands. I was attacked by one of those jurists in Kuala Lumpur (when I was still being invited to Islamic finance conferences): "he writes that we have sold our souls to the devil", he complained; "but the lawyers who structure the deals make a lot more money", he said. "Yes, indeed, they are the devil", I replied jokingly from the audience (to nervous laughter from the young Malaysian students sitting around me).

Opium abounds in the Islamic world:

  • You can keep increasing the gap between rich and poor, but the rich can now do their financing "Islamically"
  • We can separate men and women, cover the women head to toe, and ignore rampant homosexuality and adultery
  • We can monopolize resources, deprive the poor from their financial rights through various zakah-shelters (homes are exempt, and I have 2 in Monaco, 2 in the Bahamas, etc.), but claim to be abiding by the Shari`a
  • We can leave our children confused about religion, in a culture that encourages critical thinking, and spend more time with other escapees at the mosque

We can do all that and more, and claim to practice Islam.

Opium of the people, indeed!

Tuesday, May 02, 2006

Asking difficult questions, seeking easy answers: The Amr Khaled Phenomenon

A recent New York Times Magazine article about the Egyptian televangelist Amr Khaled has helped me understand his appeal to Muslims who did not grow up steeped in Islamic culture and scholarship. The biographical information about him explains how he can identify with the journeys of newly religious Muslims, ones who are searching for easy answers to complex questions about their existence and mission in life. It also explains why more scholarly, but equally westernized, Muslims of the same generation -- like Tariq Ramadan, who was quoted in the article -- feel that Khaled is evasive on all the truly difficult issues.

Most interesting in the article, however, was the report of Amr Khaled's own frustration when he visited Germany and tried to convince his audience that their primary goal is to integrate in their societies, interacting fruitfully with non-Muslims. All the proposals he heard had to do with teaching Arabic to new Muslim immigrants, and similar activities that had nothing to do with his main message. It reports some of his devotees challenging him on the message, which suggests that they may defect from his camp if he continues to push them on difficult issues. What they like is the use of modern methods and language (reformist language), assurance that they area adhering to traditional Islam (salafist language), and comforting spirituality (Sufi influence). When he tried to push them to think outside the box and explore difficult choices that they have to make as Muslims in the modern world. The reporter mentioned that Khaled asked her if she thinks that his audience understood what he was saying, saying that he thinks what he said didn't sink in.

So, here is the problem: even if you build your popularity and credibility with the masses through a combination of Joel Osteen and Dr. Phil methods, as the reporter described, you can't get the Muslim middle classes to address difficult questions that are important for their life in the modern world. How can we get them to think about religion not merely as a feel-good-about-yourself aid, but as a vehicle for social improvement and change?