Islamic Finance May Be On to Something

BusinessWeek ^ | 12/14/2008 | Frederik Balfour

[weef]

This might be a good time for investors to pick up a copy of the Koran. Stocks and other investments that adhere to sharia, or Islamic law -- though hardly unscathed -- have fared better than the broader market. That's thanks largely to rules that forbid investing in collateralized debt obligations and other toxic assets that have caused the carnage in conventional financial circles.

A big part of the appeal of Islamic finance is its simplicity. Speculation is taboo under sharia, and there's a ban on assessing interest because the Prophet Mohammed said debts must be repaid in the amount that was loaned. Money proffered must be backed by collateral, and if financial instruments are traded, they generally have to sell for face value, which deters banks from repackaging debt. "This is one way to keep both feet on the ground," says Rozali bin Mohamed Ali, head of an Islamic finance university in Kuala Lumpur.

[sheik yerbouty]

To each hios own..

[Don Stadt]

Quite, but the Islamic system doesn’t engage in the riskier side of banking and stockmarket trading that the big European and American financial institutions did.

They weren’t alone. In Europe, several building societies and small banks maintained sensible borrowing limits and avoided high-rolling speculation, not for religious reasons but because it was the financially most sensible thing to do.

Those institutions have weathered the crisis in far better condition than the high-rollers, while the horse-traders have had to go cap in hand to governments to bail them out.

So you can’t really discount the Islamic banking system on the basis they made a profit despite preaching the evils of usury.

Is there some loophole that says it’s possible for TV evangelists to preach the tale of Jesus in the temple on one hand, and engage all sorts of financial tricks to create personal wealth out of their ministries, without being hypocritical?