
Why non-Muslims are converting to sharia finance - known
https://www.economist.com/britain/2018/10/20/why-non-muslims-are-converting-to-sharia-finance
======
Mengkudulangsat
I had the opportunity to translate technical documents for both conventional
and sharia financial products a few years ago, and I find the market
fascination of them mind-boggling.

These products seemed to incorporate convoluted jargon and concepts which
dramatically increased complexity but at the same time, produced no extra
utility for end-users.

On top of that, the addition of ongoing shariah-compliance introduced a level
of uncertainty that was simply not there in conventional finance. If the
building you constructed ended up being used as a cinema, then the shariah
debt you used to finance that building needs to either be restructured or
unraveled. Why on board such a risk?

Even as a muslim myself, I feel like sharia finance is a step backwards.

~~~
tareqak
I agree that your experience is exactly what sounds like: taking a
conventional financial instrument, replacing all mention of the word
“interest” with something way more complicated, and adding rules that seem
difficult to always stay on the right side of. That happens to be exactly what
Tarek El Diwany (mentioned in the second last paragraph of article) is saying.

Shariah banks have to operate in a world that has completely accepted
conventional banking. As a result, it is in a constant state of playing catch
up in terms of fitting in (e.g. having to implement a software interface in
which you reject some central tenets of the interface).

I don’t know the answer one way or another. What I do know is that
conventional banking remains imperfect in spite of it being totally dominant:
the boom-and-bust economic cycles have grown more catastrophic, and we are
still grappling with accurately adding phenomena like health and pollution
into our financial models.

I applaud you for trying to understand how conventional and sharia financial
products fit together. I don’t find your reaction offensive: it just means we
aren’t done trying find a good solution that makes both technical and moral
sense.

There’s a really long Wikipedia article here about profit-loss sharing, which
central concept of how sharia banking is meant to work:
[https://en.wikipedia.org/wiki/Profit_and_loss_sharing](https://en.wikipedia.org/wiki/Profit_and_loss_sharing)

N.B. I apologize for any typos since I typed/tapped this out on my phone.

~~~
malloryerik
>> the boom-and-bust economic cycles have grown more catastrophic

While agreeing with your post more generally, this one statement seems a bit
off the mark. Shouldn't the Great Recession should fairly be compared with
Great Depression? So far, at least, the Great Depression was far more
catastrophic, as was for that matter the Long Depression starting in 1873. All
three of these were real financial sector collapses, not simple recessions.
Independent central banking seems to have done great good, generally, despite
of course being imperfect.

~~~
tareqak
That's a fair point. I was including the smaller recessions as well: there is
a boom and a bust within a ten year span.

That the IMF changed the definition of a global recession is a little weird,
but they know better than I do.

From wikipedia:

According to the International Monetary Fund (IMF), "Global recessions seem to
occur over a cycle lasting between eight and 10 years."[48] The IMF takes many
factors into account when defining a global recession. Until April 2009, IMF
several times communicated to the press, that a global annual real GDP growth
of 3.0 percent or less in their view was "...equivalent to a global
recession."[49][50] By this measure, six periods since 1970 qualify:
1974–1975,[51] 1980–1983,[51] 1990–1993,[51][52] 1998,[51][52]
2001–2002,[51][52] and 2008–2009.[53] During what IMF in April 2002 termed the
past three global recessions of the last three decades, global per capita
output growth was zero or negative, and IMF argued—at that time—that because
of the opposite being found for 2001, the economic state in this year by
itself did not qualify as a global recession.[48]

In April 2009, IMF had changed their Global recession definition to:

    
    
        A decline in annual per‑capita real World GDP (purchasing power parity weighted), backed up by a decline or worsening for one or more of the seven other global macroeconomic indicators: Industrial production, trade, capital flows, oil consumption, unemployment rate, per‑capita investment, and per‑capita consumption.[54][55]
    

By this new definition, a total of four global recessions took place since
World War II: 1975, 1982, 1991 and 2009. All of them only lasted one year,
although the third would have lasted three years (1991–93) if IMF as criteria
had used the normal exchange rate weighted per‑capita real World GDP rather
than the purchase power parity weighted per‑capita real World GDP.[54][55]

[0]
[https://en.wikipedia.org/wiki/Recession#Global](https://en.wikipedia.org/wiki/Recession#Global)

~~~
village-idiot
I’m under the impression that the boom and bust cycles of the late 1800s were
far more extreme than anything we’ve seen in our lifetime.

------
hevi_jos
In Spain the Catholic Church created a series of banks for lending to poor
people, and investing profit in social causes. I think the concept came from
Italy.

Those banks were called "Cajas de ahorros". Most people had their money there
instead of private Banks.

The concept worked very well for something like 200 years. Until politicians
changed the law to control the Cajas themselves.

After politicians took control,they did things like private lending at 0
interest to their friends and party(they even lent to one of the biggest party
50 Million euro and then totally forgave the debt!!) or putting their almost
illiterate friends as counselors.

It took only 15 years after that to totally bankrupt all cajas in Spain, and
now they are owned by private banks.

~~~
lottin
The Catholic Church has always tended to see charging interest as being
equivalent to committing the sin of usury and throughout history they've tried
to ban it several times. See for instance:
[https://en.wikipedia.org/wiki/Vix_pervenit#Historical_contex...](https://en.wikipedia.org/wiki/Vix_pervenit#Historical_context)
In practice these prohibitions weren't too effective because people always
found loopholes and ways of charging interest without calling it interest.

------
my_username_is_
Very interesting--I had never heard of this before.

It seems the higher interest rate is predicated on finding investors who want
to take loans at higher-than-market-clearing rates. Does anyone have any
insight into why non-Muslims are getting loans through these banks? I don't
see how this scales to consistently provide higher returns, especially as more
money moves into this system. Are tobacco and alcohol related loans failing at
a higher rate than the rest of the market?

~~~
lmm
I would expect a sharia bank to provide market-beating returns to investors
because it can charge above-market mortgage rates to borrowers who have no
alternative. From the article:

> Al Rayan’s home purchase plan (its sharia-compliant version of a mortgage)
> charges 4.24% in the first two years, almost double the market average. Even
> so, 12% of Al Rayan’s home-purchase customers are non-Muslims.

I'm as stumped as you are regarding that 12% number though.

~~~
toast0
Paying a little more makes sense for religious or preference reasons , but
paying twice the rate (when it's significant) doesn't make a lot of sense for
a preference. It seems likely that there is something wrong with the
comparison , either the effective rate is computed incorrectly, or there's a
significsnt difference in terms or underwriting.

------
tareqak
I recognized person mentioned at the end of the article: Tarek El Diwany (same
first name as me spelled differently) had a part in the "Four Horsemen"
documentary
([https://youtu.be/5fbvquHSPJU?t=3479](https://youtu.be/5fbvquHSPJU?t=3479)).
I found an article about him in
[https://meic.cfainstitute.org/2012/03/21/islamic-finance-
tar...](https://meic.cfainstitute.org/2012/03/21/islamic-finance-tarek-el-
diwany-on-the-problem-with-interest/) .

~~~
stef25
The hypothesis that the war on terror (pointless as it may be) is actually
driven by Western banks and the concept of intrest and that the solution lies
in sharia banking laws is quite something to get your head around.

~~~
tareqak
El Diwany isn't saying that the solution is sharia banking in that part of the
"Four Horsemen". Instead, he is rightfully calling out that there is a
mismatch between public intentions and the actual incentives.

------
mmjaa
This is great. I'm not a Muslim, but learning that there are banks that don't
invest in arms and tobacco - this is great news, and I guess I'll take a
closer look at halal banking soon. For too long I've been bothered by the fact
that I don't have much say in where my funds are invested by the 'normal
banks' \- the fact that there is an option for those of us who don't want to
participate in the military-industrial-pharmaceutical complex, is indeed great
news.

~~~
codeulike
See also Ethical Banking, here's a list of regular banks in the USA who dont
lend to certain industries: [https://www.nerdwallet.com/blog/banking/socially-
responsible...](https://www.nerdwallet.com/blog/banking/socially-responsible-
banks/)

Maybe its not a very big thing in the USA. Ethical Banking is pretty big in
the UK.

~~~
tialaramex
Big enough that, for example, the Money Saving Expert site, a popular
independent comparison site for savings accounts and similar products, has a
separate category if you decide you only want good savings IF they are with an
ethical bank.

e.g. You can get about 1.5% interest by choosing the best rates (whereas many
popular banks offer 0.1% or lower) but the ethical option is 1.35% from
Yorkshire Building Society (which is a mutual so your money is being spent
buying houses for people and both you & they share the profits from
operations). Lots of people will decide that actually not supporting dubious
industries is worth 0.15% interest.

Not least because the mutuals tend to have fewer aggressive anti-consumer
practices, after all the consumers own them so that would be kinda crazy.

------
SuoDuanDao
The fact that central banks have set the interest rate near zero already must
play a role.

~~~
ru999gol
It seems if you save money at the bank they will actually loose money for you
since their interest rate is lower than inflation. The financial market is
such a clusterfuck lmao

~~~
gaff33
I'm not going to claim that finance isn't a clusterfuck - but paying people to
store things securely isn't exactly strange.

If anything the amazing thing was that people would pay us to look after our
money in the first place!

~~~
ShorsHammer
You give them $100,000 and they store $5000 of it, at best.

If other people take their money out first you'll end up with zero, if you're
lucky though a government bailout will come along and the loss is outsourced
onto future taxpayers.

The bank doesn't have your actual money on hold in case you want it.

------
n4r9
I like the idea of more ethical banks, but I think the article is overselling
the popularity of Islamic institutions in the UK. I live in London and whilst
I'm aware that Sharia banking exists as a concept, I've never heard of BLME.
Also the opening sentence comes off as slightly absurd:

>THE HALAL restaurants established by Muslim migrants in Britain quickly
inspired an almost religious following among non-believers.

~~~
hjek
Here in UK, I'm a fan of halal chippies as they always use vegetable oil
instead of beef dripping for their chips and patties.

~~~
jkaplowitz
Interesting. Why? Halal definitely allows beef to be combined with potatoes.

~~~
tareqak
The beef has to be halal beef. In this context of using beef fat as an
additive to other food, the beef fat has to be halal as well.

~~~
gruez
right, but the the gp said halal establishments _always_ used vegetable oil
instead of beef fat.

~~~
tareqak
I can think of another reason too: these chippie vendors might also want to
cater to other people who don’t want to eat beef e.g. some Hindus. Some halal
Indian restaurants in San Francisco do something similar: they serve halal
chicken and lamb, but no beef.

tl;dr Vegetable oil ticks boxes for multiple sets of clientele.

~~~
jkaplowitz
That makes a good deal of sense. I'm a vegetarian, I appreciate it, but was
merely surprised given that halal beef and halal beef fat exist. Thanks for
these further speculations.

------
nextweek2
The title and article are using reglion as a context when it's not. As a
consumer I am not _converting_ to Sharia finance, I have just found a product
which meets my requirements.

The index fund I am invested in turns out to be mainly high tech stocks with a
low fee, just because it has 'Islamic' in the fund name doesn't mean I'm a
convert to the religious philosophy.

~~~
akerl_
Would you still be concerned if the title said "Why non-Muslims are converting
to financial institutions which abide by sharia law"?

They're a publication; the job of all headline is to convince people to read
articles, and on the "clickbait" scale, this seems to be pretty solidly "not
clickbait".

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comesee
Who wrote this article?

~~~
vmlinuz
Common question here - standard Economist policy is never to name their
writers and correspondents, except very very rarely. Their content is
published under the name of the newspaper, not the individual author.

~~~
homarp
[https://www.economist.com/the-economist-
explains/2013/09/04/...](https://www.economist.com/the-economist-
explains/2013/09/04/why-are-the-economists-writers-anonymous) explains why

~~~
tareqak
They should have a "Who is the author?" byline that points to link you posted
(at least that's what I would do).

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agumonkey
usury ?

~~~
tareqak
Are you asking for the definition?

Usury (/ˈjuːʒəri/)[1][2] is, as defined today, the practice of making
unethical or immoral monetary loans that unfairly enrich the lender.
Originally, usury meant interest of any kind. A loan may be considered
usurious because of excessive or abusive interest rates or other factors.
Historically, in some Christian societies, and in many Islamic societies even
today, charging any interest at all would be considered usury. Someone who
practices usury can be called a usurer, but a more common term in contemporary
English is loan shark. [0]

[0] [https://en.wikipedia.org/wiki/Usury](https://en.wikipedia.org/wiki/Usury)

------
peapicker
Very interesting but need a non-paywalled source.

~~~
tareqak
I was able to click and see the article, and I'm not a subscriber.

~~~
2muchcoffeeman
I’ve reached the limit too. What does modern banking have to do with religion?

~~~
my_username_is_
The article says that Muslim financing tradition prevents banks from paying
interest, and they must instead share their profits. In recent years this has
been higher than the meager interest offered by banks' traditional savings
accounts, so it is attracting non-Muslims at a growing rate. There is some
debate as to whether all of these products technically fit the
definition/custom--as some banks are advertising a certain rate of return
through profit sharing, making it very similar to interest.

~~~
TheSpiceIsLife
Would it make sense for a retail customer of Big Bank Co. to also be a
shareholder thus enabling them to share the profits?

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simplysimple
If you think they aren't funding terrorism through these banks, I've got a
bridge to sell you.

~~~
dang
That's flamebait, which the site guidelines ask you not to post. More
generally, could you please stop posting unsubstantive comments to Hacker
News? We're trying for better than that here, so eventually ban accounts that
do it.

On HN the idea is: if you have a substantive point to make, make it
thoughtfully; if you don't, please don't comment until you do.

[https://news.ycombinator.com/newsguidelines.html](https://news.ycombinator.com/newsguidelines.html)

------
SpikeDad
What's next - Feng Shui financing. Making sure all the corporate buildings of
the companies you invest in point in the proper orientation?

------
k__
I once read that "sharia finance" is just a buzzword and those banks are doing
business as every other bank, just with different naming of their
processes/products.

