Tuesday, May 6, 2008

Banking on Islam?

Quote of the week:
"While Goldman's structure has remained the same, other banks have been changed by the crisis, at least temporarily. Merrill's CEO Thain, for example, has said the bank will exit the subprime-related securitization business. Citigroup may get broken up and there is talk about Bear Stearns getting sold. In addition, many banks are now answerable to sovereign wealth funds from the Middle East and Asia. At Citi, for example, Crittenden helped secure US$7.5 billion from Abu Dhabi Investment Authority." - Avital Louria Hahn - Senior Editor at CFO in the U.S.
Imagine undoing and breaking apart one of the largest banks in the world. Probably lots of fees and profits to be made for that series of transactions also. Must disagree with the statement about being answerable to sovereign funds though ... ME investors are notoriously hands-off when it comes to investing in the US ... willing to provide the money, but not willing to call the shots.

Commentary for the Week:
Banking on 'Islam' in Canada?

I recently had the opportunity to attend a seminar on 'Islamic Banking' and how this industry can be grown in Canada. While I was initially both inspired and excited about being able to learn something, I am very sorry to say that the feeling did not last. I came away extremely disappointed with the ideas that were discussed and completely disenchanted with the mindset of the people who have taken it upon themselves to grow the field. So much of what is beautiful in Islam or Ethical finance was just spoken of as a problem to get around in order to make money while taking zero risk. As such, the whole discourse was demoralizing in the extreme.
Most of the discussion rested upon one crucial point. Whether this point was an assumption or whether many millions went into researching the issue, I could not tell. The point itself however, was quite simple. It was that the Muslims in Canada are so unintelligent (and I am being charitable with my words here), that they can easily be taken advantage of. The entire focus of the discussion seemed to be that if the financial industry designed products (esp. Mortgages) that were the same as usual but hired some 'scholars' to approve them as Islamic, large financial institutions could probably get away with charging Muslim customers more than normal. Furthermore, since Islam requires that 'the financier' and 'the financed' actually share some risk, there were lender protections built into Ontario regulations that could be applied to Islamic products also in order to protect 'the lender' at the cost of 'the borrower'. If that wasn't bad enough, there was also discussion of how once 'Islamic' loans were forwarded to the unsuspecting Muslim public, the lenders would still be able to include those loans in 'structured investment products' that would then be sold to investors for speculation and trading purposes (ala subprime). As such, these products would be indistinguishable from the conventional at the back end and more expensive and risky to the Muslim customer at the front.
As you can no doubt see, this is heady information indeed. Not only am I, as a Muslim customer, being thought of as a proverbial fool who cannot tell when I am being taken for a ride, but I am also about to be charged extra for that dubious privilege. If you are outraged now at reading this, imagine how outraged I was when these thoughts were going through my mind Live, so to speak. Needless to say, I did not appreciate the disrespect inherent in their view of Muslims, and was quite incensed at being implicitly called a fool (esp. because if you are familiar with Ittihad, you are no doubt aware that from top to bottom, we are only staffed by geniuses).
So this leads us to the inevitable realization. In some way, shape or form, things are about to be marketed to us as Islamic. Money is being spent on researching trends, price inflexion points and identifying scholars' who would be willing to lend their services to institutions and practices that they do not understand fully. As sure as the night that follows day, 'Islamic' banking is coming. The question then, for us as a community is - will we be ready? Will Muslims accept the marketing campaigns, clever advertising and end up paying more for something that is demonstrably less Islamic than the norm? Or will we be able to call a spade a spade and refuse to be taken for an expensive ride?
I hope, my friends, Romans, Torontonians, Canadians, people of all stripes, colours, faiths and political proclivities - you will not stand idly by as this travesty is perpetrated upon unsuspecting people. A 1-2% extra interest rate (even if you call it something else) on a mortgage (which seems to be the product of choice), can translate into tens of thousands of extra dollars in needless expense for a family. There is nothing Islamic about that. There are some fabulous contributions that Muslims can make to the Canadian Financial system - expensive mortgages are not one of them.
The primary solution to this state of affairs is of course education; and as an immediate measure, I encourage you to invest some time and effort in educating yourself about both Finance and Islamic Finance. That way both you and circle of friends will be prepared if any big Multinational bank or other local entity were to ask for your business on the basis of Islam. The idea here is that collectively, if we turn ourselves into a community that is educated about such things, stiffing us will not be so easy for those who are trying. I have some ideas about hurrying this education process along, but if you think of something as well, then I look forward to hearing from you on the matter. The refinement of education and thought is always a time-intensive endeavour and it seems that we have little time left to lose ... ideas, anyone?

Finance News:

1. Some of our CPP pension funds are about to be invested in China. Better hope China is still doing as well when the time comes for us to retire ... read more here

2. The Economist reviews Warren Buffett's letter to Berkshire Hathaway shareholders ... read more here

3. The Globe and Mail helps make a financial plan for Aisha, who wants to go to Mecca for the Pilgrimage ... read more here

4. An insightful look into how bank's manage risk, or rather, how they fail to manage risk ... read more here

Economic News:

1. Follow-up to last week's commentary. Oil is now at its highest level even inflation adjusted terms - beating the oil embargo price from 1980. ... read more here

2. This story is too good. For decades there has been a very cooperative nexus between governments and big business in the form of how public money is raised and spent. With the advent of subprime, some municipal governments are trying to break out of these shackles. Ever wonder why your property taxes are so high? ... read more here

Islamic & Middle East Finance:

1. A very good introductory article on Sukuks, as the 'Islamic' version of bonds are currently known. If you read between the lines a bit, you can see the major fault-lines between the various camps on the acceptability of these instruments. The article is also novel because it speaks from the perspective of the issuer, not the broker, and so is somewhat free of advertorial baggage ... read more here


1. Will this mining project get approval to move a quarter of a town in Quebec? ... read more here

2. The Founder of Infosys Technologies shares the best advice he ever got ... read more here

3. Vermont towns vote to arrest both the President and VP of the US ... read more here

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