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.
On-Topic: Anything that good hackers would find interesting. That includes more than hacking and startups. If you had to reduce it to a sentence, the answer might be: anything that gratifies one's intellectual curiosity
Its quite interesting. I'm a hacker, and I'd really rather not invest my money in things I find morally objectionable, such as arms and tobacco. So this is indeed a great article.
"anything that's interesting" was already mentioned, but even ignoring that I don't understand your question. The article is about businesses following certain rules that have to act in interesting ways, and how that plays out with financing. That's right at the core of HN!
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?
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.
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.
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.
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.
It's driven by the intelligence agencies and large corporations looking to make billions off of pain, suffering and destruction. It's the same as it has always been! It's just another imperial disaster that human history is replete with.
Could you please identify the PR for me? I'm genuinely intrigued: all I see is an observation that different kind of bank has an audience outside of its intended audience, an explanation of how it operates differently, and criticism that it is not as different as it makes itself out to be.
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.
“Sin stock” is a commonly-used phrase in finance and does not imply an ethical opinion on the topic by the user of the term, merely that ethical opinions are often held on the topic by the public/investors at large.
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.
If I take all my money to an ethical (for whatever definition of ethical) institution, or I nominate an ethical profile with my current institution, the same amount of money is doing the same thing, no?
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.
These banks are UK banks that required by UK banking laws to know their customers (KYC [0]) and follow all applicable anti-money laundering laws. Every journalist in every news organization, mainstream or alternative, would love to break that sort of news if it were true.
Most of them, if not all, have links with the middle East or other muslim countries. Either they are subsidiaries of middle eastern banks, or were funded by middle eastern investors.
As a Westerner and an atheist, ethics to me is staying far away from these organisations.
I respect your choice, and I sincerely hope you treat the Western institutions that behave as reprehensibly as some Middle Eastern ones in a similar fashion.
I'm quite content with investing in the Middle East and Pakistan over the 'tobacco guys'. One group has been responsible for wilfully murdering hundreds of thousands of innocent people, including children, for decades. The other group is just likely to follow a religion I'm not a member of ..
There is enough bad to go around: Saudi Arabia and Phillip-Morris have both done things worthy of disrepute.
I don’t know if these banks are public, but maybe it’s possible to find out who their investors are? That information has to be registered with the UK government, and possibly also with the EU.
You've taken this thread not only off topic, but into national and religious flamewar. That's exactly what we don't want here, and we ban accounts that do it, so please review https://news.ycombinator.com/newsguidelines.html and don't post like this again.
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.
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.
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.
Perhaps there just isn't enough of a market for halal beef fat to make it worth the while of the carcass processing plants. They might sell it to be mixed with other beef fat.
This muslim chippy owner just told me that halal chippies never use beef dripping, when I asked about what oil they were using.
But as you say, it may not be because beef dripping as such is haram, but rather that the beef dripping that is available and used at traditional English chippies is not.
Honestly, I don't know why. I still look out for the halal sign on chippies, but I've also become better at telling just by the smell.
That's not a reason to be a fan. It's much unhealthier. Unless they are changing out the vegetable oil every day then it carries a much bigger cancer risk (due to aldehydes).
It is a reason to be fan if you are concerned about animal rights and the environmental impact of animal husbandry.
But, yes, in terms of personal health vegetable oil might not be better in any way. I know very little about that, and I have no reason to doubt your claim.
Depends where in the UK you are. I guess fish patties prevalent, but in East Yorkshire potato patties with sage are also common. They're really delicious!
You're probably right that cows are not killed mainly for their tallow. Yet, let me try to illustrate why this can be off putting anyway (not trying to flame troll, but just to politely answer your comment): If your cat (or dog, or horse, etc) died in a traffic accident, would you cook a meal from it, even if it was not killed for that purpose? Some people respect the rights of all animals to the degree that they refuse to consider them as food; just like we do with our animal pets and other humans (even the humans we don't like, if any).
Yeah, some actual growth numbers and customer numbers would have been nice, but I don't see The Economist overselling the popularity at all; instead, I just see them saying that it is growing (based on my reading of the first paragraph).
I agree, actual figures would help a lot. The cynic in me suspects their absence is because they don't support the hypothesis.
The claim that halal restaurants have an "almost religious following" among non-Muslims raises my eyebrows almost as much as the claims that e.g. there are "no-go areas" in Muslim parts of Birmingham.
I've lived in various parts of the UK all my life, I've been involved in Muslim communities and I've been to a lot of restaurants, both halal and otherwise. Basically the only reason a restaurant will advertise its halal status is to indicate this fact to Muslims. It might be the case that e.g. Lebanese or Indian cuisine is popular among non-Muslim Brits, but that's because of the taste of the food. If anything, there are ethical concerns about halal meat in my peer groups due to the controversies over stunning, and undercover videos showing cruelty in some halal slaughterhouses.
Honestly, the first paragraph reads to me like a string of inflated claims that's been shivved in there to exaggerate the significance of the article's content.
I think the point was that it's "ethnic food from somewhere in southern Asia that's further west than Myanmar or so" not that it conforms to any particular religious requirement.
It's not even that! It's only that so-called "Indian" restaurants in the UK are halal more often than average. From my understanding most dishes you get in those restaurants in the UK are different to what you would actually get served anywhere in south-east Asia.
I wouldn’t say that that’s the only reason either. Even if a non-Muslim Indian does set up an Indian restaurant, they have a high chance of attracting recurring customers that happen to be Muslims that observe a keeping a halal diet.
My experience is limited, but in America I've seen a few Muslim run restaurants use the word halal in their name, and have heard the term being used similarly to "Chinese food." The author may come from where that happens, and is referring to things like Pakistani cuisine.
That's the argument of Tarek El Diwany. From the second last paragraph of the article:
Some purists dislike the way modern sharia finance is run. Tarek El Diwany, a consultant, says banks are devising loopholes to sell nominally sharia-compliant products that are essentially the same as any other. For 1,400 years Islamic finance has been based on mutual ownership and profit-sharing, he says. But most sharia deposits return a specified rate similar to interest, not a share of actual profits earned. He describes it as “blank-faced copy-catting”.
There could be some real differences between conventional and Sharia-based lending, but, no sarcasm, banks are great at moving around risks in ways non-finance people can hardly imagine and it would be a trivial exercise for them to move the chips around to make the Sharia stuff merely appear to be Sharia while still being conventional, using the mass of conventional investments as raw material, in a way that also is set up so it works 99% of the time but will in some manner catastrophically fail in a Black Swan [1] event because of the games they played with moving risks around until even their own computers don't really understand it anymore.
[1]: Though as Taleb says, is it really a "Black Swan" when it was really quite predictable all along, if you just reject their statistical framework and use something with more realistic fat tails?
It’s definitely possible, but the sharia bank would also have a contractual obligation to share in the loss. For something like a mortgage on a home, the title would belong to the sharia bank until the loan was paid off. Banking becomes extremely conservative in state of affairs.
In theory, strict rules like these should be extremely hard to game; in practice, banks and other financial institutions are a little too creative.
Seems like they need to have some inspector-scholars verify that there are no haram banking practices going on.
From my perspective, a "sharia bank" is an oxymoron. Muslims should be exclusively patronizing "sharia credit unions". Professional bankers are too clever by far to be obeying the spirit of the Muslim business laws. If there were doing it correctly, they would have zero non-Muslim customers, because sharia banking is fundamentally uncompetitive with non-Muslim banking in such a way that even academic macro-economists can prove it.
Nothing stops anyone from being against arms, tobacco, alcohol, and any oppression in Middle East. If you are trying to say that sharia and the Middle East are somehow equivalent or one is a subset of the other, then I disagree.
>THE HALAL restaurants established by Muslim migrants in Britain quickly inspired an almost religious following among non-believers.
I think some people (not massive numbers, admittedly) avoid Halal restaurants/meat because the method of slaughter is less humane and doesn't typically involve stunning the animal first.
From my understanding, stunning is still done in the West for producing halal meat- you just have to be careful not to kill the animal, so usually lower-level shocks are used.
sharia
/ʃəˈriːə/Submit
noun
Islamic canonical law based on the teachings of the Koran and the traditions of the Prophet (Hadith and Sunna), prescribing both religious and secular duties and sometimes retributive penalties for lawbreaking. It has generally been supplemented by legislation adapted to the conditions of the day, though the manner in which it should be applied in modern states is a subject of dispute between Muslim traditionalists and reformists.
- more ethical? or just different cultural values?
i won't get all excited just because they claim not to invest in guns etc, - sharia law doesnt allow women to go to school or drive a car... do you think this banks maybe also enforce such laws in their banking ideology? ....
> sharia law doesnt allow women to go to school or drive a car.
The prophet Mohamed said : "Seeking knowledge is an obligation upon every Muslim".
there's another hadith that I wanted to post but I couldn't remember it, where the prophet talks about a time a couple of years after him where there will be peace to the point woman can travel a cross the desert on a camel alone, and this truly happened, if Islam had problem with woman traveling alone, he wouldn't mention this, there's a lot of things that people associate with Islam that has nothing to do with Islam, there's plenty of Muslim countries, and they are all different.
> - sharia law doesnt allow women to go to school or drive a car...
You've been listening to a lot of propaganda to believe that. The only country that bans women from driving is Saudi Arabia, and that is far from the only country that applies sharia. Sure, highly conservative Muslims will seek to deny women those rights, but that's based on the same kind of distorted readings as SCOTUS once claiming that African Americans could not be US citizens.
I said I like the idea of ethical banking. I didn't say I agreed that Sharia banking is ethical. My jury is out on that as I haven't looked into it much. Your argument isn't very persuasive anyway: what some countries' interpretation of Sharia law is, is likely to differ a lot from what a bank practices in the UK.
I don't see anything more or less ethical here. The bank has to get a return. Whether it does so through interest or a "share of the profit" is more a matter of risk and transaction cost. It's hard for me to believe that what it costs to maintain a knowledge of a borrower's profit and then collect from that is really competitive.
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
That’s kind of the point of low interest rates isn’t it? The idea is that this encourages money to move around the economy instead of sitting there accumulating interest.
During QE, the Federal Reserve bought huge amounts of toxic assets from the big banks, and flooded the banks' accounts with new money, but then paid the banks a higher rate of interest NOT to lend that money out (at least this is my understanding). That's a contributor to the slow "recovery" (which is really just slowly reinflating the credit bubble). The reason they would do this is to prevent high inflation from the massive increase in the monetary base. Effectively, QE just made the big banks balance sheets show "Red == Black" by having the Fed take the red onto itself.
So, normally you would be correct about the point of low interest, but in this new world, post-QE, low interest rates are really just there to keep the economy limping along by hiding the massive structural issues, instead of encouraging credit growth.
That's why the whole narrative about the Fed heroically saving the economy after 2008 crisis is pretty much nonsense, IMO. The problem still exists and it's worse than ever. Who knows what the next can-kicking solution will be, if there even is one?
But I already pay them extra for that and they do work and profit with my money. You think your bank is just doing nothing with your money? I think its not too much to ask to want to at least get interest matching inflation. But go defend the noble banks why not.
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.
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.
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]
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.
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".
Mind you we have been living under Jewish finance for generations and that hasn't been going that well! Usury was a sin in the Catholic Church, iirc.
Which religion has stable, gold backed money and low taxes? I'd like to join that one.
I was going to find out if the Lakota tribe would adopt me and allow me to live with them as part of a peaceful, sovereign nation within North America. Also, the Amish are definitely on to something with how they live mostly outside of the corrupt, warmongering, inflationary system the US has.
I will say for the record that bankers being bankers, I doubt very much any type of financing will really ever be any different than any other. There's all these Type A guys out there with one thought in their brains--to shear the sheep as hard and as often as possible.
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.
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...
In practice these prohibitions weren't too effective because people always found loopholes and ways of charging interest without calling it interest.
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.
People forget that the "invisible hand of the market" assumes perfect or at least reasonably accurate understanding of the risks, benefits, and outcomes. Take that info away and you inevitably have snake-oil salesmen and the Housing Bubble (a product of modern financial products)
See also: "Externalities in Economies with Imperfect Information and Incomplete Markets" by Stiglitz
I must say I once read a prospectus for a sharia financed product. No "interest", only "percentual administrative fees".
Wait, what ?
Other than that, they're essentially "pulling an uber". They're significantly riskier investment schemes that most institutions have had really bad experiences with a few decades ago. They're ignoring regulations that exist for good reason, and regulators seem to let them for some reason (for now).
If you want to do that, great. Risky investments are most often the mispriced ones (cheaper then they ought to be). But please, do it yourself, figure out the risks, and don't let some institution do it for you with the promise of cover or ... or you will regret it.
So, I've read some literature, and my understanding is that there are ways to structure it, just that they can be subtle and slightly difficult to understand.
Suppose you want to buy a house. The idea is that, you'll agree on a price of the house, which is greater than current market value. Suppose listing price is 100K. You agree on 150K with the lender. Each payment is expected to pay as part of 150K.
This however creates two problem. Lender's profitability depends on accurately determining the future price. Either lender or applicant can suffer from imprecise price.
An alternative I've seen is, the notion of rent. Suppose, at closing the lender buys the house for you, with the intention that you'll reside there and pay market rent.
Suppose the price of house is 100K, and rent is 1000/month.
Now suppose, there's no down payment, you'll have to pay above 1000/month to start building equity.
After first payment of 1100, you have equity of 100$, while the lender has 99.9K. So, when the 2nd month payment goes, you can get to keep 0.1% of rent as equity OR use that to build more. Over time, you'll eventually pay it off. This part likens it to interest, except because rents are market based, they don't fly with borrowers.
So lenders have come up with "Administrative" fees, which I equally think are BS. Hence traditional mortgage still are more accessible.
I would love it if there was a rational product out there.
That "rational product" you're looking for is a traditional loan with interest—which in the end is just a way of renting money. All these other arrangements are just attempts to mimic the utility and function of a loan while avoiding the term "interest" in order to technically comply with the bare letter of various religious restrictions. If you aren't bound by those rules then there is no point in taking on all that extra complexity.
Interest is just another term for the time value of money. The time value of money is a fact of life as long as there are opportunities in the world to invest in something that is productive.
Therein lies the problem: you can't explicitly charge interest, but you are still subject to the time value of money.
The only option is to describe/disguise the time value of money in terms that don't bring up interest. That is a juggling act because interest is really the simplest (imho) way of understanding it.
Basically, you're right, but thinking thinking in terms of "money" is missing a more general point. A loan doesn't have to involve money at all. There are various reasons why the price of credit isn't zero.
One reason is that most humans have a "preference for the present", i.e. given the choice they would rather have something now that the same thing at some point in the future. As a result, most people are not willing to give something away now, unless they have an expectation that they will get something more valuable in the future.
Another reason is that there is always risk involved in lending. The borrower might not be able to fulfil their obligations, whereas the lender might find a better use for whatever it is they're lending. Therefore, it generally is better to keep something, than to lend it at an interest rate of zero.
>Even as a muslim myself, I feel like sharia finance is a step backwards.
Are you an actual muslim or just by name. Don't invalidate your eemaan by saying Islam is inferior to man-made system. Even if you don't like the mufti and scholars, they've done the ijtihad based on the Quran and Sunnah for the best of muslims, and they are the responsible ones, not you.
I don't know your intent but,
Be EXTRA careful with your words.
Remember hadeeth where at the end of times, people are muslims in the day but kaafirs in the evening.
OP (Mengkudulangsat ) expressed problems with sharia finance in terms of investing fundamentals (risk, complexity, etc.).
stealthcat objected to OP raising these points and appealed to authority (variously, Islamic leaders/theologians, foundational religious texts, and God). stealthcat questioned OP's intentions and religious commitment, implying he might not be a Real Muslim(TM) and exhorting him to defend orthodox teachings.
To stealthcat, I would challenge him to consider that many religions are plagued by convoluted rules, to which people come up with hokey workarounds. Orthodox Jews have sabbat elevators; Amish use pay telephones; Sikhs have kirpans (knives) that are impossible to unholster. projectramo's comment about sharia finance obfuscating the principle of interest seems very on-point here.
Is this an accusation of takfir? Do you have evidence for this accusation? Or is it just that you find it easier to impugn a brother Muslim's practice than to argue the facts? (I'll bet you're really fun at parties.)
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.
>> 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.
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]
The boom and bust cycle has been driven primarily by land speculation since classical antiquity. The ability of banks to use their credit creation powers to fuel real estate bubbles through mortgage lending can be halted using a frequently reassessed land value tax and land value increment tax. In the early 1900s Germany completely eliminated land speculation in the colony of Kiautschou using a 6% annual tax on assessed unimproved value of land, of what lots would sell for if cleared of improvements, and a 33% land value increment tax on increases in assessed land value. This allowed the colony to develop rapidly and continuously without any period of recession while running a budget surplus.
I imagine that would be because it takes land prices and shoots them through the floor. This is rather unpopular among people who own land, which in the US is a large portion of the population.
Also if you do that the prices of houses go down so if people can’t pay their mortgage and the house is foreclosed on the bank doesn’t get their money, which can easily go out of control and cause a crisis.
We have a term for this, it is called “equity financing.” The alternative is called “debt financing.” Islamic orthodoxy effectively banishes debt financing (unless done at zero interest), while offering equity financing as the solution. But it is not a solution at all.
Suppose that I need to purchase a vehicle, in order to drive to work every day (let’s say I live in a country where public transportation is non-existent, e.g. Saudi Arabia). Without a vehicle, I cannot earn a living. However, to purchase a car I need a large amount of cash, which most people don’t have. The normal solution is debt, i.e. borrow money to finance the purchase of a vehicle, and pay back the lender over time with interest. Everyone wins.
But ... Islam forbids such a transaction. Under true Sharia law, I need to either find a lender who is willing to offer me a zero interest loan so I can buy a car, or I need to find someone who is willing to enter into a “profit/loss sharing” arrangement (whatever that means).
Now nobody is willing to lend money for free (especially not oil rich Islamists who oppose non-Sharia Finance). There are a couple reasons why nobody lends money for free (time value of money, credit risk), but it should be quite obvious that no one will lend me money at zero interest to buy a car.
What about “profit/loss sharing?” Well, I do use the car to earn money (by driving to work). It would be wonderful if we could all pay x% of my monthly salary as a car payment. That means if I earn less, I pay less for my car. If I lose my job, I don’t have to pay anything. If I earn more, I pay more for car payments (for the same car). This has some very obvious problems. It might be good for some consumers who have a modest income, but wealthy consumers would not like this. Moreover, no lender would ever be willing to enter into such an arrangement. It’s completely unworkable. You can say the same for other personal loans, like mortgages and student loans.
So what actually happens in “Sharia Compliant Banking” is that Islamic banks lend money at a fixed rate of interest (just like conventional banks) but they disguise the interest using combinations of legal instruments. Christians in medieval Europe did something very similar (see https://en.m.wikipedia.org/wiki/Contractum_trinius). One consequence of this legal gymnastics is that Islamic bank consumers have fewer legal protections. For example, an “Islamic mortgage” requires you to hand over title of your house to the Islamic bank. This is different and less advantageous to a conventional mortgage where you retain the title to your property.
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.
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[ 1.9 ms ] story [ 222 ms ] threadThis is in the FAQ at https://news.ycombinator.com/newsfaq.html and there's more explanation here:
https://news.ycombinator.com/item?id=10178989
https://hn.algolia.com/?sort=byDate&dateRange=all&type=comme...
On-Topic: Anything that good hackers would find interesting. That includes more than hacking and startups. If you had to reduce it to a sentence, the answer might be: anything that gratifies one's intellectual curiosity
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?
> 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.
Edit: there -> their
https://www.economist.com/the-economist-explains/2013/09/04/...
This very neutral way of writing is telling.
https://www.investopedia.com/terms/s/sinfulstock.asp
If I take all my money to an ethical (for whatever definition of ethical) institution, or I nominate an ethical profile with my current institution, the same amount of money is doing the same thing, no?
Maybe its not a very big thing in the USA. Ethical Banking is pretty big in the UK.
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.
You're trading the tobacco industry for the guys in the middle east and Pakistan...
[0] https://en.wikipedia.org/wiki/Know_your_customer
As a Westerner and an atheist, ethics to me is staying far away from these organisations.
https://www.rollingstone.com/politics/politics-news/outrageo...
I don’t know if these banks are public, but maybe it’s possible to find out who their investors are? That information has to be registered with the UK government, and possibly also with the EU.
>THE HALAL restaurants established by Muslim migrants in Britain quickly inspired an almost religious following among non-believers.
tl;dr Vegetable oil ticks boxes for multiple sets of clientele.
But as you say, it may not be because beef dripping as such is haram, but rather that the beef dripping that is available and used at traditional English chippies is not.
Honestly, I don't know why. I still look out for the halal sign on chippies, but I've also become better at telling just by the smell.
But, yes, in terms of personal health vegetable oil might not be better in any way. I know very little about that, and I have no reason to doubt your claim.
You're probably right that cows are not killed mainly for their tallow. Yet, let me try to illustrate why this can be off putting anyway (not trying to flame troll, but just to politely answer your comment): If your cat (or dog, or horse, etc) died in a traffic accident, would you cook a meal from it, even if it was not killed for that purpose? Some people respect the rights of all animals to the degree that they refuse to consider them as food; just like we do with our animal pets and other humans (even the humans we don't like, if any).
Edit: fix typo
The claim that halal restaurants have an "almost religious following" among non-Muslims raises my eyebrows almost as much as the claims that e.g. there are "no-go areas" in Muslim parts of Birmingham.
I've lived in various parts of the UK all my life, I've been involved in Muslim communities and I've been to a lot of restaurants, both halal and otherwise. Basically the only reason a restaurant will advertise its halal status is to indicate this fact to Muslims. It might be the case that e.g. Lebanese or Indian cuisine is popular among non-Muslim Brits, but that's because of the taste of the food. If anything, there are ethical concerns about halal meat in my peer groups due to the controversies over stunning, and undercover videos showing cruelty in some halal slaughterhouses.
Honestly, the first paragraph reads to me like a string of inflated claims that's been shivved in there to exaggerate the significance of the article's content.
Umm.. Majority of indians are hindus not muslims.
I wouldn’t say that that’s the only reason either. Even if a non-Muslim Indian does set up an Indian restaurant, they have a high chance of attracting recurring customers that happen to be Muslims that observe a keeping a halal diet.
What they do is a lot of mental gymnastics to avoid calling what you pay for a loan 'interest'.
Some purists dislike the way modern sharia finance is run. Tarek El Diwany, a consultant, says banks are devising loopholes to sell nominally sharia-compliant products that are essentially the same as any other. For 1,400 years Islamic finance has been based on mutual ownership and profit-sharing, he says. But most sharia deposits return a specified rate similar to interest, not a share of actual profits earned. He describes it as “blank-faced copy-catting”.
But Tarek El Diwany repeats himself.
There could be some real differences between conventional and Sharia-based lending, but, no sarcasm, banks are great at moving around risks in ways non-finance people can hardly imagine and it would be a trivial exercise for them to move the chips around to make the Sharia stuff merely appear to be Sharia while still being conventional, using the mass of conventional investments as raw material, in a way that also is set up so it works 99% of the time but will in some manner catastrophically fail in a Black Swan [1] event because of the games they played with moving risks around until even their own computers don't really understand it anymore.
[1]: Though as Taleb says, is it really a "Black Swan" when it was really quite predictable all along, if you just reject their statistical framework and use something with more realistic fat tails?
In theory, strict rules like these should be extremely hard to game; in practice, banks and other financial institutions are a little too creative.
From my perspective, a "sharia bank" is an oxymoron. Muslims should be exclusively patronizing "sharia credit unions". Professional bankers are too clever by far to be obeying the spirit of the Muslim business laws. If there were doing it correctly, they would have zero non-Muslim customers, because sharia banking is fundamentally uncompetitive with non-Muslim banking in such a way that even academic macro-economists can prove it.
http://www.kreatoczest.com/kz_publishing_ourtitles-pwi.htm
http://www.kreatoczest.com/kz_publishing_ourtitles-wawaid.ht...
The news recently should make clear how more ethical than the tobacco industry it is... not.
Who said anything about Shariah finance being tied to the Middle East?
I think some people (not massive numbers, admittedly) avoid Halal restaurants/meat because the method of slaughter is less humane and doesn't typically involve stunning the animal first.
Mind you, kosher slaughter is no better.
- more ethical? or just different cultural values? i won't get all excited just because they claim not to invest in guns etc, - sharia law doesnt allow women to go to school or drive a car... do you think this banks maybe also enforce such laws in their banking ideology? ....
The prophet Mohamed said : "Seeking knowledge is an obligation upon every Muslim".
there's another hadith that I wanted to post but I couldn't remember it, where the prophet talks about a time a couple of years after him where there will be peace to the point woman can travel a cross the desert on a camel alone, and this truly happened, if Islam had problem with woman traveling alone, he wouldn't mention this, there's a lot of things that people associate with Islam that has nothing to do with Islam, there's plenty of Muslim countries, and they are all different.
You've been listening to a lot of propaganda to believe that. The only country that bans women from driving is Saudi Arabia, and that is far from the only country that applies sharia. Sure, highly conservative Muslims will seek to deny women those rights, but that's based on the same kind of distorted readings as SCOTUS once claiming that African Americans could not be US citizens.
So, normally you would be correct about the point of low interest, but in this new world, post-QE, low interest rates are really just there to keep the economy limping along by hiding the massive structural issues, instead of encouraging credit growth.
That's why the whole narrative about the Fed heroically saving the economy after 2008 crisis is pretty much nonsense, IMO. The problem still exists and it's worse than ever. Who knows what the next can-kicking solution will be, if there even is one?
If anything the amazing thing was that people would pay us to look after our money in the first place!
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.
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
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
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.
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".
Which religion has stable, gold backed money and low taxes? I'd like to join that one.
I was going to find out if the Lakota tribe would adopt me and allow me to live with them as part of a peaceful, sovereign nation within North America. Also, the Amish are definitely on to something with how they live mostly outside of the corrupt, warmongering, inflationary system the US has.
I will say for the record that bankers being bankers, I doubt very much any type of financing will really ever be any different than any other. There's all these Type A guys out there with one thought in their brains--to shear the sheep as hard and as often as possible.
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.
Some cajas, not all.
The broken cajas typically 'bribed/rewarded' policitians offering them vacancies in their boards of directors.
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.
People forget that the "invisible hand of the market" assumes perfect or at least reasonably accurate understanding of the risks, benefits, and outcomes. Take that info away and you inevitably have snake-oil salesmen and the Housing Bubble (a product of modern financial products)
See also: "Externalities in Economies with Imperfect Information and Incomplete Markets" by Stiglitz
Wait, what ?
Other than that, they're essentially "pulling an uber". They're significantly riskier investment schemes that most institutions have had really bad experiences with a few decades ago. They're ignoring regulations that exist for good reason, and regulators seem to let them for some reason (for now).
If you want to do that, great. Risky investments are most often the mispriced ones (cheaper then they ought to be). But please, do it yourself, figure out the risks, and don't let some institution do it for you with the promise of cover or ... or you will regret it.
Suppose you want to buy a house. The idea is that, you'll agree on a price of the house, which is greater than current market value. Suppose listing price is 100K. You agree on 150K with the lender. Each payment is expected to pay as part of 150K.
This however creates two problem. Lender's profitability depends on accurately determining the future price. Either lender or applicant can suffer from imprecise price.
An alternative I've seen is, the notion of rent. Suppose, at closing the lender buys the house for you, with the intention that you'll reside there and pay market rent.
Suppose the price of house is 100K, and rent is 1000/month. Now suppose, there's no down payment, you'll have to pay above 1000/month to start building equity.
After first payment of 1100, you have equity of 100$, while the lender has 99.9K. So, when the 2nd month payment goes, you can get to keep 0.1% of rent as equity OR use that to build more. Over time, you'll eventually pay it off. This part likens it to interest, except because rents are market based, they don't fly with borrowers.
So lenders have come up with "Administrative" fees, which I equally think are BS. Hence traditional mortgage still are more accessible.
I would love it if there was a rational product out there.
Interest is just another term for the time value of money. The time value of money is a fact of life as long as there are opportunities in the world to invest in something that is productive.
Therein lies the problem: you can't explicitly charge interest, but you are still subject to the time value of money.
The only option is to describe/disguise the time value of money in terms that don't bring up interest. That is a juggling act because interest is really the simplest (imho) way of understanding it.
So you get a lot of obfuscation.
One reason is that most humans have a "preference for the present", i.e. given the choice they would rather have something now that the same thing at some point in the future. As a result, most people are not willing to give something away now, unless they have an expectation that they will get something more valuable in the future.
Another reason is that there is always risk involved in lending. The borrower might not be able to fulfil their obligations, whereas the lender might find a better use for whatever it is they're lending. Therefore, it generally is better to keep something, than to lend it at an interest rate of zero.
Are you an actual muslim or just by name. Don't invalidate your eemaan by saying Islam is inferior to man-made system. Even if you don't like the mufti and scholars, they've done the ijtihad based on the Quran and Sunnah for the best of muslims, and they are the responsible ones, not you.
I don't know your intent but, Be EXTRA careful with your words.
Remember hadeeth where at the end of times, people are muslims in the day but kaafirs in the evening.
Your choice of words matter.
Neat, I've never seen a No True Muslim fallacy before.
stealthcat objected to OP raising these points and appealed to authority (variously, Islamic leaders/theologians, foundational religious texts, and God). stealthcat questioned OP's intentions and religious commitment, implying he might not be a Real Muslim(TM) and exhorting him to defend orthodox teachings.
To stealthcat, I would challenge him to consider that many religions are plagued by convoluted rules, to which people come up with hokey workarounds. Orthodox Jews have sabbat elevators; Amish use pay telephones; Sikhs have kirpans (knives) that are impossible to unholster. projectramo's comment about sharia finance obfuscating the principle of interest seems very on-point here.
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
N.B. I apologize for any typos since I typed/tapped this out on my phone.
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.
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:
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
We have a term for this, it is called “equity financing.” The alternative is called “debt financing.” Islamic orthodoxy effectively banishes debt financing (unless done at zero interest), while offering equity financing as the solution. But it is not a solution at all.
Suppose that I need to purchase a vehicle, in order to drive to work every day (let’s say I live in a country where public transportation is non-existent, e.g. Saudi Arabia). Without a vehicle, I cannot earn a living. However, to purchase a car I need a large amount of cash, which most people don’t have. The normal solution is debt, i.e. borrow money to finance the purchase of a vehicle, and pay back the lender over time with interest. Everyone wins.
But ... Islam forbids such a transaction. Under true Sharia law, I need to either find a lender who is willing to offer me a zero interest loan so I can buy a car, or I need to find someone who is willing to enter into a “profit/loss sharing” arrangement (whatever that means).
Now nobody is willing to lend money for free (especially not oil rich Islamists who oppose non-Sharia Finance). There are a couple reasons why nobody lends money for free (time value of money, credit risk), but it should be quite obvious that no one will lend me money at zero interest to buy a car.
What about “profit/loss sharing?” Well, I do use the car to earn money (by driving to work). It would be wonderful if we could all pay x% of my monthly salary as a car payment. That means if I earn less, I pay less for my car. If I lose my job, I don’t have to pay anything. If I earn more, I pay more for car payments (for the same car). This has some very obvious problems. It might be good for some consumers who have a modest income, but wealthy consumers would not like this. Moreover, no lender would ever be willing to enter into such an arrangement. It’s completely unworkable. You can say the same for other personal loans, like mortgages and student loans.
So what actually happens in “Sharia Compliant Banking” is that Islamic banks lend money at a fixed rate of interest (just like conventional banks) but they disguise the interest using combinations of legal instruments. Christians in medieval Europe did something very similar (see https://en.m.wikipedia.org/wiki/Contractum_trinius). One consequence of this legal gymnastics is that Islamic bank consumers have fewer legal protections. For example, an “Islamic mortgage” requires you to hand over title of your house to the Islamic bank. This is different and less advantageous to a conventional mortgage where you retain the title to your property.