Islamic Finance or Financing Islamism?

by Alex Alexiev

Imagine for a moment that we’re back in the mid-1930s with the Nazis triumphant in Germany, a slew of fascist movements active throughout the continent and appeasement increasingly the policy du jour in much of what was left of democratic Europe. Imagine further that in that foreboding atmosphere, Berlin announced a new finance doctrine based on the immutable laws of national-socialist ideology and then proceeded to  float the first Mein Kampf-compliant bond to the great acclaim of the financial markets. Indeed, in short order, Wall Street inaugurated a Nazi mutual fund and a Nazi funds index, as the world’s banks traipsed over each other to offer Nazi finance products and the prime minister of Great Britain voiced his determination to make London the international center of Nazi finance. Surely a preposterous scenario? Or is it?

Now fast forward to the present and replace Nazi with Islamic and Mein Kampf with shariah and the preposterous scenario becomes the reality of what has become known as Islamic finance today.  And a large reality it is. The Islamic finance market is reported to have reached $800 billion by mid-2007 and is growing at more than 15% per year. ¹ Islamic bond issues, called sukuk, grew by 75% to $24.5 billion in the first half of 2007 from 2006, as hundreds of banks worldwide competed to offer shariah-compliant services and investment products. Nor is Islamic finance an exclusively Muslim affair. The international financial community has jumped into the fray with relish. Most large banks now offer some Islamic services and Deutsche Bank alone has issued close to a $1 billion worth of sukuk bonds already. Not to be left behind, Wall Street features both an Islamic mutual fund and an Islamic index and more are in the works. And it’s not just private business that’s involved, as Western governments appear eager to join the rush as well. The German state of Saxony-Anhalt has already issued an Islamic bond and the United Kingdom is said to be seriously considering doing the same.  No great surprise there either, given the fact that prime-minister Gordon Brown is already on record vowing “to make Britain the gateway to Islamic finance and trade.²

A reader not familiar with this shariah would be likely to immediately question whether it is fair at all to compare the  totalitarian ideology behind the putative Nazi finance scheme conjured above to Islamic finance, which purports to be a faith-ordained way of doing business morally superior to the usual capitalist practice. And  even if shariah were far from a paragon of democracy, one might ask, why should we be concerned about Islamic finance, if all it aimed to do, after all, was make money?

There clearly are many people and institutions involved in this phenomenon, especially among its Western practitioners, that are motivated solely by the promise of quick profits offered by the sea of petro-dollar liquidity sloshing around the Middle East at present.. However, for those who invented the concept and are busily promoting it around the world, Islamic finance has very little to do with finance and everything to do with Islam. And not just any kind of Islam, but the most radical, fascist-like interpretation of the Islamic religion that has increasingly become the dominant idiom in the Muslim world. Whether it is called Islamism, Islamofascism, radical Islam or whatever, it is a hateful, millenarian ideology much like Nazism and communism, that ultimately hopes to destroy Western civilization by whatever means necessary³ Thus, far from being an innocent venture in free market capitalism, Islamic finance was conceived and is practiced as one of the key instruments of the militant Islamist movement in its struggle against the West. It behooves us to at least try to understand what Islamic finance is and what it’s not.

To do that several of the key concepts and principles invoked in Islamic finance need to be examined in some detail. First and foremost, this must include the doctrine of shari’ah itself, since every Islamic finance instrument and scheme must be shari’ah-compliant to be considered legitimate. Indeed, strict shariah adherence is the sole criterion of whether or not a given financial transaction is Islamic. Secondly, one needs to analyze exactly what Islamic finance is, how it functions and how it differs or does not from conventional finance and, last but most, we must examine and expose the methods and means through which Islamic finance serves extremism.

*Mr. Alexiev is Vice-President of Research at the Center for Security Policy.  His principle focus is on the proliferation of Islamism and the consequences attendant thereto.