Islamic Finance System ‘Can Replace Capitalism’

By Patrick Goodenough | October 13, 2008 | 4:48am EDT

Muslims should seize the opportunity provided by the global financial crisis to build a system based on Islamic principles, an influential Sunni cleric said on Sunday.

( – Muslims should seize the opportunity provided by the global financial crisis to build a system based on Islamic principles, an influential Sunni cleric said on Sunday.
“We have our own economic philosophy and system which others do not have,” Sheikh Yusuf al-Qaradawi told a conference in Doha, Qatar.
“The collapse of the capitalist system, which is based on usury and securities rather than commodities in markets, shows us that it is undergoing a crisis and that our integrated Islamic philosophy – if properly understood and applied – can replace the Western capitalism,” Qatar’s Gulf Times quoted him as saying.
Qaradawi, an Egyptian cleric, heads an international body of Islamic scholars and is considered a spiritual leader of the Muslim Brotherhood. He has a popular program on Al-Jazeera television and supervises Islam Online, among the most-visited Islamic sites on the Internet.
The Islamist cleric told the conference that Muslims have “all the means of power,” pointing to the oil wealth enjoyed by many Islamic nations.
“We have an abundance of economic and human resources,” he said. “If we know how to make the best use of the opportunity, Muslim countries can build a new system among themselves.”
Qaradawi was giving an opening speech at a three-day conference on the theme of presumed Israeli threats to the “Islamic identity” of Jerusalem, location of the al-Aqsa mosque, Islam’s third most revered site.
Participants included senior Sunni and Shi’ite figures, including Hamas head Khaled Meshaal and former Iranian foreign minister Ali Akbar Velayati, the subject of an Interpol "wanted"  notice for his alleged role in a 1994 terrorist bombing in Argentina.
Financial systems based on the principles of Islamic law (shari’a) have been growing in popularity in the Islamic world and increasingly among Muslims in western societies too.
Shari’a forbids usury – the collection and payment of interest – and also shuns excessive risk and heavy borrowing, thus helping to insulate parties from overexposure to risk.
“Shari’a-compliant” banking and financial products aim to avoid companies that are heavily indebted or have links to products or conduct frowned upon in Islam, such as gambling, pork, alcohol and pornography.
Despite the Koranic prohibition on usury, loopholes do exist. A Muslim may earn a profit, for instance, by selling an item for more than he paid for it, provided the two transactions are kept separate. A shari’a-compliant mortgage may involve a bank buying the property on behalf of the customer, who then pays off the principal loan along with “rent” or a “fee” for using the property until it finally transfers into his name when the loan amount is fully settled.
A seminar on Islamic finance in Hong Kong earlier this year heard that the value of assets of Islamic financial institutions worldwide has grown more than 40-fold since 1982, and that global business today, including banking assets and funds under management, is estimated at between $700 billion and $1 trillion.
The seminar was co-organized by the Islamic Financial Services Board, a Malaysia-based body comprising 175 regulatory and supervisory authorities, inter-governmental organizations and firms in 29 countries.
Critics argue that Western institutions getting involved in shari’a-complaint finance could unwittingly be financing radical Islamist networks, racketeering and even terrorism.
‘Divine punishment’
Booming Islamic finance and restrictions on doing business with heavily indebted institutions do not mean markets in the Middle East are not being affected by the current turmoil.
The Jeddah-based Islamic Development Bank, a body falling under the Organization of the Islamic Conference (OIC), has called an urgent meeting of Islamic banks next Saturday to discuss the global financial crisis and its impact.
Most of the region’s markets have suffered in recent weeks, with those in Egypt, Saudi Arabia and the United Arab Emirates among the hardest hit.
The UAE on Sunday became the first country in the oil-rich Gulf to announce that it would guarantee deposits and savings.
But the central bank of Saudi Arabia, the world’s biggest oil exporter, said there was no shortage in liquidity and no need to provide emergency funds to banks in the kingdom.
Saudi Finance Minister Ibrahim Al Assaf attributed the heavy losses in the Saudi stock market, the Arab world’s biggest, to unjustified fears, but acknowledged that Saudi Arabia could be indirectly affected by the global crisis.
A sharp drop in crude oil prices also will affect the region. Crude closed in New York on Friday below 80 dollars a barrel, the lowest level since September 2007 and down from a peak of more than $147 a barrel in July.
Responding to the falling prices, Iran and other OPEC members are pushing for a cut in oil output. The Fars news agency quoted Iranian Oil Minister Gholam Hossein Nozari as saying that anything under $100 a barrel was too low.
The cartel is due to discuss the impact the financial crisis is having on the oil market at a meeting in Vienna on November 18.
Earlier this month, senior Iranian cleric Ahmad Jannati, secretary of the powerful Guardian Council, said in a sermon at Tehran University that Muslims were rejoicing over America’s financial woes.
“They are experiencing divine punishment. We are happy over that,” he said. “The more they become unhappy, the happier we get.”
In an online poll on Iran’s state-funded Press TV Monday, 23 percent of respondents asked their view of the Bush administration’s financial market bailout plan selected an option reading, “Capitalism has failed and no plan will save the U.S. economy.”
Sixty-nine percent said the plan was “fundamentally flawed and would only serve the interests of Wall Street Czars,” and seven percent said it would “save the U.S. economy.” Press TV did not say how many responses were received.

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