I was reading Socialism’s Ignored Success: Iranian Islamic Socialism by Ramin Mazaheri, and they mentioned something that has become a common sight here too: Islamic finance.
Iran is leading in Islamic financing, with Saudi Arabia, Malaysia, the UAE and Qatar filling the rest of the Top 5 according to this report.
For those who don’t know, it’s basically finance but with Islamic principles as accorded to the Quran and various Madhhabs (schools of jurisprudence).
Some of it’s principles are (quoting Wikipedia), among others:
- Paying or charging interest. “All forms of interest are riba and hence prohibited”. Islamic rules on transactions (known as Fiqh al-Muamalat) have been created to prevent use of interest.
- Investing in businesses involved in activities that are forbidden (haraam). These include things such as selling alcohol or pork, or producing media such as gossip columns or pornography.
- Charging extra for late payment. This applies to murâbaḥah or other fixed payment financing transactions, although some authors believe late fees may be charged if they are donated to charity,or if the buyer has “deliberately refused” to make a payment.
Has any comrades read much on this?
How viable do you think is such a financial system, especially now, with renewed interest in de-dollarisation? (see what I did there?)
Can it fully live up to it’s socialistic principles in a world capitalist system?
Are you sure that there is no interest in loans at all? I can understand how this can be done with low interest, but not how you can do this with no interest. It is easy enough to stay out of haraam industries. With income from interest it is possible to for the most part not charge late fees.
Without any net income for the institution how do the workers that work for a financial institution that gives these loans get paid? Does this presume that the currency has no inflation? I don’t see this as a means for creating small businesses at all without just having the money evaporate from the institution. This kind of system makes sense if a very wealthy person is loaning to a particular person on a personal basis if they have other means
From what I understand from the scripture, the word interest itself is open to interpretation.
However what is precisely banned is still interest.
The institutions can still charge a “fee”, which some argue is just a way to circumvent the system for what is essentially a fixed interest rate. Other forms of way the bank or institution profits is through creating “debt and equity” products.
A bank can profit from reselling bought assets at a markup, or through equity participation where the venture company shares profits (and losses) with the bank. The last is through lending owned assets through deferred payments.
Some, again, are contested for violating the fundamental law of no interest. This isn’t necessarily a settled debate, but one key point is that interest shouldn’t be charged to the detriment to the lender. In a way, Islamic banking prioritises the people.
One thing to be clear is that in Islamic jurisprudence, money is defetishized - it is not treated as a commodity. It is precisely treated as it is, a medium for exchange. Islamic banking thus falls under a superstructural requirement: social welfare, religious obligations, the government’s will and not through the “magic hand of the free market”. The transaction must involve real material goods, and can’t rely on profiting from money alone (creating money from money).
Not to mention that this is all taking into account that people and institutions pay their zakat, a kind of religious obligated wealth or profit tax you could say. So the institution doesn’t necessarily have to profit from it’s lenders directly.
Again this is all with the assumption that these rules are followed exactly. Every country has it’s own rules for sharia compliance. And there are many people that would complain it is not according to Islamic principles. Which is why I asked my final question in the OP: can there be a truly coherent manifestation of Islamic banking that can combat Western financial institutions?
Also, I myself am not that knowledgeable on this topic, and this all comes from what I have nominally read, which is one of the reasons why I made this post in the first place.
I think it is a matter of the banking laws for each country. If you are in the west, I’d ask your local mosque why they do or don’t have a Sharia banking program for their perisheners. They’d have a real dialectical experience with the local context.
I think the biggest issue would be branding because most people in the west now are skeptical of the term “Sharia”, but you could call it a non usury bank or an interest free bank. Another big issues is if you don’t pay any interest on savings accounts it is harder to get people to put their money into it, thus the only people that would put their money in the bank would be ideologically motivated by political or religious ends.
If you can charge hidden fees, you can create a bank that complies with these standards but still an exploitative institution that overcharges for minor services that are usually free in western banks.
The nature of religious texts is that they were written down at one time in the past and things are different now in many ways. The new things need to be understood and ask what some prophet at some time at the past would have wanted. Multiple interpretations will always show up.
The nature is somewhat different with dialectical materialism. We can say we want these goals of a decommodified society, but looking at current trends and out-competing capitalist institutions is something you’ll need to reacon with. Which concessions you want to make will also be an internal political matter.
There is no “coherent” way to do this without upsetting someone.
“if you don’t pay any interest on savings accounts it is harder to get people to put their money into it”
Honestly most banks nowadays don’t even really offer interest on savings any more, or if they do it’s so low to be basically useless. The days when you could put your savings in a bank and have them accrue interest for you are over. The only way you get that today is by investing it into the stock market in some way or another. At least that’s the case where i live. If you’re poor you actually come out with a net loss when putting your money in the bank because they charge an “administrative fee” which is many times higher than the few meager cents of interest you’d get.
The banks are able to have their cake and eat it too. Not only do they get to rip people off with absurd interest rates on loans and on top of that get to gamble with your money and make even more profits doing that (and if they lose they get bailed out by the taxpayer), they also have stopped even pretending like you get something out of giving them your money to do all this with, because they know you have no choice. You have to use the banking system or you literally can’t function in western society, can’t even get your wages paid otherwise and you can’t pay your bills any other way.
I haven’t used these guys, but this bank in the USA has 4% annual interest for savings accounts.
And yes, in the USA, the glass stegal act repeal has been disasterous in how it works in tandem with the FDIC.
You need to compare the nominal interest rates with the rate of inflation. Because if inflation exceeds the interest rate on your deposit you are effectively losing money. It’s like having a negative interest rate. And that is still very much the case in Europe. If anything it has just gotten worse in recent times.
The US still has two advantages: one being that they have vassalized Europe and can cannibalize those economies to keep their own afloat, and the other being that they still control the dollar as the world reserve currency which allows them to keep their own inflation low at the expense of the rest of the world.
https://www.usinflationcalculator.com/inflation/current-inflation-rates/
4.9 percent in year 2023. and most banks in the USA are less than 1 percent.
I don’t know what to do with my inflated dollars. I find it hard to believe that these stock market shenanigans will continue for 40 years.
Do any of you know of a place where we can buy currency that is likely to not inflats as much as the dollars to hedge against inflation caused by de-dollarization? Because alot of dollars will be chasing alot less goods very soon.
Another big issues is if you don’t pay any interest on savings accounts it is harder to get people to put their money into it, thus the only people that would put their money in the bank would be ideologically motivated by political or religious ends.
Savings accounts do still exist in Islamic financing.
Just for an example, over here, there is a government financial institution that offers “shariah-compliant” savings for Hajj, with a usual annual “profit rate” of around 3.0-3.5%, and there are shariah-compliant pensions you can opt for as well.
The profit is not necessarily lower than the interest of conventional banks.
Furthermore, for most of the “popular classes” as Vijay Prashad calls it, there isn’t much to accumulate anyways. Savings rate is a concern only for the bourgeoisie and labour aristocrats of a respective country, especially in a capitalist one.
What’s important is that the financial system facilitate the growth of the productive forces.
We can see the decrepit failure of neoliberal financialisation. What we also see is that through the banning of riba and other restrictions, the short-termism and speculative nature present in the neoliberal financial system is not seen in Islamic finance.
Islamic investment must not only seek a profit, but a sort of profit that is sustainable and reliable, that can’t just be made through asset price inflation and financialisation; it must be real.
Iran’s banking system is a testament to that.
It is also interesting to note that a majority of the major Islamic banks in the world are government linked or owned.
The nature is somewhat different with dialectical materialism. We can say we want these goals of a decommodified society, but looking at current trends and out-competing capitalist institutions is something you’ll need to reacon with. Which concessions you want to make will also be an internal political matter.
Yes I agree but I have to question whether if it’s really any different. Not to the fault of the immortal science of Marxism-Leninism of course, but reality itself is complicated, data isn’t always robust and people make mistakes as well. So to contrast this to religion seems a bit short-sighted, as if Marxism doesn’t have numerous warring factions within itself.
