Sharia bank conducts fraud, predatory lendingDecember 6, 2012
“Ethical finance” swindles 300 herdsmen and farmers
A sharia lender and his associates are under investigation for defrauding 300 Nigerian farmers and ranchers. As Shariah Finance Watch wisely notes, countries with growing sharia finance sectors are often the same countries experiencing an increase in violent jihad. SFW continues:
And as has also often been the case, that push has been associated with fraudulent activity.
The Nigerian Economic and Financial Crimes Commission (EFCC) is investigating the whole affair as detailed below, but what it looks like is a classic Shariah finance scam in which people are fooled into taking out “interest free” loans and are charged hefty fees for those loans.
In other words, these Shariah-compliant loans may not charge interest, but they are anything but “free.” In fact the charges customarily exceed what interest charges would be, but, because they are not interest, they get around Shariah usury laws. This is a scam that has not been limited to Nigeria. Many financial institutions across the world identify their Shariah loans as “interest free,” which amounts to fraud…
OPERATIVES from the North-East zonal office of the Economic and Financial Crimes Commission (EFCC) in Gombe have commenced investigations into allegation of fraud levelled against a branch manager of a first generation bank, a traditional ruler and Sharia court judge over agricultural loans and illegal detention of about 300 herdsmen and farmers in Shira and Giade Local Government areas of Bauchi State.
The commission moved to investigate the allegation following a petition written to it by communities in the two local government areas, which it received on October 24, 2012, on agricultural loans amounting to millions of naira, which was allegedly disbursed to the herdsmen and farmers in the two council areas by the Shira branch of the bank.
Read it all at Shariah Finance Watch.
For newer readers, this case should serve as an example of the unintended consequences of the Islamic prohibition on interest. Money has a “time value;” in other words, money now is worth more than money later. But this basic economic fact is denied by the religious edict of Islam.
Western economists refer to that difference between money now and money later as interest. Islamists refer to it as riba, which means the same thing in Arabic as scum, asthma, or other types of unnatural growth or swelling.
But it is Islamic economics itself that is unnatural. The result is all kinds of exotic loan structures and predatory policies designed to eliminate the appearance of charging interest. But without charging interest, there is little incentive for bankers to provide capital to borrowers. The sharia bankers create their own incentive by adding complicated fees and repayment schedules to loans.
The result here? Confused farmers and goatherds. So much for “ethical” finance.