Posts Tagged ‘riba’


ISIS forbids interest-based banking in Libya

September 17, 2015

Islamic State operatives in Sirte, Libya, have ordered banks there to close because they profit from charging interest.  ISIS told the banks that they “must change to Islamic banking” before they can reopen.  If you know somebody who still doubts the connections between sharia-compliant banking and terrorism, please forward them this article from the Libya Herald (h/t @moscow_ghost):

IS closes banks in Sirte; orders them to change to Sharia banking

By Libya Herald reporter.

Tripoli, 13 September 2015:

A source in Sirte has told the Libya Herald that the Islamic State (IS) forces in the town had not taken over and looted the Central Bank, as widely reported earlier.

What happened, according to the source, was that on Thursday, IS went to all banks in the town and closed them. They ordered all staff to turn up to the main mosque on Friday after evening prayer to repent for having being involved in dealing with interest (usury or riba) and ask for forgiveness.  Most went.

The banks must change to Islamic banking, IS has demanded. When they have made the change, they can re-open, the source said…


Guantanamo detainees endorse crowdfunding

March 7, 2014

This piece by Money Jihad blogger A.D. Kendall has been published today at Terror Finance Blog:

Five detainees at Guantanamo Bay have drawn up a lengthy business plan for an agricultural venture in Yemen as part as an instructional exercise.  The document was approved for release last month by military officials.  Judicial Watch rightly observes that the level of detail in the plan shows that the detainees “had access to many research tools, likely on the internet.”  Although the business proposal appears to be only a classroom activity and not an actual, shovel-ready project, the language in the document indicates that terrorists would be comfortable with crowdfunding as a sharia-compliant platform to raise money.

In their business proposal, the self-described “Board of Directors of Yemen Milk & Honey Farms Ltd” specifically mentions Kickstarter, RocketHub, and other crowdfunding platforms as options for financing their project.  They also note that crowdfunding can be equity-based, lending-based, reward-based, or donation-based.  After reviewing their alternatives, the board concludes that they would like their financing be “equity based or reward based, as the board has observed [that the] interest-based economy is facing serious problems world wide, specifically in Europe and America.”

Using the recession has been a convenient target for Islamist criticism of the Western financial system since 2009, ignoring the fact that the West still leads the world across any recognized standard of economic development and standard of living, and ignoring the larger context of long-term economic success of the West compared to the economic failures of the interest-shunning Arab world over several centuries.  But regardless of current or historical economic conditions, the truth is that the “board members” would still oppose interest on religious grounds.  Riba, the word used in Islamic texts for interest, is the same Arabic word that applies to unnatural growth and swelling akin to pond scum and asthma.

Islamic law allows for profit and investments involving co-ownership and profit sharing.  One such sharia financial concept that shares similar traits with crowdfunding is mudarabah, which Islamic finance lawyer John Dewar defines as, “An investment fund arrangement under which the financiers act as the capital providers (rab al-mal) and the client acts as the mudareb (akin to an investment agent) to invest the capital provided by the rab al-mal and manage the partnership.”  For a sharia crowdfunding project, the donors would serve as the rab al-mal.

Analysts for McKinsey & Co. further note that “Islamic commercial law strongly favors equity over debt financing, which suggests that crowdfund investing platforms are especially well suited to Muslim-majority countries. In our view, crowdfund investing and Islamic financial services are inherently compatible and mutually reinforcing.”

Thus, the business school at Camp 6 of Guantanamo prison is well-aligned with contemporary sharia financial strictures.  The “students” also appear to be one step ahead of regulators, who are just now developing anti-money laundering rules for crowdfunded projects which are be vulnerable to financial crime and exploitation.  As AML attorney Christine Duhaime summed up crowdfunding risks last fall, “The combined effect of crowdfunded securities being low-priced, placed in offerings that are exempt from [SEC] registration and not subject to the filing review process of a registered offering, makes crowdfunding open to being used as a vehicle for money laundering and other financial crimes.”

In addition to crowdfunding regulations currently under review, stronger terms of service by the crowdfunding companies may be in order to prevent exploitation of their websites by users who promote violence, illicit activities, or otherwise serve the interests of criminals and terrorists.

Worrisome projects include a Kickstarter project in 2012 that billed itself as “your chance to become part of the Arab Spring.”  If the two men who proposed the project had received the $20,000 they sought, they pledged to “travel together to Syria and join the rebels on the front line against the dictator Bashar al-Assad.”  Late last year, Forbes reported that an anarchist launched a crowdfunded bitcoin-based “assassination market.”  Read the rest of this entry ?


Why Minneapolis’s sharia loans must end

February 21, 2012

The city government of Minneapolis made headlines last week for conducting a frightful sharia loan program.  Minneapolis’s “Alternative Financing Program” is dangerous and misguided for four reasons.

First, the program represents a deeper entanglement of the government with sharia law.  What’s next?  Free office space for a Muslim imam to hold a sharia court to rule on Somali divorces?  Privacy screens for local Muslim women at the city pools?  Dog-free zones to comport with Muslim sensibilities?  Gay-free zones to comply with Islamic law against homosexuality?  On the basis of what compelling interest should the government create programs to enact sharia principles in America?  In so doing, Minneapolis runs afoul of the Supreme Court’s Lemon test, which interprets the First Amendment to prohibit measures that create excessive entanglement between government and religion.

Second, although the article does not specify the structural basis of the loans, the description most closely approximates a murabaha model, where interest cross-dresses in the garb of a “markup” embedded in the terms of the loan.  Murabaha has fallen under increasing disrepute by the international Islamic financial advocates, and Minneapolis risks embroiling itself in the same firestorm facing Goldman Sachs.  Staying out of internal religious squabbles is part of the basis of the Supreme Court’s Lemon test.

Third, through the program, Minneapolis legitimizes the notion that charging interest when lending money is somehow inappropriate.  Money has value, and money now has more value than the promise of money later.  In order to get money now instead of later, we pay a small price called interest.  This is an efficient and market-based method to provide capital to businesses and individuals—it is an important factor in the historical economic development of Europe and the United States.  The prohibition on charging interest is a key factor in the economic retardation of the Islamic world.  Despite vast oil wealth, the Middle East faces high poverty, high income inequality, and little innovation.  Catering to Islamic financial principles represents a step backwards toward a foreign system based on superstition, bias, and economic inefficiencies.

Fourth, the program presents an unnecessary financial risk to the taxpayers of Minneapolis.  If the businesses are receiving loans at a lower cost than what they would qualify for through a conventional bank loan, then that means that taxpayers have funded the amount of the difference.

Also, city officials tout a lower default rate through the program than the national rate.  But of course in the conventional financial sector, the costs of default are borne by the banks themselves.  But who bears the costs of default under Minneapolis’s Alternative Financing Program?  The taxpayers of Minneapolis.

For legal, economic, and financial reasons, the government of Minneapolis must cease its alternative lending program.  The taxpayers and voters of Minneapolis should demand it.  If not, legal action against the program should be pursued.


Hosein’s latest anti-Semitic money lending rant

February 19, 2012

Imran Hosein, the renowned Trinidadian “Islamic philosopher,” has spoken out once again against what he says is a “factual” description of Jews as evil money lenders.  During a remote Feb. 8 Skype interview by an Albanian imam, Hosein praised William Shakespeare’s depiction of Shylock in The Merchant of Venice, then said money lending by Jews is “evil, it is shameful, it is disgraceful, it is sinful” before calling for a “riba-free economy.”  Listen to this one-minute clip, in which Hosein returns to one of his other favorite themes—the condemnation of paper currencies:


Allah requested loan, offered interest

November 27, 2011

The Koran, Sura 57 (“Iron”), Verse 11 says “Who is he that will lend a generous loan to God?”  The verse continues by assuring that Allah will “double it” as repayment to the lender.

Several passages of the Koran parallel this verse.  From a theological standpoint, it is curious that an all-powerful god would request a loan from the people he created.  An outsider could wonder, as did some of the Jews in Arabia during the time of Muhammad, if “Allah is poor and we are rich.”

But Abu Bakr, Muhammad’s best friend and himself a rich man, did not like being confronted with the possibility of Allah’s state of financial dependence or the verse from the Koran which suggested it.  Here’s the story of the Jewish rabbi Finhas, who resisted Abu Bakr’s appeals by saying:

“We have no need of Allah, but He has need of us! We do not beseech Him as He beseeches us. We are independent of Him, but He is not independent of us. If He were independent of us, He would not ask for our money as your master Muhammad does [for a war against Mecca]. He forbids usury to you, but pays us interest; if He were independent of us He would give us no interest.”

At this, Abu Bakr became angry, and struck Finhas violently, saying, ‘I swear by Him in whose hands my life rests that if there were no treaty between us I would have struck off your head, you enemy of Allah!’

Abu Bakr wished he could cut off Finhas’s head for pointing out the contents of the Koran and the contradictions of riba.  Even assuming that the loan-to-Allah verse is a non-literal expression, we are still left with the contradiction that Allah will “double” the repayment of loans made to him, which sounds a lot like the riba (interest) or usury which is outlawed throughout most other texts of Islam.

Many Muslims now claim in public that the loan to Allah in Verse 11 is actually charity for the poor, but the preceding verse of the Koran suggests, as Finhas suspected, a more warlike purpose:  “Those among you who contributed before the victory, and fought, shall be differently treated from certain others among you!” (Koran 57:10).  Charity toward “victory”?  Charity toward “fighting”?  Charity toward “iron”?  No—in context, the loan does not appear to be for charity for poor people, but financing the conquest of Mecca and the establishment of the Islamic state.

Rewards promised to those who give their money toward the military victory of Islam are frequent throughout the Koran.


Weekly word: murabaha

September 21, 2011

Suppose that John Consumer lives paycheck to paycheck.  John has no credit card.  He can’t afford to buy that nice flat-panel television he wants.  So he visits his local Rent-A-Center or Aaron’s store, picks out at TV, signs a rent-to-own contract, and takes the TV home, and makes monthly payments while the store remains the legal owner of the merchandise until John has paid off the terms and owns the TV outright.

In the process, John has spent more money in total payments than he would have if he’d been able to buy the TV set upfront, as is the case when any purchase is financed over time.  But that’s okay with him because he got a product he could not afford otherwise.  And it’s okay with the store because they made a little profit in the transaction, which is why they’re in business.

On its face, the rent-to-own approach or installment sale approach is somewhat similar to the sharia financial device known as murabaha.  Vogel & Hayes define murabaha as:

A sale contract which fixes the price in terms of the seller’s cost plus a specified percentage markup.  The seller must disclose all items of expense which are included in the cost if these are not known through custom.*

However, several distinctions between murabaha and Western style rent-to-own agreements come to mind immediately:

  1. There is no fundamental effort by rent-to-own sellers to introduce an alternative set of orthodox religious financial laws to Western markets in order eventually to replace them.
  2. Rent-to-own is just one way out of many available to Western consumers to finance their purchases.  Buyers without enough cash on hand still have options including credit cards, conventional loans, leases, ordinary renting, and lay-away.  Western financial laws do not force people into rent-to-own agreements.
  3. Rent-to-own options are typically designed for items like furniture, electronics, and major appliances.  The free market has determined that for more expensive items such as homes and commercial property, traditional interest-bearing traditional loans are a more responsible way of factoring in the time value of money over the life of the loan.  Murabaha, however, is often applied to big ticket items such as home mortgages, interbank and business-to-business transactions, and commodities trading.

The “profit” or markup added to murabaha transactions is often criticized by Muslim traditionalists as a smokescreen for riba (interest), which is banned by the Koran.  However, many sharia advocates stand by murabaha since it is their likeliest way to supplant conventional financing methods.

Next week, Money Jihad will evaluate the #1 biggest difference and danger that murabaha presents relative to the conventional loan process.

* Vogel, Frank and Hayes, Samuel, Islamic Law and Finance (Boston: Kluwer Law International, 1998).


Muslim robber: banks seeking interest are legit targets

April 13, 2011

The Bashir trial in Indonesia over the creation and funding of a terrorist training camp has turned out to be a wonderful learning opportunity about the harmony between Islamic law and what the West would normally regard as “purely” criminal behavior.

The latest development is that one of Bashir’s possible funding sources, a bank heist in Medan last year, was justified by the bank robbers in terms of Islamic sharia finance principles.  (Which we also suggested at the time, here.)  Since riba is a detested concept within Islam, the robber took the money jihad to its next logical conclusion and made the bank pay for its “sin.”  The position is also in line with the views of jihadi cleric Anwar al-Awlaki, British Muslim Anjem Choudary, and North Carolina terror cell organizer Daniel Patrick Boyd.

As to what the robbers did with their spoils, there are conflicting reports, although one-fifth of it (khums on ghanima, anyone?) may have ended up in Bashir’s purse.  From the Jakarta Globe on Apr. 5:

Bashir Witness Claims CIMB Niaga Heist Was to Fund Jihad

A deadly heist at a CIMB Niaga bank branch in Medan last year was carried out to fund jihad, a suspected militant told the court on Monday at the trial of controversial cleric Abu Bakar Bashir.

“The money was intended for Jihad Fisabilillah,” or struggling in the name of Allah, said Beben Khairul Banin, who is being tried separately for the Aug. 18 robbery that left one police officer dead.

“We will fight against anything considered an affront to Islam,” he told the South Jakarta District Court.

Banks are among the targets “because they seek interest, which is against Islamic law,” he said.

Beben said he was paid Rp 10 million ($1,150) after the bank heist, but he had no idea what happened to the rest of the money.

Police said the CIMB Niaga bank heist and a series of other robberies at banks, Internet cafes and a money changer in Medan last year were intended to finance the operations of a paramilitary training camp in Aceh, allegedly funded by Bashir…


U.K. tax break for Muslims & Muslim posers

April 1, 2011

If you’re a Muslim, a new Muslim convert, or you’re willing to pose as a Muslim, you can obtain a valuable tax break when buying a house in the U.K. 

British homebuyers normally pay a stamp tax at the time of purchase.  However, if the property is immediately resold, the buyer is exempt from the tax.  This loophole was designed by the Labour party in 2005, which enabled Muslims to avoid the “evil” of paying home mortgage loan interest by selling their property to a company that then leases the property back to the Muslim occupant.  No interest is paid and no stamp tax is paid. 

Now, to the dismay of some British officials, the loophole is being exploited by those willing to behave like Muslims.  From the Daily Express on Mar. 21, with a hat tip to Islam versus Europe:

SHARIA law is being used by house buyers posing as Muslims to dodge stamp duty, it was revealed yesterday.

A scheme, brought in by Labour in 2005, allows followers of Islam to buy property without paying the tax.

Paying interest is banned under Sharia law, so Muslims are allowed to buy a house and then sell it on to an offshore financial company.

They then lease the house from the company instead of taking out a mortgage, which would include interest payments. Stamp duty, which is applicable to all properties worth £125,000 and over, does not have to be paid on properties which are immediately sold on.

But the loophole, which costs the Treasury £40million a year, is now being used by some who pretend to be Muslim.

Sultan Choudhury, from the UK Islamic Finance Secretariat, said: “It was certainly not envisaged that some tax advisers would manipulate the legislation on behalf of their clients to avoid paying stamp duty at all.”

Although it may not have been the intent, the policy is in harmony with Islamic tax law, which consistently requires preferential tax treatment of Muslims and inferior tax treatment for non-Muslims.


The weekly word: riba

January 11, 2010

Charging interest—or “riba”—on loans is outlawed by Islam.  More than anything else, it is the prohibition on riba that has metastasized into the modern international movement to create and sell sharia financial products.

But what is riba, really?  Standard reference materials such as the various dictionaries published by Oxford have blandly and misleadingly equated riba to usury.  Usury means exorbitant interest.  But riba is much broader than that—it encompasses all forms of interest, not just the exorbitant sort.

The most expressive definition, and the one that I’m adding to Money Jihad’s glossary, comes to us from Ahmed Ali, a Muslim translator of the Koran.  The following is an excerpt from his explanatory footnote on riba (p. 50 in the paperback volume) defining riba as:

Multiplying, increase, swell, expand (beyond the natural or original size), as in 22:5; excess such as surplus that comes to the surface like scum, as in 13:17; rabiyum, increased hold that over powers, as in 69:10; arba, more than the other; as in 16:92: Taj Muhit.  All this points to unnatural or artificial increase.  It is first mentioned in Makki Surah, 30:39, as lending money on interest to increase one’s capital through other’s wealth; and is explained at 2:275 as the opposite of trade, and at 3:130 as doubling and redoubling.  By suffocating a person’s freedom of action and independence—another meaning of riba being asthma—it results in oppression, and is condemned in the strongest possible terms and forbidden.

Scum.  Asthma.  This definition is much more helpful in conveying the contempt Islam holds for interest, and explaining why Islamic bankers have taken such great pains to develop financial products that will produce yields without involving interest.