Pure Common Sense

In the midst of the worldwide financial crisis, a new sector of the economy has been given an opportunity to shine: Islamic banking.  Islamic banks operate similar to conventional banks but differ from them in a number of ways.  For instance, Islamic banks do not use interest on loans or savings, as that is prohibited by Shariah law.  Instead they compel themselves to rely on a system of shared profits and losses.  When the idea of a modern bank that would not use interest as a tool of operation was first initiated back in the 1970s with the Islamic Development Bank in Saudi Arabia, among a handful of others, scholars thought that it did not stand a chance of lasting in today’s world.  However, the Islamic banking sector has grown exponentially in recent times and it would be very foolish to ignore it.  In the past quarter century the total market share has in fact shot up seventyfold.  That’s right – seventyfold.  The success of the Islamic banks can be attributed to a variety of factors involved.

The Islamic banking industry was able to evade the global credit crisis that was endured by other institutions of similar caliber.  (NOTE: maybe it was because they don’t do interest and therefore don’t do issue credit – duh!)  The assets of the Islamic banks from various businesses that they dealt with were more liquid than others.  Some believe that the banks succeed due to the current benefit of their viewpoint in seeing money as “potential” capital, rather than capital itself.  Others believe that the success of these banks has little to nothing to do with the fact that they operate as Islamic banks, but because of the success of the region in general.  A study used the example of comparing Islamic and conventional financial sectors in Malaysia.  However, Islamic banks have established a presence in Western nations over the past five years (and grown much since then) so the validity of the study is in question.

Whatever the cause of it all, it is evident that we can no longer take for granted their growing presence.  Some feel threatened by them.  Islamic banks place a high moral value on the sanctity of contracts – but how will that hold up regarding contracts with those they may perceive as “infidels” in Western nations?  There have been some incidences of backlash, although on the whole the “risk-free” nature of the enterprise has been valued in Western nations.  But some fear for national security since Muslims are perceived as the new “other” for the 21^st century like Nazis and Communists in the 20^th.  Personally I believe such notions are ludicrous in the long run.  This is the realm of free enterprise and we should not expect a September 11^th around every corner.