The Bankwatch

Tracking the consumer evolution of financial services

The worries about Sharia are getting in the way of common sense regarding better opportunities in finance

When I wrote up the piece on the sensibility of the concepts contained in Sharia finance I knew there were undercurrents everywhere that would react to the words Sharia and Islamic which would blind folks to the concepts that exist underneath those apparently inflammatory words. 

Sense about sharia | Economist

Contrary to some hysterical talk, nobody seriously suggests the use of Islamic penalties in any democracy. Nor is there any reason to fear Islamic finance: a campus discussion about zero-coupon bonds does not mean usurers will be flogged in Harvard Yard. Nor can anybody object if two citizens settle a commercial dispute on Islamic lines, or any other principles to which both freely adhere. In the English-speaking world there is a custom of arbitration, which has created a space in which religion-based arbitration services are accepted, offering Jews, Christians and Muslims a simple, cheap (and from their point of view, divinely blessed) way to settle disputes.

This week we have also seen Germany come out with comments about racial integration.

The Economist piece refers to the work at Harvard since 1994 on Islamic Finance.  The matters of concern about Islam and Sharia law are for another day and another blog.  Here i do want to separate the embedded values about finance contained in Islamic Finance and how they can help us Westerners see new ways to approach finance that will help us.  It is clear the approaches we have been taking are not working and just look here which includes the latest fraudclosure scandal to see the results. 

The promise of the Sharia approach is to share risk between lender and borrower.  This concept allows for future changes in circumstance that is inevitable.  This is not the only new approach available, but there are no others being presented so here is the first.  Western economies are in bad shape with a new structural unemployment in existence that will ensure consumer deleveraging and lack of purchasing capability.  This is an important addition to the debate about the future of consumer finance.

We can keep doing it the old way and expect different results (the definition of insanity) or we can seek different models.

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Written by Colin Henderson

October 17, 2010 at 23:27

Posted in Uncategorized

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