Monday, Oct 08, 2007
Is this where to put your money?
Gulf Daily News: Islamic banks 'are safe from credit crunch'
Islamic finance institutions have been protected from the global 'credit crunch' because the trading of subprime mortgages was against the principles of Sharia, according to an industry expert.Accounting and Auditing Organisation for Islamic Financial Institutions (AAOIFI) senior financial analyst Khairul Nizam said the effect of the crisis on the Islamic finance industry would be virtually nil.
Mr Nizzam predicted further growth for the Islamic finance industry.
"The market is booming and we think that growth is going to be there for some time yet - a lot of forecasts have been made and 10 to 15pc growth for the next two to three years seems to be what people are looking for and think can be achieved," he said.
Posted by disillusioned @ 12:09 PM (782 views) Add Comment
16 Comments
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1. Jonathan said...
Hoever buy to let investments are not against Sharia (provided no mortgages are involved), and that is what they have have been doing instead of lending money on mortgages.
The only difference is that the bank takes all of the risk, rather than just the bit of it the borrower can't afford.
2. su said...
The Islamic banking system is a bit of a mystery to me. As I understand it (and I could be wrong) muslims can't charge interest and their "mortgages" are based on renting. Does anyone know how Islamic mortgages compare with "normal" mortgages from the borrower's perspective?
3. Drewster said...
Gulf states like Dubai have built a lot of new property recently - beach-front apartments, villas, towers of "luxury condominiums", etc. Most of these have been sold to overseas investors (including David Beckham and Richard Branson). Is this just another Spanish-style crash in the making? Or is Dubai really the next London?
4. holding out said...
I think you've got to be stoned to understand it.
5. inbreda said...
Pretty ignorant myself, but I think it has something to do with paying a premium rather than interest. For example, the 'lend' you 400,000 (made up of 200,000 money and a 200,000 'admin' charge) interest free, with which you (get access to) 200,000 to pay for a house. You then have to repay 400,000 over 25 years, amounting, funnily enough, to the same amount being repaid, at teh same level each month, as if you'd got a normal mortgage.
I guess when your accounting shows the level that the company is in hock on this basis, you don't lend to subprime.
ethically I get the point of a muslim mortgage, and ethically it is dodgey lending to people who cannot afford to repay, so I can see how they've steered clear of sub prime.
6. Global Citizen said...
The only reason that Islamic Banks are not exposed to subprime crisis is that they didn't do risky mortagages and sell CDOs. I can same the about other banks from developing countries where US subprime exposure is less.
I can also say that my house will never be repossed because I haven't bought a house!! ha ha!
7. su said...
Inbreda. That's interesting. So it is ethically wrong for muslims to charge interest, but it is not ethically wrong to charge mega-huge admin fees. Hmm.
I don't suppose you know how they fund these mortgages, do you? I understand it is also ethically wrong for muslims to accept interest payments on a loan. I gather the idea behind it is if a muslim needs a loan, another muslim lends him money but he is not to take advantage of his "brother's" need by charging interest.
8. tyrellcorporation said...
Holding out. If your deal goes sour you probably get stoned! ;)
9. David Smith's Sub Prime. . . said...
It could be that it is just like Hire Purchase over here (where possession is in the name of the Bank or finance company) and there may be say 25 equally yearly payments of 'hire charges' which includes an administrative charge and any interest wrapped up.
Therefore, there is no usury because the 'payments' are actually 24 yearly 'hire' payments with a further option written into the agreement that at the end of payments there may be transfer of title subject to a final payment.
Here, the mortgagor (house occupier) has possession and not the other way around.... The problem with English Land Law is that if you have possession (like a mortgagee building society taking repossession) then the occupier has no say, all they have is an interest in the proceeds whatever that may be (i.e. they cannot object to sale and sale can take place over heir heads). The means of policing the option agreement must at present be impossible againsty the world, the only way is to enforce against the company and there is no (De Facto) security as against an insolvent company like Northern Rock or against breach of that option agreement by them passing title on without reference to the occupier.
10. planning4acrash said...
People associate this with muslims, but charging interest was also against Christian beliefs until around the industrial revolution or not long before when we decided that having more credit to fund colonialism was considered more important than morality!
http://en.wikipedia.org/wiki/Islamic_banking
11. sirgoogle said...
The Islamic Mortgage is a complete myth. They are just calling interest a different thing so they can't be accused of commiting the sin. These types of loans are simply a way of trying to advantage your own "group" of the "outsiders".
Actually the Jews were thrown out of England by Edward II for committing the (also Christian) sin of usery (upping the interest rate after agreeing the rate for the purchase). Funny thing is that the Lombards were in England lending to the King for his wars a year later and were doing exactly the same thing - but this was Ok as they were Christian. Incidentially the Jews were only allowed back into England in the 1700s (I think) and only allowed to hold office in the 1830s (I think) - along with Catholics.
In these days so-called Islamic Mortgages should be totally banned from all Western Markets as anti-competitive and discriminatory. Imagine the outcry if we decided to publicise "White Anglo Saxon Protestant (WASP)" Mortgages - and enforced the takeup along these racial/religious lines. How come its OK for Muslims to do this?
12. shipbuilder said...
If the Catholic church or C of E started offering mortgages for their members, I wouldn't care less and neither would anyone else.
13. This comment has been removed as it was found to be in breach of our Blog Policies.
14. Another_way said...
So called "Islamic" mortgages are nothing of the sort. In reality they just use some fancy labels and definitions to dress what is otherwise an interest bearing loan up as a "Islamic". This is coming from someone who applied for one recently! Truly Islamic finance does not charge or pay interest, but given our entire economic system is based on the fraud that is Interest the two systems cant run in parrallel in the same economy at the same time, but that's another subject :-)
By the way sirgoogle, "Islamic" finance in this country is not discriminatory - anyone can apply as its open to all.
15. sirgoogle said...
Another_way
Why would you want to apply for a mortgage where the profits probably go to funding dodgy teaching and more 11/7s.
16. Another_way said...
Yes of course.