Cafe of Broken Dreams by John scientific terrorist in action

There Is No Special Islamic Finance Finally Confirmed

Posted on December 1, 2009

New Dubai crisis increases tensions among each emirates and not so popular Dubai is again cursed in the Arab world. From economical view will be interesting to observe the unite gulf central bank project which has been in recent years finishing. However the crisis reveals another thing, that is the story behind glorified Sharia-compliant financial products.

11434_338230540051_130493850051_10029238_4501805_nPicture from Times Online

A year ago I’ve published an article saying that Islamic mortgage is nothing special, but just a common copied western concept of mortgage with different names which use interest; the biggest economical sin in Islam. Finally I am not the only one who noticed the same thing. NY Times today says:

a British banker from Barclays who had moved to the region to create an entire Shariah-compliance team. He shared tips about various ways to create “structured products” that would pass muster with Muslim investors. (To me, the investments looked like bonds, walked like bonds and talked like bonds — but he never called them that.) Some of the bonds that Dubai World is in jeopardy of defaulting on, by the way, are Shariah-compliant sukuk. Just don’t call them bonds.

Yes there is exactly the same situation with mortgage you can call it a profit sharing, a rent, a reselling principle, but for Allah’s sake not an interest! In fact there basically cannot be a mortgage without interest. The article goes on:

The Shariah Committee of the Accounting and Auditing Organization for Islamic Institutions, which is based in Bahrain, ended up changing the rules to make them stricter because of widespread abuse.

It raises a question what is the function of the committee when it’s were not able to realize obvious for such a long period of time? In the end famous British economist Willem Buiter says:

these were window-dressing pseudo-Islamic financial instruments that were mathematically equivalent to conventional debt and mortgage contracts

Yes I agree, it is nothing I haven’t already known a year ago.

Islamic Banking uses interest

Posted on October 9, 2009

“The concept of Islamic banking is essentially based on the idea that Islam prohibits riba, but permits trade and profit-loss-sharing arrangements.”  *1

I don’t no why, because there is no fundamental economical reason to prohibit interest. Actually an economy which prohibits interest could face to a serious troubles and that’s something what an Islamic scholars have realized and developed the ”Islamic version of interest”. But I will try to explain why is critics of  the west used interest concept needless and I will also point to a fact that the Islamic banking uses the same interest concept as the west banking system.

First, lets look what does interest mean:

Interest is a fee paid on borrowed assets” *2

and Riba:

“The word “interest" by and large, is now understood as riba.

riba al-fadl: money is exchanged for money hand-to-hand, but in different quantities
riba al-nasiah: where money is exchanged for money with deferment.” *3

The word interest is most often used as a fee paid on borrowed money. But this is not necessary condition, because asset could be also for example some real estate. - interest paid on borrowed apartment is called a rent. (more about meaning of assets via wiki)

interest principleinterest principle

The fee paid on borrowed assets is not constant. Rents in urban locations are usually very high compared to countryside rents. That’s because demand for estates in urban locations is bigger. The high rent is then a signal for investors about attraction of a locality. More attractive localities are naturally in aim of  developers who try to construct more estates in those regions.  (increase supply)

A fee paid on borrowed money is almost always expressed as a year percentage ratio (0,5%  - size of interest is derived from amount of available capital) and it’s called an interest rate. The reason why is used percentage ratio is purely practical because it allows easily accountability or comparison. International interest rates markets (like LIBOR) then provides a quick capital flow across the whole world. Islamic banking due to the prohibition of interest rate doesn’t have access to those interbank markets neither do have similar simple Islamic interbank market.

There is also no immoral aspect of a fee paid on borrowed assets which would say prohibit interest rate, because every lender has to invest some time to reach assets which he could borrow. He also has to keep value of those assets. (house lenders use rents to house repairs or increasing house quality, money lenders use money from interest rates to cover coasts or to find the best investments)

What’s then a difference between an Islam banking and a West banking loan:

Home loans

The Islamic banking use two basics products Musharaka or more modern Musharaka al-Mutanaqisa. An Islamic bank works as the middle man between a money lender and a money borrower.islamic bank model

basic model of a Musharaka contract

Islamic bank instead of loaning a money, will buy a house and resell it to the borrower with a profit (look at the definition of interest or riba above, this profit is charge for deferment, but this should be forbidden). Part of this profit is then shared with its depositors.

In a more modern  Musharaka al-Mutanaqisa contract a bank rent (rent - charge for deferment) house to a borrower, and the borrower is able to buy parts of this house. Size of the rent is based on the current equity share of the partnership. (Musharaka – fixed profit sharing, Musharaka al-Mutanaqisa – float profit sharing)

In order to protect against default, is used strict defined collateral like a house itself.

West banking use product called mortgage, it can have either fixed interest or float interest.

west bank model

basic model of a mortgage contract

In the west banking model a bank lent money, borrowers will buy a house for them and this house is usually also used as a collateral.

The difference between the west and Islamic banking is not in interest usage, but in the fact that west banks use charges expressed by a percentage ratio and Islamic banking by absolute amounts.

West bank: you will pay loan + 0,5 % every year from your loan as a charge

Islam bank: you will pay a house value + 1000 USD as our profit

Where is then the difference? Nowhere, its the same thing expressed by two different ways. West banking uses unite interest rate system and Islamic banking system have for every kind of a loan some special model and special charge system.

Penalty for late payment is another criticized part, but there is again no moral reason for that. Just imagine if I rented a house for a one year, but used it for two years I should pay a rent for that second year too. That’s why in the western system exist penalty for a late payment, which still looks like a better option than imprisonment in Dubai debtors prisons (more info about escaping foreigners from Dubai here),

Those who still have some doubts about using interest in the Islamic banking can check SAMA website - “central bank of Saudi Arabia” there is a clear declaration that SAMA uses REPO operations as the key monetary policy action. Interest rates of those REPO operations is possible to see here.

Actually, the monetary and banking system in the Saudi Arabia is same as in the rest of world. Saudi banks accepts international Basel II Accord and keep some minimal reserves ordered by the central bank. SAMA website reports that minimal reserves are 7% which means banks must be immediately able to pay 7% of the customers’ deposits. But, I have checked a balance sheet of the Banque Saudi Fransi and their reserves were 6,22% in the Q4 2008 so it seems that SAMA either have not updated its websites or they do not care about it much. Second bank I have checked was the Arab National Bank  and their reserves were almost 13% so there were everything fine. Average value of all 12 Saudi banks were according to SAMA 11.48%. This is still relatively good – for example Eurozone limit is 2%.

So as we can see Islamic banking is nothing special and sticker Shariah Compliant is just common commerce in order to lure on as much Muslim customers as possible. Only one difference is then that an Islamic bank should not invest into the prohibited stuff such as alcohol companies or pork farms.

*1, 3 -  Islamic Financial Services - Islamic Economics Research Centre, Jeddah

*2 – Wikipedia – Interest

Americans are not in Iraq due to Oil

Posted on October 8, 2009

There has been many theories that Americans invaded Iraq due to Oil revenues, my problem is that the Iraqi oil revenues cannot cover the costs of war at all, so all those theories are based on the idea that they cannot do elementary math in Washington?

Americans are in Iraq because oil profits will pay everything

iraq-oil

source of numbers is

The USA would have to withdraw Iraq now and control all the Iraqi oil production for at least 140 years to cover all its direct costs and more than 500 years to cover total costs!

The Iraqi oil profits cannot pay the total war costs at all.

Americans attacked Iraq because Hussein did not want to use the dollar anymore

iraq-usagdp

Buying power of the Iraqi oil is absolutely minimal compared to the whole American economy, there is also dozens of countries with bigger economy using dollar (China, Saudi Arabia, Singapore, Hong-Kong).

Or take a look at Kuwait, which is a larger economy than Iraq and stopped using the USD and Kuwaiti dinar has been re-pegged to a basket of currencies.

Sources:

1 – Iraq war costs source – Reuters

2 – Iraqi oil revenues (the biggest annual revenue in the history – 2008) – Energy Information Administration

3 – Iraqi oil profits – my estimate based on profits of large OPEC companies - OPEC

False Claims about great progress of Islamic Cartography

Posted on December 31, 2008

There has been said many claims about high developed cartography due to Islam in the Middle East, that is why I gathered here few maps dating across the whole history so you can see at your own when the important achievements happened and you can realize that the Islamic cartography was not so great how Muslims often say.

450 B.C. – Modern Reconstruction of Herodotus World Map

Herodotus Map

for more different reconstructions go here

900 B.C. – 160 A.D. – Maps of the Greek World

Greek-Maps

1154 A.D. – Tabula Rogeriana, probably one of the most famous map of the Islamic World drawn by Al-Idrisi (note the interesting point that the map was painted for the Christian king Roger II of Sicily

Tabule-Rogeriana

The map is inverted (original is painted with South oriented down)

13th century – a copy of Ptolemy’s map from 13th century, the map was widely used by overseas explorers, probably also by Christopher Colombus

Ptolemy's-map

1596 A.D. – the Christian Knight world map, one of the first map covering the whole Earth

The-Christian-Knight-Map

16th century – 21st century – Merkator projection, satellite maps, GPS, weather maps, Globe models, …..

Conclusion: Islamic Empire did some minor development, but by and large it just followed high standard from the Ancient World (the list of Ancient Maps), which were almost completely conquered by Islam. The most important steps were achieved during the Renaissance (see the list of Renaissance maps) and later in 20th century with digitalization.

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Myths about Tolerant Islamic Spain (al-Andalus)

Posted on December 31, 2008

Spain was a Jihadist country par-excellence (mass public execution for blasphemy, pogroms of Jews, intolerant laws, expulsion of Christians, … ).

In 851 took place a mass execution of 48 Christian monks who refused to accept Mohammed or publicly announced their Christian faith.

In 1066 took place the first big pogrom against Jews in Spain, more than 4 000 people – kids, women were killed in one day (That is more than the state of Israel has killed between 1998 – 2008 in combat operations). Yes Antisemitism was practiced with Islam. In Islamic Spain was common that the Jewish population had to wear clothes which clearly separated them from a Muslim population - well knowns marking practice from Nazi Germany.

The Caliph Hisham I of Córdoba started in 792 an offensive Jihad against France, plundering Bordeaux and killing thousands.

The Caliph Al-Hakam I after a revolt of native Christian population in Cordoba expelled more than 20 000 families out of their native home.

Thanks to Ibn Rushd, a famous master of Islamic law, who lived in Islamic Spain we know this was according to Islamic law completely legal.

Scholars agree that all polytheists should be fought. This is founded on [K 8:39]: "Fight them until there is no persecution and the religion is entirely Allah's." ...

The Moslems are agreed that the aim of warfare against the People of the Book, with the exception of those belonging to the Quraysh-tribe and Arab Christians, is twofold: either conversion to Islam, or payment of poll-tax (djizyah).

Damage inflicted upon the enemy may consist in damage to his property, injury to his person or violation of his personal liberty, i.e., that he is made a slave and is appropriated. This may be done, according to the Consensus (idjma) to all polytheists: men, women, young and old, important and unimportant. [1]

Maimonides who lived in Islamic Spain (also in Morocco and Egypt) wrote about the common life with Muslims.

Never did a nation molest, degrade, debase and hate us as much as they did, although we were dishonored by them beyond human endurance, and had to put up with their fabrications. Similarly our sages instructed us to bear the prevarications and preposterousness of Ishmael in silence. We have acquiesced, both old and young, to inure ourselves to humiliation. All this notwithstanding, we do not escape this continued maltreatment which well nigh curses us. No matter how much we suffer and elect to remain at peace with them, they stir up strife and sedition. [2]

Darío Fernández-Morera, an Associate Professor of Spanish and Portuguese and of Comparative Literature at Northwestern University has written about myth of tolerant Al-Andalus (Islamic Spain).

By any objective standards, then, and in spite of its undeniable artistic, literary, and scientific accomplishments, and of modern wishful “let-us-all-get-along” thinking that tries to gloss over evidence to the contrary, Islamic Spain was not a model of multicultural harmony. Andalusia was beset by religious, political, and racial conflicts controlled in the best of times only by the application of tyrannical force. Its achievements are inseparable from its turmoil. [3]

Bernard Lewis, a professor of Near Eastern Studies at Princeton University, probably one of the most known western orientalist has written about Islamic Spain.

“The Golden Age of equal rights was a myth and belief in it was a result, more than a cause, of Jewish sympathy for Islam.” [4]

Inquisition-Islam An interesting point is also that Spain entered into its richest and the most prosperous epoch just after the final defeat of Muslims in Spain and liberation their own country. For more than 500 years Spanish villages has celebrated this moment in a festival called “Moros y Cristianos” by burning of effigies of the prophet Muhammad – the so-called “la Mahoma” – are mocked, thrown out of windows, and burned.

After another Islamic attack in Spain in the 2004 Madrid train bombings which killed 192 people, the village of Bocairent decided to discontinue the century old tradition. Bocairent did not want to risk becoming the target of suicide bombers. – that is for tolerance.

  1. Jihad in mediaeval and modern Islam – The Chapter on Jihad from Averroes’ Legal Handbook al-Bidayah, translated by prof.dr.mr. Ruud Peters, a chariman of Arabic studies on the University of Amsterdam
  2. B.Z. Dinur, “Maimonides’ Epistle to Yemen, Israel in the Diaspora B, Jerusalem, 1968, p. 365
  3. The Myth of the Andalusian Paradise - Darío Fernández-Morera
  4. Bernard Lewis, “The Pro-Islamic Jews,” Judaism (Fall 1968), 401.
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Is Islam the Bloodiest Ideology Ever?

Posted on December 31, 2008

Many Muslims will response that even the Western World had many bad ideologies or simply wrong decision makers, but that the core of Islam is peace. I personally doubt about it as Islam in its first 150 years were just conquering, killing more than 250 millions of people.

Death toll of Islam

For the first time I have seen the estimate of Islamic death toll in an interview with Bill Warner, the director of the Center for the Study of Political Islam. I have put the numbers into the context of other well know brutal world atrocities.

Sources:

Africans
Thomas Sowell estimates that eleven million slaves were shipped across the Atlantic and fourteen million were sent to the Islamic nations of North Africa and the Middle East. [1] David Livingstone estimated that for every slave who reached the plantation, five others died by being killed in the raid or died on the forced march from illness and privation. [2] So, for 25 million slaves delivered to the market, we have the collateral death of about 120 million people. Muslims ran all the wholesale slave trade in Africa. Death toll: 120 million Africans

Christians
The number of Christians martyred by Islam is nine million.[3] A rough estimate by Raphael Moore in History of Asia Minor is that another fifty million died in wars by jihad. So to account for the one million African Christians killed in the 20th century we have: 60 million Christians

Hindus
Koenard Elst in Negationism in India [4] gives an estimate of eighty million Hindus killed in the total jihad against India. The country of India today is only half the size of ancient India, due to jihad. Death toll: 80 million Hindus

Buddhists
Jihad killed the Buddhists in Turkey, Afghanistan, along the Silk Route, and in India. The total is roughly ten million. [5] Death toll: 10 million Buddhists

Jews
The jihad in Arabia was 100 percent effective but the numbers were in the thousands, not millions. After that the Jews submitted and became the dhimmis (servants and second class citizens) of Islam and did not have geographic political power.

This gives a rough estimate of 270 million killed by jihad.

  1. Thomas Sowell, Race and Culture, BasicBooks, 1994, p. 188.
  2. Woman’s Presbyterian Board of Missions, David Livingstone, p. 62, 1888.
  3. David B. Barrett, Todd M. Johnson, World Christian Trends AD 30-AD 2200, William Carey Library, 2001, p. 230, table 4-10.
  4. Koenard Elst, Negationism in India, Voice of India, New Delhi, 2002, pg. 34.
  5. Barrett and Johnson, table 4
  6. World War 2 - List and Detailed Death Tolls for the Twentieth Century Hemoclysm
  7. World War 1 -Twentieth Century Atlas. Retrieved 2008-12-21.
  8. Communism - Foundation for the investigation of communist crimes
  9. Crusades – Charles Mackay, Memoirs of Extraordinary Popular Delusions and Madness of Crowds
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How the Islamic Golden Age Destroyed Ancient Civilizations

Posted on December 31, 2008

Muslims has stolen the word Renaissance in order to use it in their propaganda of Islamic science, but in a deeper look what we see is that the Islamic Golden Age stopped the 4000 years long scientific dominance of the Middle East and Far East.

Map of Islamic Golden Age

Big version of the map is available here

Differences between the Islamic Golden Age and the Renaissance:

  1. Renaissance arose on Continent which had small history of science (except Greek/Roman) / Islamic Golden Age arose on conquered land of world leading scientists (see the picture above)
  2. Renaissance led to Industrial age, one of the most important achievement of the Modern World / Islamic Golden Age led to total devastation of the Middle East (low life expectancy – 22 years in Palestine in 1900, high infant mortality –Egypt still has one of the highest rate in the world)
  3. Renaissance was created by connection of Judeo/Christian values with Greek philosophy / Islamic Golden Age refused Greek philosophers
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