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World Politics Review | As Oil Revenues Boom, Islamic Banking Goes Global August 24, 2007

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World Politics Review | As Oil Revenues Boom, Islamic Banking Goes Global

Caribou Coffee,
the second-largest U.S. java seller, seems at first blush like a fairly
ordinary American company. The chain was founded in 1992 in the small
town of Edina, Minn., the brainchild of idealistic newlyweds, and has
since expanded to over 400 coffeehouses in 18 states. Caribou’s menu is
muffins and lattes — not an Arabic coffee in sight. It may come as a
surprise, then, to know that Caribou Coffee is “Shariah compliant,” one
of the largest American businesses to run its operations in accordance
with Islamic law.

Caribou isn’t alone. After decades on the economic backburner, flush
oil revenues are giving Middle Eastern companies and investors new
prominence on the global financial stage. As a result, rising demand
for Islamic-friendly investments is forcing multinational corporations
— and not just in Muslim-majority countries — to consider what the
Quran has to say about their business practices. The boom carries over
to the financial sector, where firms offering Shariah-compliant
products or consulting services to companies that seek compliance have
themselves seen explosive growth rates.


Caribou went Shariah-compliant in 2000 after the Bahrain-based
investment bank Arcapita purchased a controlling stake in the company.
In terms of day-to-day operations, the Shariah-compliance designation
primarily affects how the firm manages its finances. Under Islamic law,
or Shariah, it is forbidden either to pay or receive interest. Interest
— the fee charged for the chance to borrow money — is one of the
central principles of modern economics, but Shariah-compliant companies
structure their financial operations in a manner that bypasses interest
altogether.

Jawad Ali, a partner at the law firm King & Spalding who
specializes in helping companies adjust their financial operations to
attain Shariah-compliance, recently explained to me in an interview
how this process works. In many cases, Ali says, firms and would-be
lenders structure Shariah-compliant deals around the principle of
leasing. Suppose a company wants to buy a property. Rather than
granting a loan for the price of the property, a bank can instead buy
the property and rent it to the firm. The arrangement is acceptable
under Islamic law, Ali explains, because the bank has taken the risk of
owning the property, and no interest is charged in the process of the
transaction. Lease arrangements of this sort represent one of the most
common types of Shariah-compliant contracts, but there are many others.
The Web site Islamic-finance.com has a useful primer that takes a more thorough look at the technical workings of different types of Islam-compliant contracts.

The financial nitty-gritty aside, though, the simple fact of Islamic
banking’s rapid growth within the financial services sector stands out
as striking. The multinational accounting firm KPMG estimates in a prospectus
(pdf file) that the global Islamic finance sector encompasses around
270 banks, $265 billion in assets, and over $400 billion in
investments. Moreover, KPMG says the sector is growing at a clip of
roughly 15 percent per year, and could serve 40 to 50 percent of the
world’s Muslim population within a decade. Ali, for his part, says King
& Spalding’s Shariah-compliance services have seen even faster
growth, expanding at 35 to 40 percent per year. [read on]

When Hedge Funds Meet Islamic Finance – WSJ.com August 9, 2007

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When Hedge Funds Meet Islamic Finance – WSJ.com

One recent afternoon, New York money manager James Rickards presented Sheik Yusuf Talal DeLorenzo with a dilemma: Could his hedge fund be Islamic-friendly?

Islam prohibits all kinds of speculative behavior that is embedded in Wall Street’s DNA. But Mr. DeLorenzo, a Massachusetts-born convert to Islam, is on a mission to meld centuries-old Islamic law with modern finance in the U.S.

Renting Vs. Buying: Realities of Home Ownership August 3, 2007

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Sunni Sister: Blahg Blahg Blahg » Blog Archive » Renting Vs. Buying: Realities of Home Ownership

Award-winning blogger, Sunni Sister, on the ball:

Muslims who abide by the Command of Allah regarding riba are often told that we are “throwing our money away” by not engaging in the interest-based home mortgaging system to buy a house and “establish the Muslim community” in the United States. Personally, I think it’s kind of shady to try and entice people to violate the Command of Allah by appealing to their care for the Ummah and their desire to be good Muslim citizens, but… whatever. But let me not rant on this latest haram that has suddenly been made halal by (thank God) a handful of “experts.”

There is a really good blog out there called Get Rich Slowly, and recently, he wrote an article about this idea that people who rent “throw their money away,” while people who buy make sound financial decisions and see a return on their dolo.

Renting vs. Buying: The Realities of Home Ownership

I’m not saying that some of the things he outlines should be counted as “reasons not to engage in riba’” by us Muslims. I only posted it b/c it kind of points out how, in a dunya sense, we actually aren’t throwing our money away. And of course, in the larger scheme of things — in the things that matter — we aren’t throwing money away. You’re getting something in return for that money anyway: a roof over your head, a bathroom, appliances (in most places), and so on. You’re paying for something, and you’re getting something out of it. Who ever said it was all supposed to be easy? We’re investing in our akhira. Come join us in the Society for Riba’ Free Livin’.

Related links from the Renting vs. Buying article:

Wall Street Journal: Your Home Isn’t the Nest Egg That You May Think It Is
New York Times: A Word of Advice During a Housing Slump: Rent
New York Times: Is it better to buy or rent? (graphical calculator)
The Motley Fool: The Worst Investment Ever
SmartMoney.com: Renting Makes More Financial Sense Than Homeownership
CNN Money: Stocks vs. Real Estate
Priced Out Forever: Renting vs. Purchasing

Marketing to Muslims | Food, fashion and faith | Economist.com August 2, 2007

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Marketing to Muslims | Food, fashion and faith | Economist.com

MARKETERS and self-proclaimed trendspotters in the Western world love slicing and segmenting consumers into an ever larger number of categories. They created the teenager, the yuppie, the baby boomer, the singleton and the metrosexual. For all of them they invented “needs” that could, inevitably, be met by whatever product they happened to be promoting. Yet to this day they tend to tiptoe around Muslims as a distinct market segment.

Although they have settled into a fairly comfortable relationship with Jews and Christians whose cultures they feel they know and understand, the cultural divide with the Muslim world seems to be too daunting.

But a new study by JWT, an advertising agency, points out that the 6m or so Muslims in America are, on average, richer and better educated than the general population. Two-thirds of Muslim households make more than $50,000 a year and a quarter earn over $100,000; the national average is $42,000. Two-thirds of American Muslims have a college degree, compared with less than half of the general population. Muslim families also tend to have more children. So the perception that marketing specifically to Muslims is not worthwhile would appear to be wrong.

According to JWT food, finance and packaged goods are the three consumer markets most affected by Islamic law. The global halal market
is worth some $580 billion annually. In America an estimated 16% of
sales in the $100 billion kosher industry comes from Muslims who lack
adequate halal options. Manischewitz, the leading maker of
kosher foods, has already spotted an opportunity. Last year it launched
its first campaign under the theme “Simply Manischewitz”
designed to reach out beyond Jewish customers.

Muslim-owned consumer-goods companies are also beginning to tap the
Muslim market in the West. Since January the Burqini—a
full-coverage swimsuit made by Ahiida, whose founder is a Lebanese
immigrant in Australia—has been sold internationally, mainly
online. As the name implies, the polyester suits are a cross between a
burqa and a bikini, and are designed in accordance with Islamic law
requiring women to dress modestly.

Similarly NewBoy Toys, a Syrian firm, has created Fulla as an
alternative to the blonde, big-breasted Barbie doll made by Mattel, an
American toymaker. Fulla has dark hair, brown eyes and a small chest,
and wears a white headscarf and a coat. Unlike Barbie, Fulla does not
have a boyfriend or a job, say her makers. She spends her time cooking,
reading and praying.

Big Western companies have also started to reach out to Muslim
consumers, albeit slowly. In April McDonald’s, the biggest American
chain of fast-food restaurants, began serving halal Chicken
McNuggets and other food items permissible under Islamic law for a
trial period at a restaurant in Southall, in west London. The firm is
treading carefully: the new offerings are not advertised beyond the
walls of the restaurant. Yet demand is strong, sales are increasing,
and McDonald’s is thinking about extending the experiment.

Such companies are also trying to be more sensitive and inclusive in
their approach to Muslims. Each year Coca-Cola, the biggest maker of
soft drinks, runs a series of marketing initiatives focused on charity
and tolerance during the Muslim holy month of Ramadan. An ad based on
the concept of sharing food during iftar, the fast-breaking
meal after sunset, is especially popular. Yet Coke is not adapting its
global brands to Muslim consumers. “We don’t segment our
consumers based on religion,” says a spokesman for the firm.

ihiBlog: Forbes’ critique of Islamic finance & the “Dubai of Southeast Asia” July 12, 2007

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ihiBlog: Forbes’ critique of Islamic finance & the “Dubai of Southeast Asia”

Forbes has an article on Islamic finance
in which it presents many of the critiques of Islamic finance. However,
the title, “Don’t Call It Interest” mirrors the theme of the article
which suggests that, because there are many practices in Islamic
finance which mirror conventional finance (or even are benchmarked to
an interest rate), that the whole industry is a farce. It is a shame
that the article focuses on “Islamic hedge funds” and ignores the
resemblance between Islamic finance & socially-responsible/ethical
finance and the concern for equity and fairness in business
transactions. Forbes could have used the article to present a look at
the positive and negative attributes of Islamic finance but instead saw
a few products which may be considered doubtfully Shari’ah-compliant
and used these to condemn the entire industry as an inefficient
exercise in financial engineering.

Brunei wants companies to issue sukuk in order to boost its bid to be a hub of Islamic finance. The Brunei Times describes hopes of becoming to the ‘Dubai of Southeast Asia’.

Islamic Bonds – Sukuk transparency at last – Middle East News July 11, 2007

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Sukuk transparency at last – Middle East News

In Economics Departments, a Growing Will to Debate Fundamental Assumptions – New York Times July 11, 2007

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In Economics Departments, a Growing Will to Debate Fundamental Assumptions – New York Times

For many economists, questioning free-market orthodoxy is akin to expressing a belief in intelligent design at a Darwin convention: Those who doubt the naturally beneficial workings of the market are considered either deluded or crazy.

But in recent months, economists have engaged in an impassioned debate over the way their specialty is taught in universities around the country, and practiced in Washington, questioning the profession’s most cherished ideas about not interfering in the economy.

Islamic Finance Affairs #30 on list of “Growing Blogs”… July 4, 2007

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Growing Blogs « WordPress.com

  1. #30. Islamic Finance Affairs

    News, articles, and answers on Islamic finance and related legal issues in Islam

Shaykh Buti on Riba (usury) in the West July 3, 2007

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Shaykh Muhammad Said Ramadan al-Buti on Riba (usury) in the West

We
live in a country, which is based on transacting with interest, and we
are unable to do anything without getting involved in making use of it.
I’ve got a family and have been planning to buy a house, but it is
impossible without getting a loan from a bank that, in turn, adds an
interest to it. Will you, please, advise me concerning what to do. This
is because the situation here is so hard while there are no Islamic
banks to make easy access to such services for Muslims.


Inquiring brother, I have said more than once, on this site, that
usury is prohibited. It is unlawful to deal in usury in the Western
societies the same as dealing with it in Islamic societies save for the
one who suffers necessity. You have, therefore, to consider your case.
If you feel it necessary to resort to usury, it is then permissible as
to you to deal in it, the same as the permissibility of eating the meat
of the dead animal and that of the pig as to the one that is
necessitated. I thank Allah that I am not one of those who cook up
legal verdicts according to the orders and whims of others.

Will you, please, give your verdict concerning taking loans
from a bank. In case of their being permissible in case of necessity,
would you mind, dear sir, clarify the quality of such necessity,
because I fear Allah, the Lord of the Worlds. This problem has widely
spread in our age, the age in which life has changed into struggle. It
may have even become Jihad (strife).

The necessity which allows usurious loans is the same necessity
which allows eating the meat of a dead animal, pig and the like, in
which case the one necessitated is exposed to perish from hunger,
nakedness or losing a lodging. Such is the necessity, which makes
prohibitions lawful.

Source: SunniPath Answers (http://qa.sunnipath.com)

Banking on Faith – Islamic Banking and Investments – Executive Articles – Portfolio.com July 3, 2007

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Banking on Faith – Islamic Banking and Investments – Executive Articles – Portfolio.com

To some, the divide between the Muslim and Western worlds has never been wider. But for the European Islamic Investment Bank’s John Weguelin, the two sides have never been closer.

… As managing director of E.I.I.B., the West’s first investment bank to comply with sharia, Weguelin is a central player in Islamic finance’s transformation from exotic niche market to mainstream investment…

The cornerstone of the bank’s Islamic nature lies in its
transactions and ventures, which are guarded by its Sharia
Board—four Islamic scholars who vet funds and deals to make sure
they don’t contravene Koranic bans on earning interest and making
profit from alcohol, pork, or unethical activities. Before the bank
undertakes a new investment, emails between the sharia scholars and the
London office fly, allowing for what Weguelin says are ultimately
“very relaxed” meetings that occur once every six weeks.
“We’ve got one of the strongest sharia supervisory boards
in the business,” says Weguelin.

That’s a feat. Fast growth in the Islamic banking
industry—about 20 percent annually over the past few years, to an
estimated $500 billion—means that competition for top sharia
scholars with financial knowledge is stiff. “There are about 150
scholars who are globally accepted in the finance world,” says
Rushdi Siddiqui, director of the Dow Jones Islamic Market Index.
“About 20 of them are the rock-and-roll stars.” Suddenly,
Islamic scholars are becoming consultants for world-class players like Deutsche Bank,
which last year started a sharia-compliant mutual fund, and Credit
Suisse, which this spring launched Islamic banking services. E.I.I.B.
has snagged a clutch of leading sharia experts, including Sheikh Nizam
Muhammad Seleh Yacouby Yacouby, who also advises Citigroup, A.I.G., H.S.B.C., and others.

In
this brave new world, more-bullish analysts speculate that Islamic
banking could someday even overtake conventional banking. Both the
German state of Saxony-Anhelt and a Texas oil company have already
issued sukuks, or Islamic bonds. “Islamic banking is in its
infant stage, but it’s been born, it’s alive and kicking,
and maybe even crawling,” says Sheikh Yacouby….

Though conventional banks like
H.S.B.C. have set up sharia-compliant banking services, E.I.I.B., as
the only entirely Islamic investment bank based in the West, is at the
industry’s cutting edge. It’s a good place to be, insists
Weguelin: “Islamic banking is the fastest-growing sector in the
high-net-worth industry in the world at this time.” Already,
around 80 percent of investors in sukuks are non-Muslim, says Weguelin,
citing last year’s Dubai Ports flotation as an example of a sukuk
that attracted money from non-Islamic sources. “When you figure
that the Muslim population will be in the region of 30 percent of the
global population in the next 10 years and then you say that
there’s no reason conventional investors won’t buy the
products, then you can see the potential,” Weguelin says….

Europe, of course,
isn’t Weguelin’s final destination. He’s now eyeing a
variety of investments in the U.S. He admits, though, that it will be a
challenge, especially since Muslim investment in the States dropped
significantly after 9/11. But Islamic investors are starting to regain
interest in America, says Weguelin. “If you’re going to run
a diversified portfolio, you’re going to look at the U.S.”
And with plenty of wealthy, return-hungry investors of all faiths and a
growing Muslim population, Weguelin may find a ready and willing market. [Read full article]