Islamic banks market themselves as the panacea to the world’s ailing economy; but are a set of prohibitions enough to make the financial world a better place?
Many Islamic banks saw the financial crisis as the ultimate marketing opportunity. While banks in the western world were steeped in scandal, Islamic banks could present themselves as the opposite and tempt weary consumers through their doors with promises of fairness, transparency and morality.
The trouble is, consumers have heard this all before. Lehman Brothers’ lured investors with their respected code of ethics, which it claimed was to “help maintain a culture of honesty and accountability”. Ha! Similarly, in its code of ethics Enron promised that “employees of Enron, its subsideries and its affiliated companies ... are charged with conducting their business affairs in accordance with the highest ethical standards.” Ha, ha!
Bank Islam Malaysia, Dubai Islamic Bank, Goldman Sachs’ ill-fated Sukuk and the Invest Dar, to name a few, all are unfortunate examples that Islamic banks are not above scandal. And that’s without mentioning the investment scams that haunted Egypt’s Islamic finance sector back in the 1980s. The only reason they are not on the same scale as the banking scandals of the west is, quite simply, Islamic banks are not on the same scale as banks in the west.
Islamic banks promise transparency, and yet certain practices such as the smoothing of returns which allows banks to hide losses have been heartily approved by scholars and industry bodies. Bankruptcies and failures have brought out behaviour similar to western banks, unveiling void contracts, unspoken for assets and no one prepared to take the blame.
Islamic banking distinguishes itself by prohibitions, but does this make it more ethical? Microfinance and green funds often remain neglected by Islamic finance, even though it fits perfectly with its ethos. Here in the Middle East we have winds strong enough to sculpt sky-high sand dunes and heat powerful enough to fry eggs on a sun scorched surface... And yet no Islamic investor has thought to harness these resources for renewable energy?
Islamic finance is currently legally distinct from conventional because it follows a different set of rules. It must be take a higher moral ground if it wants to be better than conventional finance, not just different.
source: CPI Financial