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Why non-Muslims are converting to sharia finance

economist.com

141–150 of 163 posts

Re: Why non-Muslims are converting to sharia finance

#141

Earlier quoted context omitted.

sharia /ʃəˈriːə/Submit noun Islamic canonical law based on the teachings of the Koran and the traditions of the Prophet (Hadith and Sunna), prescribing both religious and secular duties and sometimes retributive penalties for lawbreaking. It has generally been supplemented by legislation adapted to the conditions of the day, though the manner in which it should be applied in modern states is a subject of dispute betw…

I wonder what their loan grant rate is to women compared to men, for example.

Exactly the Same?

Re: Why non-Muslims are converting to sharia finance

#142

In Spain the Catholic Church created a series of banks for lending to poor people, and investing profit in social causes. I think the concept came from Italy. Those banks were called "Cajas de ahorros". Most people had their money there instead of private Banks. The concept worked very well for something like 200 years. Until politicians changed the law to control the Cajas themselves. After politicians took control,…

The Catholic Church has always tended to see charging interest as being equivalent to committing the sin of usury and throughout history they've tried to ban it several times. See for instance: https://en.wikipedia.org/wiki/Vix_pervenit#Historical_contex... In practice these prohibitions weren't too effective because people always found loopholes and ways of charging interest without calling it interest.

Re: Why non-Muslims are converting to sharia finance

#143
post #136

Earlier quoted context omitted.

I agree that your experience is exactly what sounds like: taking a conventional financial instrument, replacing all mention of the word “interest” with something way more complicated, and adding rules that seem difficult to always stay on the right side of. That happens to be exactly what Tarek El Diwany (mentioned in the second last paragraph of article) is saying. Shariah banks have to operate in a world that has c…

The boom and bust cycle has been driven primarily by land speculation since classical antiquity. The ability of banks to use their credit creation powers to fuel real estate bubbles through mortgage lending can be halted using a frequently reassessed land value tax and land value increment tax. In the early 1900s Germany completely eliminated land speculation in the colony of Kiautschou using a 6% annual tax on asses…

What's stopping people from doing that?

Re: Why non-Muslims are converting to sharia finance

#144

Earlier quoted context omitted.

I agree that your experience is exactly what sounds like: taking a conventional financial instrument, replacing all mention of the word “interest” with something way more complicated, and adding rules that seem difficult to always stay on the right side of. That happens to be exactly what Tarek El Diwany (mentioned in the second last paragraph of article) is saying. Shariah banks have to operate in a world that has c…

>> the boom-and-bust economic cycles have grown more catastrophic While agreeing with your post more generally, this one statement seems a bit off the mark. Shouldn't the Great Recession should fairly be compared with Great Depression? So far, at least, the Great Depression was far more catastrophic, as was for that matter the Long Depression starting in 1873. All three of these were real financial sector collapses,…

That's a fair point. I was including the smaller recessions as well: there is a boom and a bust within a ten year span.

That the IMF changed the definition of a global recession is a little weird, but they know better than I do.

From wikipedia:

According to the International Monetary Fund (IMF), "Global recessions seem to occur over a cycle lasting between eight and 10 years."[48] The IMF takes many factors into account when defining a global recession. Until April 2009, IMF several times communicated to the press, that a global annual real GDP growth of 3.0 percent or less in their view was "...equivalent to a global recession."[49][50] By this measure, six periods since 1970 qualify: 1974–1975,[51] 1980–1983,[51] 1990–1993,[51][52] 1998,[51][52] 2001–2002,[51][52] and 2008–2009.[53] During what IMF in April 2002 termed the past three global recessions of the last three decades, global per capita output growth was zero or negative, and IMF argued—at that time—that because of the opposite being found for 2001, the economic state in this year by itself did not qualify as a global recession.[48]

In April 2009, IMF had changed their Global recession definition to:

    A decline in annual per‑capita real World GDP (purchasing power parity weighted), backed up by a decline or worsening for one or more of the seven other global macroeconomic indicators: Industrial production, trade, capital flows, oil consumption, unemployment rate, per‑capita investment, and per‑capita consumption.[54][55]
By this new definition, a total of four global recessions took place since World War II: 1975, 1982, 1991 and 2009. All of them only lasted one year, although the third would have lasted three years (1991–93) if IMF as criteria had used the normal exchange rate weighted per‑capita real World GDP rather than the purchase power parity weighted per‑capita real World GDP.[54][55]

[0] https://en.wikipedia.org/wiki/Recession#Global

Re: Why non-Muslims are converting to sharia finance

#146

Earlier quoted context omitted.

I must say I once read a prospectus for a sharia financed product. No "interest", only "percentual administrative fees". Wait, what ? Other than that, they're essentially "pulling an uber". They're significantly riskier investment schemes that most institutions have had really bad experiences with a few decades ago. They're ignoring regulations that exist for good reason, and regulators seem to let them for some reas…

So, I've read some literature, and my understanding is that there are ways to structure it, just that they can be subtle and slightly difficult to understand. Suppose you want to buy a house. The idea is that, you'll agree on a price of the house, which is greater than current market value. Suppose listing price is 100K. You agree on 150K with the lender. Each payment is expected to pay as part of 150K. This however…

That "rational product" you're looking for is a traditional loan with interest—which in the end is just a way of renting money. All these other arrangements are just attempts to mimic the utility and function of a loan while avoiding the term "interest" in order to technically comply with the bare letter of various religious restrictions. If you aren't bound by those rules then there is no point in taking on all that extra complexity.

Re: Why non-Muslims are converting to sharia finance

#147

Very interesting--I had never heard of this before. It seems the higher interest rate is predicated on finding investors who want to take loans at higher-than-market-clearing rates. Does anyone have any insight into why non-Muslims are getting loans through these banks? I don't see how this scales to consistently provide higher returns, especially as more money moves into this system. Are tobacco and alcohol related…

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Re: Why non-Muslims are converting to sharia finance

#148
post #96
post #38

Earlier quoted context omitted.

Here in UK, I'm a fan of halal chippies as they always use vegetable oil instead of beef dripping for their chips and patties.

That's not a reason to be a fan. It's much unhealthier. Unless they are changing out the vegetable oil every day then it carries a much bigger cancer risk (due to aldehydes).

It is a reason to be fan if you are concerned about animal rights and the environmental impact of animal husbandry.

But, yes, in terms of personal health vegetable oil might not be better in any way. I know very little about that, and I have no reason to doubt your claim.

Re: Why non-Muslims are converting to sharia finance

#149

I had the opportunity to translate technical documents for both conventional and sharia financial products a few years ago, and I find the market fascination of them mind-boggling. These products seemed to incorporate convoluted jargon and concepts which dramatically increased complexity but at the same time, produced no extra utility for end-users. On top of that, the addition of ongoing shariah-compliance introduce…

Complexity is a feature in modern financial products. It creates a larger knowledge gap between those selling the products and those buying them.

+1

People forget that the "invisible hand of the market" assumes perfect or at least reasonably accurate understanding of the risks, benefits, and outcomes. Take that info away and you inevitably have snake-oil salesmen and the Housing Bubble (a product of modern financial products)

See also: "Externalities in Economies with Imperfect Information and Incomplete Markets" by Stiglitz

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