In a process known as Murabaha a person decides to purchase an asset (car, home) via an Islamic bank which buys it in its own name and immediately “resells” it for a higher amount which ultimately works out to be equal or higher than conventional interest. In the meantime the bank retains ownership of the asset until the client is able to pay back the entire amount plus the finance charges. Basically, Islamic banks make more money and take much less risk, the burden of which rests solely on the Shariah compliant client.
How it started?
The development of this fast growing industry that preys on the religious beliefs of 1.2 billion people is that a few terms were literally translated from English into fancy sounding Arabic words to appeal to the pious. Words such as Lease became Ijara, Bonds turned into Sukuk, Joint Venture changed to Musharaka and Insurance morphed into Takaful. Folks, the truth is, all the above words are literal translations from English to Arabic and have nothing to do with Islam. For non Arabic speakers it is similar to saying flat in British English and apartment in American English which is very acceptable. What is not acceptable however is when one is expected to pay much more to buy the very same flat should the seller decide to call it an apartment in the contract.
Also, for those who believe in the sham of Islamic banking, turning a regular bank into an Islamic one by changing its name or logo does not make it an “Islamic bank”. It is clearly set in Islamic principles that if money that was used to start a business was itself tainted then everything that was built upon it is so and cannot be laundered or white washed no matter how many fatwas are collected.
There are various reasons behind the emergence of this belief-finance system. In Malaysia it was seen as a way to grab a share from the more developed hubs of Hong Kong and Singapore; in the Gulf, Western banks wanted to offset any migration of long established customers to fledgling banks that have window-dressed their names as well as capture a new slice of the $1.5 Trillion estimated wealth in the region
Once again, as in the case of the Arab League, GCC Customs Union and the Peace in the
For an industry that claims it has $500 Billion dollars under management having "no common approach on regulatory frameworks” as a KPMG report found coupled with a “lack of transparency in operations" doesn’t bode well for its clients.
A professor from the