Riyadh, Asharq Al-Awsat- The reason why Islamic banks first came into existence, was because Muslim societies needed financial institutions that operated in accordance with the ordinances of the Islamic Shariaa, and that sought to fulfil the Shariaa’s prime targets in finance. Shariaa Law regarded finance as a tool to ‘construct the Earth’, achieve the renaissance of the Muslim nation, and ensure a decent standard of living for generations to come. This is something that cannot be achieved without banks and finance, as they are the energy behind any renaissance.
Money was available, but it remained only in the hands of people, who didn’t want to deposit or invest it in conventional banks, considering their operations to be mostly usurious. People that refrained from depositing or investing their funds into usurious banks – owing to their embarrassment of dealing with them – have in turn deprived society. This is because communities were unable to derive benefits from such funds, in order meet developmental needs or promote the living standards of their members. Therefore, it was necessary to find a channel to take advantage of these funds, as the stockpiling of a private surplus had led to a deficit in society, and this channel was Islamic banking.
Yet, in fact, such a channel did not perform the role it was entrusted with; namely shifting finance from the surplus to the deficit category, with the aim of development and achieving [financial] independence. Rather, these banks were a channel for exporting wealth outside of their societies. Indeed most Islamic banks today, particularly the investment banks, carry out investments outside of their societies. Had these investments been in sectors that are not available in their native countries or had they sought to attain high goals, such as investing in energy, computers, research or development, in other words investments that provide tangible returns for their community, then this action would have been justifiable.
However, anyone who has looked into the investments of Islamic banks would find that they are purely conventional, and that their society would derive no benefits from them. Rather, their target is merely to make quick profits, or it could be seen as a form of bravado. For example, these banks have invested in British and American real-estate, whether commercial or residential, and this has caused them to sustain heavy losses, in the wake of the U.S. subprime mortgage crisis. They have also invested in well-known brands, that would otherwise have gone bankrupt had this industry failed to fund them.
I used to think that Islamic banks would reconsider their strategies, having sustained heavy losses as a result of the global financial crisis, and that they would subsequently return to invest in their countries and societies, which are safer environments for investment, as the region’s economies were less harmed by the global financial crisis. However, I was wrong, and what has happened was contrary to what I expected. These banks have further reduced their investments in their native countries and societies, especially in the real-estate sector. As a result, more than one Gulf state currently suffers from a liquidity crisis, despite the fact that the real-estate sector carries much weight in the national economy, second only to the oil sector in terms of its GDP contribution. Such a reduction in local market investment coincided with renewed investments in the British and US real-estate markets, although these are yet to recover from the recent crisis, as local investors still are still wary of them. The return of Gulf finances into the British real-estate market, in particular, has caused the revival of such markets. Here, I would not hesitate to brand these banks, which invest their money in this manner, as Western money boxes, rather than Islamic banks.
As for making job opportunities available to their native societies – this being one of Islamic banking’s most significant principles in the past – this has now become an aspect of a bygone era, and has been completely forgotten. Numerous Islamic banks are now surpassing conventional banks, in terms of having the smallest local workforce, often occupying low-skilled jobs. Furthermore, they have also dismissed many, causing the displacement of whole families, and rising unemployment, under the pretext of cost-cutting procedures. This is despite the fact that these banks are still swarming with foreign consultants, who enjoy numerous privileges and high salaries.
Islamic finance has betrayed many of its principles, upon which it was originally established. As a result, it has lost its distinctive character and identity, and the confidence of its society.