Islamic finance may be right in time of recession

As the leaders of the world's 20 most prominent capitalist countries prepare to meet for the 2009 G-20 Leader's on Financial Markets and the World Economy this very day, now is the perfect time to reappraise the purported value of the world's ailing economic system through the lens provided us by the ideals of the Prophet Mohammed.

It is interesting to consider the possibility that, if the world's economy had followed the financial practices mandated by Islam's Sharia law, the world may have neatly sidestepped all of the evils that have reigned as a result of the most recent global recession.

While it is well and good to bemoan tax increases and cast aspersions on the financial industry, this financial catastrophe has at its epicenter the egoism of New York City and Fairfield County. And, similarly, the governments of New York and Connecticut - and New York City, Westchester, Greenwich, Stamford and Westport - were only too happy to accept the tax returns of these financiers, and only too ready to loosen restrictions that might have impinged their (taxable) profits.

But we all had our hands on the wheel of the vehicle of this collapse, and it was a gluttonous addiction to monetary gambling in all forms of credit, derivatives, interest rates and other blasphemous tools of usury and fiscal illusion. Coincidentally, Sharia law's most stringent bans are reserved for exactly such duplicitous "financial innovations." If traders and brokers had only heeded the words of the Qu'ran, much of the suffering provoked by the "subprime" meltdown might have been avoided.

Islamic financial law considers dividing interest on mortgage payments into "prime" and "subprime," as if there were various degrees of evil in usury, to be as foolish as dividing blashpemy into "prime" and "subprime" levels - as if God's vengeance may be any less swift for a "Moody's AAA" blasphemer. Allah's words consider all forms of interest and intangible financial gambling, such as credit-derivative swaps, to be "riba." And the Qur'an is perfectly clear in stating that "those who charge riba are in the same position as those controlled by the devil's influence ... those who persist in riba, they incur Hell, wherein they abide forever ... If the debtor is unable to pay, wait for a better time. If you give up the loan as charity, it would be better for you, if you only knew."

Interestingly, Barack Obama and his financial advisors seem to be following Allah's que, here - debt forgiveness and the reworking of "underwater" mortgages have been integral elements in the bailout plans. Perhaps the Qur'an is right - to give up an unworkable loan as charity may well be better, both for the "soul" and for the economy, than to press the world down upon a crown of foreclosures.

As the wealth of America and the Eurozone buckles under the strain of its own greed and addiction to "riba," there is some impressive evidence that Islamic finance is doing much better than the world average, especially in the insurance industry, where the Western model has taken a crippling blow. As American giants like A.I.G. have crashed and burned, the Islamic insurance industry, which has grown at over 25 percent annually since 2004, is expected to keep growing, at 17 percent per year. The Islamic financial industry as a whole currently controls about $650-750 billion in funds, and it has been rising at more than 15 percent per year for quite some time.

Of course, it's easier to grow faster, percentage-wise, when you're smaller. But, hey, $750 billion isn't that small. And the cause of the current meltdown was, indisputably, a "defective governance framework" controlling world finances - as rightly noted by Ahmed Mohamed Ali, president of the Islamic Development Bank.

"The major selling proposition of Islamic finance is its strong ethical foundation," Ali added, and it was this "character-and-integrity-based governance" that would allow for financial stability.

Remember Alan Greenspan's staunch opposition to credit-derivatives regulation? Clearly, Western financial "experts" have been very wrong as of late - and maybe, just maybe, Islamic financial experts are right.