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German Bank Offers “Islam Compliant” Investment in German Core Corporations

COMMENT: A fascinating contribution comes from the [very] conservative Weekly Standard blogs. The WestLB–a German bank–is offering an investment vehicle which will permit Muslims to invest in an “Islam Compliant” manner in the German core corporations.

The German core corporations are inextricably linked with the Bormann capital network, the economic component of a Third Reich gone underground. Note that, in addition to two companies that comprised the old I.G. Farben complex, BASF and Bayer, the firms that WestLB is offering to Muslims for their investment portfolios is ThyssenKrupp.

The Thyssen industrial complex had strong business connections with the Bush family and has a long history of association with the Bormann network and with Reichsleiter Martin Bormann himself.

NB: It will be increasingly difficult for listeners and readers to understand these broadcasts and posts without reading Paul Manning’s Martin Bormann: Nazi in Exile. That vitally important volume is available for download for free on this website.

As we have seen in the past, the Muslim Brotherhood, an Islamic fascist organization allied with the Axis in World War II and Western intelligence in the postwar period, has strong connections to the Underground Reich. The Brotherhood is the parent organization of Al-Qaeda, Hamas and Palestinian Islamic Jihad.

“German Bank Offers ‘Islam Compliant’ Investment” by John Rosenthal; weeklystandard.com.blogs; 2/7/2012.

EXCERPT: Last month, German bank WestLB rolled out a new “Islam-compliant” investment product named the Islamic Strategy Index Certificate. The value of the certificate is based on the value of the WestLB Islamic Deutschland Index, consisting of shares of ten German firms “whose business activities are consistent with the ethical rules of Islam.” . . .

. . . . The firms making up the Islamic Deutschland Index are some of the biggest names in German industry, including the sporting goods manufacturer Adidas, the engineering group Siemens, the software maker SAP, the chemical giant BASF, the pharmaceutical company Bayer, and the energy companies E.ON and RWE. Deutsche Post, of which the German state remains the principal shareholder, also forms part of the index. In addition to providing postal services in Germany, Deutsche Post is the parent company of the international package sender DHL. . . .

. . . . Regarding one of the firms in the index, the Islamische Zeitung ironically remarks, “it must have escaped the attention of the financial scholars that ThyssenKrupp, by virtue of its participation in…ThyssenKrupp Marine Systems, counts as one of the most up-to-date producers of maritime military technology.” . . .

Discussion

7 comments for “German Bank Offers “Islam Compliant” Investment in German Core Corporations”

  1. Note that WestLB, one of the German state-owned Landesbanks, is in the midst of a major restructuring, in keeping with the wave of mergers in the Landesbank landscape since 2007:

    Doesn’t look like WestLB is under pressure to offload assets
    International financing review
    16 February 2012 | By Keith Mullin, Capital City

    Is WestLB’s restructuring in good shape? I pose the question because even though the bank has opted to break up its businesses into bite-sized units to maximise sales potential, it doesn’t seem to be that keen to deal.

    What’s interesting about the WestLB restructuring in a broader industry context is the speculation it kicked off about whether it would lead to further Landesbank consolidation. On that, I’m not so sure. In an extremely convoluted takeover structure, WestLB rival Helaba (Landesbank Hessen-Thuringen) is acquiring between €40bn and €45bn of WestLB assets as a pre-arranged component of the restructuring plan, along with around 400 staff. This so-called Verbundbank transfer takes effect on July 1. I think it’s clear that Helaba will probably also end up acquiring SPM-Bank from the State of North Rhine-Westphalia, with most of the 1,000 legacy employees.

    That leaves a relatively neat group of just six Landesbank groups. Following a series of mergers in past years, the remaining LBs are Bayerische Landesbank (BayernLB, which owns 49.9% of Landesbank Saar); HSH Nordbank (created out of mergers with Hamburgische Landesbank and Landesbank Schleswig-Holstein); Landesbank Baden-Wuerttemberg (LBBW, incorporating Baden-Wuerttembergische Bank, Sachsen Bank and Rheinland-Pfalz Bank); NordLB (which owns 92.5% of Bremer Landesbank); Landesbank Berlin; and Landesbank Hessen-Thuringen (Helaba, incorporating some/all of legacy WestLB). That’s a hell of a lot neater than in previous years. Now I’m no Landesbank specialist, but how much room in practice does that leave for more consolidation? I’m in the process of trying to find out. Watch this space.

    Keep in mind that this latest wave of Landesbank consolidation was preceded by decades of sometimes aggressive overseas investments by the state-backed Landesbanks and German insurers, but that state backing was phased out starting in 2005(the state support, it was argued, gave the Landesbanks an unfair competitive advantage). Ironically, the loss of state backing for debts issued suddenly made the banks even more profit hungry in anticipation of the loss of state-backing:

    Landesbanks and life insurers counter credit critiques

    Original headline: Credit risk

    Risk magazine | 01 Jul 2003

    Concerns about Landesbanks’ and German life insurers’ credit risk management have grown in recent months, following reports from rating agency Fitch Ratings questioning their exposures. But the institutions say the critics are wrong.

    On the debt syndicate desks of the world’s leading investment banks, the phrase ‘German institutions’ can get pulses racing. Anecdotal evidence indicates that Landesbanks and life insurers snap up almost everything on offer, whether straight corporate bonds or the most sophisticated structured product.

    Earlier this year, Fitch Ratings investigated the credit-worthiness of these institutions. In reports on the Landesbanks and the insurance industry it focused attention on their credit portfolios and use of credit derivatives. The reports were poorly received by the institutions involved, and many bankers have criticised the domestic media for regurgitating “groundless nonsense” about Germany’s financial institutions.

    Helaba is one of the more conservative Landesbanks. “We are a risk-shy wholesale bank,” says Andreas Petrie, head of credit products at Helaba in Frankfurt. “On a scale of one to 10 we are a two in Germany and a three internationally.” Most of its credit risk comes from the public sector or the mortgage markets. It has around 40% of its mortgage portfolio outside Germany – in the US, the UK, the Netherlands and the rest of western Europe – and it is a major lender to Germany’s 100 largest capital market clients.

    While Helaba is conservative, it is by no means atypical. Until recently, Landesbanks operated largely in the low-margin and low-risk environment of mortgage assets, public-sector finance and servicing the savings bank market. The catalyst for a change in Landesbanks’ attitudes to risk was an agreement in July 2001 between the German authorities and the European Commission, which removed the state guarantee of Landesbanks by July 2005 – and effectively downgraded the banks from their current triple-A level. That action pushed up funding costs, and the banks have been forced to seek ways to increase revenues.

    One method – adopted by all the Landesbanks – has been to seek out instruments with potentially higher returns. Christian Spieler, head of financial institutions derivatives marketing at JP Morgan Chase, says there has been a steady – and sensible – growth in risk appetite among Landesbanks. “Most banks were focused on the low-risk end of the market in the mid-1990s, and started with bonds and then some asset-backed securities (ABS) and other leveraged credit products. Complementing traditional operations to a certain degree by engaging in the international credit markets is a very meaningful and risk-mitigating strategy for Landesbanks.” Landesbank Baden-Württemberg, West LB and Landesbank Sachsen are known to have built up large ABS portfolios.

    Not surprisingly, the Landesbanks like westLB that were instrumental in fueling eurozone and US private-sector borrowing binges bubbles eventually found themselves heavily invested in in soon-to-implode countries:

    The Local
    Iceland creates banking pain in told-you-so Germany

    Published: 26 Oct 08 09:05 CET

    German politicians were fast to blame “Anglo-Saxon” excesses for the financial crisis but the country’s own banks, particularly state-owned lenders, have been anything but risk-averse.

    Figures this week from the Bank of International Settlements showed that German banks were by far the most enthusiastic when it came to lending money to Iceland, the Nordic island state teetering on the brink of financial collapse.

    Iceland owed banks in Europe’s biggest economy over $21 billion (€16.5 billion), almost a third of the island’s total liabilities and far more than any other country, data from the central banking body showed.

    “This was a very surprisingly high number … Iceland only has around 300,000 inhabitants, the same as a town like Wuppertal,” said Konrad Becker, banking analyst at the private Merck Finck bank. “And no one is going to lend Wuppertal $21 billion.

    “German banks, even state-owned ones, were not examples of a prudent, conservative way of banking,” Becker told AFP.

    The North Atlantic island has been hit hard by the financial crisis, with its government forced to nationalise its three largest banks and seek emergency bailouts from other countries and from the International Monetary Fund.

    Germany’s loans to Iceland were five times higher than those of banks in Britain, with regional German bank BayernLB’s liabilities alone exceeding those of all Italy’s main banks combined, according to the Handelsblatt daily.

    And it is not just Iceland. The data also showed that German banks have also been at the forefront of investing in other European countries offering high returns – and high risks – most notably in Ireland and Spain.

    Ireland last month became the first eurozone member to be in recession after years of breakneck growth, while the collapse of Spain’s once-booming property market has left many investors with their fingers badly burnt.

    German banks have not yet given much detail but if the regional lender BayernLB is any guide – it has written off as worthless €800 million in loans to Iceland – this is going to add considerably to the pain already being felt in other areas.

    BayernLB, one of Germany’s Landesbanks, this week became the first lender to seek help from the government’s €480-billion financial rescue package. Hamburg-based HSH Nordbank has since followed suit, and West LB is expected to take up the offer next week.

    One of the prime sources of the troubles, it turns out, was cause by that some of the Landesbank’s US subsidiaries engaging in the high-risk practice of short-term borrowing from US municipalities and investing the borrowed money in subprime mortgage backed securities:

    WSJ
    April 21, 2010, 7:44 p.m. ET

    German Bank: Victim Or a Contributor?
    IKB’s Investments at the Heart of SEC’s Goldman Probe

    BY CARRICK MOLLENKAMP AND LAURA STEVENS

    In 2006 and 2007, word spread around Wall Street about an unlikely investor: A little-known German bank that was willing to spend billions of dollars—itself raised from U.S. municipalities—on new and risky credit instruments.

    Now, those investments made by IKB Deutsche Industriebank AG are central to the U.S. Securities and Exchange Commission’s case against Goldman Sachs Group Inc.

    In its complaint filed last week, the SEC alleged that Goldman defrauded IKB by neglecting to disclose that hedge-fund operator Paulson & Co. was helping to put together a mortgage investment vehicle known as Abacus. The SEC alleges that investors, including IKB,

    “For a very, very long time the IKB was extremely stable, but also very boring,” said Konrad Becker, an analyst with Munich-based private banking firm Merck Finck & Co.

    But by the end of the 1990s, the Duesseldorf-based bank was facing lots of competition from other banks chasing the Mittelstand sector. It also was facing pressure to increase profit—not an easy task when most of its business had extremely tight margins, according to analysts.

    In an effort to expand beyond German loans, IKB in 2001 brought in a former State Street Corp. bond executive named Dirk Roethig, who worked with an IKB team to drastically increase the banks’s credit business, according to company financial documents of the time.

    Between 2002 and early 2007, an IKB unit called IKB Credit Asset Management GmbH increased its assets under management by nearly eight-fold to $23 billion, according to financial filings. It did this by first selling its own debt to investment pools favored by U.S. municipalities. Those who invested with IKB included the state of Montana, King County, Wash., and the city of Oakland, Calif.

    IKB then took that pot of short-term money and invested in billions of dollars of securities backed by subprime loans as well as collateralized-debt obligations containing mortgage securities. According to an IKB annual report, 100% of the assets initially were investment grade.

    Most of these deals were placed in IKB’s two big investment vehicles: Rhineland Funding Capital Corp., founded in 2002, and Rhinebridge PLC, founded in 2007, according to financial filings.

    IKB proved an avid buyer of much that Wall Street had to offer, including the Goldman Abacus deal now under government scrutiny. In 2007, its marketing book for Rhineland touted the bank’s “strong record as a leading investor in CDOs.”

    Even though it received top ratings from the three main credit-ratings firms, Rhinebridge launched on June 27, 2007, and was in receivership by October 2007. King County, Wash., which invested in Rhinebridge debt as a cash manager for 100 other governmental agencies, calls it, “perhaps the shortest-lived ‘Triple-A’ company in the history of corporate finance,” according to legal proceedings the county has brought against IKB.

    And yes, the investment vehicle described above between IKB and Goldman Sachs is, indeed, the very same notorious “Abacus” product that came to epitomize the fleece-the-sheep culture that’s come to dominate the financial industry.

    So after all these questionable invest decisions led the Landesbanks to be amongst the first financial institutions to implode in the collapsing housing market, it’s interesting to recall that the favorite local to set up a “bad bank” (of junk assets) after the housing collapse happened to be Ireland, a country that was sent into the new eurozone penalty-box primarily because of its under-regulated, oversized banking sector. While this fun-fact led to some soul searching in Dublin, keep in mind that these foreign banks with distressed assets in Irish subsidiaries weren’t getting directly bailed out by the Irish public during the bailout of the Irish banking sector. Indirectly bailed out on the other hand…:

    Ireland wants bank creditors to bear pain, ECB says no
    By SHAWN POGATCHNIK, Associated Press
    pdated 04/01/2011 02:17:28 PM

    DUBLIN — Ireland still wants to force foreign bondholders to bear losses in debt-crippled banks but is being blocked by the European Central Bank, which has the lenders on life support, Finance Minister Michael Noonan said Friday.

    Ireland’s bank-bailout bill officially surged Thursday by 24 billion euros to 70.5 billion euros ($100 billion) as part of a new round of ECB-ordered stress tests. Ireland then unveiled plans to slash its largely nationalized banking sector down to just two: Bank of Ireland and Allied Irish Banks.

    Ratings agency Standard & Poor’s the next day said the tests’ assumptions were robust, that the worst was over, and the economy is now set to recover gradually.

    Although it downgraded Ireland’s credit rating by one notch, citing increased risks for bondholders under new EU rules to come into effect in 2013, it expects the country to recover faster than Greece or Portugal — Europe’s other two worst debt offenders.

    It added it didn’t expect any more downgrades soon, though S&P rival Fitch warned soon after that it may cut its own BBB+ rating on Ireland soon as it assesses the stress tests and other developments since its last downgrade in December.

    But as experts digested the test results, the issue of how far to push losses on the banks’ bondholders remained the focus.

    Noonan said Ireland intends to force at least 5 billion euros ($7 billion) in losses on the most junior class of bank bondholders as part of the bailout bill. That represents a small concession by the ECB, which had until this week opposed such a move.

    But Noonan said hopes of forcing billions more in losses on senior bondholders — chiefly British, German and American banks — were again vetoed by a majority of ECB governors during negotiations that ran right up to Thursday’s announcements.

    Noonan said Ireland would not act unilaterally against the orders of the ECB, which along with the European Commission has been against forcing losses on bondholders since Ireland’s banking crisis erupted in 2008. European financial chiefs made protection of senior bondholders a condition of its November bailout agreement with Ireland’s previous government, which was ousted from office three weeks ago amid voter fury over the terms of the deal.

    Note that the Irish banks’ creditors/”junior bondholders” (mostly US, UK and German banks) were eventually forced to take a big haircut on their bad loans to Irish banks….oh wait never mind….

    NYTimes
    Bank Bondholders to Be Paid While Irish Public Howls
    By DOREEN CARVAJAL
    Published: January 23, 2012

    PARIS — Anglo Irish Bank is poised to pay more than a billion euros on Wednesday to unsecured creditors, drawing criticism from Irish taxpayers who are paying the enormous bill for the country’s bank bailout.

    The payment is part of Ireland’s effort to shore up Anglo Irish, a state-owned bank now known as the Irish Resolution Bank Corporation, in a rescue that ultimately could top 47 billion euros, or $61 billion.

    The European Central Bank put Ireland on notice last week that defaulting on payments to the bondholders could lead to dire financial consequences, the equivalent of a financial “bomb” in the Irish economy, according to Ireland’s transport minister, Leo Varadkar, who made the comments over the weekend on an Irish television program.

    But that has not quelled a public debate about whether taxpayers should pay bondholders who bet on investments in a bank that was bailed out and nationalized in 2009 after the collapse of the Irish real estate market. In general, unsecured bondholders reap a higher return because the bonds are not guaranteed and therefore carry a higher risk.

    A year ago, David Norris, an independent member of the Irish Senate, used parliamentary privilege to read aloud the names of bondholders, including several London financial institutions, before he was ruled out of order. He had drawn his information from Paul Staines, a former bond trader who writes a blog from London under the name Guido Fawkes. Mr. Staines posted a list of bondholder names on his blog, although he did not disclose his source.

    “My sense is that the holders of these type of bonds are completely different now, with a much greater sense of risk,” Mr. Staines said.

    Bondholders and investment banks are reluctant to talk about Ireland’s repayment. The Institute of International Finance, the leading global banking lobby group, declined Monday to comment on the issue. The group is representing bondholders in negotiations in Greece for write-downs of its bonds.

    Also Note that it’s not clear if WestLB, which did have junior Anglo Irish debt (see list at end of article), is amongst the Anglo Irish banks that will be part of the new ECB-enforced bailout, but some signs point in that direction:

    Business World
    Who are the Anglo Bondholders?

    Wednesday, January 25 10:48:11

    The names of the organisations holding Anglo Irish bonds are confidential, however past leaks reveal that the likes of Goldman Sachs, Credit Suisse and a host of hedge funds are the principal holders.

    The highly popular Guido Fawkes blog this morning re-published that first leaked in 2009 and, while out of date, shows that many of the world’s top financial companies have a stake in the bank that brought the Irish economy to its knees.

    The list shows that German financial organisation represent the biggest block of owners with Deutsche Asset Management, WEW and WGZ banks prominent.

    Anglo – now the IBRC – could end up costing the Irish taxpayer more than E47 billion.

    Anyways, this is all a reminder of the Landesbanks’ important role in the financial crises, as both a facilitators of bubbles and bailout black holes for the public in the aftermath. It’s a familiar story around the globe, but in the context of the eurozone’s current austerity fetish and the bankster actions that destroyed the global economy, the Landesbank’s chapter in the history of the financial crisis is pretty relevant.

    Posted by Pterrafractyl | March 8, 2012, 10:02 pm
  2. Here’s a 2006 article about WestLB and Austria’s Raiffeisen Zentralbank Osterreich Aktiengesellschaft (RZA) teaming up to offer shariah-compliant investments to the Gulf Finance House (GFH), highlighting WestLB’s early role in this fairly new segment of the financial industry:

    Raiffeisen Zentralbank Österreich and WestLB launch US$100 m Standby Commodity Murabaha Financing for Gulf Finance House
    ameinfo.com
    Bahrain: Tuesday, November 07 – 2006 at 13:34

    Gulf Finance House [GFH] today announced the syndicated launch of a 3-year US$100 million Standby Commodity Murabaha Financing for GFH facilitated by RZB and WestLB as joint lead arrangers, co-underwriters and joint book runners. WestLB will also act as the investment agent.

    This Murabaha transaction supports GFH’s efforts to capitalise on the success of its investment business model and widen its investor base in line with 7 years of steady growth and uninterrupted profitability.

    The Murabaha structure is Sharia’a-compliant, having been approved by the internal Sharia’a advisors of GFH. Transaction distribution has been geared towards a wide institutional investor base both inside the Gulf region and outside – particularly to European and South East Asian investors.

    On an ironic side-note, GFH just got a contract from Tunisia’s new post-Arab-spring government to raise international funds for infrastructure development. It’s an ironic contract given that GFH is based in Bahrain, not exactly an Arab-Spring-friendly location.

    And here’s another article from 2006 discussing WestLB’s underwriting of a Sukuk (Islamic bond) that appears to emulate put and call options. (and with shariah-compliant synthetic derivatives, modern finance officially jumps the shark). No doubt they’re somehow not speculative in nature, so it’s all good:

    bankalkhair.com
    Unicorn Investment Bank and WestLB close US$150m Sukuk for Investment Dar

    20 September 2006

    Unicorn Investment Bank and WestLB London Branch have today successfully closed the US$150 million Musharaka Trust Sukuk for Kuwait’s Investment Dar.

    This is the first Musharaka Sukuk structured with a put option for the investors and a call option for the issuer. The put option allows each certificate holder (investor) to exit the transaction at year three while the call option allows the issuer the same flexibility at the same date.

    The Sukuk structure is Shari’ah-compliant, having been approved by the Shari’ah Supervisory Boards of Unicorn and Investment Dar.

    Salim W. Abboud, Director of Capital Markets at Unicorn, commented: “This Sukuk attests to the capabilities of Unicorn in delivering on the capital markets needs of its clients in Islamic finance. With this Sukuk we have added value to Investment Dar by extending their liability profile, lowering their funding cost and broadening their investor base, all through a Shari’ah-compliant structure.

    David Testa, Executive Director of Asset Securitisation – Islamic Finance at WestLB, added: “As sole bookrunner, we were particularly pleased to bring in over 15 banks and institutions into the transaction, including investors in Europe and Asia”

    The transaction was launched on 6th June 2006 with Unicorn and WestLB London Branch as joint-lead arrangers. Unicorn also acted as the structuring agent and WestLB’s London Branch was the sole underwriter and bookrunner.

    Interestingly, in this snazzy new world of shariah-compliant international finance (which was set to surpass $1 trillion in 2010), it looks like process of getting of the shariah-compliant stamp of approval for these products relies on a couple dozen “scholars”:

    Insight: “Rock star” scholars a risk for Islamic finance

    By Anjuli Davies and Mirna Sleiman

    LONDON/DUBAI | Thu Mar 1, 2012 8:14am EST

    (Reuters) – Decades of parsing turgid legal documents have not dampened the enthusiasm of octogenarian Islamic scholar Sheikh Hussein Hamed Hassan. He gets agitated as he searches for a paper among piles of documents strewn across his posh Dubai office.

    Wearing a dark grey suit with no tie, the Egyptian-born academic talks to a visitor for almost two hours about Islamic banking, which he has been instrumental in developing over half a century of writing and lecturing.

    “Listen to me. You have to understand the basics of sharia, what’s allowed and not allowed in Islam. If you get it, then you’ll write it. And the whole world will understand,” he says.

    Sheikh Hussein is one of the world’s most sought-after scholars in applying sharia or Islamic law to finance, chairing no fewer than 22 of the boards which rule on whether products and practices in the industry obey religious principles.

    One position in particular stands out. As chairman of the sharia advisory board of London- and Dubai-based consultants Dar Al Istithmar, he is having to answer some searching questions on behalf of one of its most high-profile clients, U.S. investment bank Goldman Sachs.

    Last October Goldman announced it would issue as much as $2 billion in sukuk or Islamic bonds, making it one of the first top Western banks to raise money in that way. But the plan has run into controversy among potential investors over whether it follows Islamic principles, as Dar Al Istithmar insists it does. There is also controversy over the fact that Goldman publicly named at least three Islamic scholars as potential advisers on the sukuk even though they had not even seen the prospectus.

    “A copy of the Goldman Sachs sukuk prospectus was sent to these scholars for consultation but they never responded back,” Sheikh Hussein told Reuters. “They could be busy or did not approve the structure, but we didn’t hear from them. Their approval is not necessary anyway.”

    The controversy over the Goldman sukuk illustrates some of the weaknesses of the Islamic finance industry. These are leading to growing pressure for reform of the scholar system, though the power of entrenched interests, and the difficulty of coordinating policy in an industry where authority is spread across the Middle East and southeast Asia, may slow any change.

    Scholars such as Sheikh Hussein command great influence but their opinions, lacking definitive legal sanction, are often challenged, creating an uncertain regulatory environment. And some scholars sit on scores of boards, leaving them open to charges of conflict of interest and making it hard for them to keep up with all areas of their work.

    “The big problem is that there just aren’t enough of them,” said one Dubai-based banker in the industry, who declined to be named because of the sensitivity of the issue. “It’s a bit like being a rock star. They are disproportionately recognized, with people saying: ‘I want that name in Malaysia, I want that name in Bahrain.'”

    CAPACITY

    Islamic finance, based on principles such as bans on interest and pure monetary speculation, has grown rapidly over the last several years because it draws on pools of investment money in the oil-rich Gulf and Asia that have been relatively untouched by the global financial crisis.

    The industry’s global assets are expected to rise 33 percent from 2010 levels to $1.1 trillion by the end of 2012, according to consultants Ernst & Young. Islamic finance will remain far smaller than conventional finance, with its tens of trillions of dollars, but the gap may continue narrowing; Ernst & Young expects Islamic banking in the Middle East and North Africa to expand over the next five years at a compound annual rate of 20 percent, versus less than 9 percent for conventional banks.

    Sharia scholars, with expertise in both religious and conventional law, are key to this growth. Investors will not buy instruments without believing they are religiously acceptable, so most wholly Islamic financial firms have their own board of sharia scholars which certifies products and monitors the firm’s business. “Independent” sharia boards also exist, offering their services to financial firms for a price.

    There are over 400 sharia scholars worldwide but only around 15 to 20 prominent and experienced ones, which creates demand for scholars to sit on multiple boards. The top 20 scholars hold 14 to 85 positions each, occupying a total of around 620 board positions or 55 percent of the industry, data compiled by investment research firm Funds@Work show.

    While the Western model financial regulation has become sort of a joke in recent decades, the scholar-shopping model doesn’t appear to be an improvement.

    Also, on an interesting side note, scholarly sources indicate that tax sheltering is shariah-compliant:

    Islamic Finance: Islamic Sukuk By Goldman Sachs Causes Debate

    First Posted: 02/23/2012 9:51 am Updated: 02/23/2012 11:55 am

    By Anjuli Davies

    LONDON, Feb 23 (Reuters) – A controversial plan by Goldman Sachs to issue an Islamic bond has ignited a wider debate on whether conventional banks in the West should be allowed to engage in Islamic finance.

    At a major conference of Islamic scholars and bankers in London this week, much of the public and private discussion was devoted to whether growing Western interest in Islamic finance could damage the industry by compromising its religious principles.

    Some participants argued investment banks such as Goldman should be banned from issuing Islamic bonds, or sukuk, because the funds they raised could help to finance other parts of their business that did not comply with sharia or Islamic law.

    Aznan Hasan, one of the scholars who signed the Goldman fatwa, said there were no sharia-related problems with the sukuk. The intention to list on the Irish exchange is purely for tax purposes, he said. But he added that Goldman should consider more measures to address doubts.

    Posted by Pterrafractyl | March 10, 2012, 5:50 pm
  3. @Pterrafractyl–

    Not an expert in sharia finance myself, I’d be very surprised if the shenanigans engaged in by Goldman Sachs and the rest of the major houses was in keeping with the principles of what Islamic investment was SUPPOSED to be.

    Posted by Dave Emory | March 10, 2012, 7:22 pm
  4. @Dave: Yeah, Goldman Sachs seems to have the anti-Midas touch. Anything they touch turns to fools gold or some other scam.

    It’s going to be really interesting to watch the impact that Goldman Sachs and the other big banks have on this area of finances that’s still sort of in its infancy. One of the advantages Goldman & friends seems to have in the debate is that there is no uniform set of views because it all comes down to the opinions and interpretation by a handful of scholars. With around 20 “rockstar” scholars apparently running the entire globe’s shariah-compliance racket there’s going to be an incredible amount of resources by all sorts of different actors to influence these guys. It sounds like there’s going to have to be a consensus view emerging on what exactly constitutes shariah-compliance just to keep the growing market functioning because there’s too much divergence in opinion amongst these scholars. That should be one interesting set of fatwas.

    Posted by Pterrafractyl | March 10, 2012, 8:16 pm
  5. @Dave: Here’s a 2007 FT piece from the author of “Islamic Banking: a $300 billion deception” that makes two revealing observations. First, the way Islamic finance is currently practiced is almost identical to the interest-based financing that its supposed to be avoiding in the first place. Secondly, the author asserts that the form of finance that most closely follows the spirit of shariah would be venture capital (where the bank is actually investing in the business and sharing the profits and losses). Since the purpose of Islamic finance currently seems to be finding theological cover for the Islamic banks to engage in Western-style lending/borrowing banking, it’s not a perspective I’d expect to win out in the end:

    Financial Times
    January 18, 2007 8:44 pm
    Islamic finance has much to learn from the west

    By Muhammad Saleem

    Proponents of Islamic finance maintain that as the Koran prohibits interest all financing must be done on a profit and loss sharing basis. In spite of all the lofty rhetoric, in practice no more than 5 per cent of Islamic financing is done this way.

    Instead, Islamic banks use a structure called murabaha, or cost plus pre-determined profit, for the vast majority of their finance deals. Remarkably, the “profit” for an Islamic bank in a murabaha transaction and the interest a conventional bank would have charged on the same transaction happen to be exactly the same. Indeed, Islamic banks in determining their “profit” even quote the rate as a margin over Libor or other similar indices.

    Murabaha was a crude trading practice designed for transactions between real sellers and real buyers involving physical goods. By structuring a financing transaction while disguising it as a trading transaction – and charging interest concealed in Islamic garb – Islamic banks turn the entire enterprise into a charade.

    Other modes of financing are just as dubious. Take Islamic house finance, structured as a lease: lease payments are equal to interest that a conventional bank would charge on a home mortgage loan. Sukuks, or Islamic bonds, are similar in many respects to murabaha and just as tainted. Brandishing a fatwa from a scholar of sharia law (who, like mercenaries, are sometimes for sale at the right price), blessing the structure does not absolve the bankers from the responsibility of meeting the spirit of the sharia.

    The real problem with the Islamic finance industry is that despite a 30-year history and current assets of about $300bn they have yet to add any value. Islamic banks have not created any new jobs (employment at Islamic banks does not count), financed new inventions or innovations or made the Islamic communities more just and equitable. The smoke and mirrors Islamic finance industry appears to be all about creating financial structures to comply with the letter of the law, not the spirit and intent of the Koran.

    Islamic banks need to move away from the deceptive modes of financing they currently use and step towards the American style of venture capital. This has two advantages. First, the stated principles of Islamic banking – favouring profit and loss sharing over interest – are very similar to the financing techniques used by the venture capital industry, especially in the US. These private equity groups are the real Islamic finance, the genuine article. Second, by providing funds to entrepreneurs with bright ideas, the banks can assist in promoting innovation, invention and creation of new jobs and industries.

    Posted by Pterrafractyl | March 10, 2012, 8:59 pm
  6. @ Terrafractyl and @ Dave: I am not an expert either on Sharia finance but I can’t help but to think that it looks just like another way of doing economic warfare. Sharia finance won’t fund projects that are not compliant with sharia law, right? So all the projects and businesses organized and managed by Christians, Jews, polytheists, atheists, etc, in the Middle East are vulnerable to refusal. In other terms, without money to capitalize their enterprises, these projects, businesses and communities risk annihilation and disintegration, without Islamists and the like firing a single shot. This could prove to be worse than Al-Qaeda.

    Posted by Claude | March 10, 2012, 9:42 pm
  7. @Claude: You may be right, I’m afraid. =(

    Posted by Steven L. | March 11, 2012, 6:03 am

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