IMF to Rich Countries: You can afford to live with high debt 'forever'

ill

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Islamic banking likes to buy the asset then re-sell it at a higher rate instead of charging interest.



Islamic Finance
By Simon Harvey | Updated Feb 12, 2015 4:56 PM EST
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The Koran forbids charging interest or paying it. Yet even strictly observant Muslims can participate in modern-day commerce. They use alternative arrangements designed to comply with sharia, or Islamic law. These financial instruments, in which the buyer and the seller typically share risk as well as profit, are some of the fastest-growing on the market. Even companies and governments outside the Muslim world are using them. And why not? The world’s Muslim population is growing rapidly and in many places growing wealthier, creating new customers for sharia-compliant bonds, mortgages and insurance. Fans of these arrangements think they can compete with conventional ones even for non-Muslim customers. How big Islamic finance can become, however, is a matter of debate.

The Situation
Assets of Islamic banks almost doubled to $1.3 trillion in mid-2013 from $820 billion in 2008. Sales of Islamic bonds, called sukuk, grew to $120 billion in 2013 from about $6.6 billion in 2004. The U.K., which hopes to become a global center of Islamic finance, in mid-2014 became the first non-Muslim country to raise funds by selling sukuk; Luxembourg, South Africa and Hong Kong followed. Companies such as General Electric Capital and Goldman Sachs also have sold sukuk. Rather than lend money to a conventional borrower in exchange for interest, sukuk holders own a share of the asset their investment funds and receive income from any profit it generates. Investors in Muslim-dominated countries in the Middle East and Asia aren’t the only ones buying sukuk: There’s strong demand in Europe and the U.S., too. Islamic insurance, which operates on a cooperative business model, is also expanding. Ernst & Young projects it will maintain double-digit growth, with member contributions totaling $20 billion by 2017.

IslamicFinance5.png

SOURCES: INSTITUTE OF ISLAMIC BANKING AND INSURANCE, ISLAMIC-FINANCE.COM
The Background
In Islamic texts, charging interest is regarded as exploitation of a person in need. A rudimentary form of Islamic finance existed from the time of the Prophet Muhammad, in the seventh century, but the modern version took root only during the colonial era. The first sharia-compliant bank was established in Egypt in 1963. Iran, where all banks must be sharia-compliant, is the largest market for Islamic banking. Saudi Arabia, Malaysia, United Arab Emirates, Kuwait, Qatar, Turkey and Indonesia hold about 91 percent of the remaining Islamic banking assets. The Islamic Bank of Britain, established in 2004, was the first such institution outside the Muslim world.

The Argument
Even with its explosive growth, Islamic finance makes up just 1 percentor so of global financial assets. Champions of the approach argue that in the aftermath of the 2008 financial crisis, it can appeal beyond devout Muslims to other customers worried about the stability of the financial system or those interested in ethical banking practices. They say sharia-based financing promotes stability because it prohibits speculation and the practice of overloading companies with debt. Money is channeled toward investments in enterprises that produce actual goods and services, rather than buying and selling on financial markets. Skeptics note that ethical banking enthusiasts are usually interested in an institution’s environmental policies and engagement with the local community, not whether it forbids profiting from alcohol, tobacco, gambling and pornography, as sharia requires. Some customers may be turned off by the dearth of women in management at most Islamic financial companies. Others may worry about institutions being exploited to funnel money to Islamic terrorists, a concern raised in a U.S. State Department memo about Islamic finance in the U.K. After Christian groups in South Korea raised the same issue, the government put off making tax changes to accommodate Islamic finance. The industry is also challenged by high costs due to the complexity of the instruments and the fees paid to scholars to certify sharia compliance. And many products, such as hedging instruments and short-term government securities, are in short supply. Progress in establishing common standards for sharia-compliance has been slow, creating the risk that instruments could be declared unacceptable, as several sukuk have been after issuance.

THE REFERENCE SHELF
  • The Islamic Financial Services Industry’s 2014 Stability Report evaluatesthe industry’s health.
  • An IMF working paper examines whether Islamic banks are more resilient than conventional ones.
  • The Institute of Islamic Banking and Insurance offers explanations of industry concepts.
  • The Council on Foreign Relations explains the rise of Islamic finance.
  • Bloomberg News curates developments in the industry.
FIRST PUBLISHED FEB. 12, 2015

To contact the writer of this QuickTake:

Simon Harvey in Kuala Lumpur at sharvey6@bloomberg.net

To contact the editor responsible for this QuickTake:

Lisa Beyer at lbeyer3@bloomberg.net











I won't lie, this system is fairly impressive at first glance. It is a bit disingenuous for them to say they aren't charging interest by instead charging "usage fees" or building in the profit beforehand but otherwise I really like how they share the risk in everything.
 

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I won't lie, this system is fairly impressive at first glance. It is a bit disingenuous for them to say they aren't charging interest by instead charging "usage fees" or building in the profit beforehand but otherwise I really like how they share the risk in everything.
When I first learned about it I was just interested from the nihilistic perspective I have about how people around the world come up with answers to similar problems/issues, but they still make PROFIT but the shared risk thing is very interesting. However, I see the cultural value of shared risk being harder to implement in diverse societies.
 
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Urban2100

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Islamic banking likes to buy the asset then re-sell it at a higher rate instead of charging interest.

This method is much better than charging interest because your debt is not being compounded.

Remember what Einstein opined about compound interest. When it's working against you...:wow:

You and @the cac mamba should stop it with your infidel ways and join the fam. Join the Ummah.:blessed:
 

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This method is much better than charging interest because your debt is not being compounded.

Remember what Einstein opined about compound interest. When it's working against you...:wow:

You and @the cac mamba should stop it with your infidel ways and join the fam. Join the Ummah.:blessed:
Compounded interest is good because it stimulates growth though
 

ill

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Compounded interest is good because it stimulates growth though

Its good for those that already have money. Basically they can make money off money. This Islamic system at first glance is better for the average person because they get to share in the risk rather than to take on all of the risk. On the surface it seems its better for the average person.
 

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Its good for those that already have money. Basically they can make money off money. This Islamic system at first glance is better for the average person because they get to share in the risk rather than to take on all of the risk. On the surface it seems its better for the average person.

islamic banking system isn't designed to make a minority of people into super-rich elitess. Charity is alsoo an influencing element of Islamic banking. I oppose Saudi Arabia and ather Gulf countries because they do not follow Islamic banking and they become money laundering hideouts for the Western elites.
 

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:manny:lets not forget the high tech sector, Silicon Valley, global dominion on world finance, the world food bowl, one of the largest manufacturing sector.

Has nothing to do with the Western payment systems monopoly.......in fact, our huge consumer class is a bigger reason for the monopoly:dwillhuh:
 
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