Abracadabra Banking  

The whole world can recall the financial fiasco created by the Bank of Credit and Commerce International, otherwise known by its infamous acronym BCCI. It involved a very "sheiky" Arab sheik who is still the ruler of a tiny potentate in the Gulf plus some savvy Pakistani financial stuntmen.

Some of the conmen are now behind bars but there were many of their henchmen and dubious business associates who are still running free. Some of them have fanned out as "consultants" throughout the rest of the Islamic world where their "Muslim" names together with a City of London resume opens many doors to financial and other opportunities to con naive non Arabs.

This situation is now visible in Malaysia. In Malaysia Mr Anwar Ibrahim is the Finance Minister as well as the Deputy Prime Minister. He is known to be a "latent fundamentalist" by inclination as well as by his association with the ulema and other "fundamentalist" groups. Those who would like to see ill of Malaysia are perhaps impatient to see Mr Anwar Ibrahim ascend to the leadership of the country. He will most certainly give the ulema much say in the affairs of state. And wherever the ulema have a say in government there is chaos, confusion and mayhem.

Many of these international "Islamic" conmen are aware of Mr. Anwar Ibrahim's "Islamic" preferences and his love for all things "Islamic". Like moths attracted to light many of them have made their way to Malaysia where they are busy introducing "Islamic" capital market instruments. The problem in Malaysia is that there is already a very advanced and efficient financial system in place. How are the "Islamic" conmen going to compete with such an advanced financial system? The simple answer is that they cannot.

But they can prey on peoples' conscience by offering them so called "halal" banking products. That is why they need people like Mr. Anwar Ibrahim and other unsuspecting Muslims. What they do is simply paste an Islamic label onto many conventional financial instruments, repackage it, often in green coloured brochures with "Islamic" Flourishes and resell their products as "Islamic'' banking and finance.

This is a trick they have practised In London which has long been a centre of "Islamic" banking (recall the BCCI affair). Lawyers handling "Islamic" loans in London have always prepared two sets of loan documents for their "Islamic" clients one being "Islamic" and the other being the "rate setting" document which makes discreet reference to the prime interest rates charged among London banks. There is no such thing as Islamic banking and there can never be one.

Therefore to fake it, they need real benchmarks like the interest rates charged by banks to help them price their loans. The only difference is that they do not call it "interest rate" but "profit rate" instead. Hence an "interest rate" of say 10`% is haram but a "profit rate" of 10% is "Islamic". Ten cents on the dollar "profit rate" is all right but ten cents on the dollar interest rate is not allowed. In a nutshell, this is "Islamic" abracadabra banking.

Among his many hilarious pronouncements as Finance Minister Mr. Anwar Ibrahim once announced that "there is no cashflow that cannot be discounted". For those who understand cashflow discounting this is an obvious Statement otherwise there cannot be such a thing as cashflow discounting. The question is if you discount a cashflow, is there any difference between an "abracadabra" 10% and a conventional 10%?

But in Malaysia the ulema have now become bolder. They say quite openly that in order to determine the Profit rate 2, "Islamic" financial instruments can make reference to prevailing interest rates quoted by conventional banks. It is quite alright they say because it is just a basis for comparison!! Therefore an interest rate of 10% can now be quoted as a "profit rate" of 10% without having to use two different loan documents. This is the ulemas gobbledygook, which only the ulema can justify. And amidst all this they can still praise their god.

To sidetrack a little there was a "pious" man who worked in a bank in Malaysia. He felt guilty all the time because he felt that conventional banking which is interest based was haram. In other words he had pawned his common sense to the ulema. Therefore when "Islamic" banking took off in Malaysia he was truly overjoyed. He immediately switched jobs to work in the "Islamic" banking sector. Now he has become even more unhappy. He realised that there is no difference between conventional banking and the so-called "Islamic" banking. The difference is the same.

To price "Islamic" bank loans he is told to just take the prevailing interest rates charged by banks, add a certain mark up and call it the "profit rate" instead, give it an "Islamic" name and then unload it on the unsuspecting public as halal. Abracadabra.

A recent "Islamic" unit trust that was launched by some abracadabra financiers in Malaysia actually used the word "magic" in their brochure. In order to win investors the unit trust spoke of the "principle of magic compounding"!! To be exact their brochure says "(we) hope to emphasise the long term outlook of investment through the principle of "magic compounding".... a small consistent investment on a monthly basis could achieve (investors) goals of becoming wealthy slowly but surely, Insha Allah".

Anything to become wealthy. Magic compounding. Abracadabra banking. And all in God's name, Insha Allah.

What they are promising is not "Islamic" banking but rather "abracadabra" banking.