Although this is not the department’s first “Islamic Finance 101” seminar, it comes amid a new push by Muslim figures in recent weeks to promote Islamic finance as a response to the debt-fueled global financial crisis.
Controversial Sunni scholar Sheikh Yusuf al-Qaradawi, a leading advocate of shari’a-complaint finance (SCF), told a conference in Qatar last month that Muslims should take the opportunity provided by the crisis to replace capitalism with an Islamic financial system.
“The collapse of the capitalist system, which is based on usury and securities rather than commodities in markets, shows us that it is undergoing a crisis and that our integrated Islamic philosophy – if properly understood and applied – can replace the Western capitalism,” he said.
At a subsequent economic forum in Saudi Arabia, the head of the Islamic Development Bank – an affiliate of the Organization of the Islamic Conference (OIC) – reiterated that the crisis offered an opportunity Islamic finance should seize.
“Global investment banks should be set up that realize the Islamic economy and offer the world a new vision and different way to manage assets, invest wealth and create products,” Islamic Development Bank President Ahmad Ali told the forum.
Saleh Kamel, head of the General Council of Islamic Banks, said Islam could be a “third way,” given what he called the failures of communism and capitalism.
On a visit to Saudi Arabia coinciding with the forum, Deputy Treasury Secretary Robert Kimmitt was quoted as saying the U.S. government was examining features of Islamic banking to see the extent to which it may be useful in tackling the crisis.
Islamic financial products are those that comply with shari’a, the Islamic legal code associated with notorious punishments including the death penalty for apostasy, and stoning and amputations for other offenses.
In essence, SCF bans usury – the collection and payment of interest – and discourages heavy borrowing.
In a recent article touting SCF as an alternative that should be considered seriously, Saudi-based banker Imran Iqbal described it as a system “that is not based on debt or encourages people to live beyond their means.”
Money is not regarded as a commodity but rather “only a medium of exchange and a measure of value,” he wrote in the Dubai-based Khaleej Times.
While still a small part of the global financial system, Islamic finance has been growing fast. The value of assets of Islamic financial institutions worldwide in 2004 were in the $200-$300 billion range. Today they are estimated at between $700 billion and $1 trillion, according to the Malaysia-based Islamic Financial Services Board.
‘Demystifying Islamic banking’
The Treasury Department held its first seminar on Islamic finance in April 2002, when then undersecretary for international affairs John Taylor told the meeting, “we have had a growing interest in Islamic finance because of its rapid growth and significant presence in many partners of the United States such as Bahrain, Egypt, Indonesia, Kuwait, Malaysia and Pakistan.”
Speaking seven months after 9/11, Taylor also said it was crucial to ensure that legitimate Islamic banks, services and charities were not exploited by terrorists.
The 2002 seminar took place after then-Treasury Secretary Paul O’Neill attended a meeting in Bahrain where participants described the philosophy behind Islamic finance. Taylor said the American officials had left that meeting “with a sense of what Islamic finance really is” and decided to host the seminar in the U.S. “to ‘demystify’ Islamic banking for our colleagues in Washington.”
Later that year, O’Neill’s successor, Secretary John Snow, and Taylor attended an International Islamic Finance Conference in Dubai.
Two years later, Taylor in a speech at an Islamic finance forum at Harvard that the topic was “very important to us in the Bush Administration.” He also announced a new Islamic finance scholar-in-residence program, naming Mahmoud El-Gamal of Rice University to the position.
El-Gamal is one of the scheduled speakers at the half-day Treasury Department seminar planned for Thursday and run in conjunction with the Harvard University Law School’s Islamic Finance Project, which is currently sponsored by four Islamic financial institutions in the Gulf.
It will be hosted by Assistant Secretary Neel Kashkari, recently named as head of the Office of Financial Stability and the official who will oversee the government’s $700 billion financial bailout fund.
Washington’s interest in SCF has drawn a strong response from critics concerned about what they call “the stealthy insinuation” of shari’a into the U.S.
A new coalition of public policy organizations, human rights activists and religious groups plans a press conference Thursday to call on the Treasury to cancel the seminar, which it is calling “an indoctrination session.”
Saying it “speaks for peoples of all faiths and political affiliations who do not want to submit to the jihadist doctrine” of shari’a, the Coalition to Stop Shariah said it wants the application of SCF to U.S. financial institutions and products to be banned.
In a statement, it noted that the advertised agenda for Thursday includes “no discussion of the seditious nature” of shari’a.
“The coalition is particularly concerned about the possibility that the Treasury Department will use the vast powers it has been given to cope with the subprime financial crisis as a means of promoting [SCF],” it said, adding that Kashkari’s involvement heightened that fear.
The Treasury Department did not respond this week to queries about the seminar.
‘Threat to America’s security’
Asked why concern was being voiced especially now, six years after the Treasury first held a seminar on Islamic finance, Coalition to Stop Shariah spokesman Christopher Holton said this week that much had been learned since then.
Since 2002 it had become clear that “Islamic finance” was in fact “shari’a-compliant finance,” which had the purpose of promoting “the barbaric doctrine of shari’a,” he said.
“Shari’a is a threat to American security because it is inherently seditious, since it is mission-driven to supersede all other forms of governing, including our constitution,” he said.
Holton also noted that Islamic financial institutions had in the past been used to fund terrorist groups through “zakat,” an Islamic tithing concept.
One such institution, Bank Al Taqwa, was designated a terrorist financier by the Treasury Department on November 7, 2001. The department said it was set up by the Muslim Brotherhood and provided banking services to al-Qaeda and Hamas before it was shut down by sanctions. Qaradawi, a senior Muslim Brotherhood figure, held shares in the bank.
The Koran requires Muslims to give alms to charity, distinguishing between voluntary charitable giving and obligatory giving, known as zakat.
“Zakat is the most important source of financial support for the al-Qaeda network, essentially because it is the most usual and unregulated way to raise donations in Saudi Arabia,” stated a report on terrorism financing, prepared for the U.N. Security Council in 2002.
“Unfortunately, terrorist organizations exploit this admirable Islamic practice to support their mission of violence,” the Treasury Department said in a document on money laundering and terrorist financing the following year.
In an October 2007 paper on SCF, Alex Alexiev, vice president of research at the Washington-based Center for Security Policy said Islamists were exploiting Islamic finance for their own purposes, chiefly the objective of making Islamic law acceptable in the West.
“The ability to have shari’a recognized as legitimate Islamic law by Western governments and publics will be a huge step towards making it acceptable and gradually implementing it in Muslim communities in the West, in family law for instance,” he wrote.
“This, of course, is a long-standing objective of the Islamists … who aim to create parallel Muslim societies ruled by shari’a and progressively decoupled from the secular and democratic mainstream Western society.”