Q. What are your reasons for thinking that "Islamic banking isn't Islamic"?

Nadine Marroushi interviewed Tarek El Diwany in London during Summer 2007.

A. "My point is a little more refined than that. I am saying that Islamic commercial banking is not Islamic, and this is because commercial banking is a combination of usury and misrepresentation. The practice of usury is obvious and involves the advancing of money now in return for more money later, while the misrepresentation is less obvious and involves the creation of money out of nothing. Most of the time, the money that commercial banks lend is money that they themselves have created. Since neither usury nor misrepresentation can be Islamised, and since the business model of commercial banking requires both, there cannot be such a thing as Islamic commercial banking. For the same reason, there cannot be such a thing as an Islamic central bank. Historically, the Muslim world has had neither commercial banks nor central banks, though of course it did have institutions that fulfilled permissible functions such as payment transfer. In our rush to create an Islamic banking and finance industry, we have forgotten to ensure that the money we are using is itself Islamic. Islamic finance cannot be practiced with money that is un-Islamic. We therefore need a very fundamental reform of the institutional framework in Islamic banking and finance, but unfortunately the industry is simply refusing to address the issue."

http://www.islamic-finance.com/item149_f.htm

Islamic Banking isn't Islamic

by Tarek El Diwany
Original Summer 2000; updated June 2003

An abridged version of this article was published in Banker Middle East during November 2002

These are all signs that something has gone badly wrong in this industry. But I'm not saying that it is all the fault of the people on the inside. The Western academic establishment is at least partly responsible for the way that the Islamic financiers are thinking. For example, because Brealey and Myers have written a standard text on corporate finance, they are probably as big a force in Islamic finance as Judge Taqi Usmani. It is awfully hard to escape from the value judgements that the overwhelming mass of usury-based finance books contain. That's why an educated Muslim in Islamic finance can ask his client a shocking question such as 'what cost of finance are you looking for?' without thinking twice. He's been taught by Brealey and Myers that fixed-rate finance plays a part in any 'good' financing structure and so off he goes in search of a way to do fixed-rate finance Islamically. The possibility that fixed-rate finance may be completely incompatible with Islam in the first place may not even occur.

http://www.islamic-finance.com/item100_f.htm

Islamic Banking: Steady in Shaky Times

Principles Based on Religious Law Insulate Industry From Worst of Financial Crisis
By Faiza Saleh Ambah
Washington Post Foreign Service
Friday, October 31, 2008; Page A16

JIDDAH, Saudi Arabia -- As big Western financial institutions have teetered one after the other in the crisis of recent weeks, another financial sector is gaining new confidence: Islamic banking.

Proponents of the ancient practice, which looks to sharia law for guidance and bans interest and trading in debt, have been promoting Islamic finance as a cure for the global financial meltdown.

This week, Kuwait's commerce minister, Ahmad Baqer, was quoted as saying that the global crisis will prompt more countries to use Islamic principles in running their economies. U.S. Deputy Treasury Secretary Robert M. Kimmet, visiting Jiddah, said experts at his agency have been learning the features of Islamic banking.

http://www.washingtonpost.com/wp-dyn/content/article/2008/10/30/AR2008103004434.html