Heard of Islamic banking? Globalist law firms that offer counseling on Islamic banking are cleaning up with this service, enhanced by their recruitment of royal family members from various countries in MENA (Middle East & North Africa), a chief reason for the law firms’ globalist ambitions. Islamic banks are prohibited from charging or paying interest (‘riba’) so a variety of methods have been devised for making money on their loans including fees and charges or delivering less than the loan amount (all called hiyal) which are calculated to approximate market interest rates.

There are two problems, however. First, the inability to charge interest tied to a specific time period can result in the client deliberately delaying repayment, sometimes for long periods. This can happen with the mudarabah ‘partnership’ structure and with the murabaha, or ‘cost-plus financing’ structure. Second, the bank necessarily takes on project risk, as is explicit with the musharaka ‘joint venture’ structure. While requiring all banks to assume part of the risk of their loans may be a laudable goal, it is true that this would make investment in banks more risky for the investors and perhaps for the depositors. Traditional banks avoid all risk when they make their loans, transferring this risk to the borrowers and the public while the banks collect both fees and interest.

In 1972, the Pakistanti banker Agha Hasan Abedi persuaded a young Sheikh Zayed of Abu Dhabi to place sizable oil revenues with his new Islamic bank, the Bank of Commerce and Credit International (BCCI), The fact that it adhered to Islamic banking principles induced Muslims worldwide to place huge deposits with BCCI during the oil boom of the 1970s. For a time it was the fastest growing bank in the world. Self-consciously Muslim, it claimed the mantle of a ‘nationalistic’ Islam posing as champion of the Third World, preferentially hiring Muslims and holding prayers at mosques inside BCCI buildings. BCCI employed the murabaha (cost-plus financing) in international transactions. But, even while the bank paid no interest on Muslims’ deposits, it paid above-market interest on the deposits of non-Muslims, a truer reflection of the higher risk involved. BCCI exploited the fact of legal ownership of goods in transit under letters of credit to manipulate and evade the customs and banking laws of many countries, which were reluctant to offend the many wealthy Arabs and Muslims associated with BCCI by strict application of national banking laws, especially the United Kingdom which was eager for Arab money due to the economic woes in the UK during the 1970s and 1980s. In effect, BCCI used Islamic banking principles to become a pipeline for illegal activities masquerading as a bank.

As an Islamic bank, BCCI could not demand compensation for a delayed loan–in fact, grace periods were one of the primary reasons why their wealthier clients came to BCCI. When  the oil bust arrived in the mid-1980s, and the flow of new deposits halted, it was revealed that BCCI’s loans amounted to a Ponzi scheme. Their best customer, the now bankrupt Gulf Shipping & Trading Co of the Muslim Gokal family, had borrowed billions of dollars over many years without repaying a cent. With Gokal’s knowledge and consent, BCCI managers used the hiyal trick of delivering less than the full amount of the loan, with the BCCI managers pocketing the difference. This kickback tactic was routine among BCCI managers and was often used by old clients to induce new loans, while managers offered bribes to garner deposits from new Muslim clients.

Since all strategic records were kept in hand-written Urdu by an Urdu-speaking Pakistani management elite, specially to foil audits, the true profitability of BCCI is not known. It is likely, however, that BCCI made no significant profits as an Islamic bank, but only from illegal drug running, money laundering, and moneychanging float–the latter at least was akin to the traditional business of Muslim money-lenders. In the end, BCCI depended not on profits, but on constant inflows of new oil revenues, and when Sheikh Zayed finally halted new infusions of capital in 1991, BCCI promptly collapsed, destroying the savings of thousands of people, mostly Muslims.

Clearly, the Sharia principle of avoiding riba, and the employment of cost-plus financing made BCCI structurally vulnerable to fraud. And the device of murabaha–criticized by traditional Muslims as un-Islamic due to its alleged lack of investment risk–turned out to be very risky indeed. Like globalist banks, the globalist law firms who serve them also do not participate in the investment risk of clients.

I researched this some time ago. I would be interested in an update on the true profitability of today’s Islamic banks and whether they have changed their structure. The idea of a bank participating in the risk of projects which they loan to still sounds to me like an intelligent alternative to the risk-free structure of today’s international banks instead of transferring all their risk to the borrower and indirectly to the public. Some will say that today’s banks are teetering on the brink of insolvency and should not assume more risk. My reply is the source of risk for today’s banks stems from fractional lending and is of their own making. Today’s banks might profitably use a joint-venture structure provided they don’t engage in fractional lending or keeping records in Urdu. At the very least, today’s banks ought not to be allowed to engage in investments like derivatives but rather be restricted to traditional loans using only the deposits of the public, with or without paying interest on those deposits.

For an extended essay on the nature of Islam, see my new book available in the right column: “A Beginners Guide to the PC Cult”.