Samizdata

Rather like the current mania for ‘socially responsible investment’ (not investing in ‘sinful’ industries), and carbon emissions trading, another strong trend in the financial world these days is sharia-compliant finance. There are sharia-focused hedge funds (I kid you not), sharia bonds, sharia companies. It all boils down to how devout Muslims who want to raise finance or invest in business can do so while negotiating the complexities of their religious code and its ban on usury.

On one level, I have no quarrel with any of this so long as no coercion is involved and there might even be unintended benefits. If the capital markets can make it possible for people to live their lives in ways they feel ethically comfortable with, then that surely demonstrates the enormous flexibility and benefits of the market (it is as well to remember that anti-capitalist ideologies, be they religious or secular, rarely return the compliment in this way). Of course, in as much as sharia financing does screen out interest on loans, one suspects that the returns on such investments must logically lag behind those of regular capitalist activity, if certain money-making practices are deemed off-limits but then if Muslims wish to surrender some money to comply with their own beliefs, they are entitled to do so, just as environmentalists sacrifice some returns by refusing to put money into businesses such as oil or whatever.

I cannot help but feel there is something rather rum about all this sharia financial wheeler-dealing. Many of the financial instruments that are used for the purposes of sharia-compliant finance look awfully similar to regular capitalism to me. In fact, it is hard to see what is really the difference on ethical grounds between speculating on certain types of assets, such as gold, and lending money to a company in the hope that the firm will profit and repay the interest. It strikes me as being the financial equivalent of splitting hairs.

I also suspect, as this article at Bloomberg lays out, that a lot of people putting themselves around as sharia ‘experts’ are making a huge amount of money out of this trend and yet their motives appear in some ways to be as ‘selfish’ as that of any regular capitalist, not that I have a problem with the honest pursuit of long-term self interest, quite the opposite.

The moral prejudice against usury always struck me as irrational. Here is a good piece on the subject.