Islamic Banking Era, is it over or will it surpass this financial crisis

First of all we need to understand what Islamic finance is all about and before I get in to the details here is a small definition of it:

Islamic banking refers to a system of banking or banking activity that is consistent with the principles of Islamic law (Sharia) and its practical application through the development of Islamic economics. Sharia prohibits the payment or acceptance of interest fees for the lending and accepting of money respectively, (Riba, usury) for specific terms, as well as investing in businesses that provide goods or services considered contrary to its principles (Haraam, forbidden). While these principle were used as the basis for a flourishing economy in earlier times, it is only in the late 20th century that a number of Islamic banks were formed to apply these principles to private or semi-private commercial institutions within the Muslim community.

If you can read between the lines Islamic finance is a simple and a very healthy way of banking which is built on a simple principle of sharing the risk between the financier and the financed entity.

Like everything in life Islamic Finance went into an evolution in the modern banking and financing era and a new type of Islamic finance has evolved and was called "Islamic Investment". I have no issues with the evolution it self, however, like any evolution Islamic finance was faced with parasites who called them selves Islamic Investment Bankers and have used the system in achieving their own greedy goals. These people, have forgotten the principles of Islam and deceived people in investing in projects using the wrong mechanism of finance.

As an example lets take any real estate project that is introduced and managed by any of our famous so called Islamic Investment Banks. the mechanism is as follows:

1. The idea of the project is introduced to the public using a heavy marketing and PR campaign. "No land and no real project".
2. A short term fund is prepared in order to acquire the project land and construct it. "usual tenor for such a fund is 3 years".
3. Time fly's and the project has not even started construction. "as the bank has used a majority of the fund to introduce a new project".
4. A new fund has to be done and placed in order to pay off the initial fund and to start half of the construction of the initial project. "the payoff is with the anticipated (30%) IRR off course".
5. And the process goes on and on and on.....

What just has happened... The investment Bank has made tones of money from the fees they have raised from structuring and placing the funds, the investors initially made good returns.. However, The project became unrealistically expensive and in the last fund off course the investors money is at risk as the project couldn't sell being so expensive.. who is the winner in the end!!! needless to say its the Islamic Investment Bank.. and with hefty bonuses paid to the executive management of those banks no one is a winner except the executives wearing the suites or "thoub's" at the end!?!?

Whats so Islamic about that, people were deceived and were entered into a ponzi scheme forgetting every single principle of Islam.

But, I must say that I am a firm believer in the system "Islamic Finance" and in my humble opinion, this financial crisis is actually healthy as it revealed the truth of our so called "Islamic Investment Banks" and it is a true learning curve for all our investors out there that want to make a buck or two.

I think the system would of worked great if they "Islamic Investment Banks" started using the various investment products in executing the projects such as:

• Bai' al 'inah (sale and buy-back agreement)
• Bai' bithaman ajil (deferred payment sale)
• Bai' muajjal (credit sale)
• Musharakah
• Mudarabah
• Murabahah
• Musawamah
• Bai salam
• Ijarah
• Musharakah (joint venture)
• Sukuk (Islamic bonds)
• Takaful (Islamic insurance)
• Wadiah (safekeeping)
• Wakalah (power of attorney)

The system works wonders if it is used correct rather than focusing on one product to execute a project.. also as they say people should start clearing their hearts from greed and god is great they will make money along the way as well...

"يا ناس صفوا النية"

As a conclusion, I am from the opinion that Islamic finance is here to stay, and it will surpass the financial crisis and to be fair to the system if we used it correctly our world wouldn't of had a financial crisis to start with as the financial crisis in Europe has hit the capital market which is interest (Riba) based...

My first post

Dear All,

Inspired by Dragon I decided to do my own Blog. In this Blog I am mainly going to talk about the "The White Conduct" of business, Shareholders, Owners that decide the fates of companies, businesses and projects.

Off course I am trying to be anonymous and that's why I choose a nickname for my self "White Tiger", you may wonder why white tiger?

It is because during the Han Dynasty, people believed the tiger to be the king of all beasts. Legend had it that when a tiger reached 500 years old, its tail would turn white. In this way, the white tiger became a kind of mythological creature. It was said that the white tiger would only appear when the emperor ruled with absolute virtue, or if there was peace throughout the world.

I hope to live up to the nickname I choose..