London’s Drive to Become the Sharia Finance Capital of the West
London is pushing to become the Western capital for sharia finance in spite of the many potential dangers.
This past November, London hosted the 2013 World Islamic Economic Forum. Speaking at that event, Prime Minister David Cameron said: “I want London to stand alongside Dubai and Kuala Lumpur as one of the great capitals of Islamic finance anywhere in the world.” In February, London hosted the Euromoney Islamic Finance Forum, where then-Financial Secretary to the Treasury Sajid Javid MP said: "…almost every international Islamic contract will touch London – or a London-based firm – in some way.”
Now, London is preparing to become the first Western nation to issue an Islamic bond, or sukuk. The business potential is vast, with the shariah-complaint banking sector at an estimated $1.3 trillion and growing, according to the Global Islamic Financial Review. But the potential risks are manifold, and London should be asking itself whether the dangers outweigh the profits.
The principle behind sharia-compliant finance is that certain types of transactions are considered un-Islamic. Notably, interest is not allowed, and funds cannot be spent on certain industries or products such as pork, alcohol, tobacco, gambling, and pornography. Islamic financial tools therefore “purify” individual Muslims by helping them adhere to a more orthodox version of Islam. But it does more: like the wearing of the veil for women, it strengthens their identity as Muslims and weakens their ties to the non-Muslim community. Islamic finance thereby serves to create a parallel society, with a distinct cultural and religious identity, rather than expanding and enriching the existing society.
For the United Kingdom, which is already struggling with no-go zones, numerous counts of domestic Islamist terrorism, and growing tension between its Muslim and non-Muslim populations, one has to ask whether strengthening Muslim identity as something apart from British identity is not a recipe for disaster.
A second concern with sharia finance is that it has been a proven source of direct financial assistance to those fighting for Islam. In order to be deemed sharia compliant, a financial institution must pay zakat (tithing): they must contribute an amount that is typically cited as 2.5% of gross, although it can also be more. According to the Qu’ran (9:60), recipients of zakat include the poor, the needy, those who serve the needy, and to free the slaves, but recipients also include “those who fight in the way of Allah”; “people engaged in Islamic military operations for whom no salary has been allotted in the army, or volunteers for jihad without remuneration.” (Reliance of the Traveler, The Classic Manual of Islamic Sacred Law).
Within one year after the attacks of 9/11, the U.S. government blacklisted almost 180 Islamic banks, associations, and charities as financiers of terrorism. Moreover, recent studies have shown that the largest single source of funds for Islamic terrorism is zakat, which typically goes through the Islamic banking system. According to a 2002 report by Jean-Charles Brisard for the UN Security Council: “Al-Qaeda was able to receive between $300 million and $500 million” over a decade “through a web of charities and companies acting as fronts, with the notable use of Islamic banking institutions.”
The limited regulatory practices of the Islamic banking system and lack of transparency make it easier for Islamic institutions to hide illegal practices than conventional banks, including possible support for jihadists. While some in the West may see sharia-complaint finance as an important developing market, its deep ties to the Islamic awakening should raise serious red flags.
The UK government should be particularly concerned given the numbers of British jihadists who have gone to fight in Syria’s brutal civil war and who will eventually return home. In a letter to The Times of London on May 26th, Brigadier-General Abdulellah al-Basheer, a Syrian rebel commander, said Britons make up the majority of foreign fighters in ISIS, one of the most violent groups fighting in Syria. The letter said it was Brits who were responsible for the beheadings and crucifixions that have made recent headlines.
Yet even without the direct support for jihad, Islamic finance has long had political overtones. An early proponent for an Islamic economic system was Abdul A'la Mawdudi (1903-1979), the founder of the militant Pakistani Islamist Jama'at-i Islami movement. Mawdudi argued that Islam should encompass all areas of human existence, including economics, and that Islamic economics was to be a vehicle to help establish Islamic rule and law in society and state. Another advocate was Hassan Al-Banna, founder of the Muslim Brotherhood, who viewed finance as a critical weapon for undermining the infidel. To achieve a global Islamic state, he argued, Muslims need an independent Islamic financial system to parallel and later supersede the Western Economy.
While the argument can be made that Islamic finance has modernized and in the process become less politicized, echoes of its chauvinist and supremacist origins remain. The California-based sharia-mortgage provider, LARIBA, cites on its webpage the fatwas of Sheikh Yusuf Al-Qaradawi, who has been banned from the United States since 1999 for his extremist views and support for Palestinian suicide bombers and yet who sits on the boards of numerous Islamic financial institutions. In 2004 Al-Qaradawi issued a fatwa ordering all those who were able to boycott American and Israeli goods:
Each riyal, dirham …etc. used to buy [the enemy’s] goods eventually becomes bullets to be fired at the hearts of brothers and children in Palestine. For this reason, it is an obligation not to help [the enemies of Islam] by buying their goods. To buy their goods is to support tyranny, oppression and aggression...If we cannot strengthen the brothers, we have a duty to make the enemy weak. If their weakness cannot be achieved except by boycott, we must boycott them.
So while sharia-compliant finance was responsible for building the London Gateway and the Shard – the tallest building in Europe – one has to ask what other legacy sharia finance will leave for London and whether that is a legacy that the United Kingdom can survive. And where the UK goes, the US may soon follow. Already there are 26 states in the US where one can acquire a sharia-compliant mortgage. Such developments may be used by those committed to Islamic theocracy to undermine our democratic systems.
Katie Gorka is the President of the Council for Global Security.