A Brief Intro to Islamic Banking

There’s a new game in town, folks.  It’s called Islamic Banking.  You can find the head honchos of Islamic banking hanging out in Baku these days.  Apparently the Islamic Development Bank has decided that not only is Azerbaijan a worthy place to invest half-a-billion dollars, also a lovely destination for their economic conference.  And it seems the vogue is to praise Azerbaijan’s rapid economic growth, despite it’s heavy reliance on oil and corruption.

We’ve already had a brief intro to an Islamic banking feature, regarding riba, interest.  And that is the principle that governs most of what we know of as Islamic banking.  But there’s more to it.  In order to be in full compliance with the Sharia law regarding finances, an Islamic bank also shares in the liability of any transaction they take a part in.  Whereas in traditional banking, the full liability goes to the consumer, and the bank makes money on the interest, Sharia’h insists that a bank cannot take in the rewards if it does not share in the risks.  Islamic banking would also prohibit any transactions involving other things that are haraam, such as alcohol, pork, or gambling.  And there are some conservative limitations on betting on the stock markets, since that is obviously gambling as well.

In Azerbaijan, the Islamic Development Bank looks to be putting down up to $450 million, which is a significant sum.  And I’m particularly heartened by their dedication to financing agriculture and power engineering development projects.  I’m not sure, but I’m going to assume that power engineering means improving Azerbaijan’s electric grid.