Monday, February 24, 2014

Islamic Banking a flawed totalitarian concept ?!

what is islamic banking?
Islamic banking is a concept derived from the fact that in Islam forbids taxing people or charging interest for lending money. Thus a concept evolved where rich financiers, bankers or banks will lend you money to start your own business without charging any interest but instead they will be partners in your business and there is written guidelines on how much equity they will own in your business. Some say it is an 'unwritten' guideline where banks cannot own more than 50% of the profit or equity in the business of the person whom they are lending the money. Here are some of my observations
  1. It is an unwritten guideline that banks or financiers cannot own more than 50% of the equity of the business of the person to whom they are lending the money but it is an unwritten guidelines which means the bankers are not obligated to obey it under islam or under the law of the nation and one can easily demand more equity or profit than 50%.
  2. if a bank has lend money to 1 lakh people then banks now own an equity upto 50% or more in each of those businesses ranging from hotels, restaurants, autos or even mega ventures of ambanis and tatas. Now banks are partners in these businesses and thus they now have to manage all these businesses too since they are partners. Imagine a bank managing 1,00,000 businesses. Most of the companies die because of improper management and if one bank, banker or financier tries to manage 1,00,000 banks then its a death of the society since no businesses will prosper. This is totally impractical.
  3. It is very easy to discourage non muslims from trying to get a loan from these islamic banks by just asking too much equity in their businesses. If a muslim wants to own an auto then the islamic banks can ask him to give 50% (sitting) partnership benefits and for a muslim just 5% partnership benefits and obviously a non muslim will go to some normal bank where banks will only ask a % of interest for the money that they given you but not from the fortune that one can make from that money.
    Let us look at the saudi arabia the birthplace of islam and it has quran as its constitution. Unless you are someone who is a saudi citizen then you cannot own a business or run a business in your name.
    It also provides a possible dangerous means of induced conversion to islam by offering % free loans to non muslims or offering conditional loans only after conversion.
  4. If all the banks start to follow Islamic banking then it only means that the corruption will increase since banks or the bank manager will have the ultimate say in how much equity the banks can have in a business and there are no particular guidelines, the possibility of backdoor dealings will increase exponentially to bribe the bank manager or the authorities in the banks to decide in favor of them so that banks own as less equity in their business as possible.
  5. This will also mean that corrupt bank managers can make a deal with shady business runners and lend them a lot of money and show fake losses and since the banks also share the losses here , banks will lose all the money. Ex:- I will make a deal with the few corrupt bank authorities to lend me  1 crore from the Islamic bank and let the bank own 90% of the equity. Then I will declare that I suffered a huge loss in my business and show the manufactured records for it too. Now since banks own 90% equity, banks now suffered 90% loss of  the 1 crore money that they lent me. In other words banks are responsible for the 90% loss and I am only responsible for the 10 lakhs. Since banks are partners in too many businesses (let us say they have lent money to 1lakh businesses thus they are partners in 1 lakh businesses and it is impossible for a bank to manage these 1 lakh businesses thus they will fail to monitor how their money is being used which leads to easy bank frauds).
  6. If the bank has lent money to 1 lakh businesses then they have to have atleast 1 lakh more employees places in each of these businesses to make sure that the money is being used correctly and the business is being run correctly. This employee of the bank is also a potential CEO or a director in the board of directors so he has to be paid a huge salary too as per the salary structure of a CEO and if not he can be easily bought by the borrower of the money to show fake losses. Can a bank afford 1 lakh CEOs placed in all of the businesses of they co own and pay them well in crores p.a. ?
  7. Since here banks also share the losses it will very easy to fund the islamic terrorists by just lending them money with maximum equity to bank and show losses later so that the terrorists can keep the money. ex: as a terrorist i will get 1 lakh loan with 90% equity to the bank and i will show a complete loss and pay 10k to the bank since i owed only 10% of the equity in the business.
  8. This can be easily used for money laundering too in the same way as stated in the point above.
  9. Islamic banking will not give loan for beauty parlours (since it is against islam), or a meat shop for sikhs or hindus who eat jatka meat but not halal,  no laon to make a movie, or music album, or music band, or art gallery since these are all against islamic principles.
  10. It's often been argued that many countries are following it and thus we should do too. If tomorrow someone starts to commit suicide should we do too? Why should anyone follow a sheep of herds if it is leading you to the wolves?
    If these countries like Malaysia, saudi, UK have islamic banks then has anyone produce a record of how many non muslims have been given a load in these banks?
    What % of loaners are non muslims in these islamic banks ?
    What % of the banks in these countries are islamic banks? The % of islamic banks in malaysia is less than a single digit. If somone has a different figure then I'm do let me in the comment section with proof.
    Where do these countries stand in the graph of the world GDP?
    UK has only a handful of such islamic banks to appease muslims and to provide an uneven advantage to muslims where muslims get loan without any interest but non muslims have to go to regular banks and pay a hefty interest every month because non muslims are discouraged to get a loan from banks with all the possible red tapes and demanding a very huge equity in their business.
  11. what if i want to take a personal loan like a loan for my marriage? will the bank own a part of my marriage? What if I want to buy a car and want a loan for that, Do i have to give a % of the equity of my car to the bank? If someone has to take a student loan from these banks then a % of his lifetime income should be given to the banks, in literal terms I will be paying upto 50% of my salary to the bank till I die and a % to the govt. as professional tax. Here islamic banks are helpless and they will just deny the loan saying we offer only loans for commercial purposes.