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Book Review: 'Heaven's Bankers' by Harris Irfan
Shariah banking is a $2 trillion industry thanks to trade in emerging markets.
Aug. 6, 2014 2:44 p.m. ET
Balancing the altruistic ideals of faith
with the need to turn a profit has never been easy: Look no further than
the Book of Matthew for an early example of what history's most famous
carpenter-cum-rabbi thought of money changers in places of worship. But
while Judaism and Christianity historically had strict prohibitions
against usury, today it is Muslims who adhere to the most stringent
rules regarding finance of the three.
Islamic
banking is unique in the world of finance, mostly because of what is
prohibited. There are some straightforward bans: No investing in
businesses that deal with products considered haram, or
forbidden, most commonly pork and alcohol, but also Pop-Tarts (gelatin)
and some aftershave (alcohol). Speculative bets are barred, and
transactions must be based on real assets, not cash flows. By far the
most significant rule is the prohibition on charging interest. The ban
is meant to reflect the particular ethical responsibilities bestowed
upon financiers: Profits and losses should be shared between debtors and
creditors.
Many Muslims believe this
risk-sharing approach can help remedy our broken financial system, even
if it's difficult to square with mainstream, conventional banking. But a
new book by financial industry insider Harris Irfan claims that many of
the practitioners of Islamic finance have abandoned this honorable aim
in an effort to keep up with the sophisticated tools of Western
investment banks.
In "Heaven's Bankers:
Inside the Hidden World Of Islamic Finance," Mr. Irfan, an observant
Muslim, charts a course from seventh-century Arabia, where Muslim
traders invented the precursors to modern checks and trusts while plying
the Silk Road, to the 1970s and the establishment of the first Islamic
commercial lenders in Dubai, as well as the short-lived "Islamization"
of Pakistan's economy. But it's the turbocharged present that is the
focus of the book: Islamic banking, otherwise known as Shariah-compliant
banking, is now an industry approaching $2 trillion, thanks to soaring
trade in emerging markets such as Malaysia and the United Arab Emirates.
Heaven's Bankers
By Harris Irfan
(Constable, 347 pages, £20)
Mr. Irfan has been a key player throughout much of this contemporary boom, having co-founded the team at
Deutsche Bank
DBK.XE +2.13%
that pioneered modern Shariah-compliant derivatives. He became
the global head of Islamic finance at Barclays Capital in 2009, and is
now a managing director at
European Islamic Investment Bank,
one of the few U.K.-based Shariah-financing boutiques. The book
provides an up-close look at the tactics Western banks, like Deutsche,
Goldman Sachs
GS -0.90%
and
HSBC,
HSBA.LN +0.26%
have taken to win over 1.6 billion Muslims world-wide, who for
years either had to park their religious principles to participate in
the global financial system or accept mediocre returns.
But
along the way, Mr. Irfan also provides numerous examples of how Western
financiers, determined to win over the faithful, have diluted Shariah
standards in pursuit of commercial advantage: Bankers delete the word
"interest" from deal documents in favor of Shariah-friendly language;
Islamic investors wittingly and unwittingly fund businesses where
alcohol and pork products are consumed; and Islamic scholars find their
names used to suggest that they had given approval to deals they had
never reviewed. In one instance that remains murky, a $2 billion Islamic
bond deal by Goldman Sachs was sunk after a fatwa, a religious
edict green-lighting a deal, failed to pass muster with skeptical
Muslim bankers. Even when Western banks go out of their way to
accommodate the faithful, things can border on the surreal. Mr. Irfan
describes one comic case in which Deutsche Bank is left pondering how a
deal that justifies its Shariah credentials by trading real assets can
be completed without clogging up the mailroom with millions of sacks of
Egyptian fertilizer for years on end.
It's
plain, though, that many Western bankers treat Islam as a nuisance: "I
don't care about the Shar-eye-ah stuff!" yells one New York-based banker
as a cross-border acquisition deal runs into religious requirements. On
the flip side, many Muslims, Mr. Irfan argues, also turn a blind eye.
Even while chasing a deal to fund a five-star hotel and gigantic clock
tower in Mecca, Deutsche Bank finds some companies prepared to settle
for Shariah-lite. "I don't understand why you guys need to overanalyse
things," the bankers are told by the finance manager at Saudi Binladin
Group, the kingdom's biggest construction company. "Just do the deal.
Draft up the docs with a structure that roughly works and print the damn
thing." Eventually the company loses patience and the deal folds, but
not before Deutsche's reputation in Islamic finance is made—in a city
where non-Muslims are forbidden, no less.
The
industry remains arcane and poorly understood, and often facing
accusations that it is somehow linked to terrorist finance: Saudi
Binladin Group will forever be overshadowed by the estranged son who ran
a rather prominent terrorist network. Banks "are concerned that trading
with Islamic financial institutions might somehow taint their own
reputation, as if those institutions must by definition have a greater
degree of exposure to laundered terrorist money," Mr. Irfan writes. He
might have done more to vigorously confront this prejudice.
Given
this book's topic, it will find relatively few readers outside of the
financial industry. This is a pity, because aside from opening a window
into this fascinating world, Mr. Irfan's career provides a case study in
the challenges of balancing profit and principle.
As
Mr. Irfan assesses the deals he structured at Western investment banks,
he realizes that Shariah isn't ultimately being served by the
mainstream banking world.
Geert Bossuyt,
former head of Deutsche Bank's now shuttered Islamic unit,
concedes that perhaps "a bank is not an Islamic concept." But Mr. Irfan
concludes that for all Islamic finance's shortcomings, its introspection
is a source of strength—so long as it can refrain from the
self-congratulatory impulses of Western banking and reassert its social
mission. His message ought to be recited by bankers of every creed.
Mr. Hunter is a markets reporter at The Wall Street Journal in Hong Kong who previously covered finance in the Persian Gulf
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http://www.telegraph.co.uk/culture/books/bookreviews/10973772/Heavens-Bankers-Inside-the-Hidden-World-of-Islamic-Finance-by-Harris-Irfan-review-noble-intentions.html
Heaven’s Bankers: Inside the Hidden World of Islamic Finance by Harris Irfan, review: 'noble intentions'
Is sharia-compliant banking just a way of twisting the rules?
Islamic finance is, today, a trillion-dollar industry Photo: Rex Features
By Mona Siddiqui
8:00AM BST 19 Jul 2014
Even those who assume to know something about sharia – Islamic law – are
reticent to make claims about Islamic finance, so complex is this area of
law. So when the phrase “sharia-compliant” first emerged in Western
financial sectors in the early Nineties, it was seen as little more than an
ethical-religious system on the fringes of mainstream financial markets with
one main message: the prohibition on charging interest.
Yet today Islamic finance is a trillion-dollar industry with many financial
institutions, corporations and governments keen to embrace it as a
profit-making alternative to mainstream financial dealings.
Harris Irfan is an insider on two fronts. He is a Muslim and also an expert in
finance and commerce. He has worked as an investment banker in Europe and
the Middle East and been head of Islamic finance at Barclays; he also
founded Cordoba Capital, an Islamic finance advisory firm. Irfan is a man
with a mission: to show that Islamic finance might be able to make a real
contribution to our economic woes. He asks the reader to consider whether
the Islamic world can “bring something of benefit to the Western world, and
vice versa”.
This is no mean task, but Irfan uses his own professional and personal
experiences to weave together an accessible and interesting story. We get an
insight into the birth of the Islamic finance system in the Fifties, to the
establishment of the first Muslim banks in Saudi Arabia and the Gulf States
and the gradual recognition by Western banks of the enormous profit
potential in structuring products on a sharia-compliant basis. Traditional
clerics were flattered with the attention and remuneration offered by the
giants of the banking industry in exchange for their expertise. The
prevalence of sharia-compliant bonds, or sukuk, ensured that Islamic finance
went global.
While this book isn’t full of jargon, it helps to know something about how the
investment industry works. You also need to have some sense of Islamic
history and religious concepts – though there is a helpful glossary. But the
religious commentary does not overcomplicate the narrative. Anecdotes about
the life of the great eighth-century Muslim legal scholar Abu Hanifa, the
financial workings of the Ottoman Empire and the modern controversial
Pakistani scholar Taqi Usmani all add weight to Irfan’s history.
Islamic finance uses a risk-sharing model. Simply put, in a typical
risk-sharing arrangement such as equity finance the parties will share the
risk as well as the reward of a contract. In an interest-rate-based debt
contract the risk is transferred from the financier or lender to the
borrower, where the financier retains both the property rights claim to the
principle and interest but also to any collateral.
Though he is broadly a supporter of risk-sharing schemes, Irfan does include
the opinions of Muslim scholars who question just how “Islamic” this
approach is and whether it offers a real ethical alternative to mainstream
investments. Is it simply a clever way of twisting the rules to allow you
make as much money as before?
The book takes us right up to the present day with the Bin Ladens and Bob
Diamond both making an appearance. Irfan provides an interesting comparative
case by discussing the recent controversy surrounding the Archbishop of
Canterbury, Justin Welby. Irfan speaks of the embarrassment when the
archbishop condemned the high-interest-rate practices of the payday lender
Wonga, only to find that the Church of England’s own endowment fund was an
investor in the company. Irfan shows that ethical finance is a concern for
other religious traditions and that in matters of wealth, morality matters.
His concluding chapter ponders the future of Islamic banking after some
sharia-compliant finances were unfairly equated with funding terrorism and
banks and corporations began to close down their Islamic wings.
But while there has been scaremongering over the issue, he also acknowledges
those Muslim financiers who feel that they have failed to truly bring
something worthwhile to the banking sector to both Muslims and non-Muslims.
Irfan’s intentions might be noble, but I suspect that here in the West he
faces a real struggle. The big banks and companies hit by the financial
crisis are determined to recover and some are increasingly wary of Islamic
banking for all kinds of reasons. To this many might add that Muslims have
bigger issues to contend with than the complex and arbitrary nature of
sharia-compliant finance.
Heaven’s
Bankers: Inside the Hidden World of Islamic Finance by Harris Irfan
368pp, Constable, Telegraph offer price: £18 (PLUS £1.95 p&p)
(RRP £20, ebook £12.34). Call 0844 871 1515 or see
books.telegraph.co.uk
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http://www.independent.co.uk/arts-entertainment/books/reviews/heavens-bankers-by-harris-irfan-book-review-how-high-deals-of-islamic-banking-were-brought-low-9612317.html
Heaven's Bankers by Harris Irfan, book review: How high deals of Islamic banking were brought low
Immediately after 9/11, international banks profiled their Middle
Eastern account holders in meticulous detail. There was a general
suspicion that they were aiding terrorists. The account holders reacted
by transforming their clean money to the Gulf states, triggering a
regional explosion in bank assets, stock markets and property.
The simultaneous rise in Islamophobia in the West encouraged a
multitude of young and bright Muslim bankers and financial experts to
migrate to the Emirates. The sheikdoms welcomed them by creating
freehold property zones. The scene was thus set for Islamic finance to
emerge from a curiosity on the margins to become a lucrative global
enterprise.
Harris Irfan was amongst those who migrated to Dubai.
As soon as he arrived, the ruler established the Dubai International
Financial Centre – "a square mile of real state on a patch of desert
with little surrounding infrastructure". The sole purpose of the Centre
was to develop a thriving Islamic finance industry. In Heaven's Bankers:
Inside the Hidden World of Islamic Bankers, Irfan relates the
punch-drunk story of what happened next.
As a discipline, Islamic
economics has a much longer history than indicated here. Its roots can
be traced back to the more hopeful times of 1960s and 1970s, when there
was a great deal of talk about "Islamic resurgence". Committed Muslim
scholars everywhere were trying to develop alternatives to capitalism
and socialism. The goal was to develop an economic system based on
Islamic principles that outlaw interest and speculation, insist on
limiting uncertainty, and aim at promoting equity, responsibility, and
social justice. Since then Islamic economics has developed into a
sophisticated theory and practice.
During the 1980s and 1990s,
Islamic banks mushroomed in Egypt, India, Iran, Malaysia and Pakistan.
But before the boom chartered by Irfan, Islamic finance was a limited
local affair. One of the first experiments was the Mir Ghamr Savings
Bank in Egypt, a small profit-sharing institution that did not give or
receive interest, engaged in commerce and industry, sharing its profits
with depositors. It was more a vehicle for savings and investments than a
bank. Later Islamic banks followed a similar model.
Things
changed when the "rocket scientists of Deutsche Bank", Goldman Sachs,
HSBC and other big boys arrived on the scene. They saw Islamic finance
as an opportunity for quick profit. Muftis and Mullahs were hired at
footballers' salaries to make some of their product "Sharia compliant",
and bankers such as Irfan to sell them to an unsuspected Muslim public.
Soon we had products such as sukuk (the equivalent of interest on
bonds), hilah contracts (which substituted bank charges for interest)
and Islamic finance became embroiled in hedge funds, derivatives and
other dubious instruments justified in the name of Islam.
Irfan
tells the story of high jinks and deceitful behaviour with great relish.
While he is rather reverential towards "billion-dollar scholars", he
does expose their knack for finding religious justification for every
seedy product. The debate between scholars attacking and defending
Islamic finance is particularly illuminating.In the end, Irfan realises
that Islamic finance is nothing but a confidence trick.
He is a
"charlatan", suffering from "incoherent pietism" and "cognitive
dissonance". The very institution of the bank, as it operates today, is
intrinsically un-Islamic, forcing bankers such as him "to squeeze a
square peg into a round hole". It is a refreshing confession. It will
upset the pious eager to find "Sharia compliant" institutions for their
hard-earned cash. But it vindicates what so many intellectuals have been
saying for decades. One failure, albeit a monumental one, should not
mean that the search for an ethical Islamic economy should cease. In
fact, it begins all over again.
Ziauddin Sardar is the editor of 'Critical Muslim
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http://indianexpress.com/article/india/india-others/the-islamic-origins-of-capitalist-enterprise/99/
The Islamic Origins of Capitalist Enterprise
Harris Irfan | Posted: July 12, 2014 3:25 am
BY: Harris Irfan
Book: Heaven’s Bankers; Inside the Hidden World of Islamic Finance
Author: Harris Irfan
Publisher: Constable & Robinson
Pages: 347 pages
Price: Rs 999
The work of Abu Hanifa [in 7th century Iraq] and others like him on
the fundamentals of jurisprudence, followed by the codifying of
commercial law, would eventually lead to the development of a widespread
money economy, with gold and silver giving way to paper notes. At
first, traders relied on prophetic injunctions against usury or
uncertainty in transactions or manifest examples of immoral behaviour.
As scholars like Abu Hanifa built upon prophetic traditions, cheques and
letters of credit followed naturally and before long a market-oriented
capitalist economy — underpinned by an ethical code — was thriving in
the Islamic world.
Arab and Persian merchants forged trade links with India and the Far
East, becoming indispensable in the chain of trade between East and
West. An Arab merchant from Baghdad might travel to Cordoba in Spain,
taking with him a letter of credit — a suftaja — to be encashed on
arrival by an agent, part of a network of money transfer that came to be
known as hawala. Indeed the hawala would go on to influence the
development of the agency concept in common and civil laws throughout
Europe. The saqq — the forerunner of our modern-day cheque — allowed the
early banker to become indispensable to every trader as a guarantor of
paper money at markets and cities throughout the Islamic world…
Muslim traders would share the profits of their ventures with their
sponsors in a pre-defined manner that would come to be the hallmark of
Islamic economic activity, an investment partnership that modern Islamic
banks refer to as musharaka and mudaraba. An exchange economy became
the framework for Islamic merchant capitalism.
Within a few centuries, the Crusaders would encounter Arabian
merchants and carry their new-fangled ideas — such as the trust law
encapsulated in the Waqf and the agency concept intrinsic in the hawala —
back to the Mediterranean. Not only would the techniques of commerce
and finance filter through to medieval Europe, but also an
entrepreneurial spirit which had been less widespread before.
Ironically, given the negative connotation that “capitalism” has today —
with all its implications of greed and selfishness — it was the Islamic
world that institutionalised capitalism and brought it to the West in
the form that we are familiar with today. Somewhere along the way,
“Islamic” capitalism — of the type which Abu Hanifa legislated in favour
of, and that afforded protection to the weak and the needy – became
diluted…
Although earlier banking systems like the hawala method of money
transfer were still widely in use, and the 100,000 pilgrims travelling
annually to Makkah continued to make use of the suftaja bill of exchange
to draw money at their journey’s end, court records of Anatolian cities
show that interest-based lending was a frequent and apparently
tolerated practice. Most disputes were in relation to small-scale
transactions from person to person, with interest rates ranging from
10-20 per cent. There appeared to be no attempt to conceal the
interest-bearing nature of the transaction and indeed, the local pious
endowments became important providers of credit in major urban centres.
Though some clerics denounced the practice of charging interest as
incompatible with Sharia, the majority adopted the pragmatic view that
disallowing the practice might harm the community.
Ottoman merchants continued to make use of the business partnership
models such as the mudaraba, or investment partnership, which typically
financed long-distance trading ventures without resorting to a fixed
interest charge… However, little development of an Islamic system of
economics and finance took place during the 600 years of Ottoman power.
As European money-lenders gained in prominence, eventually Ottoman
practices fell into line, and it would not be until the middle of the
20th century that Islamic finance would reassert its identity.
Founder of Cordoba Capital, Harris Irfan has headed Islamic finance at Deutsche Bank and Barclays.
