By 2009, we may all be Islamic bankers, too.
It's an odd yet apt comparison. Islamic banking is more about the means by which a certain group of people obtains money. Zero interest rates are about getting as much money, in any way possible, to everyone.
There's still something to be said about the spreading appeal of scrapping interest rates. It's no longer a unique aspect of certain transactions or a banking novelty. Its becoming the norm, and its quite disorienting.
Japan's benchmark interest rate is 0.3% and headed to zero in the months ahead. The US federal funds rate is 1% and headed lower, too. The UK's rate is 2%, Canada's is 2.25% and the euro zone's is 2.5%. As the fallout from the global crisis worsens, these and many other benchmark rates will edge toward zero.
According to Islamic law, the charging of interest, or "riba" in Arabic, is unjust and exploitative. That concept bears little resemblance to Japan's zero-interest-rate policies, or ZIRP. The BOJ never argued it was seeking to foster brotherhood or socio-economic justice.
But that's exactly what the BOJ did. By eliminating borrowing costs, and going further in recent years with "quantitative easing," the BOJ was doing its bit for social fairness and stability. It was about protecting the Japanese way of doing business and maintaining the equalitarianism on which the nations 127 million people pride themselves.
Now the Fed is heading down a similar road for similar reasons. With an unprecedented array of emergency-loan programs aimed at easing the worst credit crisis in seven decades, the Fed is engaging in Japan-like quantitative easing. The level of rates is one thing. The more fascinating development is the Fed pushing waves of extra liquidity into the financial system.
What the author fails to understand is that there's a lot more to Islamic banking than having no interest rates. To be sure, interest-free financing is an important characteristic in Islamic finance; however, it's far from being the sole criterion. There are other aspects that must be considered before financing can be considered shari'ah-compliant, and there are very few people around the world who are qualified to make such a determination.
The final quarter of the article has the author slobbering over himself as greed for an untapped source of capital (in these days of tight credit) begins to take over:
The point here isn't to downplay a fast-rising asset class. Globally, Islamic banking assets are estimated at $US600 billion to $US650 billion and have registered annual growth of 10 to 15% over the last decade, according to Celent, a Boston- based financial research and consulting firm.
That kind of growth means Islamic assets will top $US1 trillion by 2010, Alexa Lam, deputy chief executive officer of the Hong Kong Securities and Futures Commission, said at a EuroMoney conference in Hong Kong last month.
The reason why data from Boston and perspectives from Hong Kong are being highlighted here is to show just how anxious the world is to get a piece of Islamic finance. The figures and growth rates speak for themselves.
Will we all become Islamic bankers now? The answer is "no" (insha'allah wa alhamdulillah).