Australian Islamist Monitor

Islam Under Scrutiny

  • Increase font size
  • Default font size
  • Decrease font size

Islamic Finance is Islamic Law for Australia

E-mail Print PDF

We've already established the Labor Government's reckless disregard for Australia's security and freedom by supporting Islamic Finance. However, notwithstanding this unchallenged truth, all they can do is put their head in the sand and tell us we are misinformed and wrong. This article intends to go into detail on why we are not wrong and, if there is a change of Government, demand that the new Government address the issues raised.

As a quick refresher, the Labor Government is encouraging Shariah-compliant finance because:

1. It will service the Muslim community who currently don't have choice. This is notwithstanding Islamic Finance being an entirely modern construct that Muslims have just started to hear about and recent reports that the industry is declining through lack of Muslim participation. This is not surprising, Islamic finance is more expensive and nobody wants to pay more for their financial products. Is more money in one's pocket to wage jihad worth more Paradise points than those lost by devouring interest?

Also, many Muslims see it for what it is anyway. Bond University Professor Dr. Mohamed Ariff, when commenting on the scepticism of the Muslim community in Australia, states:

"Many would say that the Islamic Banks are not really different from conventional banks and they are playing with words and semantics and so on and so forth- coming up with Arabic names that sound very Islamic but if you scratch it, you will find that its not that different from conventional finance products. So such concern does exist." [34]

Britain's lack of demand for Islamic financial products has been well publicised recently and from South Africa:

"South Africa has a Muslim population of over two million and many of them are well established in business and in the professions....But the uptake of Islamic financial products by these Muslim-owned businesses is at best ordinary." [1, 2]

2. Islamic Finance is socially ethical because it follows Islamic principles. I couldn't even begin to give this ridiculous idea the justice it deserves but others have. This argument also relies way too heavily on pork products being one of the greatest social evils facing the planet.

3. Islamic Finance will allow us access to petrodollar capital. Possibly, though it used to come without the political sting and, in any event, the cost of bowing down for this capital is too great.

4. Islamic Finance is good for the economy and based on sound economic principles that benefit society.

This is what I want to focus on along with the legal mess which will be created. Such an argument is not only baseless and wrong but Islamic finance is actually bad for the economy and can be rejected on this basis alone. However, this assertion is what is selling the industry more than anything else and allows Islam the foothold in our economy that will eventually give it power. Thus it is the ultimate deception, the "wolf in sheep's clothes" approach as there's no stonings or beheadings to think about for the Australian public, just an alternative financial system that, according to Senator Nick Sherry's delusion, will increase our financial market's "depth and sophistication". [32]

A case study on Islamic Finance's contrived structures and inefficiencies

Islamic Finance is form over substance, inflexible and inefficient. How so?

As an example, this is a common home loan structure. The bank acquires a co-ownership interest in your house to the extent of its loan. You still retain legal title and the bank takes a mortgage. You then 'lease' the bank's portion of the house back from the bank. Each month you pay "Fixed Rental" (principal) and "Variable Rental" (interest). The Variable Rental is calculated by reference to your "Profit Rate" which fluctuates based on the same movements of cash rates or the way any bank wants to charge variable interest.

If you don't pay you default, the leasing agreement is terminated and the mortgage can be utilised. The bank can accelerate the principal upon default by obliging you to purchase its interest in the house at the price of the outstanding amount.

Technically, you enter into a new 'lease' each month and this is how the Variable Rental can vary (and satisfy Shariah-compliance certainty of cost issues as the rent stays the same for your 1 month lease). You agree to constantly renew the lease each month until the principal is all paid back.

So there is absolutely no difference in the financier's risk profile, the characteristics and movement of interest or the Bank's rights to accelerate and enforce. None. John Foster, former editor, Islamic Business & Finance states:

"Whether the product is dressed up in Arabic terminology, such as Mudarabah, or Ijarah, if it looks and feels like a mortgage, it is a mortgage and to say anything else is semantics." [10]

But instead of having a loan contract, these are the contracts you enter into with the bank:

  1. A lease agreement (ijara)
  2. A sale agreement to give the bank its interest in the house or alternatively, a musharaka agreement, where the bank acquires an interest pursuant to a form of joint venture and this interest 'diminishes' as you buy back its interest instead of paying fixed rental.
  3.  For properties under construction an istisna agreement whereby the bank has the house constructed on its behalf as well. The interest is paid during this phase under a "forward lease" on account of when the lease starts.
  4. A Purchase Undertaking (in case of default for acceleration)
  5. A Sale Undertaking which is the opposite of the Purchase Undertaking (to eventually re-sell the property back at a nominal amount if no musharaka is used or otherwise multiple sale agreements to constantly purchase the bank's interest in the musharaka)
  6. A Servicing Agency Agreement (under Shariah the landlord cannot make the tenant pay insurances and major maintenance so the Bank appoints you to do this as agent)
  7. A side letter to detail any conditions precedent (under Shariah the transaction can't be conditional - they just hide that one from the scholars...)

Under a lease structure you have a pretend lease, not a loan, and thus usual flexibility options are not available. How does this help the economy if resources cannot be quickly and efficiently utilised and moved to wherever they are most needed? The same issues arise at the corporate level and that is where the real drag to the economy will exist. Whether it be an ijara structure for asset financing, or a Musharaka or Mudaraba structure whereby the Bank and Borrower enter into pretend investment joint ventures and agency agreements, you are still left with a synthetic and contrived contractual framework that must be adhered to.

Then there's the corporate finance techniques (which also apply for personal loans) where a completely synthetic structure of trading metal is used to produce a general purpose loan. This helps a little although they remain rigid structures, poor substitutes for their conventional counterparts and fail miserably on the real economy front.

If a company cannot utilise and apply resources quickly and efficiently then growth and investment will be slowed.

This is what Dr Mohamad Nedal Alchaar, secretary general of the Accounting and Auditing Organisation for Islamic Financial Institutions (AAOIFI) stated in 2008 in response to the AAOIFI declaration that over 80% of all sukuks were non-Shariah compliant and the resultant criticism that Islamic Finance was inflexible:

"Although Islamic finance should be flexible to an extent, it is most important that financial products and services marketed as ‘Islamic’ should pass the Shariah compliance test. The (AAOIFI) standards define and elucidate the Shariah parameters within which innovations can take place,” [8]

This is an acknowledgment by one of the most senior participants in Islamic Finance that Shariah comes first, flexibility second. And we know one thing, Shariah IS NOT flexible.

Shariah-compliant finance contracts need to follow Shariah law and Australian law. Conventional finance contracts only need to follow Australian law. Does common sense not tell you that by following two sets of law instead of one you will have a slower, more restrictive financial system? And whilst innovation is pushing ahead to create replica "Islamic" financial products, what sense is there in limiting a bank's ability to create appropriate financing solutions as times and circumstances change?


There is an absurd myth that Islamic Finance prohibits speculation or excessive risk taking.

If so, I would like the following questions answered:

1. Why did Amlak and Tamweel, both UAE Islamic finance institutions, go bust on the collapse of the obvious Middle East property boom? Even when re-sale prices for property had doubled from their initial sale prices these two were still happily lending up to 90% LVR on the inflated values.

 2. Why did Kuwait's Global Investment House and The Investment Dar go bust?

3. Explain the commercial decision making rationale of Middle East's Islamic banks, notably the part-Government owned Dubai Islamic Bank? They had crippling exposures to banking folly and speculative stupidity. Shall we discuss the Al Saad Group and the many billions DIB lent to Dubai World? They're not prepared to disclose the full amount but we know DIB had huge exposures to Nakheel who, amongst other things, were building multi-billion dollar sand castles in the Persian Gulf in the shape of the World. It also made at least US$135 million in provisions for "the Plantation", the world's biggest polo club (and mirage) to be built in the middle of the desert.

This is what The National said of DIB:

"The bank is falling out of favour due to concerns about its asset quality and exposure to the property sector". [3]

From speculation I'd say.

And do we even get the bad news?

"The magnitude of the problems have not been reflected clearly in the financial statements of banks, because banks have been able to use different accounting treatments that have not seen the losses translated into their accounts." said Sohail Zubairi, chief executive of Dar Al Sharia (Dubai Islamic Bank's internal Sharia advisers). [4]

But at least when DIB gets into trouble it has ethical Islamic mitigation strategies. Rifat Usmani, a former employee detained on fraud charges filed a suit against DIB in a Miami court for “conspiring to detain, torture, and cause Plaintiff's forced disappearance”. [11]

4. Explain the many recent high profile sukuk failures including East Cameron Gas and the Nakheel sukuk which only avoided default because it was bailed out by the Abu Dhabi Government?

5. Explain the need for constant liquidity injections from Middle East governments to Islamic Banks and why the Qatari Government had to bail out its banking system this year including Qatar Islamic Bank and Qatar International Islamic Bank?. [5]

Is it only the Middle East? Even before the financial crisis, Bank Islam Malaysia “the symbol of Islamic banking in Malaysia” and “the flagbearer of the country’s Islamic financial services industry” announced in 2005 massive losses against bad loans and investments and had to be saved from collapse through a recapitalisation. [13]

Islamic Banks did have limited exposure to the collateralised debt obligations (CDO's) that European and US banks were exposed to, however, they did not survive the financial crisis well at all. That claim fell silent about a year ago when the reality became too much to hide. Given their relative lack of options regarding risk-hedging and asset diversification, they found themselves over-exposed and over-concentrated in particular asset classes and that is never a good place to be for a bank. This is particularly so with property, the asset class behind the sub-prime crisis and global real estate bust.

As Asiamoney state:

"But the fact that Islamic banks were prohibited from the riskier assets of the moment does not automatically mean that they follow best practice in terms of risk management, credit research or investment processes." [13]

Derivatives and risk hedging

Derivatives are assets that take their value from an underlying asset and common examples are Options, Swaps and Futures contracts. They are often used speculatively and were a factor in the financial crisis.

Islamic finance apparently prohibits such products but let's see what the sector itself says about them:

The following is taken from Euromoney's FOW, one of the world's leading derivative publications:

"But the swelling interest in Islamic hedging structures and the wide variety of initiatives being worked on suggest the opposite - that an Islamic derivatives market is emerging that will eventually offer an extensive range of services."..."These products are traded on a substantial scale and investor interest is growing"..."Most of what has been offered so far by Western banks is a replication of conventional products in a Shariah compliant manner" says Danny Goldblum, global head of FX at HSBC in London. "The Islamic products offered by HSBC include forwards, vanilla options and over-the-counter swaps."

Ghazantar Naqvi, head of Islamic products at Standard Chartered in Dubai says that Islamic hedging instruments

"have grown on a year-on-year basis and growth has been substantial. There's a lot of space in this market. Standard Chartered has been offering Islamic hedging solutions since 2005 for currency and interest rate risk, which are comparable to conventional derivative solutions."

FOW continues:

"The secondary market for Islamic hedging instruments is much more complex. If a party wants to get out of a contract, the new entity stepping into its shoes has to execute a fresh trade directly with the original counterparty. You can build in provisions that enable you to assign the contract to someone else" says Naqvi, "but it requires an extra bit of effort than with conventional contracts".

"One of the constraints on growth is the lack of standardisation. Every product requires a large amount of documentation, which makes trading time-consuming and expensive." [6]

Sound familiar? Replicating the conventional system but more inflexible, more effort to accommodate the structure.

Some good news though, in March 2010 ISDA (the International Swaps and Derivatives Association) launched its Islamic Master Agreement which should help efficiency. This is the Islamic version of the standard Master Agreement which regulates derivative transactions worldwide. From Reuters:

"The contract, in the making for three years, is expected to pave the way for quicker and cheaper Islamic risk management and more frequent cross-currency transactions by offering a template that is accepted by Islamic scholars. The young Islamic finance industry has not yet developed all of the products used by conventional banks, and its banks are seen as at a disadvantage on making cross-border investments as they can not hedge against currency risks." [18]

But hang on, no derivatives, no hedging, what business does ISDA have here?

More from Standard Chartered's Naqvi:

"The Islamic finance industry is growing and will keep on expanding geographically and in its product offering. Standardisation will come along, I see quite a bright future for Islamic hedging instruments." [6]

Some further insights from FOW:

"The Turkish derivatives exchange Turkdex, for example, will soon introduce two foreign exchange contracts that will be Shariah-compliant" Turkdex also wants to launch Sharia-compliant cotton futures".

Jeff Singer, chief executive of Nadaq Dubai says he is

"bullish on Shariah (exchange traded derivatives)". "Another way investors can trade derivative-style products is to buy and sell London Metal Exchange warrants in the over-the-counter market. Each warrant conveys the ownership of a specified 23 tonnes of metal or plastic stored in an LME warehouse."

That real economy again?

"Before the credit crunch there was a real momentum for trying to come up with Shariah-compliant repos and CDO's. There's been a lot of wind taken out of the sails". Lastly, from HSBC's Raza again "if the financial crisis settles down, the Islamic market will be moving towards Islamic derivatives". [6]

How about the view of leading global law firm Clifford Chance. Their website states:

"Our Islamic derivatives experts are consistently called upon by the world's leading financial institutions and regulators to develop and advise on ground breaking Shari'a compliant risk management products. We are at the cutting edge of drafting and structuring Islamic hedging transactions and are at the forefront of developing and pioneering innovative structures that use traditional Islamic products like the murabaha, wa'ad, salam and arbun to generate similar economic profiles to conventional derivatives but in a Shari'a compliant manner." [27]

Did they say "risk management products", "hedging" and "similar economic profiles to conventional derivatives"?

The following quotes come from Islamic Finance Asia magazine:

"Many Islamic scholars have looked beyond the speculative, or gharar, element in derivatives, contending that it is not a wrongful act per se. Derivatives are not thought to contain elements of underhanded activity and dishonest trading involving futures and options."

Abrar Mir of NBD Sana Capital says:

“I do not think this will affect the growth of Islamic derivatives; it may be slow but it will happen in due time. One of the things that make Islam great is the differing views and not just by one authority. Through different opinions we can progress and constantly examine ourselves toward further advancement and improvements”.

Meanwhile, Afaq Khan, CEO of Standard Chartered's Islamic arm Saadiq thinks:

"the Islamic finance market needs to have treasury risk management tools including derivatives to effectively manage and compete in the global economy". “We think the market needs to have treasury. The market has accepted the solution across geographies as the alternative is to keep an open position, which results in unintentional speculation and/or to sign an interest-based derivatives contract, which is prohibited under the Shariah. We have done transactions in Saudi Arabia, Kuwait, Qatar, the UAE and Malaysia, to name a few,”. [9]

Are Western banks with Islamic "windows" the more aggressive though compared to Islamic Banks? Perhaps they are, though given the likes of HSBC Amanah, SCB's Saadiq and Citi's Islamic Investment Bank are some of the biggest players in this sector and have massive reach and influence on a global stage, infiltrating these institutions is far more important from the Islamist's perspective.

The financial crisis has temporarily blunted the development of Islamic hedging and derivatives products just as it has led to a review of such products in the conventional banking world. It is also the case that many Islamic scholars are not agreeable to many forms of Islamic derivatives because there is no tangible asset and they can be used speculatively but to suggest they don't exist, or are not used speculatively (the scholars control the product, not its use), is a blatant lie. Innovation is slowly returning to the industry and if a structure doesn't get approved, you just try another one or another scholar.

John Foster again:

"...However, this new generation of Islamic bankers had cut their teeth in the City and Wall Street, and were used to creating sophisticated financial products. They often bumped heads with the Sharia scholars who authorised their products as Sharia compliant.
However, these bankers had a way of dealing with this, as one investment banker based in Dubai, working for a major Western financial organisation explains: "We create the same type of products that we do for the conventional markets. We then phone up a Sharia scholar for a Fatwa [seal of approval, confirming the product is Shari'ah compliant]"...“If he doesn’t give it to us, we phone up another scholar, offer him a sum of money for his services and ask him for a Fatwa. We do this until we get Sharia compliance. Then we are free to distribute the product as Islamic.”


Islamic finance makes no economic sense because it is always more expensive and leaves less money in the hands of business to invest.

It is more expensive because:

1. The structuring costs arising from a) the cost of the many additional contracts for the same deal, and b) the various metal brokers, agents or other participants required to make the structure work.

2. Banks will charge at least an extra 30 basis points and usually a lot more for "Shariah risk". This risk is from:

a) notwithstanding secular courts haven't yet delved into Shariah compliance issues, there is a risk this may change as we have seen recently in the English courts in The Investment Dar v Blom Bank. [21] If courts start reviewing contracts for Shariah-compliance banks will lose money as this means giving back risk to the banks.

b) the Shariah boards themselves may take a view that a transaction under a contract is not Shariah-compliant and donate those profits to Islamic charities. The Islamic banks aren't going to give up that money, they get it back through increased margins, particularly in the case of late payment fees which are not Shariah-compliant. Late payment fees are a huge cash cow for banks (it is currently hitting the Australian courts in class actions due to their penalty nature [22]) and only a fraction of those late payment fees go to covering actual losses. For the Islamic bank customer it ends up being a double whammy, they still pay the full late payment fees anyway (as the Islamic bank wants to keep the deterrence and make the donation) and the additional pricing.

3. there are fewer participants in Islamic finance and with a marketing pitch that includes threat of eternal hellfire, maybe a little extra?

I have generously omitted the costs of complying with legislative and regulatory issues, assuming these will all disappear as the Government does the necessary to encourage Islamic finance.

Here's just one example of Islamic banking costs in a traditional non-Islamic country:

"Islamic banks such as Albaraka Bank (South Africa) and the Islamic banking windows of FNB, ABSA, Nedbank and Standard Bank have come under heavy criticism from Muslim customers from following the greed culture of conventional banking and in some cases actually charging higher fees and service charges than their conventional counterparts". [2]

And on the corporate side:

"Sukuk structures are usually more expensive due to the costs associated with sharia board approval, extra legal fees, and fees associated with the often complex structures." [12]

It is illogical to promote a finance system that we know is already more expensive. Enough for the Australian Competition and Consumer Commission to review? Will they be allowed to comment on it anyway? The assumption that Islamic finance will increase competition I believe is a furphy and should be tested.

Legal issues

Following is just some of the legal issues associated with Islamic finance:

1. The Trade Practices Act, particularly Section 51 and "deceptive and misleading conduct". The Islamic banks are selling their products on the basis of obvious deceptive and misleading conduct as we have thoroughly proved, case closed on that issue.

2. Corporations Act disclosure requirements when offering to sell financial products. There is no disclosure on what Shariah law really is and the fact Islamic charity donations go to terrorists (or even just "only to Muslims"). The real financial risks will probably not be highlighted either in the disclosure statements. This last point remains to be seen though if they do follow the law in their product disclosure statements they have just contradicted everything in their marketing statements. False advertising?

3. Insolvency laws are already being tested in many jurisdictions to determine the precise nature, rights and liabilities of Islamic finance stakeholders in the winding-up of a company. As an example, Dr Sabir Muhamed Hassan, governor of the Central Bank of Sudan, has stated:

"The musharakah contract, in which a bank acts as a partner in a business interest, could potentially expose institutions to legal action. The bank is likely to be involved in management decisions, and it could be vulnerable if business is conducted improperly."...“In the case of negligence or misconduct, the Islamic bank will be liable for the capital of musharakah,”...“Modern insolvency laws in some countries impose liability on the officers and directors for actions taken on the eve of insolvency". [14]

4. There will be contravention of anti-terror and anti-money laundering laws when corporate profits, hidden payments in the contracts and bank donations go to Islamic charities, a percentage of which, often quoted as 1/8th (as there are eight categories for Islamic charity) must go to fighting in the way of Allah.

However, it is likely more than 1/8th will go to violent, jihad-related "charities". Yusuf Al Qaradawi, Chairman of the European Council for Fatwa and Research, leading Shariah adviser for many Islamic and Western banks, and for many the most prominent Sunni Shariah scholar in the world, states in relation to violent jihad:

"It thus needs to be financed from the money of Zakah, the amount of which is to be decided based on the total sum of the charity, the requirements of Jihad as well as the degree of the need of other potential recipients of charity. [24]

So it is based on the requirements of jihad relative to other potential recipients - many of those other recipients the West keeps generously funding itself and lightens the Muslim's burden. I think it's fair to say that in 2010 the requirements of jihad would be considered a priority in the Muslim world.

Qaradawi, one of the most influential figures in Islamic finance, believes it is "Jihad with money” and should replace capitalism. He is also banned from travel to the US and the UK because of his ties to Jihadist terrorist organisations and their funding through Islamic finance. [25]

Furthermore, as hidden payments in the contracts go to "Islamic charities at the discretion of the Shariah Supervisory Board" all these amounts could be forwarded to a single charity, for a single purpose. And while Western banks may not pay zakat out of their corporate profits like an Islamic Bank, they do provide a constant stream of ad hoc zakat donations, particularly at Ramadan time. This comes from Shariah board pressure and their marketing strategies, if a financial institution wants to operate in the Islamic "space", it better be seen to be making its zakat donations. Western banks like HSBC also facilitate zakat funding by encouraging and providing zakat payment services through their websites. [26]

To the Labor Government I ask this:

"What part of obligatory terror funding do you not understand?"

It is not the case that there may be bad apples or a very small risk - every Islamic finance participant in Australia WILL be funding violent jihad and terrorist organisations to some degree. Your anti-terror laws do not take precedence over Shariah law for Muslims and when the terror funding is exposed publicly the legal ramifications will be huge.

Shari'ah's Black Box: Civil Liability and Criminal Exposure Surrounding Shari'ah-Compliant Finance by David Yerushalmi, 2008 is a superb analysis of the legal risks associated with Islamic finance. It details issues including common law tort actions for deceit or fraud, securities laws, consumer protection and anti-fraud laws, sedition, anti-competition and racketeering. Whilst it is based on an analysis of US law, Australia also has a modern common law system that has developed essentially the same consumer and public protection mechanisms. Therefore, Yerushalmi's analysis equally applies give or take a few issues that may not strictly apply in Australia and some issues that will apply in Australia but not in the US. [29]

Finally, from AsianBanker: “I actually think the next few years will be very difficult for the Islamic finance industry from a litigation perspective,” says Hari Bhambra, a lawyer who has worked on Islamic finance regulations for the UK Financial Services Authority and Dubai Financial Services Authority. [14] She's been proved right.

Regulatory changes

Regulatory changes to accommodate Islamic finance will jeopardise the integrity of the Australian financial services industry - something no country should even dare think about at present.

The extent of these changes are still not fully appreciated by the Australian Government - it is expecting a report on this next year. [31] The changes will include though; amending foreign ownership rules, amending the Banking Act to make it easier for Islamic institutions to obtain banking licences, changing prudential standards (which are currently based on the Basel Accords) and allowing financial institutions to own property.

However, notwithstanding ignorance of these changes, the Australian Government already supports the Johnson Review's recommendation to "remove any regulatory barriers to the development of Islamic financial products in Australia, guided by the principle that there should be a level playing field for such products." [31, 33] The 'level playing field' may seem fair to some but what do we actually need to do for a level playing field? For a start, current prudential standards that Islamic finance doesn't like include capital adequacy, liquidity and risk management requirements. [34] All these need to loosen and adapt. The claim that Islamic finance will still remain regulated by our current high standards though is illogical and unachievable, it is akin to an Islamist saying "we will take your fundamental human rights and apply them Islamically yet still have the same high standards".

Further, in Nick Sherry's 27 May, 2010 speech where he launched Demystifying Islamic Finance, he stated:

"my colleague the Minister for Financial Services Chris Bowen has launched a cross-government process to review the regulatory environment with a similar goal of flattening out any inhibitors to Islamic finance operations in Australia". [32]

So it's head first, blindfolded into the abyss. An appropriate comment might have been "with a goal of determining whether Islamic finance is viable, what the risks are and its effect on our financial services industry".

The Government has a choice to either operate conventional and Islamic finance systems under the same regulatory regime or create two separate regimes.

The industry wants a separate regime and some commentators like Umar, Ahmad and Usmani cannot see it operating any other way. [34] Alternatively, if both sectors operate under the same regulatory regime (as Nick Sherry promised in his 27 May speech) then the current regime is compromised and it will be a disaster for the entire industry.

The Government needed to strip away the confusion and uncertainty and determine what this sector is and how it will operate within our broader financial services framework. It does not understand that yet and should not have committed to anything until it does. By already committing to "any changes required" it is not only Islam incompetent, it is showing blatant economic incompetence.

It's academic though, they will eventually be persuaded that Islamic finance is conceptually different and that Islamic banks should be regulated separately - yet they will still operate as banks, provide banking products and be, in the eyes of the consumer, banks. As the sector wont operate in a bubble this will adversely impact the entire industry. And just as parallel Shariah laws and courts wont work long term and will lead to chaos, so will the splitting of our banking and finance regulation.

Whatever way it's proceeded with our existing finance industry is hurt - the result Islamic finance is looking for.

The Government should also consider the sheer nonsense of accommodating delusionary whims, "pretending" there's no interest and changing our real and sensible laws so that Islamic fantasy can be celebrated. Is there really transparency, clarity and integrity in our financial system when people are pretending there's leases, pretending there's investment joint ventures, pretending there's a real economic benefit in instantaneously selling metal on the London Metal Exchange and pretending that parties own property they don't really own?

The legal and regulatory mess

We know already Islamic finance wants Tax law changes, real property law changes, securities law changes, consumer credit law changes, changes to our financial regulatory system including prudential standards and changes to our accounting standards. That's just the start. As the industry evolves all sorts of issues will arise and require changes to our law. As Demystifying Islamic Finance states: "it is incorrect to assume that Islamic finance requires only minimal changes to the financial laws and regulations, as indeed this is only the first step in what should be a long journey". [35, pg 21]

Exactly where is that long journey going to end up? Zaid Ibrahim & Co. (authors of Demystifying Islamic Finance) say they want us to recognise and enforce foreign judgments coming out of Islamic countries. [35, pg 21] What this means is that Australian courts will enforce natural justice-free, Shariah law civil judgments on Australians in Australia. For cases heard here it wont be too long either before Courts are considering Shariah law jurisprudence in Islamic contract and commercial matters.

And then there's the "best of both worlds" our Muslims will scream for when their "risk sharing" inevitably doesn't fall their way. For example a simple interest bearing bank account, done Islamically, should be an investment in the financial institution (the financial institution being more an investment company) and is an equity injection rather than a debt obligation as it would work conventionally.

"Mudaraba contracts, which are the basis of the relationship between banks and their account holders, specify that the account holders, as owners of capital, have what’s called a mudarib relationship with the bank – that is, an agency agreement. In other words, they are sharing risks and rewards with the bank, and effectively providing a form of equity to it in a way that is not the case in conventional banking. “As a result, investment account holders are liable to incur unexpected losses in the same way as shareholders because there is effectively no cushion, as provided by equity from the shareholders in conventional institutions,” states Mark Stanley of Ernst & Young in Bahrain. [13]

But will Islamic finance "depositors" accept the risks for submitting to Allah? Well, no, they will cry ignorance if the Bank goes bust, expect to be treated like any other account holder and scream for any government guarantees that might be in place.

We've already seen in the failed sukuks, investors claiming to be "asset owners" in the underlying sukuk assets (and thus take priority in insolvency proceedings) when the deals were structured to be "asset based" not "asset backed" for various reasons to begin with including avoiding liability in relation to those assets. [23] They want it each and every way, and what suits them at the time, and this will only add confusion and uncertainty to our laws and make a mockery of regulations which will be designed to accommodate a system that isn't really operating as it claims.

This is the choice, either keep changing our laws to embrace Shariah or finally say "that's enough" - time for Muslims to start respecting our existing laws.

Demystifying Islamic Finance states:

"In countries where a comprehensive review and reform of the whole legal and regulatory framework is not undertaken, they will find their Islamic finance industry to be surrounded by legal landmines" [35, pg 21].

A "comprehensive review and reform of the whole legal and regulatory framework" to accommodate Islam! THIS IS becoming a Shariah law state and is a national outrage. Is this not sinking in for some Australians? Those who'd be on the streets if it were Shariah family or inheritance laws being introduced. It's only the economy we're talking about.

So is there really any difference?

The industry can go first on this point. In a workshop on 26 February 2009 as part of the "Islamic Finance Project" conducted by Harvard Law School and the London School of Economics, the world's leading Islamic finance experts including Shariah scholars, bankers, academics and economists agreed that "the Islamic Finance industry was simply mimicking conventional products". [16] This point is also conceded by Samir Alamad, Shariah law compliance and product development manager of the Islamic Bank of Britain. “

The industry does not want to alienate its products” he says.

“They have to be recognisable, produce the same outcome as conventional products, but remain within the guidelines of Sharia.” [10]

In order for Islamic finance to take a foothold and attract participants, customers and talent it had to be novel, not different. In any case, the Islamic financial system is simply unable to work in the complex, sophisticated financial world the infidels developed. Though the "grand plan" was in the background, it was more effective to usurp power and control by not being too different.

However, the global financial crisis provided an opportunity the Islamists wouldn't have dreamed of three years ago. The idea of "real" Islamic finance and Islamic "principles" is being listened to by some influential people too greedy and too stupid to think it through further and objectively assess it.

The problem though (purely economically speaking...) with accommodating the Islamic model is that it only works when things are simple - 7th century Arabia simple - so every law change, every regulatory change, every concession given by Government is a concession to enable it to work - a dumbing down of our laws and financial system to accommodate ancient techniques and retrograde force.

But what about this "co-existing financial system" Nick Sherry promotes? Does it make sense or can it work? As already suggested, the concept is nonsense and untenable, it can't work as there can only be one financial system hence changing the rules is all about moving towards a Shariah-based economic system. What a co-existing or parallel financial system can and does mean is Muslims being in control of part of the economy instead of infidels. They control some, we control some, that's what it means.

Losing control

So can the Australian authorities stay in control as they claim? I doubt it, Islamic finance regulatory institutions like AAOIFI and the Islamic Financial Services Board are already asserting their control over the industry and our regulatory framework. For example, AAOIFI already claim the authorities in Australia have issued guidelines based on its standards - these standards include accounting, auditing, governance, ethics and Shariah-compliance. [6, 8] The process is this: to have an Islamic finance sector we must adopt these standards, we as the Government will remove any obstacles to having an Islamic finance sector. Furthermore, AAOIFI are actively promoting an overhaul of Islamic financial regulatory regimes to reflect what will be more "pure" Islamic principles and outcomes. [8] This is part of the path of destroying Western economies and replacing them with Shariah-based ones.

What does it mean to have an influential AAOIFI? First, we should look at its Chairman, Mufti Muhammad Taqi Usmani, who sits on many bank Shariah boards and is a Permanent Member of the OIC Fiqh Academy. This vile man says offensive, aggressive military jihad must be waged by Muslims “to establish the supremacy of Islam worldwide” and “Killing is to continue until the unbelievers pay jizyah (subjugation tax) after they are humbled or overpowered.” [17] He advises Muslims to only live peacefully in the West until they gain enough power to carry out jihad. And his background before entering the world of international finance? Under Pakistani dictator and raving Islamist General Zia al-Haq (1977-1988), he played a key role in the introduction of the Shariah-based punishment code known as the Huddud Ordinance including the infamous blasphemy laws. [17]

Dow Jones and HSBC finally got rid of him from their Shariah board after his jihadist ideology got too much to bear (though HSBC replaced him with his son) yet it shows you what due diligence banks do in the first place. His influence on all Shariah finance scholars and their associations to AAOIFI is immense. It was Usmani who personally declared that over 80% of all sukuk were not Shariah-compliant and globally sukuk issuance took a battering for it, downturn and recent defaults notwithstanding. [8, 12, 23] The reason he made this declaration? He didn't like the purchase agreements referred to above but the punters aren't too keen on letting them go yet. Sukuk markets will recover, they're finding new techniques and the right price.

So this guy will be dictating our financial regulatory framework and what's more AAOIFI encourage the appointment of its board members to all bank Shariah boards in an effort to ensure its standards are implemented (that's the official line anyway) and aren't shy in boasting that it works [8, 28]. Given there will be a lack of Shariah advisers when Australia enables Islamic finance, rest assured AAOIFI will be called in to help. AAOIFI have also recently announced they are working out new ways to regulate scholars' conduct on banks' Shariah boards. [7]

This is a point the Labor Government is ignoring at our peril. The world of senior and "respected" Shariah finance scholars is very small (perhaps as little as 30 worldwide) and many sit on over 50 boards at the one time. [7] They have local Shariah lackies in each bank who know how to apply their master's opinions but all decisions ultimately remain at their discretion. These scholars need to be fully qualified Islamists with training in finance and developed reputations hence they are few. Many trained at hardline Islamic schools in Pakistan or Saudi Arabia and are not "moderate". [28]

End game

As always, the Islamist's true intentions are never hidden for too long. Mufti Abdul Barkatullah, as chief Shariah adviser to Lloyds TSB, has already called for a complete ban on interest in the UK in 2007. He claims interest is bad because it "diverts resources from the poor to the rich and so concentrates wealth." [20] The opposite happens I guess in Islamic theocracies, particularly where there's oil. In Kuwait a complete ban on interest has been proposed by MP's this year. [19] This may seem irrelevant but even an Islamic cesspit actually banning interest is a big deal as they still operate in a global economy. It wont be a good sign to see any, albeit the most obvious, dominos fall.

Intentions were made perfectly clear by Indonesian President H. Susilo Bambang Yudhoyono in his keynote address to Islamic leaders at the 2009 World Islamic Economic Forum in Jakarta where he stated:

“Islamic bankers should therefore do some missionary work in the Western world to promote the concept of Shariah banking, for which many in the West are more than ready now.” [25]

It was at the World Islamic Economic Forum where key leaders declared Shariah finance to be “dawa” activity to promote Islam and Shariah. [25]

They truly believe the world "is ready", helped immeasurably by the financial crisis. As Dr. Hussain Hamid Hasson, Chairman of Dubai Islamic Bank's Shariah Board boasted once at a seminar I attended:

"The silent financial revolution is spreading to non-Muslim countries as well."

But is Islamic finance in decline?

At the retail level, issues are not surprising, it takes a lot of money and resources to set up a bank and Muslim populations are still relatively low. In Australia it's 2% of 22 million, many of which are young and unemployed (usually both). The retail sector will probably be serviced through co-op's, with existing banks (and their resources and economies of scale) also providing Islamic products. Even if marketing is limited initially to Muslim areas and uptake slow, through sheer weight of increasing numbers the sector will survive and there is a political motivation. The Muslim victory for now is in the legal and regulatory changes which lay the foundation of a Shariah-based economy, the victory of Governments bowing to Shariah and the normalisation of the Islamic apartheid regime.

Then there's the "big end of town". This is where the big deals, the big profits, the big ambitions and the infiltration hits hardest and where the Government will do anything for the petrodollars. At worst, the Islamic corporate sector has been sluggish over the last year due to the general downturn, but it is recovering and growing and still has its eyes set firmly on Australia.

Conclusion and summary

There is a difference with Islamic finance as you have the worst of both worlds. You don't get a new approach as the products all mimic the conventional system yet the structures needed to get you there are inflexible and inefficient. But that's just for now, as regulatory regimes change to accommodate "real" Islamic structures, expect to see our economy and the financial services industry go backwards.

Our legal system will also be Islamised as it is not just Tax and regulation changes we need to consider. On further analysis it is clear the legal issues just will not stop until we get a Shariah-based economy and sadly we don't have any history of saying "NO" to these people.

Issues with the conventional financial system can be addressed as they arise and let's not lose our heads, the existing system is also responsible for the developed and wealthy economies we have today in the West. As there is nothing conventional finance can't do which Islamic finance can, but not vice versa, there is no need for Islamic finance in our economy. We have already seen our willingness to venture into the financial/markets domain as necessary by the temporary short-selling ban on bank shares.

I urge all Australians to see through the deceit, the lies and the smoke and mirrors. Islamic finance must not be dismissed as soft Shariah or assumed to be economically useful or even neutral. Usmani gets it, that's why he changed his fabulous career of imposing criminal Shariah sanctions on human beings to the boring old world of finance. It wasn't the money, such things are temporary, he's looking out for his afterlife.

So be very vigilant, the attack on our economy and laws takes many forms; pure stealth, intimidation, deception, exploiting PC cowardice and appeals to the self-loathing and guilt-ridden, the confused and weak who will be lead by any old terrorist or charlatan claiming to be ethical and having solutions to current problems. And then there's appealing to plain old greed.

For the politicians, you may call me misinformed, egregious, wrong, racist, whatever you like, but when doing so I demand objectively assessed facts, research, detail, completeness and logic. At the moment all Labor has done is refer to Austrade's Islamic Finance paper which sets out nothing but the profits to be made and Demystifying Islamic Finance, a booklet by a Malaysian law firm about to set up in Australia, one of the partners of which is mates with Nick Sherry's chief of staff.

Interestingly, Demystifying Islamic Finance states that Islam is not in a position now to assert dominance over the rest of the world because "Muslim nations remain largely the poorest and under-developed". [35, pg 22] That bit I do agree with (have you ever wondered why?) though it conveniently leaves out mass immigration from there, the fact Gulf nations are some of the richest and that Islamic finance is the vehicle by which Islamic political and economic imbalances are being redressed. It's time to think Shariah-compliant finance through again, French MP Henri Emmanuelli got it right when he said:

"We must not allow principles of Shari`ah law, or the ethics of the Qur`an to be introduced into French law." [15]

Same goes for Australia.


1. "Sharia-compliant banking products a 'huge flop' in Britain", The Australian, 21 June 2010 -

2. "High Islamic banking fees irk customers in S. Africa", Arab News, 19 July 2010 -

3. "Dubai Islamic Bank falls out of favour", The National, 17 May 2010 -

4. "Crisis loom for Islamic banks amid property downturn", Arabian Business, 14 April 2009 -

5. "Qatar to prop up its banking system", New York Times, 9 March 2009

6. "Islamic derivatives: building towards a breakthrough", FOW, 1 July 2009 -

7. "New scholars rules for Islamic finance", Maktoob Business, 2 August 2010 -

8. "Keeping Up to Standard", Islamic Finance Asia, Oct/Nov 2008 -

9. "Infusing Shariah into Derivatives", Islamic Finance Asia, Oct/Nov 2008 -

10. "The failure of Islamic Finance" by John Foster, former editor, Islamic Business & Finance magazine, 15 July 2010 -

11. "J.P. Morgan Islamic unit executive held in Dubai fraud probe", Zawya Dow Jones, 15 June 2008 -

12. "Sukuk lose shine for traditional Gulf issuers", Arabian Business, 30 July 2010 -

13. "If an Islamic Bank fails", Asiamoney, August 2008 -

14. "Islamic Finance Faces Legal Challenges", AsianBanker, 17 December 2008 -

15. "Islamic Finance stirs debate in France", Qatar Morning Post, 27 September 2009 -

16. "Islamic Finance Project" workshop, Harvard Law School and the London School of Economics, 26 February 2009 -

17. "Shariah-Finance Market Set to Hit $1 Trillion Mark, as Ernst & Young promotes Jihadists at AAOFI", Shariah Finance Watch, 27 May 2010 -

18. "Islamic finance industry launches derivatives standard", Reuters, 1 March 2010 -

19. "Islamist MPs demand end to usurious loans", Kuwait Times, 23 March 2010 -

20. "Islamic Banking in Britain", The Brussels Journal, 12 December 2007 -

21. "Investment Dar battle with Blom adds sharia risk - Moody's", Arabian Business, 26 May 2010 -

22. "Class action targets excessive bank fees", The Sydney Morning Herald, 12 May 2010 -

23. "Sukuk defaults expose Islamic finance soft spot", Arabian Business, 16 July 2009 -



26. htpp://



29. "Shari'ah's Black Box: Civil Liability and Criminal Exposure Surrounding Shari'ah-Compliant Finance' by David Yerushalmi, 2008 -

30. "Islamic Finance", Austrade, February 2010 -

31. "Government responds to Australia as a Financial Services Centre Report" Chris Bowen and Nick Sherry, Media Release No. 87 of 2010, 11 May 2010 -

32. "Official Launch of "Demystifying Islamic Finance", Speech No. 18 of 2010, Nick Sherry, 27 May, 2010 -

33. "Australia as a Financial Centre - Building on our Strengths", Report by the Australian Financial Centre Forum, November 2009 (the "Johnson Review") -

34. "Islamic Finance in Australia: the Potential Problems and Prospects" by Abu Umar, Faraq Ahmad and Noor Mohammad Usmani, 2010 -

35. "Demystifying Islamic Finance: Correcting Misconceptions, Advancing Value Propositions", Zaid Ibrahim & Co., 2010

Last Updated on Sunday, 24 October 2010 11:24  

AIM Listed by NLA


Australian Islamist Monitor's web publications were selected for preservation by the National Library of Australia. Access to our materials stored in the NLA Archive is facilitated in two ways: via the Library’s online catalogue; and via subject and title lists maintained on the PANDORA home page.
Click HERE for direct access to the archive

Islam Kills

History - Articles

Lest We Forget the Battle of Tours

Attention: open in a new window. PDF | Print | E-mail

History - Violent Jihad

Australians celebrate and revere Anzac Day on April 25th each year in remembrance of our brave soldiers who fought in two great world wars to secure our freedom. Every Australian identifies with the slogan “lest we forget” and in services held around the country people reflect on the battles and men who died to secure our freedom. Yet across the world in France, there is one remarkable battle which helped form the Europe we know today and allowed the development of civilization based on Judeo Christian principles. This one famous battle has become known as the battle of Tours and effectively stopped the Muslim advance into Europe. After the death of Mohammed in 632AD, Muslim armies exploded out of the Arabian peninsula to conquer much of the Middle East, expanding across north Africa. From there they crossed into Spain in 711AD and eventually controlled much of al-Andalus by 715AD. It was the victory at Tours by Charles Martel that stemmed the tide and eventually the Muslim marauders were expelled from Spain in 1492 when the last outpost at Granada fell to King Ferdinand of Spain. 

Read more

Shivaji’s Coronation Laudatory Landmark

Attention: open in a new window. PDF | Print | E-mail

History - Infidels' Resistance

Chhatrapati Shivaji Maharaj was born, lived, fought and won battles against religious and social oppression in the 17th century Bharat or India. He was a shining star in the Indian firmament and is renowned as a champion of the downtrodden and depressed masses. He was and continues to be an icon for the classes and masses alike and is seen as a rallying point for peasants oppressed by foreign rulers, Pathans and Moghuls alike. Sexually exploited women found in Shivaji Raje a protector, a benefactor and flocked to his Hindavi Swaraj to find solace and feel liberated under his saffron flag. 

Read more

Ransomer of Captives from the Muslims

Attention: open in a new window. PDF | Print | E-mail

History - Tolerance Myths

Perhaps some readers might be interested to know that January 28 is considered a feast day among Catholics – actually 2 feast days are celebrated on the same day – one is of ST Thomas Aquinas, the great medieval theologian and philosopher who adapted Aristotle to the western Judeo-Christian worldview. . It is also the feast day of a lesser known person – St Peter Nolasco, the great ransomer of captives from the Muslims.

Read more

Islamic Pirates

Attention: open in a new window. PDF | Print | E-mail

History - Violent Jihad

Barbary Corsair
Somalian Islamic Pirates & Lessons from History
The dramatic rescue of the American cargo-ship captain Richard Phillips from the hands of Somalian Islamic pirates by the U.S. Navy—killing three pirates, holding him hostage at gun-point, through precision-targeting—warrants a review of the U.S. struggle with piracy and hostage-taking in North Africa, which ended two centuries ago.

Raiding trade-caravans and hostage-taking for extracting ransom in Islam was started by Prophet Muhammad. Having become powerful and secure after his relocation to Medina from Mecca in 622, Muhammad initiated Jihad or holy war in the form of raids of trade-caravans for earning livelihood for his community. In the first successful raid of a Meccan caravan at Nakhla in December 623, his brigands killed one of the attendants, took two of them captive, and acquired the caravan as “sacred” booty. The captives were ransomed to generate further revenue. Muhammad, later on, expanded this mode of Jihad to raiding non-Muslim communities around Arabia—for capturing their homes, properties and livestock, capturing their women and children as slaves often for ransoming and selling, and imposing extortional taxes—which sometimes involved mass-slaughter of the attacked victims.

Read more

The Battle of Broken Hill

Attention: open in a new window. PDF | Print | E-mail

Battle of Broken Hill Logo
The First Islamic Terrorist Attack on Australian Soil
On January 1, 1915 two Broken Hill men, both former camel drivers, armed themselves with rifles, an homemade flag bearing Islamic insignia and a large supply of ammunition and launched a surprise attack on the Picnic Train about 3 kilometres outside Broken Hill.

The train carried about 1200 Broken Hill residents to Silverton where a picnic to celebrate the new year was to take place.

The two Muslim men, Gool Mohamed originally a Pashtun tribesman from Afghanistan and Mullah Abdullah from what is known today as Pakistan, decided to wage jihad against Australian infidels after Australia and the Ottoman Empire officially joined the opposite sides in the WWI.

Read more

Jihad Galore

Attention: open in a new window. PDF | Print | E-mail

History - Tolerance Myths

Jihad Galore and the Toledo Whore

Battle of Higueruela

Alhambra - GazelleHow often in conversation with a Muslim, do they quote Spain as the crowning achievement of Islam, where Muslims, Jews and Christians lived in harmony for about 800 years?

And when you mention the killings and massacres, you are told that the Spanish Inquisition was much worse.
This is a misconception, since the Inquisition in Spain was responsible for only between 4,000 and 5,000 lives. [1]

Yet in 1066AD, in a single day, muslims murdered over 4,000 Jews because Vizier Joseph ibn Naghrela had risen to a position greater than them, and of course, this upset the Muslim sensitivities. [2]

Read more

Arabs Hated The Quran

Attention: open in a new window. PDF | Print | E-mail

History - Stolen Heritage

How the Arabs Hated The Quran
Old Quran

Wh y are you a Muslim?
Musli ms in general love to hear the above question because it has a simple and readymade answer in their minds besides it gives them the opp or t u nity to propagate their religion and talk proudly about Islam.


Read more

Lepanto Anniversary

Attention: open in a new window. PDF | Print | E-mail

History - Imperialism

Decisive Victory for the West

At this time of year, it is timely to remember one of the greatest victories of the west against the Islamic world. On the 7th October in 1571, Don Juan and the Holy League, led by Admiral Doria, defeated the larger Ottoman fleet in the Battle of Lepanto, saving Europe from the Turks and militant Islam. The Holy League was a coalition of different armies - of the Republic of Venice, the Papacy (under Pope Pius V), Spain (including Naples, Sicily and Sardinia), the Republic of Genoa, the Duchy of Savoy, the Knights Hospitaller and some others.

Read more

Muslim Jerusalem

Attention: open in a new window. PDF | Print | E-mail

History - Stolen Heritage

Jerusalem - Coat of ArmsWhy do Muslims insist that Jerusalem is their Holy City?
When Mohamed and his faithful followers moved from Mecca to Medina, they found themselves among three Jewish tribes/clans (BANU-L-NADIR, BANU KAINUKA and BANU KURAIZA)  which settled there some time after their expulsion from their homeland and also living there were  two Arab, pagan tribes.

Mohammed, who at this stage needed more followers, decided to win those tribes over and convert them to his newly invented religion.

Islam was yet not as fully developed as we know it today, and Mohammed was still having his sessions with Allah (the Medina period revelations).

Read more

Killing of Banu Quraiza

Attention: open in a new window. PDF | Print | E-mail

History - Imperialism

Did Prophet Muhammad order Killing Surrendered Jews of Banu Quraiza and Khaybar?  A historical Analysis

In the post 9/11 era of this modern-world, Islamists around the globe are busy with ‘damage control utopia’ in order to correct the image of religion Islam. We all know that the nucleus of Islam are: Quran, Hadiths (Sunnah) supported by Islamic histories and biographies recorded by various famous Islamic scholars and historians.

What Mecca?

Attention: open in a new window. PDF | Print | E-mail

History - Early History

A great tragedy of the Islamic control of our universities and political correctness plus the fear of extreme violence if anyone dares question the roots and claims of Islam is ...that nobody dares question the roots and claims of Islam!!!  I want to stimulate interest and offer this summary of information on Mecca from (LINK) which discusses some problems with Muslim claims in a comparison of evidence supporting Islam/Christianity. 

Read more

Yahweh or Hubal

Attention: open in a new window. PDF | Print | E-mail

FlagThere is a very strongly entrenched view among majority of Westerners today that the three main monotheistic religions Judaism, Christianity and Islam share one common God and therefore despite the obvious differences, the core foundation of these three religions is the same. 

Read more