The Muslim businessman is not just focused on the profit of his business, but he should increase the wealth of his community as well . Wage discrimination is not permitted, the brotherhood and friendship are considered the most important values on the job. Ribà means “increase”, “growth” and it can be considered as our interest rate. Once upon time, all monotheistic religions prohibited every kind of Ribà. Every interest rate on consumption, production or commercial borrowing , either private or public, low or high was, and is still, completely prohibited by the Muslim religion. Anyway, the prohibition of interest rate in the Muslim countries was a common rule to other religions in the past. In the Jewish Torah and in the Bible it was not allowed to lend money asking to pay an interest rate. So, the Muslim countries continue following a religion rule that was a precept of the Catholic and Jewish religion as well. Though the interest rate is not allowed, the Muslim communities carried out contracts that included an increase of the price paying by instalments. The first Muslim bank was born in Egypt in the 1963. Savers and clients were the stockholders of the bank and a director board called Shari’a Board looked out for the management of the bank. So far the Muslim banks are 250, Muslim banking desk in Western banks are 200, Sukuk (Muslim securities) are 18 and shares compatible to Sharia are 300. The reasons why the Muslim finance has grown considerably are three: (i) the economic underdevelopment of the Muslim countries and consequently the need of having financial structure and products focusing on the local community; (ii) the failure of socialistic economy and communistic ideology; (iii) the importance of the ethical values and social responsibility in the Muslim finance has influenced many companies that are trying to be more responsible towards their stakeholders. All these three factors have been important in order to explain the success of the Muslim finance. Furthermore, the Muslim man has to take care of his business and the community’s wealth as well. Thus, the wealth of a good Muslim man is rigorously linked to that of his community and he always has to remember to give something to charity after paying his zakàh (income tax). In fact, the profit is not the only goal of a Muslim entrepreneur, he has to be responsible towards his stakeholders and follow ethical values by running his business. Unfortunately, the corruption and the lack of a corporate social responsibility is spread out in the Muslim business world as well.
The Muslim banking system is organized in a slightly different way. Muslim savers have two possibilities of investing their money: (i) safe saving accounts and (ii) profit-sharing bank accounts. In the latter one, clients can either gain or lose their savings in case of profit or loss of the bank. Moreover, all contracts are based on the project results. Meaning that investors can obtain a gain just in case the bank finances good investments. The risk for profit-sharing bank account is that clients do not have any control and authority on the bank’s investment. In case of loss of the bank, they lose all their savings.
Moreover, Muslim banks issue bond called Sukuk. Unlike our bonds, the gain of a sukuk is linked to the profit of a project. While, the bond gain depends on his future cash flow, the Sukuk ‘s holder has an ownership right of a product issued with the Sukuk. Thus, Sukuk’s issue is very similar to a securitization process. In fact, the bank or a financial institution creates a Special purpose vehicle, which is a legal entity (subsidiary company) that receives assets (money) and, as a consequence, it issues new Sukuk notes. All money collected finance bank’s projects. Hence, holders of the issued Sukuk become the pro rata owners of investments. So, western bonds and Sukuk do not show big differences, a part from the fact that the latter has a gain depending on the bank investment.
In conclusion, Muslim banks should not finance projects concerning the production of alcoholic beverage, swine breeding, illegal weapons trade, night club management and so on. Anyway, it is the Shari’a board of the bank that has to define which investment to finance. As a matter of fact, they should evaluate every business in order to take a right decision.
I would like to point out that the development of the Muslim finance, such as Sukuk, could become a good tool so as to finance public projects in other countries. For example, Italy could issue Sukuk in order to attract new investors in Muslim countries with great amount of savings and, as a consequence, acquire money for our public investments. Secondly, Muslim financial tools could help our companies to reinforce their partnership with Muslim businesses, increasing profits of both.
