Following up on my post yesterday, I just want to excerpt this section of my interview with Islamic legal scholar Frank Vogel:
What is Islamic/Sharia-compliant finance?
Islamic finance is conducting finance in compliance with the rulings of the traditional Islamic law as to commerce and investment and property.
Where does Islamic finance come from?
Well, in the '50s, people were thinking as Muslims about how they should engage with modern finance. So a number of theories came out about what Islamic law's requirements are as to finance. These were inspired mainly by the prohibition on collecting and charging interest in the Qu'ran.
How is it different from secular finance?
The difference is, for example, that they don't charge interest. They can't indulge in some particularly risky or speculative transactions. There's actually a whole long list of requirements, such as not selling debt, that are derived from these basic prohibitions against interest taking and against excessive risk. So because of those specific rulings, they have to design the transactions in slightly different ways.
For example, rather than borrowing money to buy some goods, they'll have the bank buy the goods and then resell the goods to the customer, so the bank becomes involved as an owner at one stage of the transaction. That makes it lawful, from the Islamic perspective. Whereas if the bank lent the money to the customer, that's an interest-bearing loan, and that's not allowed. So they use slightly different routes, typically involving ownership of goods at some point, to achieve finance.
Right, so, in case it's not clear, Sharia-compliant finance is not the trading of limbs severed for immodest acts.
The freakout of Sharia-compliant finance is comparable to freaking out about Jews eating Kosher food or establishing Kosher restaurants. The point of the practice is to allow observant Muslims to participate in the finance sector without breaking their religious rules. It governs what they do, not what we do. Consequently, getting mad at people who trade with companies that deal in Sharia-compliant finance products would be like getting mad at people who eat Kosher hot dogs. Getting mad at people who study Sharia-compliant finance for the purpose of working for companies that either practice Islamic finance or deal with companies who do is like getting mad at people who learn how to cook Kosher cuisine in culinary school. The hysteria surrounding it is really silly, unless you're the type of person who finds Muslim religious practices sinister by definition.
