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‘Heaven’s Bankers,’ by Harris Irfan

Sunday 22 March 2015

By JON FASMAN

MARCH 20, 2015

Tell non-Muslims or people who work outside the financial industry that you write about Islamic finance, and you will almost certainly receive one of two reactions (not including blank stares). The first — in which people assume Islamic finance is synonymous with or inherently linked to the bankrolling of terrorism — is both the most depressing and the most easily dismissed, because it is untrue. People slightly more familiar with Islam might have some notion that Islamic finance entails interest-­free banking, but beyond that things get murky pretty quickly.

With this book Harris Irfan, who headed Islamic finance teams at Barclays and Deutsche Bank and now runs his own Islamic finance advisory group, aims to enlighten. “Heaven’s Bankers” has two strands, which Irfan weaves together adeptly. The first is a condensed history of modern Islamic finance. Although the underlying principles involved date back to the seventh century, contemporary Islamic finance began with an initial experiment in Egypt in the early 1960s, then moved slowly into the Persian Gulf countries in the 1970s and Pakistan in the 1980s, before retreating and then emerging in today’s globalized form in the late 1990s and early 2000s. Islamic finance has become a trillion-dollar industry, with sukuk — a bondlike fixed-­income product — issued not just by governments of Muslim countries, but also by Britain, Luxembourg, Hong Kong and South Africa, as well as by corporations.

Irfan’s second strand examines the religious principles underlying Islamic finance: what the Quran and Hadith say about money and trading, and what Shariah — the corpus of Islamic law as interpreted by scholars — forbids and permits in the economic sphere. Because Islam does not categorically divide the spiritual from the quotidian — the Quran contains no separate renderings unto God and Caesar — this strand is far less abstract than one might expect. Before receiving his revelation, Muhammad was a successful trader (as was his first wife, Khadijah), and business concerns feature more heavily in his life, and thus in the Quran and Hadith, than they presumably did in the lives of Jesus or Siddhartha Gautama.

Like Christianity, Islam forbids usury (riba), but Islam applies this prohibition to any sort of interest. Islam also outlaws gharar, generally translated as “uncertainty”; this bars not just gambling but also short sales. Fundamentally, Islam does not allow money to be made from money — it must be made from a tangible asset that one owns and thus has the right to sell — and in financial transactions it demands that risk be shared. So in an Islamic mortgage, rather than lending someone money at interest to buy a house, the bank will buy the house outright and agree to sell it for a “cost plus amount,” which the person living in the house can pay in fixed monthly rental installments. Sukuk behave like bonds, but they tend to be asset-backed, and the returns paid to investors come from those assets’ income streams. Irfan skillfully guides readers through these and more complex products.

Yet by the end of the book, Irfan seems genuinely conflicted about his industry. Most of these instruments were reverse-engineered from their secular counterparts, and so devised to comply more with Shariah’s letter than its spirit. His protests against such moves echo those of American politicians who condemn “tax inversions” — in which American corporations buy a foreign company and domicile themselves abroad to avoid paying American corporate tax.

Many of the instruments Irfan discusses were sold by major banks that saw them as just another opportunity. This is not surprising: Governments and wealthy individuals wanted financing that complied with their religious requirements, and banks gave it to them. Irfan, by contrast, longs for an Islamic finance industry that caters to “small and medium-sized enterprises, retail customers, the man in the street” and offers something “beneficial to everyone, irrespective of creed.”

HEAVEN’S BANKERS

By Harris Irfan 347 pp. The Overlook Press. $32.50.

Jon Fasman is The Economist’s Southeast Asia bureau chief and the author of two novels: “The Unpossessed City” and “The Geographer’s Library.”

A version of this review appears in print on March 22, 2015, on page BR15 of the Sunday Book Review with the headline: The Profits.

See online: ‘Heaven’s Bankers,’ by Harris Irfan