In today’s Ukraine, the words ‘crisis’ and ‘reforms’ are causing everybody to get annoyed, and that is putting it mildly. Is the Hryvna exchange rate dropping? Crisis is to blame for that. What steps are being taken? Why, we are putting reforms in place.

Just what the reforms are is anybody’s guess. Surely, there can be plenty of reasons for economic instability: either oil prices are dropping or people are panicking. And let us not forget the fact that we are at war now.

However, amongst the many reasons there are nobody is mentioning the banking system. How effective is it and is it capable of withstanding financial crisis?

We take the current banking system for granted: you borrow money, you use it and you pay interest on it. And it all seems to make sense. However, if you were to really think about it, the conclusion you would arrive at would be quite absurd: instead of the good old ‘goods for money and money for goods’ scheme, we end up with a ‘money for money’ one .Putting it differently, we purchase money with money we get from banks.

Even a cursory look at the humankind’s recent history reveals that virtually all nations and religions recognize such a formula as being sinful. Translated from the language of religion into the layman’s language that stands for a breach of pre-established harmony. And any breach of harmony leads to chaos, i.e. the very thing politicians are so keen on talking about.

There is an alternative!

And the alternative is called Islamic banking. What makes Islamic banking different is the fact that it operates in accordance with Islamic Sharia principles, i.e. prohibits acceptance of interest for loans of money. Is it really possible? Yes, it is.

Islamic banks are unique in that they do not attract deposits nor charge interest on loans. According to Islamic ethics, only riches obtained through one’s own labor or entrepreneurial talents, inherited or gotten as a gift are considered justly acquired.

It says in no ambiguous terms about this in the Quran:

Those devouring riba (i.e. engaging in usury) shall be resurrected on the Judgment Day like the insane possessed by the Devil (Quran 2:275).

Allah shall take profit out of usury, destroying the property obtained through it (Quran 2:276).

Islamic economic concept considers all wealth as being owned by Allah, who gave it to man for temporary use. Islam recognizes private property and competition but it demands that money is not used to generate more money, i.e. through charging interest or rent, because man has no right and is unable to predict future events and Allah’s will. Therefore, apart from being forbidden to charge interest, Islamic banks are also banned from trading in futures and gambling, i.e. holding lotteries. Speaking in terms of European banking, one can say that Islamic banks derive their main profit from project investment and participation interest.

Flexible and resilient

Despite the fact that Islamic banks are operating successfully in a number of countries, including non-Muslim ones, quite a few people have a vague idea about them, with some believing that an Islamic bank is something belonging to ancient times or a base used by terrorists. However, a modern Islamic bank is an independent financial institution capable of meeting all its clients’ demands and ensuring an annual profit growth of 15-20% for its stakeholders in recent years. Over 400 financial institutions in different countries of the world engage in Islamic banking. ‘World Islamic Banking Competitiveness Report 2013’ by Ernst & Young projects Islamic banks’ international assets to exceed USD 1,8 trillion by 2013. Islamic financial institutions have been proven to display incredible flexibility and resilience in times of international financial crisis.

Do not carry pigs in a car if you have bought one

Things are pretty clear with investing but how about if you get an idea to take out a loan to purchase an apartment or car? There has got to be some interest involved in it, right? However, Islamic banks found a way to get around that predicament as well. They purchase an apartment and then rent it out to you with a possibility of subsequent acquisition. And the same goes for other purchases as well. Basically, that is a kind of leasing, with the buyer making a commitment to use things he bought via an Islamic bank according to the Sharia law. For example, you are not allowed to carry pork meat, tobacco and alcohol in a car purchased that way, let alone drive the car under the influence of alcohol.

According to Islamic laws, it matters a lot how money is obtained, e.g. money earned through selling alcohol is unclean and cannot be used by an Islamic bank.

One thing is for sure – Ukrainians will only profit from Islamic banking promoting public morals and abstinence from alcohol in addition to stimulating economic growth.

Another important thing to remember is that Islamic banks provide services not only to Muslims but to everybody else.

A client’s success is a bank’s success

Islamic banks are quite good at covering their losses by charging all kinds of commissions. However, the major difference between Islamic and European banks lies primarily in the fact that the former are more interested in their clients’ success and oriented towards the real economy. Perhaps, that is the secret to their success and resilience.

Russians are trying to copycat

The reason developed countries are getting increasingly interested in Islamic banking is easy to see - they are well aware of the importance of effective anticrisis tools. Lately, Russians have been trying to draw on the expertise of Islamic banks by coming up with their own banking system – an Orthodox one.

“We get told that the poor state of our economy is to blame for the Ruble losing value against the Dollar. But who says that? Indeed, we are seeing Russia’s economy decline, but the decline is not as dramatic as devaluation of the Ruble,” said Vsevolod Chaplyn, a spokesperson for Russia’s Orthodox Church.

According to him, ‘they are trying to judge us not by the actual state of our economy but by the rules of an information bubble which inflates first and then deflates again’.

Vsevolod Chaplyn suggests thinking about ‘whether Russia can come up with an Orthodox banking system that does not rely on usury and such that directly interacts with China, Islamic world and other world centers that have been gaining influence lately’.

The last quote gives one an idea what Orthodox banking is all about, namely lack of usury. Long story short, they decided to put Islamic banking in Orthodox wrapping.

However, the very fact that Russians are interested in the subject confirms effectiveness and relevance of Islamic banking.

Can Islamic banks operate in Ukraine?

As a rule, Muslims who live in EU countries on a permanent basis open Islamic banks there. For example, the first ones to open Islamic banks in Germany were Turks while in Ukraine those may well be Crimean Tatars. Surely, it is costing this long-suffering people a lot of money and effort to fight the occupants but one can start thinking about it as early as now.

Islamic banking could become a powerful anticrisis tool for the entire Ukraine and something the Crimean Tatar Autonomy could rely on in liberated Crimea.

Yuriy Uvarov