This article is from WeChat official account:Earth Knowledge Bureau (ID: diqiuzhishiju), author: Fomalhaut, proofreading: cat Stewart, editor: Yakult, title figure from: vision China

In Islam, there are three basic requirements for various financial activities: The first is to encourage lending, the second is to pursue efficiency, and the third is to prohibit all forms of interest.

The interest ban in the ancient dogma cannot match the core of the modern financial system, so Muslims who strictly abide by the Sharia law began in the 1970s to establish an Islamic financial system with Islamic banks as the core according to the teachings.< /strong>The interest-based deposit and loan business is prohibited; and any financial contracts based on uncertain future events, such as derivatives transactions and hedging, are also not allowed.

Where can I put the extra money? (Photo: Dave Primov / Shutterstock)

However, this financial model, which seems to suffer heavy losses in modern financial transactions, has developed rapidly in the 21st century and can still create wealth for Muslims.

Economic and financial thoughts in the Quran

The ban on interest in Islamic law comes from the attitude of prohibition of usury in the Quran.

But in fact, The Quran encourages commercial activities and opposes idle wealth. Its provisions on lending are intended to give wealth owners sufficient motivation through the threat of “going to hell” Go lending, and let the borrower not have the pressure to pay interest, can calmly run their own business activities.

Do business to every corner of the world (Taiwan Beef Noodle Restaurant) (Photo: hain.tarmann / Shutterstock)

Starting from the Quran, the concept of interest ban has been expanded in the Hadith, and theologians have expanded the object of the interest ban from the interest-bearing loan in the Quran to more possibilities. In financial activities with high interest rates, the interest ban has been further enriched and developed. This makes interest in the Islamic world an absolutely prohibited behavior.

Keep it in mind since childhood (Photo: Yusnizam Yusof / Shutterstock)

After all, from an ancient and simple perspective, Interest is income earned for nothing, will make people become corrupt, unwilling to work, refuse to work hard to get rich, and hinder the entire society’s agriculture, industry, and The development of other industries. Not only that, the Prophet and his followers also believed that the emergence of interest increased the gap between the rich and the poor in the entire society, made the rich richer and the poor poorer, and ultimately intensified class stratification.

The so-called Islamic finance is a financial model born from this ancient religious heritage.They strictly abide by the guiding ideology of the ban on interest in Islamic teachings.

However, interest rate differentials are the key means for modern banks to make profits. In addition to banks, core financial businesses such as bonds and insurance also rely heavily on interest as a tool for profit. In the Islamic finance industry, because interest is not allowed, and the leverage ratio of the entire financial system is also limited to a very low level, Islamic banks must find unique ways of operating and profiting.

Commercial banks are one of the most important financial institutions in the economy. The Muslim population accounts for a quarter of the world’s total population. Naturally, they need to comply with the religious system A financial operation method of China to meet its demand for banking services (Photo: Laboo Studio / Shutterstock)

One of the most significant operating characteristics is called “profit and loss sharing.” Under this system, banks and users form partnerships, and borrowing activities are regarded as capital stocks rather than debts.

Specifically, Islamic banks do not distribute interest to users’ deposits and do not ask for interest from loans. Users and banks will share the bank’s operating dividends at a certain percentage in accordance with the contract. It is also possible to sign a dividend contract with the borrower’s enterprise.

Compared with traditional commercial banks, Islamic banks have a closer relationship with customers, and there is Islamic law behind them (Photo: kamarulzamanganu / Shutterstock )

Under this mechanism, the cash flow in the Islamic banking system both avoids interestDefinition, and realized the function of traditional bank capital turnover. When the inflation rate rises, depositors can get a better chance of compensation, and the bank reduces the risk of bankruptcy.

Another invention of Islamic banks is the “markup” contract in business and trade activities.

For example, if a customer wants to borrow a bank loan to buy a car worth 500,000 yuan, the bank will first complete a contract with a 4S shop to buy the vehicle for 500,000 yuan, and the customer will then ask the bank for a higher price< span class="text-remarks" label="Remarks">(such as 600,000) When buying this car, the difference of 100,000 will become the bank’s revenue. In the same way, if an enterprise wants to purchase a batch of goods with a loan, the final amount the enterprise pays to the bank will also be higher than the original price of the goods.

This set of operations is really high (picture: Wikipedia)

This also circumvents the definition of “interest”, but this complex transaction is essentially no different from interest.

The rise of Islamic banking

Pakistan was the first to put the idea of ​​Islamic banking into practice. At the end of the 1950s, Pakistan established a type of banking institution in which banks and customers share profits and losses without interest.

Pakistan Zaletalakati Bank Co., Ltd., formerly known as the Agricultural Development Bank of Pakistan (Photo: NEERAZ CHATURVEDI / Shutterstock)

Subsequently, such interest-free banks spread in the Muslim world: In 1963, the first Islamic bank appeared in the rural areas of the Nile Valley in Egypt: Mit Jams Savings Bank; in the same year, Malaysia also established similar In 1972, Egypt established the Nasser Social Bank with an official background in its capital, Cairo, and the status of bank practitioners was also changed to civil servants, making this bank the first modern Islamic bank recognized in the world.

Nasser Social Bank (Picture: https://nsb.gov.eg/)

However, the influence of Islamic banks during this period was relatively small. Many banks had unsound organizational structures, relatively limited asset scales, and limited financial services. The large-scale development of Islamic banking was in the 1970s, and one of the important opportunities was the oil crisis of 1973.

The United States has also issued a gasoline quota… It is indeed a big crisis (Photo: Leffler, Warren K./ Wikipedia)

After the sharp rise in oil prices in 1973, the fiscal revenues of oil-producing countries in the Islamic world soared, commercial trade activities expanded rapidly, which in turn brought huge demand for finance and stimulated the rapid growth of Islamic banking. From 1975 to 1977, Islamic Development Bank in Jeddah, Saudi Arabia, Dubai Islamic Bank in UAE, Faisal Islamic Bank in Sudan, etc.A number of banks with strong capital scale have been established one after another.

The Islamic Bank of Sudan was established in 1982. For a long time, it has provided support for farmers, small producers, handicrafts, etc., and contributed to the development of the small economy in Sudan. To an important role (Photo: geogif / Shutterstock)

In Iran, the Khomeini regime, which came to power after the Islamic Revolution, carried out radical economic nationalization and Islamization. The relevant financial and legislative departments promulgated the interest-free banking law in 1983, which made the construction of all financial systems in Iran be based on this law, essentially opening up the Islamization of the financial industry.

Sadalat Bank is the largest bank in Iran. It was established in 1952 by two private families and was nationalized after the Iranian Revolution (Picture: canyalcin / Shutterstock)

On the other hand, in the late 1970s, the Islamic Revival Movement represented by Iran rose, and various political forces in the Islamic world started political games under the banner of “Islam”. In this political environment, both the ruling party and the opposition party, including the people, strongly support various Islamic activities. Interest groups with different political goals are therefore willing to support the development of Islamic banks, despite their facts.This has increased the transaction costs of the banking industry.

Pursuing the pursuit (Photo: Ciga / Shutterstock)

Islamic banks not only thrive in the traditional Islamic world, but also gradually appear in the European and American world.

Since 1978, a number of Islamic banks have appeared in the European financial industry one after another, such as the Islamic Finance Agency in Luxembourg, the Islamic Fund Agency in Geneva, and the Islamic International Bank in Copenhagen. Their main activities are to use funds raised in the Middle East. Western countries conduct lending and investment business.

These banks are investment companies in the cloak of banks, the remaining real funds in the Gulf region are invested in Western financial markets to accelerate the return of oil funds. After the European financial center Luxembourg passed the tax law on Islamic finance in 2011, it attracted about forty Islamic investment funds with a valuation of approximately US$500 million, making Luxembourg a bridgehead for Islamic funds to invest in Europe.

And companies in the Islamic world will also issue bonds denominated in U.S. dollars, so there is no obstacle to circulation in the international market (picture: https://www.arabnews. com/)

Therefore, since the 1970s, the Middle East and Gulf regions have been the center,