Cooking the Books 1: Islamic Bankers

One of the measures announced in Gordon Brown’s pre-election budget was a concession to Islamic banks.

“Under Islamic law”, explained the Times (17 March), “the receipt and payment of interest is forbidden, so Sharia products are structured differently. Islamic deposit accounts are operated on a profit-sharing arrangement, under which the bank invests customers’ money in Sharia compliant investments and then shares profits with customers”.

This meant that the money received by depositors was taxed as a dividend. Gordon Brown’s concession consists in treating it from now on, for tax purposes, as interest.

The Christian Church, too, once used to condemn interest. Or rather, it condemned usury since the word “interest” derives from the Mediaeval Latin word “interesse” which was one of the ways round the ban: “interesse” was the compensation that could be charged if the money lent was not repaid on time.

R. H. Tawney, in his book Religion and the Rise of Capitalism, explained that what was condemned was “that which appears in modern economic text-books as ‘pure interest’ – interest as a fixed payment stipulated in advance for a loan of money or wares without risk to the lender . . . The essence of usury was that it was certain, and that, whether the borrower gained or lost, the usurer took his pound of flesh”.

This is exactly the position preached by backward Islamic clerics today, as is one of the get-out clauses: No man in mediaeval times, wrote Tawney, “may charge money for a loan. He may of course take the profits of partnership, provided that he takes the partner’s risks”.

It is on this basis that Islamic banks operate. They pay depositors a share in the profits made from investing the money deposited. But, economically speaking, that is what the interest paid by non-Islamic banks to their depositors largely is anyway. Under capitalist conditions, “interest is simply a part of profit”, as Marx showed in Volume III of Capital (the beginning of chapter 22). What else could be the source of the money to pay interest on investments than the surplus value produced in the profit-seeking section of the economy?

Islamic law is quite compatible with capitalism as it does not condemn making profits, only sharing them in the form of fixed payments. It only objects to bondholders not shareholders.