Articles

 “Islamic Banking” as a Subset of Finance Capital
PJ James

Islamic banking or Islamic finance that emerged lately in the context of Pan- Islamism and world wide Islamic revivalism has become a serious topic of discussion and debate among both academic and policy circles. Interestingly, amidst this debate, leading transnational banks and speculative financial institutions the world over and even imperialist governments have come forward opening their overseas “Islamic” financial branches or subsidiaries. For instance, Citibank, HSBC, ANZ Grindlays, UBS, BNP, etc. have already started their Islamic subsidiaries. Even stock market institutions such as the Dow-Jones Islamic Market Index in US, the Shariah Advisory Council of the Securities and Exchange Commission in Malaysia, the Meezan Islamic Fund Criteria in Pakistan are also reported working. In neocolonial countries like India, comprador ruling classes are also generally in favour of what is called Islamic banking. In Kerala, one of the Indian states, the government led by the revisionist CPI (M) itself is taking the initiative to start an Islamic financial institution in spite of strong opposition from Hindu chauvinists and intervention from judiciary. Thus, the entire ruling spectrum including the revisionists who are implementing the neo-liberal program of liberalization, privatization and globalization has become uncritical proponents of Islamic finance irrespective of apparent ideological differences among them. An objective evaluation or scientific approach to the interest-phobia of Islamic banking which focuses itself in the “prohibited elements” mentioned in shariah , especially that pertains to the avoidance of Riba, i.e., interest,  is totally lacking.
Adherents of Islamic finance who are against the practice of interest claims to derive its intellectual and theoretical resources from Islam. Of course, it is a historical fact that almost all religions of the world right from their origin had disapproved or tried to restrict the practice of interestin some way or other. Traditional Judaism, Christianity and Islam forbid the practice of lending money at interest. In fact, Jesus’ righteous indignation at usury and his driving out of usurers from the Temple of Jerusalem are oft-quoted themes in Christian belief. While Judaism allowed exaction of interest only from non-Jews, Hinduism through the laws of Manu had imposed certain limits on the charging of interest. In general, while all the religions are staunchest worshippers of private property as “god’s gift”, many of them have criticized or opposed specific elements of different social systems like slavery, feudalism and capitalism. Christianity has been a source of criticism against capitalism during latter’s initial days when appalling conditions of capitalist exploitation and widening gap between haves and have-notes disturbed the conscience of well-meaning people. The first socialists characterised by  Marxism as “Utopian Socialists” drew many of their principles from Christian values against the uncontrolled bourgeois motives of wealth accumulation, profiteering, greed, selfishness, and hoarding.
In a similar manner, Islamic law also regulates economic activities. In Islamic countries where shariah prevails, a 2.5 percent alms tax , i.e., Zakat is levied on all gold, crops, and cattle. An Islamic sect, Shia Twelver Muslims, even pay an additional 20 percent tax on all savings. Usury or riba is forbidden though the religious law encourages the use of capital to spur economic activity.  Sayyid Qutb an Islamic writer, has even counterpoised Islam against capitalism in his 1951 book The Battle Between Islam and Capitalism. The Islamic Constitution of Iran, which was drafted mostly by Islamic clerics, has similar apparently “anti-capitalist” nuances.  The recent revival of Islamic banking or Islamic finance is to be evaluated in this over all context of  the proclaimed efforts by various Islamic scholars to re-design the global financial structure in conformity with the direction of Islam. The World Islamic Banking Conference held annually in Bahrain since 1994 is internationally recognised as the largest and most significant gathering of Islamic banking and financial leaders.  NEW HORIZON published since 1990 provides information on various aspects of Islamic Banking. According to data available, the total assets (“shariah compliant assets”) of Islamic banks reached about $400 billion in 2009 of which Iranian Banks alone accounted for about 40 percent. Bank Melli Iran, Bank Saderat Iran, Al Rajhi Bank and Bank Nellat in Saudi are the leading Islamic Banks in the world.
According to Islamic Scholars, the unrelenting financial crises that haunt the capitalist-imperialist system for the last so many years have been an  inspiration to put forward an alternative based on zero interest Islamic banking.  However, with more than 60 percent of the Muslims in the world living in poverty, Islamic banking is of little benefit to them or to the general population. Interestingly, the majority of financial institutions that offer Islamic banking services are majority owned by Non-Muslims and orthodox Muslim clerics view their services with suspicion. Recently, as reported in the Net, one Malaysian Bank offering Islamic based investment funds was found to have the majority of these funds invested in the gambling industry. These types of stories contribute to the general impression within the Muslim populace that Islamic banking is simply another means for banks to increase profits through growth of deposits and that only the rich derive benefits from implementation of Islamic Banking principles.
Approach towards Interest
The essence of Islamic banking is its uncompromising opposition to interest either as receipt or as payment. It has no fundamental contradiction with the core characteristics or driving forces of capitalist-imperialist system such as private property, right of inheritance, wage-labour, profit motive, competition, monopolisation,  inequality and so on. In spite of its declared opposition to interest, it upholds all other forms of return to capital and investment such as profit , dividend, rent, etc. Its criticism against interest does not even touch up on the private accumulation of wealth or the very basis of  capitalist production or circulation processes. In fact, several die-hard anti-interest Islamic theoreticians are staunch protagonists of neo-liberal globalization led by speculative finance capital.
At the outset it must be stated that antagonism against interest is not a new theme but an old wine in new bottle. Regarding interest or interest-bearing capital, right from the time of industrial revolution and emergence of classical political economy, bourgeois economists used to argue it as a hindering factor for the unhindered growth of  the industrial capitalism which was forced to divert a major part of its profit to ‘usurious capitalists’ or feudal forces. Several theorists during this period had interpreted the payment of interest to usurers as a major leakage or drain from the profit stream that retarded the forward march of entrepreneurship, investment and capital accumulation. Interest payment was often regarded as a reward for laziness and idleness. In fact, till the development of the bourgeois credit system, laissez-faire capitalism had to wage an uncompromising struggle against interest and rent, the respective returns to usury and feudal land ownership.
For instance in England, the birth-place of industrial capitalism, the British parliament had to enact a series of laws against usury for paving the way for capitalist development. A similar approach was taken towards rent, which was a payment to the feudal landlord whose contribution to production was nil. David Ricardo, the leading economist of the classical period interpreted rent as the reward to the original and indestructible powers of the soil so that feudal lords had no rightful claim to it. According to Ricardo, rent should not at all be a part of cost of production. Thus, one of the aims of the industrial bourgeoisie was the defeat and elimination of both feudal forces and usurers effectively utilising the emerging parliamentary system. Actually, interest-bearing capital or usurer’s capital as it is called in political economy is an initial form of capital whose crucial characteristic is the excessively high rate of interest. While examining the history of this form of capital, Marx had shown how by entangling the slave and feudal societies usury led to the undermining of such economies.
As a matter of fact, there is fundamentally nothing new regarding the so called ‘interest antagonism’. While Marx was unraveling the laws of motion of capitalism  through his painstaking studies,  both Christian socialists and industrial bourgeoisie though from different ideological persuasions were vehemently opposing “interest bearing capital.” As a result, Marx had made several interesting, at the same time in-depth, observations on this controversy. In his Theories of Surplus Value which is considered as the Fourth Volume of Capital,  Marx had situated interest-bearing capital and usury in the proper historical perspective in the 19th century itself.  Characterising the superficial criticism of anti-interest protagonists like Utopian Socialists as a “reforming zeal against interest-bearing capital” Marx criticised them for ignoring “real capitalist production, but merely attacking one of its consequences.”  Marx had beautifully unraveled the radical mask of  the ‘anti-interest protagonists’ thus: “This polemic against interest-bearing capital …, a polemic which today parades as “socialism”, occurs, incidentally, as a phase in the development of capital itself, for example, in the seventeenth century, when the industrial capitalist had to assert himself against the old-fashioned usurer who, at that time, still [confronted] him as a superior power.” (p, 456).
The criticism against interest without taking into consideration private property and wage-labour which among other things form the foundation of capitalist exploitation, according to Marx, is part of the religion-induced indignation against capitalist greed and it belongs to the realm of Christian and Utopian socialism. For, exposing the hollowness of those who stand only for the abolition of interest or at least a reduction in interest, Marx opines: “It is clear that any other kind of division of profit between various kinds of capitalists, that is, increasing the industrial profit by reducing the rate of interest and vice versa, does not affect the essence of capitalist production in any way. The kind of socialism which attacks interest-bearing capital as the “basic form” of capital not only remains completely within the bounds of the bourgeois horizon. In so far as its polemic is not a misconceived attack and criticism prompted by a vague notion and directed against capital itself, though identifying it with one of its derived forms, it is nothing but a drive, disguised as socialism, for the development of bourgeois credit and consequently only expresses the low level of development of the existing conditions in a country where such a polemic can masquerade as socialist and is itself only a theoretical symptom of capitalist development although this bourgeois striving can assume quite startling forms such as that of “credit gratuit” for example. The same applies to Saint-Simonism with its glorification of banking.” (p.467). As later history proved, it was the emerging industrial bourgeoisie who gained from the anti- interest campaign led by Utopian and Christian socialists. The rising industrial and commercial bourgeoisie along with the development of capitalism required immense credit to carry on its commercial operations but both of them were unable to make use of usurer’s money with its exorbitant interest rates, which often exceeded the industrial or commercial profit. Consequently, a stubborn struggle of the growing industrial bourgeoisie took place against usury for a reduction or abolition of interest on the one hand, and the development of modern credit system on the other.
Capitalist Credit System versus Usury
With the strengthening of capitalism and further development of industrial capital and the credit system created by it, the bourgeoisie gradually squeezed usurer’s capital into second position. The general historical tendency of the rate of interest (return to usury) is for it gradually to fall and that of profit (general form of return to capital) to rise. As capitalism develops, the supply of loan capital grows leading to a decline in interest, which is its price. The number of big money capitalists or what Lenin called “rentiers” under imperialism with huge loan capital grows along with the development of the capitalist credit system. Free money resources with the people also grow leading to a reduction or a level close to zero in interest rate as the economic history of capitalist-imperialist countries shows. However, for small commodity producers, petty traders, poor and landless peasants, credit system developed by bourgeoisie was not available even under the golden period of capitalism. Large capitalist banks refused to extend credit to small producers and poor peasants since they were not considered credit-worthy, such that they continued to be cruelly exploited by usurer’s capital, in spite of the latter’s subjection to a secondary position. Even today, this  is the reality in most of the neocolonial countries where industrial revolution and development of the capitalist credit system in the classical pattern did not take place. Obviously, Islamic finance which is also rooted in the laws of imperialist capital (except, of course, the practice of interest) and private property relations has nothing to offer as solution to this question.
Unfortunately, Islamists fail to comprehend the historical fact of capitalist antagonism to interest-bearing capital and  that the evolution of capitalist credit system had been a major blow to usury. Compared to usury, the credit system composed of a whole complex set of banks and financial institutions, credit agencies, non-financial intermediaries, insurance companies, credit cooperatives, etc. speed up the circulation process and the flow of capital among different sectors in the capitalist economy. In fact, growth of credit accelerates the rate of capitalist exploitation by facilitating an increase in the production of surplus value. Various credit instruments speed up the circulation process, shortens the turn over time of capital and eliminates non-productive expenditure connected with the transportation of cash and gold which was the case during pre-capitalist days. Credit also stimulates the development of capitalist production by acting itself as a powerful means of concentration and centralisation of capital. This centralisation got a further boost with the origin and development of joint-stock companies that overcame the limitations of individual capitalists. With this, as dividend emerged as  the principal form of earnings to  moneyed sections, the share of interest as  a form of return to capital declined further in capitalist society.  Together with the credit system, the growth of joint-stock system of undertakings encouraged the development and sharpening of all the inherent contradictions of capitalism. By speeding up the socialisation of production,  they lead to sharpening of the basic contradictions of capitalism,  that between the social character of production and private capitalist form of appropriation. By furthering the development of production and the concentration of tens of thousands of workers in giant undertakings, credit helps intensify their exploitation and sharpening of the class contradictions between labour and capital. By accelerating the process of capitalist production  and circulation, credit promotes a more rapid onset of crisis of overproduction, conceals the beginnings of crises, and increases their destructiveness. It hastens the expropriation of small capitalists by big ones and leads to the growth of monopoly, which is the dialectical opposite of competition.
Explaining the capitalist way of destroying or subjugating usury or interest-bearing capital, Marx aptly opines: “Where capitalist production has developed all its manifold forms and has become the dominant mode of production, interest-bearing capital is dominated by industrial capital, and commercial capital becomes merely a form of industrial capital, derived from the circulation process. But both of them must first be destroyed as independent forms and subordinated to industrial capital. Violence is being used against interest-bearing capital by means of compulsory reduction of interest rates, so that it is no longer able to dictate terms to industrial capital. But this is a method characteristic of the least developed stages of capitalist production. The real way in which industrial capital subjugates interest-bearing capital is the creation of a procedure specific to itself- the credit system. The compulsory reduction of interest rates is a measure which industrial capital itself borrows from the methods of an earlier mode of production and which it rejects as useless and inexpedient as soon as it becomes strong and conquers its territory… The credit system originally is a polemical form directed against the old-fashioned usurers (goldsmiths in England, Jews, Lombards, and others). (Theories of Surplus Value, Part III, pp.468-69)
Advent of Finance Capital and Emergence of new “Rentiers”
With the  transformation of competitive capitalism into monopoly capitalism or imperialism and the emergence of finance capital which is the result of the interweaving or coalescence of big banking monopolies with that of major industrial monopolies, capitalist economy and polity underwent fundamental changes. Lenin defined the place of imperialism in history as that of extreme parasitism and decay quite unprecedented in the entire history of humankind. Rather than the old-fashioned usury which was dominant before capitalism, under imperialism which according to Lenin was finance capital itself, an entirely new “stratum of rentiers” became the most parasitic and reactionary class retarding social progress.
In his book, Imperialism, the Highest Stage of Capitalism, Lenin wrote that a significant part of the big bourgeoisie make a final break with production. The management of enterprises is transferred increasingly to hired specialists, while the big capitalists themselves live idly on income from securities, shares and state loan funds and become capitalist rentiers.  The major source of income of this parasitic class is dividend, speculation in stock and money markets and super profits from the export of capital.  However, after WWII, with the transformation of colonialism into neo-colonialism, finance capital in alliance with imperialist state machineries, neo-colonial institutions such as Fund-Bank combine, MNCs, transnational banks, global stock, commodity, currency and real estate markets is amassing monopoly super-profits of hitherto unknown levels. Neo-liberalism has imparted an added dimension to this. Today, finance capital is imperialist states’ most powerful neo-colonial weapon for exploiting and enslaving neo-colonial countries.
The proponents of Islamic banking with their religious-oriented obsession with interest  are incapable of comprehending the underpinnings or the laws of finance capital behind this neocolonial system led by US imperialism. Today finance capital has succeeded in subjecting all religions and their laws to its laws of motion. Paradoxically, Islamists’ interest antagonism happens to be a mask for camouflaging diverse forms through which finance capital ensures its super-profits. Their position is akin to and even much below the erstwhile bourgeois economists who stood for the development of capitalist credit system that brought about a relative reduction in interest vis-a-vis other earnings by capital. Demonizing interest and attacking it which is a declining form of exploitation and at the same time supporting other means of capital’s super-exploitation is an imperialist agenda of diverting people’s attention from the real issue. In fact , Marxist political economy evaluates the existence of interest-bearing capital and its separation from industrial capital as necessary product of the capitalist mode of production itself.  Here also Marx’s far-sightedness is very clear: “ Abolition of interest, and of interest-bearing capital…means the abolition of capital and of capitalist production itself. As long as money (commodities) can serve as capital, it can be sold as capital. It is therefore quite in keeping with the views of the petty-bourgeois Utopians that they want to keep commodities but not money, industrial capital but not interest bearing capital, profit but not interest.” ( p. 472). Thus fully understanding the fact that Islamists’ interest-phobia is a mere smoke-screen, imperialist think-tanks themselves have come forward accommodating  Islamic banking as a subset of imperialist finance capital by establishing Islamic appendages to their financial institutions as already noted. Obviously Islamic laws like any other religious laws can only sub-serve and not challenge the laws of motion of global capital.
Conclusion
In connection with the development of capitalism, an ever greater separation of capital as property ( interest bearing capital) from capital as a function (profit earning capital) takes place. While the money lending capitalists operate exclusively as the owner of capital, its real functioning takes place in the hands of another capitalist. Interest- bearing capital which is the most parasitic form of capital share with industrial capitalists in the exploitation of workers and in the distribution of surplus value. As is obvious, capitalist production had to fight against usury to the extent that the usurer himself does not become a producer. However, as the history of capitalism shows, with the establishment of capitalist production, the domination of usurer over surplus value ceased along with the fading of the old mode of production. But, with the transformation of competitive capitalism into imperialism, the parasitism associated with  finance capital as the all embracing form of capital today has assumed manifold forms and become multidimensional in character.  Today  compared with competitive capitalism, the loot of capital is more deep and more pronounced through the invention of newer and newer financial instruments and no society or state including imperialist states is free from the instability and speculation unleashed by  finance capital. The so called Islamic finance has also evolved through the favourable conditions created by finance capital under Neo-liberalism. Apart from criticising its symptoms, no Islamic scholar has come forward with a basic criticism against private property or private accumulation of wealth which is the root cause of the crisis.
The interest phobia cultivated by Islamists today  is more in consonance with an archaic criticism against usury that smacks of a low level of  social development and human conscious-ness quite reminiscent of pre-capitalist or early capitalist days. The political power of the usurer except in places where feudal remnants are still prevailing and capitalist credit system has not yet started full fledged functioning, is no match for the political and economic power of the financial oligarchy that controls the whole world. Under finance capitalism, more particularly in its neo-liberal phase, conditions of wealth and capital accumulation have fundamentally altered.  Now, the biggest appropriations by finance capital which is capital’s dominant form today are not through usury but through fabulous gains from stock exchanges, foreign exchange markets, futures trading, real estate businesses and subjecting every sphere of social and economic activity to speculation. As a manifestation of this, while the global GDP amounts approximately to fifty trillion dollars, the money value of financial transactions or the so called “fictitious capital” runs into thousands of trillions of dollars. The “money-spinning” businesses and parasitism associated with speculative financiers or “rentiers” as Lenin called them is a thousand-fold bigger than that of pre-capitalist or modern day usurers. Ironically, while characterising usury as the main evil today and opposing it, Islamic financiers are seeking investment opportunities on the stock market, even as some Islamic scholars have recently started talking about the myth of “shariah compatible stocks.”
One of the objectives of the monetary policy pursued by Central Banks in imperialist countries is to make the net interest rate to zero and if one takes into consideration the continuing inflation, the real rate of interest might have become negative in developed capitalist countries. Instead of giving interest to deposits, commercial banks have started imposing service charges for keeping money. Today there is a concerted effort on the part of finance capitalism to divert as much money as possible to  speculative, money spinning sectors by discouraging interest-earning savings in commercial  banks. Even public sector pension funds, insurance companies, provident funds, etc., under diktats  from neocolonial institutions such as IMF and World Bank are drastically reducing interest on such hard earned savings of the working class on the one hand and are diverting these huge funds to stock markets for speculation under the control of global speculative giants. In a similar manner, trillions of dollars worth money deposits named as petro-dollars, euro-dollars, etc. are being locked up in world money circulation channels with practically no earnings. The global bubble economy can be ballooned further if such funds are directed to speculative channels. Islamists’ disrespect to “interest-earnings” and their affinity towards other money-spinning forms  are to be evaluated in the context of the  real trends in imperialist world economy. It is only a wishful thinking that the reduction or elimination of interest which is a declining of form of capitalist exploitation will change the plunder, parasitism and dehumanisation unleashed by finance capital. On the other hand,  as is evident, imperialist think tanks are effectively using this  interest phobia of Islamists to cover up the biggest-ever capitalist offensive against world people through newer and newer forms of financial engineering. As such, as of now, Islamic banking is a diversionary tactic to deviate world people’s attention from the crucial issue of imperialist globalization led by finance capital.