The earlier post on Islamic banking has led me (TP) to think some more about the whole system. In my readings, I have come across some more interesting stuff. In addition to the principles of "guaranteed custody" and "deferred-payment sale," there also also schemes for business financing through profit and loss-sharing (al-Musyarakah), capital financing (al-Murabahah) and leasing (al-Ijarah) that function under Islamic principles.
What I started thinking about, though, was whether or not the Malaysian government has set up any sort of Islamic money markets to prevent funds from Islamic banks being commingled with funds from non-Islamic banks. Turns out, such a system does exist. In Malaysia you can buy an Islamic-based Malaysian Savings Bond in addition to a regular savings bond. In doing so, you are conferring a benevolent loan (al-Qardhul Hasan) to the government for development expenditure. Not sure how you make money on it, though. There is also a separate interbank market based on a principle called al-Murdharabah, which is close to the capital financing principle above based on reciprocal investor-entrepreneur relationships. Islamic bank checks go through an Islamic clearing system. There are Islamic stock indices and Islamic unit trusts. In all, the government has recreated almost the entire financial system in parallel, based on Islamic principles.
Something else that had confused me dealt with the concept of insurance. I had heard that the concept of insurance was counter to Syariah because it involved a form of gambling, which is haram as well. Turns out, insurance itself as a method for groups planning ahead for misfortune is OK, just not the way that it is normally done in insurance companies. The way it works is through the concept of al-Takaful, where a group of people reciprocally agree that the collective will pay for a misfortune that may befall any one of them. Using the al-Murdharabah concept above, they can appoint an entrepreneur to invest their money that they jointly contribute, and they voluntarily agree (Tabarru’) to forgo some portion of the profits from the investment in order to pay for the aforementioned misfortunes. Very interesting.