Sharia Compliant Finance Will Make America Safer

My colleague Ian Millhiser has already addressed the falsehoods upon which neocon conspiracy theorist Frank Gaffney‘s latest attack on Supreme Court nominee Elena Kagan is built, but it’s worth taking a look at the issue of sharia compliant finance that has poor Frank so frothy.

Gaffney accuses Kagan of “enabling… the penetration of Shariah into our capital markets through the Harvard Law School’s Islamic Finance Project“:

The purpose of that project is, according to an excellent essay by Mr. McCarthy, “Elena Kagan’s ‘Don’t Ask Don’t Tell’ Shariah Policy,” published last week in National Review Online “to promote Shariah compliance in the U.S. financial sector.”

This is accomplished via legal support to an industry known as Shariah-compliant finance (SCF). It was invented in the mid-20th century by Brotherhood operatives as a means of facilitating and underwriting the penetration of Shariah into Western societies by mainlining it into their capitalist bloodstreams.

Yes, that’s right — Gaffney actually cites Andrew McCarthy as an authority on Islam. It should come as no shock that McCarthy is, in fact, completely wrong about both the origin and purpose of Shariah-compliant finance. It’s not part of some Islamist conspiracy to steal our vital essence — and I understand that by writing that, in Gaffney’s and McCarthy’s view, I have become a part of the conspiracy — but rather a far more practical effort to enable economic activity among pious, observant Muslims.

As Jawad Ali explained in a 2007 interview with the Council on Foreign Relations, “Sharia-compliant financing is done by investors who chose to invest their money in a manner that is compliant with Islamic sharia”:

The basic principle of investing on a sharia-compliant basis is that when you are introducing any leverage, any financing, that leverage has to be compliant. This means you cannot receive or pay interest on borrowed money. In conventional finance, there is a distinction between usury and interest. Regulators in the United States and western jurisdictions regulate and distinguish between interest rates that are considered reasonable and interest rates that are considered usurious. Under Islamic sharia, any interest—even 0.01 percent—is usurious. There is no distinction between acceptable interest and unacceptable interest. So if you are financing a sharia-compliant investor, you have to figure a way to inject that financing other than borrowing and charging interest.

As Ali notes, sharia-compliant finance is a very fast-growing industry,growing by about 35 percent to 40 percent per year. And the reason more and more banks are getting into the sharia-compliant finance game is that they’ve discovered — and you should prepare yourselves for the sinister tale I’m about to unfold — that there’s a huge, under-served customer base. As CNN noted last year, the global economic recession has also sparked greater interest in banking practices and forms of investment that aren’t based upon the sort of “financial products” gamesmanship that led to the crisis.

As scholar Vali Nasr, currently an adviser to Special Envoy Richard Holbrooke, argued in his recent book The Forces of Fortune, the growth of Islamic finance and the growth of an observant, global Muslim middle class that it portends has serious positive implications for stability in the societies in which these entrepreneurs operate, and therefore for U.S. national security.

“The reason… that all of this economic vitality around the blending of Islam and capitalism is so important for the West to take note of,” Nasr writes, “is that it reveals so much about the nature of the new middle class that is driving this growth, and is in turn growing ever larger and more influential“:

Some members of this new middle class are the children of the old haute bourgeoisie, their families tied to large, venerable industries and the type of state patronage that the West is familiar with. But a far larger percentage — and here is the key — comes from the provincial and lower social classes. These sons and daughters of the poor and the provinces who have made the jump to the middle class have done so by accepting the requirements of modern economies and latching on to the economic realities that define modernism. They have embraced the rules of the market, responding to its incentives, and are guided in their decisions by the desire to serve their economic interests. So energetic is their commitment to the capitalist credo that their activities now account for most of the real economic growth in the region. The consumerism of the general population is largely the result of their handiwork. Ambitious and resourceful, they fill the ranks of the professionals, the entrepreneurs, the corporate businessmen, and the traders. It is they who have established for the next generation a new economic model of the good life here on Earth.

The interests that this economy is creating, and the ties with the global community that it is forging, offer ample opportunities for engaging this “critical middle” that has come to be the center of gravity in one Muslim-majority society after another. In coming years, that middle is only going to get bigger, and richer… Globalization and rising middle classes with big wallets — and a continuing interest in living as observant Muslims — have gone hand in hand.

The crucial aspect of this “critical middle” that is difficult for those in the West to grasp is that for this population, Islam is a powerful supporter of the drive to modernity. The great majority of Muslims think that Islam improves their lives. They want heaven later, and wealth in the meantime — and think that handling the latter well can help lead to the former.

There’s a bit of neoliberal messianism in there, but the basic argument is sound: Given the option, most people would rather do business. Gaffney, McCarthy and associated hysterics want us to believe that by engaging in sharia-compliant finance, Islamic extremists are getting one over on the West. But the truth is actually the opposite: Facilitating the participation of aspiring and ambitious Muslim entrepreneurs in the Western-led global economic system creates a hedge against extremism. By helping to grow this religiously observant middle class, we’re helping to create an anchor of stability for the societies in which they live, and building powerful new constituencies to oppose the sort of discord that extremists are offering. It’s one thing to try and get people to eschew extremism because you think it’s bad. It’s quite another to them to do it because it’s bad for their business.