culture and economics in the ME

[mears]

You forgot this years winner of the Nobel Peace Prize. Bangladeshi Economist Muhammad Yunus. He started a system of financing the very poor via micro-loans. Loans of small amounts at very low interest rates of money paid to mainly women, who then use that money to purchase raw materials which they use to manufacture finished products. They then repay the loan plus a very small interest payment making a profit which they can reinvest. These women hardly ever default on the loan & the scheme is therefore largely self financing & helps hundreds of thousands out of poverty.

That is a great story and Yunus obviously deserves a Nobel for that. Hopefully government in the ME will open their eyes to such a program and emulate the system.

 

[Spion]

I am talking about a young person who wants to buy a plot of land to farm in Egypt. Can he find an institution that loans him the capital to get started? Unless he comes from a rich family, he probably doesn't have the money to get started in farming without some type of loan.

There could be a family in Tehran which has a business plan to sell used auto parts. The family has years of combined experience working on cars, and lets say the little brother majored in accounting at university. Tehran is short of auto parts and they are ready to fill the gap. Can they walk into a bank and obtain a loan? Will the bank be allowed to charge them interest to protect themselves from possible default?

I'm quite staggered at the questions, tbh, but nonetheless I can confirm the answer to both these questions is yes.

Scroll down to check the loans Misr Bank offers, for example. http://www.mibank.com.eg/lwwcm/connect/MIBank/Home/Search

Even in times when religion and economy were intertwined there were ways of sidestepping proscriptions on usury

 

[mears]

I'm quite staggered at the questions, tbh, but nonetheless I can confirm the answer to both these questions is yes.

Scroll down to check the loans Misr Bank offers, for example. http://www.mibank.com.eg/lwwcm/connect/MIBank/Home/Search

Even in times when religion and economy were intertwined there were ways of sidestepping proscriptions on usury

"MIBank’s new line of individual banking services provide customers with a full range of personal banking services including loans, banking accounts and credit and debit cards."

Thats positive. I hope more insitutions than this exist in the ME.

 

[Spion]

"MIBank’s new line of individual banking services provide customers with a full range of personal banking services including loans, banking accounts and credit and debit cards."

Thats positive. I hope more insitutions than this exist in the ME.

Yes, they're quite common. They call them banks and they've been around for a long time. You'll find them in big buildings in the financial districts of big cities there. I gather you've never set foot in any of these countries?

Here's one from Iran too http://www.bmi.co.ae/products/commercial_banking.htm

 

[Backatcha Bandit]

You can get a 'loan'/borrow money, and you can (as I understand it) lend 'money' and recieve an amount above the capital in return.

What you cannot do is is legally demand repayment and interest without consideration of the social consequences.

A wise person on these boards once commented that Shira law with regard to money is designed to protect the poor from the rich, whereas the 'western' law is designed to protect the rich from the poor.

Your analogy is flawed, because you still havn't grasped the basics, mears.

 

[Bernie Gunther]

I think you know my beliefs on economics and capitalism, we don't need to get into that.

I am talking about a young person who wants to buy a plot of land to farm in Egypt. Can he find an institution that loans him the capital to get started? Unless he comes from a rich family, he probably doesn't have the money to get started in farming without some type of loan.

There could be a family in Tehran which has a business plan to sell used auto parts. The family has years of combined experience working on cars, and lets say the little brother majored in accounting at university. Tehran is short of auto parts and they are ready to fill the gap. Can they walk into a bank and obtain a loan? Will the bank be allowed to charge them interest to protect themselves from possible default?

I am talking about real world situations, not abstract ideas on modern finance. It seems to me you can't have a functioning economy in the 21 century if you ban the practice of charging interest on loans.

As I understand it, the lender shares risk as well as reward with the business, so if the business doesn't do well, they can't foreclose and if it defaults, tough, but if it does do well, they receive payment linked to the profitability of the business.

As far as I can tell it does actually seem to be a real world situation in that this is how at least some proportion of investment works in the islamic world, but I'm not expert in this area. I'm just going by what I've read on it.

 

[mears]

You can get a 'loan'/borrow money, and you can (as I understand it) lend 'money' and recieve an amount above the capital in return.

What you cannot do is is legally demand repayment and interest without consideration of the social consequences.

A wise person on these boards once commented that Shira law with regard to money is designed to protect the poor from the rich, whereas the 'western' law is designed to protect the rich from the poor.

Your analogy is flawed, because you still havn't grasped the basics, mears.

What are the basics?

'What you cannot do is is legally demand repayment and interest without consideration of the social consequences.'

What the hell does that mean? Who decides if one should repay a loan? What body considers the impact on the scoial consequences?

The real world doesn't run on vauge proclomations

 

[Spion]

Any links for all this talk of 'social consequences', the inability to foreclose etc. At the moment it all looks like the talk of the hopelessly ill-informed. Middle eastern countries have banks that operate like any others.

If you're talking about 'Islamic banking' it is a tiny tiny sector of these economies

 

[Spion]

A list of banks in the Arab world http://en.wikipedia.org/wiki/Arab_Banks

 

[Bernie Gunther]

<snip> If you're talking about 'Islamic banking' it is a tiny tiny sector of these economies

Yep, I think that's correct based on doing a bit of reading about it in the last hour or so. It is quite interesting though.

My impression is that the situation may be a bit different in Iran and perhaps also Pakistan where they're trying to do it on a larger scale, but that in general attempts to do this stuff are about on a par with credit unions and so on over here in terms of their economic significance.

This essay seems quite informative on how the existing schemes work and the pros and cons.

 

[Bernie Gunther]

Here's the bit that seems to explain the basics.

4.2.2.1 Investment financing

This is done in three main ways: a) Musharaka where a bank may join another entity to set up a joint venture, both parties participating in the various aspects of the project in varying degrees. Profit and loss are shared in a pre-arranged fashion. This is not very different from the joint venture concept. The venture is an independent legal entity and the bank may withdraw gradually after an initial period. b) Mudarabha where the bank contributes the finance and the client provides the expertise, management and labour. Profits are shared by both the partners in a pre-arranged proportion, but when a loss occurs the total loss is borne by the bank. c) Financing on the basis of an estimated rate of return. Under this scheme, the bank estimates the expected rate of return on the specific project it is asked to finance and provides financing on the understanding that at least that rate is payable to the bank. (Perhaps this rate is negotiable.) If the project ends up in a profit more than the estimated rate the excess goes to the client. If the profit is less than the estimate the bank will accept the lower rate. In case a loss is suffered the bank will take a share in it.

4.2.2.2 Trade financing

This is also done in several ways. The main ones are: a) Mark-up where the bank buys an item for a client and the client agrees to repay the bank the price and an agreed profit later on. b) Leasing where the bank buys an item for a client and leases it to him for an agreed period and at the end of that period the lessee pays the balance on the price agreed at the beginning an becomes the owner of the item. c) Hire-purchase where the bank buys an item for the client and hires it to him for an agreed rent and period, and at the end of that period the client automatically becomes the owner of the item. d) Sell-and-buy-back where a client sells one of his properties to the bank for an agreed price payable now on condition that he will buy the property back after certain time for an agreed price. e) Letters of credit where the bank guarantees the import of an item using its own funds for a client, on the basis of sharing the profit from the sale of this item or on a mark-up basis.

4.2.2.3 Lending

Main forms of Lending are: a) Loans with a service charge where the bank lends money without interest but they cover their expenses by levying a service charge. This charge may be subject to a maximum set by the authorities. b) No-cost loans where each bank is expected to set aside a part of their funds to grant no-cost loans to needy persons such as small farmers, entrepreneurs, producers, etc. and to needy consumers. c) Overdrafts also are to be provided, subject to a certain maximum, free of charge.

source above.

 

[Spion]

Here's the bit that seems to explain the basics. source above.

Interesting. So, absolutely no impediment to enterprise, as long as you can satisfy the bank of your creditworthiness. Shame most people there can only dream of our levels of wealth.

 

[Bernie Gunther]

The snags seem to arise in two areas from what that essay is saying.

Firstly, the model is about where western banks were in the late 1700's in terms of maturity, so they're still figuring a lot of it out. Participation requires a lot more knowledge of the business in question than simply lending the money and getting back interest payments irrespective of how the actual business is doing. It's much more like being in partnership, with an implication that more expertise is required. The techniques for doing the sort of accounting required to support profit and loss sharing are also immature, but they do sound as though they're slowly getting this stuff figured out.

Secondly, there is the investor end. Naturally depositors tend to want the same level of risk protection as they get in a western-style bank, but with profit and loss sharing, applied across the board, they don't get that. The author seems to be saying that various workable looking schemes have now been devised that make a distinction between savings and investment accounts, and guarantee the former more or less normally, but use the latter to fund the profit and loss sharing stuff.

Commenting on Mudaraba financing, The Economist says:47

.... some people in the West have begun to find the idea attractive. It gives the provider of money a strong incentive to be sure he is doing something sensible with it. What a pity the West’s banks did not have that incentive in so many of their lending decisions in the 1970s and 1980s. It also emphasises the sharing of responsibility, by all the users of money. That helps to make the free-market system more open; you might say more democratic.

source above.

 

[Bernie Gunther]

This really is quite interesting. I found some figures on the amounts of money, both currently in islamic banks, and invested by muslims in all types of banks. (top and bottom paragraphs of this quote)

From Jakarta to Jeddah, 265 Islamic banks and other financial institutions are now operating in some 40 countries, with total assets that top $262 billion, according to organizers of the International Islamic Finance Forum, a semi-annual industry conference. That pot of money, the investment of which adheres to the Koran's prohibition against receiving or paying interest, has been steadily building since 1994, when Malaysia created the world's first Islamic interbank money market. Now Islamic banking has broadened its appeal well beyond the confines of faithful Muslims. Indeed, nearly one-quarter of all Islamic banking business in Malaysia is being transacted by non-Muslims.

Islamic finance was long the preserve of specialty banks that handled shariah-compliant products exclusively, such as Malaysia's top-ranked Bank Islam and Saudi Arabia's Al Rajhi Banking & Investment Corp. But Western banks, no longer content to leave the market to Islamic lenders, are competing for a slice of the business. Two years ago, Citigroup (C ) began providing Islamic mortgages in Malaysia and has begun training staffers in Indonesia and Pakistan to offer them there. It also provides Islamic mortgages in Middle Eastern countries such as the United Arab Emirates. HSBC operates Islamic banking services all over the Arab world, and they now make up about 10% of its business in Malaysia. UBS, the world's top player in wealth management, set up a stand-alone Islamic private bank last year in Dubai to cater to its wealthiest Middle Eastern clients. And no wonder. Assets held by Muslims, led by Gulf Arabs, in all banks -- Islamic and otherwise -- are estimated at $1.5 trillion and are growing 15% a year, in large part because of high oil prices.

source

That's a very significant amount of growth in a decade and there are some fairly compelling reasons why one might be interested in this form of banking without being a muslim, particularly once they've got the bugs out of it, so the addressable market for that sort of banking might be rather more than the $1.5 trillion of assets mentioned above. The global economy as a whole is what, about $60 trillion gross?

Suddenly this doesn't look quite so insignificant does it? At least in potential.

 

[mears]

Something else that might explain the poor performance of Middle Eastern economies is the place of women in Muslim society. If some countries ban women from certain professions it cuts off a major part of your talent pool.

Also if boys are taught from a young age they have power over their sisters and mothers, that men are at a higher level, it could create feelings of entitlement. It might be difficult for such men to take initial lower level jobs when they have an exalted place in society.

 

[Backatcha Bandit]

Thanks for digging all that out, Bernie.

I think that the informative sources you've posted above go quite some way towards answering the very valid and appropriate questions posed thus far, for instance:

What are the basics?

'What you cannot do is is legally demand repayment and interest without consideration of the social consequences.'

What the hell does that mean? Who decides if one should repay a loan? What body considers the impact on the scoial consequences?

The real world doesn't run on vauge proclomations

Any links for all this talk of 'social consequences', the inability to foreclose etc. At the moment it all looks like the talk of the hopelessly ill-informed. Middle eastern countries have banks that operate like any others.

If you're talking about 'Islamic banking' it is a tiny tiny sector of these economies

Bernie notes Iran as an example of the sort of system we're examining here.

This is from the Wiki on 'The Economy of Iran':

Currency and Banks of Iran

The government makes loans and credits available to industrial and agricultural projects, primarily through banks.

...In 1979 the government nationalized all private banks and announced the establishment of a banking system whereby, in accordance with Islamic law, interest on loans was replaced with handling fees; the system went into effect in the mid-1980s. The banking system consists of the central bank, which issues currency; several commercial banks that are headquartered in Tehran but have branches throughout the country; two development banks; and a housing bank that specializes in home mortgages.

(my emph.)

This system was mandated in the Constitution of Islamic Republic of Iran (<--well worth reading!) which was apparently overwhelmingly ratified in referendum (98%?) in early December 1979 - just after they kicked out the friendly puppetocracy we installed in 1953... before which, of course Iran was a secular democracy.

This might be an appropriate moment to pause and reflect on exactly what people such as Condoleezza Rice really mean when they tell us that;

“We may face no greater challenge from a single country than from Iran, whose policies are directed at developing a Middle East that would be 180 degrees different than the Middle East we would like to see developed...

..This [country is] the central bank for terrorism...

I think we may be in error if we consider the 'Islamic' system to be in someway embrionic and growing, when I fear the opposite may be true.

 

[Spion]

Something else that might explain the poor performance of Middle Eastern economies is the place of women in Muslim society. If some countries ban women from certain professions it cuts off a major part of your talent pool.

Some evidence might be appropriate here.

Also if boys are taught from a young age they have power over their sisters and mothers, that men are at a higher level, it could create feelings of entitlement. It might be difficult for such men to take initial lower level jobs when they have an exalted place in society.

That happens most places. Not just the ME

 

[Aldebaran]

Mears, why don't you read the work I recommended and *then* come back to talk about the issues you have now no clue about.

salaam.

 

[Backatcha Bandit]

Something else that might explain the poor performance of Middle Eastern economies is the place of women in Muslim society. If some countries ban women from certain professions it cuts off a major part of your talent pool.

There are two reasons I diagree with the basic assumptions of what you're trying to say here, mears.

I can see why one might develop an impression that 'Iranian women's rights [are] severely restricted' as The Washington Times informed us earlier this year.

That article, for instance, contains a passage informing us that

Iranian women gained constitutional recognition of equal rights in 1906, and the right to vote in 1962. Since then, the massive movements made them "active, articulate and very capable" of political involvement, Mrs. Afkhami said. "Their consciousness and eagerness for equal rights can hardly be pushed back."
The reversal of basic rights in 1979 increased the political activity of Iranian women.

- which gives the casual reader the impression that 'recognition of equal rights in 1906, and the right to vote in 1962' are among the 'basic rights' reversed in 1979, which is patently untrue.

Indeed, Iranian commentator Simin Royanian informs us that 'There are many more women in Parliament than there ever were during the previous [pre-'79] government'.

Compared to the rights of women in, for instace, Saudi Arabia (of which we hear comparatively little), you have to wonder what the true motives are behind such reports.


The second assumption I would like to challenge is the notion that by removing males from the 'household economy' into work within the 'industrial economy' (and therefore outside of the home) we are achieving something desireable, and that by doubling the error by forcing women into participation in the 'industrial economy' in the name of 'equality' we are doing something double 'noble' or 'good'.

I'm sure - no, certain - that your response to the above is a bemused 'WTF???', and concede that the subject is probably best suited to another thread, so I'll leave you with a pointer to one who might explain my position better, in the form of Wendell Berry:

It is clear that women cannot justly be excluded from the daily fracas by which the industrial economy divides the spoils of society and nature, but their inclusion is a poor justice and no reason for applause. The enterprise is as devastating with women in it as it was before. There is no sign that women are exerting a “civilizing influence” upon it. To have an equal part in our juggernaut of national vandalism is to be a vandal. To call this vandalism “liberation” is to prolong, and even ratify, a dangerous confusion that was once principally masculine.

A broader, deeper criticism is necessary. The problem is not just the exploitation of women by men. A greater problem is that women and men alike are consenting to an economy that exploits women and men and everything else.

http://www.crosscurrents.org/berryspring2003.htm

Did you find the information regarding the fundamental differences in the 'Islamic' economic system in anyway enlightening?

 

[Aldebaran]

Did you find the information regarding the fundamental differences in the 'Islamic' economic system in anyway enlightening?

I think mears is by now genuinely shocked that we don't pay and trade with women, horses, camels, donkeys and dates as currency

By the way: Thanks to you and the others for your "online researches". I don't open external links but I think I can trust you to be accurately informative.

If you are interested, l can recommend you the read of the study I mentioned. It has its flaws since no study can be complete but it is the best approach written in English that I ever saw so far.

salaam.

 

[nino_savatte]

Something else that might explain the poor performance of Middle Eastern economies is the place of women in Muslim society. If some countries ban women from certain professions it cuts off a major part of your talent pool.

Also if boys are taught from a young age they have power over their sisters and mothers, that men are at a higher level, it could create feelings of entitlement. It might be difficult for such men to take initial lower level jobs when they have an exalted place in society.

You really have lost the plot. The real reason you began this thread was so that you could play out your cultural relativist prejudices.

Your second paragraph deliberately overlooks the fact that patriarchical societies are not confined to the so-called "east" or even the Middle East, they exist all over. For all your talk about so-called equality of the sexes in the west, the real truth is that women are still paid less than their male counterparts in many parts of the west - including the US. What's the male/female ratio in the boardroom? I'll bet it's not as high as you think it is.

 

[nino_savatte]

I think you know my beliefs on economics and capitalism, we don't need to get into that.

To my knowledge, there is no belief system that is associated with economics or capitalism. Furthermore the market is not a Delphic oracle nor are you a soothsayer. There is more than one form of capitalism, presumably you are referring to Late Western capitalism which requires consumerism and deaths in large numbes in order to reproduce itself. In which case you have deliberately ignored all other forms in order to promote your faith-based version.

You worship death and destruction and the needless consumption of meaningless commodities. What is a meaningless commodity? Something that is not necessary for existence. Needs have to be stimulated even if the need for the particular object/commodity doesn't exist. It is a system that perpetuates wastefulness and encourages others to waste (waste is, itself, a product that is not included in the GDP or growth forecasts).

 

[mears]

Thanks for digging all that out, Bernie.

I think that the informative sources you've posted above go quite some way towards answering the very valid and appropriate questions posed thus far, for instance:



Bernie notes Iran as an example of the sort of system we're examining here.

This is from the Wiki on 'The Economy of Iran': (my emph.)

This system was mandated in the Constitution of Islamic Republic of Iran (<--well worth reading!) which was apparently overwhelmingly ratified in referendum (98%?) in early December 1979 - just after they kicked out the friendly puppetocracy we installed in 1953... before which, of course Iran was a secular democracy.

This might be an appropriate moment to pause and reflect on exactly what people such as Condoleezza Rice really mean when they tell us that;

I think we may be in error if we consider the 'Islamic' system to be in someway embrionic and growing, when I fear the opposite may be true.

And how has the Iranian economy performed since 1979?

 

[mears]

Mears, why don't you read the work I recommended and *then* come back to talk about the issues you have now no clue about.

salaam.

Why don't you have the ability to discuss internal middle eastern problems? Why don't you have the ability to discuss the Van Gogh murder in the Netherlands?

Run along now

 

[Backatcha Bandit]

And how has the Iranian economy performed since 1979?

And that's the crunch.

Your ideological blinkers render you completely unable to see any other 'indicator' than the 'economic'.

Your 'intellectual toolkit' not only precludes you from being able to conceptualise anything that doesn't have a dollar sign attached to it, it procludes you from being aware that any other measure of 'value' can even exist.

As I said, it's like describing a colour to one blind since birth.

Being only able to see 'economic' indicators as the sole measure of the 'value' of anything is akin to driving one's car using the speedometer as the only guide to where you're going.

 

[Backatcha Bandit]

BTW, did you have any thoughts regarding the systemic faults within the western debt-based monetary system in comparison to the 'Islamic'?

Or did the cognitive dissonance you experience when trying to understand the concept render you unable to think?

 

[Bernie Gunther]

<snip> the nature of modern finance capital gives it some remarkably socially undesirable properties. In effect, it turns the search for capital investment into a global competition to see who is willing to accept the worst pay and conditions, lowest price for their resources and the most environmental damage.<snip>

I see this as the most pressing problem with the system we currently have.

 

[Aldebaran]

Why don't you have the ability to discuss internal middle eastern problems?

Why don't you have the ability to
a) read a book I recommend and that covers all these different subjects
b) understand that I am not here to write books
c) learn first of all to post well-framed, well focussed questions.

Why don't you have the ability to discuss t
he Van Gogh murder in the Netherlands?

Why don't you have the ability to
a) understand that what happens in The Netherlands is hardly my knowledge, let alone my concern
b) ask Dutch members on their opinion about what happens in their country.
c) if you explicitely want my opinion on something I have no connection with, present the detailed case in a thread dedicated to it.

salaam.

 

[Aldebaran]

Basic explanation how contemporan commerce conforms to shari'a law (UK based website)

http://www.gulf-law.com/uaecolaw_shariah.html

salaam.

 

[mears]

Why don't you have the ability to
a) read a book I recommend and that covers all these different subjects
b) understand that I am not here to write books
c) learn first of all to post well-framed, well focussed questions.



Why don't you have the ability to
a) understand that what happens in The Netherlands is hardly my knowledge, let alone my concern
b) ask Dutch members on their opinion about what happens in their country.
c) if you explicitely want my opinion on something I have no connection with, present the detailed case in a thread dedicated to it.

salaam.

You are the one who sought me out on this thread. But when you responded I asked for YOUR opinions, not reading literature. I didn't ask for you to write a book either. I asked you this question:

"Do you have some opinions on Arab and or Muslim culture and its impact on Middle Eastern economies."

Then when I mention womens role in Muslim countries you tell me to read the same book!

Are you unable to summaraize your opinions on these subjects?