Financial Wisdom – By Kalidas

Radical Solution for Credit Crisis from Kalidas

Islam Saves Islamic Banks

with 5 comments

Islam Saves Islamic Banks


If one takes the name of Islam, the people in western world twist their nose. The holy word of Quran (pronounced as KoRan) is disdained by many in the western world as a symbol of terrorism. Often 911 related events are considered the outcome of the practice of the extreme religion of Islam.


However, the God who created this world always instilled a virtue in everything. If there was something not acceptable with Islam, there was something in it that averted the credit crisis in Islamic world.


Almost all western countries, from USA to UK to Europe to Japan to Australia, are engulfed in unprecedented monetary crisis. The origin of this crisis was the decade’s long practice of low interest rates, so low, that the investors looking for yield were attracted by the riskiest derivative instruments that offered double digit returns.

Even a modest yield of 6% was considered by investors as major yield, the way a person in the desert looking for water, finds few drops of water as his life savior. The absolute yield offered was less than 2%, but the 90% leverage on interest arbitrage enabled investors to get more in terms of yield from 8% to 12%. That was the catch.

Islamic religion bans the earning by way of interest. It is unacceptable. It was considered the practice against the dictates of God or Allah in Islam. 

There was a considered belief in Islam that earning and living on interest income is like sucking the blood of the poor man who pays it though his nose. It is a bane to the society, so the stricture was included in the Quran (Koran), the holiest book on Islam

I am Hindu but studied Islamic Law while I was in Law school. So honestly, I do not claim to be authority on this subject. But only thing that I could deduce is that the stricture in Islam not to thrive on interest income was sufficiently good reason for Islamic Banks not to invest into yield or interest oriented derivatives.


And while almost all Western Banks collapsed, the banks in Islamic countries were almost unaffected. They emerged very strong. Islamic banks in Saudi Arabia, Iran, United Arab Emirates (UAE), and Malaysia have been largely unaffected at this point of time. Not every thing is bad in Islam at all.


The western banks may pick up a few green leaves from the holy book of Koran and use them in their training school to teach the students  how not to fall victim to devilish derivatives and control the greed.


The chapter may be titled

Seek the Money from Allah,  not Paulson

Kalidas, Hong Kong

(Ref: 08-009 of October 21,2008)


Written by anilselarka

October 22, 2008 at 4:21 pm

5 Responses

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  1. Dear Sir,
    I read your recent document Islam Saves Islamic Banks.
    So Muslim can invest in which type of Sector and which types of shares. Because for the past many years I am trying answer for these question, Pl give me your suggestion

    Kalidas Replies to (ref: 0810-011 Wednesday, October 22, 2008)
    They can invest in any kind of stocks or securities. If their religion bans investing into Interest Bearing deposit, they may invest into Zero Coupon Bonds – but the choices today are extremely few, except in South Africa where Zero coupon bonds of development Bank of South Africa 2027 and ESKOM 2027 and 2032 are available at 15% to 18% of original value.

    However, local indian investors can not invest into these bonds


    October 22, 2008 at 4:43 pm

  2. Dear Kalidas sir, You are authority in various subjects. The way you handle the subject is interesting. I would like to one more investment avenues for Muslim brothers which is whole life non par insurance. here they do not get any interest by way of bonus but they are covered against any eventuality. The premium is also less and it is better than term plan. They are covered upto the age of 100 or death which ever is earlier. Requesting you to write one article on spirituality.
    Thanks and regards
    Ravi, Chennai, India.


    October 22, 2008 at 5:54 pm

  3. Hi Kalidasji,

    Grt article again.

    I wanted to know whats Shari’ah Complaint investments? Parsoli invests in these companies.

    And states following guidelines for Shari’ah complaints:
    1. Exclude companies if Total Debt divided by Trailing 12-Month Average Market Capitalization is greater than or equal to 33%.

    2. Exclude companies if the sum of Cash and Interest Bearing Securities divided by Trailing 12-Month Average Market Capitalization is greater than or equal to 33%.

    3. Exclude companies if Accounts Receivables divided by Trailing 12-Month Average Market Capitalization is greater than or equal to 49%.

    Also, I would like to draw your attention to “Moslems” and “Koran”. As far as I know true spellings are “Muslims” and “Quran”. I just wanted to inform coz if our Islamic brothers see this, they may find offensive.No negative intentions.

    Rgrds, Ojal, Udaipur, INDIA

    Ojal Suthar

    October 23, 2008 at 1:09 am

  4. Dear sir,
    No one bank can survive in today’s life upon on it’s only banking business if it is not giving the Credit (Loan) to their customers. If there is the loan then again Picture comes of Interest. Almost every businessman need loan from bank for his project. And Banks cant afford to give loans to their valuable customers Without Interest. So earning an interest is not wrong but Receiving and Giving Higher Interest May be wrong because it increases the chances of dafaults.
    Thanxs Jayesh Ghatkopar Mumbai


    October 23, 2008 at 3:04 am

  5. Dear Kalidas,

    Kudos for the wonderful and unbiased article on Islamic Finance. That a authority like yourself, has deemed it fit to pen some lines on this vital topic itself is a testimony to the divinity in the Islamic message.

    The only hope is that the world heeds to sanity and gives up this craze for speculative profits.

    Suhail Hydri, Vancouver

    Suhail Hydri

    October 23, 2008 at 2:45 pm

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