May 26, 2007

Islamic Finance - the science of fraud

The state of most "islamic financial solutions" offered today by many "islamic" banks are almost joke-like. Many of those are exact replicas of regular interest-based solution but with "fancier" names. Instead of interest, they change "rent", and instead of calling them "bonds", they call them "sukuk"... is this really the spirit of islamic finance? Why would islam give us a different system... if it is actually the same underneath!?

One of the bravest and most articulate defenders of true islamic finance is professor Mahmoud El-Gamal or Rice university. He published the following article in Financial Times. I think it says much. Read the whole article at

One of the most popular [phony islamic finance] models is the sale/lease-back bond structure, known by the exotic name sukuk al-ijara. A bond issuer sells some real estate or other assets to a special purpose vehicle, which raises the funds by selling share certificates. The SPV leases the assets back to the issuer, thus collecting principal plus interest and passing them along to sukuk holders in the form of rent. At the end of the lease, the SPV sells or gives the property back to the issuer.


  1. Remember how much we used to talk about this?
    I used to call it the art of Aliasing

  2. yes, 100% true .. it's just play on words. the product is the same