Banking on a short memory

15-12-2011 09:07 AM

Mervat Ayoub


WATANI International
18 September 2011


 


 


The span of August coincided with the holy month of Ramadan, throughout which Muslims fast from dawn to sundown. Once the fast is broken, however, it is a time for feasting and entertainment and, in this era of TV, of viewers glued to television screens following up on what has become an annual staple: Ramadan serials.
Among the serials most viewed this year, and one that fostered the most controversy, was Al-Rayyan. This serial depicted the life of Ahmed al-Rayyan, the man who, in the 1980s, was among the first to instate the practice of Islamic banking. With promises of non-sinful ‘profit-sharing’—as opposed to sinful ‘interest rates’ which amounted to usury, strictly forbidden in Islam—he managed to attract huge sums of the savings of both rich and poor by paying unheard-of high dividends. Rayyan ultimately fell when his fund management company became insolvent and it was revealed that he had invested the money in ‘sinful’ speculation on international money markets, or even in shady trade practices. To this day many of those who invested their savings with Rayyan have not recouped their losses.


Islamism all over
Following the 25 January Revolution the Egyptian public was treated to TV appearances by Islamist leaders, many of whom had been behind bars under the previous regime. They gloated in the victory of what they described as the Egyptian revolt which would herald in the rule and sharia of Allah after years of civic, apostate rule. Among these were Abboud al-Zomor, an Islamic Jamaa leader who was involved in the assassination of former President Anwar al-Sadat, and who was released from prison after Hosni Mubarak stepped down last February. Zomor briefed viewers on his outlook for an Islamist future for Egypt in which he and his comrades would play key roles. And, as though this were not enough, Ahmed al-Rayyan suddenly filled TV screens to become a regular guest in Egyptian homes and to pour in everyone’s ears the plans he and his comrade Ashraf al-Saad were hatching to kick start the beleaguered Egyptian economy into a legendary recovery.


“Lists of blessings”
A few Egyptians remarked that there was something terribly wrong with hailing as heroes those who did much harm to the economy. But the majority were of the opinion that it was government intervention alone that brought down Rayyan and lost so many people’s savings.
The public appeared to be afflicted with amnesia. People seemed to have forgotten that Rayyan and other owners of fund management companies (FMCs) had wasted the savings of millions of Egyptian households in speculation, and had transferred a large part of the people’s money to banks in the US and Europe. The Islamic fund managers, prominent among whom was Rayyan, were assisted by a host of officials, sheikhs and media stars who supported his practices. Some of these received regular rewards in what was notoriously termed kushoof al-baraka, literally lists of blessings, in return for their service.
Problems came to a head in 1986 with the so-called “maize scandal”, when Rayyan’s company and the Principal Bank for Development and Agricultural Credit reached a deal that resulted in a scarcity of maize. The government realised it had to take action, and in 1988 Rayyan was referred to court for collecting money in an unlawful way. The government gave the owners of FMCs a time limit to “adjust their position” and return the money to depositors.
It is frequently claimed that the government decided to take action when it realised that Rayyan and his likes had become a “State within the State”, with their growing clout threatening to bring down the entire official economy. Ultimately, Rayyan was sentenced to 15 years in prison and depositors got back no more than 10 per cent of their savings. When his prison term ended the government placed him under detention—a procedure allowed for by the emergency law—for another seven years. Ironically, the name of Rayyan never faded away, even while he was in prison. Whenever a similar case of seizing people’s money cropped up in any part of Egypt, the people would call the offender “al-Rayyan”.


Misleading
With the rise of political Islam post-25 January, the lure of an “Islamic economy” that worked according to the commandments of Allah regained its lustre. Commercial banks with branches specialised in Islamic dealings decided to ride the wave and propagate for this model.
Watani asked the economic expert Mukhtar al-Sherif about the difference between commercial and Islamic banks. “In commercial banks,” Dr Sherif said, “clients already know the interest rate they should receive over a certain period of time. In Islamic banks, depositors theoretically go into partnership with the bank, according to which they share profits and losses. Put in practice, Islamic banks pay dividends quarterly (four times a year), and when calculating the average interest rate it will be found that it is equal to the one given by commercial banks, which is defined by the central bank. By the same token, dealings in Islamic banks are similar to those in a commercial one.
“Internationally, however, the size of Islamic banks represents no more than 5 to 6 per cent of that of commercial ones. This means that Islamic banks must deal with international banks according to the latter’s rules.”
So why has Islamic banking gained influence on the global scale? Watani asked. “It has to do with the Islamic banks’ success in collecting huge amounts of money in the Middle East upon the claim that they work in a way consistent with Islamic law. Yet the role of politics should not be overlooked in this context because Islamic currents, including the Muslim Brotherhood, encourage this pattern of investment.
“The Salafis declared that they embrace the Malaysian pattern of Islamic economy, but this is misleading. The Malysian pattern was built on successful development and education, which is what we direly need, not on any specific, clear-cut Islamic economic rules.”

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