How Islamic Finance Works

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This is the VOA Special English Economics Report, from http://voaspecialenglish.com Dubai's recent debt problems have brought attention to the growth of Islamic finance. A government-owned group of companies, Dubai World, has been seeking to restructure twenty-six billion dollars of debt. About six billion of it is in Islamic bonds, including a three and a half billion dollar bond set for repayment in December. The biggest difference between Western and Islamic finance involves beliefs about charging interest on borrowed money. In Islam, the basic idea is that you should not make money from money itself. Instead of interest, lenders charge fees. Ghiyath Nakshbendi at American University in Washington is an expert on Islamic financing. He says: "The bank will estimate its costs based on its fixed costs, variable costs, the cost of their employees, the rent and so on and so forth. And from that they estimate how much they are going to charge. But he points out that this system can make Islamic financing costly. The costs of the system are shared by the borrowers. The fewer the borrowers, the more each has to pay. In many cases, Islamic financing requires the lender and borrower to share profits and losses. Ghiyath Nakshbendi explains what that means with Islamic bonds, called sukuk. He says the bondholders are buying a share of a business or property. If business is good, then they could get back more than they expected. But if it fails, then ther

Published 2010-01-06 · Watch on YouTube ↗
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