Letters - 22 February 2013
From banking to marriage
Quaker bank
John Parkin (1 February) found the Quaker bank article (25 January) self-righteous. I’m afraid I agree, but there are many other issues raised by the article.
The bank will use the ‘Sharia principle of sharing profits generated by the investment’ instead of charging interest. Although sometimes described as ‘sharing profits’, most Islamic lending has a similar economic effect to a conventional loan.
If the bank is really to take a share of profits there are a number of problems. How do you stop the borrower refinancing at a fixed rate of interest as it becomes more profitable? How do you avoid creating a partnership? How do you deal with possible tax issues? How do you ensure that the charge for unethical behaviour is legally enforceable?
If the bank only takes security over an asset purchased with the loan and the asset is not registered property, how would a third party wishing to buy the asset be put on notice about the security?
How do you write a legal contract with the bank’s own investors saying that their money will be returned if they do not satisfy the bank’s ethical standards? How does the bank intend to police these rules?
Unfortunately, a large part of the start-up funding will probably be absorbed in professional fees if such issues are to be fully addressed. It might be better to borrow and lend on a more conventional basis whilst aiming for high ethical standards and commitment to customer service.
David Martin
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