Задание:This Belgian banker works for Deutsche Bank. His job is to come up with ways for Muslims to invest their money within the laws of their religion, and some reckon this sort of finance could help bring Islam and the west together. By Gillian Tett
The man about to arrive in a restaurant next to the Bank of England in the City of London is coming to talk about religion. Not the Christian creed that has shaped the City of London over the centuries, but the religion that currently begets unease in many westerners - Islam. More specifically, why, at a time when parts of the Muslim world appear to be at war with the west, some of the world's biggest investment banks are pouring resources into "Islamic finance".
He has been described as one of Deutsche Bank's leading figures in its quest to win Islamic business. His colleagues say he is a genius at creating schemes that enable rich Muslims to use their money in accordance with their beliefs. When he arrives, not only does he not look like a Muslim; he doesn't even look like a hotshot banker. With a sober shirt and understated manner, he looks more akin to an accountant. (In fact, he is a qualified actuary.) Wearily, he introduces himself as Geert Bossuyt - and rubs tired eyes. He has come off a flight from Dubai, where Deutsche Bank is building up a business on the back of the Middle Eastern oil boom.
"It is not so comfortable flying overnight, but it is efficient, so I do it," he explains in a flat tone of voice which partly reflects the fact that Bossuyt hails from the Flemish part of Belgium. At the same time, unlike many bankers, Bossuyt is not a man who exudes testosterone-fuelled aggression or enjoys the sound of his own voice; instead, he makes his points in a scrupulously polite manner.
Though so-called Islamic banks have been operating in places such as Malaysia and Dubai for some time, global bankers have traditionally viewed the sector as a small, exotic niche, focused on household investors. But in the past five years - since the attack on the World Trade Center in 2001 - something extraordinary has occurred: behind the scenes, some western investment banks have increasingly started working with Muslim clejics to create a new range of financial products designed for devout Muslims. Under sharia law, Muslims are not allowed to receive interest on their accounts, or go into debt. The new Islamic banking products range from simple savings schemes or mortgages, to the type of complex capital market products that large corporations use to raise billions of dollars.
Some devout Muslims view this trend with dismay, claiming it perverts the true spirit of their religion. However, many more appear to welcome it. Estimates of the size of the Islamic finance industry currently vary wildly from $250bn to $750bn (the sector is as murky and as fragmented as much of the Islamic political world). However, everyone agrees that the business is expanding rapidly - partly because of the involvement of western banks.
"These days Islamic finance is probably the only area where you could say that western institutions are actually helping the Islamic world to develop," says Humayon Dar, managing director of a sharia consultancy, in which Deutsche Bank is the majority shareholder. "I think the industry provides a bridge between the Islamic world and western worlds today."
But, beneficial or not (and not everyone believes it is), this link between western banks and Islamic clerics has come as a surprise. Investment banks are frequently perceived as financial predators, not cultural bridges. And a group such as Deutsche Bank has its historical roots in German, Christian tradition. In fact, I later discover that Bossuyt is a practising Catholic.
So how, I wonder, does a man - and a bank - like this get involved in this game? As I pursued this story in the following weeks, some of Deutsche Bank's rivals tried to dissuade me from focusing too much on the German bank. "They're not that special," one banker said, pointing out that Deutsche Bank entered the Islamic finance business far later than groups such as HSBC or Citigroup - and its business is consequently less established than others. Yet it is this very "ordinariness" that is intriguing: how Deutsche Bank is carving out a frontier in Islamic finance is better seen as a fable for our times, rather than the story of just one bank.
For Bossuyt, the tale started in Belgium, where he grew up in a humble, rural village where his siblings still live, clustered around the Catholic church. He studied engineering and in the early 1990s joined a small Belgian insurance and banking group. Bossuyt dabbled in different banking fields and later qualified as an actuary. But - like many financiers with engineering skills - he discovered a talent for what bankers call "structured finance". This is the art of creating complex financial schemes to meet particular client needs.
(In the case of Belgium, for example, which has a punitive fiscal regime, these schemes typically enable investors to save on tax.)
Bossuyt's work caught the eye of Deutsche Bank. In August 2001 - a month before the attack on the World Trade Center - he moved to London, where the once parochial and traditional European institution dominated by Germans had reinvented itself during the 1990s as a glohal investment bank.
Bossuyt was soon approached by Deutsche Bank's private wealth management department, which had been handling money from the Middle East ever since the 1970s oil boom. During the 1980s and 1990s, this money had typically gone into mainstream investments, such as real estate, equities or US treasury bonds. But as the world reeled from 9/11, the private banking salesmen noticed a new trend: Middle Eastern investors were increasingly requesting financial instruments that complied with Islamic law, or sharia. So, they asked Bossuyt if anyone in his team could produce s/zaria-compliant products.
Bossuyt was stumped: nothing in his Flemish-Catholic background or engineering degree had prepared him for this. So he approached Yassme Bouhara. then head of the equity derivatives group (but now head of global markets equity). A suave man, with one of the largest watches I have ever seen, Bouhara epitomises the newly cosmopolitan character of Deutsche Bank: born in Algeria, he holds Swiss nationality and grew up in Madagascar, Ethiopia and France. As a Muslim, Bouhara quickly spotted the significance of this demand for sharia products; but unlike some of his European colleagues, he did not approach Islam with an exaggerated sense of fear, disdain or politically-correct respect. Thus, while many other banks have assumed that the best way to build an Islamic finance business is to teach financial skills to Muslims, Bouhara decided to find some structured finance experts and teach them about Islam.
"We look on i'ftan'a-compliant products in much the same way that we look at any other ethical product, or just like we deal with different tax laws or regulatory issues," says Bouhara. Or as Bossuyt recalls: "I went to Yassine and asked 'who should do sharia finance?' and, to my surprise, he said 'You!'"
A few months later, on a bitterly cold November evening, two dozen of Deutsche Bank's smartest young financiers gathered at the bank's offices on London Wall. An Egyptian-born professor called Mahmoud El-Gamal had come to explain to them, for a consultancy fee,
how Islamic finance worked. El-Gamal seemed perfect for the task. He comes from a centuries-old family line of Islamic scholars and describes himself as a "deeply committed Muslim". However, he chose to forge his career not by studying religious law, but by doing a PhD in economics in the US, where he now teaches.
In recent years, as we now know, the experience of dealing with the west has prompted some of El-Gamal's countrymen to embrace a fundamentalist vision of Islam. However, El-Gamal adheres to a reformist and reflective line of Islamic thought that has earned less publicity. His website publishes poetry he has written in both Arabic and English, and his hero is Imam Muhammad Abduh, a 19th-century cleric who led an abortive Muslim reform movement. Meanwhile, his academic research focuses on Islamic finance, placing the Koranic principles within modern, global capitalism.
That evening, in his PowerPoint presentation, El-Gamal explained that, as many people already think they know, the Koran bans some financial practices, such as riba -a word translated as "interest" or "usury". This is not unique to Islam: Jewish tradition also frowns on usury, as did the Christian Church until five centuries ago. In 1140, for example, the Church declared that anybody charging interest would be excommunicated (a move which prompted
'Western lawyers get millions of dollars for deals. There is nothing in the Koran saying
that sharia scholars
should be excluded from
Sheikh Hussein Hamid Hassan
Christians to use Jews as money lenders, since they were presumed to be already excommunicated).
However, Islam's attitude towards finance is arguably more subtle than Christianity. Or, as El-Gamal says, "It is too simplistic to just talk about riba." For the ban on riba reflects a much bigger vision of finance, in which money is supposed to be used as a store of value for business activities, not as a commodity in itself. While money can be used for trade, say, it should not be used by itself simply to create more money. Hence, gambling is banned within Islam, along with most forms of debt and activities that trade risk; instead, the ideal form of finance is one where the providers and users of money share risks and rewards. Or as Sheikh Mufti Taqi Usmani, a leading Islamic cleric,
recently told a banking conference in London: "The basic principle of Islamic finance is that money is always backed by assets... it is equity financing... not debt."
El-Gamal's students quickly grasped the message. "The Deutsche Bank guys were extremely bright," he recalls, with a chuckle. So the presentation moved to the crucial question: could you mix Islamic laws with modern finance?
For at least 30 years or more, financiers in the Muslim world have been trying to do just that. The endeavour started with the creation of so-called Islamic banks in places such as Malaysia, Pakistan and Dubai. These differentiate themselves from normal banks since they do not pay interest on accounts; instead, they pool depositors' funds, invest it in acceptable projects such as real estate, then share out the profits.
At first these Islamic banks were small and parochial. But they gradually expanded and started to create more complex financing schemes. Some of these, such as musharaka (joint venture) financing, look similar to modern American-style venture capital. However, the practice most widely used by Islamic banks is murabaha, the "cost plus profit" scheme. In essence, this involves a bank, at the request of a client, purchasing specified goods (such as a commodity) for a third party, and then selling the goods to the client at the purchase price - plus an agreed fixed profit that compensates the bank that provided the funds.
In the eyes of some Muslims, practices such as this look more like financial smoke and mirrors, which might meet the "letter" of Islamic law but do not match its spirit. "[Murabaha is clearly interest, but concealed in Islamic garb," argues Muhammad Saleem, a western-trained banker (and committed Muslim) who used to advise Islamic banks before he became disillusioned and wrote his book Islamic Banking - A $300 Billion Deception (Xlibris Corporation, 2006).
El-Gamal himself, in the years since he taught at Deutsche Bank, has also become disenchanted with the industry. "There is much that is depressing in the house of Islam today. But as an economist I find little that is more depressing than what is falsely called Islamic finance," he wrote in a recent blog. More specifically, he claims that many modern Islamic practices are simply "legal arbitrage", which echo the hypocritical schemes that Christians used in Europe eight centuries ago to circumvent the Church's ban on usury.
However, such public criticism is unpopular in many parts of the Muslim world, and consequently very rare. ("Since I started saying these things, I don't get invited to many conferences anymore," El-Gamal admits.) Instead, most Muslims appear to regard the industry with a sense of religious
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and cultural pride -- a sentiment that has swelled in recent years. "Most Muslims don't want to live in an Islamic state," explains Farmida Bi, a Pakistani-born British lawyer. "But if you offer them ways to assert their Islamic identity today that are not too arduous, like with Islamic finance, there is a lot of demand."
Or as Jawad All, a Palestinian-born lawyer who helps to produce sharia-com-pliant products for some of the Middle East's wealthiest dynasties, adds: "After the first Gulf war a lot of people took money out of the Middle East region, to put it in the US... but after the second Gulf war, people shifted out of the US and started looking for sharia products. These days even a Muslim who is not very devout will choose a s/zarz'a-compliant product because it enhances his status in the community."
And this trend has touched non-Muslim countries as well: in the past couple of years, Islamic banks have mushroomed in the UK, serving local Muslims, men such as Qudeer Latif, a British Pakistani lawyer. As a committed Muslim, Latif says he used to put his money in "ordinary" banks (but always donated any interest he received to
charity). These days he uses Islamic banks, and he now works for Clifford Chance, the UK law group, creating s/zan'a-compliant products. "Recently many Muslim professionals have looked for ways to express their identity," he explains, in a strong Birmingham accent. "Choosing sharia-compliant products is one way to do that."
In the months after El-Gamal's tutorials, the financiers at Deutsche Bank had much to reflect on. The events of 9/11 had left some American bankers, particularly in New York, vehemently hostile to the Muslim world. But though Bossuyt was relatively ignorant about Islam, he says he tried to approach it with an open mind. "People say that Belgians lack personality," he says, in a deadpan voice. "But I think we are extremely adaptive - we borrow from everyone else; we do not try to dominate."
More practically, Bossuyt spotted some intriguing opportunities for innovation. The first generation of Islamic finance generally approached the discipline from a narrowly religious background. However, Bossuyt's experience was different - and he could see some unexpected parallels, not so much with early Christendom, but with other
branches of modern finance. In countries such as Belgium and Germany, for example, retail investors were often also keen to avoid interest payments, but for tax, not religious reasons. So, Bossuyt asked, why not use the lessons learned from, for example, international tax planning to create sharia products?
One obvious obstacle to this scheme was that Deutsche Bank appeared to lack Islamic credentials. But this was not as much of an impediment as it might seem. For a product to be deemed "Islamically compliant" in the eyes of investors, qualified sharia scholars must issue a fatwa (religious ruling) declaring that it meets Koranic laws. The credibility of a product, in other words, rests on the scholars and fatwa - not on the bank.
This means that even a non-Islamic bank can produce Islamic products - as long as there is a fatwa. But it also means the reputation of the scholars is crucial: famous scholars command far more respect than neophytes. Or, as El-Gamal says: "Islamic scholars are essentially brands."
But how could Deutsche Bank acquire the necessary Islamic "brand"? Some western banks that had entered this field back in the 1990s, such as HSBC and Citigroup, had created so-called sharia boards: groups of scholars employed on a retainer, to offer sharia advice and fatwa. However, because Deutsche Bank was entering after its rivals, most of the top scholars were already working for the competition. And with scholars often sitting on more than one sharia board, it was easy for innovations to leak.
So Deutsche Bank took a different route. In the course of arranging the original Islamic training course, Bouhara and Bossuyt made contact with an Islamic research centre at Oxford University. Some of its academics were keen to create their own "sharia consultancy", so in the autumn of 2004, Deutsche Bank co-founded Bar al Istithmar. Both sides emphasised that it was an arms-length arrangement, but Bossuyt agreed to serve as a director. And the academics at Dar al Istithmar used their impressive network of contacts in the Muslim world to attract the all-important "brand name" to the institute's sharia board: Sheikh Hussein Hamid Hassan, 73, a man sometimes dubbed the "grandfather" of Islamic finance.
1 met the formidable Sheikh Hussein in an anodyne conference room at Deutsche Bank's London headquarters. Though the surroundings were bland - and Sheikh Hussein arrived wearing a suit and tie - it was a memorable interview. The Sheikh is a charismatic figure, with a greying beard and magnetic eyes, and he discussed every issue as if delivering a fiery sermon. Indeed, when I posed questions he disliked (such as how much he was paid) he slammed his fist so
hard on the table that my notebook jumped. With passion, he explained how his path had crossed with Deutsche Bank. He was raised in Egypt and studied Islamic law at the famous Al-Azhar University (an institute equivalent to Harvard in Islamic religious circles). However - unusually - the Sheikh also studied law and economics in the US, and in 1975 he helped to create Dubai Islamic Bank, the world's first Islamic bank. He then became its leading sharia adviser, and as the bank subsequently expanded, his career took off.
These days, he dispenses sharia advice to more than a dozen large financial institutions across the Muslim world. He spends much of his life on aircraft, or in conference rooms with bankers, reviewing financial documents to determine whether they meet Koranic law. "The main issue is the concept - how to get a structure that is sharia compliant"!. Sometimes it takes two minutes to work this out, sometimes two years." he explained. "Every day a new banker comes, wanting to do Islamic finance. But there is a real shortage of scholars - we are incredibly busy."
So why, I asked, had he decided to work with a western group, such as Deutsche Bank, rather than stick with institutions that hail from the Muslim world?
Some western bankers suspect that the Islamic clerics are partly driven by fear and ambition: most local Islamic banks, this argument goes, are so immature in financial terms that the clerics believe that they need western banks to build a sustainable, large-scale Islamic finance industry. However, Sheikh Hussein had a different explanation. "Before, people said the world was divided into the capitalist system and the communist system. But now we have conventional finance and Islamic finance," he declared in a booming voice.
"But Islam is not just for Muslims, but for the whole world. And Islamic finance is a wonderful thing. So we want to make this gift available to all of civilisation. It is good for everybody!"
Warily. I observed that it was also good for some scholars' personal finances. The fees paid to Islamic clerics are a closely guarded secret, but $300,000 for a deal is apparently not unusual. This inspires criticism from some observers: El-Gamal, for example, dubs the industry "a cartel". However, clerics insist that the fees simply reflect a shortage of Islamic scholars who understand modern finance. And as Sheikh Hussein's aides emphasised to me - the fees are not paid for the fatwa per se, but for the time needed to analyse financial documentation,
which sometimes runs to hundreds of pages. "If you are ill, you see a doctor and you pay. So if you want to do Islamic finance, you need an expert," the Sheikh declared. "Those [western lawyers are getting millions of dollars for deals. So if you are a sharia scholar, should you have to beg in front of the mosque door? There is nothing in the Koran saying that sharia scholars should be excluded from being compensated."
By early 2005, Deutsche Bank had finally assembled all the ingredients needed for a sharia business. It had a team of financial experts who understood the issues. It also had access to Islamic scholars. "The great thing about Sheikh Hussein is that he loves to debate," says Bossuyt. "We can call him and say 'We need to meet you tomorrow' - and he will. He works day and night."
Better still, Deutsche Bank could see a vast pool of potential clients. A few months earlier, McKinsey, the management consultants, had conducted a private survey showing that 20 per cent of investors were already buying Islamic products, and another 60 per cent were willing to consider them - if the products were attractive enough. Bouhara decreed that this "60 per cent" was the crucial target. "Our aim is to make s/zarz'a-compliant products as good as conventional products."
So Bossuyt and his colleagues set to work. Initially, most of their s/zan'a-compliant business was kept strictly under wraps, since Middle Eastern investors tend to be obsessively secretive about their finance. "The majority of deals done in this industry are private placements," explained Bossuyt. However, as 2005 wore on, some structures emerged into public view. Deutsche Bank was appointed, for example, to organise s/zan'a-compliant financing for a real-estate project in Mecca, Islam's holiest city, organised by the Saudi Binladen Group, a construction company. The Islamic Development Bank asked Deutsche Bank to raise $500m with a sukuk. This is a relatively new financing instrument that allows companies to raise funds from a large pool of
investors, in a manner similar to bonds (without, of course, paying "interest").
Then Deutsche Bank publicly launched a product called HFRX global hedge fund certificates. This purported to be the industry's first s/zan'a-compliant product that tracks the performance of hedge funds. The precise mechanisms of how this worked were - like so much else - not public knowledge. However, a key ingredient was that in the autumn of 2005 the bank created a so-called "Islamic window" - or a dedicated pool of money for its Islamic business, headquartered in London but strictly ring-fenced from the rest of the bank. "Essentially what we have now is two Deutsche Banks - one Islamic and one not," Bossuyt said.
Soon after, Bossuyt and his colleagues received their biggest accolade to date: early this year, Euromoney magazine named Deutsche Bank the "Most Improved" and "Most Innovative" in Islamic finance. Dar al Istithmar was also named best Islamic adviser. The awards were collected by the Deutsche Bank team - and Sheikh Hussein - at a glitzy dinner in London.
hortly after I started tracking Deutsche Bank's Islamic adventures, I attended an Islamic finance conference in a London hotel. The audience was a blend of western, Asian and Middle Eastern financiers. The keynote speaker was Gordon Brown, the chancellor.
Brown started with the traditional Arabic Muslim greeting "Asalaam aleikum", enunciated very slowly, as if he feared offending with a mispronunciation. Then he delivered a speech that dizzily mixed development statistics, political rhetoric and quotes from the Koran. ("As one hadith from the Prophet Muhammad says, seek knowledge from cradle to grave... so let me discuss our education goals.") The central theme, however, was that Brown wanted to promote London as the future "global centre for Islamic finance".
On the same day, British police were conducting an anti-terrorist raid in the Muslim neighbourhood of Forest Gate, just a few miles away in east London. You could understand that Brown might be keen to highlight something positive about relations between Islam and the west. More ^... fundamentally, every dollar or pound now being placed into a s/zan'a-compliant structure on London dealing floor by Deustche Bank - or any other group - is another boost to the City. "London is the global centre of structured finance so it is no surprise that so much Islamic finance is happening there," says Jawad Ali, the
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