Why Islamic Banking is good for the environment

The focus on sharing profits and taking communities into consideration means that the Islamic way of banking is (theoretically) better for the planet

The recent announcement by the CEO of Doha Bank, R Seetharaman, that Islamic banking is the right platform to boost ‘green financing’ as its values sustainable environmental development has got me thinking about Islamic finance again. Is Islamic banking really good for the environment? If so, why? And what is Islamic banking anyway?

Islamic banking is system of finance based on the principles of Islamic laws – two of the main principles are sharing profit and loss and the other is the prohibition of collecting and paying interest. So if you take out a loan, interest cannot be paid or collected so the lender pays back the amount owed plus a small amount of extra money agreed on at the very beginning.

All investment must reflect Islamic principles and so you can’t invest in companies involved in alcohol, pork and gambling. Building on this, it could be argued that investing in ecological harmful projects is prohibited since Muslims believe that god has appointed humans are protectors of nature and investing in, for example, oil companies would conflict with this.

Taking Nature and Society Into Consideration

Another reason that Islamic finance is seen as a ‘greener’ alternative is that current economic systems (ie. neoliberalism or capitalism) put the human need for consumption above everything else. Nature is seen as a free good and so the cost of its extraction or use is not factored into the cost of production, thus encouraging its free exploitation.

In contrast, the Islamic principles which guide the economy include the notion that humans are trustees of nature who must ensure it is not harmed or unduly exploited. Furthermore, excess is consistently discouraged in favour of moderation and the welfare of the entire society is placed at the heart of every matter under consideration including finance.

For example, at the conference meeting entitled ‘Towards an Alternative Economy’, the head of Doha Bank explained that as Islamic banking is part of a system which values society as a whole, it is better placed to promote green finance initiatives such as developing water resources, dealing with global warming, promoting small-scale enterprises as well as encouraging women’s participation.

Green Actions Speak Louder Than Green Principles

Islamic finance is clearly in a position to have a positive impact on the environment but the question is whether these green principles are actually able to translate into reality and play a role in Islamic finance. I have previously written about the green ethics at the root of Islam but also the lack of awareness of such principles amongst the average Muslim and also the abysmal environmental record of many Muslim countries.

Furthermore, I can’t see banks in the Gulf states holding back from investing in ecologically harmful oil and petrol companies due to the Islamic principle of duty towards nature. Thus, the existence of these green ethics is no guarantee of their application and that means that Islamic Banking still has a lot to prove before it gets its green seal of approval.

: Image via MoneyBlogNewz/flickr.

For more on Islam and Green Ethics see:

What Happened To Islam’s Eco-Friendly Architecture

MENA and the Muslim World: Can Having Less Babies Really Save The World?

‘Green Deen’ Ibrahim Abdul-Mating Connect Environmentalism with Islam

The Marsh Arabs Who Restoring A Global Ecosystem

 

Comments

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One thought on “Why Islamic Banking is good for the environment”

  1. SaudiArabianMuslim says:

    “Islamic banking is system of finance based on the principles of Islamic laws – two of the main principles are sharing profit and loss and the other is the prohibition of collecting and paying interest. So if you take out a loan, interest cannot be paid or collected so the lender pays back the amount owed plus a small amount of extra money agreed on at the very beginning.”

    Hmm… I thought you just said no interest.

    “All investment must reflect Islamic principles and so you can’t invest in companies involved in alcohol, pork and gambling.”

    Truth is, there is no islamic banking, in theory or practice.

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