Category Archives: Money Talk

Islamic Banking

The term ‘Islamic banking’refers to a banking system or activity that is based on the principles of Islamic law (i.e. Sharia) and where all banking operations follow Islamic morals. The basic principle that distinguishes Islamic finance from the others is its prohibiton of the collection and of payment of interest (riba). Moreover, in this type of bank, not all investments are allowed. For instance, placing an investment in an alcohol or gambling company would be contrary to the Sharia and thus forbiden by the bank.

Because collecting interest is forbidden by the Islamic laws, these banks use other financial instruments to make money. As such, when granting a mortgage, islamic banks do not lend money but rather purchase the item and resell it to the client at a profit.  Nevertheless, there are no additional penalties for late payment. In fact, if there are penalties, the amount charged by the bank must be given to Charity.

The practice of Mujarak which means partnership is another alternative for companies seeking loans. This instruments requires pegging a floating rate to a company’s individual rate of return. The price of the loan (paid in monthly instalments) depends on the company’s own profits and stands as one of the biggest principles of Islamic finance which is sharing both the gains and the losses.

Investment banks can only invest in real assets. As such, financial instruments based on speculation (such as derivatives) are not allowed in this system. According to the Guardian, “there is some common ground to compare Islam finance with ethical banking” as both share the principles of equitable distribution and fair trade.

Although the existence of this financial services surprises many, according to PWC, global islamic financial assets were valued at USD 2 trillion in 2012. While Iran has traditionally been the largest market, this system is also extremely important in Malaysia, Kuwait, Saudi Arabia and in the United Arab States.

To learn more about Islamic finance read the PWC report and check this article from The Guardian.



China’s New Art Collectors

Art has always been considered a good investment. Chinese investors do not except the rule and in recent years, the third country in the world with the most millionaires, has seen a explosion in the business of art collection. Today, China is considered the second art market in the world after the United States. The NYT’ article ‘The New Collectors”  tells the story of Mr Liu Yiqiam, a 50 year old financier from Shanghai who started his life as a taxi driver, and now has a fortune worth $800 million.

With disappointment growing towards the Chinese stock market and real estate, the Chinese art market is attracting more and more newly rich investors. Mr Liu Yiqiam is the perfect example of the Chinese new money. He has put together a unique private collection of the finest Chinese art and is willing to share his treasures in two private museums of Shanghai. Like he explains in this video, only years ago, many Chinese did not even have money to buy food. No no one would pay for a museum ticket so who would spend money setting up one?

Yet China’s emerging interest in Art is changing the world art market. Guilaume Cerutti from Sotheby’s France argues that “we are living the biggest thing in the art world in 20 years”. A market that used to be governed by the United States and Europe, now truly has a third participant composed by Chinese buyers seeking to buy primarly Chinese art. Check out this article about how investors are redrawing the map of the art market.

Is it bad to give your old clothes to charity?

The majority of us living in the Western world, were taught to give to charity the clothes we no longer used. Nevertheless, although our intentions are undeniably honourable, we might be doing more harm than good. As the British academic Andrew Brooks explains, “second-hand clothing maintains the status quo, it does not help the poor get richer, it just keeps things as they are at the moment”.

According to Oxfam, the global trade in second-hand clothing is worth more than $1 billion each year. If you taught that you were directly giving free clothes to the poor you were wrong. Typically, European and North American charities earn money by selling to major wholesalers the donated clothes that they could not give or sell domestically. These wholesalers then export the unwanted clothes to different markets, especially to the African continent. As such, according to an Oxfam report, used garments account for more than 50% of the clothing industry by volume in sub-Saharan Africa. For the African consumers, the debate of good or bad does not exist: these clothes are affordable, their quality is generally good and the Western designs are a success.

Nevertheless, a growing number of research suggests that the second-hand clothing donations do not led to a win-win situation as despite their positive short-term gains for African consumers, their long-term effects are unfavourable. Indeed, in the long run this trade undermines local textile and garments industries as African producers cannot compete in delivering such low prices. For instance, according to a 2006 report, the giant second-industry coupled with the very cheap clothing imports from Asia have led to a decline of 80% of the Ghanaian textile and clothing employment.

Just as we discovered in the late 60s that aid food had a negative impact in the African agricultural industry, we might me learning that our good intentions of giving clothes are also bad in the long run. Read more about this here and here.

Giving Pledge

A couple of months ago we published an Inuit proverb saying: “May your charity increase as much as your wealth”. It was precisely this quote that came to our minds when we learned about ‘The Giving Pledge ‘campaign. Created in 2010 by the magnates Warren Buffet and Bill Gates, ‘The Giving Pledge’ started as a project to encourage the richest Americans to give half of their wealth to philanthropic causes. Their goal was to inspire people to do the same they did. Quickly, the campaign became global with billionaires from Australia, South Africa, Germany, Russia, India and United Kingdom coming on board and committing to share their wealth. Despite the absence of a legal contract, all pledges are a moral commitment; and until now there have not been disappointments. Today, there are more than 400 billionaires that promised to leave at least half of their fortunes to charity. Among them are Mark Zuckerberg, Patrice Motsepe, Michael R. Bloomberg and Diane von Furstenberg. Each of them has pledged to give their money to a particular cause or organization they chose. Let’s hope this campaign continues to be a success. After all, it shows that the world is not dominated by greed!

The Impact of the Indian Wedding Season

Every year, the price of gold increases, peeking up on late September until January. Surprisingly, the reason for that is the Indian Wedding Season, where approximately 10,000 weddings are held and the brides show off their thousands of dollars’ gold jewelries, thus stirring up an explosion in the world demand for the precious metal. Moreover, as last week’s Financial Times argued, “Multinationals are never slow to spot a branding opportunity” and they have well responded to this business shot. From Domino’s Pizza to Costa Coffee, MNC are now offering guests whatever they want, as they try to gain access to this $25 billion a year industry.


In this period of crisis, asking for a bank loan is an idea that most of us put aside. Crowdfunding emerges as an alternative to credit. Used for the first time in 1875 to finance the building of part of the Statue of Liberty, and seen more recently with Barack Obama’s first election campaign, this system can take several forms. However, the most brilliant one is the donation system. You have a project, you share it in a crowdfunding online platform, and you wait for people to help your cause. The project has a budget and a defined space in time to be financed, and if the sum is not gathered in time, one gets the money back. The donation usually comes with a compensation, from being listed in the generics of a movie to be given a small gift. Check it out!