Lessons from Islamic and Co-operative Banking

Slowly, the worst of the financial crisis seems to be over. City Bank and other banks claim to be profitable in the first months of this year. Balance sheets have been cleaned up considerably. Major banks have been wholly or partially nationalized.

An interesting observation is that Islamic Banks are rather untouched by the financial crisis. And the same is true for the only Triple-A bank in the world: co-operative Rabobank. The secret is: complete avoidance of gambling - banned according to Sharia or good stewardship or rentmeesterschap in Dutch - and only investing in assets in the real economy, not in virtual shaky assets. In other words: if you don't understand it, don't do it.

Islamic and calvinistic values are quite akin. If these values are taken at heart, and banks are stricly ruled by such principles, all can attain Triple-A status, which basically means that your money is really safe in such a bank. And that was clearly not the case with failed banks like Lehman Brothers.

A final element is transparancy: annual reports of banks need to be readable and understandable for directors, shareholders, clients and employees. The information around risks and asset developments need to be openly available, so that everyone can form an opinion about it and comment about it. Such an open bank would have all its stakeholders as early warners in case of troubles within the bank or one of its branches.