Zach Selch breaks down Islamic banking rules that matter when selling in the Gulf. Islamic banks ban interest and use risk-sharing partnerships instead of loans. Firms dissolve and reform when a principal dies, which changes how contracts, ownership, and negotiations work with family businesses in Saudi Arabia, the UAE, and Qatar.
Chapters
So what exactly is Islamic finance and why should I care? Well, you can go through a whole life of business without really encountering Islamic finance, but if you're selling in the Gulf— Saudi Arabia, the Emirates, Qatar, Kuwait, Iran— you might encounter Islamic finance. And what exactly does that mean? I don't want to presume to explain somebody else's religion, but I'm going to talk about it from the perspective of somebody selling to customers that follow the practices of Islamic finance. And you have to keep in mind, Jesus was a carpenter, Moses was essentially a shepherd, Muhammad was a merchant. He understood business, and there are laws in the Quran that are very sound economic, financial, and business laws that are still practiced and, and have taken the Muslim world through 1,400 years, or more or less, of being really the leaders in trade. So there are rules that were written with the Quran, and they still work pretty well for a lot of the world, and they worked very well for, for 1,400 years to run financial institutions. And there are 2 primary groups of rules that you have to be concerned about. One is Muslims don't— there are 2 groups of rules that you have to be concerned about. For people who follow the strict interpretation of the Quran, Muslims don't take or pay interest, which means an Islamic bank will find a way to enter into a partnership with its customers as opposed to lending out interest loans with no risk. So they will share the risk. That absolves them, or that makes it acceptable to give money. And so instead of really giving a direct loan, they're giving a— they're taking part in a partnership. Okay, so there are some banks, mostly in the Gulf but also in other Muslim countries, that focus on that type of finance. 2 companies. The other thing that's pretty important is in Islam, and again in the strict interpretation of Islam, when a corporation dissolves, when a partnership dissolves, or in the orthodoxy, the strict interpretation of Islam, when a person dies, their corporation, their partnerships dissolve and have to be recalculated or reformed. Okay. And this can be important to you because very often an international corporation or an international company will want to have guarantees in your agreements that the death of a principal of your distributor isn't going to impact, perhaps. Or you want to have things that really don't tie this up to a specific individual. Whereas the way it's going to work with somebody who follows the strict interpretation of Islamic finance is that when somebody— when a principal dies, essentially their partnerships have to dissolve and then be reformed again. And this can cause some confusion. Okay, in a lot of cases, companies in the Gulf, in Saudi Arabia and the Emirates especially, are essentially owned by high-ranking people, family leaders, who are also religious, observant, and so they want to follow these rules, which can quite often confuse foreigners who are trying to do business with them. So it's something to keep in mind. Now, again, these are the, the principles of Islamic finance which you might very well encounter dealing with the Middle East. Remember, when you're ready to grow your international sales, reach out to us. We can help. When you decide it's time to grow your international sales, call us.
