In the letter, which came in response to queries from the liberal- rightist Freedom Party (PVV), Bos said that this particular form of banking meets an existing demand of a portion of Dutch Muslim consumers.
Islamic law prohibits the collection and payment of interest, as well as also investment in businesses that are considered unlawful or that engage in activities inconsistent with Islam. Instead of asking interest, Islamic banks share profits and losses to finance their activities.
At present, only London and Dubai are involved in Islamic banking. In his letter to the parliament, Bos said Islamic banking provides interesting business opportunities for the Dutch financial industry.
The PVV had expressed its concern about Islamic banking, which it says lacks transparency and results in higher credit risks.
The PVV also fears that the built-in “zakat” or philanthropy mechanism in the banking structures increases the likelihood of covert support to Muslim terrorism.
In his response, Bos wrote that prohibiting Islamic banking would backfire on Dutch society precisely when it comes to the war on terrorism. A prohibition might create alternative money channels that would remain invisible to the Dutch authorities, Bos said.
The finance minister stressed that Islamic banks, or Western banks offering Islamic banking services, operate under Dutch law for the financial industry. He also noted that the Netherlands promulgated laws aimed at preventing the financing of terrorist activities.
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