Economists specializing in the study of Islamic finance and
economics have reduced Islamic laws governing financial and economic
transactions to two: proscription on receiving or paying “interest”
and mandating that investors and developers (lenders and borrowers) share the
gains and losses of the enterprise in which they are more or less partners. This theory is widespread but it is based on a very basic,
and perhaps outdated, understanding of the primary sources of classical Islamic
law. Moreover, most of the works and publications advancing this perspective are built on
secondary sources and rarely engage primary materials. This essay challenges
the ideas and approaches behind this perspective and proposes a model that takes into consideration the need to
protect the poor and the desire to make profit, which is the motivating force
behind a thriving economy.
While Islamic scriptures clearly
prohibit profiting from the poor, supposedly sharī’ah-compliant Islamic
financial and exchange laws circumvent prohibitions and limitations on ribā,
monopolism, debt, and risk while failing to address the fundamental purpose
behind the prohibitions—mitigating poverty. This study provides a historical
survey of the principles that shape Islamic finance and exchange laws, reviews
classical and modern interpretations and practices in the banking and exchange
sectors, and suggests a normative model rooted in the interpretation of Islamic
sources of law reconstructed from paradigmatic cases. Financial systems that
overlook the nexus between poverty and usury harm both the economy and poor and
middle class consumers and investors rather than addressing the causal
relationship between interest-charging models and poverty. This study shows how
Islamic Financial Institutions (IFIs) have failed to meet the social
requirements they were intended to address and also presents a theoretical
framework for Islamic finance and exchange laws that proscribes usurious
transactions involving people caught in the cycle of poverty and need.
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https://i2.wp.com/majalla.org/press/wp-content/uploads/2016/10/01_picture.jpg?fit=181%2C320https://i2.wp.com/majalla.org/press/wp-content/uploads/2016/10/01_picture.jpg?resize=150%2C150EditorsSelected ContentEconomics and Finance,IdeasEconomists specializing in the study of Islamic finance and economics have reduced Islamic laws governing financial and economic transactions to two: proscription on receiving or paying “interest” and mandating that investors and developers (lenders and borrowers) share the gains and losses of the enterprise in which they are more or less partners. This...