Islamic Finance -- a bit of history

So with my astonishment noted as yesterday., let me proceed on the subject of Islamic Finance. This is a set of practices (and accompanying theories) that have grown up to allow devout Muslims to make use of their savings, without keeping them in a mattress on the one hand and without committing the offense Muslims call riba on the other.

Riba is often understood to mean contracted-for rates of interest on debt in general.

How does finance work without interest? There are lots of ways to go about answering that question.

I've recently read a book by Muhammad Akram Khan entitled What is Wrong with Islamic Economics? that holds among much else that rather too much ingenuity has been expended on trying to devise a system of finance without interest. The simple answer he prefers is that riba in the relevant sense is quite a narrow range of conduct, and completely distinct from the practice of charging for a borrower's access to investment capital. Riba only means (according to Khan) the soiling of what ought to be a personal act of charity.

Khan criticizes other scholars for advocating a system "that does exactly what conventional banks are doing but in more inefficient and riskier ways," preserving the sense of piety of the advocates of such finance at the expense of that inefficiency and risk.

But none of that is why I'm writing this post. One bit of his book that especially intrigued me and that gave me a chance to introduce here an illustration of a catapult, was one of the end-notes to chapter 14. I'll quote most of the note: "Muslim scholars have not noticed the truce agreement signed by the Prophet with the people of Tai'f....Clause 9 of the agreement says: 'Any unsecured debt that has become due but the debtor is defaulting, interest will be payable, though Allah does not sanction its legality.' Clause 19 further elaborates: 'Any mortgaged debt on which interest has not yet been paid would be repaid without interest. However, the debtor would get extension till the end of Jamad al-Awwal, if he does not have means to pay. If he does not pay the debt in the extended period, interest will be payable on it."

The forces under the Prophet Muhammad besieged the city of T'aif in 630. The siege was unsuccessful -- the city walls held, despite an attack by catapults. But the city leadership was unhappy with the costly stalemate and entered into negotiations, and that led to the treaty described above.

I suppose Khan's point here is that the Prophet himself was willing to compromise with the paying of interest as a strategic decision, so the prohibition thereof was nothing unconditional/Absolute.

During the course of those negotiations, Muhammad refused another sort of compromise. The leaders of Taif had suggested they be allowed to worship their own goddess, Al-lat, for another three years, after which they would convert to Islam. This compromise was not acceptable: the only God must be worshipped, and worshipped exclusively, at once, though the 'no riba' rule could be phased in over time.

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Jamesian Philosophy Refreshed

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