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islamic law & finance

Friday 16 April, 2010

I lunched & learned with Prof. Jason Kilborn of John Marshall Law School when he discussed UNRAVELING MISPERCEPTIONS AND BUILDING UNDERSTANDING: A BASIC INTRODUCTION TO ISLAMIC LAW AND ISLAMIC FINANCE He declined my invitation to post his presentation here, so here’s a summary:

There are only Islamic lawS, not 1 law.   The 1.6B Muslims in the world are as different as 2.1B Christians & 18M Jews.   Shari’a means the path of life.  Qur’an & Sunna provide the “common law” of Islam.  The Qur’an was revealed by Gabriel to Mohammad over 23 years (610-632) in 114 chapters & 6236 verses,  contains only 500 laws, & can’t be taken literally, so it must be interpreted. Mohammad’s death in 632 left a succession struggle which resulted in a schism between the Shi’ah & Sunni.  Today the Sunni number 1B, & the Shi’ah only 175M, but are a majority in what is now Iraq & Iran.  The difference between the 2 is jurisdiction.  There are 4 Sunni schools of thought:

  1. scholarly preference to avoid “undesirable” results
  2. looking out for the public interest
  3. moderate traditionalist
  4. literal analogy to Qur’an & Sunna

Grand Muftis are commissioned by the state to interpret.  A Grand Mufti in London wrote a 600 page fatwa condemning terrorism & suicide bombings.  Shi’ism sent the 12th infallible Mahdi into hiding to await his triumphant return.  The separation of church & state, & approaches to politics differ.  These religions experienced a revival in the 1960’s because the West supported regimes that were corrupt.  Extreme criminal laws are mitigated by, for example, requirements for 4 witnesses of adultery/fornication.  There are just as many warnings against false accusations as against the transgression itself, because Mohammad’s wife was slandered by another.

Islamic finance is most concerned with eliminating usury, unjust enrichment/social justice & creating fairness in contracts.  Mohammad borrowed from Jewish law by saying “though never any limitation to lending ‘within the family.'”  It provides tricks to work around obstacles with good loans & shared risk, i.e. asset based lending which results in profit from sale of a thing not the loan/use of money.  Cost-plus asset acquisition finance, purchase-resale lending, & currency arbitrage work.  An at-risk partnership draw is not “interest.”  Limited/silent partnerships, partnerships with gradual buyouts, & sale/lease-buybacks are also possible.

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