Wednesday, January 29, 2014

Exploitative Profit Sharing: On the incoherence of all contract-based approaches to "Islamic finance"

I am writing a paper for a conference, and after my usual criticism of the modus operandi of Islamic finance (using degrees of separation such as trading partners and assets to separate lender from borrower to disguise interest on debt), which is shared by many, I wanted to make sure also to criticize the misplaced drive for finding an "Islamic finance" in other contract forms. Toward that end, I wrote the following example:

Some supporters of “Islamic finance” have long suggested that profit sharing (in silent partnership, or mudaraba) or profit-and-loss sharing (in full partnership, or musharaka) is the ideal Islamic alternative to riba. However, the reason for the prohibition, which Ibn Rushd imputed to be the potential for extreme injustice, can be just as present there. 
Consider, for example, a silent partnership whereby a capitalist approaches a worker with no capital. Instead of hiring the worker at the market wage, let’s say it is $100 per day, he tells the worker that he wants to engage him as a mudarib (entrepreneur), while he himself will serve as rabb al-mal (capitalist). Let’s say that the capital invested for one day is $1,000 and it is expected to produce a profit of $200 plus or minus $10, depending on market conditions. The mudarib will do the same work for which he could have earned a guaranteed $100 market wage, but the capitalist insisted on “risk sharing.” That may be argued to be somewhat fair if he is offered a 50% share of the profit, in which case, he would earn $100 plus or minus $5. 
Putting aside the relative risk tolerances of the capitalist and the worker/entrepreneur for the moment, which presents problems of its own, there is nothing in the Islamic rules of mudaraba that prevents the capitalist from offering the worker a 25% share of profits, which is grossly unfair relative to his market wage. If the worker has no access to other work, severe exploitation is thus allowed by this ostensibly “Islamic” partnership model, whereby the worker is forced to earn half his market wage on average, with unwanted risk to boot! That is the very same extreme injustice (ghubn fahish) for which riba is but one vehicle.
(Note: This is not an entirely novel idea: many classical jurists had classified mudaraba as ijara bi-l-gharar; hire with (forbidden if excessive) uncertain wage. My example suggests that it may also include an element of riba, in the sense that the profit share is not commensurate with the work done, fairness being determined by the market wage, as many classical jurists would also have determined.)

The message is clear: to call a transaction "Islamic," it must be fair in some clear sense. The paper will include a section on a "unified theory of riba and gharar" to which I have hinted in earlier writings, including on this blog.

My point has been, and continues to be, that there is no amount of juristic (fiqhi) analysis of contract forms that will help you determine whether or not there is injustice in the exchange, and that is the crux of the matter for calling something "Islamic," because the first requirement is Justice (عدل):

(Al-Nahl 16:90 [Asad translation]; 
Behold: God enjoins justice, and the doing of good, and generosity towards one's fellow men,
and he forbids all that is shameful and all that runs counter to reason, as well as all envy,
and He exhorts you repeatedly so that you might bear all this in mind.)

I love, in particular, how Muhammad Asad translated al-munkar (المنكر) as "all that runs counter to reason." I often translate it as "blameworthy activity." But, of course, these are one and the same, and explains my attitude towards so-called "Islamic finance," it runs counter to reason, and is, therefore, blameworthy!

Friday, January 17, 2014

What it means to be a "Muslim": Two Aborted "Revivals"

This is the draft of my khutba for this afternoon at the ISGH Main Center.

After the liturgical opening:

Many of us struggle with what it means to be a "Muslim" in this day and age. This is hardly a new problem, and understanding its source and history of aborted revivals can be of great aid in trying to find a successful recipe that combines the proper measures of rationalist materialism on the one hand and spiritualism on the other. Too much of one or the other does not lead to complete Islam, and emphasizing one in one sphere of life and the other in another leads to social and religious lobotomies and unsatisfactory, incoherent, and unsuccessful individual and collective lifes.

Last month, I gave a khutba here on the story of Hay ibn Yaqdhan, as told by Ibn Tufayl. The tragic symbolism of this story should not be lost on us: Even in the twelfth century, Ibn Tufayl told us, the best that alert (translation of Hay) and authentic (translation of Asal) Muslims can do is to keep their logic and devotion separate from the masses, who simply want to follow a formulaic religion devoid of logical or spiritual meaning (symbolized by Salaman). The separation is symbolized by living on separate islands.

The context in which Ibn Tufayl was writing is very important. Toward the end of the fifth century after Hijra (around 1106 CE), Al-Ghazali published his magnum opus, Ihya' `Ulum Al-Din (the Revival of Religious Sciences), which waged a fierce attack against the fuqaha (jurists) as well as the mutakallimun and falasifah (theologians and philosophers) of his time. The first have reduced religion to recipes of what to do and not to do devoid of all spiritual meaning, and the latter regurgitated Greek disputations and philosophy without tying them to spiritual and social benefit. The true religious sciences of his time were thus dead, he argued, and needed revival.

Not surprisingly, scholars both in the East (especially Nishapur) and West (especially Cordoba) were very uneasy about this Revival attempt. They thought that they were guardians of religion and taught people what was in their best worldly and religious interests. 

In Cordoba, in particular, rationalists were disturbed by some Sufi sects using Al-Ghazali's book as proof that their method of abandoning the world and seeking direct Divine knowledge was correct. The Chief Judge, Ibn Hamdin, ridiculed those who think that they can sit in isolation (khulwa) and then hear the Divine voice (referring to the Qur'anic chapters, "ya 'ayyuha al-muddathir" and "ya 'ayyuha al-muzzamil"). 

Critiques of the 'Ihya' by those closely related to the ruling Almoravid dynasty made the book a symbol of political resistance to this rule. This was magnified when the Almoravids reacted by burning all copies of the book in 1109, and then again in 1143, when it was read in public as a sign of protest.

This allowed Ibn Tumart, the leader of the Almohads to capitalize on the ensuing rebellion in 1144 and to take over power, claiming that he was defending Al-Ghazali.

What is important is this: Al-Ghazali was not anti-rational, he merely pointed out that excessive rationalism without spiritual development leads to materialistic deviation from true Islam. Indeed, this the component that the West, fascinated by Hay Ibn Yaqdhan, has developed, starting with John Locke and Jean-Jacque Rousseau, and ending with Thomas Jefferson and the founding fathers of America. (I recommend reading the two books Reading Hay Ibn Yaqdhan, and Thomas Jefferson's Qur'an).

Sensing an excessive tilt to metaphysical spiritualism and distance from rationalism and necessary materialism, Ibn Rushd wrote to correct and/or complete the revival started by Al-Ghazali. He lived to see his own works burned in Cordoba in 1195. Both Al-Ghazali and Ibn Rushd died with broken hearts, and the Muslim world fell into its dark ages.

At the end of the nineteenth century, another revival movement was attempted. My hero in this regard is the late Imam Muhammad `Abduh, in part because I grew up hearing his praises from my late father, whose late father was a student of `Abduh as he studied to be a Qadi Shar`i (back when Egypt had separate religious courts, which were abolished in the mid twentieth century). It is sad that Muhammad `Abduh also died broken hearted, as the rising tide that eventually gave us the heresies of the Muslim Brotherhood and the Jamat-I-Islami rejected his formula for reviving religious sciences.

In between his periods of exile (with his teacher Jamal al-Din) and eventual rejection, however, there was a golden period during which he taught and served as the first Grand Mufti of Egypt. I would like to close by giving three examples of his fatawa that are relevant to our situation in Houston today, all issued in 1904, in part because the counter-revival that occurred during the 20th century was mostly based on poisonous and un-Islamic identity politics:

The first fatwa (#371, vol. 3, Egyptian Dar Al-Ifta, 9 Ramadan, 1322 AH) is in response to a question by a Transylvanian man named Hajj Mustafa. He asked three questions about his situation there: (1) were Muslims allowed to dress like the majority of people around them, (2) were they allowed to eat the meat of the majority in Transylvania, knowing that cows were impacted on the head before being slaughtered and sheep were slaughtered without invoking Allah's name, and (3) was it allowed for Shafi`is to pray behind Hanafis who did not recite the basmalah aloud in the beginning of Al-Fatiha.

The answers to (1) and (3) are as you would expect, and as most people do in Houston. On eating meat, he cited the verse
اليوم أحل لكم الطيبات، و طعام الذين أوتوا الكتاب حل لكم 
(good foods have today become permissible for you, and the 
food of the people of the book is permissible for you, المائدة: ٥)
He cited the opinion of the great Maliki scholar Abu Bakr ibn Al-Arabi, who opined that whatever people of the book, including their clergy and laity, eat is thus permissible for Muslims. He debunked the argument by those who argued that Christians claimed the divinity of Jesus (p), saying that this had been the case at the time of the Prophet (p), and therefore, the verse applies without exception to all the foods that are allowed to the people of the book.

The second fatwa (published by Rashid Rida in Al-Manar, #3, March 1927) related to the issue of polygamy. Rida decided to republish the fatwa because there was then a debate within Egyptian circles whether to make polygamy illegal without special dispensation from a judge. 

`Abduh cited the verses that permitted and restricted polygamy as follows. Permissibility is given in the verse:
و إن خفتم أن لا تقسطوا في اليتامى فانكحوا ما طاب لكم من النساء مثنى و ثلاث و رباع، فإن خفتم ألا تعدلوا فواحدة أو ما ملكت أيمانكم
(then if you fear that you will not be fair to orphans, marry other women, up to four,
but if you fear that you will not be able to exercise justice, then have only one wife 
or female slaves, النساء: ٣)
So, he argued, the verse is very clear on conditional permissibility, where the condition is justice, which a later verse in the same chapter says is impossible:
و لن تستطيعوا أن تعدلوا بين النساء و لو حرصتم
(and you will not be able to exercise justice between women, even if you try your best, النساء: ١٢٩)
Thus, he argued that the habit of polygamy was an abuse by greedy Muslim men, which has caused many problems because of jealousy, broken hearts, and contestation between half-siblings. Therefore, he concluded that it was not against Islamic law for the state to ban polygamy except in extreme cases allowed by a judge (e.g. if the first wife is brain dead or otherwise incapacitated, but even in cases where the first wife merely cannot conceive, he argued elsewhere that it would be cruel to her and would break her heart for him to marry another, although he seemed to allow it in that case).

The third and final fatwa that I would like to mention was issued in response to a question from an Indian who asked if it was acceptable to cooperate with non-Muslims on good works such as establishing orphanages and the like. The question asked about the opinions of all scholars, so `Abduh first solicited answers from scholars of all schools in Al-Azhar and then issued his fatwa in Muharram 1322 A.H.

`Abduh first referred the questioner to the numerous verses urging Muslims to do good and to cooperate on it. Then, he addressed the forbidden taking of non-Muslims as protectors 
لا يتخذ المؤمنون الكافرين أولياء من دون المؤمنين و من يفعل ذلك فليس من الله في شيء
(the believers should not take the unbelievers as protectors instead of 
other believers, and whoever does that  would distance himself from Allah, آل عمران: ٢٨)
was restricted historically to the incident for which it was revealed. (I have covered this issue in greater detail in a previous khutba, which is posted here). 

Then, `Abduh gave a long list of examples that support collaboration with non-Muslims. This includes the Prophet's (p) collaboration with the Jews of Banu Qaynuqa`, and with other Jews in Khaybar, and with the polytheist Safwan ibn Umaya on the day of Hunayn. Moreover, Shafi`i scholars have allowed giving gifts and accepting gifts from non-Muslims

He also cited, among many opinions, that of the Caliph `Umar ibn `Abdul-`Aziz, who opined that it is permissible to begin with greetings of peace to non-Muslims, citing the verse
فاصفح عنهم و قل سلام
(so forgive them, and say: Peace, الزخرف: ٨٩)
He cited the Hadith narrated by Bukhari and Muslim:
المؤمن إلف مألوف، و لا خير في من لا يألف و لا يؤلف
(The believer likes people and is likable, and there is no good in 
one who does  not befriend or get befriended)
On collaboration with others, he cited the Hadith, also narrated by Bukhari and Muslim:
إن الله ليؤيد هذا الدين بالرجل الفاجر
(Verily, Allah supports this religion [even] with transgressing sinners)

Is it not a shame that we have regressed, again, to groups who go to one extreme or the other, in either case missing the essence of religion for the betterment of individuals and societies? Do we have hope for yet another attempt at revival, which will hopefully be more successful than its predecessors? In the meantime, the same identity politics that has aborted this most recent revival attempt has given us the costly embarrassment of so-called "Islamic finance" and the like, without providing any value to Muslims or the rest of humanity!