Monday, May 20, 2019

The Malaise of Modern Islamic Jurisprudence -- Disappointed and disheartened by Sanhuri's analysis on Riba

I will have to proofread my translation of Sanhuri before posting it (see previous posting for context), and then will plan to follow up with a more elaborate analysis. For now, while I am sitting at a car shop, I wanted to use the time to post my first reactions, which are a combination of (1) understanding how we got here, and (2) great disappointment at Sanhuri and his generation of legal scholars.

[UPDATE on 6/5/2019: I have posted the translation here.]

A quick note on style: Sanhuri wanted simultaneously to use the methodologies of classical Islamic jurisprudence and modern legal analysis, which resulted in some significant discontinuities. In my analysis of his thesis, I will try to summarize his arguments more linearly, and in the process try to avoid the frequent repetition that is characteristic of his as well as most Arabic writing, especially in the genre of jurisprudence.

How did we get here? Anyone who is familiar with my writings on Islamic law and finance, on this blog and elsewhere, will understand my frustrations with an industry that sells inferior products at higher prices, and reinforces a mindset that makes reconciliation of authentic Islamic teachings with modernity even more difficult.

One feature of Sanhuri's analysis that I found very disheartening was his deference to "juristic craftsmanship," as he put it, which leads him to conclude that all forms of riba (pre-Islamic or jahiliya, deferment or nasi'a, and inequality or fadl) are forbidden. He chooses from among the different schools of classical jurisprudence the middle ground of considering the first categorically forbidden for its own sake, but deems the latter two forbidden as means to the end that is the first. Interested readers will have to wait for the full translation and analysis, but the main import of this distinction is that the first type of prohibition (for pre-Islamic or jahiliya riba) is thus overruled only in cases of extreme necessity (equivalent to ones that would allow consuming forbidden meat to preserve life), while the latter two may be overruled in cases of mere need, which would include net economic benefits that would be foregone if one were to ban certain transactions. On interest bearing loans, he follows the traditional juristic view that they are not explicit forms of riba, because the latter is only considered possible in commutative sales, but that they can inherit the rulings of riba because they can lead to the explicitly forbidden riba al-jahiliya, and thus is likewise forbidden as a means to forbidden end (saddan lil-dhara'i`) rather than for its own sake.

He thus defers to jurists by extending the prohibition on modern forms of finance, but then argues that in capitalist economies, capital must earn a rate of return, and the fear of exploitation is non-existent when large corporations or governments borrow from small savers. He thus argues for permitting conventional finance with regulations such as interest rate ceilings and limiting the amount of compound interest so that the total accrued interest cannot exceed the principal, based on the rule of necessity applied to cases of mere economic need. Unfortunately, but understandably given the period in which he was writing, he says that maybe in a socialist system (to which he seemed to look forward!), where the government owns all capital, the need for interest would vanish and the default rule of prohibition would be reinstated.

This explains something about Arab Barometer questionnaires that I had found puzzling. In their question on bank interest, they surveyors ask if all bank interest should be banned or if it should be allowed because it is needed for economic development. It appears that they are appealing to this argument from necessity as need in the lower forms of riba, as Sanhuri had accepted.

It also explains the argument that proponents of today's so-called "Islamic Finance" have advanced: that now that they have provided "Islamic" alternatives that technically avoid the prohibition of riba, the argument from necessity/need no longer applies, and customers must thus, they argue, buy their (more expensive and inferior) product because it avoids riba.

The technical ruses used to circumvent the prohibition, e.g. credit sales that hide interest as price premium, leases that hide interest as rental payments, and the like, are also justified in Sanhuri's analysis, which did not take offense at a popular Hanafi trick that he cited verbatim from classical sources numerous times. In this trick, A asks B to lend him $100. B says that he cannot do that, but he sells A a piece of cloth worth $40 for a deferred price of $60, and follows that credit sale with an interest-free loan of $60. The net result of both contracts is that A now owes B $120 (desired principal of $100 plus 20% interest) to be paid later, and he has received $60 plus a piece of cloth worth $40, which he may promptly convert to cash at that price, thus having received the desired $100 now for a debt of $120 later. Classical jurists split hairs over whether the transaction is allowed if both parts were included in the same contract, or if one was explicitly stipulated as a condition in the other, and so on. But, ultimately, variations on these tricks were incorporated as elaborate ways to reproduce the desired financial outcome, and jurists allowed them. Sanhuri at times makes labored attempts to argue that such complex transactions are not as conducive to exploitation as traditional forms of riba, but his logic and quasi-economic analysis are extremely weak on those points. It is obvious that a loan-shark can use this exact classical trick, or some of the more modern murabaha and similar variations, to effect usurious behavior that is ruinous to his debtors.

It is at once illuminating and disheartening to see so clearly that the best Arab legal mind of the 20th century reflected the mindset that resulted in our current malaise.


Post a Comment

<< Home