Losing Interest: Financial Alchemy in Islamic, Talmudic, & Western
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Losing Interest: Financial Alchemy in Islamic, Talmudic, & Western Law Michael H. Lubetsky [email protected] \\mtlapps02\marketing\Systems\KV - Research, Interaction & Tikit\Article cover- Ini•erest: Alchemy Islamic, Talmudic, Financial Losing in & Western Law Lubetsky*. Michael H. .. INTRODUCTION I. 232 REsTRIctIONSON i•iFFERENT INTEREST LEGAL II. IN TRADITIONS.. 233 Sharia A. 233 Law.... B. Western 234 C. Halakha 237 ("GAAP")• Principles Generally Accepted Accounting D. 238 Comparative Overview E. 239 LEGALSYSTEMS TYPOLOGY III. A 240 OF of Difference Dimensions 240 A. of Legal Classification Traditions the 241 B. Interpretation: Formalist Of Method 1. vs. 242 Substantive Ordering Actualizing Vocation: 246 2.. vs, Hypotheses 248 C. : 249 IV. ASSESSMENT HYPOTHESES OF THE 249 Sharia A. •..: 252 Halakha B.. Western 254 C: Law ............•.• 258 GAAP D. 259 CONCLUSION V. ABSTRACT ban throughout the interest, financiers Quranic comply with To on a legal such of developed have wide world arrangements, Muslim range as a w6uld like Competition The author Writing winner. to Trandafir International Business 2009 inspired this originally University McGill Nsour, Mohammad Islamic Law thank whose at course and Special insightful Gregory for their Lucan A. Article, Joshua Krane comments. well as as staff UmairKazi of editorial the at and the Note Editor thanks also due rest to are Davies currently author is associate Contemporary Problems. The Law at and Transnational an alone. expressed this Article those of the author Vineberg views in Phillips LLP. The Ward & are [Vol. CONTEMPORARY PI{OBLEMS • LAW 19:281 232 TP•VSNATfONAL and ijara., repackage profits-on-trade. interest These that and m•rabaha as variety interest-avoiding other transactions also in of in contexts appear a avoidance, planning, and accounting. including West, the corporate tax usury tradition's legal fundamental attitudes how illustrates toward This Article a Article transactions. This interest-avoiding that, affect, its in law argues orders, normative Islamic law legal other• has developed with contrast a interest•avoiding attitud6 toward tolerant conspicuously transactions due to (b) legalinterpretation, approach its and understanding (a) its formalist of to actualizing. ordering rather than law as INTRODUCTION I. they forbidden; though they took that and That were usury, substance wrongfully; have prepared devoured men's they we those reject who faith them grievous for among a punishment. 1 Alex Ahmed, of both hous6 whom and to.buy of the Compare want cases a •akes bank, loan $100,000..Alex $100,000 of out worth to at one-year goes a a buy and the the house. Ahmed interest, to to percent 5 money uses goes an purchase house the bank the for for $100,000 and Islamic to bank arranges £t mark-up, payable him 5 percent resell immediately it and to next to a year. Muslim, identical, the transactions two have yet flows The to • cash a very are Alex's In spiritual legal the and different 5 percent case, consequences. which renders the interest, void Islamic under premium contract constitutes potentially Alex his banker and ("sharia") and reservation in law earns a premium the percent however, Ahmed's constitutes 5 Hell. In case, a financing afil bithaman of profit bait. trading legitimate How contract. a can identical essentially transactions have such different these two consequences? beyond interest far extends constitutes what debate Muslim the The over interest, bans include which law Canon Talmudic and Jewish and world. on sought long Modern circumvent. alike have financiers Christian lenders to interest variety in of of that exact stratagems continue to to excess a use Corporate and civil by criminal statutes. have allowed accountants usury financing classify something costs incentives other than to as numerous certain cash ratios. Whether financial flow improve constitutes interest to a trans.). YusufAli (Abdullah Quran 4:161 produce either if different could transactions Conceivably, his debt the consequences pays man daily Ahmed's wh{le invariably rate, interest invoice will at Alex's loan late. a accrue may accrue complicated Moreover, according schedule. if penalties defect is t6 found late payment a more a against the seller's theory, invoke Ahmed could, the bank in warranty house, in the than rather backto "can of this risk however, the be practice, original In transferred cost the the owner. EL-GAMAL, MAHMOUD A. ISLAMIC buyer." forward original the LAW, FINANCE: seller to or EL-GAMAL, FINANCE]. [hereinafter ISLAMdC (2006) ECONOiMICS, PRACTICE 68 AND 2010] Winter LAW FINANCIAL ALCHEMY IN 233 int'erest either positive has also negative, enormous in tax consequences, or planriing. however, A disparate situations, review of different that these reveals legal traditions adopt approaches different have tended interest- to to avoiding taking law, transactions, conspicuously particular, sharia with in a permissive other,s. compared• approach Some mark-up all the in of to or ajil Ahmed's bai' example, bithaman for certainly be contract, would almost Io•k by jurist, Western interest deemed A rabbi. closer accountant, an a or a legal of underlying principles the. Islamic of doctrine and at some a legal thinking help comparison with explain other modes of why sharia can developed permissive such attitude. has a analysis, provides facilitate Article this of this To Part brief I overview a legal bans of various the traditions. restrictions interest in II Part or on typology orders, two-dimensional normative classify of it to proposes a uses Generally ("halakha"), law, sharia, Talmudic law Western and Accepted Accounting Principles and ("GAAP"), hypotheses formulates how the on typology interest-avoiding predict towards fictions. attitudes Part III can hypotheses jurisprudence using and the of the doctrine four the tests analysis ultimately legal identified ready Islam's traditions. The that shows interest-avoiding from of its transactions results formalist acceptance legal interpretation ordering attitude and its vocation--a towards sharia distinguish qualities major legal combination of from other that traditions. II. RESTRICTIONS DIFFERENT LEGAL TRADITIONS INTEREST IN ON A. Sharia Quran Islam's ban in the interest that from three stems passages on •.'•, "growth"),• literally subsequent "increase" forbid riba which Islamic or scholarship (interest loans) al-fadl riba divided and riba al-nasi'a into on c0mmpdities). exchange (unequal definition of and The of both exact 4 scope of generated times, have riba of debate.• centuries modern animated In forms leading jurisprudence Egypt• however, from Pakistan and sharia 7 concur Quran riba, meaning literal the Arabic 2:276-79, Barbara 4:161, On the of L. word 30:39. see Today: Equity, Doing Islamic Law, Business Under Seniawski, Economy, Social the Riba and 39 (2001).. TRANSNAT'L 701, L. COLUM. J. 707 EL-GAMAL, Seniawski, FINANCE, ISLAMIC 3, 709-10; 2, 49-52. at note note at supra supra Seniawski, 3, 707-19. at note supra reprinted May (Egypt), Supreme decision 20, Case of 1985, Constitutional Court in 1, 4, no. no. QUARTERLY (1985). ARAB 100 1:1 Pakistan, of Judgment Supreme Historic Given Text of the Court by Interest available the at on http://albalagh.netTIslamic_economics/riba_judgement.shtml (last visited 2010) 29, Jan. (discussing opinion Judge Sec'y, Taqi Usmani's Minister Faisal Muhammad in Ur-Rahman of v. •.CONTEMPORARYPROBLEMS [Vo1 19:231 234 LAW TRANSNATIONAL am0unt•, "any including debt, of interest forms all that includes riba a on the principal however transaction of in stipulated addition to in little, a opinions, including decision the dissenting from Notwithstanding 9 loan."s a definition dominant view this the Cassation, represents 1° of Court Dubai aspire, particularly Muslim today, jurists countries in that purport or among law. sharia implement n to riba, borrowers alike Muslim in the and lenders of the ban Because on •ought financing their transactions have world to structure to as so trading profit, The interest repackage the most structures le common as shareholding), (similar preferred mudaraba murabaha the include to a resale), tawarruq (sale-and-leaseback), (commissioned purchase ijara and manufacture), (contract (commodity-intermediated for and loan), istisna purchase). (forward Through structuring careful these of salaam 1• sukuk, of forms which transactions, Islamic financiers also various create can virtually indistinguishable simple from debt, securitized that is is debentures. 14 B. Western Law long manifestations, civil law, in both its law and has Western common polemics against regulation.. tradition, civil law In the featured interest altogether in back times. Roman banned interest date Roman law to usury established legal of eventually BoC.E., but Genucia of the Lex 340 rate 1 a month. Lending, legal the attack with under rate, percent at 1• came per even Christianity, strongly Church condemned of Catholic the the advent usu• as (Pak.). Pak., Affairs, Parliamentary Law, PLD FSC & Gov't of PLD The Justice 89 1992 case as ("PLD") complete opinion.) reported Digest only and the Pakistan Law the order in contains not Supreme Judgment [hereinafter Interest]. of Pakistan Court on ¶ however, inflation .the issue of Note, that Justice Usmani Id. did leave 106. open compensation. ¶ See id. 180-88. Wayne of Visser McIntosh, Seniawski, 3, also & Alastair Review 717; A Short note at supra see Critique of Usury, (1998), HIST. available ACCT. Historical & BUS. the FIN. 8 175 at www.alastairmcintosh.com/articles/1998_usury.htm;