I have had the good fortune to have a Farsi speaking student act as my research assistant this past semester, and he has used his considerable skills to get me access to and to translate various Iranian bank documents into English.   Primarily, these are form contracts used for Islamic financing vehicles, not entirely public (in the sense that they are not publicly available from the website of the respective Islamic banks), but not really confidential (in the sense that anyone who wants a mudaraba loan gets this form contract, so there must be tens of thousands in circulation).  Naturally the details of particular borrowers and the amounts they borrow (I’m sorry, borrowing is haram, “sharers in wealth”) would be confidential but I neither sought nor have any completed contracts, only the forms with blank spots where such details would be inserted.

It offers a glimpse I think into how some of these banking contracts tend to work in practice in Iran, though it would be of course a mistake to describe it as more than a glimpse.  Still, I will seek to pursue these in more detail in subsequent work, a shorter law review article I expect, giving due credit to my research assistant’s work in permitting it to happen.  For now, I wanted to point out just a few provisions, and the extent to which Islamic finance is, quite often, just as sloppy as I have always claimed it is in its supposed shari’a adherence.  This is, in other words, but a glimpse of a glimpse.

The subject for this glimpse of a glimpse is the mudaraba contract of Pasargad bank.  I will say at the outset I was rather surprised to see a mudaraba as a financing vehicle at all.  It is frequently within the literature praised as the ideal means by which financing takes place in a banking style system, Sadr extolling it broadly as early as 1979 for the Shi’a.  But it requires a sharing of profits and losses, which is obviously problematic for any bank, because when it loses, it has to pass that on to depositors, and depositors don’t like to lose money, and so a bank run is created, etc etc.  (One of many problems).  So the mudaraba is a custom far more adhered to in the breach than the observance, and so I figured perhaps this was one of those sort of token things they did to demonstrate true Islamicity, akin to the interest free qard hasan loans Islamic banks give out from time to time to a mosque to rebuild its roof or something.  Charity, not commerce.  Meant to improve an image, not the backbone of a real practice.

But I was wrong.  It is a commercial instrument, just one that plays fast and loose when it comes to shari’a adherence.  In the meat of the contract, Article 8, we do have a provision that divides the profit of the subject goods of the contract, whatever they are, to a [blank] percentage as to bank and [blank] as to borrower, with the profit defined as revenues over expenditures.  Blanks need to be filled in, anyone who has even taken one course in accounting (like me!-accounting for lawyers) can see the reductiveness of the profits definition, but so far, so good. The idea of the mudaraba is conveyed. 

But then comes Article 9, which reads as follows (RA’s translation, emphasis mine)

If any loss happens to the funds of this contract ,or if there is any waste or any loss from the subject commercial activities of this contract, the agent is committed to pay the amounts of this contract plus anticipated profit to the bank from his own assets, even if the loss was not due to a trespass or waste of the agent.

So much for sharing then.  There’s sharing on the upside, but not the downside.  If anything bad happens to result in a loss, for whatever reason, the bank gets its profit. I should note it gets its profit as well if the contract is terminated due to a borrower breach (Article 10) or if the bank accelerates the loan due to borrower default (Article 11).  Those are standard provisions of credit agreements, which of course this is.

In fact, the only nonstandard provision is the one requiring the entrepreneur to share profits (but not losses) according to a specified percentage. This makes the contract much worse for the aspiring entrepreneur than ordinary lending.  Because while the bank in a conventional system will attach everything it can think of that belongs to the entrepreneur to get its money on the downside because it has no intention of “sharing”, it does limit its upside to a fixed relatively modest percentage.  Citibank doesn’t lend Facebook $1M and get a percentage back that corresponds to Facebook’s growth, it gets LIBOR plus 1.5%. Or something.  That of course is precisely the defense of fixed interest, it is the reduction of the downside risk that enables the bank to limit its profit on the upside. Here, the downside risk is removed, but the upside sharing is not, giving the bank a far superior legal position to what it would have in conventional finance.  Put differently, in conventional finance, it gets a fixed small percentage over what it lent. In the mudaraba, it gets a percentage of the profits made from the money contributed.  Eliminate the downside risk, and that’s a better deal because there is no theoretical limit on the upside. 

I will say I think that is unlikely that the Iranian bank actually operates like this, mainly because the bank cannot really monitor the goods. That’s another problem with the mudaraba, to work the bank would have to know what profits the entrepreneur was making, and this imposes rather significant monitoring costs.  So rather than share in the actual profits of whatever goods the entrepreneur is getting less expenditures, my guess is the entrepreneur just figures out the bank’s anticipated profit, which corresponds to an interest rate, and gives it that and says this is the Article 8 amount. And the bank does not bother to check.  So it’s interest, my guess is, along with a healthy dose of indirection and dishonesty.  Either that, or it’s screwing the entrepreneur. Take your pick. 

Again, there are other contracts, I will address them in published work I expect, but for now, this will do.  The point is not only that Islamic finance is about as far from profit, loss and risk sharing as can be imagined, and any claims to the contrary are at best empty rhetoric. I’ve said that before, will no doubt say it again.

But also, the point is the high degree of selectivity deployed by Islamic financiers themselves in adhering to rules.  And I do not mean the high degree of selectivity in application of classical fiqh—though of course that is present as well (has everyone forgotten the shurut rules?  Seems so.)  But rather selectivity in applying the actual rules of the practice. I point this

This is a matter on which I have received some strong criticism, erudite and well articulated. For an example, from a friend and a real leader in Islamic finance practice, see here.  The idea is that I have in some early work described Islamic finance as ignoring its own rules at times, in a way that prominent practitioners like my friend Michael McMillen have found unjustified.  And to be fair to the criticism, I probably did in my early work paint with an unjustifiably broad brush.

But I also think it’s something of a mistake to presume that the highly sophisticated transactions designed by the likes of Michael McMillen are representations of the entire practice. Those transactions probably do a little better job of trying to adhere more closely to articulated Islamic finance rules, admittedly.  (My criticisms respecting selective application of fiqh, of a near total absence of the profit and loss sharing to which the industry is supposed to aspire, and above all else to doing not a thing to address the broad dissatisfaction that so many Muslims have with the global economic order remain quite salient on this aspect of the practice as any other.) 

Here we have a perfect example of what is done when resources are not committed to legalistic and formalistic workarounds.  Toss the rules.  It’s sort of a problem to allow banks to lose money on a transaction.  So simple!  We’ll take a profit and loss silent partnership structure, call the transaction that, and then remove the loss component from the bank’s side.  Right, except now it’s not a profit and loss partnership, now it’s a loan, with theoretically infinite upside and conventional risk downside.  It’s declaring interest unlawful and shari’a violation, throwing an Islamic word out to describe a permissible vehicle, and then making changes to the vehicle that the very same practice would also describe as violation.  Take it off the website, leave it exclusively in Farsi, and reach an unwritten understanding that the upside won’t really be shared either, and it all works. Interest, through a combination of selective application of rules, deception, obfuscation, secrecy, precisely as I said in 2007. 

And lest you think this is a problem of Iranian banking, I assure you American Islamic retail banking is selective (as I have said before) in its own right.  If you want to prepay the murabaha, you can go right ahead, and the bank is contractually obligated to then discount the money left for you to pay them back, in a manner that Usmani specifically described as unlawful.  I was told once that it was wrong for me back in 2007 to describe the murabaha as a “simultaneous” purchase and sale. In fact the financier owns the item, albeit for a short period of time, and that is how the sophisticated transactions are done. Perhaps (I was wrong I admit to use a broad brush) but that is decidedly and absolutely not how home financings are done in the US under a murabaha structure.  It is simultaneous, and the bank never has a real beneficial interest in the property for any period of time at all.  None, zero.  And that is universal. How do I know that? Because that is the assumption upon which the Office of the Comptroller of the Currency relies in permitting this type of financing notwithstanding the prohibition against banks owning real property.  So that’s what they do, or they’re operating illegally.  Again, the shari’a rule respecting at least transient ownership is avoided, and again, deception, obfuscation, confusion, secrecy, is designed to manage the divide. (How many banks do you think tell their customers they don’t actually ever own the subject property of the murabaha?) 

This is  sort of akin to one castigating a person for eating pork because God forbids consuming any part of the pig, and then saying the pizza tastes better if they cook it with pepperoni and then take the pieces off afterwards.  Of course, nobody does that, because everyone can see the problem that arises (you’re still eating pig fat, just melted pig fat on cheese).  With finance, with so much money to be made, you can just bury the pig fat in Article 9, not release the contract, and shout out to the world: Look at us! We do Islamic finance! 

So long as religious adherence isn't the point, but rather expressing one's identity as a Muslim is, it works well enough for the American Muslim homeowner and the Iranian bank borrower alike.

HAH

There is, I think, a common perception that somehow it is more difficult to rationalize the permissibility of same sex marriage in the Islamic tradition than there might be in the Christian. I actually think that is wrong, at least within those parts of the tradition committed to moral rationalism; namely, the Mu’tazila among the Sunnis and the Shi’a generally, though in particular the Usulis.  The rationalist tradition, to summarize and of course reduce centuries of moral philosophical thought into a sentence, regards the identification of the praiseworthy and blameworthy as intelligible through the faculty of reason, and further regards God as necessarily acting in accordance therewith. 

Reason, alone, of course is hardly sufficient to lead one much of anywhere without prior premises—indeed the call of many reformists for more “reason” in jurisprudence often seems to be a call to insert current ideological preferences in the place of the preferences of the medieval jurists. I, for my own part, have no objection to such replacement, though I think it should be done more openly and honestly than through a claim that it is somehow more “reasonable.”  But as concerns same sex marriage the premises of the medieval fiqh help advance the rationalist argument for same sex marriage, in a manner that they might not in at least modern articulations of Christianity.

One of my favorite activities in an Islamic law class when we discuss the rules of marriage is to ask students what the purpose of marriage is under the Islamic fiqh.  The non-Muslims are decidedly at an advantage, because they stare at me blankly wondering why I would expect them to know the answer to such a question. (The answer, of course, is that it is in the reading, which all too few do.) But the Muslim students often raise their hands and tell me of the Chapter of Rome in the Holy Qur’an, and the placement of compassion and mercy between spouses, and of course of the beauty of this world that is provided by offspring, and so forth.  And, of course, they are utterly, completely wrong.

The purpose of marriage is neither to produce offspring, nor is it to create a lifelong bond of compassion and mercy.  These matters, which are used to defend the prohibition of same sex marriages (in particular the latter one) in other religious traditions, are simply inapplicable in the Islamic juristic tradition. They are plausible readings of the Qur’an, but they are not the fiqh.  Rather, under Islamic law, the purpose of marriage has nothing to do with family creation at all. It is to render sex licit—to take an act that in the absence of the contract would be a serious sin, and to turn it into a legal activity.  Hence marriage is a highly recommended activity, rendered important to do whenever there is some fear that one might fall into the dangerous abyss of fornication.

So let us add to this premise the rather unremarkable one, to my mind, that a homosexual does not choose his or her orientation.  This is a more modest claim than that the orientation is genetic, importantly.  President Obama repeatedly informs us that the children whose status he is normalizing through executive order despite their undocumented status are in the United States illegally “through no fault of their own.” In other words, they made no choice. Suffice it to say, however, that genetics do not render them undocumented.

Thus, the fiqh posits for us that the sex drive is strong, nearly entirely overwhelming. And that God in His Infinite Mercy has blessed us with a means to satisfy that sex drive, to render it licit, to live not in constant unrequited desire, but in fact in harmony with His Will while still satisfying this core earthly need. This means is marriage.  Those who use it live in His Grace. Those who do not are sinners who have gone astray.

Oh, yes, one more thing. It’s not available to some of you, because of a preference you didn’t choose.  You have to just live with this overwhelming and near debilitating sexual desire and abstain from sex, or be killed for fornication.

The rule, I submit, is deeply and thoroughly irrational.

One can, of course, play the Ash’arite card, and insist that God’s Reason is superior to any ability of ours to comprehend.  In the rationalist traditions, however, the matter is not so easy.  I do not deny the textual sources that suggest different conclusions than reason alone might, nor would I suggest that the texts can be ignored in their entirety. And of course, I have always stood as a Realist in favor of contingency and preference—where what controls, reason or text, and what text, is determined by factors much more complex than the dry mechanical application of an interpretive process.

All of this may be true, but a single point remains true alongside it.  The argument exists, and it is eminently plausible.

HAH

There has been much discussion recently respecting proposed changes to the Afghan criminal procedure code that would prevent family members from testifying against one another in criminal court.  These, it appears, are proposals being advanced by “Muslim conservatives” and naturally are opposed by human rights organizations staffed largely, though not entirely by Westerners.

Anyone paying the slightest bit of attention to this blog would be able to discern rather quickly which side of the debate I would be on—with the human rights activists, against the conservatives.  But there is an irony to all of this.  This notion, that family members should not testify against one another in court, that to do so is somehow an invasion of the sacred marital union and familial privacy, and that the state should not therefore interfere with such private affairs, is one that is Western in conception, Western in its normative framework, and Western in its historic application.  It is, let me absolutely clear, absolutely and entirely foreign to the shari’a—conceptually, normatively and in application.

Those who want to find a Muslim acting as a shari’a apologist should go elsewhere, I’ve been fairly clear on where I stand respecting the shari’a, certainly not in its idealist conception but as it has been articulated through the work of medieval scholars producing the classical fiqh—and I have described that historic work (the classical fiqh, not the shari'a as a concept, to emphasize the matter) as severely problematic on any number of fronts, women’s rights among them.  Hence, for example, the other proposed Afghan legislation getting attention, making child marriage easier for a father to engage in (or so we are told) does have shari’a antecedents, those which I have set forth at length elsewhere.  This, however, does not.

Even those elements of the classical fiqh that might be fairly described as gender discriminatory demonstrate this.  How does a man dissolve his marriage under the classical rules? He declares himself divorced.  How does a woman? She has to have cause, and she then has to go to court.  The judge evaluates the case and is empowered to dissolve the marriage. In other words, she sues her husband.  Nor is dissolution the only basis upon which a wife might sue her husband. She can sue him because it is his obligation to maintain the family home, and she can attach his assets if he fails to fulfill that obligation. Ottoman court records are filled with such cases, to say nothing of the extensive Egyptian and Iraqi court files I have myself reviewed on this subject. 

The notion that a couple cannot both be in court and be married is grounded in a different conception of marriage, one in which marriage is sacred covenant, not earthly contract.  In other words, Christian, not Muslim. Hence spousal evidentiary privileges, and restrictions on prenuptial agreements, and the like, are all creatures of Western legal systems, not Eastern ones.  In the Muslim world, we not only permit parties to figure out what a husband is going to give a wife if he divorces her, we require it as a condition of the marriage.  What kind of contract lacks a dissolution clause after all? The Islamic conception has thus long been, without question, without ambiguity, that it is no more unusual for a wife to sue a husband and continue to live with him than it is unusual for a contractor to sue an owner and for them to continue to work together. Just business, you see. 

Now it is true that this legislation only concerns criminal matters, and so would not change the relationship of the parties in family court.  Yet once one considers the Islamic conception, the whole raison d’etre of the provision evaporates.  Why in the world would it matter which court parties are testifying in?  If we accept that the state’s job is to administer and adjudicate relationships as contracts, then surely that role cannot disappear when the husband is no longer a philanderer, no longer a deadbeat who won’t provide for his home, but is a wifebeater and a criminal.  The normative framework disintegrates into total incoherence. So what the Muslim conservative is doing in this instance is not seeking to uphold shari’a, it is to import Western conceptions and Western laws.   He’s aping the West here, not resisting it.

Some may object, and indicate that surely a beaten wife may testify against her husband in state court in the West, and prenuptial agreements are more common than ever.  True, as it is true that the colonial era is long behind us, but when it existed, these conceptions did exist.  They disappeared in the West, they were grabbed onto in much of the East, and ironically, by the most antiWestern of all political and social forces.

A similar story exists with sodomy laws, which were also largely introduced by the colonials and hence most of the anti gay laws that exist in places like Qatar, home of the upcoming World Cup, are actually colonial remnants, held to firmly by Islamic conservatives and described as retrograde by the very leaders of the very countries that introduced them decades ago.  But at least in that instance, the condemnation and indeed criminalization of homosexuality has some resonance in the shari’a.  Here it has none, this is not an Islamic conception, and never was one.  And yet here are the “Muslim conservatives” demanding it, over the objection of those whose historical traditions are replete with ideas of this sort.

The irony, the irony.