Chasing Chickens and the Murabaha
I spoke at a conference on Islamic Finance last week at Fordham Law School, link here and had the pleasure of sharing a panel with Sheikh Yusuf Talal DeLorenzo. The experience for me was quite extraordinary, as I expected a far more adversarial panel.
My opening remarks (I was first) referred to a moment in my childhood when I complained to my grandfather respecting the Shi'a prohibitions on eating rabbit. Why was it, I wanted to know, that all the Sunni schoolkids could eat rabbit, but I could not? My grandfather, Allah bless him, was unfazed, and told me I wasn't missing out on anything, because scientists had shown that if you chase a chicken around for 30 minutes and then slaughter it, it ends up tasting precisely like rabbit. (If he's right, then I can confirm, rabbit tastes just like chicken.) But he was probably just getting rid of a hyperactive kid (and doing a fine job of it too).
Still, the point is, had I asked him why we don't take interest, there's no way he would think of providing a similar answer. There are the acts of worship, the ibadat, and to those there is acceptable formalism. If the chicken does or does not taste like rabbit is of no moment, it is not a rabbit and this is the fundamental line. But then there are the muamalat, the rules of human interaction, and those are supposed to have purposes. My grandfather would not have told me I could get something just as good as interest if I bought item X, sold it at a markup reflecting interest, and then had the purchaser sell it right back into the market, as is done often with a synthetic murabaha. Instead, he would have sat me down and explained patiently the evils associated with the practice of guaranteeing a profit from no more than a loan.
The point ultimately is not my grandfather, but that the broader expectations of the Muslim community towards Islamic finance, to the extent they pay it any attention, is to provide some modicum of social justice, it is not just to follow a rule for the sake of following it. Of course some do argue this, and say that while the economics of the Islamic finance transaction are the same as they are for any other form of transaction, a ham sandwich is forbidden and turkey ham is not. I wonder how many mosques you could walk into and actually make that argument. Yet it is the reality of the practice, it is form over function, it is impossible to view it as doing very much by way of achieving anything other than chasing a chicken so that it tastes like a rabbit.
I wonder if the Muslim community thought that interest is a ham sandwich why Islamic finance transactions often mask interest "rates of return" as being something different from what they are. I wonder why the claims for social justice haven't disappeared but proliferated. I wonder whether that bothers anyone, claims that social good is being achieved when patently it is not. A prominent practitioner at the same panel said he was offended that people like me cast doubt on the acrobatics on Islamic finance--we are only serving clients, he insists. Indeed, and fair enough. But that's an argument for the individual lawyer, not the practice. The defense lawyer who raises the sexual history of a victim to free his client accused of rape is also only serving his client. That's no argument against a rape shield law. No Islamic finance isn't rape or anything remotely close, that's of course not the point of the analogy at all. Rather, the point is, that one serves his client is not enough, what one is allowed to do in the name of "sharia compliance" to serve clients is itself the problem. The rules as they are set up are the offense, not the lawyer who uses them to his advantage.
What surprised me was how receptive Sh. Talal was to the criticisms. That is, he understood where it was these things came from, and indeed was sympathetic, and genuinely desirous, of less chicken chasing and more attempts at responsible social justice. I'm to be honest far more of a liberal Muslim than my grandfather was, love him as I do, and have deep skepticism that money interest has anything really to do with a lack of social justice. It seems to me that distributive justice, social justice, fairness, and the like can be achieved in better ways than emphasizing this particular aspect of doctrine. That said, I was and am quite happy to see people like Sh. Talal involved in the practice. It makes me think that, despite my own skepticisms, genuine efforts to do good are being made. And in that, all of us, secular and religious alike, have something to celebrate.
HAH
My opening remarks (I was first) referred to a moment in my childhood when I complained to my grandfather respecting the Shi'a prohibitions on eating rabbit. Why was it, I wanted to know, that all the Sunni schoolkids could eat rabbit, but I could not? My grandfather, Allah bless him, was unfazed, and told me I wasn't missing out on anything, because scientists had shown that if you chase a chicken around for 30 minutes and then slaughter it, it ends up tasting precisely like rabbit. (If he's right, then I can confirm, rabbit tastes just like chicken.) But he was probably just getting rid of a hyperactive kid (and doing a fine job of it too).
Still, the point is, had I asked him why we don't take interest, there's no way he would think of providing a similar answer. There are the acts of worship, the ibadat, and to those there is acceptable formalism. If the chicken does or does not taste like rabbit is of no moment, it is not a rabbit and this is the fundamental line. But then there are the muamalat, the rules of human interaction, and those are supposed to have purposes. My grandfather would not have told me I could get something just as good as interest if I bought item X, sold it at a markup reflecting interest, and then had the purchaser sell it right back into the market, as is done often with a synthetic murabaha. Instead, he would have sat me down and explained patiently the evils associated with the practice of guaranteeing a profit from no more than a loan.
The point ultimately is not my grandfather, but that the broader expectations of the Muslim community towards Islamic finance, to the extent they pay it any attention, is to provide some modicum of social justice, it is not just to follow a rule for the sake of following it. Of course some do argue this, and say that while the economics of the Islamic finance transaction are the same as they are for any other form of transaction, a ham sandwich is forbidden and turkey ham is not. I wonder how many mosques you could walk into and actually make that argument. Yet it is the reality of the practice, it is form over function, it is impossible to view it as doing very much by way of achieving anything other than chasing a chicken so that it tastes like a rabbit.
I wonder if the Muslim community thought that interest is a ham sandwich why Islamic finance transactions often mask interest "rates of return" as being something different from what they are. I wonder why the claims for social justice haven't disappeared but proliferated. I wonder whether that bothers anyone, claims that social good is being achieved when patently it is not. A prominent practitioner at the same panel said he was offended that people like me cast doubt on the acrobatics on Islamic finance--we are only serving clients, he insists. Indeed, and fair enough. But that's an argument for the individual lawyer, not the practice. The defense lawyer who raises the sexual history of a victim to free his client accused of rape is also only serving his client. That's no argument against a rape shield law. No Islamic finance isn't rape or anything remotely close, that's of course not the point of the analogy at all. Rather, the point is, that one serves his client is not enough, what one is allowed to do in the name of "sharia compliance" to serve clients is itself the problem. The rules as they are set up are the offense, not the lawyer who uses them to his advantage.
What surprised me was how receptive Sh. Talal was to the criticisms. That is, he understood where it was these things came from, and indeed was sympathetic, and genuinely desirous, of less chicken chasing and more attempts at responsible social justice. I'm to be honest far more of a liberal Muslim than my grandfather was, love him as I do, and have deep skepticism that money interest has anything really to do with a lack of social justice. It seems to me that distributive justice, social justice, fairness, and the like can be achieved in better ways than emphasizing this particular aspect of doctrine. That said, I was and am quite happy to see people like Sh. Talal involved in the practice. It makes me think that, despite my own skepticisms, genuine efforts to do good are being made. And in that, all of us, secular and religious alike, have something to celebrate.
HAH
nice entry. I also had the wonderful opportunity to meet sh. talal some time ago. I share your concerns regarding of a reckless abandonment of economic and social justice in favor of more form-based adherence, but I wonder if this is one of those cases where the law is more concerned with form. Consider the verse, 2:275 - "This is because they claim that usury is the same as commerce. However, God permits commerce, and prohibits usury." To me, if it's possible that someone could claim that riba and trade are identical, it means that it's possible to have two financial instruments that, side by side, seem to do the same thing, yet for purposes of sharia are different. The objection to one vs. the other? God has forbidden THIS one and allowed THAT one. Another example, there's a narration, I'd have to look it up, where a companion traded lower quality dates for a different number of higher quality dates. The prophet condemned this as riba and told him to instead trade the dates for gold/silver, then use the gold/silver to buy the dates he wanted. What is the difference? an extra transaction in the middle that brings about the same outcome through different means.
also, if the difference between an interest-bearing financial transaction and a sharia compliant transaction exists only in form, it does not mean that the sharia lacks substance, but that the interest-bearing transaction was almost sharia-compliant in the first place. There's a sort of knee-jerk reaction to the word interest, I think, probably because riba was badly translated that way into english. Consider a different type of transaction accepted by modern financial practices that could not be easily translated into sharia compliant terms using only changes in form. Say, selling options on stocks you don't yet own (I'm clearly out of my area of expertise here) - clearly forbidden by sharia and no amount of tinkering with form that I can dream up would fix that.
Reply to this
I am writing the following from a "consumer rights" point of view. If the consumer asked for a rabbit, he must be served a rabbit. The finance house cannot say that it is rabbit without disclosing its process of, say, chasing it for 30 minutes. It is the consumer who decides if he wants to buy that process of turning a chicken into rabbit or not.
Way too much attention is given to dancing around interest instead of developing trade.
Trade is developed through venture capital and partnerships. Partnerships absorb the ups and downs in life-cycle of trade by allowing the venture/partnership to organically disburse profits instead of skimming revenue whether or not a profit is made.
Ventures/Partnerships demand trust. If the venture capitalist or partners don't trust those they are dealing with, then don't get involved. But don't say that I don't trust you enough to partner with you if I am at risk; but I do trust you enough to lend you if you take the risk out for me.
Borrowing is a societal need. As per 2:278 and 2:279, it cannot be commercialized.
The Qur'an handles instances of fraud outside of venture capital, partnership or lending contracts.
Reply to this