Islam’s Money Problem

The Qatar Investment Authority, the agency that invests the country's oil wealth, is a front-runner to clinch a deal to buy a nearly 30 percent stake in the London Stock Exchange. That follows a recent $4 billion bid for OMX, the Stockholm-based Nordic stock-exchange, offered by Borse Dubai — Dubai's government-backed stock-exchange.

Decades of oil revenue have transformed many Persian Gulf states from the world's paupers into cashed-up, international financial players.

Anxious to diversify their economies beyond reliance on oil revenues, some Gulf states such as Kuwait and Bahrain are slowly liberalizing their economies. Their "sovereign-wealth funds" (government investment corporations) are also becoming more creative in their financial strategies. Thus we see Gulf investors, private and public, seeking to acquire stakes in companies ranging from British supermarket chain, Sainsbury's, to American utility TXU Corp.

Given the Arab world's increasing religiosity, however, one potential obstacle could significantly handicap these nations' financial creativity and economic diversification policies: Islam's absolute prohibition of interest-charging.

The Qur'an's proscription of usury (riba) has caused considerable angst for Muslims for centuries. Though some Islamic thinkers argue about what the Qur'an means by usury, it has been generally interpreted as prohibiting interest-charging. More than one scholar suggests that this continuing ban has contributed to the Middle East's slower economic development compared, for instance, to Western Europe.

Christianity once had a usury issue, though somewhat different from Islam's. Many Christians were influenced by Aristotle's insistence that money's apparently unproductive nature made interest-charging indefensible. They also faced the apparent contradiction between the Hebrew Scriptures' condemnation of interest-charging, and Christ's parable of the talents which implies that accepting interest payments is legitimate.

Christianity began resolving these matters in the medieval period. As embryonic forms of capitalism began emerging in thirteenth-century Europe, some scholastic theologians turned their attention to economic questions, including usury.

First, the scholastics established that, under certain conditions (such as free exchange economies), money transcended its "sterility." In these circumstances, money was not simply a means of exchange, but also "capital": that is, a productive good whose owners could legitimately charge others for its use.

Second, as John T. Noonan explained in his authoritative The Scholastic Analysis of Usury (1957), the scholastics clarified usury as the sin of "taking profit on a loan without just title." Noonan notes that what constituted just title or a loan became understood as "matters of debate, positive law, and changing evaluation." Not all interest-charging, the scholastics concluded, constituted usury.

As a result, observes the economic historian Franz-Xaver Kaufmann, the scholastic literature developed and codified these distinctions. This, Kaufman writes, "contributed to the growing sophistication of economic discourse; for instance, concepts such as risk and opportunity came to be invoked with increasing frequency."

In short, many seeds for Western financial capitalism were laid that bore fruit in succeeding centuries. No analogous developments exist in Islamic thought.

Today many Muslims simply ignore the Qur'an's strictures on money-lending. Increasing numbers, however, opt to invest in Islamic banks and shari'a-compliant investment funds. These avoid interest-charging and trading in financial risk (gharar), and focus on activities such as profit-sharing ventures (murabaha) and issuing Islamic bonds (sukuk).

A July 2007 IMF working paper estimates, "there are currently more than 300 Islamic financial institutions spread over 51 countries, plus well over 250 mutual funds that comply with Islamic principles." The paper states that these organizations presently enjoy, "growth rates of 10-15 percent per annum" and exist in majority Muslim nations and nations with Muslim minorities-including Britain, whose Financial Services Authority has authorized shari'a-compliant investment and retail banks.

With religious observance increasing among Muslims, more are likely to invest in these banks and funds.

While good for devout Muslims, such trends could impede the Islamic world's financial integration into global financial markets. As the IMF working paper notes, some Islamic scholars have already questioned, "the legitimacy of establishing Islamic subsidiaries or banks using capital from conventional banks".

A graver question is whether Islam's money problem is symptomatic of what some regard as Islam's apparent inability to generate the foundations required by any free society from "within" its own theology. To say that doubt exists, even among some Muslims, about Islam's potential in this area is an understatement.

The West's resolution of its usury question showed that it could settle conflicts about an economic issue in ways consistent with its dominant moral traditions — a process which gave rise to new conceptual possibilities for economic creativity. Likewise, medieval debates about the state's powers provided important intellectual foundations for concepts of rule of law and constitutionally-limited government.

It is not fashionable to say so, but not every expression of religious faith is compatible with free and pluralist societies, let alone capable of internally spawning the institutions that protect these goods.

Is Islam one such religion? The jury's still out, but the Muslim world's inner-wrestling over interest-charging provides fascinating insights into Islam's current dilemmas — something we all have a stake in.

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  • Guest

     This is one area where Islam may be beneficial in correcting the many abuses that are associated with interest and investment in the West

    "The West's resolution of its usury question showed that it could settle conflicts about an economic issue in ways consistent with its dominant moral traditions."

    I strongly disagree with this statement. These conflicts were not settled. The moral traditions are either circumvented or overriden. Examples:

    The porn industry, the fastest growing industry on the internet. It is legitimatly being funded by the kinds of institutions that most Christians and Jews do business with. This smut peddling business has been intergrated and accepted because of the kind of revenue that it brings it's investors.

    The gambling industry is another one operating pretty much the same way. The states have stoped playing pretend with the Indians and are setting up their own games that are labeled illegal if someone else does it.

    In yesterdays news we read about the deceit card that PPA pulled on the town in Ill. You can be sure that the bankers were not deceived. They knew to whom they were lending and the rate was commesurate with the risk of not opening on time and generating blood money.

    What about credit cards to college students. I could go on and on. The only way the above statement would be true is if one of the "dominant moral traditions" was: let's just make money.

  • Guest

    Goral, maybe what the author meant was that in principle "The West's resolution of its usury question showed that it could settle conflicts about an economic issue in ways consistent with its dominant moral traditions."

    Obviously Original Sin and evil what are the genesis behind the examples you cited.  I'm not an expert in this field, however, Christianity's ability to integrate theology with key human issues,whether they be scientific, economic, or social is a great treasure and a sign that the Holy Spirit is at work.

    I think yesterday's article about universities shows how the theology of Christianity (and its study within the university structure) determined Western Culture.  Secularism and evil (through universities and corporations and government) are trying to reshape the West in its image:  a "Black Hole" into which we'll be sucked into nonexistence.

    May God have mercy on us and may He grant us the grace to recognize the perversions and fight them according to our gifts.

  • Guest

    The resolution for usury is: go ahead, do it. That is capitulation in principle and in fact. The intergration of faith issues into a diverse secular environment is difficult and to our credit was done fairly well. I said was because we're stripping all the traditional mores that actually gave us proper economic development and capital formation. What we're doing now is creating holding companies, ghost entities, absent owner corparations that are specifically designed to evade social resposibility. In our legal and ethical processes there's more wiggling going on than a chubby girl fitting on a tight pair of jeans. Sunday has eclipsed all other days in shopping activity. Here I'll insert Dr. Samuel's next statement: "a process which gave rise to new conceptual possibilities for economic creativity". Yep, these are new conceptual possibilities allright. We'll just dispense with the word tradition that was used in the previous sentence. I don't know about Dr. Gregg, but there are people out there who make a living convincing us that a clearly unjust and immoral situation is good for business and good for our conscience so let's go with it. The word brainwashing comes to mind.

  • Guest

    I agree, Goral, truths are perverted in every specter.

    Think of art.  Now remember a crucifix plunged into urine.  Art?

    But that disgraceful abomination doesn't change the purpose of art which is to elevate the heart and mind to God.

    Everything you said is true.  However, what is the solution?  I think the medievil thinkers were accurate in their theology.

    You are an upright businessman.  I am married to one also.  I would rather be cheated than to cheat.  I know God will sort it out in the end.

     Moral folks need to discuss these issues as a beginning step to remedying the problems.  But I don't believe MORE government regulation is the answer.  What I do believe is:

    "Fear of the Lord is the beginning of Wisdom."

    Therefore, prayer and leading an upright life (including raising awareness, sacrifice, fasting, receiving the sacraments,…..) is the answer.

    Goral, thanks for showing the real risks of and actual pitfalls of charging interest.  Maybe the scriptures were onto something when they prohibeted usury.

  • Guest

    Elkabrikir, this is a topic that gets me hot under the collar. It was the only incidence in the bible of Jesus taking out the "horse whip". This gets God angry because it hurts a lot of people. This interest rate game is being played in an increasingly unethical way. The balloon and ARM- adjustable rate mortgages have trapped unsuspecting borrowers. People who are strapped are offered this noose as a life-line. Young, inexperienced borrowers who's families are being torn apart because of bankrupcies. You can say that it's their fault that they fall for it. That statement is partly true, the other part is that these money lenders hold lofty and coveted places in our society. Our business schools are quoting and using their material and the gov't is implementing their policies. The gov't routinely dictates in how the interest rates are manipulated. Greenspan made more visits to Clinton than a lover to his sweetheart.

    I gotta chillax a little bit. On a lighter note the satirical Onion has a report about the growing gap between the rich and the super rich and how the gov't should do something about it. By the way, the news of run on banks in the UK is not getting any mention in the media.

  • Guest

    The original prohibition against usury (lending at interest) was in the Mosaic law and was directed at how one dealt with the poor.  It was to prevent taking advantage of some hardship that had befallen your brothers or sisters (your fellow Israelites) by lending them money at interest when they were in need.

    As the function of money grew in later economies in Christian lands so that money became a capital good that could be invested, the question came up as to whether it was morally wrong to fund a business venture and get something back from the business owners use of your money. The answer was that this was a different matter from lending to someone in need, that in this case the money was similar to seed corn that a farmer would save up, hoping to plant it and reap an increase.

    If the farmer's neighbor was hungry, he was still to give him grain without interest. He would not say to his freind, "I loaned you a bushel of corn in the fall, but if I had planted it, it would have yielded 20 bushels, therefor you owe me 20 bushels."  But that didn't prevent that farmer morally from planting his own seed and making a "profit" (increase) on it.

    So it was reasoned that the fact that one is still obligated to loan to a brother in need without interest (yes, this still applies) does not mean he cannot "plant" his money for increase by investing it in an enterprise that makes more money.

    Corrupt business practices are a result of greed and will never be eliminated from this world. It did not take interest bearing accounts to create it. Just look at the OT warnings about not having two separate sets of weights for example.

    Completely agre with Goral about the ARM's etc. and feel the same way about the paycheck advance and borrow on your car title operations.

  • Guest

    Only a MISREADING of the parable of the talents has Jesus approving interest.  Matthew 25:26-27 (NAB) says

    His master said to him in reply, 'You wicked, lazy servant!  So you knew that I harvest where I did not plant and gather where I did not scatter?  (27) Should you not then have put my money in the bank so that I could have got it back with interest on my return?

    What is the master responding to?  His servant called the master a thief claiming he harvested what he did not plant!  What is the master's response?  If you thought I was a theif then you should have put the money in the bank and collected interest on it for me.  This sounds more like calling interest theft than a blanket approval of it.

    The US economy is based on interest.  The only way it can grow is by the government and individuals borrowing money from the banks (with the promise to repay more money than they borrowed.)  The current government debt is more than 9 trillion dollars (per  With the biblical admonition that the borrower is servant of the lender who should we expect our government to listen to – us or the bankers?

  • Guest

    Your explanation is spot-on mkochan, that's why in business it's called "seed money". To this day the orthodox Jews will not charge interest to their own starting a business even though it's seed money, while the Gentile will not get the same arrangement. Hard to fault them for that. The servant doesn't call the shots, johnek, does he? By the way, that's a different take on the money in the bank, interesting.

    How about the new morgages geared toward the elderly to get them to borrow against their property and devalue it? Remember "conceptual possibilities for economic creativity". You gotta love these guys, they're good at what they do which is rip-off.

    Again, before I get too flustered, I'll end on a light note. Old bankers never get impotent, they just loose interest.

  • Guest

    I'm converting to Orthodox Judaism!

  • Guest

    Have fun celebrating the Sukkot. I'll come visit your Sukkah, only if there are going to be pies. 

  • Guest

    Catching up on my reading .. man, I'm late. 

    This has been a very good thread.  Mkochan, I felt most satisfied with your comments.  Goral had great insight as well, but my beliefs in free enterprise just does not leave me with as strong of opinions on the "system failure".  In the case of unfortunate foreclosures as an example  … we should be reminded of too many greedy homeowners who rolled the dice and just bought more house than they could afford, or wished to just "sell and upgrade in 3 years".  They got stuck … unfortunate, yes – greedy, probably, but not really a condemnation of the markets and industry as a whole. 

    My studies have also vindicated the historical "value of money" with Judeo-Christian theology.  One can argue that this was a watershed element in the growth of the west.  As we have all recognized, bad people can do bad things.  But fortunately, a free society can also continue to fight these absuses .. one by one. 

    Here's praying that ethical and moral responsibilities take hold of those in need.