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I am curious about the events that have lead to the development of Sharia banking. It seems to be partly a shield against runaway interest/inflation. This has a

I am curious about the events that have lead to the development of Sharia banking. It seems to be partly a shield against runaway interest/inflation. This has a parallel to the idea of usury in Christianity. Perhaps societies that avoid becoming too financialised have a better chance of survival?

deleted 6y ago
[deleted]
vbezhenar 6y ago
It is forbidden to lend money with interest in Islam. So they invented this thing which is exactly the same, but formulated with other words and so it's appropriate.
- TheUndead96 6y ago
  Just to be clear I was not making a value judgement, just an observation. I find it compelling that many traditional societies have come to this principle. I personally think that removing interest from a money system could go a long way to stabilise it.
- LatteLazy 6y ago
  I detest sharia law in general and the whole idea of a religious authority making rules others then have to follow but... There are subtle and important differences between Islamic finance and non Islamic finance and there are upsides to the Islamic approach. One example of this is that there is no chance of bankruptcy from debts or negative equity. This strongly encourages responsible lending.
  - runawaybottle 6y ago
    I don’t think this is specific to Sharia law, those rules on lending is for Islam in general. I think giving away 30% of your income to the poor every year is one of the five pillars of Islam as well.
    - fakedang 6y ago
      1.) Islamic law is the same as Sharia law 2.) It's 2%, and in the past often collected as tax.
      - insulanian 6y ago
        It's 2.5%
        fakedang 6y ago
        Yeah, my bad. But still nowhere near the 30% mentioned by the original comment.
    - doesnotexist 6y ago
      There is no set amount or percentage dictated by the Quran. Usually the customary amount is ~2.5% of capital assets earned in a year. And apparently somewhere around 20% on mining income, which obviously is only applicable to small number of people who own interests in mining operations.
  - doesnotexist 6y ago
    Unfortunately mainstream undercurrents of islamaphobia/orientalism have hijacked the english use of an arabic word "Sharia" and made it into a knee-jerk scare word. It seems weird to pronounce that you detest it in general since it's not a monolithic thing and is more of a general concept encompassing a law tradition informed by a moral/religious framework. https://bridge.georgetown.edu/research/factsheet-sharia/ https://bridge.georgetown.edu/research/factsheet-sharia/ https://ing.org/a-closer-look-at-sharia-in-the-united-states/ https://ing.org/a-closer-look-at-sharia-in-the-united-states...
    - pc86 6y ago
      Is Sharia law not a religious authority ruling folks who do not belong to that religion? What exactly is Islamophobic about calling that out? The exchange between Bill Maher, Sam Harris, and Ben Affleck[0] is a great example of hamfisting Islamophobia into completely legitimate criticisms of Islam, Islamism, Sharia over secular society, etc. Not every criticism of Islam (and truthfully, the vast majority of criticisms of Islam) are not racist of Islamophobic. [0] https://www.youtube.com/watch?v=vln9D81eO60 https://www.youtube.com/watch?v=vln9D81eO60
      - doesnotexist 6y ago
        There is little to no difference between what the article is describing, a halal certificate on some financial instruments and the Kosher or Halal stamps you see on food products at the grocery store. In this case there is a consumer demand for products labelled Halal and it is being met by a body deemed to hold legitimacy in determining compliance, how this becomes a discussion about defending the entirety of a broad concept like Sharia is perplexing.
        pc86 6y ago
        Is a "halal certificate on some financial instruments" a relevant thing outside of Sharia law? This is a serious question. Are more moderate Muslims okay with interest, or is it pretty much across the board? I'm sure you can find some of any group okay with just about anything, I just mean in general. I'm not sure where on the spectrum of atheist to Islamist something like this falls. Right or wrong I have always associated refusal to use traditional banking a more hard-line Muslim belief.
  - raverbashing 6y ago
    > One example of this is that there is no chance of bankruptcy from debts or negative equity I think there are some dusty luxury cars at Dubai airport that beg to differ
    - thebean11 6y ago
      Genuinely curious, what's this a reference to? People fleeing Dubai to avoid debt, leaving their cars at the airport?
      - davchana 6y ago
        Yes, in 2008 recession it happened. Middle east & Dubai have way way lot expats as compared to locals, sometimes like 90%. Most of the Dubai expats had lots of disposable income for similar jobs as compared to income from same jobs in their home countries, so many of them financed luxury cars, expensive houses etc. Once recession hit, the jobs started disappearing here & there, & expats had no choice but to return back to home. Now, if they inform bank first, banks can stop them from exiting country by government assistance, so many of them just drove to airport in those cars, parked, took flights & never looked back.
- doesnotexist 6y ago
  "How is [Islamic finance] different from secular finance? The difference is, for example, that they don't charge interest. They can't indulge in some particularly risky or speculative transactions. There's actually a whole long list of requirements, such as not selling debt, that are derived from these basic prohibitions against interest taking and against excessive risk. So because of those specific rulings, they have to design the transactions in slightly different ways. For example, rather than borrowing money to buy some goods, they'll have the bank buy the goods and then resell the goods to the customer, so the bank becomes involved as an owner at one stage of the transaction. That makes it lawful, from the Islamic perspective. Whereas if the bank lent the money to the customer, that's an interest-bearing loan, and that's not allowed. So they use slightly different routes, typically involving ownership of goods at some point, to achieve finance." https://www.theguardian.com/commentisfree/michaeltomasky/2010/aug/05/usa-islam-elena-kagan-sharia-nonsense https://www.theguardian.com/commentisfree/michaeltomasky/201...
  - candiodari 6y ago
    The do charge interests. Sorry, they "don't". They charge "administrative costs", percentual administrative costs that reoccur over time. Although this comes in many different flavors. And, of course, despite everything sounding nicer ("partnership"), it is in fact a much worse position for the buyer to be in. An example of islamic finance "without interest": you want to buy a house, and repay your "non-loan" over 30 years. You put down a 10% downpayment. The bank purchases the home, immediately increases the price by the full interest (let's simplify that calculation to 30yearly interest rate/2, so let's call it 50% for 30 years at 4%) then leases it back to you, and if you run out the lease they promise to transfer (for an additional fee) the ownership of the property to you. This is called a "partnership". This is illegal in most of the world, because it's exploitative. Why? 1) you are charged all interest on day 0 2) if you fail to pay, the property is in the hands of the "not-" bank that will kick you out, you will STILL owe them, generally more money than was to be repaid for you to get the property 3) if the *bank* gets into financial trouble you will lose your house 4) there are none of the normal protections (such as maximum interest rates, limits on administrative fees, ... and technically 2) is also an example of lack of protections)
- pc86 6y ago
  A lot of folks seem to be ignoring this. Sharia finance does use interest. They just call it something different. There is no difference between me buying a $100 product using a loan, and paying the bank $110 in total (Western banking), compared to the bank buying the product for $100, and charging me $110 for it (Sharia banking). The fact that it's different words doesn't mean it's not interest.
  - candiodari 6y ago
    It is called/translated (percentual) administrative costs.
    - pfortuny 6y ago
      Yes, so interest. Just a replication argument.
  - anonymfus 6y ago
    There is a difference in what happens if you fail to pay these 110 dollars or if product is broken. With loan, bank will use a court system to get back its money, and court can size your other property to return your debt, and by the power of small text your fines can unexpectedly outsize the price of the product by one or few orders of magnitude. With Sharia banking you will never pay more than these 110 dollars, and if you fail to pay them, the bank will size that product without using the court as it is legally a property of the bank unless you paid these 110 dollars. (Warning: I am not a lawyer.)
  - davchana 6y ago
    Yes, I had a personal loan in Qatar, for about 8% APR, but it was never listed as Interest in statements. It was always, maintenance charges.
- gruez 6y ago
  >So they invented this thing which is exactly the same, but formulated with other words and so it's appropriate. reminds me of https://en.wikipedia.org/wiki/Eruv https://en.wikipedia.org/wiki/Eruv
eru 6y ago
Huh? What does interest have to do with inflation?
- deleted 6y ago
  [deleted]
- TheUndead96 6y ago
  Inflation is like the metabolism of an economy. Money represents work done in the past. Inflation means that work done further in the past is worth less than more recently. So $10 today is worth less tomorrow. Some economies have a faster metabolism than others. If I loan you $50, and ask for 10% interest, you must pay be $55. That $5 comes from somewhere. In a physical money economy, that literally means it comes out of someone's pocket in some way (starting a business etc.). You can imagine that if we have many many loans overlapping, over long periods, we might begin to have a money deficit. To be honest, I don't have the proper expertise to explain it perfectly. But I hope that it gives an intuition.
  - zajio1am 6y ago
    > If I loan you $50, and ask for 10% interest, you must pay be $55. That $5 comes from somewhere. ... You can imagine that if we have many many loans overlapping, over long periods, we might begin to have a money deficit. No. the interest is just a claim on part of real production. Creditors would buy some products or services from debtors and that is where $5 came from.
    - TheUndead96 6y ago
      Well imagine if there is only $55 worth of currency in circulation. Or better yet only $52. The lender ends up with all the currency in the end (and maybe some that does not exist yet). The response is that currency is printed. If the production of society increases at the same rate as interest, then there is no problem, but that is rarely the case. This is why there is more debt than money in the world. Currencies are then deliberately debased in order to pay back debt quicker. https://www.cato.org/policy-report/julyaugust-2011/deficits-debt-debasement https://www.cato.org/policy-report/julyaugust-2011/deficits-... (I realise limiting the money in circulation to $52 is an absurd formulation, but using these crazy limits helps understand the larger system) The difference between real growth and the amount of currency is the "metabolism" I referred to earlier.
teleforce 6y ago
I am not a finance or business expert but it is stated in the Quran that there is a clear distinction between "business" and "usury", where the former is encouraged but the latter is prohibited. The implementation of it is opened for the interpretation of the experts based on the basis of this particular distinction. Fun fact, Muhammad was a very successful businessman and has been doing international trading to Sham (modern Syria) since he was a very young boy. He managed to retire from business before he is 40 years old and it is due to his business success not because that he is married to his first wife Khadijah. Basically he is a business startup founder with Khadijah as one of his main VC partners.

deleted 6y ago

[deleted]

vbezhenar 6y ago

It is forbidden to lend money with interest in Islam. So they invented this thing which is exactly the same, but formulated with other words and so it's appropriate.

TheUndead96 6y ago
Just to be clear I was not making a value judgement, just an observation. I find it compelling that many traditional societies have come to this principle. I personally think that removing interest from a money system could go a long way to stabilise it.
LatteLazy 6y ago
I detest sharia law in general and the whole idea of a religious authority making rules others then have to follow but... There are subtle and important differences between Islamic finance and non Islamic finance and there are upsides to the Islamic approach. One example of this is that there is no chance of bankruptcy from debts or negative equity. This strongly encourages responsible lending.
- runawaybottle 6y ago
  I don’t think this is specific to Sharia law, those rules on lending is for Islam in general. I think giving away 30% of your income to the poor every year is one of the five pillars of Islam as well.
  - fakedang 6y ago
    1.) Islamic law is the same as Sharia law 2.) It's 2%, and in the past often collected as tax.
    - insulanian 6y ago
      It's 2.5%
      - fakedang 6y ago
        Yeah, my bad. But still nowhere near the 30% mentioned by the original comment.
  - doesnotexist 6y ago
    There is no set amount or percentage dictated by the Quran. Usually the customary amount is ~2.5% of capital assets earned in a year. And apparently somewhere around 20% on mining income, which obviously is only applicable to small number of people who own interests in mining operations.
- doesnotexist 6y ago
  Unfortunately mainstream undercurrents of islamaphobia/orientalism have hijacked the english use of an arabic word "Sharia" and made it into a knee-jerk scare word. It seems weird to pronounce that you detest it in general since it's not a monolithic thing and is more of a general concept encompassing a law tradition informed by a moral/religious framework. https://bridge.georgetown.edu/research/factsheet-sharia/ https://bridge.georgetown.edu/research/factsheet-sharia/ https://ing.org/a-closer-look-at-sharia-in-the-united-states/ https://ing.org/a-closer-look-at-sharia-in-the-united-states...
  - pc86 6y ago
    Is Sharia law not a religious authority ruling folks who do not belong to that religion? What exactly is Islamophobic about calling that out? The exchange between Bill Maher, Sam Harris, and Ben Affleck[0] is a great example of hamfisting Islamophobia into completely legitimate criticisms of Islam, Islamism, Sharia over secular society, etc. Not every criticism of Islam (and truthfully, the vast majority of criticisms of Islam) are not racist of Islamophobic. [0] https://www.youtube.com/watch?v=vln9D81eO60 https://www.youtube.com/watch?v=vln9D81eO60
    - doesnotexist 6y ago
      There is little to no difference between what the article is describing, a halal certificate on some financial instruments and the Kosher or Halal stamps you see on food products at the grocery store. In this case there is a consumer demand for products labelled Halal and it is being met by a body deemed to hold legitimacy in determining compliance, how this becomes a discussion about defending the entirety of a broad concept like Sharia is perplexing.
      - pc86 6y ago
        Is a "halal certificate on some financial instruments" a relevant thing outside of Sharia law? This is a serious question. Are more moderate Muslims okay with interest, or is it pretty much across the board? I'm sure you can find some of any group okay with just about anything, I just mean in general. I'm not sure where on the spectrum of atheist to Islamist something like this falls. Right or wrong I have always associated refusal to use traditional banking a more hard-line Muslim belief.
- raverbashing 6y ago
  > One example of this is that there is no chance of bankruptcy from debts or negative equity I think there are some dusty luxury cars at Dubai airport that beg to differ
  - thebean11 6y ago
    Genuinely curious, what's this a reference to? People fleeing Dubai to avoid debt, leaving their cars at the airport?
    - davchana 6y ago
      Yes, in 2008 recession it happened. Middle east & Dubai have way way lot expats as compared to locals, sometimes like 90%. Most of the Dubai expats had lots of disposable income for similar jobs as compared to income from same jobs in their home countries, so many of them financed luxury cars, expensive houses etc. Once recession hit, the jobs started disappearing here & there, & expats had no choice but to return back to home. Now, if they inform bank first, banks can stop them from exiting country by government assistance, so many of them just drove to airport in those cars, parked, took flights & never looked back.
doesnotexist 6y ago
"How is [Islamic finance] different from secular finance? The difference is, for example, that they don't charge interest. They can't indulge in some particularly risky or speculative transactions. There's actually a whole long list of requirements, such as not selling debt, that are derived from these basic prohibitions against interest taking and against excessive risk. So because of those specific rulings, they have to design the transactions in slightly different ways. For example, rather than borrowing money to buy some goods, they'll have the bank buy the goods and then resell the goods to the customer, so the bank becomes involved as an owner at one stage of the transaction. That makes it lawful, from the Islamic perspective. Whereas if the bank lent the money to the customer, that's an interest-bearing loan, and that's not allowed. So they use slightly different routes, typically involving ownership of goods at some point, to achieve finance." https://www.theguardian.com/commentisfree/michaeltomasky/2010/aug/05/usa-islam-elena-kagan-sharia-nonsense https://www.theguardian.com/commentisfree/michaeltomasky/201...
- candiodari 6y ago
  The do charge interests. Sorry, they "don't". They charge "administrative costs", percentual administrative costs that reoccur over time. Although this comes in many different flavors. And, of course, despite everything sounding nicer ("partnership"), it is in fact a much worse position for the buyer to be in. An example of islamic finance "without interest": you want to buy a house, and repay your "non-loan" over 30 years. You put down a 10% downpayment. The bank purchases the home, immediately increases the price by the full interest (let's simplify that calculation to 30yearly interest rate/2, so let's call it 50% for 30 years at 4%) then leases it back to you, and if you run out the lease they promise to transfer (for an additional fee) the ownership of the property to you. This is called a "partnership". This is illegal in most of the world, because it's exploitative. Why? 1) you are charged all interest on day 0 2) if you fail to pay, the property is in the hands of the "not-" bank that will kick you out, you will STILL owe them, generally more money than was to be repaid for you to get the property 3) if the *bank* gets into financial trouble you will lose your house 4) there are none of the normal protections (such as maximum interest rates, limits on administrative fees, ... and technically 2) is also an example of lack of protections)
pc86 6y ago
A lot of folks seem to be ignoring this. Sharia finance does use interest. They just call it something different. There is no difference between me buying a $100 product using a loan, and paying the bank $110 in total (Western banking), compared to the bank buying the product for $100, and charging me $110 for it (Sharia banking). The fact that it's different words doesn't mean it's not interest.
- candiodari 6y ago
  It is called/translated (percentual) administrative costs.
  - pfortuny 6y ago
    Yes, so interest. Just a replication argument.
- anonymfus 6y ago
  There is a difference in what happens if you fail to pay these 110 dollars or if product is broken. With loan, bank will use a court system to get back its money, and court can size your other property to return your debt, and by the power of small text your fines can unexpectedly outsize the price of the product by one or few orders of magnitude. With Sharia banking you will never pay more than these 110 dollars, and if you fail to pay them, the bank will size that product without using the court as it is legally a property of the bank unless you paid these 110 dollars. (Warning: I am not a lawyer.)
- davchana 6y ago
  Yes, I had a personal loan in Qatar, for about 8% APR, but it was never listed as Interest in statements. It was always, maintenance charges.
gruez 6y ago
>So they invented this thing which is exactly the same, but formulated with other words and so it's appropriate. reminds me of https://en.wikipedia.org/wiki/Eruv https://en.wikipedia.org/wiki/Eruv

eru 6y ago

Huh? What does interest have to do with inflation?

deleted 6y ago
[deleted]
TheUndead96 6y ago
Inflation is like the metabolism of an economy. Money represents work done in the past. Inflation means that work done further in the past is worth less than more recently. So $10 today is worth less tomorrow. Some economies have a faster metabolism than others. If I loan you $50, and ask for 10% interest, you must pay be $55. That $5 comes from somewhere. In a physical money economy, that literally means it comes out of someone's pocket in some way (starting a business etc.). You can imagine that if we have many many loans overlapping, over long periods, we might begin to have a money deficit. To be honest, I don't have the proper expertise to explain it perfectly. But I hope that it gives an intuition.
- zajio1am 6y ago
  > If I loan you $50, and ask for 10% interest, you must pay be $55. That $5 comes from somewhere. ... You can imagine that if we have many many loans overlapping, over long periods, we might begin to have a money deficit. No. the interest is just a claim on part of real production. Creditors would buy some products or services from debtors and that is where $5 came from.
  - TheUndead96 6y ago
    Well imagine if there is only $55 worth of currency in circulation. Or better yet only $52. The lender ends up with all the currency in the end (and maybe some that does not exist yet). The response is that currency is printed. If the production of society increases at the same rate as interest, then there is no problem, but that is rarely the case. This is why there is more debt than money in the world. Currencies are then deliberately debased in order to pay back debt quicker. https://www.cato.org/policy-report/julyaugust-2011/deficits-debt-debasement https://www.cato.org/policy-report/julyaugust-2011/deficits-... (I realise limiting the money in circulation to $52 is an absurd formulation, but using these crazy limits helps understand the larger system) The difference between real growth and the amount of currency is the "metabolism" I referred to earlier.

teleforce 6y ago

I am not a finance or business expert but it is stated in the Quran that there is a clear distinction between "business" and "usury", where the former is encouraged but the latter is prohibited. The implementation of it is opened for the interpretation of the experts based on the basis of this particular distinction. Fun fact, Muhammad was a very successful businessman and has been doing international trading to Sham (modern Syria) since he was a very young boy. He managed to retire from business before he is 40 years old and it is due to his business success not because that he is married to his first wife Khadijah. Basically he is a business startup founder with Khadijah as one of his main VC partners.