ECONOMIC CONDITIONS: Islamic Finance, Law, Economics and Practice

Article excerpt

ECONOMIC CONDITIONS Islamic Finance, Law, Economics and Practice, by Mohammad A. El-Gamal. Cambridge, UK and New York: Cambridge University Press, 2006. xiii + 191 pages. Notes to p. 212. Bibl. to p. 218. Index to p. 221. $60.

Reviewed by Elias H. Tuma

It is heroic to try to present an Islamic model of finance, but there is no such model in this book or in reality. At best here is a survey of the various approaches to finance by the different schools that consider themselves Islamic. These schools try to base their models of finance on the Shari'a (Islamic Law), or on fatwas (edicts by religious leaders). They all take liberty in interpreting the Shari'a by way of ijtihad (deep analysis and interpretation), eventually to lend legitimacy to coveted financial and economic operations and transactions. The author argues that virtually all the "Islamic" schools of thought seem to be interested in reviving classical economic methods of finance because of their similarity to conventional or modern methods of banking and finance. They avoid payment and receipt of riba (usury) by devising ways to hide an equivalent amount to the price, or earn it in the form of rent. Murabaha (cost plus sale), ijara (lease or hire), and mudaraba (silent partnership) are the most common approaches, but all these were common in medieval Europe to avoid the payment of usury, which was prohibited by the Catholic Church. Current Islamic banks have managed to create a viable industry by devising similar methods.

These various ways to comply with the Shari'a and the use of Shari'a arbitrage deal mostly with form, rather than with substance. If so, why not abandon the emphasis on form and become involved with substance. For example, Islamic banks and financial institutions may become involved in social issues and in extending credit to poor people. It would also be more efficient to screen in industries and institutions that comply with the Shari'a than to screen out those that violate it. According to the author, "most of the shortcomings and inherent dangers of Shari'a arbitrage behavior...can be minimized by redefining the brand name of Islamic finance in terms of religious social and economic development goals" (p. 190), for the industry will be viewed more favorably, and "once Islamic finance outgrows its formulaic and ethical religious tenets, it will no longer need to hide behind the 'Islamic' brand name. …