Alhassanain(p) Network for Heritage and Islamic Thought

PART II: Islamic law,’Islamic economics’ and the interest-free bank

Introduction to Part II

One can find a large body of literature on’ Islamic economies’, in Arabic as well as in English.1 But many of the works tend to dabble in generalities and to err in a lack of rigour which prevents the emergence of a serious and systematic literature. The recent’fad’ of’ Islamic economics’ has impressed the production with an urgency that has kept the literature produced so far to a superficial and repetitive standard.2

More serious undertakings have exploited the formidable legacy of Ibn Khaldun. Thus an Egyptian scholar writing an Encyclopaedia of Islamic Economics would dwell heavily on the Muqaddima.3 His effort is not unique,4 nor is it new. The legal tradition had early in the century exploited the famous historian in no less important a scholar than Subhi al-Mahmasani, who wrote his thesis in the 1920s on The Economic Ideas of Ibn Khaldun.’5

The reliance on Ibn Khaldun is the sign of the apparent dearth of material from which to draw an Islamic theory of economics. In contrast to the riches of constitutional law, economics appears as a non-subject in the faqih tradition: there is simply no general theory of economics, let alone a basis for such theory in a specialised subject like banking.

This is why the works of Muhammad Baqer as-Sadr in economics and banking are significant. Against a classical background where the discipline of economics did not exist, and an Islamic world which by i960 had produced no consistent reflection in the field, Sadr wrote two serious and lengthy works on the subject, Iqtisaduna6 and al-Bank al-la Ribawi fil-Islam.7

Surprisingly, there was more by way of precedent on the theme of banking than in the more general’ Islamic economic system’, and Cairo was the scene of a long debate on the question of riba and the repercussions of riba on the legal system, especially in relation to the Civil Code in preparation in Egypt.8 That Code has remained the archetype of most civil legislation in the Middle East, and continues to be the basis for the system of obligations and contracts in Egypt and other Arab countries.

The discussion on riba proper had started early in the century, and had immediately involved the Government and the Azhar. It continued with major figures of the legal and sharli field. Sadr’s contribution on banking starts where the debate in Egypt had stopped. Instead of arguing for or against the equation of riba with interest, Sadr tried to describe the way a bank could operate without any ribawi transaction. The result remains in unique in terms of thoroughness and depth. To date in the Muslim world, and despite the fashionability of Islamic banks since the late 1970s in the Middle East and beyond, no work has to my knowledge been published which matches Sadr’s contribution.

It is not possible, as in the case of constitutional law, to see how the economic ideas of a thinker like Sadr were translated into practice. In the first place, Sadr did not produce a compact work like the constitutional Note either in economics in general, or in banking, to which could be compared another compact document like the Iranian Constitution. Both Iqtisaduna (which is some 700 pages long) and al-Bank al-la Ribawi fil~Islam are detailed and deal with difficult issues. Economic and banking issues are mercurial by nature, and in the case of Islamic law, have little background against which they can be measured.

We have tried none the less to examine the way Sadr’s production was received in the Middle East, and to compare two important issues presented in Iqtisaduna with post-revolutionary developments in Iran: agrarian reform and the role of the state in the economy. In banking, a similar work was not possible, as the data on the financial developments in the Iranian banking system are even scarcer than for other economic fields. Furthermore, Sadr’s main work on the alternative Islamic bank was set in a non-Islamic context to which the Iranian situation is exactly opposite.

These shortcomings notwithstanding, Sadr’s theories of the interest-free bank are milestones in the Islamic legal Renaissance of the Middle East. The correspondence between theory and practice might be elusive and more difficult to appreciate than in the case of constitutional law, but this is probably not unique to the attempt at understanding economics from within the Islamic tradition.