Читать книгу Intermediate Islamic Finance - Mirakhor Abbas - Страница 9

Any epistemology of Islamic finance must, as with Islamic economics, find its roots in al-Qur'an, which constitutes the fountainhead of Islamic thought. It is from al-Qur'an, then, that the discussion of an ideal Islamic financial system can be started, based on the fundamental rule of the permissibility of al-bay' exchange and impermissibility of al-ribā derived from its chapter 2 verse 275. This constitutes, arguably, an organizing principle in Islamic finance and economics, establishing an important distinction between two types of common transactions, and their separate treatment under Islamic law.7 As noted by Kamali (2000), in the absence of an explicit injunction, the general provision of permissibility (ibāhah) applies to all bay' transactions clear of interest (ribā), ambiguity (gharar), or gambling (maysir), such as the exchange of goods for their monetary value, sale of one object for another or one currency for another, sale at cost plus profit, and forward sale of salam, among others. It can thus be argued that the contract of al-bay' represents an agreement of mubādalat-al-māl bilmāl, which entails the exchange of property with property, or exchange of two bundles of property rights claims that find expression in modern laws and customs.

Several translations of the meaning of al-Qur'an proceed on the basis that al-bay' is the Arabic term for trade or commerce. This implies that no distinction is made with respect to at-tijārah, which is also usually translated into the same English terms trade or commerce. However, these terms appear simultaneously in chapter 2 verse 282, and chapter 24 verse 37, suggesting thereby some conceptual differences. It can be argued upon closer examination of major Arabic lexicons, including Lisān al-a'rab, and Mufradat alfādh al-Qur'an, among others, that there is a significant, albeit subtle, difference between al-bay' and at-tijārah. With reference to alternative verses in al-Qur'an, such as chapter 35 verses 29–30, and chapter 61 verses 10–13, it is suggested that at-tijārah is a trade contract entered into with an anticipation of profit, and certainty about such benefits is only guaranteed for covenants entered into with The Law Giver. It can be also argued that there is a sale (bay') transaction in each trade (tijārah) insofar that the object of trade is purchased with the prior intention of selling, and that all bay' transactions necessarily involve the exchange of property with property.

Apart from spot transactions where delivery and settlement take place simultaneously, there is an element of risk inherent to all exchange contracts with deferred delivery or deferred settlement, because they involve time. Indeed, because the conclusion of transactions depends on the exchange and commitment of cashflows over time, they necessarily take place in an environment of uncertainty. The element of risk arises when different outcomes are possible, or mutually exclusive states of nature can be defined. The nature of risk and amount of quantifiable risks may differ from one transaction to another. It is possible to consider, for instance, the risks in salam contracts with immediate payment but deferred delivery. There is a price risk or valuation risk that derives from the volatility of future price levels, and which is shared by both contractual parties. There are additional risks, such as substandard quality risk and nondelivery risk borne by the purchasers, and production risks and transportation costs risks borne by manufacturers. These risks are borne by both parties to contracts with deferred deliveries or deferred payments.

There are also counterparty risks in the sense that the ability of each party to meet its own production schedules and its own payment obligations may depend on the performance and default probability of third parties. In particular, the risks associated with the production process are inherent to the concept of specialization through comparative advantage, which is at the foundation of the classical thesis about the advantages of trade. It is important to note that the risks of specialization also arise with respect to spot exchange, and that pre-exchange risks of production are also shared by both parties to the exchange, either on spot or deferred delivery. The argument of risk sharing applies to all other forms of permissible contracts under the Islamic law of transactions (mu'amalat), including partnership-based contracts at the other end of the spectrum such as mudhārabah (principal-agent partnerships), and mushārakah (equity partnerships). Arguably, the permissibility of al-bay' exchange activities can be explained by the existence of risk elements inherent to exchange, and the necessity of dealing with uncertainty through a risk-sharing mechanism.

There is a general principle of freedom of contract (hurryat at-taā'qud), and the normal state of permissibility (ibāhah) prevails unless there is a clear injunction haram, such as the prohibition of ribā. In light of the discussion with al-bay' or exchange, it can be argued that the rationale for the prohibition of interest lies in the absence of opportunity for risk sharing. Indeed, interest-based transactions are founded on risk transfer rather than risk sharing mechanisms. The event of default can only be defined in terms of the inability to deliver “promised” payments made on an ex ante basis with respect to credit or fixed-income securities. Default cannot, however, be defined with respect to equity, where risk sharing applies and the extent of profits and losses can only be determined ex post. Thus, “promises” of fixed returns determined ex ante do not take the organic relation between the real economy and financial sector fully into consideration. Financial returns are thus dissociated from the return from the real economy, and the relation between risk and return is thus dissolved. The replacement of risk sharing with risk-transfer and risk-shifting mechanisms is distortive of the exchange relations on which economies can potentially thrive.

The notion that economic growth can only be achieved by sacrificing social and economic equity in mainstream economics promotes a laissez-faire variant of capitalism that does not promote social equity and instead reinforces a dehumanization of economic life. It can be argued that Islamic finance also supplies a coherent theory of rational individual behavior, competitive markets, and social equity. It is based on the same assumptions about economic activities in terms of savings and investment, and considers risk sharing the optimal mechanism for efficient risk allocation in a vibrant and dynamic economy. However, the principal challenge faced by scholars in Islamic economics and Islamic finance is to provide some convincing evidence that these objectives of socioeconomic justice and economic development are not mutually exclusive. The requirements of an ideal Islamic financial system that promotes the twin objectives of efficiency and equity include an optimal set of institutional building. Thus, to understand the relation between the objectives of efficiency and equity in Islamic finance and economics, the discussion proceeds hereafter in relation to three central precepts of institutional economics: (1) property rights protection, (2) enforcement of contracts, and (3) good governance.

The Institutional Structure

The institutional framework for an ideal Islamic financial system is to some extent consistent with the fundamental principles of institutional economics, but it is also inclusive of rules of conduct and enforcement, which are derived from the morality and justice system embedded in Islamic teachings. Consistent with the objectives of Sharīa'h, the principal purpose of this institutional framework is to achieve social welfare through the internalization of ethical and moral rules of behavior. Three main features of the institutional structure are addressed below (1) ownership and property rights, (2) contracts and markets, and (3) trust and mutuality. It remains, however, true of any society that trust remains its permanent lubricant.

Ownership and Property Rights

The central argument is that economic justice demands that wealth is created only through labor and enterprise and that there are no restrictions that curtail the rights of people to work or that prevent equal access to resources. It is in the abolition of legal and institutional hurdles against equal opportunities that socioeconomic justice can be better served. Thus, ownership is recognized over the resources thus created from the application of labor, and only then can property rights be subject to free transfer through exchange, inheritance, contract, gift, or redemption of rights. This redemption of rights allows for an equitable sharing of wealth with the less able. There is a clear emphasis on social justice and harmony where the insatiable desire for wealth is consistent with an insatiable desire for charity. There is reference in al-Qur'an to righteousness, birr, as the state of active participation in deeds of benevolence. Thus, an insatiable desire to increase wealth may be explained by an equally insatiable desire to contribute toward philanthropy and may not constitute a sign of unfettered self-interest.

An important implication of the principle that property rights are created through labor and enterprise is that there is no room for sources of instantaneous creation of property rights, such as theft, interest (ribā), or gambling (maysir). Also, the principle of ultimate divine ownership in Islam implies that the owner's freedom to dispose of property rights is not absolute. There are, for instance, restrictions against the use of property rights in prohibited transactions, and against waste and destruction. The injunctions against excessive accumulation of wealth are injunctions against the amassing of property rights that are conducive to a monopoly over opportunities, intrusion upon the rights of others, and privileged access to resources. Given these restrictions about absolute ownership, wealth circulation is allowed to play an essential role in economic development and social justice.

Another corollary to the principle that wealth is created through labor and enterprise is that it can only be shared through either a redistributive mechanism or risk-sharing mechanism. As noted above, redistribution through zakah constitutes a form of redemption of property rights to the poor. The risk-sharing mechanism provides an opportunity to increase wealth, but only under the conditions of appropriate exposure to risk. Thus, wealth-increasing arrangements such as al-ribā, which do not take into consideration the trade-off between risk and reward, are deemed impermissible. Thus, restrictions imposed on the scope of individual freedom with respect to property rights are essential to achieve the right balance between individual rights and social interests. They are also consistent with the office of gerency and conducive to capital formation, which is required for economic development, and social justice through poverty alleviation. Thus, this institutional setting differs from the conventional property rights system not only in the restricted freedom of disposal through impermissible transactions, but also in the consideration of property rights as a means of inclusion of the less able, because of idiosyncratic factors such as illness and disability, in the wealth of the more able. It is through risk-sharing mechanisms, in addition to inheritance rules, that wealth is necessarily shared with the society to provide new opportunities for property rights through labor and entrepreneurship.

Contracts and Markets

The second facet of the ideal Islamic financial system is represented by the rules of behavior in the domain of property rights transfer through contract and organized exchange. Since the concept of “property” represents a set of usufruct rights, powers, duties, and liabilities defined with respect to an underlying asset, it is possible to appropriate rights through the combination of one's labor with the resources, but the concomitant duty of sharing remains. Property is therefore associated with rights and obligations in the use of resources: (a) the right not to be excluded and (b) the obligation not to exclude others. In principle, the property rights and obligations cannot be dissociated from each other, but as argued by Askari, Iqbal, and Mirakhor (2015), it is the advent of the market system in Western economies that led to a revision of the concept of property, which eliminated the right not to be excluded from the use of assets owned by third parties. The rationale behind this exclusion is that this right is not consistent with market economy because it was deemed not marketable. Thus, the Western conception of property rights is presently centered on the right to exclude others. But the right not to be excluded by others remains intact, as it does not undermine the functions of markets in the allocation of resources based on the risk-sharing principle.

From the economic perspective, contracts provide a legal institutional framework for the transfer of property rights, but also for the allocation of risk. Because of the uncertainty about the future outcome of labor and enterprise, contracts are useful in facilitating the allocation of risks. The Islamic jurisprudence includes an entire class of classical nominate contracts, including participatory arrangements such as mudhārabah (principal-agent partnership), mushārakah (equity partnership), and mushārakah mutanāqisah (diminishing equity partnership). In particular, mudhārabah partnership contracts provide the basis for an essential part of the business of Islamic banking institutions. The full spectrum of permissible contracts also includes ijarah (leasing contract), istisnā' (consignment to manufacture), among other things. All these contracts have a basis in the Islamic law of muā'malāt, which implies that their purpose is congruent with the fundamental objectives of Sharīa'h, and consistent with the principle of risk sharing.

There is also an essential place for the market system in an Islamic economy because private enterprise, freedom of contract, property rights, and pricing mechanisms are consistent with the promotion of social welfare and economic efficiency. In conventional economics, the market system constitutes, after the retreat of socialism, the raison d'être of capitalism and its defining ideology. In an Islamic economy however, this market system is also a necessary mechanism for the allocation of risk, but the mere existence of markets may not be sufficient to ensure social justice. The need for competitive markets arises because of their ability to allocate risk efficiently and provide an effective system of price discovery. But it is only in a world of perfect markets with no transactions costs, and perfect information about financial assets that this function becomes effective. It is understood that there were, for instance, no taxes imposed on market access, no barriers to entry or exit, and no transaction taxes, no restrictions on international and interregional trade, no import or export taxes in the free-market system designed under the Noble Messenger (saws). But there were prohibitions on price controls and against hoarding of commodities. There was also free movement of goods across markets, as well as free and transparent sharing of market information. The guarantee of contract enforcement was also associated with the obligation of clear specification of the terms of contract, including the conditions of delivery and settlement, and property rights and obligations of all contractual parties. There was also the institution of market supervisors to ensure the compliance of market participants to the rules prescribed for the proper operations of markets.

The supervisory bodies similarly established in the conventional system to guarantee compliance to market regulation are deemed to be not only necessary but also sufficient for the proper functioning of markets. This is not the case of the institutional market conditions in an Islamic economy, which requires also a morality and justice system. There is indeed an additional requirement to the enforcement of a code of morality that is internalized by all market participants. Thus, the institutional structure of markets in an Islamic economy depends on the free flow of information, protection of property rights, and legal contract enforcement system, but also, as argued by Askari, Iqbal, and Mirakhor (2015), on trust as well as the right not to be harmed and obligation not to harm others.

Trust and Mutuality

Thus, the third facet of the ideal Islamic financial system is about trust and mutuality. Trade requires mutual consent, and there is thus no coercion (ikrāh) in the conclusion of contracts, as much as there is none in the adherence to the first covenant (mīthāq) with Allah (swt).8 The sacred principle of the freedom of contract implies that all contractual obligations are fully honored. It is indeed stated in al-Qur'an that believers are required to fulfill all obligations. Faithfulness to contracts is therefore deemed a sign of strong belief. However, to enter into an agreement implies not only that promises are binding, but also that each party expects the other to fulfill its own obligations. The concept of mutual trust is thus essential to the conclusion of contracts and has also implications for contract enforcement. This is not just an issue of asymmetric information, which would render the contract invalid from the perspective of Sharīa'h. Such a prohibition is based on ambiguity, gharar, about the terms and conditions of contractual agreements. However, even in the presence of perfect information, the conclusion of an agreement rests on mutual understanding and trust that each party is committed to the fulfillment of its obligations. This implies that it is exchange that nurtures a culture and reputation for honesty, sincerity, and trustworthiness.

As noted above, the importance of the institution of trust is also recognized by Arrow (1974). It is important to note that the socio-political-economic system can be governed by different types of relationships. Boulding (1970) draws parallels between social systems and biological systems, where the genotype represents the generic code for the growth and development of the phenotype or living entity. It is then argued that it is the genotypical relationships that define the development of social organizations and role structures. There are genotypes of relationships in social organizations, including (a) threat relations that allow one party to impose its course of action or role on another based on credible threats and restrains, (b) exchange relations based on the division of functions, and (c) integrative relations that do not fall under the classes of threat or exchange, but result from the mutual acceptance of the relative status of parties. The integrative relations based on the relative status of parents to children or judges to disputing parties, for instance, establish the legitimacy of authority and the identity and development of community.9 It is argued also that without integrative relations, neither threat nor exchange relations can be sustainable. It can be thus argued that exchange relations provide the basis for the division of labor and specialization, which are at the foundations of the theoretical arguments advanced by Adam Smith. These social generic structures that threat relations are conducive to submissive and repressive, and thus, regressive systems. The exchange and integrative relations pave the way to evolutionary and inclusive, and thus progressive, social and economic systems.

A social generic structure based on exchange relations requires the internalization of a general code of conduct, ethics and morals. Boulding argues that a degree of mutual trust and honesty is necessary for the development of financial institutions into complex structures beyond the primitive form, and that “the failure of the integrative system of a country to develop concepts of mutuality, trust and community beyond the confines of the family or the small intimate group is often one of the major obstacles to its economic development” (1970, 13). Also, an environment characterized by poor protection of property rights, costly information, and higher transactions costs is naturally conducive to weaker trust in the enforcement of contract. This argument is also consistent with the virtue of truthfulness, sincerity, and trustworthiness. Mutuality is also central to the concept of Islamic insurance, takāful. It is the intending or intention, niyyah that determines one party's commitment to contractual terms and its own expectations about the other party's intentions. Thus, when the fulfillment of obligations is indicative of belief, an effective mechanism for contract enforcement is in place, and reference to the code of conduct of the Noble Messenger (saws) is made, al-amīn (the trustworthy), then trust and mutuality may not be regarded as naïve acceptance of vulnerability. It remains true of any society that trust is the lubricant of the economy and that social capital should be taken into account as a determinant of long-term economic development.

Islamic Finance in the Classical Age of Islam

In light of the institutional structure of Islamic economics, it is possible to actualize Islamic finance based on exchange relations, devoid of threat and coercion and devoted to the promotion of economic efficiency, equity, and justice. This objective is achieved through an optimal allocation of resources and transfers of property rights based on risk sharing. Since the increase in property rights can only be achieved through the application of labor to available resources, there are inherent risks in economic enterprise. Thus, there are arguably no legitimate means of increasing wealth without submitting it to the prospects of profit and loss. The allocation of resources under uncertainty constitutes also an allocation of risk. By design, the classical nominate contracts, including mudhārabah and mushārakah, among others, constitute forms or participatory profit–loss sharing arrangements that are perfectly legitimate according to Islamic jurisprudence. Prior to discussing the actual state of affairs of Islamic finance, it is important to start with a historical perspective of the crucial role it played in the development of corporate entities in modern capitalist systems based on equity partnership.

It may be argued at prima facie that the prohibition of usury was responsible for retarding the development of capital markets. According to Koyama (2010), the persistence of the Church's prohibition in medieval Europe constituted a barrier to entry, which benefited secular rulers, small groups of merchant bankers, and the Church itself. This proposition is consistent with the concept of regulatory capture. In contrast, the prohibition of usury in the Islamic world, which parallels the Church's prohibition in medieval Europe and continues to this date, is associated with different forms of partnership. Udovitch notes the existence of “numerous forms of partnership and especially of highly developed and adaptable commenda arrangements which, from the point of view of both the investor and trader, adequately, flexibly and licitly fulfilled the economic function of an interest-bearing loan” (1975, 10).

Upon closer scrutiny however, commenda (accomendatio) arrangements represent perfectly permissible risk-sharing partnerships based on qirād. As argued by Koehler (2009), medieval Italian merchants dealing with Muslim traders may have adapted the Islamic concept of qirād to establish that of corporate limited liability. According to The International Islamic Fiqh Academy (2001), the qirād or mudhārabah mushtarakah is indeed a form of joint-silent-partner enterprise in which investors, together or sequentially, grant to a legal entity the authority to invest funds in a manner that protects the rights of all parties. According to Lopez (1976), there is consensus among medieval historians about the significant contribution of commenda to the fast growth in trade and investment in Europe. Further evidence from Mirakhor (1983) indicates that commenda were also used in financing of infrastructural projects in Germany. Finally, Heck asserts that “[n]ot only did medieval European rulers deliberately emulate the superb coinage of the Muslims, moreover, the evidence is compelling that they also copied many of their forms of corporate associations” (2006, 235). Thus, it is interesting to note that Islamic merchants in the medieval era gave important insights into the distinction between equity and debt, between interest-free and interest-based financing, between risk-transfer and risk-sharing arrangements. As argued by Koehler (2009), the origins of modern corporations may be traced back not to medieval Italian merchants, but to Islamic finance, which constituted the progenitor of venture capital.

Islamic capitalism, as argued by Çizakça (2011) subject to certain caveats, may be an appropriate appellation of the economic system practiced by the Islamic world from the 13th to approximately the middle of the 17th century, the classical age of Islam. The medieval Islamic economy was not industrialized, but it was arguably an open economy guided by the principles of free markets, promotion of international trade, and entrepreneurship with Islamic finance modes of partnership. It is an economic system that predates the revered treatise of Adam Smith by a millennium and that has developed its own form of capitalism based on al-Qur'an and tradition of the Noble Messenger (saws), as-Sunnah. As rightly argued by Çizakça (2011), the association of capitalism with the revered sources of divine knowledge may be deemed rather irksome, but it is useful to remember that the Noble Messenger (saws) was a merchant. This argument extends to many of his followers, including those who assumed power but without engaging in trade. The Arab roots of capitalism are also examined by Hicks, who suggests that many forms of corporate association were developed by Muslims in order to accommodate the prohibition of interest-bearing transactions, and thus “medieval ‘Arab capitalism’ initially evolved expressly as a principal byproduct of such an accommodation” (2006, 5).