How did Islamic finance under the early Caliphates profit or take loans if charging interest wasn't legal?
score:3
Partly through semantics, by replacing use of "interest" either as a term or calculation by a complete system of "reciprocal gifts". In a sense, there is a bit of willful blindness occurring.
As I understand it, a mortgage amortization table would be a wholly acceptable system of reciprocal gifts once all internal use of the terms interest and principal have been removed, and all payments are simply termed gifts under the contract.
From a comment by myself below:
Yes, of course [all the gifts are enforceable].
All the reciprocal gifts are fully outlined in the contract, and are contractual obligations. The semantic trick is to never describe them, or calculate them, explicitly as interest.
Capitalist Traditions in Early Arab Islamic World notes
-
There is evidence to suggest that, despite the scriptural prohibition of riba’a (as also by the prior Abrahamic traditions), the practice prevailed in subsequent times. It was quite customary for the creditor to calculate his interest and include it in the sum owed without stating it separately in the agreement
-
“Every person proceeding to the court of the King of India, Sultan Muhammad Shah, must needs have a gift ready to present to him, in order to gain his favours. The sultan requites him for it by a gift many times its value. When his subjects grew accustomed to this practice, the merchants in Sind and India began to furnish each newcomer with thousands of dinars as a loan, and to supply him with whatever he might desire to offer as a gift or to use on his own behalf, such as riding animals, camels, and goods. They place both their money and their persons at his service, and stand before him like attendants. When he reaches the Sultan, he receives a magnificent gift from him and pays off his debt to them. This trade of theirs is a flourishing one and brings in vast profits.”
-
However, some scholars of Islamic history have discussed the evolution of a financial institution in the Islamic world, called maona. This institution was a kind of private bank which loaned out state money. The word maona (in Arabic ma’una) means support or help or, as the case might be, reciprocal, mutual help.
-
One can find precursors of the modern stock-exchange/money market in Islam: ... i.e., the futures-trading in commodities–commodities not yet available in the market but to be delivered in the future. Dates were legally sold at auction before they were harvested. ....
Upvote:0
Firstly, if the loan is intended to finance the purchase of a specific asset, then the seller is allowed to accept being paid later or in installments, and is allowed to charge a mark-up on the 'spot price' to compensate for the value of time (this would not be considered usury under Islamic law). There could also be a middle man (i.e. a financier) who buys from the seller at the spot price and then sells it on to the real buyer for a deferred price (e.g. you want to buy a car, I buy it myself from the dealer then sell it to you but you can pay me in a year instead of today, and I charge you a little extra).
More commonly people want a cash loan rather than an installment sale, and for that there were professional money lenders who would have shops full of stacks of hay or grain or other commodities. If you want a loan, you go to the shop and buy some hay for X dinars on a deferred payment basis then sell to another money lender for immediate payment at X minus %. Now you have X-% in cash and you owe the first money lender a payment of X next year. Change in ownership of the hay would be indicated by people putting their hands over the stack and saying something like "bought!". Older folks in my city say there was a money lenders' quarter at the edge of town that did this very thing until a few decades ago. Modern Islamic banking uses basically this exact same approach today.
Of course Islamic merchants also used other financing schemes that were based on equity (i.e. partnership) rather than debt. So the financier can split the financing into a debt portion (no interest) and an equity portion (with an X% share in profits).
If you want a more academic treatment, try this highly acclaimed recent book (I haven't read it but I'm sure it will give much better coverage of these topics than I ever could): https://www.amazon.com/dp/B072HJJPYK/ref=dp-kindle-redirect?_encoding=UTF8&btkr=1
Upvote:2
Given that riba is prohibited, as I understand, OP is asking about consumer loans and banks making a profit.
The full-explanation requires detailed consideration of politics and philosophy of Islam. So, a simpler answer (if I may) is to just focus on the instruments used in consumer banking (transactions & savings).
- On payments, there is a spot pricing system for installment plan (paid over a year, two, etc.). It is called Nesiah.
- As for straight out loans, see Qard-Hasan loans - a benevolent type of loan.
These are the main instruments in consumer banking. There are others.
Most banks/financial instituions/merchant houses started off in commercial banking - making money from financing commodity trading. There if of course lots more to the political economy of early Islam.
More post
- 📝 Who is Ludovico Bourbon?
- 📝 What are the full names of the discoverers of the Seria oil field?
- 📝 Why did Tokugawa Ieyasu oppose Hideyoshi's plan for expansion?
- 📝 During the Battle of Britain, what AA defenses were available, and where?
- 📝 Marcellus and his work "Aethiopica"
- 📝 Why didn't the Byzantines develop anti-cavalary tactics?
- 📝 Why did Hitler not invade Sweden?
- 📝 What influenced the Supreme Court to overrule precedent in Afroyim v. Rusk?
- 📝 Is Howard Roark's potted history of architecture accurate?
- 📝 Why did Christopher Columbus think he had arrived near Japan?
- 📝 Why are the German and French languages so different?
- 📝 How long would it take to travel from England to western Africa in the late 1890's?
- 📝 How did Azerbaijan come to be allied with Turkey and Israel?
- 📝 How isolated were Yemenite Jews in the last millenium?
- 📝 Sourced List of Ancient Roman Values
- 📝 Please provide me an example of a religious violence that was rooted at ethnic conflict
- 📝 Did Hitler actually say "Millionen stehen hinter mir."?
- 📝 Was the Volga really Russia's last line of defense before the Urals?
- 📝 Why didn't America "rent" parts of China?
- 📝 Could the Russian fleet go via northern route to Port Arthur instead of via Cape of Good Hope?
- 📝 Did 17th Cent. French Gentlemen Necessarily Use a Scabbard for Dress Swords?
- 📝 Has there ever been a cold war other than between the U.S. and the U.S.S.R.?
- 📝 Did the syphilis epidemic start the 16th and 17th century wig craze?
- 📝 Why did Germany attack Neutral Belgium in the first world war?
- 📝 Has a country ever used an insurance company as a shield when the economy goes down?
- 📝 At the peak of the American whaling industry, what share of the workforce were involved in it?
- 📝 Californian ocean-going ships
- 📝 Has any place exhumed more dead bodies than San Francisco?
- 📝 Did Grant's use of attrition tactic support his reputation as a general?
- 📝 How kind were the Muslim occupations of North Africa?
Source: stackoverflow.com
Search Posts
Related post
- 📝 How did Islamic finance under the early Caliphates profit or take loans if charging interest wasn't legal?
- 📝 How did the central government of the United States finance itself under the Articles of Confederation?
- 📝 How long did it take to copy a Bible during the early propagation of the Christian faith?
- 📝 How did early adopters of the automobile fill up their cars?
- 📝 How long did it take for a diplomat to travel between Berlin and Vienna in the 1770's?
- 📝 In the early 1900s, how did US politicians treat black dignitaries from other countries?
- 📝 How long did it take to get news of the sighting of the Spanish Armada from Land’s End to London?
- 📝 How long did it take for a letter to arrive in England in the 1830s?
- 📝 How long, historically speaking, did it take to tally and report the vote?
- 📝 How long did it take to build siege engines in the middle ages?
- 📝 How long would it take to travel from England to the colonies in the early 1700s?
- 📝 How did the French take the Republican Calendar?
- 📝 How much time did people have to take shelter during the Blitz in 1940-41?
- 📝 How did agricultural productivity change in Italy with the fall of the Roman Empire and through the early Middle Ages?
- 📝 How did women's roles and rights change during the early Republican period in China?
- 📝 How did the Crusades change medieval Islamic culture?
- 📝 How long did it take the Thule people to migrate from Alaska to Greenland?
- 📝 How long did it take to repair wooden war ships after battle in the 1600's to 1800's?
- 📝 How long did it take to sail from Philadelphia to Boston in the 1700s?
- 📝 How often did ships stop at Petropavlovsk-Kamchatsky in the early 1800s?
- 📝 How did laborers travel from China to Malaya in the early 19th century?
- 📝 How long did it take biologists to adopt the theory of evolution?
- 📝 How long did Jews in hiding take to reveal themselves at the end of WW2? What was their reception?
- 📝 How did the early settlers of Australia settle the continent?
- 📝 How many people did the Islamic Caliphate send to the Maghreb during the Arabization of North Africa?
- 📝 Why did no one take Siberia over before the Russians, and how did they do it?
- 📝 How and when did the word "nuclear" replace the word "atomic"?
- 📝 How did Israel win the Six-Day War?
- 📝 How did Nazi Germany finance itself during WW2?
- 📝 How did the general population of England convert so smoothly to Protestantism?