Timur Kuran On Islamic Finance

A Moslem USA professor has a thin thesis on Islamic finance.  I'll work from his comments:

Timur Kuran: What are now known as “Islamic economic principles” were first articulated in the 1940s by Indian Muslims trying to define a unique Indo-Muslim identity. It is then that the absence of interest came to be viewed, through the writings of Islamists, as the sine qua non of a properly Islamic economy. Within a generation there emerged banks meant to accept deposits and make loans on an interest-free basis. These banks were to make funds available to cash-starved small businesses that lack political connections and to promising entrepreneurs without a track record. They were also to serve as instruments of economic Islamization.

So far so good...

Whether the Qur’an bans all forms of interest, or specifically its exploitative forms, was a matter of controversy in the early decades of Islam. It still remains in doubt. What is crystal clear is that what passes as Islamic finance is anything but interest-free. Almost all of the Islamic banks in existence, including those in Egypt, charge their borrowers what any economist would call interest; they also pay their depositors interest as a matter of course. This is not surprising, for interest continues to provide tangible benefits to both lenders and depositors.

Well, not in doubt, just in debate.  Usury is forbidden, just as in Christianity, usury defined today as charging interest of any amount for any time period for anything at loan.  But he is right to criticize "pork labelled beef" as Islamic finance.

For these reasons, I would not expect the spread of Islamic finance in Egypt to have significant economic consequences.

Now wait.  Right after noticing what is passing for Islamic finance is "pork labelled beef" he goes on to aver that the spread of Islamic finance will not help Egypt.  Would it not be more accurate to say:

For these reasons, I would not expect the spread of faux-Islamic finance in Egypt to have significant economic consequences.

To recognize it as not-Islamic, and then to denigrate Islamic, seems dishonest.  But then this is very good:

Having suggested that in its present form Islamic banking would not solve any of Egypt’s pressing economic problems, let me acknowledge that Islamic banks might bring benefits by abiding by their stated mode of operation. The charters of Islamic banks instruct them  to lend on the basis of “profit and loss sharing” rather than for a fixed return. They are to operate like the venture capital companies that have financed the global high-tech industry. Venture capital firms lend to promising entrepreneurs, for a share of any profits, without regard to collateral, track record, or connections. They take genuine risks, losing money when investments that they finance fail.

But then back to very bad, for he mixes true and false!

 Interest-based banking does not do harm. But giving it an Islamic veneer will not improve the Egyptian economy in any measurable way.

Interest-based banking is demonstrably harmful, so that is not true, but very true that an Islamic veneer does not good.  Pork labelled beef is not beef.

Timur Kuran: By the 1850s, leaders of the Middle East and North Africa realized that the region’s traditional commercial and financial institutions had become a handicap in the rapidly evolving global economy. It was not possible to form large and perpetual companies through Islamic partnerships that had not changed form since the Middle Ages.

Slow down...  what leaders?  The Western selected?  What traditional practices?  Ottoman hegemonic patterns and practices? The Ottomans collapsed for many reasons, the greatest of which must be failure to maintain Sharia compliant polity.  And further, where is the evidence either large or perpetual is beneficial, or at least the western credit-usury-backed form?

Next we get ahistorical analysis:

Accordingly, the region’s peoples could not take part in the emerging industrial sectors, or in the modern financial sector, except by operating under the legal system of a European power. 

How can he know this?  Where is this in evidence?  History notes that what industrial sectors that did emerge operated under a legal system of a European power.  Yes, this is called colonialism.  But to claim there was no other option ("except") than what occurred is to go way too far.  It also ignores centuries of peace, justice and prosperity when Sharia was actually in force.  Just ask the Jews who thrived under Islam after fleeing for their lives from Christendom.

How about "impoverished by the Ottomans, who collapsed into corruption, the region's people were outgunned and had a system imposed upon them."    Is this not more accurate?

And then...

Another serious problem is that public services were provided through the traditional waqf, which was meant to be an inflexible organization. The vast resources of established waqfs could not be used to provide modern municipal services.

Well...  just because social services are municipal in the West, why do they need to be under Islam?  Given the track record of municipal services in the West, why would Islam be in a hurry to trade down?    When religion provided schools and hospitals in the West, we soared.  Now they are municipal provisioned, and what a mess!

And he goes on:

The response, beginning in Egypt and Turkey, was to adopt French commercial law, to establish secular commercial courts, and to start providing public services primarily through European-style municipalities established as corporations. These reforms drew only the mildest objections at the time; no one made it an issue that the corporation, which is absent from Islamic law, became a key element of Muslim economic life. To this day not even Salafists object to the Western-inspired organizational forms introduced the region since the 19th century.

This is tendentious.  "Islamic law makes room for the corporation, therefore its previous absence it to be viewed as a flaw."  The corporation was not known in the West 250 years ago...  and then, what do you mean by corporation?  That is evolving wildly in the West as well.

And then:

The Middle East and North Africa has thus managed, quite smoothly, to overcome the organizational disadvantages that left the region behind. Hence, there remain no legal obstacles to forming a giant firm in Egypt, or to supplying water to Egyptian cities through the latest technologies. The Sharia no longer keeps the region behind directly, for the simple reason that in the present, economic life is regulated by laws developed outside the restrictive framework of the Sharia.

Quite smoothly?  Whiskey Tango Foxtrot!?  All is well economically now in the Middle East?!  Is he kidding?  So, for lack of Sharia, all is well now.  Whew!  Well, should one disagree, and find the Middle East is problematic, one might agree it might be from foreign intervention, and not for the lack of Sharia compliant options, since prof. Kuran notes accurately Sharia-compliant is not in force.

So having been kept down by foreign intervention, in which Sharia is not allowed to prosper, the lesson is it is all Sharia's fault.

However, it matters enormously that the Egyptian economy was governed, until recently, under the Sharia. This history delayed Egypt’s transition to democracy by keeping its civil society chronically weak. Democracy is a system that involves more than fair elections held periodically. It involves limits on the governing coalition. The powers of government are limited partly through private organizations, including unions, professional associations, independent media, and political advocacy groups. Together, such private organizations form civil society. A strong civil society emerges under a market economy served by perpetual autonomous organizations. Hence, the long delay in the Middle East’s economic modernization set back its political development. This delay allowed autocratic leaders to gain power and then rule for decades on end. These leaders used their powers partly to keep civil society from developing.

So... never mind foreign intervention and hegemony, never mind civil society dies under hegemony, never mind what Sharia there has been is "pork labelled beef" ... the problem is Sharia law.  Perhaps the news does not penetrate the college campus upon which stands prof. Kuran's Ivory Tower.

Kuran summarizes:

Although a renaissance is possible, it is unlikely to be founded on Islamic principles. On the contrary, it is likely to arrive when a critical mass of Muslims recognize that to make the Arab world and the wider Muslim world economically competitive, intellectually vibrant, and well governed, it is necessary to abandon the fixation of looking for all answers within the confines of the Sharia. ...

It has been almost two centuries since the Sharia played an important role in any major economic system. It was out of date, then. That is why, outside a few domains involving family matters, it was effectively abandoned in country after country, with general agreement. To make the Sharia useful in economic and political life of the twenty-first century, it would have to be altered so extensively that it would cease to be recognizable as such.

You could replace Islam and Sharia with Christianity and have the same thing said by any Christian college professor about Christianity.   The fact is the renaissance was grounded in Christian inquiry and principles.  And the mess we are in is largely from the subsequent rejection thereof...

The funny thing is Mohammed was a merchant, and Islam was largely spread peacefully as Christians abandoned the corrupt Byzantines for the more peaceful, just and prosperous Islamic offer.  As always, the oppressed escaped from the chaos of the (in this case) Byzantines to the anarchy of the Moslems.  Who knows what Islam would come up with if it were free to do so.

There are profound differences between Islam and Christianity, for example you may be born Moslem but all Christians convert to Christianity (no baptism, no Christian.)  But sound economics is not religion specific...  and the West needs fair competition from Islam.  If and when Sharia finance flowers in Islam, then we'll reform our economic practices to stay competitive, not the other way around.

But until then, we need to back off.

The Maronite Patriarch, Cardinal Bechara Rai, says Christians always pay the highest price when conflicts erupt in Middle East countries such as Egypt, Syria and Iraq. Cardinal Rai also said that outside countries, especially in the West but also elsewhere, are helping to foment these conflicts.
"Speaking in an interview with Vatican Radio, Cardinal Rai says the situation in the Middle East is becoming more and more critical as each day passes. He said whenever a conflict breaks out in the Middle East, whenever chaos ensues, Muslim groups attack the minority Christian community, as if they were always the scapegoat....

When asked how he sees the future, Cardinal Rai spoke of his belief that there is a plan to destroy the Arab world for political and economic interests. There’s also, he added, a plan to exacerbate as much as possible the inter-confessional conflicts between Sunni and Shiite Muslims. The Maronite Patriarch said he had already written to the Pope to express his concern about this issue on two occasions." 

Also, in Libya:

And referring to the West he says: "we have helped ourselves to oil, we have guarded our own interests, we have put dialogue and a sincere human exchange between parts to the side".Bishop Giovanni Innocenzo Martinelli, Apostolic Vicar of Tripoli, has vowed to stay in Libya with the few remaining Christians, witnesses of Jesus’s message of love.

(Wait, you didn't know that, the Christians in the Middle East have long begged the Americans to stay out?  That they see their destruction a direct result of USA Christian interventionists?  Of course you haven't.  The press in USA is state-controlled.)

Another post on the http://rebeleconomy.com site notes this about Egypt;

General Sisi has said nothing about the army’s economic prerogative but we can already deduce what the military is interested in: remaining conservative, keeping policy simple without innovation or anything too radical (such as cutting those precious energy subsidies that the army rely on so much to run their factories at a cut price) and focusing on big, state-run projects (just like Mubarak).

And just like USA.  Pork labelled beef. Sharia ain't in it.

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