Legal Subterfuges in Islamic Law: from the Middle Ages to the 21st Century
Abstract
The article is devoted to the role and significance of legal subterfuges in financial instruments applied in the Islamic banking system (hereafter IBS). The paper studies the concept of subterfuges, exemplifies their application and an outline of Islamic legal conceptions which existed in the Middle Ages as certain deals to bypass Quran Prohibition of riba, which was originally understood as spare money (interest), resulting from loan operations. When the 1970s and 80s a campaign was launched to Islamize knowledge enveloping such spheres as economics, the subterfuges which appeared in the Middle Ages were understood as forms for modern Islamic financial instruments. Many of them were the means to bypass riba as a loan interest forbidden in Islam. The paper analyzes the subterfuges to bypass the prohibition on interest loan riba in the current operations of Islamic banking system. The paper shows the changed role of Islamic law in finances which is not law regulating IBF operations and the norms are recognized no more as legally binding but are ethical maxims of a sort lacking legal content. Moreover, the reference in a financial contract to Islamic law (sharia) may be only considered as sharia risk increasing the voidability of the deal in court. The article concludes that almost all the considered Islamic financial instruments and schemes are based on such subterfuges. It is evident that in the conditions of high competition with conventional banks in Islamic countries especially in the area of financial finances, this Islamic banking model without resorting to the subterfuges to bypass the ban on loan interest riba is becoming non competitive.
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