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Constant Mews and Adrian Walsh

deep-rooted and widespread. The Oxford English Dictionary (1989), for example, defines usury as initially ‘the fact or practice of lending money at interest’, but comments that it later means ‘the practice of charging, taking, or contracting to receive, excessive or illegal rates of interest for money on loan’, as well as mentioning its archaic meaning as any premium or interest on a loan. Little wonder we are confused. Any lawyer would observe that this range of meanings makes usury far too slippery a notion to be useful in law, let alone to be an adequate

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Mohamed Ariff

) claim that guaranteeing the principal is also strictly not kosher in Islamic finance, but, in practice, is allowed. In publiclytraded debt contracts this is always the norm, as traded prices of bonds decline if the risk does materialize, leading to losses because of declining bond prices.1 In this sense, modern banking practice of exacting a pre-fixed interest charge in debt contracts, albeit not high enough to reach the legal limit of usury rate, introduces a one-sided contract with no equitable recourse for borrowings at risk. Some claim that this makes the moneyed

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Mervyn K. Lewis

, so that the whole society may benefit. Islam also emphasises the welfare of the community over individual rights. The focus in the Holy Qur’an is on the interests of the entirety of the Muslim society, rather than on the special interest of individual Muslims: And hold fast, all together, by the Rope which Allah (stretches out for you), and not be divided among yourselves. (Al-Imran, 3:103) 3.5 Stewardship of Resources Mankind has been appointed God’s vice-regent on earth and given the sacred duty of the stewardship of all natural and created resources

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Kabir Hassan and Eric Girard

the reserve accumulation (the liquidity ratios for Malaysia are 5 to 6 times greater than those of the USA), Malaysia should be facing inflationary pressures. So far, Malaysia is able to control inflation pressures through administrative controls on interest rates and the exchange rate – the inflation rate (2.3 percent per annum from 2002 to 2006) is lower than the US inflation rate. The newly floating currency will certainly put inflationary pressures on the Malaysian economy. Finally, the Malaysian stock market has cumulated 11.13 percent from 1999 to the end of

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Mervyn K. Lewis and Latifa M. Algaoud

CHAPTER 8 23/05/2001 12:04 pm Page 1 8. Islamic and Christian attitudes to usury THE LESSONS OF HISTORY Islam is the only major religion which maintains a prohibition on usury. Yet, it was not always so. In Ancient India, laws based on the Veda, the oldest scriptures of Hinduism, condemned usury as a major sin and restricted the operation of interest rates (Gopal, 1935; Rangaswami, 1927).1 In Judaism, the Torah (the Hebrew name of the Law of Moses or the Pentateuch, the first five books of the Old Testament) prohibited usury amongst the Jews, while at least

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Mahmoud A. El-Gamal

lease financing (ijara), where the mark-up profit component and the rent component, respectively, are commonly benchmarked to market interest rates. In recent years, sovereign governments in the Islamic world, as well as a number of corporations, have issued Islamic bond alternatives (known by the Arabic name sukuk, or debt certificates) for which the primary buyers are Islamic banks. Rates of return on those sukuk are also benchmarked to the appropriate interest rate, and based on the issuer’s credit rating. Thus Islamic banks have come to replicate the asset structures

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Masudul Alam Choudhury

faire or non-intervention. Marx’s epistemological concept of overdetermination of a social system resulted in an early form of social Darwinism. Walras’s general equilibrium system was premised on an exogenous monetary unit as the numéraire of his general equilibrium system. This caused competition between money and real economy as two opposing sector activities. The result was the inevitable prevalence of the interest rate as the price of money in contradistinction to the price of goods. Even in the ethical theory of moral sentiment, Smith’s precept of natural

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Mervyn K. Lewis

the payment of rent for land. Although Calvin repudiated the Aristotelian doctrine that money was infertile, he nonetheless identified instances in which the taking of interest would be an act of sinful usury, as in the case of needy borrowers oppressed by circumstances and faced with exorbitant interest rates. But these are problems inherent in the social relations of a Christian community, to be solved in the light of existing circumstances and the dictates of natural law and the will of God, not by blanket prohibition. Redefining usury Calvin’s doctrine has become

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Abbas Mirakhor and Iqbal Zaidi

interest rate is only one such feature. Indeed, one of the most important characteristics of an Islamic financial system is that there is a close link between the real sector and the financial sector, and sukuks are not the natural instrument for strengthening such linkages. A third approach to invigorating profit sharing could focus on ways to promote the usability and liquidity of Islamic financial instruments. One way of catalyzing such an expansion could concentrate on the establishment of some form of clearinghouse mechanism for various types of Islamic modes of

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M. Kabir Hassan and Mervyn K. Lewis

overlook the broader social charter recommended by Choudhury and others. There is also the prohibition in Islam of maysir (gambling, speculation) and gharar (unreasonable Islamic banking: an introduction and overview 3 uncertainty), the need to ensure that investment be undertaken on the basis of halal (permitted) activities, and the requirement to benefit society through the collection of zakat (almsgiving) overseen by a special religious supervisory board. This rejection of interest by Islam poses the question of what replaces the interest rate mechanism in an