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Islamic Law places certain restrictions
on the creation and transferral of credit. The attempt to defer the payment
on certain transactions is considered usury or riba, which is a crime
in Islam worse than theft or adultery. This strong prohibition against
usury places a limit in the creation of credit preventing its abuse from
the start. This position has to be compared with the lack of limitations
placed on the creation and the transferral of credit in the modern economic
world. There is no doubt that modern capitalism would not be what it is
today without the extraordinary capacity to generate credit by its financial
institutions. Credit is everything in capitalism: its money is credit,
its markets operate in credit, its credit is credit upon credit. Transferrals of Debt in Islamic Law When debts are offered out of the domain of the two parties
involved they become substitutes for money. The transferral of a debt
to a third party is regulated in Islamic Law. It can be legal or it can
be fraudulent and therefore forbidden. On certain occasions a debt, which
is the record of an agreement to pay a certain amount in a term, is used
to generate illegal profit. In general, debts in Islam are limited to
being debts and nothing else. In other words, debts are intended to be
fulfilled as stated in the contract, and if they are transferred this
is done by the cancellation of the old contract and the rewriting of a
new one. "Yahya related to me from Malik from Abu'z-Zinad from al-A'raj from Abu Hurairah that the Messenger of Allah, may Allah bless him and grant him peace, said, 'Delay in payment by a rich man is injustice, but when one of you is referred to a solvent man for payment, let him accept referral.'" It is limited to particular cases, but not for all in general: "Malik related to me from Musa ibn Maysara that he heard a man say to Sa'id ibn al-Musayyab, 'I am a man who sells for a debt.' Sa'id said, 'Do not sell except for what you take directly to your camel.'" And the transfer of debts is also limited within its normal and spontaneous use: The case of a debt for a debt A debt for a debt means that someone exchanges a debt
due to him for another debt to be paid by him. "Malik said, 'If someone advances gold or silver for described animals or goods which are to be delivered before or after the date, there is no harm in the buyer selling those goods to the seller for other goods to be taken immediately and not delayed, no matter how extensive the amount of those goods is, except in the case of food because it is not halal to sell food before he has full possession of it. The buyer can sell those goods to someone other than the person from whom he purchased them for gold or silver or any goods. He takes possession of it and does not defer it because if he defers it, that is ugly and there enters into the transaction what is disapproved of - delay for delay. Delay for delay is to sell debt against one man for a debt against another man.'" On trading generally with receipts (debt) The trading generally with debts, without being contained
to particular cases, is usury and haram. "Yahya related to me from Malik that he had heard that receipts were given to people in the time of Marwan ibn al-Hakam for the produce of the market at al-Jar. People bought and sold the receipts among themselves before they took delivery of the goods. Zayd ibn Thabit and one of the Companions of the Messenger of Allah, may Allah bless him and grant him peace, went to Marwan ibn al-Hakam and said, 'Marwan! Do you make usury halal?' He said, 'I seek refuge with Allah! What is that?'" He said, 'These receipts [sukuukun] which people buy and sell before they take delivery of the goods.' Marwan therefore sent guards to follow them and to take them from people's hands and return them to their owners." On debts representing gold, silver or food A debt that represents gold, silver or food cannot be
bought or sold. "Umar Ibn al-Khattab wanted that all gold, silver and food should not be sold for goods to be paid later. He did not want there to be any delay or deferment in any such sale, whether it involved one commodity or different sorts of commodities." On selling a debt to the same person who owes it to you in the same kind of goods and at a higher price This is forbidden. "Malik said, 'The generally agreed-on way of doing things among us concerning making an advance for slaves, cattle or goods is that when all of what is to be sold is described and an advance is made for them for a date, and the date falls due, the buyer does not sell any of that to the person from whom he purchased it for more than the price which he advanced for it before he has taken full possession of what he has advanced for it. It is usury if he does.'" On selling a debt where there is uncertainty It is forbidden. "Malik said, 'One should not buy a debt owed by a man whether present or absent, without the confirmation of the one who owes the debt, nor should one buy a debt owed to a man by a dead person even if one knows what the deceased man has left. That is because to buy it is an uncertain transaction and one does not know whether the transaction will be completed or not.'" It is disapproved of to buy a debt where uncertainty may exist, because it is not certain if the transaction will be completed or not. "He said, 'The explanation of what is disapproved of in buying a debt owed by someone absent or dead is that it is not known what unknown debtors may have claims on the dead person. If the dead person is liable for another debt, the price which the buyer gives on strength of the debt may become worthless.'" What makes it uncertain is that a person may have more debts than he can possibly secure, as is clear in the case of a dead person. "Malik said, 'There is another fault there as well. He is buying something, which is not guaranteed for him, and so if the deal is not completed what he has paid becomes worthless. This is an uncertain transaction and it is not good.'" A debt must be guaranteed for him. If it is not guaranteed for him then the buying of this debt becomes an uncertain transaction. "Malik said, 'One distinguishes between a man who is only selling what he actually has and a man who is being paid in advance for something which is not yet in his possession. The man advancing the money brings his gold which he intends to buy with. The seller says, 'This is ten Dinars. What do you want me to buy for you with it?' It is as if he sold ten Dinars cash for fifteen Dinars to be paid later. Because of this, it is disapproved of. It is something leading to usury and fraud.'" What is then a guarantee of a debt? Malik here explains the difference between someone who owes a debt of something he possesses and someone who owes a debt of something he does not possess. If the person does not possess what he owes in a debt, the debt is not guaranteed. To exchange this type of debt is disapproved of because it leads to both usury and fraud. The Effects of Creating and Dealing in Credit Without Its Limitations When the debt is put in circulation and considering that
the creation of debt has no restriction, the market is corrupted. One
of the effects of this corruption is inflation. Inflation means the important
increase in the supply of money and credit, which has as a result the
diminution of the value of the money that everybody holds. This increase
in the supply produces an elevation in the price of the goods. "Yahya related to me from Malik that Yahya ibn Sa'id heard Sa'id ibn al-Musayyab say, 'Clipping gold and silver is part of working corruption in the land.'" Paper-money is like that. Paper-money used to represent,as a promise to pay to the bearer, an amount of gold. Then they produced more receipts than money, and they were forced to constantly devalue the exchange between the receipts and the coin. Eventually, the symbol, the paper became in itself the money. The symbol became the reality. (We will examine this aspect later.) The effect of the artificial increase of the money by means of debt creates inflation, like the clipping of the coins. The Artificial Productivity of Money Most of this desire to expand money would not exist without
a fundamental attribute given to money: the bearing of interest or making
money artificially productive. From the point of view of a dealer, what
would be the point of lending twenty times more money than he had, if
the return of the loan was zero. Zero multiplied by twenty is also zero.
But if he could lend at ten per cent twenty times more money than he had,
then he would produce a return on his initial money of two hundred per
cent. That is what makes banking such an extraordinary business. Bankers
can afford to pay a ten percent interest on a deposit if they can obtain
a real return of two hundred per cent on that money, that is by lending
twenty times the initial amount also at ten per cent interest. "And then they [the moneylenders] make a laughing-stock of the scientists, who say that nothing arises out of nothing; for with these men interest arises out of that which has as yet no being or existence. ... for they lend money contrary to law, collecting taxes from their debtors, or rather, if the truth is to be told, cheating them in the act of lending; for he who receives less than the face value of his note is cheated."
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