Introduction: Economic jurisprudence is so vast and complex that even in traditional jurisprudence, it encompasses nearly ten distinct chapters. Within this field, the maxims of economic jurisprudence also contribute significantly to making this domain of fiqh more disciplined and systematic. One of the important spheres of economic jurisprudence, which also plays a major role in the contemporary global economy, is the sphere of financing. In this exclusive note, Hujjat al-Islam Ahmad Ershad, a researcher in economic jurisprudence, analyzes the jurisprudential maxims of financing. The connection between these maxims and the Islamic economic system is one of the fascinating and less-discussed points of his note.
School of Thought or System?
Before delving into the discussion of the maxims, it is appropriate to clearly define the point of contention. The late Martyr al-Sadr was among the first to write in the field of economics and economic jurisprudence. Regarding the jurisprudence of the Islamic economic system, we usually understand from Martyr al-Sadr that we have an Islamic economic school of thought (maktab) and a science of economics, where the science is extracted from the relationships existing within the principles articulated in the school of thought. What is the school of thought? The school of thought is that collection of teachings and imperatives (do’s and don’ts) that may originate from jurisprudence, ethics, and some other disciplines, or it consists of a set of ideological and ontological viewpoints. The sum of these creates a school of thought in the Islamic context that seeks to achieve a specific goal.
From the apparent statements of Martyr al-Sadr in his noble book Iqtisaduna (Our Economics), it seems these are two separate issues; that is, we have an Islamic school of thought and a science of economics. Of course, today, another concept is also attributed to the late Martyr al-Sadr, which is that alongside the school of thought, we also have an economic system (nizam). In reality, this means we have three things: an economic school of thought, an economic system, and a science of economics. According to proponents of this theory, the school of thought addresses issues by articulating the macro-level theories of the Islamic economic system on various matters. However, how the rulings and sub-components should achieve the objective stated in the school of thought is addressed in the Islamic economic system. For example, in the school of thought, we have a proposition such as “justice in the distribution of primary resources.” This is a macro-level proposition, and the method of its implementation is explained by the economic system. For instance, to achieve distributive justice, should we sell lands to everyone, lease them, provide long-term leases, or something else? These regulations and implementation requirements are explained in the economic system.
After this preamble, I wish to state that the maxims of economic jurisprudence we intend to discuss are independent of this dispute over whether we have an economic system or only an economic school of thought. Rather, we will articulate the maxims of economic jurisprudence in a sense that encompasses both the system and the school of thought.
The Meaning of a Jurisprudential Maxim
Jurists have raised many discussions regarding the meaning of a jurisprudential maxim (qā`idah fiqhiyyah), but in my view, a jurisprudential maxim has a clear and self-evident meaning: it is a general principle that, within one or more chapters of jurisprudence, encompasses other issues. For example, in the discussion of financing, we have a maxim that riba must not take place. The reason it is a maxim is that many issues fall under it, and by resorting to this macro-principle, their rulings are understood.
It should also be noted that sometimes in jurisprudence, something is not stated as a maxim but is merely an issue; however, when it is discussed within the Islamic economic system, it reveals itself as a maxim.
Maxims in the Domain of Financing
After stating these two points, we will present the economic maxims of Islam:
The maxims of the Islamic economic system are numerous and plentiful, especially since the chapter of Islamic economic jurisprudence has been researched more than other areas of fiqh. Given this point, mentioning the jurisprudential maxims for all parts of the Islamic economic system would be time-consuming. Therefore, we will confine ourselves to stating the jurisprudential maxims in the domain of financing.
The Maxim of the Discouraged Nature of Debt (Dīn)
The first maxim we wish to present in the domain of the jurisprudential maxims of the Islamic economic system concerning financing is the maxim of the discouraged nature of debt (karāhat al-dīn), and the second is the maxim of the discouraged nature of loans (karāhat al-qard). As a preliminary point, when an issue is presented as discouraged (makrūh) in the context of economic jurisprudence, it also conveys the message that this discouraged act leads to the formation of an undesirable economic system. Therefore, even though a discouraged act does not entail a binding obligation to abstain from it, it should not be used in shaping a desirable economic system. Yes, in individual transactions between two people, there may be no harm in performing it, but to create a desirable economic system that leads us to the higher objectives of Sharia, a discouraged act should not be employed.
It is one of the certainties of our jurisprudence that debt (dīn) in general—whether its cause is a loan, a forward sale (salam), a credit sale (nasī’ah), or something else—is discouraged (makrūh). Therefore, our transactions should not be debt-centric, as it is discouraged. Thus, we should not structure our financing system, which is a subsystem of the broader Islamic economic system, on a debt-centric basis. This is contrary to what is currently taking place in modern transactions, as our banking exchanges are typically based on murābaḥah (cost-plus financing), and murābaḥah is structured upon deferred-payment murābaḥah, one of whose pillars is debt.
The Maxim of the Discouraged Nature of Loans (Qard)
The same issue arises with respect to loans (qard). Our jurists have explicitly stated that taking a loan is discouraged, and as your need for the loan decreases in degree, its discouraged nature also decreases. Of course, borrowing has its own specific regulations, which we do not intend to address now. However, there is a particular link or “knot” associated with loans that makes the loan and its contractual status different even from the environment of debt within our market. To explain:
We have the issue of riba, which is intensely intertwined with the discussion of loans. The primary axis of riba in the context of loans is the stipulation of an excess (shart al-ziyādah), which leads to riba. This point brings us here: the status of the loan contract is fundamentally not one that should have a market. That is, the conventional market, as understood in contemporary and mainstream economics, should not be established for the loan contract. This is because the foundation of the market is based on supply and demand and is profit-driven; individuals put goods up for sale with the intention of making a profit. Now, if loans were to exist within this market environment, it would inevitably lead to riba. Therefore, it becomes clear that the loan, fundamentally, has no place in the market—unlike credit sales (nasī’ah). Regarding credit sales and forward sales (salam), which are debt-based contracts, it is true that we said they are discouraged and should not be made central for system-building. However, for two people to engage in a debt-centric transaction is not problematic; it is only discouraged. But in the case of a loan, the excess itself has been ruled as forbidden (ḥarām). Hence, loans should not be used in a profit-driven market but are purely a benevolent, non-profit act suitable for a charitable framework.
The Maxim of the Prohibition of Riba
The next maxim, which is one of the axioms and fundamental pillars of the economic system in the context of financing, is the maxim of the prohibition of riba. The analysis of what riba is and its meaning and concept requires a detailed discussion, so we will not delve into it. In general, the financing model based on the Islamic economic framework is completely different from the financing model in the Western economic framework, and they have drastically different outcomes and distinctions. When we declare riba forbidden in financing, the method of financing becomes completely different from what is currently practiced in the West. In Islamic economics, if a loan is not paid on time, we are faced with the solution of extending the debt’s maturity. In the Western economy, however, they have the tool of late payment penalties. In the Western economy, where late payment penalties exist, the lender has no concern about recovering their money because they receive compensation for the delay through the penalty. But in Islamic economics, because the tool of late payment penalties does not exist, the lender becomes extremely cautious and only lends to those they know can handle the repayment. The prohibition of riba causes the matter of financing through loans to become more restricted, and in reality, it gives meaning and an enforcement mechanism to the discouraged nature of loans.