The World Islamic Economic Forum: Is there a place for sharia finance in a free society?

Sharia financeThis October saw Britain  playing host to the tenth World Islamic Economic Forum (WIEF). Although similar to the World Economic Forum, the Forum differs in that it is primarily attended by policy makers, commercial leaders, and investors of the Muslim world, who discuss topics regarding business, governance and other major concerns from a Islamic perspective.

The three day event was the first to be held outside a Muslim country, and initial reports suggest the event was fruitful at least for the UK, with over £500 million of deals being approved to UK businesses.

Another first during the event was announced by David Cameron, who announced that the government was developing plans to issue over £200m in sharia compliant gilts. According to the Prime Minister, it would be a mistake for the UK to ignore the potential that Islamic investment can bring to the economy, and he may have a point, given that global Islamic investment is £1.3 trillion annually.

Not everyone, however, is enthusiastic by the announcement. Charles Moore, in The Spectator, questions if global commerce should be defined on religious grounds Would a World Jewish or Christian Economic Forum would ever be welcomed in a Muslim country so openly, he further asks. He then claims that by allowing sharia compliant financial services in the UK it will not be long before other traditions and institutions are bound by sharia law, such as marriage.

How valid are his claims? Whilst it may seem unlikely for a Jewish Economic Forum to take place in a Muslim country without protest, Moore falls victim to the all too frequent slippery slope fallacy, where someone argues that allowing one thing (normally illegal) will thus lead to far worse activities taking place – such as legalising cannabis will lead to everyone taking crack cocaine.

In this case, Moore thinks that by allowing sharia compliant bonds will ultimately lead to a radical change in our laws and traditions. This claim is ridiculous, like all slippery slope fallacies. It is difficult to see how creating sharia compliant gilts would lead to the law being restricted to sharia traditions. But it does raise an important question, can something which in essence restricts a person’s freedom and liberty be allowed in a free society?

If that something is a good, such as a gilt, then the answer is yes: because buying a product or service which restricts your freedom would, in a free society, be permissible, as long as it adhered to the principles of voluntary exchange.

Consider this example, does not the tattooist cause bodily harm, but such a thing is allowed if I consented to it. This is because both I and the tattooist have voluntarily entered into a contract to exchange where we mutually benefit. The tattooist receives payment for the service that I demanded, even though it caused me harm.

The example above may seem trivial, but the principle that underlines it is wide ranging, and applies to the sharia gilts. Is the exchange of money for the bonds not between two voluntary parties? If the government is willing to provide certain gilts to an investor, and they both mutually benefit from this, then such a thing should be allowed. The buyer of the these bonds are fully aware that these gilts will be restrictive, but they receive benefit from them under a religious basis. Therefore, although these gilts are inherently restrictive, they would be allowed in a free society because both parties involved in the exchange of the gilts mutually benefit from the exchange and voluntarily consented to exchange.

In a free and open society sharia compliant gilts would be permissible, but only if they adhered to the criteria mentioned above. That is, those who are restricted by the gilts must have voluntarily consented to do so in an exchange with another willing party. In this case, those who are willing to buy these gilts will be the only ones restricted by them, and thus do not infringe upon the liberty of another. If anything, the only harm these gilts can cause is that they are essentially government debt, which we have too much of already.

Lastly, we should also consider the wider benefits of allowing these gilts. For one thing, it will bring a religious culture renowned for its intolerance and disregard for freedom further into the global economy. As the Conservative MEP Daniel Hannan tweeted: “They (the gilts) will encourage the spread of what the Muslim world needs most: capitalism”.  Indeed, it should be remembered that as much as Western economic institutions are opening up to sharia financial practices, the Islamic economic world is embracing capitalist traditions also. Of course it will take a long time to observe the full long term effects of these gilts, but if they introduce the benefits of capitalism and freedom to those who need them most, then these gilts will surely be profitable. 

ProfileTony Marriott holds a BA in Politics, Philosophy, and Economics from the University of Hull and an MSc in East Asian Business from the University of Sheffield. He is preparing for his PhD starting in 2014. His interests include development economics, political economy, and individual freedom. Outside of libertarianism, Tony is a tubby real ale drinker and avid fan of horror, cult cinema, and heavy metal. 

 

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