Jurisprudential Schizophrenia: On Form and Function in Islamic Finance

I. INTRODUCTION My father is a medical doctor living in Ohio, nearly seventy years of age with sufficient savings accumulated during decades of professional practice to enable him to live comfortably. He is also a devout Muslim. He prays five times every day, fasts one month of the year, and has made the mandated pilgrimage to Mecca not once, but twice. In many ways, therefore, my father is almost the paradigmatic example of a person who might be interested in investing his money in institutions and instruments that are deemed to be compliant with Islamic rules. In asking why Islamic banks have such difficulty attracting him and others like him as potential clients,1 I intend to shed light on the central existential problem facing Islamic finance. Specifically, Islamic finance has failed to achieve its articulated, functional goal of an alternative system of commerce based on notions of fairness and social justice. The reasons for this functional failure are the means by which the constituent rules of Islamic finance are derived; that is, the use of an interpretive system that, at least in its contemporary manifestation, is a type of rather extreme quasi-scientific, logic-driven formalism. Proponents of Islamic finance tend to divorce the problem of means from that of ends, pretending that with sufficient creativity and ingenuity, the formalist hermeneutic will permit the realization of the functional ends they endlessly promote.2 Lon Fuller has criticized similar approaches in the development of social order, indicating that unless means and ends are considered in relation to one another, the architecture of social order cannot be sensibly conceived.3 Fuller's analogy is to physical architecture, where an architect cannot divorce her ultimate ends of utility and beauty from the means she employs to achieve them. A building suspended in mid-air, for example, might serve the conceptual ends of an architect, but there are no real means by which it might be built.4 This lesson appears lost on Islam's contemporary formalists in the context of finance, who appear uninterested in either defining their practice as mere formal compliance with doctrine or developing functional hermeneutical means to attain the functional goals they articulate. Rather, there is something akin to schizophrenia in the Islamic financial community, where formalist means have led to formalist ends, which proponents describe as functional, alternatively engaging in obfuscation, self-serving cant or incoherence in their defense. There are only two ways to unravel this Gordian knot. Either Islam's interpretive modalities require adjustment to achieve the articulated functional ends, or the proponents of the system will ultimately have to acknowledge that, from a functional perspective, Islamic banks operate on the same basic financial and economic bases as their conventional counterparts and that the differences between the two are entirely formal in nature. I find the latter neither desirable nor sustainable for a variety of reasons that will be explored in this Article. As a result, I advocate the development of realizable and principled functional interpretive approaches to achieve the primary functional goals of an Islamic financial institution. This Article is divided into three parts, excluding this Introduction. In part II, I briefly discuss the contemporary practice of Islamic finance and the interpretive principles that gave rise to it. Part III explains precisely why, from the standpoint of potential investors such as my father, this practice is deeply, ontologically flawed. Part IV sets forth another model of an Islamic financial institution, based on functional approaches to the jurisprudence, and explains the benefits provided by such an institution. At the outset, however, given the extent to which I use them in this Article, definitional clarifications of the terms "formalism" and "functionalism" are necessary. …