Description

This paper explores the legal puzzles that arise out of the various doctrines of riba in Islamic law and suggests that riba-based prohibitions can only be understood against a background rule that generally privileged market pricing mechanisms. From the perspective of contractual freedom, it is possible to break down riba into two sets of doctrines: ex ante prohibitions and ex post prohibitions. Only prohibitions that deal with bankrupt debtors should be understood as categorical, while the ex ante riba-based prohibitions are best understood as prophylactic or prudential measures that function as price-fixing measure in times of scarcity which tend to reinforce a baseline distribution of entitlements guaranteed by the system of zakat, a tax-and-transfer system that guaranteed all individuals a year's worth of provisions. Because the prohibition against interest-based lending is also a type of ex ante restriction on market pricing mechanisms, it follows that it should also be viewed as a prudential rule rather than a categorical one, thereby vitiating the need to engage in complex restructuring of conventional financial instruments to assure their consistency with Islamic law.