Islamic finance creates financial products specifically aimed at Muslims that are sharīʿa compliant. Many scholars have condemned Islamic finance for condemning ribā (interest) on the one hand, particularly where usurious, but then many others have created workarounds that allow modern big-finance firms to avoid it in name only on the other hand. Those who argue against the workaround argue that nominal interest-avoidance goes against the spirit of the guidelines set forth in Islamic law (sharīʿa). Weighing in on the controversy, University of Toronto Law Professor Mohammad Fadel considers whether ribā might serve a function that goes beyond simple definitions of it as either interest or usury. Historically, the prohibition on interest was a means of regulating medieval financial industries, in ways that have little application to the modern financial instruments. The medieval prohibitions and the modern controversies about Islamic finance then, he argues, are misaligned and need rethinking. This post provides a "plain English" review of the article: Mohammad H. Fadel, Ribâ, Efficiency and Prudential Regulation: Preliminary Thoughts, 25 Wisconsin Journal of International Law 655 (2008).
