Shari’a law, as interpreted by many Islamic scholars, presents a major obstacle for devout Muslims trying to make their way in an advanced economy which features heavy use of credit. It forbids them from paying interest.
Nothing about this religious stricture is incompatible with capitalism, because paying interest is voluntary. If you don’t want to take loans with interest, that’s fine. You’re exercising your choice not to do business with those who lend money at a profit.
If a large portion of the population refused to do so, the economy would run into serious trouble. Credit isn’t just a method for consumers to indulge themselves with luxuries they can’t really afford. It’s a vital tool for the timely exploitation of business opportunities. Also, some markets would virtually cease to exist if their very expensive products could not be purchased on credit.
The most obvious example of such a product is houses, and here is where a Muslim who obeys the shari’a prohibition against paying interest runs into trouble getting a piece of the American Dream. It’s virtually impossible to own a home without taking out a loan. (The rest of us are beginning to get a taste of this, for entirely non-religious reasons.)
In order to work around this obstacle, some banks have begun offering “shari’a-compliant financing,” which basically involves jacking up the price of the house, then allowing the Muslim customer to pay for it with a kind of “layaway plan.” I’m no Islamic scholar, but that sounds like an awful lot of hair-splitting to me. Still, if it satisfies the relevant religious prohibitions, through a voluntary agreement between Muslim customers and banks eager to win their business, and it’s working to everyone’s satisfaction, it’s a fine expression of capitalist principle.
Back in 2004, when he was the governor of Minnesota, Tim Pawlenty was “looking to increase minority homeownership in the state,” as recounted by Adam Serwer at The American Prospect. Noting that Muslims had an especially low rate of home ownership, in part due to the religious injunction against paying interest, Pawlenty’s Minnesota Housing Financing Agency worked with local groups to develop interest in shari’a-compliant financing.
It doesn’t seem as if much came of the effort, as the housing market has been stuck in an increasingly painful slump for years. Nevertheless, there is some anticipation that Pawlenty’s support for the program will be used against him during his presidential campaign, which began with his formation of an exploratory committee this week.
The Pawlenty program isn’t troubling because it encouraged the creation of shari’a-approved financial products. It’s troubling because our entire financial system was brought to the edge of collapse by fantastically expensive government programs to “increase home ownership” for various groups. Nothing the Minnesota Housing Finance Agency did was comparable in scale or effect to the insolvency Armageddon unleashed by Fannie Mae, but the general principle of government using taxpayer money to exert an ideological influence over private corporations needs to be erased from our playbook.
Parties engaging in voluntary transactions shaped by religious faith are not a problem. (How would you stop them, without violating the First Amendment?) It’s essential to keep the government entirely out of the religious machinery of such transactions, treating the results with strict adherence to secular law.
This is why shari’a-compliant mortgage loans are different from the court battle currently being waged between a mosque and some former trustees in a Florida court. In that case, the mosque has asserted it doesn’t recognize the authority of an Islamic scholar who arbitrated against them, and does not believe the arbitration process was carried out properly. At that point, the arbitration agreement was no longer voluntary between the two parties, and Islamic law had absolutely no further place in the courtroom.
Likewise, if these “shari’a mortgages” meet all the legal requirements of a mortgage contract, and their enforcement is judged entirely on secular grounds, they have become non-religious artifacts of the capitalist system, and there is nothing toxic about them. Certainly any attempt to prevent them from existing at all would be much more toxic. On the other hand, any attempt to impose them on unwilling customers should be resisted with all the vigor of Minutemen taking the field at Concord.
Is there some danger that lots of non-Muslims will decide they like these shari’a-compliant mortgages and begin demanding them, thus increasing the influence of Islamic law upon the non-Muslim populace? That seems doubtful – it’s a lot of hassle to avoid the concept of interest, which most consumers have no argument with. If they did catch on, we’d be doing ourselves a lot more harm by trashing both capitalism and the First Amendment to prevent banks from making voluntary sales to eager customers.
The entirely secular assumptions behind government programs that spend our money to influence the lending decisions of banks are a far more virulent and dangerous intellectual contagion than Islamic law. Perhaps Tim Pawlenty has learned that lesson, and will share it with us during his campaign.
Update: A statement on the record from Pawlenty spokesman Alex Conant, making it clear that the Governor did not initiate this program by the MHFA, and did not approve when he found out about it:
“This program was independently set up by the MN state housing agency and did not make any mention of Sharia Law on its face, but was later described by critics as accommodating it. As soon as Gov. Pawlenty became aware of the issue, he personally ordered it shut it down. Fortunately, only about three people actually used the program before it was terminated at the Governor’s direction.”