Islam, Western Pensions, and Real Assets

Islam, Western Pensions, and Real Assets

A recent academic discussion of the much-vexed question of Islamic finance (including the always at least implicit query, how does it fit into the broader usually non-Islamic global picture?) focuses on the role in Islam of real assets, understood as tangible objects such as land, buildings, machinery, and commodities.

The essay comes to us from Larry Beeferman and Allan Wain, both of Harvard Law.

English and Arabic

Of course, in the English language the words “reality” and “realty” are close relatives, in sound and in sense. Land has seemed to many in the history of English law and economic thinking to be a key asset precisely because it is so “real” – enduring and fruitful.

In Islamic finance, with its origins in Arabic texts, the same connection is both more insistent and more complicated. Perhaps “land” is not at the base of everything real.  Rather, at the heart of the Islamic notion of the real, as these authors describe it, one finds tangible objects that can be held in a seller’s hands and transferred immediately to a buyer in a marketplace.  Beeferman and Wain write that the “language and formulation” of the observations of several early Islamic scholars, “are especially evocative of physical exchanges involving tangible objects, for example, commodities and goods.” They quote Abudllah Alwi Haji Hassan, who writes that it was common practice among pre-Islamic Arabic merchants “to sell goods which had not been with the vendor and had not been possessed by him” and that early Islam was in rebellion against such a sneaky practice.

Etymologically, the meaning of the Arabic word generally translated “sale” (bay) is the exchange of mal for mal, or property for property, of your bird in the hand for my gold coins, also in hand.

Beeferman and Wain pursue the etymological thread further, citing Muhammad Wohid Islam on the origin of “mal.” In his view, “birds in the sky, fish in the water, trees in the forest, and mines in the secret depth of the earth” are etymologically distinct from the range of things that can be mal. Yet of course in the dominant western tradition, the ownership of land may carry with it the ownership of whatever diamonds or gold may be in its secret depths, as well as the right to catch fish in the waters that run through it.

Further, it isn’t clear a priori just what is the connection between mal in this limited etymological sense and intangibles such as intellectual property, that is, copyrights or trademarks.  The Organization of Islamic Cooperation broadly endorsed intellectual property in 1988. One wonders why that landmark is so recent, since the Koran (and the relevant hadiths) had been around for a long time before that!


Another key word in understanding the Islamic view of real (as distinct from financial) assets is the word translated into English as ‘debt,’ that is, dayn. Beeferman and Wain characterize the idea of a debt (as a legal obligation directed at an individual or entity) as a “Western” view. The Islamic view, on the other hand,  is that a debt is itself a sort of thing, albeit an abstract sort.  A Shariah-legitimate credit translation thus is a sort of exchange of thing-for-thing. The vendor of a basket of fish may agree to take a debt in exchange, rather than taking the tangible gold coin. This possibility, though, is hedged about with many restrictions.

As a meta-rule governing the existence of Shariah rules, one can say that the further away from a simple thing-for-thing trade a transaction gets, the more rules will apply and the more hoops the transaction’s parties will have to jump.

All of this may be fascinating for the study of comparative religions, languages, Middle Eastern history, and so forth. But Beeferman and Wain are interested because they’re with the Labor and Worklife Program at Harvard, and as such they’re interested in pension fund management.

Why Care?

They work within the premise that for most such funds in the U.S., “the fact that a particular investment … would be deemed by some to be in accord with the Islamic narrative” is a matter of indifference.  But opportunities and transactions fashioned in accord with the principles of Islamic finance may well have an instrumental value for pension fund managers, and so does the challenge of learning how to think in the same manner that those who do the fashioning think.

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