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25 Wis. Int'l L.J. 655 (2007-2008)
Riba, Efficiency, and Prudential Regulation: Preliminary Thoughts

handle is hein.journals/wisint25 and id is 665 raw text is: RIBA, EFFICIENCY, AND PRUDENTIAL REGULATION: PRELIMINARY THOUGHTS MOHAMMAD H. FADEL* I. INTRODUCTION The last decade has witnessed the birth and remarkable expansion of a specialized-niche within the world of global finance known as Islamic finance. While no precise figures exist with respect to the aggregate size of this sector, it has grown sufficiently to attract the attention of conventional commercial and investment banking institutions, many of which have set up Islamic finance divisions within their firms.' The ostensible justification for the existence of this niche is that Muslims-because of religious proscriptions set forth in the shari'a (Islamic law)-are unable to use conventional financial products, and accordingly, Islamic finance responds to this need by creating products that are claimed to comply with the requirements of Islamic law.2 The most important rule of Islamic law that is said to justify the existence of Islamic finance is the prohibition against paying or receiving riba, which is often, although inaccurately, translated as interest.3 The irony, of course, is that Islamic finance largely consists of designing instruments that can be deemed to comply with the formal requirements of Islamic law while, at the same time, bearing all the economic attributes of the Canada Research Chair in Law and Economics of Islamic Law; University of Toronto Faculty of Law. Unless otherwise noted, the author provided the translations in this article. See, e.g., Will McSheehy & Shanthy Nambiar, Islamic Bond Fatwas Surge on Million-Dollar Scholars, BLOOMBERG, May 1, 2007, http://www.bloomberg.comlapps/news?pid=2060I109& sid=a.DsH16oTM6U &refer=home (suggesting that amount of wealth managed according to Islamic law is approximately SI trillion and projecting it to reach $2.8 trillion by 2015). 2 MAHMOUD A. EL-GAMAL, ISLAMIC FINANCE 11-12 (2006). Id. at 2 (describing how Islamic products mimic the features of conventional ones, with one series of Islamic bonds claiming to pay 4 percent annual profit rather than interest). Given the breadth of the doctrine of riba, a more accurate translation of riba might be unjust enrichment. See FRANK E. VOGEL & SAMUEL L. HAYES, III, ISLAMIC LAW AND FINANCE 84 (1998) (suggesting that unjust enrichment is one theory underlying the doctrine of riba). Cf NABIL A. SALEH, UNLAWFUL GAIN AND LEGITIMATE PROFIT IN ISLAMIC LAW: RIBA, GHARAR AND ISLAMIC BANKING 13 (1986) (defining riba as unlawful advantage by way of excess or deferment).

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