Islamic contractum trinius

[S.O.S]

Islamic banking isn't Islamic

 

The contractum trinius was a legal trick used by European merchants in the Middle Ages to allow borrowing at usury, something that the Church fiercely opposed. It was a combination of three separate contracts, each of which was deemed permissible by the Church, but which together yielded a fixed rate of return from the outset. For example, Person A might invest £100 in Person B for one year. A would then sell back to B the right to any profit over and above say £30, for a fee of £15 to be paid by B. Finally, A would insure himself against any loss of wealth by means of a third contract agreed with B at a cost to A of £5. The result of these three simultaneously agreed contracts was an interest payment of £10 on a loan of £100 made by A to B.

 

I had read about the contractum trinius some months before first encountering the full documentation behind an Islamic banking murabahah contract. It was the kind of contract that Person A might use in order to finance the purchase of good X from Person B. The bank would intermediate in the transaction by asking A to promise to buy good X from the bank in the event that the bank bought good X from B. With the promise made, the bank knows that if it buys good X from B it can then sell it on to A immediately. The bank would agree that A could pay for good X three months after the bank had delivered it. In return, A would agree to pay the bank a few percent more for good X than the bank had paid to B. The net effect is a fixed rate of financial return for the bank, contractually enforceable from the moment that the bank buys good X from B. Money now for more money later, with good X in between.

 

The above set of legal devices is nothing other than a trick to circumvent riba, a modern day Islamic contractum trinius. The fact that the text of these contracts is so difficult to come by is one shameful fact of Islamic banking. If so clean, why so secretive? The following is an excerpt from a murabahah contract that was used frequently by two major institutions during the 1990's. The 'Beneficiary' is the client that needs finance, and earlier clauses require that the Beneficiary acts as the agent of the Bank in taking delivery of the goods.

 

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[Nur]

Great topic bro, I have discussed this issue on another thread, the above instrument belongs to a category in the Islamic ( Mucaamalaat) known as ( Taxaayul) or legal loopholes that utilize ambiguities to bypass legal edicts. Taxaayul is more sinful than outright violation of Islamic law.

 

Nur

[S.O.S]

^^The funny thing about these so called Islamic instruments is hat they are promoted by non-Muslims mostly. The British government is intending to issue sukuk as part of current Bank of England's quantitative easing process. If it's up to Gordon Brown, according to his own speeches, London will be the centre of Islamic finance. In Holland, when the VVD (a right wing political party) criticized Islamic finance in their political publication, the defenders and promoters of Islamic finance in the media were all non-Muslim lawyers and accountants who accused the VVD of ignorance and urged them to retract their statements.

[Sophist]

Interesting stuff!

 

I think the brother is getting his knickers in twist for nothing. I am structuring some of these products-- actually we have just pitched for a Murabah Inv today! anyhow, Murabaha is nothing like contractum trinius!

[S.O.S]

Brother Sophist,

 

I believe that the author is right in his assessment within the context of quoted contract. With all due respect, you cannot expect us to take the word of an individual who pitches for Murabaha investments for his job at face value for obvious reasons, not least conflict of interest. Unless of course you're willing to disclose the generic contractual terms of products you structure that can convince us otherwise.

 

No one should have the illusion that all Murabaha contracts are designed the same way. The author is criticising purchase to order Murabaha instruments where delivery, agency and other conditions on default are questionable at best, and outright unlawful at many a times.