A fascinating exposition on how Muhammad Baqir al-Sadr, an Iraqi Shia Islamic Jurist who was incidentally killed by Saddam Hussein in 1980. Be that as it may, this article is worthwhile reading for people who are interested in how Sadr saw the world in terms of Shia theology.
Also check the footnotes, very very useful references for those who want to delve deeper into this rather unexplored view of Islamic Finance (as it is heavily biased towards the Sunni and that too a twin polar world, one the Arab world and second is the Malaysian World). And believe you me, there is a difference between the Shia and Sunni thought as this paper shows.
For example, Sadr indicates that Islamic economics is intended to serve three objectives: to ensure multiple ownership forms of property, to put in place limited economic freedom for commercial actors, and to achieve social justice in commercial affairs. This kind of formulation is very very different from the Sunni thought where the first two objectives are not formulated as such. The third is, for example, the deep theological and religious thought given to the proper and fair functioning of physical markets.
Mind you, this limitation of economic behaviour, such as what we recognise as regulation in the western world, is quite curious and interesting and ties directly into what we would see as the presence of theocrats who guide the great ship of the state.
An interesting aside is about wages. Should a worker receive a wage or a share of profit? Classically speaking, a worker should receive a share of profit rather than a wage as a wage is being fixed and putting a price on labour. So it is a type of interest after all as the wage is not variable. So Sadr goes through some rather torturous theological explanations to get by this problem.
But that is not a problem because in Shia Islam, you have the deputy of the Hidden Imam, the great company of Ayatollah's, who can decipher and decode and denote and devolve and take care of interpreting this complicated matter. Mind you, with the current cries for standardisation and formation of IF Councils and standard's bodies, has anybody noticed that the structure of Islamic Finance is slowly starting to resemble what we see in Iran? As in having Theologians sitting on standards and expert bodies to judge on the suitability of instruments, actions etc. Quite a curious thing and something that not very many people have identified. The fact that this is seriously against Sunni theology (nobody to intercede between a man and Allah) is besides the point.
The author unfortunately damns the current Sunni practice rather badly, and I quote: Given the substantial difficulty of maintaining a financial institution that neither took interest on commercial loans nor engaged in the types of commercial uncertainty banned by the doctrine of gharar, Islamic financial institutions have fallen back upon stratagem and artifice in order to function
The author points to countries like Malaysia where you have both conventional and Islamic finance systems running where evaluation can take place, but unfortunately, as I pointed out earlier, it has rather failed miserably. I have a quibble over the author's proposal for a universal Islamic bank, because he does not explain how exactly the risk transfer would happen. But still, the epistemological framework of Sadr is quite interesting indeed and could well be a model for others to follow, if they can get over the theological hump, that is.
All this to be taken with a grain of piquant salt!!!