An Overview of Public Borrowing in Early Islamic History

Islamic Economic Literature
			An Overview of Public Borrowing in Early Islamic History
			Secondary Title:  Islamic Economic Studies Vol. 2 No. 2
			Price: Free to Download
			By: Muhammad Nejatullah Siddiqi
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	Cover Page Table Of Contents  Back Page
	Literature Type:	Discussion Papers
	Literature Subject:	Public Finance, Zakah, Macroeconomics
	Language Of Text:	English
	Country:	Saudi Arabia
	Publisher:	Islamic Development Bank
	Date Of Literature:	June 1995
	Numbers Of Pages:	22
	ISBN/ISSN:	1319-1616
	Abstract:	Public borrowing has assumed great importance in recent years as indicated by the phenomenal rise in the volume of domestic as well as external debt. This is especially true of Muslim countries most of which belong to the group of poor developing countries of the world. There is a growing literature on the "solution" to the crisis supposedly faced by the world financial system because of these debts; some of which are now considered to be unrepayable. There have been attempts to look at the causes of this phenomenon of permanent indebtedness of nations. Islamic economists have also discussed the implications of abolition of interest for public borrowing. They have tried to find alternative ways of financing public needs hitherto financed by borrowing. It is in this context that scholars have felt the need to look back and see what lessons can be learnt from the Islamic heritage. Did the Islamic state in the past borrow? If so, why and on what terms? Were there any alternatives to borrowing? With these and related questions one can explore the historical records of the many governments, spanning vast regions of the globe over the long period of fourteen hundred years. This is however, a very ambitious project requiring extended teamwork. Yet another problem with such a study is the Islamic authenticity of what the Muslim rulers have been doing all these centuries in all these regions. Authenticity naturally belongs to the decisions and actions of the Prophet (pbuh). The consensus of the community has extended this authenticity to the period of the four pious Caliphs also, i.e. to the policies of the Islamic state till the year 40 after hijrah. In other words, in the context of public finance (including public borrowing) the policies of the Islamic state till the year 40 after hijrah can serve as examples of Islamic policy making and, taking into consideration other relevant factors such as need, scope and perceived functions of borrowing etc., guide to Islamic statecraft in the modern period. As regards other Muslims rulers, their decisions and policies have to be judged on the criteria of the Qur'an and the sunnah. In the context of public borrowing, the most important criterion on which the legitimacy of public borrowing by Muslim rulers has to be judged is the prohibition of interest. This means that if an incidence of borrowing on the basis of interest by a Muslim ruler is reported it has to be regarded as an aberration rather than a precedent, generally speaking. This does not mean, however, that recording and analyzing such cases is of no use to Islamic economists. There is a possibility that such a course of action was resorted to under `extreme necessity' (idtirar). In this case it becomes possible to condone the action despite the fact it can not be a precedent for others, being a violation of shari'ah. While a judgement in such cases may be beyond the scope of an Islamic economist's vocation, it is his job to study these cases and analyze the causes and consequences as benefits an economic historian. In fact such a study on his part will not only facilitate proper `judgement' on such matters, it is a necessary precondition to it. Another important dimension of the matter is the linkage of a particular policy decision with the realization of the goals of shari'ah. Did public borrowing serve a well recognized goal of shari'ah, is an obvious criterion on which its propriety or otherwise should be judged. This study covers only the periods of the Prophet (pbuh), the four pious Caliphs, the Umayyads and that of the Abbasids till the year 333 A.H/944 A.D. after which real power passed, in succession, to the Buwaihids and the Seljuks, and this continued till the sack of Baghdad by Holaku in 656/1258 which put an end to the Abbasid Caliphate at Baghdad. Our primary task has been to record the reported cases of borrowing by the rulers for public purposes. Then we look into such details as the need and circumstances which prompted borrowing, the amount borrowed (in cash or kind) the identity of the lender, the terms and conditions attached, if any. We also inquire whether the lending was voluntary or the ruler had to coerce the lender. We also look at the details, if available, of the repayment of the loan. Having noted these features we try to analyze these cases in relation to their causes and consequences. Finally we consider over the lessons that can be drawn, if any. A serious handicap faced by the writer has been the absence of any other study on the subject which could help in posing the questions or looking for the answers. This should be regarded as one of the reasons, should the discerning reader find the present study deficient in some ways.