Islamonomics

By Akhtar Mohammed

The Islamic finance industry will be worth $3.4 trillion in 2018. Clearly, it is nothing to sneeze at. Yet, what is it, exactly?

'Islamic finance' refers to the means used by financial institutions in the 1.7 billion-strong Islamic world to raise capital. By definition, it is compliant with shari'ah law, even as it interacts with conventional, secular financial systems.

In this groundbreaking book, Akhtar Mohammed explains the principles of Islamic finance and explores its function in the international marketplace. He argues that it holds powerful lessons for Western secular financial institutions, provided the "Islamic" in "Islamic finance" can be regarded without suspicion and with open minds.

What does Islamic finance have to teach in relation to the worldwide financial crisis and its aftermath, globalization, ethical investment practices, the growth of the Global South, and social movements such as Occupy Wall Street? Mohammed illuminates its successes, failures and future growth in secular terms, and in clear, accessible language intended for non-specialists as well as experts--regardless of their religious beliefs.

Akhtar Mohammed was born in Vancouver and obtained a BA in Political Science from the University of British Columbia and an LLB at the School of Oriental and African Studies (SOAS), University of London. He is currently pursuing an LLM in at York University, Toronto. In 2013 he founded the Islamic Finance and Ethics Society at SOAS, later expanding it to King's College, the London School of Economics, and the Cass Business School, City University London.

• Language: English
• Publisher: Garnet Publishing
• Release date: Jul 1, 2022
• ISBN: 9781902932927

Book preview

9781902932613

ISLAMONOMICS: ISLAMIC FINANCE, TRADE AND THE GLOBAL MUSLIM MARKET

Akhtar Ismail Mohammed

Islamonomics

Islamic Finance, Trade and the Global Muslim Market

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Garnet Publishing Limited

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Copyright © Akhtar Ismail Mohammed, 2021

All rights reserved.

No part of this book may be reproduced in any form or by any electronic or mechanical means, including information storage and retrieval systems, without permission in writing from the publisher, except by a reviewer who may quote brief passages in a review.

First Edition 2021

ISBN: 9781902932613

British Library Cataloguing-in-Publication Data

A catalogue record for this book is available from the British Library

Typeset by: Samantha Barden

Jacket design by: Samantha Barden

Printed and bound in Lebanon by International Press: [e-mail]

To: Greater Understanding

Introduction

The Islamic Finance industry is valued at US$3 trillion and will continue to grow in importance as Muslim majority countries grow in wealth, and Western corporations seek to sell their goods with developing economies. The economic growth of six Muslim majority countries (Egypt, Iran, Bangladesh, Indonesia, Pakistan and Turkey) has been projected to reach the level of the Group of Seven nations by 2050, with the growth of Islamic Finance to parallel this growth. The role of Islamic Finance in the global economy has led to the participation in the industry by diverse global institutions such as Goldman Sachs, HSBC, the IMF (International Monetary Fund) and the Beijing-led Asia Infrastructure Investment Bank, among others. Even former British Prime Minister David Cameron emphatically proclaimed that ‘London will be the Western hub of Islamic Finance’. Furthermore, in the aftermath of the debt-fuelled 2008 global financial crisis, Islamic banks were more robust in their recovery compared to Western banks, as they did not participate in toxic financial instruments. This led to praise and admiration from leading economists to explore the potential benefits of Islamic Finance in an increasingly globalized world.

If you are like me, you probably had a few questions when you first heard of Islamic Finance. First, what is Islamic Finance? Simply, Islamic Finance is the practice of financial principles based on the Qur’an and other sources of Islam. This will be explained in detail in Part 1. Second, how come I’ve only heard the terms ‘Islamic terrorist’, ‘Islamic fundamentalist’ and ‘Jihadist’ along with a few others, but have never heard of the concept ‘Islamic Finance’? I will explain why and how this ‘single narrative’ about Islam is deeply problematic not just because it is offensive, but rather because it provides an incorrect understanding of the historic role of Islam in global trade and the future role of Islam in global trade.

Now let’s deal with the second question. The term ‘Islamic fundamentalism’ implies it is by practising the fundamentals of Islam that these individuals have acted in violence rather than some other reason. Such as young men without much of an education and prospects for work who are appropriating the religion and interpreting the acts from the lingering residue of revolutionary Marxism that had existed in their countries after decolonial movements in the 1950s and 1960s. An astute mind will find that this underlying problem, of men without hope of employment and a place in society who subsequently turn violent, also exists in countries that are not Islamic.

The term ‘terrorism’ has been used to define a violent act perpetrated only by a Muslim. This discourse has been shaped in response to 9/11 (which has become shorthand for the events that occurred in New York on September 11, 2001) and, for others, it was developed by the Iranian Revolution of 1979. This negative interpretation of Islam then seeped into the popular consciousness that Islam has done nothing positive but solely eroded and undermined the values of the ‘West’ or ‘Judeo-Christian values’. Even if you were an innocent bystander in these discussions, you might have formed a negative opinion about Islam. While you may not agree that all Muslims are terrorists, you might wonder: ‘How come all the terrorists are Muslims?’ You may perhaps also have a follow-up question: ‘How come there is nothing positive that you hear about Islam or Muslims?’ The response by practising Muslims, self-identifying Muslims or those sympathetic to Islam (such as the late Professor Edward Said) to ‘Islamophobia’ has been to deconstruct the critique of Islam or to expose the hypocrisy of those who claim that Islam is the root of all evil.¹

The argument follows as such: one person who wants to ridicule Muslims will say: ‘Islam is inherently violent.’ The Muslim or Muslim sympathizer will respond to undermine the initial argument by saying: ‘You know the American military has been in a state of perpetual war since the Second World War, so who is more violent?’ While the second statement is true, it only furthers the divide between the two sides and forces the first person to continue to ridicule Islam. Most often, these two people will be citizens of the same country and most likely live close to one another, thereby increasing the social tension in their community and furthering the divide that may already exist. Furthermore, neither of these two people will be actively working towards making their community or society a better place, since getting into a shouting match about who is right or wrong doesn’t allow either person to work towards the betterment of themselves or others.

The exchange between the two is entirely based on ethos, ‘emotions’, and has more to do with constructing one’s ‘false superiority’ by creating a ‘false negativity’ in the other person. The German philosopher Georg Wilhelm Friedrich Hegel (1770–1831) argued in The Phenomenology of Spirit that, ‘Self-consciousness is in and for itself, when, and by the fact that, it is in and for itself for another self-consciousness; that is, it is only as something recognized.’² For example, when an individual recognizes you solely as a Muslim, then you become a Muslim, even though you are also a Canadian, a university student, or a soccer player. The perpetrator attempts to reduce another human being’s sense of self by not recognizing them for who they are, but by identifying them by negating who they are. And only by accepting the stereotype do you affirm their identity – this is the ‘struggle for recognition’.

For some, this reduces them to something they are not, and they do not respond since they realize the trick that is being played. Whenever someone has attempted to do this to me, they are never aware that my grandfather fought in the Second World War with the Fijian Regiment and spent his life working for Her Majesty’s Government in Colonial Fiji. Therefore, how can my personal experience with Islam be antithetical to freedom, democracy and the ‘West’ when my grandfather put his life on the line and fought for it – like millions of other Muslims? The fact that this doesn’t cross their mind reveals their ignorance rather than my shortcomings. As a result, it is best to simply walk away from such an exchange with one’s dignity and sense of self intact. For Hegel, this act was radical because it annihilated the power of the perpetrator. The perpetrator is dependent on the ‘other’ to construct their identity. To deny the other person this power is to gain one’s freedom. As Hegel observed, ‘It is solely by risking life – freedom is obtained.’³

For others though, they embrace the exchange and become the stereotype that is projected onto them because it feels empowering to be recognized rather than being ignored. This furthers the divide between the two supposed divergent sides. However, I argue that the purpose of the exchange is less to do with constructing an ‘other’; instead it is the need to construct the ‘other’ to uplift the person making the offensive statement in the first place. When the person makes the statement to ridicule Islam, they are in the process of constructing their own identity in what they believe is in a new and more positive light. They are no longer the struggling high school student or drop out from university; they are now the rational free-thinking atheist who is claiming they are the inheritor of the heights of Western civilization in opposition to the irrationality and failures of Islam. Ironically, they are never at the pinnacle of their society. And, because this person cannot merely differentiate themselves from others due to work ethic or meritocracy, they need to create an ‘other’ who they believe is less than them to feel better about their shortcomings.

Hence, engaging in an exchange with this type of person only reinforces their identity while creating a negative opportunity cost for both people. How can you be sure that there is an opportunity cost? I can highly guarantee that neither of the people in this exchange will develop the vaccine to COVID-19. How can I be so sure? People who are focused on solving complex problems that take decades to become an expert in have the mental discipline to not be distracted by something that doesn’t affect their life.

About this book

This book is divided into five parts. Part 1 focuses on the origins of Islamic Finance and its roots as an Abrahamic faith. This section explores how the principles of Islamic Finance and its economic motivations work as a system rather than as a simple set of legal rules. We will explore the common ground it has with Christianity and Judaism. This will be explored through the provocative claim that the rise of Islam in the 7th century, and the subsequent system of trade between North Africa and Italian city-states, provided the impetus for Europe to crawl out of the Dark Ages by re-introducing concepts of capitalism to the Europe ruled by Charlemagne. Furthermore, we will explore the understanding of the prohibition of interest in Christianity and Judaism, then take a look at how the Protestant Reformation became the catalyst for the modern banking system in the 16th century.

Part 2 examines the long history of Islamic trade, from the 7th to the 20th centuries, what I call Pax Islamica (the Islamic peace). It is intended to answer the question: ‘What has Islamic Finance contributed to civilization?’ This is a fascinating look at what happened when the nascent religion spread and the new adherents applied the principles of Islamic Finance to their societies to facilitate long-distance trade from the far distances of the world through Central Asia, into Europe, Africa and into East Asia. By tracing the history of Islamic trade, it will become evident that economically Islam is a liberal religion. As the religion spread from the Arabian peninsula to North Africa, Spain, Africa, Central Asia, the subcontinent and Southeast Asia, anyone who was Muslim and was held as the leader was able to lead their respective Islamic societies. This is a crucial point to understand the history of liberal economic thought. None of the new Islamic empire or sultanates ever had to seek guidance from a centralized authority. Whereas the doctrine of papal primacy in the Catholic Church enshrined that the Bishop of Rome, ‘the Pope’, has universal power over all Catholics, this was not the case with Islam. Islam was the Protestant Reformation before the Protestant Reformation. Whether it was Fatimid Egypt, Islamic Spain, Safavid Persia, the Ottomans, the Mughals or the Sultanate of Aceh, power and profits did not lead back to Mecca. Hence, the rapid spread of Islam around the world was facilitated by the comparative political and economic liberalism that Islam provided at the time.

This part will reveal that trade between the East into Europe along the Silk Road and the Maritime route was well known among those who had an interest in it. This begs the question how come so few people today understand how vital this 1300-year-old system of trade is to the world? A statement by the 16th century Portuguese traveller to Southeast Asia, Tom Pires, best sums up the importance of the system of trade when he stated: ‘Whoever is lord of Malacca has his hand on the throat of Venice.’ A reflection of how vital the supply chain of spices from Southeast Asia was to the riches of Venetian traders.

Before you read Part 2, I will provide a typical disclaimer that is given by financial advisors to investors: past performance is not an indicator of future outcomes. In other words, the explanation about the historical benefits of Islamic Finance to facilitating trade and development of Islamic civilizations is not arguing that Islamic civilizations will once again reach such heights by merely trying to recreate the past. As Sir Karl Popper explains in his book The Poverty of Historicism, this is when the glories of the past are used to predict the future achievements of civilization, typically by romanticizing a previous ‘Golden Age’.⁴

Part 3 looks at why Islamic Finance disappeared in the early 20th century and how it is re-emerging in the modern global financial system. Regarding the question of disappearance, the first thought that comes to mind is European colonization. However, from the moment the Portuguese sailor Vasco da Gama sailed around the Cape of Good Hope in 1498 to establish trading posts in Goa (India), to almost 1820, European merchant companies were not at a technological advantage compared to their Eastern counterparts. It is essential to understand that colonization did not happen in one instance at the snap of fingers. Neither was colonization an experience that benefited every single person from a European background. Instead, it was supported by the monarchs of Europe to allow merchant companies to trade in Africa, North America and the Far East. One of the significant factors was the rise of the Industrial Revolution (beginning in 1760) in England, which tipped the balance of power in favour of the British over other Western European powers, which led to an asymmetry of power that resulted in the gradual colonization of Islamic powers and almost everyone else. Another factor was the lack of initiative of these once-wealthy empires to modernize their economies and technologies to keep up with the advances made in Western Europe. It was both internal and external forces over a 200-year process that slowly eroded the last Islamic powers.

Interestingly, after the collapse of the Ottoman Empire at the end of the First World War, the Dutch became the rulers of the largest Muslim population through their colony of Indonesia. To facilitate the holy pilgrimage from Indonesia to Mecca of its Muslim subjects, the Netherlands Trading Society opened a branch in Jeddah in 1926 to organize the financing of the pilgrimage. This act would eventually lead to the Netherlands Trading Society acting as the de facto Central Bank of the Kingdom of Saudi Arabia from 1926 to the 1960s, as it was the only bank in operation in the Kingdom. This unique arrangement ensured that the practice of Islamic Finance continued even after the collapse of the Ottoman Empire. Another interesting point that will be explored is how OPEC (the Organization of the Petroleum Exporting Countries) unintentionally forced the creation of currency risk and hedge funds when it forced the United States of America off the Gold Standard after the 1973 oil crisis – a critical moment that ushered in an era of neoliberal economic policies.

Parts 4 and 5 of this book examine the potential of Islamic Finance in the 21st century, in an age of the re-emergence of East Asian and South Asian economies. It is predicted that by 2050 Indonesia will be the fourth largest economy in the world by purchasing power parity while also being the country with the largest Muslim population. Yet Indonesia does not come to mind as an economic power; nor is it often mentioned as a part of the Muslim world. However, from reading Part 2, you will see how Indonesia was incredibly valuable in the spice trade that attracted the Portuguese, Dutch, French, English and Americans to the region. It was so vital to wealth creation in 19th-century Salem, Massachusetts, that the city’s seal features an image of a ‘Javanese’ man. As we look to the future, we anticipate the effect of the rise of Indonesia as a regional power shapes how we understand the development of Islamic Finance.

Nonetheless, it is not simply a triumphant return of Eastern powers in opposition to the West; rather, the question will remain whether or not Islamic Finance can be implemented to reduce income inequality, curb the effects of climate change, and to produce societies that do not merely copy the failures and excesses of an unregulated capitalist system. This part of the 2050 vision is hard work. It will take policy experts, civil society and responsible governance to develop a society that can reflect the ethos of Islamic Finance. This burden is placed on those who reap the benefits of the boom of Islamic Finance. It is also an opportunity to set an example for others for how the world can develop.

And one final disclaimer before we begin our journey exploring this topic: this book is not a polemic nor apologetics about the morality of Islam, nor the claim that Islamic Finance is a panacea, a totalitarian divine solution for the world. In particular, in the aftermath of the calamities of the debt-fuelled 2008 global financial crisis, it is not a discussion about the more delicate intricacies of Islamic commercial law about what is or is not halal (permissible) in a purely legal sense. Nor does it intend to ignite those debates. Instead, this book provides historical, political and economic context to explain Islamic Finance as a social phenomenon. The purpose of such an analysis is to understand, then, how these principles apply today to adequately address the needs of society. A strict legal adherence of law without understanding that law is meant to minimize the misery of society will eventually render law null and void of any authority.

Now let’s look first at the common features between Islamic Finance and the Abrahamic faiths to understand the similarities in their understanding of the ban on interest-based lending. Then we turn to understanding how Martin Luther’s nailing of his Ninety-five Theses, which ignited the Protestant Reformation and the split of the stranglehold of power with the Catholic Church, eventually led to Protestants allowing for interest-based lending, ushering in the modern era of banking.

Notes

1 Late Professor Edward Said was a Palestinian American born in Mandatory Palestine in 1935 who became a Professor of Literature at Columbia University, a public intellectual and a founder of the academic field of postcolonial studies. Although not a Muslim, Said understood that for many in the West, ‘Islam’ and ‘Arab’ were synonymous. As a result he wrote a number of books to counter negative stereotypes of both. In his 1981 book Covering Islam: How the Media and Experts Determine How We See the Rest of the World, Said deals with issues during and after the Iranian hostage crisis, and how Western media has speculated on the realities of Islamic life. Said questions the objectivity of the media, and discusses the relation between knowledge, power and Western media.

2 G. W. F. Hegel, Hegel: The Phenomenology of Spirit, Oxford: Oxford University Press, 2018, p. 76.

3 Ibid., p. 78.

4 Karl Popper, The Poverty of Historicism, Boston: Beacon Press, 1957.

Part 1: The Origins of Islamic Finance

Top five economies in 1 ce by GDP purchasing power parity in 1990 US dollars

1 India – $33.75 billion

2 China – $26.82 billion

3 Western Europe – $14.43 billion

4 West Asia – $10.12 billion

5 Africa – $8.03 billion

‘A principle that goes back at least, I know, as far as the 14th century, when a Muslim philosopher named Ibn Khaldun said, In the beginning of the dynasty, great tax revenues were gained from small assessments. At the end of the dynasty, small tax revenues were gained from large assessments. ’

1 October 1981

US President Ronald Reagan

Washington, DC, United States of America

1 Islam as an Abrahamic Faith

‘So, that is all very interesting, but what is the difference between Islamic Finance and conventional finance, and why?’ I’ve been asked this question more than a thousand times in different ways. Depending on who asks, the question often reveals the assumptions and curiosity that most people have towards the topic. The question is difficult to answer for several reasons. We begin with the initial problem of how we understand history and cultures (or civilizations, as the late Professor Samuel Huntington categorized it); is it static or is it an evolving process? By explaining what is different between Islamic Finance and conventional finance, it assumes that these differences began in the 7th century with the creation of Islam and continued until its present form today. For example, the Civilizations theory presumes that understanding a verse in the Qur’an revealed in the 7th century is enough to understand how and why the UK government issued Islamic Bonds in 2015 without an investigation into everything that occurred between those two points in time. It is the Civilizations theory that has several shortcomings.

First, to approach it in this way does not consider the theological lineages between Islam and the other Abrahamic faiths. Islam considers itself as a continuation of the message of Judaism and Christianity, even if Judaism and Christianity do not. Second, the Civilizations theory does not consider factors that explain how Islamic Finance developed. For example, the society that existed during the fruition of Islam in 7th century Arabia was influenced by pre-Islamic practices, the culture of the dominant neighbouring Roman Empire and shaped by the rise of the Tang Dynasty in China, which centralized power to usher in a new wave of Silk Road trade. Yet the Civilizations theory has found an audience among Muslims and non-Muslims.

Professor Huntington crystallized this theory in his influential book The Clash of Civilizations. He argues that there are several static civilizations that have existed in world history, and these civilizations have specific characteristics that force them to collide with one another. In particular, he argues that Islam and Christianity being evangelizing religions will clash by their cosmic claims of holiness.¹ Some Muslims also follow in a similar trap, although through a different argument. Their position is that the current manifestation of Islam is corrupt and unholy. Therefore, we must return to a ‘Golden Era’ of Islamic practice to reclaim the spiritual and consequently material heights of Islamic culture. At the core of this claim is that there was once a static Golden Age that was uniquely Islamic. Both forms of the Civilizations theory quickly run into trouble when explaining how and why Islamic Finance has developed the way it did since the 7th century and in how it might develop in a multi-polar world in the 21st century.

With this understanding, we begin with an exploration of how the Abrahamic faiths shaped Islamic Finance – in particular, the Islamic prohibition on interest. And, how Christian interpretations of the permissibility of interest during the Protestant Reformation led to the development of our modern banking system. Once these are understood, it will become much easier to understand what is then uniquely ‘Islamic’ to Islamic Finance. Islam as an Abrahamic religion, along with Christianity and Judaism, claims Prophet Abraham as a common tribal patriarch. From the perspective of the Islamic faith, the Prophet Muhammad is considered the last Messenger among the line of Messengers, which includes Adam, Noah, Moses and Jesus. This book cannot adequately address the nuances of each faith; nonetheless, a basic understanding of the origins of Abrahamic religions provides sturdier grounding to understand Islamic Finance.²

Judaism

Similar to the misperception between the evolution of Islam and the Civilizations theory, there is a significant misperception about the theological connection between Islam and Judaism. The problem is a result of looking at theology through the lens of modern politics. The ongoing political crisis between Israel and Palestine (along with the Arab League, an organization founded after the Second World War focusing on integration of Arab countries), makes it seem as though the divide between the two religions is equally as stark as the present-day political divide between the two factions.³ However, there is significant common ground between the two, in particular on the permissibility of interest-free lending.

Judaism is the oldest of the three Abrahamic faiths, beginning in 1812 bce through the Prophetic message of Abraham. The Prophet Abraham represents the patriarch of the three religions whose children, Isaac and Ishmael, share the same heritage between Islam and Judaism. Ishmael is the ancestor of the Ishmaelites/Arabians, whereas Isaac and his son Jacob, also named Israel, are the ancestors of the Israelites. Prophet Moses is considered the most important prophet in Judaism and is even a revered prophet in Islam. He revealed the Torah (Old Testament) to the Jewish people in 600 bce. The Torah is considered the central religious text for the Jewish faith, proscribing the fundamental elements of religion and the legal requirements for its believers. Prophet Moses is infamous for freeing the Jewish people from slavery by splitting the Red Sea and gaining settlement at Mount Sinai. The Qur’an mentions Moses as a Prophet of Islam and the Torah as a sacred text.⁴

There are many shared religious principles between Islam and Judaism. Islam re-affirms many of the tenets of Judaism and makes it acceptable for Muslims to follow particular Jewish laws. The most prominent example of this is permission to eat kosher meat, since the process of slaughter is similar to Islamic practice. If a Muslim is travelling on a long-haul flight without the option of a halal meal, they can easily opt for the kosher meal without any issue. It is the same principle when it comes to the Jewish ban on interest-based lending.

Interest

Judaism is perhaps best known for its legal rules on interest-based lending due to the historic role it has played in European banking. The Torah is the source of Judaism’s legal principles, and it guides the Jewish community on interest-based lending. The defining legal principle on interest is from Deuteronomy 23:20 where it states: ‘Unto a stranger thou mayest lend upon usury, but onto thy brother, thou shall not lend upon usury.’⁵ This verse means that lending within members of the Jewish community is prohibited while lending outside of the Jewish community is permissible. Furthermore, the Book of Ezekiel holds that charging interest is among one of its worst sins.⁶

Once Catholic Christendom banned the lending on interest, this verse eventually was interpreted to mean that Christians in Europe were able to use Jewish moneylenders to provide interest-bearing loans. The interpretation of the permissibility of interest-based lending between Christians and Jews over the past 1500 years has evolved to be the foundation of our modern banking system. The practice of non-interest-based lending among the Jewish community has taken place for millennia and provides a model for Muslims on how to structure similar financial institutions in the present day. Christianity also has principles on the prohibition of interest; however, this changed during the Protestant Reformation in the 17th century.⁷

Christianity

Christianity is the second Abrahamic faith, and it began with the life of Jesus around 4 bce. Jesus was born as a Jew and his mission was to reform the Jewish faith. At the time of his mission, he believed Judaism was being practised to the letter of the law, yet ignoring the spirit of the law. In Luke 6:34–35 in the New Testament, there is a clear example of the spirit of the law that was at the core of Jesus’ mission, where it is stated:

And if you lend to those from whom you expect repayment, what credit is that to you? Even sinners lend to sinners, expecting to be repaid in full. But love your enemies, do good to them, and lend to them without expecting to get anything back. Then your reward will be great, and you will be children of the most high, because he is kind to the ungrateful and wicked.

The Catholic Church upheld this principle from the 7th century onwards – Christians were not allowed to participate in interest-based lending among one another. As a result of this restriction as well as the rule that allowed members of the Jewish faith to lend outside of their faith on interest, many Christians could participate in interest-based lending with members of the Jewish faithful – a significant loophole to this rule. The prohibition on interest-based lending for Christians changed during the Protestant Reformation in the 16th century. This was a response to the disastrous policies of Charlemagne, the first emperor of the Holy Roman Empire.

Charlemagne

In the medieval era, the Catholic Church held that interest-based lending was not permissible among Christians. In 538 ce, a meeting of thirteen Catholic bishops at the ‘Third Council of Orléans’ banned all clergy from lending money at interest, or to trade ‘as professional merchants’ or ‘out of abject greed for filthy lucre’. This ban led to the uncertain situation between the Christian and Jewish faithful, whereby the Christians would partake in interest-based loans granted by the Jewish congregation. The rule of Charlemagne as the first ‘Holy Roman Emperor’ began on 25 December 800 ce and entrenched not only the ban on interest-based lending but went even further and considered profit as a sin for Christians.

The consequence of Charlemagne’s rule led to the Catholic Church focusing on the ‘redeeming merits of poverty for the masses to the enhancement of its [own] coffers’.⁸ Yet, the dominant theory of the catalyst for the Dark Ages in Europe was due to the rise of Islam in the 7th century. This theory believes that Islam created new economic competition between the Middle East and Europe, which led to the Dark Ages. Instead, the cause of the Dark Ages was a result of unsound economic policy. In the 19th century, Belgian historian Henri Pirenne (1862–1935) famously wrote, ‘Without Islam, the Frankish Empire would probably have never existed, and Charlemagne, without Muhammad, would be inconceivable.’⁹

Historians have not universally accepted this theory. The contrary seems to be the consensus among modern scholars of the medieval era. It was trading between Italian city-states and North African Islamic societies that introduced the financial products that broke through the anti-profit position of the Catholic Church. Author, and adjunct Professor at the University of Maryland, Gene Heck, in his book Charlemagne, Muhammad, and the Arab Roots of Capitalism, provides primary evidence to further this position. He also claims:

[I]t was largely a predominant indigenous institution, the Church, that destroyed the professional merchant class of Europe through its rigorous insistence on the desirability of poverty for the middle classes; on enforcing its rigid total ecclesiastical ban on capital interest as an economic policy of the State – and thereby, on denying ‘profit motivation’ and all other financial incentives to produce would-be local entrepreneurs.¹⁰

More than five centuries later, the most prominent Catholic theologian to take a stance against interest was the 13th century Italian Thomas Aquinas. In his seminal text, Summa Theologica, Aquinas argued his position on interest after reading Latin translations of Aristotle from Arabic by Abu Walid Mohammad Ibn