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Old 09-12-2017, 03:24 AM   #1
vicky_molokh
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Default [Spaceships] Islamic Banking and Financing Spaceships Purchases

Greetings, all!

For cultural (rather than religious) reasons, a setting includes two major approaches to banking. Let's call them, for a lack of a better word, 'Usury-OK' and 'Usury-NO', with the latter resembling the real-world Islamic Banking (but actually has nothing to do with Islam, since the setting has totally different cultures and religions). In some regions, people are heavily inclined towards one approach or the other, and in some there may even be legal reasons why one or the other maintains little or no presence; in others, they coexist to cater to people with different priorities, fears, concerns etc. (Also, a side note: IRL Islamic Banking seems to still be in its infancy, barely a few decades old, while the setting in question is TL9ish and had its usury-no equivalent for a handful of TLs, letting it become more developed / bugs removed / etc.)

Now, of course all financial matters are very complex in real life, and usually simplified in games. Me reading a bunch of articles and discussions (which I did) is not enough to understand the intricacies of Islamic Banking IRL, and real-world understanding is recommended when trying to produce a playable simplification of a real thing.

So my question is to those who are 'at home' with real-world intricacies of banking, economics, accounting, finance etc.: what should be the game effects of choosing the latter approach over the former? What should be the game-mechanical differences in terms of financing and payment as depicted on SS2:27?

Thanks in advance!
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Old 09-12-2017, 04:07 AM   #2
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Default Re: [Spaceships] Islamic Banking and Financing Spaceships Purchases

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Originally Posted by vicky_molokh View Post
So my question is to those who are 'at home' with real-world intricacies of banking, economics, accounting, finance etc.: what should be the game effects of choosing the latter approach over the former?
Either people will figure out how to make a profit from money lending, or money lending will not exist. At the resolution of the economic system in SS2, this amounts to one of two choices:
  1. Use the rules as written. The differences are cosmetic.
  2. Financing is unavailable.
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Old 09-12-2017, 04:22 AM   #3
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Default Re: [Spaceships] Islamic Banking and Financing Spaceships Purchases

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Either people will figure out how to make a profit from money lending, or money lending will not exist. At the resolution of the economic system in SS2, this amounts to one of two choices:
  1. Use the rules as written. The differences are cosmetic.
  2. Financing is unavailable.
I never said it's not supposed to make a profit, and am in fact referencing a real world usury-no system because it does turn a profit for the banks, but uses different methods of doing so.
And the differences are not cosmetic, in terms of client rights and responsibilities and probably not purely cosmetic in terms of numbers, or else there wouldn't be scholarly debates on the benefits and drawbacks, and on what needs improvement and what is better.

What I'm looking for is advice on which differences are key and how can they be summarized for gameplay purposes. Compare to how different lending durations are summarized in the same page, or the differences between lending versus buying cheap ships. The differences between those have not been deemed cosmetic on a system level - glossing over them is presented as a strictly optional rule.
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Old 09-12-2017, 04:29 AM   #4
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Default Re: [Spaceships] Islamic Banking and Financing Spaceships Purchases

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Originally Posted by vicky_molokh View Post
And the differences are not cosmetic
At the resolution of Spaceships, the figure of merit is just "how much does it cost you per month". Now, it's possible that you won't have anything actually corresponding to the financing rules on p27 -- obvious alternatives include the bank as a silent shareholder and the bank as the owner and renting the ship back to the PCs -- but in the end, you can assume that the amount the PCs have to pay is equal to a reasonable ROI for the bank's investment, plus a modifier for how risky the investment is, and there may be different explanations written down on the bills but the overall amount being paid out will be the same.
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Old 09-12-2017, 04:47 AM   #5
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Default Re: [Spaceships] Islamic Banking and Financing Spaceships Purchases

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At the resolution of Spaceships, the figure of merit is just "how much does it cost you per month". Now, it's possible that you won't have anything actually corresponding to the financing rules on p27 -- obvious alternatives include the bank as a silent shareholder and the bank as the owner and renting the ship back to the PCs -- but in the end, you can assume that the amount the PCs have to pay is equal to a reasonable ROI for the bank's investment, plus a modifier for how risky the investment is, and there may be different explanations written down on the bills but the overall amount being paid out will be the same.
The ROI may be similar, but will still have adjustments, the question is what those adjustments will be for what factors. Consider, for example, how different ship constructions affect insurance costs.
There's also the fact even though lending-funded and cheap-bought ships result in vaguely similar monthly payments, they're still two distinct methods of approaching the purpose of a ship and the differences are not cosmetic - enough so that they have their separate subsections on the page.
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Old 09-12-2017, 05:11 AM   #6
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Default Re: [Spaceships] Islamic Banking and Financing Spaceships Purchases

I've been working on this for one of the factions in a setting of mine (a "post-reformation" Islam a few hundred years in the future).

As far as I can see, and I don't speak Arabic so I know I'm missing things, the prohibition on charging/paying interest is a very lawyerly one. For example:

I have an investment with an Islamic bank. According to all the paperwork, it does not pay interest. Instead, they will pay me a certain extra sum when the investment matures based on their profit from using the money, and anything above that extra sum they get to keep. This seems to me a frankly casuistical distinction, in much the same vein as the Kosher Light Switch.

The overall model for lending to businesses is that the lender gets a stake in the company - which is often expressed as a percentage of income. Again, there are lots of ways of shading this to make the income stream more predictable.

If an Islamic bank lends me money to buy a house, it's effectively a rent-to-own deal: I pay them rent for a set period, during which they own the house, and at the end of that period ownership transfers to me. The distinction between this and a mortgage payment is frankly microscopic. (They can even sell that rent stream + backing asset to another bank, just as a Western bank would sell a mortgage income stream.)

The other big factor in Islamic finance, which may or may not be a concern in your culture, is the prohibition on gambling. Again there are lots of ways round this, but it affects the ethos of the financial markets, which (at least nominally) are more about investment than about speculation.
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Old 09-12-2017, 05:52 AM   #7
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Default Re: [Spaceships] Islamic Banking and Financing Spaceships Purchases

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As far as I can see, and I don't speak Arabic so I know I'm missing things, the prohibition on charging/paying interest is a very lawyerly one.
Of the discussions I've seen, there does indeed seem a trend that it's the non-Muslims that seem more confident in denouncing such things as lawyery.

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The overall model for lending to businesses is that the lender gets a stake in the company - which is often expressed as a percentage of income. Again, there are lots of ways of shading this to make the income stream more predictable.

If an Islamic bank lends me money to buy a house, it's effectively a rent-to-own deal: I pay them rent for a set period, during which they own the house, and at the end of that period ownership transfers to me. The distinction between this and a mortgage payment is frankly microscopic. (They can even sell that rent stream + backing asset to another bank, just as a Western bank would sell a mortgage income stream.)
As mentioned before, the former sounds like something closer to joint investment with asymmetric rights rather than usury. The implications of different ownership rights are the most interesting for me at this point, as well as the removal of compound penalties for late payments (I actually have difficulty understanding what are they replaced with to compensate for the risk of the client being late with the profits).

For rental arrangements + piecemeal purchases, it seems like rental cost should normally vary depending on the fraction of the ship owned by the bank and the captain/buyer; wonder what other adjustments are necessary.

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The other big factor in Islamic finance, which may or may not be a concern in your culture, is the prohibition on gambling. Again there are lots of ways round this, but it affects the ethos of the financial markets, which (at least nominally) are more about investment than about speculation.
That's a different concern, and I think some cultures may indeed have a strong avoidance of such risky affairs, which would probably make them less inclined towards insurance (in the more classical, not-pre-known-outcome, gambly sense), and more inclined towards public-funded compensations (where prior conditions don't disqualify one from receiving aid).

That's probably not gonna intersect with the debt/usury-averse cultures.
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Old 09-12-2017, 06:23 AM   #8
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Default Re: [Spaceships] Islamic Banking and Financing Spaceships Purchases

Here's an example of Islamic "mortgages" in the UK:

https://www.alrayanbank.co.uk/home-f...purchase-plan/
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Old 09-12-2017, 06:52 AM   #9
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Default Re: [Spaceships] Islamic Banking and Financing Spaceships Purchases

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Originally Posted by vicky_molokh View Post
As mentioned before, the former sounds like something closer to joint investment with asymmetric rights rather than usury. The implications of different ownership rights are the most interesting for me at this point, as well as the removal of compound penalties for late payments (I actually have difficulty understanding what are they replaced with to compensate for the risk of the client being late with the profits).

For rental arrangements + piecemeal purchases, it seems like rental cost should normally vary depending on the fraction of the ship owned by the bank and the captain/buyer; wonder what other adjustments are necessary.
I don't yet have solid information on this.

As far as I can tell from anecdote, the Islamic lender is more willing to take back the primary asset than the Western, who may let penalty fees build up instead which is obviously easier with a house than with a spaceship, but there have been threads here about spaceship repo men.

I would expect that the rate paid for fractional ownership would vary just as interest rates do, based on the likely profitability and risks of the enterprise.

Again from anecdote, so this may not be universal, the "rental" fiction is accepted as such: if you have an Islamic not-mortgage for your house, you still get to modify it as you see fit (in the UK renters generally don't get to do this without the landlord's permission).

Using the "company finance" model, the level of control varies - the Islamic bank may be hands-off and just take its percentage, or it may want to be a partner in the venture, even to the extent of having a representative permanently involved in running it. As far as I can tell this varies with different Islamic subcultures.
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Old 09-12-2017, 06:54 AM   #10
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Default Re: [Spaceships] Islamic Banking and Financing Spaceships Purchases

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Originally Posted by NineDaysDead View Post
Here's an example of Islamic "mortgages" in the UK:

https://www.alrayanbank.co.uk/home-f...purchase-plan/
Yeah, I think the key point there is that in spite of all the legal fictions they're still basically saying "we'll lend you this much and charge you that much for the privilege".
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