[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!

Re: [Spaceships] Islamic Banking and Financing Spaceships Purchases
 

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.

Re: [Spaceships] Islamic Banking and Financing Spaceships Purchases
 

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.

Re: [Spaceships] Islamic Banking and Financing Spaceships Purchases
 

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.

Re: [Spaceships] Islamic Banking and Financing Spaceships Purchases
 

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.

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.

Re: [Spaceships] Islamic Banking and Financing Spaceships Purchases
 

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.

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.

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.

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/

Re: [Spaceships] Islamic Banking and Financing Spaceships Purchases
 

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.

Re: [Spaceships] Islamic Banking and Financing Spaceships Purchases
 

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".

Re: [Spaceships] Islamic Banking and Financing Spaceships Purchases
 

The "Rent to Own rather than Mortgage" model has some interesting consequences:

1) The renter may walk away at any point and owe nothing. Perhaps he looses a great deal of money he has already spent, but there are no bankruptcy proceedings. The bank gets the house.

2) The bank fully owns the house up until the point that it does not. There are variations on this where the bank grants stakes in the house as the rental period progresses, but the bank owns at least part of the house, not a debt on the house. This probably makes repossession simpler.

3) There is little in the way of late fees for payments. If I take an extra year to pay off the house, they can't increase the amount of money I owe them for that reason only.

Re: [Spaceships] Islamic Banking and Financing Spaceships Purchases
 

If I understand it correctly, the most frequent interpretation of the Islamic prohibition on usury doesn't forbid a seller offering a buyer a longer time to pay in exchange for a higher price. Charging $24,000 for a car and $3,000 for credit would be forbidden. Charging $27,000 for the same car on the understanding that it would be paid over five years would not.

Edit: The big thing seems to be that profiting from an exchange of money for money is forbidden. Profiting from the exchanging of money for a thing is perfectly legitimate, and discussing the payment terms in coming to an agreement on price seems to be considered just fine.

Re: [Spaceships] Islamic Banking and Financing Spaceships Purchases
 

What about the Usury-no system requiring an "Investor's Agent" as part of the crew, holding certain overrides and possibly serving in a similar role to chief engineer?

In theory the Usury-no model seems to require more transparency on both parties behalf.

Re: [Spaceships] Islamic Banking and Financing Spaceships Purchases
 

The bolded part has interesting adventuring possibilities.
I know nothing of the subjrect so just inserting my thoughts to create gameable differences based on the thread.
Interest Loans: You pay back the loan in installments and have to deal with late fees and penalties.
Cownership: Both parties own the ship, the buyer agrees to a minimum percentage of revenue to to the lender. The revenue pays off the loan plus a fee. In the meantime the owner may have a rep aboard and has some control over its use. This could be restrictions for risky or illegal endeavers or even extend to ports of call and trade routes. Good for a government based loan. Violation may result in repossession as a breech of contract.

The actual total cost should work out about the same in settings you have both methods. Although I could see the former favored by races or cultures that liked risk taking or personal freedom more than security and predictability.

Re: [Spaceships] Islamic Banking and Financing Spaceships Purchases
 

How does a usury-no system account for and offset inflation? If you loan me $1,000 today and there is 3% inflation between now and when I pay back the loan, the bank is recieving only $970 in purchasing price parity on the original principle of $1,000. That's a loss.

Can a person charge interest to offset projected inflation or simply adjust the princle for inflation as it occurs? Or is that then considered usury?

Re: [Spaceships] Islamic Banking and Financing Spaceships Purchases
 

I guess the question I'd have is what definition of Usury you're using. Since the only one I am really aware of is lending at an "unreasonably high" rate of interest, I'm not sure how that would be an issue.

Re: [Spaceships] Islamic Banking and Financing Spaceships Purchases
 

Despite changes in inflation the % of ownership would stay the same.
So tie the fee to the cost of the item as adjusted for inflation.
In the rent to own model each payment buts a certain percentage of the ship.

Re: [Spaceships] Islamic Banking and Financing Spaceships Purchases
 

This doesn't answer my question. It also doesn't address inflation; if anything it raises the question of depreciation of capital. But ignoring that, I want to know if the prohibition of usury permits offsetting accrued inflation with additional charges to the principle.

Re: [Spaceships] Islamic Banking and Financing Spaceships Purchases
 

I guess Im usung whatever definition Vicky is using. It sounds like he means that you acn't profit off of lending money, but when long term loans, as are the norm in business, are involved, changes jn the value of money make the concept of "making money" a bit murky.

Re: [Spaceships] Islamic Banking and Financing Spaceships Purchases
 

Honestly, if this is the outcome of no-usury, it sounds like the result is money lending is replaced by joint stock companies, at least in the commercial sector.

Re: [Spaceships] Islamic Banking and Financing Spaceships Purchases
 

Depending on the way things are structured, the bank might also be the insurer. It's not going to affect the total payments, it's just going to affect what gets written on the invoices.
That's because Muslims have a strong incentive to pretend otherwise. Like most legal fictions, anyone actually involved in the fiction pretends it doesn't exist.

In the end, the big reason for being skeptical about Islamic banking is that they can't repeal economics. Many societies have had prohibitions on usury, and none of them have actually worked except in edge cases (for example, elimination of debt slavery).

Re: [Spaceships] Islamic Banking and Financing Spaceships Purchases
 

The original technical meaning of "usury" was simply "lending money at interest." The rate of interest didn't matter.

Re: [Spaceships] Islamic Banking and Financing Spaceships Purchases
 

No one who is lending money for commercial reasons, rather than within a family, to a friend, or as an act of charity, would accept getting the same money back a year later. "I'll pay you now" is not equivalent to "I'll pay you a year from now" in value—nor to "I'll pay you now, but you have to agree not to spend the money till a year from now." The latter gives you fewer options, and the ones you don't get include the most urgent ones.

So if you do prohibit lending X amount of money and getting back X+x, one of three things will happen: Either you get workarounds, or you have desperate borrowers going to black market lenders (who will charge higher interest rates and/or use brutal enforcement methods), or you simply have no ability to borrow money, no matter how desperate your need. In GURPS terms, the first two rely primarily on Law and Streetwise, respectively. (Whereas if interest is legal, you just need to make a Finance roll.)

One of the common workarounds, though, is the understanding that you are lending money to a productive enterprise—in effect, sharecropping. Your funds pay for assets that increase the output, and thus you're entitled to share in the output you've helped produce. That doesn't do anything for consumer loans, including purchase of consumer durables such as cars, houses, or yachts, but it would seem to apply, at least potentially, to spaceships.

Re: [Spaceships] Islamic Banking and Financing Spaceships Purchases
 

In effect, venture capital -- rather than making a loan, you buy shares, possibly with an agreement that they can be bought back later. That's actually a more likely model for spaceship financing than a bank loan anyway, at least for PCs.

Re: [Spaceships] Islamic Banking and Financing Spaceships Purchases
 

The ancient Athenians had a legal distinction between "land loans" and "sea loans." The former charged interest by the interval of time. The latter did not; they assigned a fixed amount of interest for the duration of a voyage. This might be something that lenders would consider for spaceships, if there were a loan market.

Re: [Spaceships] Islamic Banking and Financing Spaceships Purchases
 

As a side note, the OP specified that it's similar to Islamic banking, not that it is Islamic banking. As such, the question is what definition the fictional culture uses.

Re: [Spaceships] Islamic Banking and Financing Spaceships Purchases
 

Yes, that's why I wasn't talking about the actual Muslim rules, but about what the options are.

Re: [Spaceships] Islamic Banking and Financing Spaceships Purchases
 

Another point: both finances and financial regulation are essentially technologies. Financial regulation can be optimized to favor certain ends, and there is no reason to think that the technology is at its maximum potential; a TL 9 setting presumably has TL 9 finances and financial regulation.

Unfortunately, none of us are TL 9 economists, so we have no real way of describing what TL 9 finance would look like. The financial system in Spaceships is roughly TL 6, and the prohibitions built into Islamic banking are TL 3-4.

Re: [Spaceships] Islamic Banking and Financing Spaceships Purchases
 

If the ship is essentially "rented" then there would be a very different legal situation if a third party sought to impound the ship for other reasons.


A technological solution might develop, presuming a company was established for the purposes of funding a ship and cargo. Then an A.I. is placed in the ship with a decision making process based on the precise ownership of the ship at that time.

Re: [Spaceships] Islamic Banking and Financing Spaceships Purchases
 

As best as I understand it it would work by making the bank an actual silent partner. They jointly purchase the ship with their client, and as co-owner are entitled to a slice of the proceeds from the ship's operation. This is technically not interest and continues until their partners manage to earn enough to buy them out which won't necessarily be for the same price as the original money the bank put up for the purchase.

Re: [Spaceships] Islamic Banking and Financing Spaceships Purchases
 

By "buy them out" do you mean when the bank's cumulative cut equals the original loan amount plus some additional amount, however determined?

Or do you mean the borrower saves up enough to pay back the original loan plus some additional amount, however determined?

Honest Eneri's Bank and Grill loans Qumel 1,000,000 plutons to buy a merchant starship. In return HEBaG gets 10% of the profit. Lets say the adjustment is 200,000 plutons.

Does Qumel own the ship free and clear once they have made 12 million plutons and paid a cumulative 1,200,000 plutons to HEBaG?

Or does Qumel need to save up 1,200,000 plutons from their 90% and then pay it too HEBaG to be free and clear? On top of the 10% share they have been paying?

Re: [Spaceships] Islamic Banking and Financing Spaceships Purchases
 

Not necessarily some additional amount. It would depend on the terms of the contract. If it's a really lenient contract buying out the bank might actually cost less than the original stake based on depreciation of the asset in question. If it's a harsh contract then the bank might be buying wholesale but the client is buying the bank's share retail. But the slice of operational profits that the bank would collect and that would constitute how it was actually making money on the deal would not be repayment on the loan. It would just be the money it was entitled to as silent partner until it was bought out. Which could be never.

I caution that there's a lot of guesswork in my understanding of the real deal, but since this is a fictional setting, I think it's a workable approach.

Re: [Spaceships] Islamic Banking and Financing Spaceships Purchases
 

If the bank is a silent partner, that 10% means that the bank owns 10% of the ship, and therefore gets 10% of the profits, until they sell the 10% share. It's possible that the contract with the bank permits Qumel to buy that 10% share back at some later point at a fixed value, in which case, when the appropriate time arrives, they have the option of buying their share back (and most likely, this price has nothing to do with what profit you've made in the interim).

Re: [Spaceships] Islamic Banking and Financing Spaceships Purchases
 

There's a problem with that model for spaceships. Unless you have near-instant interstellar communication, you have to send the representative along on the ship's journeys. He's pretty much dedicated to the ship, and needs to be paid and supported out of the ship's income.

By contrast, one representative can handle many businesses if they're all in the same city. That's much less expensive.

Re: [Spaceships] Islamic Banking and Financing Spaceships Purchases
 

It is worth noting that there is a BIG difference between profit and dividends. A corporation can, say, be very profitible and have its board vote to withhold dividend payments to its shareholders so the corporation can build up capital more quickly. There are lots of reasons to do this that I won't go into, but to say "Bob gets x% of the profits" either refers to dividends (which can be withheld) or the actual profits (specify gross or net!) and is potentially a deep cut into the business' future capabilities (some industries have profit margins at or below 1%).

Now owning shares in a corporation generally proves profitable when you sell those shares. Ideally, they accrue value with time and you selk them for more than you paid for them. Thus, I could see a bank owning 10% share in a corporation, and the private owner having to pay fair market value for those shares when he wants them back. And the bank could then liquidate those shares if it needs the capital contained therein.

I'm not sure how that would apply to non-corporations, though. Having a 10% share of a car is inherently a losing proposition. They devalue tremendously with time, so you could never sell your share for more than you paid for it, and the "borrower" could buy you out for less than you loaned the minute he pulls out of the dealership. The car thing is just an example, but there are other consumer goods that this would also apply to - potentially even spaceships.

Re: [Spaceships] Islamic Banking and Financing Spaceships Purchases
 

It pretty much doesn't, though it's also possible to have a scheme where the debt holder simply rents his share back to the main user.

Re: [Spaceships] Islamic Banking and Financing Spaceships Purchases
 

I don't see the distinction between that and Rent-to-Own. And if you can't make money on loans, rent to own schemes are really just skirting around the no usury rules on a technicality. Mind you, that is amazingly close to how most anything works in the real world (Me? Cynical? Naaaaw!), but I'm not sure that's what Vicky (OP) is looking for. Maybe we can get clarification from him tomorrow?

Re: [Spaceships] Islamic Banking and Financing Spaceships Purchases
 

Yes, that was the example upthread. Negotiating a price based on ROI isn't interest. So if your car (or spaceship) happens to cost 110% more if you pay it off over 36 months, then that isn't haram, because you aren't explicitly borrowing money at interest in that case. The only real distinction is whether the bank or the borrower owns the vehicle or not.

It won't have much effect on the game mechanics in Spaceships, as abstracted as they are already.

Re: [Spaceships] Islamic Banking and Financing Spaceships Purchases
 

Well, there may not actually be a 'to-Own' part of it. In any case, is rent to own a problem under Islamic law? My guess is that the big incentive for anti-usury rules is people getting trapped by unsustainable interest payments, and with rent to own you have the option of simply stopping renting (and if the rented asset is lost, you obviously do so) -- this is likely to be expensive, but it's a reasonably fixed cost (this same objective is accomplished by bankruptcy laws).

Re: [Spaceships] Islamic Banking and Financing Spaceships Purchases
 

My understanding is that some variation of rent-to-own is the standard form of financing in predominantly Islamic nations. I suspect it has more to do with applying a scheme for economic fairness concocted by a 7th century illiterate (or revealed to him by an Angel, which as we know are all incredibly wealthy but always are trying to borrow ten bucks; so they don't really understand money either) to modern financial systems.

Re: [Spaceships] Islamic Banking and Financing Spaceships Purchases
 

Anti-Usury laws have been invented by a lot of cultures; the main distinction of Islamic banking is that it's written down in a holy book that's difficult to amend (this is a problem for a lot of Islamic law). Medieval Catholic doctrine on usury is somewhat interesting; Cardinal Hostiensis's doctrine of lucrum cessans looks like a very early understanding of opportunity cost.

Re: [Spaceships] Islamic Banking and Financing Spaceships Purchases
 

And this is using a technicality to skirt the word of law without adhering to the intent in any way. So like I said, this is very realistic: use any legal loophole to get away with breaking the intent of the law. Depending on how realistic Vicky wants his banking, this isn't a bad thing to include.

Re: [Spaceships] Islamic Banking and Financing Spaceships Purchases
 

I'm by no means an expert or even particularly comfortable with Sharia banking, but it may be helpful to break out what Al Rayan Bank says is happening with its home financing.

First, there are three separate but interdependent contracts involved. Sharia says it's permissible to have interdependent contracts as long as they don't interact in complex ways to obscure the results.

The first contract is a contract of Diminishing Partnership. In this instance, the Bank puts up somewhere between 60% and 80% of the total property value and the home owner as the other partner buys the bank's share of the partnership down to 0% over a period of time. Interest is not charged, instead, the home owner agrees to value the bank's share as the amount the bank put up plus some additional lump sum. In general, the home owner makes equal payments over the life of the contract (in this instance four years) but he is allowed to buy out the Bank's share earlier if he so desires. If the bank has not had its share fully acquired at the end of the four years, the contract of Diminishing Partnership continues in force but another lump sum is assessed against the remaining value of the bank's share of the partnership. The contract of Diminishing Partnership will also cover which partner is responsible for paying administrative fees and stamp duty.

Under Sharia law making a profit is assumed to be the reason for going into partnership. If either party finds the partnership is operating at a loss for them, the contract is discharged. Exactly who needs to return money depends on the source of the loss. For example, if the home owner loses his job, the bank will return the full value of his share in the property. If, on the other hand, the home owner sells the property at a loss, since the loss comes from his sale, he has to make good on the full value of the Bank's share in the property. As for any increase in the value of the property between the time the Bank puts up its share and the home owner acquiring that share: the Bank says that any excess value beyond the lump sum added to the purchase price belongs solely to the home owner and is his profit in the partnership.

The second contract is a contract of Lease. The Bank owns its share of the property and the home owner leases the use of the Bank's share until the Bank's share diminishes to 0%. In general, the lease would provide for a regular payment of rent and the rent would diminish proportionately with the size of the Bank's share in the property.

Thirdly, there is a Contract of Service Agency. This is optional, in the sense that the Bank rather than the home owner could be the Service Agent. The home owner is usually the Service Agent as he has a greater long term interest in the property and it allows the Bank to offer a lower price if it doesn't have that financial responsibility. The Service Agent is responsible for maintenance of the property, paying utilities and property taxes and paying for insurance(s) deemed adequate by the partnership.

Something that might be a possible complication for the OP would be the existence of additional laws regarding debt. Judaic law as well as Sharia law forbids usury (in the sense of any interest, rather than exorbitant interest), but also requires the discharge of all debts by the jubilee year (seventh year) and, IIRC, the forgiving of any outstanding debt. So, you might have the complication of being taken to court to discharge a debt (or as much of it as you can) and (if you can't pay much of what is owed) the creditor taking a bath on it.

Re: [Spaceships] Islamic Banking and Financing Spaceships Purchases
 

While this is technically, in terms of the rules of this interpretation of sharia, a set of contracts that does not involve interest, it seems in actual fact to be an interest-bearing loan, in which the amount that is paid back exceeds the amount that is borrowed. And so it enables the normal sort of financial arrangements that a Finance roll might allow, but with an extra roll, perhaps, to address the legal technicalities.

The actual situation of "no interest can be charged" would be one where you went to a bank to borrow money, and they could not have you pay back more than the amount you borrowed. And then no bank would lend you money in the first place. You could borrow from a relative, perhaps, but there wouldn't be a commercial loan market.

And if that were truly the case, there would be other effects. For example, if you had gold, or federal reserve notes, you would have no reason to lend them. You could bury them in the back yard, like the servant in the parable of the talents, or stuff your mattress with them, or put them in a secure warehouse and pay a regular fee for storage. Or you could buy durable goods like works of art. But there wouldn't be what we call "capitalism."

(The late nineteenth century individualist anarchist Benjamin Tucker envisioned something like this. Among other things, he wanted to do away with rent, by having no protection for ownership of land that a person was not actually occupying and using.)

Re: [Spaceships] Islamic Banking and Financing Spaceships Purchases
 

This is tangential, but wrong. While moneylending is important to capitalist economies, it's very distinct from ownership of business firms or capital, which you conflate it with throughout the last two paragraphs. Capitalism without the latter is nonsensical, but capitalism without the former is conceptually fine.

Re: [Spaceships] Islamic Banking and Financing Spaceships Purchases
 

Large parts of the funding of businesses comes through bonds (a formalized way of paying interest on loans) or bank loans. Do away with those options, and the funding options for businesses, especially startups, would be significantly narrower.

Re: [Spaceships] Islamic Banking and Financing Spaceships Purchases
 

I think you're over-rating what interest is. It doesn't "seem in actual fact to be an interest-bearing loan" to me. It's much closer to a loan which involves the payment of a fee. You might not become wealthy under such a scheme but I suspect you could make a living.

While there were banks of a sort before modern banking began in 14th-century Italy, it would appear that non-usurious loans were made by moneylenders (who amounted to the commercial loan market) so I don't think it's a deal-breaker, though the banking industry may have been smaller.

Re: [Spaceships] Islamic Banking and Financing Spaceships Purchases
 

Can startups usually borrow much money when they've typically got no revenue and next to no assets? That quibble aside, yes, borrowing (and hence lending) is important to typical business operation in modern economies.

Re: [Spaceships] Islamic Banking and Financing Spaceships Purchases
 

At its heart, interest is a fee. It is the fee charged for use of money. It happens to be paid over time, and the lender isn't garaunteed full payment of the fee. But it remains a fee for the use of money.

Re: [Spaceships] Islamic Banking and Financing Spaceships Purchases
 

(Also @Humabout and others who asked for definitions and some other specifics.)

You're aware of the revised definition. But since I'm looking at something that developed in parallel for multiple TLs, essentially a divergent techpath in economics of the setting which happened at TL2-TL4 (unlike ours, where the divergence happened at TL7-TL8!), I'm looking at a definition closer to the original one. That is:

Charging interest on money over time in a way that it compounds over and over and over again the longer it is not paid off. The cultural reasoning is the population's wariness of 'dept pits' (i.e. situations where one becomes indebted, then loses the source of income that was meant to pay off the dept, resulting in the dept growing and growing, eventually bankrupting the indebted person). Other concerns for wariness include fear of inflation for the indebted people (will be commented on below), and the fact that in our techpath, banks can basically wash their hands off in case something goes wrong, and thus are incentivized to give credits even to people who aren't all that likely to be able to handle them which in turn leads to bad stuff.

As discussed by others, when there's reduced demand for alternative ways of financing, of which two seem more easy to handle while avoiding use of interest:

1. Co-ownership of a ship as an enterprise (e.g. 20%:80%), with the bank receiving a portion of the earnings pro rata, with the captain having and retaining the right to buy the shares from the bank, with some pre-agreements about what the price is and how it may or may not be adjusted. This seems to be the silent partner path, with some adjustments.
2. Co-ownership of a ship, with the right to buy it out piece by piece, again with some pre-agreements, plus rental of the bank-owned fraction to the captain. This seems to be more appropriate for ships used for non-earnings-generating ships, such as a yacht that the captain uses purely for recreation.

Both seem more suited to letting partners decide to go their separate ways (at least judging by some arguments of economists), and avoids debt, interest and the possibility of 'interest pits'. Also, in both of these cases, nothing prevents the bank from pre-agreeing that the ship's cost-to-be-sold-to-the-captain is higher than the cost-of-the-ship-as-bought-by-the-bank-from-shipyard.

What I'm interested the most are:

• How each of those schemes will change the calculation of costs/payments / what the reasonable playable approximation of payment calculations should be for them.
• What changes to the legal status of ownership and insurance should I keep in mind when dealing with each of these schemes, especially during adventures.

Actually, inflation is a totally separate concern. Consider how in our 'mainstream' economic systems, the risks of inflation aren't protected against naturally, but instead require implementing tricky workarounds. In fact, borrowing money measured in a hard currency is a terrible, terrible decision as far as risk management goes:
Let's say a person (a wealthy businessman) earns enough to have 8,000 spare dinars a year. Said person takes a loan in jade talents (a hard currency), in such a way as to pay half a talent a year (about 4,000 dinars) until the debt is paid off in 10 years. Hard currency loans tend to have lower interest rates, after all, so it's very tempting! Over the course of the fifth and sixth year, the situation on the international market changes, and now 1 jade talent costs 24,000 dinars, so the wealthy merchant now has to pay 12,000 dinars a year, which bankrupts him by the end of the 10-year period. It's even worse if it's not a business that can be abandoned, but rather a person's only dwelling.

While the specific example is fictional, the overall pattern isn't, and it keeps reoccurring even in modernity. Had the merchant took a loan in an inflating currency, things would probably have been softer, especially with a capped/fixed/etc. interest rate.

What I'm saying is: inflation is a complicated matter; it's not easily avoided as a factor to be considered with 'mainstream' methods but requires active counters; it's also not usually handled in GURPS, as the GURP$ is considered static.

Re: [Spaceships] Islamic Banking and Financing Spaceships Purchases
 

Depends on your definition of 'much'. It can certainly be the difference between "practical to start a business" and "not practical to start a business".

Re: [Spaceships] Islamic Banking and Financing Spaceships Purchases
 

I read of an approach in the middle ages of lending the money interest free for a six month trading trip but the loan was for a month. Since they didn't pay it back on time they get fined a certain amount for each month late they are paying it back.

Re: [Spaceships] Islamic Banking and Financing Spaceships Purchases
 

Some comments:

I suppose the question becomes why banks don't purchase equity in perpetuity instead of only temporarily. They seem to be keeping all the penalties of a business partnership, except with a set return.


OK, assuming that the payments on the "loan" are fixed (i.e. no compound interest) and if the debtor doesn't pay they just lose the asset. If this is the case, calculate the value of the loan for the whole term, and divide by the number of payment periods for cost per period.

If there is no interaction between Usury-No and Usury-Yes then you might slightly increase the interest you calculate the loan with to reflect the loss to the bank if the debtor quits (the bank may only receive a few payments and a very devalued asset). If the interaction between the societies are high, the Usury-No loans are likely to have significantly higher interest because of the greater security to the investor that the Usury-Yes loans provide (assuming that the investors don't care about the lenders practices).

On the second point. Usury-No has been in its game for long enough for a the governments of its society to understand the legal fiction of the banks "investments". It's likely that the government would support this industry by creating a corporate model that doesn't rely on what amounts to a legal hack (i. e. The "borrower" assumes all responsibilities for company actions, while the "lender" is shielded). Of course, this leads to more legal hacks, for example a a corporation may provide funding for a deniable operation through the auspices of a "loan".

On the other hand, if no such structure exists, then the lender has an interest in making sure that none of the actions by the borrower endanger it, so a business agent would likely be assigned to each ship.

Re: [Spaceships] Islamic Banking and Financing Spaceships Purchases
 

It seems relatively close to the deal with callable preferred stocks, and there are plenty of buyers for those. Generally that set return is the draw.

Re: [Spaceships] Islamic Banking and Financing Spaceships Purchases
 

Correction: resulting in debt growing and growing, with no ability to pay the debt off. The concept of bankruptcy dates to the 16th century and thus postdates most anti-usury codes; it's actually intended as a solution to the problem of unpayable debt. The other significant modern solution to this problem is incorporation -- you create an artificial entity with assets and debts, and if the corporation's net worth becomes negative, it gets dissolved without affecting the shareholder's personal assets (unless they engage in malfeasance). Both cases have significant costs for a borrower who fails to repay a loan, but they do allow a complete discharge of debt while retaining some personal assets.

Also note that spaceship loans are generally secured loans, and though the rules don't address it, may be structured as a non-recourse loan. This means that, in the event of the borrower going into default, the bank seizes the asset to recover its costs, and the remaining debt, if any, is discharged.
Well, if they don't mind losing a bunch of money, sure.
It's perfectly possible to set up rules that discourage this. It has the side effect of a large underclass of people who cannot get legal credit, which causes its own class of problems (for example, you need a car to get a better job, but you cannot save up enough money for a car until you get a better job, so if you can't get a loan, you can't get a better job).
The first differs from interest in that the bank makes more money if you do better than expected, and less money if you do worse than expected. It has a tendency to result in legal rules that allow the bank to meddle with your business if you seem to be doing a bad job.

The second does not differ meaningfully from a conventional secured loan, and can be treated as one.

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Yes. The old solution to unpayable debt is that you sell the only asset you have, yourself. This isn't quite unthinkable in a world where slaves can buy their freedom, but it creates some terrible problems. Bankruptcy is basically a legal compromise that allows moneylending without making it equivalent to slavery—and a more sophisticated one than the Old Testament jubilee year.

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I do have to beg to differ here. Inflation is one of the factors any financier worth his salt will take into account when deciding what interest rate is acceptable for a loan. Same can be said in reverese when offering a loan. Offsetting inflation is the bare minimum an interest rate needs to accomplish. As a borrower, I would want inflation to be higher than my interest rate, so I end up paying back less purchasing power than I borrowed. As the bank, I want jnterest to be higher than inflation.

Re: [Spaceships] Islamic Banking and Financing Spaceships Purchases
 

I mentioned bankruptcy in the very post you quoted as something most people wouldn't want to happen to them. Among other things, this thread is an attempt to explore a divergent techpath that dealt with the root cause (or at least closer to the root cause) than the bankruptcy 'patch'.

Is spaghettification of single sentences really necessary? It seems to make the line of discussion harder to follow. And now, to answer the two halves in aggregate, because they are heavily intertwined and that's why I put them into a single sentence:
When I talk about washing hands off, I mean specifically the banks being very insulated from losses in such cases, as compared to people who get into debt they are likely to fail repaying in time. Yes, rules down the line can be used to mitigate this, but apparently our world hasn't managed to reduce the problem to an un-notable one, and I'm interested in exploring a divergent approach.


To some extent. But presumably the captain has better skills at profitable ship-captaining than the people whose skill set is focused on banks-running, and is too interested in earning more (and paying off the ship earlier, thus being able to keep all the profits to oneself).

It is one of the factors, but GURPS operates on a level of playability which largely isolates pricing of everything (including financing of ship purchases) from it, by keeping the GURPS Dollar static.

Obviously if going into an unplayable level of detail, there are levels of interweaving that can't be even summarized in a thread like this - I touched upon a small bit of those when comparing hard currency vs. regular money credits and mentioning that the former look lucrative due to lower interest rates.

Re: [Spaceships] Islamic Banking and Financing Spaceships Purchases
 

Do you actually want an economic system to reduce the problem to an un-notable one? Because to the extent you do, you inevitably reduce the willingness of people to loan anybody money. That's largely the point of relaxing the religious bans on usury in the first place after all - they sound nice if you are usually a debtor, but the practical effect isn't debtors are better off, but that there are no debtors because nobody will loan them anything.

Re: [Spaceships] Islamic Banking and Financing Spaceships Purchases
 

Not sure how that's a problem. People should want to avoid debts they can't pay off. The goal with things like bankruptcy law is to have a penalty that's large enough to discourage the unwanted behavior (people borrowing money they cannot or will not repay) without being utterly crippling. You can certainly argue with the proper magnitude of the cost, but there has to be a cost. Unless of course you want credit to be unavailable.
What is it you think is the root cause? It's not interest. Interest is not per se bad. The root problem is borrowers being unlucky or making bad financial decisions and bankers encouraging people to make bad financial decisions. You can't legislate away stupidity or bad luck, but you may be able to structure the financial system to discourage it or mitigate it.
It's impossible to make the problem un-notable; credit cannot exist without a means for the lender to profit, and an enforcement mechanism to require borrowers to make an honest effort to repay their debts. This is, necessarily, going to be bad for people who fail to repay debts. You can tweak around the edges to adjust what you consider an honest effort, and what the penalties shall be, but penalties necessarily exist.
This assumes a captain who is honest and competent. Neither of these things can be taken for granted.

Re: [Spaceships] Islamic Banking and Financing Spaceships Purchases
 

Completely pushing the responsibility onto bank would indeed discourage existence of banks. Thus the search for mutually acceptable alternatives, and for divergent paths spawned by the cultural sentiments mentioned. Though right now I feel like asking for a brainstorm about how to best make a divergent techpath facing a given direction results in mostly being pulled onto the Modern Homeline Terran techpath.


Ideally, credit will usually be unavailable for things that are not likely to fail, unavailable for things that are likely to result in bankruptcies. Also, ideally, the cost for debtors who failed to pay up due to their own faults should be significantly higher than the cost to debtors who failed through no fault of their own (e.g. due to a significant shift in inflation of one currency relative to another). Clearly at TL8 of our techpath, things like mass hard-currency debt mis-evaluations are still a thing.

'Bad' is something of an ethical judgement, while I'm trying to make the two techpaths into rivals with no clear winner. Anyway, interest itself is not the sole contributing factor here. However, the 'ability' to apply interest in an unconditional way seems to be part of the contributors to such issues.

Well of course a good system should encourage/reward both competence and honesty, and punish the opposite.

Re: [Spaceships] Islamic Banking and Financing Spaceships Purchases
 

Unfortunately I suspect distinguishing the "fault" of failures requires omniscience, and certainly distinguishing between things likely to succeed and fail in advance does. In any case, why should that be the responsibility of the lender? The borrower presumably should be smart enough not to borrow money for something that is going to fail too. If he couldn't tell, why would the lender necessarily know better?

We do already have an alternate technology that shifts the responsibility some, selling shares. This does protect you from the bad effects of failure to a considerable degree, involves more responsibility for the lender, and consequently it is both more difficult to obtain money this way and cedes more control to your lenders/partners.

Re: [Spaceships] Islamic Banking and Financing Spaceships Purchases
 

In economics, "bad" need not be an ethical judgment. It's a value judgment, but the values are the subjective values of the person making a decision. A decision is "bad" if it results in outcomes that the person likes less than the outcomes of a different decision, and if it was possible for them to foreseee that result given the knowledge they had at the time.

See, for example, the Prisoners' Dilemma. It's more prudent for X to betray Y to the cops, and for Y to betray X to the cops; but the result is that they both end up getting punished, when if they had kept faith with each other neither would have gotten punished, and both would rather not have gotten punished. So the reward structure of that situation encourages them both to make choices that turn out to be "bad" by their own standards.

Judging what is "good" or "bad" for the economy as a whole is a different matter. This comes down to the Problem of Social Choice. The Arrow Paradox shows that there is no comprehensive solution to this problem; that is, that "good" and "bad" are not uniquely defined for a society, and can't be. It's important to distinguish individual preferences from social preferences, and to distinguish both from what is considered creditable by any particular ethical system.

Re: [Spaceships] Islamic Banking and Financing Spaceships Purchases
 

On the topic of responsibility: the opinion whether or not it should be the responsibility of the lender will of course vary by culture. E.g. some cultures would deem a mostly-equal split of risks, while others will say that since bank-guilds hold disproportionally more power, they should also carry the brunt of responsibility. In other cases, it may be such that the homeline-like and the divergent approach coexist, with some people willing to tolerate some drawbacks in exchange to being more defended against risks, while others would take more risks in exchange for other benefits, and different bank-approaches would cater to different demands. In some ways it reminds me of the topic of insurances, both in the sense that whether to insure against some not-known-for-sure-in-advance bad event is a choice which different people and cultures make differently, and in the sense that ability to predict even the probability of different sorts of bad stuff happening is generally something that financial organizations can benefit from.

And yes, shares-like alternatives do seem like a basis on which the divergent finance can be based, and some steps on that path have been made in previous posts.

Re: [Spaceships] Islamic Banking and Financing Spaceships Purchases
 

It's the responsibility of the person spending money how they want to spend the money. A money lender can look at how someone wants to spend money they have been lent, and choose to not lend them money if the plan is bad (this is very common for corporate loans), but it's still the responsibility of the borrower what they want to spend money on.

Re: [Spaceships] Islamic Banking and Financing Spaceships Purchases
 

It's both. If one brand of coffee gets a higher price because all the Bohemians in town hear rumors that, "every other brand uses coffee produced by whip-scarred serfs and this one gets it from honest deals with honest freeholders" then it has given it a higher price for a value judgement. If the rumor is true then it deserves it's extra price. The price comes from the ethical superiority.

Re: [Spaceships] Islamic Banking and Financing Spaceships Purchases
 

Sure, but it would work exactly the same way in economic terms if there were a large class of sadists who enjoyed seeing images of whip-scarred serfs and gloating over them, and would pay more for that brand of coffee.

Re: [Spaceships] Islamic Banking and Financing Spaceships Purchases
 

These quotes seem to be at the heart of the problem you're having. Sharia banking is, at a guess, a term of convenience, to get across the general sort of activity the Bank engages in. It is not, however, a bank in the sense that we in the West are used to thinking of the term.

It is a partnership and we'd be better served in thinking about how it works if we dropped the use of the terms lender and borrower entirely and substituted the word partner. That done, I suspect a number of knottier problems will fall away as, "Well, that would be fine for a borrower-lender relationship, but it's nonsensical if you're talking about a partnership."

Re: [Spaceships] Islamic Banking and Financing Spaceships Purchases
 

Well, this assumes you think Sharia banking is more than just semantic games. Assuming it is, however, what this amounts to is "loans, as described on SS2:27, do not exist".

This is not impossible. There are other ways to raise funds for commercial ventures, and it's perfectly possible that spaceships are not funded via conventional loans (the most likely alternative being cash for equity swaps, such as venture capital or issuing stock; it is somewhat peculiar that SS2 doesn't even discuss this). However, they render the discussion of interest rates moot, because charging interest requires making a loan, and that's not what you're doing. It's also problematic for non-commercial loans, because there's no actual business to be a partner in.

Re: [Spaceships] Islamic Banking and Financing Spaceships Purchases
 

To drag this on to one of my favorite ideas, the Family starships in Citizen of the Galaxy and Cherryh's Union/Alliance stories might come from a de facto reality of banks not being willing to finance starships because they are too hard to repossess.

So the family owns the ship and everyone lives aboard. When you have enough saved, you buy another ship and split the family into two. Or cut a deal with another family both buy a ship and staff it from both ships.

(Except in the U/A setting there is little or not merchant shipbuilding during the times shown because of war an politics.)

Re: [Spaceships] Islamic Banking and Financing Spaceships Purchases
 

That sounds like MESAN brand Coffee in Honor Harrington.

Re: [Spaceships] Islamic Banking and Financing Spaceships Purchases
 

One quirk I invented which was that interest loans were legal in the normal economy(other means to pump capital were preferred but that was another story). But licensed gaming halls did not allow wagerers to wager borrowed money and indeed all chips must be bought in cash. The reason for that was to prevent harm coming to a relation whom it is presumed must in honor cover for them. The interesting thing was that gaming halls were allowed to permit customers to leave winnings in the bank and even to give usury-that was their affair. They just were not allowed to charge it. The effect was that gaming halls tended to become faux-banks existing beside normal banks.

This is not quite the same as what you are getting at, but it is interesting enough to notice.

For the financing of spaceships most clans organize their properties like Israeli Moshavrim. Personal properties are owned personally and starships are usually corporate, unless someone is a really humongous Taipan. Despite this banking is a normal part of life and clans that have amassed a given amount in shipping often switch to banking and charter off their tonnage. Clans in this stage often get involved in politics more as well.

Re: [Spaceships] Islamic Banking and Financing Spaceships Purchases
 

I often use that. "Voyage shares" are often used. The financier does not buy the ship-that belongs to a given clan. He does buy a share of the voyage. Of course that would mean these could only be used to soften the installments on the ship while it pays up. Which sounds a bit of a tricky game to play.

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Yes. You're free to make "no interest may be charged on loans" a formal rule that has well understood and long established workarounds. And then really you have a system equivalent to ours, but with Law, Administration, and Accounting requiring different familiarities or even different optional specializations. Or you can make it an actual restriction, and deal with the consequences of not being able to access cash for commercial transactions except from personal savings, selling personal assets, or retained earnings from a business.

And both systems may well be described by saying "It's not possible to lend money at interest." The trick is to know what that means in practice.

Re: [Spaceships] Islamic Banking and Financing Spaceships Purchases
 

One possibility is that the receiver does some kind of favor(such as burying the lender's assassinated son) that the Mullah can't track.