[Spaceships] Islamic Banking and Financing Spaceships Purchases

[David Johnston2]

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.

[ericthered]

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.

[RyanW]

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.

[Curmudgeon]

Originally Posted by NineDaysDead

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

https://www.alrayanbank.co.uk/home-f...purchase-plan/

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.

[whswhs]

Originally Posted by Curmudgeon

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.

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.)

[RogerBW]

Originally Posted by vicky_molokh

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.

[Refplace]

Originally Posted by RogerBW

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.

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.

[Humabout]

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?

[TGLS]

Originally Posted by Refplace

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.

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.

[johndallman]

Originally Posted by Refplace

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. ...

The actual total cost should work out about the same in settings you have both methods.

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.