Mutuality, reciprocity and justice within the context of a unified theory of riba and gharar

The general thrust of Islamic jurisprudence of financial transactions is to approach the ideal of justice in exchange. The Islamic finance envisioned by Islamic economists wrongly emphasized contract forms (namely, partnership finance, ostensibly more approbated than debt finance, without any supporting evidence from Islamic scripture or classical jurisprudence). This gave rise to an industry based on legal arbitrage, synthesizing conventional finance at a cost, thus replicating any injustice or inefficiency therein, and adding inefficiency through arbitrage procedures. Mutual contracts were traditionally exempted from juristic prohibitions, for example, in interest-free loans, which are technically riba, mutual insurance and so on, because of their apparent charitable purpose, as argued by Al-Qarafi in his Furuq. However, mutual structures can be arbitraged just as easily (and inefficiently) as commutative ones. The regulatory substance of classical Islamic law – seeking justice – cannot be enforced solely through contract and corporate forms, mutual or otherwise.