The Customary Practice of Gerawee in Afghanistan: A Case For Transitioning to Real Equity-Based Finance

• Author: Haroun Rahimi
• Position: Law and Political Science Faculty, Herat University, Afghanistan & University of Washington School of Law
• Pages: 743-774

e Indonesian Journal of International & Comparative Law

ISSN: 2338-7602; E-ISSN: 2338-770X

http://www.ijil.org

© 2015 e Institute for Migrant Rights Press

743

T C

P  G 

A

A C F T  R

E-B F

Haroun raHimi

Law and Political Science Faculty, Herat University, Afghanistan

& University of Washington School of Law

E-mail: rahimi.haroun@gmail.com

e customary practice of Gerawee, in principle, refers to a specic form

of synthetic loan. It is a pledge-lease transaction that enables owners of

immovable properties to obtain nancing based on the market value of those

properties in exchange for either paying regular payments in form of rent or

transferring the right to lease those properties to a nancer. e practice has

been developed to help debtors and creditors avoid the prohibition of interest

bearing loans under Shari’ah. Despite the eorts of some Muslim jurists to

justify the practice under Shari’ah, it is widely criticized. In particular, Afghan

muis generally consider the practice of Gerawee “un-Islamic,” and under

Afghan civil code, the practice has no formal standing. Nonetheless, it has been

used, and unfortunately, has created problems such as fraud, and ineective

legal protection for nanciers.

is article recommends that Afghans adopt a modied Islamic nance

product known as the “Musharakah Mutanaqisah Partnership (MMP).” e

MMP is a joint-ownership arrangement created by a sales contract, which was

developed in Muslim countries to solve the housing problem. e modied

MMP (MMMP), as prescribed in this paper, can deliver the expectations of the

parties, and address the legal and Shari’ah-related objections by transforming

The Indonesian Journal of International & Comparative Law Volume II Issue 4 (2015) at 743-74

Haroun Rahimi

744

the practice from debt-based nance to equity-based nance under which the

parties share the risk. is solution eliminates the main causes of criticism

of an MMP, which are the lack of a bona de sale contract and risk sharing.

Keywords: Ge rawee, Musharakah Mutanaqisah Partnership, Islamic Mortgage,

Customary Financing, Prohibition of Riba, Afghanistan Civil Code.

I. INTRODUCTION

Afghans have historically had limited formal mechanisms to obtain

individual nancing; as such, they have turned to customary nancing

practices—most commonly Gerawee. e customary practice of Gerawee,

in principle, refers to a specic form of synthetic loan: a pledge-lease

transaction that enables owners of immovable properties to obtain

nancing based on the market value of those properties in exchange for

either paying regular payments in form of rent or transferring the right

to lease those properties to a nancer. is practice has been common

in most Muslim countries, with some variation, helping debtors and

creditors to avoid the prohibition of interest bearing loans under Shari’ah.

To satisfy economic and practical imperatives, some Muslim jurists

have developed stratagems to justify this form of practice under Shari’ah;

however, the practice is still widely criticized. In particular, Afghan muftis

generally consider the practice of Gerawee un-Islamic, and under the

Afghan civil code the practice has no formal standing. Nonetheless, it is

used, and unfortunately, has created problems such as fraud, and ineective

legal protection for nancier. is article recommends that Afghans

adopt a modied Islamic nance product known as the “Musharakah

Mutanaqisah Partnership (hereinafter: MMP).” e MMP, sometimes

called Islamic mortgage, is a joint-ownership created by a sales contract, a

practice developed in Muslim countries to solve housing problems.

is recommendation assumes that when parties engage in Gerawee,

the Creditor/Gerawee-ee wants to turn her limited assets into safe revenue-

generating assets with equity protection; at the same time, the lender/

Gerawor wants to acquire short/medium term credit against value of the

property. e modied MMP (MMMP), as prescribed in this article, can

meet both of these expectations, while addressing the legal and Shari’ah-

related objections by transforming the practice from a debt-based nance

haroun rahimi

The customary practoce of Gerawee in Afghanistan

745

to a real equity-based nance under which the parties share risk. us,

under MMMP, the main causes of criticism of MMP namely the lack of

a bona de sales contract and risk sharing are eliminated.

is article begins by describing the Shari’ah doctrines pertaining the

prohibition of riba, including their modern development. It also describes

the doctrine of legal stratagem (hiyal) as developed by Islamic jurists in

the pre-modern period—mostly jurists associated with the Hana school

of jurisprudence (otherwise known qh)—to legitimize/legalize certain

nancing practices by avoiding the appearance of riba. Next it provides a

description of the customary practice of Gerawee and its variations and an

analysis of how the practice interacts with Afghan law. Subsequently, the

article provides an overview of the Musharakah Mutanaqisah Partnership

as it has developed, and as it is currently practiced in Pakistan, Indonesia,

and Malaysia. Finally, it suggests that a Modied Musharakah Mutanaqisah

Partnership could be adopted as a reform to preserve the benets of

Gerawee through a legally recognized nancing mechanism.

II. BACKGROUND

is section provides background on the legal landscape in Afghanistan,

particularly regarding the civil and Shari’ah laws and jurisprudence that

aect the practice of Gerawee. Ultimately, it reveals how the Afghan civil

law governing statutory Bai al-Wafa (Troth Sale) is less consistent with

Gerawee than some scholars may have previously thought—examining

both the language of the statute and past court decisions. rough this

discussion, it reveals a need for reform—a way to enable equity based

nance while complying with Afghan civil law and Shari’ah.

A. Prohibition of Riba under Shari’ah

e term “Shari’ah” (often translated into English as “Islamic law”) refers

to commands, prohibitions, and guidelines that God (Allah) has addressed

to humankind concerning their conduct in this world and salvation in the

next.1 It is understood to have been revealed in two scriptural sources: the

Qur’an, which Muslims believe is literally God’s word, and the records

1. MohaMMaD haShiM kaMali, Shari’ah law: an introDuction 14 (2008).