Credit as a Means of Investment in Medieval Islamic Trade

THE PRECISE ROLE OF CREDIT in the context of medieval economic life has been subject to dispute by economic historians. Until forty years ago, the prevalent view was that the middle ages constituted a pre-credit era, that credit transactions, to the extent that they were employed, were of minor economic importance, and that their function was restricted to consumption to the exclusion of production and trade. Accordingly, proponents of this view denied any significant relationship between credit and trade.' In an important study of medieval credit, the English economic historian M. M. Postan convincingly demonstrated that this view did not correspond to the economic realities of medieval Europe. On the basis of data found in English medieval archives, he showed that by the thirteenth century credit had already assumed a major role in the trade of Northern Europe.2 In Southern Europe, especially Italy, this was the case a century or more earlier.3 For the medieval Near East, the still unpublished commercial records from the Cairo Geniza will show that by the eleventh century credit operations formed an integral, not to say indispensable, element in the commerce of that area.4 This date can be pushed back even further. The earliest Muslim legal sources now justify the assertion that already in the late eighth century, and possibly earlier, credit arrangements of various types constituted an important feature of both trade and industry. Credit fulfilled several important functions in medieval trade. It financed trade by providing capital or goods for those who temporarily or otherwise did not have the means of carrying out trade; it provided an outlet for surplus eapital to be utilized in a productive and profitable way, and it contributed to the expansion of trade by providing merchants with a means of doing business in an age when the supply of coins was not always adequate. In long distance trade, it dispensed with the necessity of transporting large sums of money across perilous routes and, in combination with other contracts, it served as a means of sharing the risks of commercial ventures. While a full study of the role of all the above mentioned aspects of credit in medieval Islamic trade has yet to be undertaken, one fact is certain: the legal instruments necessary for the extensive use of mercantile credit were already available in the earliest Islamic period. Credit arrangements which could both facilitate trade and provide a framework for the use of credit as a means of investment in trade are already found in a developed form in some of the earliest Islamic legal works. Buying and selling on credit was an accepted and apparently widespread commercial practice, whether a merchant was trading with his own capital or with that entrusted to him by an associate. In the Book of Partnership of Shaybanl's 5 Kitib al-asl,6 the earliest Hanaf! code, a provision entitling each of the parties to a partnership to buy and sell on credit is included in the very text of the suggested contract formula. Furthermore, unless otherwise stipulated, neither partner requires the express permission of his colleague for the sale on credit of any of their joint property. The text reads as follows: