[Paper Review] An Application Specific Informal Logic for Interest Prohibition Theory

J.A. Bergstra, C.A. Middelburg|arXiv (Cornell University)|Apr 2, 2011

Law, Economics, and Judicial Systems3 citations

TL;DR

This paper proposes an Application-Specific Informal Logic (ASIL IPT) to systematically analyze and reason about Interest Prohibition Theory (IPT), particularly in the context of Islamic finance. It argues that conventional formal logic is insufficient due to the wide diversity of arguments in IPT, and instead advocates for a tailored informal logic framework that accommodates religious, scholarly, and economic reasoning to classify financial transactions as Lender-side Critically Productive (LCP) and thus prohibited.

ABSTRACT

Interest prohibition theory concerns theoretical aspects of interest prohibition. We attempt to lay down some aspects of interest prohibition theory wrapped in a larger framework of informal logic. The reason for this is that interest prohibition theory has to deal with a variety of arguments which is so wide that a limitation to so-called correct arguments in advance is counterproductive. We suggest that an application specific informal logic must be developed for dealing with the principles of interest prohibition theory.

Motivation & Objective

• To address the limitations of formal logic in handling the broad and varied arguments inherent in Interest Prohibition Theory (IPT).
• To develop an Application-Specific Informal Logic (ASIL IPT) that accommodates religious, scholarly, and economic reasoning in IPT.
• To provide a structured framework for classifying financial transactions—especially LCP and BCP types—based on authoritative sources and scholarly consensus.
• To clarify the boundaries of IPT, including the role of revealed sources, derived sources, and consensus among scholars.
• To resolve methodological challenges in IPT, such as determining the scope of universal claims and handling shifts in scholarly consensus over time.

Proposed method

• Develops ASIL IPT as a specialized informal logic framework modeled after 'application-specific integrated circuits' to handle context-specific reasoning in IPT.
• Uses a tiered approach to argumentation: proof from revealed sources, strong arguments with priority established by authoritative scholars, and reasoning from derived sources with scholarly consensus.
• Classifies transactions based on criteria such as productive role, use of valuables, and interest mechanisms—especially the 'doubling scheme' as a core LCP example.
• Distinguishes between LCP (forbidden) and BCP (less commonly forbidden) transactions, with LCP status grounded in religious and scholarly authority.
• Incorporates abductive reasoning for resolving ambiguities in historical scholarly positions when direct evidence is unavailable.
• Establishes boundaries of IPT by identifying key themes: representation of completed IPT versions, current mainstream views, and underlying rationales for interest prohibition.

Experimental results

Research questions

• RQ1 How can an informal logic framework be designed to handle the wide variety of arguments in Interest Prohibition Theory without restricting them to formal correctness?
• RQ2 What role do revealed sources, derived sources, and scholarly consensus play in determining the LCP status of financial transactions?
• RQ3 In what ways can abductive reasoning and consensus formation be used to resolve uncertainty in historical scholarly positions on IPT?
• RQ4 How should the scope of universal claims about LCP transactions be defined, especially when applied to modern financial instruments like credit cards?
• RQ5 What conditions might lead to a reclassification of currently LCP transactions—such as the doubling scheme—as non-LCP in the future?

Key findings

• The paper establishes that Lender-side Critically Productive (LCP) transactions—especially those involving interest-based debt multiplication like the doubling scheme—are systematically classified as prohibited within IPT.
• It identifies that proof of LCP status can be achieved through conclusive argument from revealed sources, especially when no opposing arguments exist in those sources.
• The framework allows for authoritative resolution of conflicting arguments in revealed sources by prioritizing opinions from scholars who witnessed the Prophet, thus forming derived sources.
• Scholarly consensus, formed intuitively by informed scholars assessing long traditions of secondary derived sources, is recognized as a valid basis for LCP classification.
• The paper concludes that abductive reasoning plays a key role in reconstructing the positions of deceased scholars when direct evidence is missing.
• It highlights that the classification of financial products as LCP may evolve over time due to shifts in scholarly consensus, and that future reclassification of current LCP cases—like the doubling scheme—is theoretically conceivable.