Contemporary applications of Islamic contract law: Islamic finance in the light of economic analysis of law and institutions.

Summary One of the causes of the wealth of nations, cooperation, is based on an exchange of promises. While contract law is considered an effective - if imperfect - tool for securing these promises, it is not the only one: a whole web of formal and informal institutions is at work to facilitate cooperation between economic agents. This paper examines this issue in the context of Islamic finance, which is seen as the modern application of Islamic contract law. While it is supposed to use participatory financing instruments, the practice of Islamic finance is dominated by debt financing. The causes generally put forward to explain this state of affairs are informational problems, which are considered to influence the behavior of banks. This thesis shows that these informational problems are in fact only the consequence of an underlying problem. Through an analysis of the role and purpose of institutions, this work shows that Islamic contract law was originally designed with a clear objective: to ensure the balance of transactions and guarantee ownership. The fulfillment of promises was ensured by other types of mechanisms, notably through reputation, which in effect complemented contract law. This conclusion allows us to understand the "form vs. substance" debate in Islamic finance through the failure of an "intertemporal institutional transplant", to show that avoided contracts are dependent on the context in which they were born and do not adapt well to the modern context.