Money foundations · The Ottoman solution to the credit system

1513

Money foundations The Ottoman solution to the credit system

The charitable foundations, unprecedented before the Ottoman era, are regarded as an innovation introduced by the Ottomans in their endowment system, representing a significant contribution to global culture.105 They have also been referred to as endowment banks, considering their roles in the Ottoman financial system.106

A monetary endowment is a foundation whose establishment capital consists of all or part of it in cash. In monetary endowments, the principal capital is kept while the revenue created via various forms of investment is used to fund the endowment's intended functions..

There is no known example of monetary endowments being implemented before the Ottoman era. Although the exact timing of their first appearance in Ottoman society is uncertain, examples of monetary endowments can be traced back to the early 15th century, especially during the reigns of Sultan Murad II and Mehmed the Conqueror. Among these, the monetary endowment established as a fund to subsidize the losses of butchers providing meat to İstanbul, commissioned by Sultan Mehmed the Conqueror,

is well known. From the early 16th century onward, it is understood that the number and prevalence of monetary endowments increased in parallel with the expansion of the endowment system. Following positive outcomes in theoretical discussions on the subject, monetary endowments have come to occupy a significant place within the endowment system. Upon examination of the implementation, it can be observed that the operation method criticized as a gateway to usury, known as muâmelei şer’iyye, and opened to criticism by scholars such as Çivizâde and Birgivî, is widely utilized in the management of monetary endowments. In this process, the direct prohibition of usury (ribâ) is indirectly reached by resorting to several sub-processes, thus meeting the need for borrowing on one hand, and on the other hand, the individual whose main purpose is to generate income through lending indirectly achieves the desired outcome due to the direct prohibition of usury. Although not well received, this practice is presented as a permissible alternative for credit and financing against illegal usury, often justified by situations where people's

Picture 1 Ebussuud Efendi in the tezkire of

Âşık Çelebi

needs cannot be met otherwise.

In the operation of endowment funds, it is observed that, alongside the method known as muâmelei şer’iyye, transactions that can be defined as real estate-backed credit are also employed. Additionally, theoretical discussions have brought up the mudarabah107 method, but it is understood that it is not preferred in practice.

It is observed that monetary endowments perform certain distinctive functions. Firstly, they address individuals' cash and credit needs. Through monetary endowments, credit transactions have, in a sense, institutionalized, leading to the establishment of a corporate infrastructure for increasing credit supply and meeting individuals' credit needs. With these functions, monetary endowments emerge as an alternative to usurious transactions in the market with high interest rates, providing a crucial role in determining credit costs and ensuring market stability in this field. Indeed, while usurers apply high interest rates such as 40% to 50%, the transaction rates in monetary endowment operations vary between 10% and 20%. The second function of monetary endowments is to provide an opportunity for those who wish to do good but do not have sufficient financial means or, although financially capable, cannot find suitable real estate for endowment. In this way, it allows individuals to contribute to charitable causes, further expanding the endowment system.

Monetary endowments were created as a form of solidarity and social security for people who shared similar lifestyles and interests and were subject to similar hazards. Particularly, the funds established by the janissaries, the guild funds formed among trade guilds, and the calamity endowments108 established in neighborhoods and villages have served as mechanisms for the joint activities, meeting common needs, increasing solidarity, and providing assistance to members or

Picture 2 A

petitioner

their families facing financial difficulties. In this regard, it can be said that monetary endowments fulfill functions akin to social security and unemployment insurance.109

In the accounting records of 516 different monetary endowments in Bursa for the year 1775-1776, 5,887 individuals who borrowed credit from endowments were identified. Considering that the population of Bursa was approximately 65,000 in the second half of the 18th century, the percentage of those borrowing credit from endowments in the total population is observed to be around 9%.

The profit rate of around 11-13% prevalent in monetary endowments, while seemingly indicative of a strong connection to usury due to its stability, does not, in fact, involve usury from the perspective of Islamic law. The istidlal (pledge) method, most intensively used by monetary endowments to operate their capital in Islamic law, actually involves a series of transactions including sale, the re-renting of the sold item by the seller, and ultimately repurchase. As none of these transactions individually violate Sharia, according to Çizakça, economists are justified in saying that it is not usury, just as Islamic jurists argue that it is not usury.

Tahsin Özcan revealed that nearly 90% of Üsküdar monetary endowments predominantly involve muâmelei şer’iyye (mostly istidlal), and mudarabah is rarely encountered. Another implication of this situation is that monetary endowments have not been financing entrepreneurs. Indeed, examining the investments of Bursa monetary endowments, it is evident that a significant amount of capital has not been distributed to a small group of entrepreneurs, mainly consisting of large merchants. On the contrary, these investments appear to have been distributed to numerous individuals in small amounts as consumer loans. This raises the

question of whether monetary endowments provide credit to consumers rather than entrepreneurs throughout the entire country. In the study by Barkan-Ayverdi, there is a notable exception, where the conditions of a wellcapitalized monetary endowment include providing credit to strong merchants and industrialists. Additionally, after the publication of Ottoman documents in the Venetian archives, Suraiya Faroqhi, upon examining these documents, revealed that in 1589, some merchants from Sarajevo obtained capital from monetary endowments in the region and engaged in trade with Venice via the Adriatic.

In other words, while Bursa monetary endowments were inclined towards consumeroriented lending, Sarajevo endowments preferred financing merchants. Another incidental finding from Faroqhi's study is the confirmation that monetary endowments in Sarajevo did not engage in financing through mudarabah.

Çizakça mentions the possibility of a capital flow from Bursa to İstanbul. Indeed, between 1555 and 1823, while Bursa monetary endowments were providing loans with an interest rate between 11% and 13%, it is apparent that the moneylenders in İstanbul obtained this capital at an interest rate of 12-13%, subsequently transferring it to French merchants in İstanbul at an interest rate of 20-25%.110

Between the years 1456 and 1551, out of the 2,517 endowments established in İstanbul, 1,161 of them (46.12%) were founded solely or in conjunction with other real estate, with funds that would be operated with interest. Although the interest rate is not explicitly specified in most of the monetary endowments recorded in the İstanbul Evkaf Tahrir Register, the annual interest income amounts suggest that, in general, the funds were subjected to an interest rate of “ten to eleven” (i.e., 10%). In some rare records, variations are observed,

indicating that they were subject to interest rates of “ten to eleven minus or plus,” or “ten to eleven and a quarter” (i.e., 12.5%), or “ten to eleven and a half” (i.e., 11.25%). In very rare instances, in a few monetary endowments, it is stipulated that, in the event of a loss of some portion of the capital for any reason, the interest rate could be increased to “ten to eleven and a half,” calculated at 15%, to allow for the recovery of the original amount over a period.

These records, deemed worthy of various examinations, are particularly significant as they demonstrate that, despite the clear prohibition of usury in the Islamic religion, various forms of usury were officially accepted and implemented in the Ottoman Empire through legal subtleties and some “legal trickery,” within reasonable and moderate limits.

According to Barkan, these disguised ways of taking interest, known in Islamic law as muâmele i şer’iyye, essentially involve hiding interest behind a commercial transaction. This method, often resorted to in order to avoid the forbidden, is entirely based on formal legal tricks. Through this practice, interest, which is inherently forbidden, takes on a legitimate form with the insertion of a buying and selling or gift transaction.

For example, if the trustee of the endowment purchases an asset from a person intending to borrow money for a hundred liras on behalf of the endowment and then sells the same asset to that person for a hundred and ten liras, thereby indebting them with a term on this amount, it is assumed and accepted that by such a completely Sharia-compliant legal transaction, the nature of the ten liras, which is the interest on the borrowed hundred liras, would have changed.

In this way, alongside a formally tolerated and moderate usury that found a way to be recognized in the face of vital necessities, whether in the field

Picture 3 Galata side of

İstanbul of trade and industry or to support charitable activities and social welfare organizations, there was another usury, which, with its informal and undisclosed forms and rates, persisted vigorously in accordance with customs and traditions.

Observing the damages caused by murabaha's111, it can be seen that the state, during this period, frequently issued decrees to regulate usury operations and imposed severe penalties for usurers. Some of these decrees took the form of general reforms, or, famously known as “justice decrees,” were issued to all judges in Rumelia or Anatolia. These decrees cursed usurers who had established farms and barns on village land and raised usury rates up to 30% or even 60%. They explicitly condemned the concealed and indirect contracts, which were actually ruthless murabaha transactions, beyond the officially permitted usury

rates. The decrees instructed judges not to accept and register these contracts. If such contracts had already been registered, they were ordered to be reexamined and corrected.112

Monetary endowments, the collapse of the Ottoman Empire continued to exist until its demise. Initially managed autonomously by trustees and supervised by local judges, many foundations came under the administration and control of the Evkaf Ministry from the first half of the 19th century onwards. During this period of modernization activities, new regulations were introduced for cash foundations. With the advent of II. Meşrutiyet (the Second Constitutional Era), units directly related to cash foundations were established within the ministry. During this period, the funds collected for foundations in the treasury of the Evkaf Ministry took on the nature

of a fund used to cover the deficits of the state treasury. In 1908, there were 90,000 Ottoman liras in the Nukud-u Mevkufe funds affiliated with the Ministry of Evkaf-ı Hümâyun. The name of the Nukud-u Mevkufe Office was later changed to the Nukud-u Mevkufe Directorate and then to the Directorate of Foundation Funds. Attempts were made several times to establish a bank with foundation funds under names like Evkaf Emlak Bankası or Evkaf Bankası, but this matter could not be resolved quickly. Ultimately, the foundation funds were transferred to Türkiye Vakıflar Bankası, established in 1954.113

Kanuni Sultan Süleyman's decree freeing cash foundations

After a period during which cash foundations were banned due to the opposition of Sheikh-ul-Islâm Çivizâde Mehmed Efendi, it was observed that the ban led to the abandonment of many mosques, places of worship, and similar charitable institutions due to the expenditure of foundation funds. Following the fatwas issued by prominent scholars, including Ebussuud Efendi, stating that it was permissible, Kanuni Sultan Süleyman issued a decree reinstating the freedom of cash foundations.

April 3, 1548

The judges of the country were instructed as follows:

Before this, my former chief judge, Çivizâde Mehmed, who was knowledgeable about cash foundations, presented to me by saying, “The narration is weak, and most mujtahids rely on sound narrations. Its registration is not possible, and trustees mostly fail to conduct Sharia transactions114, resembling usury.” Upon this, I issued a decree stating, “No one in my country should establish cash foundations, and judges should not register them.”

However, since the trustees of the cash foundations established in my country so far, and the heirs of the founders, spent the foundation funds in accordance with my decree, many mosques, places of worship, and similar charitable institutions have fallen into disuse and ruin. It is said that this has led to a decrease in charitable activities as many benefactors lacked real estate to establish foundations.

Formerly the chief judge and later the mufti, Mevlana Abdülkadir, Mevlana Ebussuud, the former Anatolian chief judge Emir Mehmed, the İstanbul judge Seyyit Muhyiddin, and other eminent scholars, in contrast to the late Çivizâde, unanimously issued a fatwa stating that the cash foundation is valid and necessary. They stated, “Similar practices have been implemented based on weak narrations, and there is no harm in it.” Therefore, I have issued the following decree: In

my country, those inclined to charitable deeds and wishing to establish foundations, whether in cash or in kind, such as real estate, may freely choose either method (akçe or filori)115 to make their endowments.

I command;

that when this decree reaches you, each of you should announce it to all the people in your jurisdiction. Any benevolent person who wishes to endow cash or gold should endow whatever they desire, following the method determined by the great scholars, and deliver it to the trustee.

During the registration, if it is claimed, based on the opinions of the three imams116, that the endowment of the money is not valid, and if the statement is made, “I will spend the endowed money on my own expenses,” and the trustee does not agree to its cancellation based on Imam Züfer's narration affirming the validity of the endowment, then the judge at that time rules, in accordance with this narration, that the endowment is valid, and this has been unanimously agreed upon. According to the Hanafi school, if someone, based on the Hanafi way, decides to withdraw from the endowment after saying, “I endowed it,” and delivering it to the trustee, and wishes to include it back in his wealth, the judge, following the paths of the two imams, Abu Yusuf and Muhammad, declares that the endowment is complete. They shall always act in accordance with this view and refrain from engaging in activities contrary to this view. Other than that, trustees who wish to renew transactions must go to the judge's councils and conduct transactions before the judge as permitted by Sharia and have them recorded in the registers.

You, judges, shall not allow anyone to conduct transactions anywhere other than the judge's council. Do not allow anyone to receive money as profit without conducting a muâmelei şer’iyye (Sharia-compliant transaction), so that Muslims may be free from suspicion of riba (usury or interest). Do not let your deputies, preachers, and imams interfere with these matters at any time. You shall personally oversee them. After reviewing and recording a copy of this decree in the bound registry stored in your court, entrust it to a trustworthy person among the prominent figures

in the province to be kept in safekeeping, so that subsequent governors and judges can act in accordance with the Sharia, conducting transactions based on the contents of this decree and refraining from actions contrary to Sharia.

Be aware of this and act accordingly so that you may be vigilant and trust in your authority.

Written on 23 Safer 955 AH (April 12, 1548)

Kastamonu Provincial Public Library, Manuscript No. 1117: Majmu’atu Rasa’il, Manuscript 197.117

Preventing usurers who charge high interest rates from exploiting the public

In Alacahisar, although it is forbidden for usurers to lend money to the public at an interest rate exceeding 15%, they are reported to charge 50-60% interest. As a result, people who borrow under such conditions later find themselves unable to repay, leading to the abandonment of villages and their deterioration. Since a decree has been issued prohibiting the collection of interest exceeding 15%, those who do not comply should be prevented. Their names and descriptions should be reported, and appropriate measures should be taken against them.

February 5, 1610

Command to the Lord of Alacahisar and the

Judges in the Province:

To you, the lord of Alacahisar, and the judges in

the province, it is decreed:

You, who received a letter from the lord of the province, were informed that lending money at an interest rate exceeding eleven and a half percent (15%) in your province is prohibited. However, some usurers still lend money to the poor at rates between fifteen and sixteen percent (50-60%), claiming it is a necessity. The rest of the people, unable to repay such high interest, face losses, and many villages are left deserted and in ruins. Considering the difficulties faced by the Muslims, the usurers were summoned to the judge's council and warned not to charge excessively. Despite this warning, they continue to charge more.

Since a decree has been issued prohibiting the collection of more than eleven and a half percent, it is decreed:

Upon receiving this order, you must adhere to the decree and, with the court documents at your disposal, take action against these usurers. Do not allow them to charge more than eleven and a half percent in accordance with the prohibition on excessive interest. If anyone insists on charging more, you should prevent and expel them. Report those who violate the ban with their names and descriptions. If they persist in disobedience, take disciplinary measures to ensure that they do not

engage in any transactions contrary to my order.

A.DVNS.MHM.d, 78/1997

Prevention of usurers lending at more than ten percent interest

Ensuring that moneylenders do not attempt to lend to the public at an interest rate exceeding ten percent during tax collection periods and preventing officials collecting taxes from demanding additional money.

1570

In the right arm118 are the judges

It has been decreed to the places still under your judgeship to send officials for the collection of taxes and sheep rights. It has been heard that some of these officials, armed with letters from certain individuals, have gone and oppressed the people, demanding excessive amounts of money during the time of tax collection from some wealthy usurers. Now, it is my command that letters from those who display such letters be taken, and they shall not be allowed to take more than a twelfth of the money during the collection of taxes and sheep rights. Furthermore, wealthy usurers should not be allowed to receive more than a twelfth from the people during the time of tax collection. I have ordered that if these letters exist, they should be taken from their hands, placed in a bag, and sent here when my decree arrives.

Do not enable money collecting to go against my command, or beyond what is usual practice and

legislation. If people do not have enough money to pay the tax and borrow from usurers, do not force

them to pay more than a twelfth, and be careful not to violate Sharia. Specifically, if usurers give more than a twelfth to the people, they will have acted contrary to Sharia and my laws. Write down the names and reputations of such usurers and submit them to me with detailed and clear information about where they reside.

If my subjects take too much money, and usurers try to give them more than a twelfth to distribute among the people, and complaints reach me here, no reason will be accepted, and you will be punished harshly. As a result, whether from the public or usurers, do not permit the collection of excessive funds.

October 22, 1570

A.DVNS.MHM.d, 14-1/784

Some residents of the Şehirköy district refused to repay the debt they borrowed from the Gülhane Ocağı endowment fund, claiming that they had annulled it. Consequently, they were brought to İstanbul along with their guarantors.

To the Chief Gardener-in-Chief of Hassa,

The Head Gardener of the Imperial Garden of Gülhane, known as the Rose Master, has reported that there is a debt of one hundred and fifteen

from the inhabitants of Fanos village, affiliated with the Şehirköy district, derived from the foundation funds of the Gülhane Middle Forge. This debt includes fifty-seven and a half

from a non-Muslim named Yorgi. Furthermore, individuals named Soma and Duka, non-Muslims from the same village, are also indebted under the guarantee of others.

When the Rose Master requested payment from the actual debtors, they claimed to be involved in legal proceedings. However, when he sought to collect from their guarantors, they unduly delayed payment, acting in violation of the law. This notice is issued to you, the Chief Gardener, with the knowledge that the mentioned individuals are to be brought to İstanbul.

A.DVNS.MHM.d, 121/1318

kuruş

January 16, 1714

Nonrepayment of debts obtained from the endowment fund

Source: Innovation, Inventions and Quests Among the Turks