By Nathan Schneider
http://www.religiondispatches.org
In the midst of a global financial crisis one sector has yet to suffer the fate of the rest. Islamic finance, or Sharia-compliant banking, offers strict moral guidelines for dealing with money. Trading debt and risky speculation are off-limits, as is investment in immoral enterprises like gambling, prostitution, and war profiteering. It might be time to get the muftis on the phone.
Are the Fundamentals Sound?
The most tangible outgrowths of Islamic economic thought, the banks, tend to be rather quiet about the visionaries’ grand ambitions. Their spokespeople sound like bankers anywhere: optimistic, practical, and fond of jargon (in this case, specialized Arabic terms mixed in with the English vocabulary of international finance). By peppering business deals with the language of the Qur’an, the transaction seems to take on the endorsement of a higher power. Preachers play the role of advertisers by exhorting their congregations to purify their savings from interest. “Is ‘Islam’ merely a sort of brand name attached to products for marketing to a Muslim niche?” asks Bill Maurer in his book, Mutual Life, Limited.
If it is, the brand has its consequences. “In their investing options and the lack of diversification that they have to live with,” Samuel Hayes says, Islamic investors “pay a price, no doubt about it.” On a large scale, risk-sharing arrangements mean slower growth and, potentially, less short-run security for individual depositors. In one Muslim country, Jordan, the central bank has been reluctant to approve many new Islamic institutions for fear that they might add an unstable element to the burgeoning financial industry. The banks that already do exist there have poor reputations. Because of cases like this, most observers doubt that Islamic finance will broaden its appeal beyond the pious. But according to Mohammad Ismaeel, the Director of Global Marketing for HSBC’s Islamic arm, this may be changing. He claims that more than half of his bank’s customers in the Asian market are non-Muslim Chinese. “They haven’t come to us for Islamic reasons,” he insists, “but because it is a sound financial product. They’ve taken it on for those reasons and those reasons only.”
In the process of becoming competitive, though, Islamic banks may have lost some of the values they claim to be founded on. The theorists’ original hopes for fostering more ethical consumer preferences hasn’t taken hold in the banking culture. Bill Maurer, who has studied Islamic banks in South Asia and the United States, says these institutions aren’t much different from other banks, despite some conspicuous signs of piety like prayer rooms and conservative clothing. Working at one doesn’t mean joining a monastery. “A lot of the time,” adds Maurer, “it’s the same kind of drudgery and tedium that any old bank employee is dealing with.”
Among those in the West who have been following the progress of Islamic finance, Turkish-born Timur Kuran is the most skeptical. “Endeavoring to implement Islamic economics,” he writes in his book Islam and Mammon, both bankers and governments inevitably “recognize its unrealism.” While the earliest experiments depended on genuine partnerships and risk-sharing, the bulk of today’s Islamic transactions use instruments that differ only in name from what a conventional bank offers. In one of the most popular and long-practiced of these, murabaha, the bank buys an item for the client, who then in turn buys it from the bank, along with a premium that cleaves suspiciously close to the conventional interest rate. Religious scholars agree that the transaction is acceptable, even if the bank owns the item for just a millisecond. Pure in God’s eyes, perhaps, but there is nearly no difference in economic terms. Kuran and others have also pointed out that during the medieval period, when the Sharia guidelines for commerce were developed, nothing resembling a modern bank existed. There was no legal provision for such an institution to outlive individual owners, as nowadays a bank of any scale must.
In light of the Islamic sector’s competitive disadvantage, and even questionable adherence to its own ideals, Kuran advocates making its target audience more aware of the risks. Potential customers should know, he believes, that “its political importance and symbolic importance is more important than its economic essence.” But symbols and politics are never far from the machinations of economy. One need look no farther than the vagaries of investor confidence or the political imperatives that shaped the bailout plan this past fall.
From Constraints to Creativity
Kuran nevertheless suspects that there is something to learn from the experience of Islamic finance and that the current crisis would be a good time to start. “It may be possible through Islamic banking, or something similar to it,” he says, “to reach out to the subprime borrowing population in a safer way, in a way that makes the risks more transparent and allows better risk diversification.” With or without the utopian theories, the constraints imposed by interpretations of a bygone religious law have given rise to a laboratory for different ways of doing business. Because of its religiously-obligated client base, Islamic banking remains insulated, in part, from the conformity that competition enforces on the rest of the financial industry.
Maurer agrees, but he doubts that anybody from the Federal Reserve will be calling up the muftis. “What I think will happen,” he says, “is that people in the conventional finance world are going to arrive at things that may look more like Islamic banking as it has already been practiced.” Advocates of Islamic finance will probably celebrate the change as triumph for their convictions, even if the resemblance is coincidental. “Depending on where you stand, they’re right, or not.”
Maybe it is time to get the muftis on the phone after all. In the United States, at least, religious leaders and politicians have deferred some of society’s most pressing ethical concerns to the wisdom of the market. Calls that the “end of history” lies with neoliberal capitalism are being heard as far as the People’s Republic of China. Not without reason, the 20th century’s question of why free markets has been replaced, especially in the developing world, with how to get there. But last year’s collapse is one more reminder that the market won’t be our brother’s or our sister’s keeper for us. The shock waves of harm spread through global markets in ways that “love thy neighbor” doesn’t seem to equip us for. Now is a good time to tinker with alternatives, and keeping an eye on models that already exist at the fringes of the global economy are a good way to begin. Peculiar conditions give rise to possibilities that couldn’t develop on their own in the mainstream. Looking more closely at what Islamic economic thought has to offer, too, opens the door to more of the elusive “dialogue among civilizations” that leaders talk about but rarely do.
“Certainly asking questions about the ethical boundaries of finance is in order,” says Ibrahim Warde, a professor of political science at Tufts University. There are any number of ways to think about economy in terms of right and wrong, but the Islamic case is different in an important sense. “Unlike other pockets of ethical finance,” he points out, “it does exist in institutions,” which are competitive enough to survive and available for study.
Warde makes sure to add, “We should not go overboard, though.”
