But not everyone is convinced. Take the claim of Islamic finance as a safe haven from the global economic crisis. “Now is a golden opportunity for Islamic finance to provide an alternative model . . . just what the world needs right now,” Islamic finance conference organizer Swati Taneja recently told Emirates Business 24/7. “There has never been a more interesting time for cautious investors burned in the conventional credit crunch to begin looking at what the Islamic markets have to offer.” But even someone as bullish as Taneja concedes that a globalized market means Islamic investments are exposed along with mainstream ones. According to Standard & Poor’s, sharia-compliant stocks lost 23 percent of their value during the first three quarters of 2008, compared with a 25 percent fall for non-sharia-sanctioned stocks. And Islamic finance, just like conventional finance, is vulnerable to sloppy vetting of customers’ creditworthiness.
Potential pitfalls for Islamic finance, then, are the same as those for conventional finance: greed and lax regulation. So, at what point do the scholars’ fatwas only serve to perpetuate the industry that feeds them, thereby consolidating their own power? “They’re not going to kill the goose that lays the golden egg,” El-Gamal says. “[By issuing bans on certain financial products], they want to continue to build up the religious insecurity of people who are afraid to use conventional [finance].” And banks that benefit are happy to see the current system maintained. Very few scholars dominate the field, says Tarek El Diwany, an analyst at Zest Advisory, a London-based Islamic financial consultancy, because “there’s a shortage of scholars who will give the judgments that the banks are looking for.”
The industry’s chief critics see in Islamic finance the same rhetorical spin as Islamist politics. “The whole idea of giving [finance] a religious identity is just a form of identity politics,” says El-Gamal. “The claim that Islam has the perfect solution is questionable in economics, just as in politics.” Still others see outright deception. Mohammad Akram Nadwi, a prominent Britain-based scholar of Islamic jurisprudence, advises his students against taking out Islamic mortgages, because he thinks their structure is merely interest-bearing debt in disguise. “At least conventional mortgages are honest,” he shrugs.
At industry conferences, there have been mutterings about too few sheikhs serving on too many boards, and even advising direct competitors. Malaysia, which arguably has the world’s best-developed legal framework for sharia finance, banned scholars in 2005 from serving on more than one bank board at a time. And in an effort to groom more young sheikhs to enter the field, Malaysia’s central bank and the Saudi-based Islamic Development Bank recently created a $53 million endowment to support sharia scholarship. But, in an industry that respects longevity and seniority, especially among Wall Street investors unfamiliar with the nuances of madrasa education, breaking in can be tough.
A larger issue is whether Islam and the modern economy can be reconciled at all. Is it enough to create banking products that mimic those of traditional finance but also meet the letter of Islamic law? Or must the goals of the financial system itself be reworked fundamentally? The question, in short, is whether a growing Islamic financial sector can really bring about the material and spiritual justice that its advocates claim it will—or whether it will enrich a select few. Such a debate cuts to the heart of whether Koranic admonitions must be strictly applied or can be subject to greater interpretation. That the Islamic financial sector has largely been designed by a small group of men paid handsomely for their services has led some observers to declare that much of what passes for Islamic finance today fails to meet the intentions of sharia.
For every observer who thinks that sharia scholars have become too reckless in their judgments, there are many more who believe that a broad rethink of the financial system should carry the day. “To date, most Islamic financiers have been looking at . . .examples of financing in Islamic history and figuring out how to apply them today,” says El Diwany, the London-based Islamic financial consultant. “That’s a very narrow way of doing things. There’s potentially much more innovation we could be doing—and potentially, much less.” It may not win Islam more converts, but it could provide an entirely new generation of customers.
Carla Power is a London-based writer on Islamic and social issues.
