The Politics of Islamic Finance

Citation

Shubber, K. (2008), "The Politics of Islamic Finance", International Journal of Islamic and Middle Eastern Finance and Management, Vol. 1 No. 3, pp. 262-264. https://doi.org/10.1108/17538390810901186

Dishonourable pursuits should not tarnish the essence of Islamic finance

It would probably not be an exaggeration to say that the terrorist attacks of September 2001 brought about a new landscape of political, economic, social, and religious thinking. Among other things, this was exemplified by a resolution issued by the UN Security Council targeting cross‐border movements of terrorist funds, while at least one off‐shore Islamic bank was shut down.

In addition, officials in the west began to view Islamic financial institutions (as well as Muslim charities) with an eye of suspicion. As a clear illustration of this was the serious question marks raised by the US administration over the Gulf‐based AL‐Baraka group, confusing it with a Somalian fund‐transfer agency.

As the two editors of this work aptly point out, most multi‐lateral financial institutions (notably the Word Bank and IMF) have been prompting governments in the Middle East and North Africa (MENA) region to espouse policies of economic liberalisation. On the ground, this has resulted in a new type of free‐market system, not necessarily based on “Western protestant ethic, but rather on Islamic values and beliefs. It is important to distinguish the financial phenomena associated with this development from money laundering and terrorist funding” (p. 1).

Twelve contributors

This volume is a symposium, with contributions from 12 experts in the fields of Islamic finance, economics, and history. As already indicated, it focuses on a burning issue of our time, namely the suspicion that Islamic funds might be related to terrorism and money laundering.

The 12 writers investigate other related aspects. These pertain to the accumulation of Islamic capital and political dimensions of this phenomenon, as well as the financing of Islamic political movements within the MENA region.

In today's world, Islam presents a complex phenomenon, whether we look at the personal, social or political levels. In theory, Islam is a unified body for both the spiritual and materialistic aspects of life, but as the editors point out political Islam “should not be conflated with Islam's other economic and societal dimensions”. They explain that even governments in the Muslim World that wage war against political Islamists, and do not readily distinguish moderate partisans from terrorists, recognise the distinction between Islam's political and economic practitioners (p. 286).

However, the editors immediately take a step back from this dichotomy, by stating that:

[…] any rigid analytical separation of the economic from the political aspects of Islamic revival may obscure some of the rich potential for political development implied by a steady accumulation of Islamic capital.

They thus conclude that such a distinction (between politics and economics) “should not be cast in stone” (p. 286).

Two equal parts

This book is split into two almost equal parts. The first is composed of six thematic essays, investigating several critical and topical issues in this field. A major issue looked at is the alliance between wealthy Muslims who own banks and other institutions (and deposit funds in them) and the scholars who comprise the Sharia boards.

In his article, Monzer Kahf maintains that this alliance emerged out of the working relationships between the rich and wealthy, on the one hand, and many Sharia scholars, on the other. One consequence of this alliance is that scholars have been encouraging followers and influencing public opinion to use Islamic financial institutors. A major conclusion arrived at by Kahf is that the alliance has served to depoliticise, or at least to remove, the political stigma from several layers of the Islamic movement in most Muslim countries. The alliance opens up “new spaces for co‐operation as well as competition between governments and Islamist oppositions” (p. 17).

Another major issue covered is the possible intertwining between Islamic money and politics before and after the terrorist attacks of September 2001. In this regard, Ibrahim Warde considers the evolution of global politics, Islamic finance and Islamist politics over three periods, namely the later stages of the Cold War (1973‐1989), the “New World Order” that followed the end of the Cold War (1990‐2001), and the “New New World Order” ushered in by the events of 11 September 2001. Warde goes on to stress that as:

[…] the war against terrorism came to dominate world politics, many Islamic institutions came under attack (while demand for Islamic products grew unabated), and their integration in the global economy suffered a severe blow (p. 37).

A third theme covered in this part of the book concerns the performance of Islamic banks compared to conventional ones, while a fourth is the perceived flight of capital from Muslim nations via the conduit of managed investment funds.

The second part of the book is devoted to case situations, where six Muslim countries are investigated, namely Sudan, Kuwait, Jordan, Turkey, Tunisia, and Egypt. In the three cases of Sudan, Egypt and Jordan, authors assume a fairly aggregate perspective, in that they consider Islamisation of finance/business and how this intertwines with the political landscape.

In the other three cases (Kuwait, Turkey and Tunisia), specific institutions are taken as the channel to understanding the focus, problems and intricacies of those countries.

Critique

Clearly, this volume attacks some highly sensitive questions head‐on. The fact that it is written by a group of imminent experts in the field (several of whom are non‐Muslims) gives much credence to the information it provides, its analysis and conclusions.

Covering political as well as business/finance/economic issues, the book helps to clear misunderstandings about Islamic finance and banking, guiding readers to untangle the complexities of the political environment in which Islamic business/finance functions. A major conclusion of the volume is that the perceived linkage between Islamic finance and money laundering and terrorism is simplistic and misleading.

Yet, the writers have left out from their detailed treatment some major Muslim countries, such as Indonesia, Iran, Pakistan and Malaysia, quite apart from influential Muslim minorities in Europe, USA, India and other parts of the globe. This will need to be rectified when the book is revised. Also, much has happened sine 2004 when the book was published, not least of which has been the licensing and growth of Islamic financial institutions in non‐Muslim regions, especially Europe.

While on the subject on revision, readers would benefit from a catalogue of graphs and statistical indicators, of which there are many over the book's 300‐odd pages. The volume contains some 35 numerical tables and 12 graphs.

These relate to a variety of variables, including the relative and practical importance of various types of Islamic instruments (e.g. Murabaha), the incidence of external debt on Muslim nations, levels of return attained by Islamic financial institutions, their capital‐to‐asset ratios and cost of funds. Other aspects illustrated by figures and tables include market shares of Islamic banks, gross national incomes of Muslim countries, and total assets under the management of Islamic funds.

Another possible and useful addition is a glossary of technical terms utilised by the writers.