Islamic finance in the global era
Rome (AsiaNews) - With the ninth World Islamic Economic Forum, held in London between 29 and 31 October, Islamic finance has come into its own and gone mainstream. Until a few years ago, Islamic finance was unknown to most people. Some even equated it to the financing of Islamic terrorism. In fact, in the years right after 9/11, anything about Islam was viewed with concern. Now things are different.
British Prime Minister David Cameron, who spoke at the forum, said that London is no longer happy to be the main Islamic financial centre outside Muslim countries; it now wants to compete directly with Dubai and Kuala Lumpur. In 2006, Gordon Brown, then Chancellor of the Exchequer, expressed similar views. Yet, if they seemed unrealistic to most people at the time, the international situation is now quite different.
With Europe reeling from the economic crisis, the prospect of attracting capital from cash-rich regions, such as the oil-producing countries, is a very attractive idea. In fact, Cameron has announced his government's intentions to issue a sukuk bond compatible with Sharia in order to raise 200 million pounds.
But what is exactly Islamic finance? For Charles Tripp, professor at the School of Oriental and African Studies in London and author of Islam and the Moral Economy: The Challenge of Capitalism, Islamic finance is rooted in the reactions by Islamic societies and cultures to the penetration of Western capitalism in the nineteenth and twentieth centuries.
At that time, there was a widespread perception that the market economy was a danger to the religious and moral values embodied by the Islamic tradition. Islamic economics developed against this background as a discipline whose aim was to achieve a comprehensive reform of the economic system in accordance with the principles of Islam.
Islamic economists saw socialism and capitalism as failures, since both were based on a conception of human beings that ignored the spiritual dimension. And Pakistani Islamist thinker Abu Ala Mawdudi identified the foundation of Islamic economics in the Qur'anic ban on 'riba', usury, defined as interest.
If Islamic economics developed a theoretical basis to critique Western economic theories, Islamic finance, which emerged in the 1970s, represents a practical attempt to create an alternative system.
Thanks to the huge liquidity made available by the oil shock of 1973, Islamic finance saw rapid growth. The first modern commercial Islamic bank, the Dubai Islamic Bank, was founded in 1975. That same year, the Islamic Development Bank - set up by the finance ministers of the members of the Organisation of the Islamic Conference - began its operations.
The early phase of the expansion of Islamic banking reflected Saudi Arabia's desire to act as the hegemon in the Islamic world. However, as already indicated, when Islamic banks came under suspicion after 2001, their expansion in the West slowed down.
Critics and apologists have tended to treat the relationship between Islamic finance and political Islam with superficiality. The notion that Islamic finance is as an extension of jihadism is in fact flawed and biased. And the relationship between 'political' and 'economic' Islam is much more complex than it seems.
As Clement Henry and Rodney Wilson point out in their well-researched book The Politics of Islamic Finance, published in 2004, Islamic banks and Islamic movements are often interrelated.
Now, as suspicions wane in public opinion, Islamic finance is increasingly seen as a way to attract capital. Undoubtedly, Islamic finance is a large and constantly growing industry.
The fact that the United Kingdom plays a leading country today in this area should come as no surprise. London is not only one of the main centres of global finance, but is also home to a large Muslim minority.
Great Britain also hosts important centres dedicated to the study of Islamic finance. The Islamic Foundation, based in Markfield, Leicestershire, since 1973, has played a pioneering role in the field.
Inspired by Islamist thinker Abu Ala Mawdudi, intellectuals from the Indian subcontinent are among the founding fathers of Islamic economics who built the theoretical platform upon which it stands.
Thanks to the close relationship between the subcontinent, on the one hand, and Britain, on the other hand, the latter has become one of the leading centres of contemporary Islamic thought. In particular, the Pakistani diaspora in Britain has come to play an important role in the genesis and development of Islamic economics and finance. This is truly a global phenomenon.
There is a widespread misconception that Arab and Islamic are the same thing. However, places like Pakistan and Malaysia, which are not on the margins of the Islamic world, have played a key role in the history of Islamic finance.
This great worldwide expansion has led to new challenges. As noted, Islamic economics developed from a desire to reform the economic system in accordance with the principles of Islam. However, Islamic finance, emerging as the 'operational arm' of Islamic economics, has often been accused of neglecting Islam's original ethical inspiration. Indeed, is the development of Islamic finance a step towards the Islamisation of the economy or is it the victory of homo economicus over homo islamicus?
The debate over this issue has been intense, and has led some Islamic intellectuals to criticise the very foundations of this type of finance. Mawdudi's approach, which was very influential with the so-called 'founding fathers' of the field, focused disproportionately on the legal aspects of Sharia, at the expense of its ethical basis.
Rapid growth of Islamic finance has been paralleled by the growing difficulty of dealing with socio-economic problems that challenge Islamic economics. This has led to a debate that intellectual Mehmet Asutay has called the "socio-ethical failure" of Islamic finance. In his view, Islamic banks that abide by the rules of Sharia have however ignored its spirit, its ethical basis. In short, Homo islamicus has submitted to the power of homo economicus.
The critique by Islamic economists of our economic and social model has led them, in many ways, to reflections that are parallel to those that have come out of other great religious traditions of humanity, above all the social doctrine of the Church.
From Rerum Novarum in 1891 to Caritas in Veritate in 2009, the Catholic Church has been deeply involved in thinking about the same issues addressed by Islamic economics. An ecumenical debate on these issues would thus be an additional source of hope for humanity.
On this point, see Samir Khalil Samir, "Islamic finance and sharia, Europe's suicide," in AsiaNews, 31 January 2007.
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