Panel 6f. Islamic Finance: In Search of Authenticity between Islamic Norms and Modernity

Chair: Mehmet Asutay

Locating Islamic Finance in Multiple Modernities Framework: Searching for a Place in Secular Public Sphere through Banking and Finance
Mehmet Asutay, Durham Centre for Islamic Economics and Finance, Durham University

Considering that in essence Islamic banking and finance (IBF) movement is a product of politically oriented identity politics aiming at creating Islamic solution to the modern problems, it seems that modern problems have imposed modern institutions onto Islamic discourse; and hence Islamic identity search has facilitated the expansion of modernisation in the Muslim world as a by product through redefining it by Islamic scholars. Importantly, in this process, Islamic economics oriented values have been compromised for the success of these institutions; as fiqh dominated IBF solutions focus on the nature of process (Shari’ah compliancy) rather than the consequences of the given injunctions and developed products (Islam based). Hence, the recent debate between Shari’ah compliancy vs. Islam based IBF is a product of such developments, which implies the conflict between Islamic values against modern construct of fiqh understanding of IBF, as the latter is constructed with modern economy requirements of efficiency and profit and return maximisation through the approval of Shari’ah scholars who claims to uphold Islamic values. This paper, hence, aims to evaluate the developments in IBF by locating it as part of the (unintended) modernisation produced by Islamic political identity search. Hence, new (multiple) modernities are originated in the process, which has received recognition by the universal modernity located in the enlightenment process and is reflected in the practice of secular socio-political environment prevailing in the West. Therefore, this paper aims at exploring the concept of multiple modernities with the objective of locating the developments in IBF within this framework. This paper argues that while multiple modernities are produced with the involvement of Shari’ah scholars as part of the IBF institutions, developments in IBF in the secular Western countries is a clear indication of the internalisation of Shari’ah based rulings within the secular legal and regulative environment. Such developments in the West indicate pluralism in the source of law making, which implies the acceptance of divinely ordained rules against the enlightenment process. Therefore, this in itself means recognition of the cognitive rationality of revealed knowledge, albeit, in this case, very pragmatically with wealth generating reasons.

Islamic Banking and Finance: Negotiating through Postcolonial Perspectives
Harun Sencal, Durham University Business School, Durham University

This paper explores the foundation and development of Islamic banking and finance (IBF) as a colonial process by locating prototype of IBF as a hybrid institution established as a combination of investment bank institution of Western finance system and Islamic principles as a result of a negotiation process. This colonial process has not ceased by the establishment of a hybrid institution in colonised world. On the contrary, ongoing relationship between colonised and coloniser led to alterations in both. Due to the mimicry of IBF institutions to conventional financial institutions led to a convergence towards colonial power which turned into a ‘menace’ for the conventional finance institutions due to fear of customer loss. This menace, in return, led conventional finance institutions to a new state in which they mimic IBF. Hence, this mimicking entailed another hybrid structure: a banking institution which is established in a modern framework and shaped by positivist ontology, and at the same time, through a window acts according to Islamic law and is bound by Shari’ah scholars’ rulings instead of “reason” to meet the requirements of Islamic finance institutions. This study, hence, argues that development of modern IBF institutions can be divided into three stages: (i) first stage starts with “civilisatory mission” of the West to bring the power of reason to the rest of the World and extends to the internationalisation of IBF institutions; (ii) secondly, convergence of IBF institutions towards conventional banking and finance institutions due to competition on the global scale; (iii) lastly, convergence of conventional banking towards IBF through copying IBF structure and its instruments and adopting them into its modern framework in order to attain customers of IBF and to keep its existing ones.

Islamic Finance Between Intentionalism and Consequentialism: Critical Perspectives on the Normative Operational Construct of Islamic Finance
Tareq Moqbel, School of Law, University of Westminster

Islamic banking and finance (IBF) is a product of social constructivism through Islamic legal or Shari’ah forms. As regards to Islamic ontology and epistemology, Shariah scholars in the post-ijtihadi closure period, adopted intentionalism as part of the usul methodology. This is particularly an issue in the modern times with the emergence of Islamic finance; as the Shariah scholars focus on the ‘form’ or the ‘procedural’/‘instrumental’ nature of morality through a rational-legalistic methodology. This implies that ‘substance’ related morality is ignored in the Islamic financing and financial transactions and therefore, the current debate has been around ‘form’ vs. ‘substance’ or ‘Shariah complicancy’ vs. ‘Islam-based financing’, respectively, referring to the ‘intentionalism’ and ‘consequentialism’ nature of the debate. This paper, therefore, aims at exploring Islamic finance from the perspective of the theory of moral philosophy. This is achieved at two levels. First, a theoretical analysis is conducted to explore this debate in light of the key Islamic sources. Second, an empirical examination is conducted on a number of contracts in order to examine the contemporary practice of Islamic finance. Based on the critical and empirical research developed by this study, this paper argues that the Islamic economic normative theory is a two-dimensional framework that reconciles between the philosophical tenets of intentionalism and consequentialism leading to complementarity as suggested by the ‘tawhid’ framework of Islamic ontological meaning. Consequently, the reductionist fiqhi approach in this sense of essentialising intentionalism but negating consequentialism does not fulfill the genuine Shari’ah requirements in the making of IBF. In addition, the empirical results verify that IFI’s in the main adopt a deontological, intentionalist methodology, which is the position of Shari’ah scholars.

Causation of Shari’ah Governance: The Relationship between the Phenomena Detected in the Discourse on Institution of Hisbah and the Phenomena Identified in Discourse on Islamic Finance Industry.
Fawad Khaleel, School of Government and International Affairs, Durham University

This research examines the historicity of the institution of hisbah, by primarily focusing on the structural ramification, operational barriers and complications in the mechanisms of institution of hisbah. It highlights the ‘vague jurisdictional limitations’, ‘dynamics of the post of Muhtasib’ and ‘gaps between theory and practice’ as leading effects that were experienced in continuous series throughout the history of this institution. This research then attempts to relate the barriers and complications experienced in operating institution of hisbah with the Shari’ah governance of Islamic Finance Industry, as it explores the resembling effects in Islamic Finance Industry, which correspond to the aforementioned effects. The study subsequently concludes by suggesting that the causes behind these effects are inherent in and intrinsic to the developed methodology of Shari’ah governance. This paper is relevant to the larger discourse that emphasises: the need for rethinking the paradigm of Shari’ah governance, or the demand for development of new models of reasoning and knowledge based on ‘natural reason’. The historical experience of hisbah accentuated in this research, may also be used in an argument to support the case for nominalist approach towards the developed methodology of Shari’ah governance of market, in contrary to approaching it as a separate mode of reasoning governed by realist discourse based on revelation.

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