American Ethnologist

Economy in practice: Islamic finance and the problem of market reason



Proponents of Islamic finance are working to make Kuala Lumpur the “New York of the Muslim World”: the central node in a global Islamic alternative to the conventional financial system. Amidst this ambitious project, I document how Islamic finance experts represent economic rationality as an object of reflection and I examine their responses to the economism intrinsic to market reason. Islamic finance is not wholly opposed to economic rationality, but the market calculations endemic to what experts term “conventional finance” serve as an unavoidable point of reference, comparison, and differentiation. I refer to reflection on economic rationality as “economy in practice,” a conceptualization that seeks to illuminate the various techniques through which humans are made economic subjects.

In early 2010, in Malaysia's capital, Kuala Lumpur, I encountered several variations of a story that illustrated the obstacles faced by those working to make Islamic finance into a viable competitor with its conventional counterpart. The account circulated broadly among industry proponents and practitioners, most of whom were employees of large commercial institutions, and was generally narrated in tones of mild exasperation. I heard it recounted in both private conversations and in public presentations, such as a well-attended forum on Islamic finance held at Malaysia's Securities Commission.1 Although I heard multiple versions of the story, it always involved a discussion of investment opportunities between a Malaysian-based broker of Islamic bonds, or sukuk, and a wealthy prospective client from the Middle East. In each rendition, the client was from one of the oil-rich states of the Gulf Cooperation Council. In one case, he was a Saudi national, but I also heard variations in which he was from the United Arab Emirates or Kuwait.2 In all variations the client expressed interest in purchasing sukuk as an investment and had phoned the Islamic financier to ascertain the scale of returns that would be earned by purchasing Islamic bonds through his firm. The financier reported that his firm could sell the prospective customer a bond that would offer a return in the neighborhood of 6 percent. Ready to negotiate, the client responded that he could make an 8-percent annual return on a “conventional” bond providing comparable security in the non-Islamic market. Apologizing, the broker responded that he was unable to match the income from bonds that originated on Wall Street or in London's financial district, the City. Ending the conversation abruptly, the Middle Eastern investor thanked the broker for his assistance, signaling that he would eschew the Islamic system and instead invest his capital in more-lucrative conventional bonds.

This often-circulating account illustrates the obstacles faced by Islamic finance experts and the frustrations expressed by proponents and practitioners in developing a viable alternative to what they refer to as “conventional finance.”3 Islamic finance refers to the provision of capital commensurate with directives for economic action found in Islam's central texts, the Qur'an and hadiths. In the simplest terms, Islamic finance refers to economic transactions that involve either partnerships or trade (sales) but avoid interest-bearing loans.4 Furthermore, Islamic finance eschews speculative commerce, and practitioners assert that it is more closely tied to what they call the “real” economy, in contrast to conventional finance, which involves making money out of money. For example, one banker told me that of the $33 trillion raised on U.S. capital markets, only 0.8 percent was invested in “real jobs, railroads, infrastructure, hospitals … in investments backed by real assets.” The remaining 99 percent, he said, is just “vaporware … it goes into the back pocket of Wall Street!” However, the definition of Islamic finance is subject to some contestation. As I describe below, differently positioned experts seek to open up the definition to include things such as risk-sharing, equity-based rather than debt-based instruments, and concerns for social justice.

The account I opened with further demonstrates how Islamic finance is always already defined in opposition to conventional finance and how market reason often frames the outlook and actions of Islamic finance professionals as they seek to make Islamic finance an alternative means for the provision of capital. In this respect, it is significant to note that in none of the renditions I encountered of the above story did the Islamic financier emphasize that using the Islamic instrument would better enable the investor to get to heaven, according to the moral prescriptions put forward in the Qur'an and the hadiths.5 The implication was that, when confronted with the choice of reaping economic benefit or obeying religious imperatives, worldly concerns would supersede otherworldly obligations, even among those Muslims who aspired to religious piety.

I argue that the imperative of economic rationalization that undergirds conventional finance is a persistent object of reflection by Islamic finance practitioners. This argument draws on four separate stints of fieldwork I carried out in Malaysia between 2010 and 2013, ranging from one to four months in duration, as well as attendance at conferences in Qatar, the United States, Singapore, and Malaysia during the same time period, where I observed (and, at times, participated in) discussions and debates regarding the aspirations and challenges of Islamic finance. Fieldwork in Malaysia included observing public events at which problems in Islamic finance were deliberated and participating in courses on shariah (Islamic law) and fiqh (Islamic jurisprudence) at the International Center for Education in Islamic Finance (INCEIF, a graduate school established by Malaysia's Central Bank and intended to be the world's preeminent institution for education in Islamic finance). I also interviewed key experts, including government officials, Islamic scholars, journalists, Islamic banking professionals, other financial practitioners, and students.

Here I illustrate two key questions faced by Islamic finance experts as they seek to scale up Islamic finance from a disconnected set of systems based in individual nation-states to a globally integrated system with transnationally accepted contracts and instruments. First, according to experts, does Islamic finance offer a distinct alternative to “conventional finance,” which is grounded in neoclassical market reason? Second, how do experts seek to distinguish Islamic finance from its conventional counterpart? The public appeal and credibility of Islamic finance is in part dependent on the ability of its proponents to present it as a viable alternative to conventional finance. As one self-identified Islamic economist said to me, Islamic finance runs the risk of “becoming like a parasite that will eventually start looking just like its host.” Yet differentiating conventional finance from its Islamic counterpart is exceedingly difficult and, as Bill Maurer (2005) and others have shown, the two are, in many respects, deeply entwined (see El-Gamal 2006; Kuran 2004).

In this article, I document how economic rationality is posed as a problem by proponents and practitioners of Islamic finance.6 I refer to such reflection, intervention, and action on economic rationality under the rubric of “economy in practice.” In short, “economy in practice” refers to the problematization of economism.7 In developing this approach, I show that the often-presumed universality of economic rationality is not an abstract theoretical or academic question or evident only in discourse but is, in fact, reflected in the actions and interventions of Islamic finance experts. In so doing, I build on ethnographic research in the human sciences on finance and institutions that has revealed how economic rationality is made part of human practice.

By economic rationalization, I refer to the application of market calculations to institutions and actions on the basis of considerations of profit and loss and cost–benefit analysis (Foucault 2008; Weber 2001). Characteristic of economic rationalization is what Foucault referred to as the generalization of the enterprise form, which entailed “extending the economic model of supply and demand and of investment-costs-profit so as to make it a model of social relations and of existence itself, a form of relationship of the individual to himself, time, those around him, the group, and the family” (2008:242). As a number of analysts have observed, a central characteristic of neoliberalism is the imperative toward extending this economic logic into domains previously not represented entirely in economic terms (Ong 2006; Rose 1999).8 For example, Karen Ho (2009) has shown how an imperative toward economic rationalization is characteristic of Wall Street investment bankers, who use “shareholder value” as a tool through which to increase the efficiency of U.S. corporations. Empirically, I document some of the ways in which Islamic finance experts reckon with the imperative toward economic rationalization that is emblematic of “conventional finance” and that characterizes the actions of firms like those studied by Ho. By highlighting how economic rationality is a recurrent object of reflection among Islamic bankers, I do not mean to suggest that Islamic finance is somehow irrational. As Donald Donham (1990:25) and, before him, Max Weber (2001:xxxviii–xxxix) have argued, human activity can be rationalized according to different ends. Instead, I seek to draw attention to how economic rationality is implemented in practice and demonstrate how differently positioned Islamic finance experts see Islamic finance as either a means of furthering the extension of the market or providing an alternative to it. Thus, I show how some experts represent Islamic finance within the frame of economism, others see it as opposed to this frame, and still others see it as itself a frame for market reason.

Reflexivities: Disciplinary effects and market reason

Two features distinguish an approach to economy in practice. First, it entails empirical attention to how research subjects themselves conceive of and act on economic rationality and representations of it. Thus, it seeks to understand how actors conceive of economic rationality as an object of comparison, analysis, and intervention. Second, such an approach is attentive to, building on Timothy Mitchell's (1999) notion of the “state effect,” what I refer to as “disciplinary effects,” how, for some social scientific disciplines, there is a powerful reflexive relationship between the production of knowledge and the world that that knowledge represents and diagnoses. This is especially true for economics, which is often involved not just in describing economies as stable entities but in intervening in them and, in so doing, transforming social life and the everyday affairs of human beings. As Mitchell (2005) has astutely observed, there is a recursive relationship between a knowledge formation such as economics and the empirical phenomena that it sets about analyzing. The concept of “disciplinary effects” is useful in understanding how the assumptions that undergird neoclassical economics, such as rational maximization, self-interest, and market reason, are reflexively imparted into human practice through the tools and technologies of economics.

Approaching economy in practice builds on the pioneering work of Jean Lave (1988), who showed how cognitive processes such as arithmetic are not only mental but also embodied and socially organized. Lave showed how actors who could not perform computations in a laboratory or classroom setting were actually capable of completing complex calculations in everyday contexts, such as determining the prices of goods in commercial settings. I also draw on recent contributions of scholars in the social studies of finance who have analyzed the production of knowledge in the disciplines of economics and finance (Callon 1998; MacKenzie and Millo 2003; MacKenzie et al. 2008). A key intervention has been to show that economics and finance do not simply describe an already-existing economic reality but, rather, are instrumental in constituting that reality (see also Carrier and Miller 1998).9 Thus, these disciplines can be treated in ways analogous to those that science studies scholars have developed for analyzing natural sciences (Haraway 1989; Latour 1987). An approach to economy in practice also builds on recent work by Michel Callon and Koray Çalışkan, who have developed an analytics of “economization,” which they define as “the assembly and qualification of actions, devices and analytical/practical descriptions as ‘economic' by social scientists and market actors” (2009:369). Economization entails designating certain dimensions of human practice as economic and then describing and analyzing them as such.

In approaching economy in practice, I build on Çalışkan and Callon's observations by documenting how practitioners and proponents of Islamic finance pose the imperative toward economic rationalization as a problem in their efforts to create an alternative to conventional finance. In so doing, I draw on recent ethnographic work on finance and institutions that identifies economic rationality as an object of reflection and intervention. The anthropology of finance has revealed the practices inside some of the central sites that constitute the contemporary economy, including central banks (Holmes 2009; Riles 2011), brokerage firms (Miyazaki 2013), exchanges (Hertz 1998; Knorr Cetina and Bruegger 2002; Zaloom 2006), and investment houses (Abolafia 2001; Fisher 2012; Ho 2009). This work has affinities with ethnography that has focused on the way economic rationality shapes organizational action in a diverse array of institutional sites, including various branches of state administrations (Karpiak 2010; Silvey 2007), religious networks (Froystad 2009; Muehlebach 2011; O'Neill 2010; Soares 2005), NGOs (Elyachar 2005; Molé 2008; Richard 2009), development projects (Li 2007; Osella and Osella 2009), and international bodies tasked with managing the global economy (Deeb and Marcus 2011).

Economy in practice is visible in projects to introduce market reason into sites in which the operation of economic calculation is obstructed. For example, Anke Schwittay (2011) has provocatively described how the marketization of poverty entails the introduction of economic rationality to its solution. Those seeking to enhance the ability of the poor to use technology to access markets see all human beings as “always-already entrepreneurs” (Schwittay 2011:75). Thus, they accept a certain model of human nature in which entrepreneurial characteristics are endemic to human beings, who only need technology to overcome the social and political obstacles that inhibit them from maximizing their entrepreneurial potential. The assumption that guides this intervention is that the poor, given the proper access, can be made into calculative agents guided by market reason.

Hirokazu Miyazaki (2003) provides a further example of economy in practice by demonstrating how Japanese securities enact market reason through arbitrage. Arbitrage trading is a technique of market rationalization insofar as it exploits differences in the price of a particular asset in two different markets. For Miyazaki's interlocutors, trading is integrated into the very fabric of their lives as securities traders, as they find their raison d'être in extending market reason into domains not structured by its calculus. A central protagonist in Miyazaki's account, Tada, proposes various domains in which to extend market reason, for example, purchasing a money-losing religion, restructuring it to operate better, and thus turning it into a financially viable enterprise (Miyazaki 2003:261). Tada also observes that golf club memberships are overvalued in Japan and proposes buying poorly managed golf courses, improving their management, and selling memberships to the public at large instead of just to a select group (Miyazaki 2003:261). In these examples, economic rationality is not an abstract model of how the world works. Rather, traders such as Tada seek to implement it in practice to reform institutions and individuals that do not conform to its logic by subjecting them to market reason.

An approach to economy in practice draws on a broader body of work that has identified reflexivity as a central characteristic of modernity (Beck 1992; Luhmann 1998). Reflexivity is a key criterion of economic rationalization, as efficiency, accuracy, and productivity are achieved through the application of knowledge to an object. Drawing on prior ethnographic engagement with reflexivity (Holmes and Marcus 2005), I examine economism not as an abstract or theoretical object but, rather, as an object of practical reflection and intervention (de Certeau 1984; Ortner 1984). In this article, I focus on how the imperative toward market reason characteristic of conventional finance was an unavoidable object of representation, reflection, and action among experts in Islamic finance.

Malaysia and the globalization of Islamic finance

Today, Islamic finance is a massive global industry. Since Maurer (2005) conducted research on Islamic finance a decade ago, the industry has grown exponentially, to the extent that there are more than 600 Islamic financial institutions operating in more than 75 countries (Gulf Daily News 2011). The Southeast Asian nation of Malaysia is one of the world's key sites for comprehending the acceleration of Islamic finance. The Malaysian state is seeking to forge an integrated Islamic alternative to the conventional financial system that is centered in the financial capitals of North America, Europe, and East Asia (Sassen 1991). In competition with certain sites in the Arabian Gulf, especially Bahrain and, more recently, Dubai, Malaysian proponents of Islamic finance seek to make their country's capital of Kuala Lumpur into what one industry practitioner referred to as the “New York of the Muslim world.” This would entail transforming it into a central node in a globally integrated system of Islamic finance. This project is the outcome of 30 years of state efforts to promote Islamic finance as an economic and political strategy.10

Ambitious plans to make Malaysia a global hub of Islamic finance were palpable at the time of my research not only in government planning documents, such as the state's Ninth Malaysia Plan (Kassim et al. 2009:16), but also in Kuala Lumpur's booming cityscape. Amidst the construction cranes and new infrastructure projects, advertisements by Islamic banks, offering everything from credit cards to wealth management services, lined many key boulevards and highways. On Bangsar Street, adjacent to the headquarters of its rival, Maybank Islamic, Bank Islam, Malaysia's original Islamic bank, promoted a platinum credit card that is “accepted worldwide” and provides “free takaful [insurance] coverage, low fees, and no compounding finance charges” (see Figure 1). Logos for Islamic financial services firms, such as Bank Islam and Etiqa, crowned buildings near Petronas Towers, the world's tallest twin office buildings, soaring above the verdant public park in Kuala Lumpur City Centre. Inside KL Sentral, Kuala Lumpur's massive train station, eye-catching advertisements for Al-Rajhi Bank, a Saudi firm that bills itself as the world's largest Islamic bank, encouraged potential customers to “Get There Fast” with “Al Rajhi Personal Financing.” On the other side of the station, the mainly Qatari-held Asian Finance Bank boldly proclaimed that it is “moving the world to Islamic banking” (see Figure 2). During prime shopping hours, customers queued at the numerous ATMs owned by one of the over 20 Islamic banks operating in the country (see Figure 3). Inside the cars of Kuala Lumpur's fully automated, driverless light rail system, Bank Rakyat billed itself as “100% pure Islamic banking” to differentiate itself from other banks, such as CIMB, Malaysia's third largest Islamic bank.11 On the streets outside, promotions for Islamic mortgages, depicting scenes of domestic idyll with laughing children and smiling mothers piously attired in brightly colored headscarves, tempted onlookers with various kinds of home financing contracts that substitute sale and deferred payment contracts for contracts based on the payment of interest (see below). Downtown, the state is planning the Kuala Lumpur International Financial District, intended to compete with Singapore as a global financial center for Southeast Asia but with a special focus on assembling a critical mass of Islamic financial institutions.

Figure 1.

An advertisement for a Bank Islam credit card on Bangsar Street, Kuala Lumpur, April 2010. Photo by Daromir Rudnyckyj.

Figure 2.

An advertisement for the mainly Qatari-held Asian Finance Bank, Kuala Lumpur, April 2010. Photo by Daromir Rudnyckyj.

Figure 3.

A queue at the Al Rajhi Islamic Bank ATM in KL Sentral train station, Kuala Lumpur, April 2010. Photo by Daromir Rudnyckyj.

Malaysia is one of Asia's “tiger economies,” and its ambitious efforts to create an Islamic Wall Street build on decades of efforts to cultivate Islamic financial institutions and services in the country (Warde 2010:128–130). At the time of the 1979 Iranian revolution and the substantial transformations in religious subjectivity across the Islamic world that it inspired (Esposito 1998:218), Malaysia was one of four countries that sought to reorganize national banking practices on the basis of prescriptions regarding economic action drawn from the Qur'an and the hadiths. Pakistan, Iran, and Sudan, the other three, sought full-scale “Islamicization” of their financial systems between 1979 and the early 1980s (Warde 2010:114–125). In contrast, Malaysia adopted a much more measured “dual banking system model,” a less aggressive arrangement in which new Islamic banks would operate alongside the conventional banking infrastructure that the country inherited from the British.

Malaysia's recent efforts to become the central node in an emerging transnational Islamic financial system build on a legacy of state efforts to create a mode of Islamic practice commensurable with modernization (Bunnell 2004; Ong 1987). Scholars have noted how, as part of its commitment to development, the Malaysian state sought to mobilize Islam to create a population conducive to economic growth (Fischer 2008; Ong 1999; Peletz 2002; Sloane 1999). Today, as Johan Fischer has observed, many Malaysians have conformed to the state's program to create an “urban, educated, entrepreneurial and shareholding Malay middle class” (2008:33), known as “new Malays” (Melayu baru; see Ong 2006:35). This population was fostered through the introduction of affirmative action policies that provided those classified as ethnic Malays with privileged access to resources offered by the state, such as civil service positions, business licenses, and government contracts, as well as to secondary education (Crouch 1996). These policies have created what Aihwa Ong has called “the world's first affirmative action system tied exclusively to ethnicity” (1999:284 n. 83). The state has sought to represent new Malays as “self-disciplined, able, and wealth accumulating” and emphasized that wealth and prestige are fully commensurable with Islamic piety. Ethnic Malays, who are predominantly Muslim, are encouraged to study commercial and technical fields in Western universities and are trained to work with ethnic Chinese and foreign businesses (Ong 1999:204). As Fischer (2008, 2011) has described, the state's brand of Islamic developmentalism has led to a feeling of compulsion among new Malays to demonstrate their Islamic piety. The state's efforts to create a national system of Islamic banking are a further manifestation of efforts to create a modern Muslim Malay middle class.12

The recent project of positioning Malaysia as the central node in a transnational Islamic financial network entails scaling up earlier state efforts to deploy a version of moderate Islam conducive to capitalism. Given Malaysia's shared Islamic tradition with much of the Middle East and its simultaneous proximity to the world's fastest-growing export economies in Southeast and East Asia, including China, Indonesia, and Vietnam, state planners seek to take advantage of the country's geographic and cultural position to become the key broker for flows of Islamic capital between these two regions as global economic gravity shifts eastward.

The state has taken several important steps to make Malaysia the global Islamic financial hub (Laldin 2008; Sy 2007). This has involved creating some of the key infrastructure for Islamic finance globally, including the establishment of the headquarters of the Islamic Financial Services Board, which develops global standards for Islamic finance by issuing guidelines for capital reserve requirements and other aspects of Islamic banking, capital markets, and insurance (Warde 2010:130). The Central Bank and Securities Commission have also sought to make Malaysia the main site for the issuance of sukuk, or Islamic bonds. These securities rival the size of conventional bonds, with the capital involved often totaling in the hundreds of millions of dollars (Maurer 2010:36–38). Today two-thirds of sukuk issued globally are denominated in Malaysian ringgit. Malaysia's Central Bank has played a leading role in developing the nation's Islamic finance infrastructure and embarked on a $200 million initiative to address what has been termed a “knowledge gap” in Islamic finance. Thus, the state has sought to develop professional training for people from around the world to administer an Islamic financial system by establishing what are arguably the world's premier educational and research institutions dedicated exclusively to Islamic finance, INCEIF and the International Shariah Research Academy. Furthermore, the state has sought to spur growth and innovation by opening its borders to competition from Islamic financial institutions based in the Persian Gulf region. These include Kuwait Finance House, the Saudi-based Al Rajhi, and the mostly Qatari-held Asian Finance Bank.

Contesting Islamic economic action

In its most elementary definition, Islamic finance refers to the management of money and the provision of capital in a manner that complies with Islamic prescriptions on commercial action. However, there is a lack of uniform consensus as to what counts as compliance and exactly what qualifies as permissible economic action (Maurer 2005:24–42; Warde 2010:2). In this section, I draw on verbal statements and writings of Islamic finance practitioners to demonstrate how Malaysian experts define Islamic finance and to illustrate how economic rationality is an object in relation to which experts often define Islamic economic action.

Experts and others most often refer to the Qur'anic prohibition (2:275) against the payment of interest, or, in Arabic, riba, as the central difference between Islamic and conventional finance. Although, historically, there have been attempts to parse the meaning of riba by defining it as usury or excessive interest,13 the broad consensus among most practitioners across the Muslim world today is that any money that is created out of money, without a sale or an improvement through labor, is contrary to the revealed word of Allah contained in the Qur'an (Warde 2010:45–47). In fact, according to most Islamic finance experts, accepting interest is among the most serious sins revealed in the Qur'an and described in the hadiths. As one former conventional banker in Malaysia (who had, by his own description, “converted” to Islamic banking) noted, there is clear direction in the hadiths regarding the magnitude of the sin of collecting interest. With a wry smile, he told me, “The Prophet Muhammad stated that collecting interest is a sin worse than committing adultery 36 times.” I heard this calculation several times from other Islamic finance experts in defining the existential predicament confronting those who desire to engage in commerce and simultaneously live according to the prescriptions set forth in key Islamic texts. Thus, irrespective of whether interest is the most efficient means of providing capital, Islamic finance professionals seek to avoid it.

In explaining the moral imperative to avoid riba, Islamic scholars trained in the traditional disciplines of shariah and fiqh explain the prohibition on interest by arguing that Islam endorses economic action grounded in “real,” rather than speculative, exchanges (Abdul Ghafar 2010). Thus, the morality of economic activity is dependent on whether it involves the production or exchange of concrete assets or services.14 I conducted research for this article in the wake of the global financial crisis that started in 2007, and many Islamic finance experts attributed the better performance during the crisis of Islamic financial institutions compared to their conventional counterparts to the fact that they did not partake in speculative investments such as credit default swaps and collateralized debt obligations.

The pejorative connotations attributed to economic activity divorced from material conditions extends at least as far back as Aristotle's ruminations on the matter. Aristotle argued that “money was intended as a means of exchange, interest represents an increase in money itself. We speak of it as a yield, as a crop or a litter; for each animal produces its like, and interest is money produced out of money. Hence of all ways of getting wealth this is the most contrary to nature” (Taussig 1980:130). Thus, moral injunctions that see the collection of interest as contrary to the natural order have an extensive history in what Richard Bulliet (2006) has called “Islamo-Christian civilization” (see also Nelson 1949). Indeed, Aristotle's work was extremely influential in the development of Islam, especially in connection to reflections on the cultivation of ethical dispositions (Mahmood 2005:137–138). Michael Taussig (1980) has represented the aversion to interest expressed in Aristotle's work as a moral principle for precapitalist societies in general and has shown how the ability of money to create more money is associated with evil, specifically in folklore regarding the devil in Bolivia and Colombia.

Restrictions on interest and proclamations that Islam is averse to speculation (maysir) and that it, instead, endorses exchanges grounded in real production are often invoked to delimit Islamic finance. Experts have denoted other practices as constitutive of Islamic finance as well. These include promoting investments that “share risk” rather than transfer it, avoiding uncertainty in financial transactions, and facilitating ethical investments that enhance social integration (Tripp 2006:108; Warde 2010:7–8). Thus, those seeking to reform Islamic finance emphasize that, rather than contracts in conventional finance that are premised on what they call “risk transfer,” they prefer agreements that entail distributing risk between contracting parties. Thus, according to reformers, partnership contracts, such as musharakah and mudarabah, which date to the time of the Prophet and are frequently mentioned in classical juristic texts, are most desirable (Udovitch 1970:170–248). These contracts involve profit-and-loss-sharing agreements, as I describe further below.

Some of the most creative efforts in contemporary Islamic finance have been to redesign modern institutions to achieve partnership and risk-sharing. For example, in late January 2010, in a well-appointed lecture hall deep in the recesses of Malaysia's staid, concrete Central Bank complex, Dr. Abbas Mirakhor, a former director at the IMF and one of the world's leading authorities on Islamic finance and economics, presented a bold proposal. With many of the country's key Islamic bankers and regulators in attendance, including Governor Dr. Zeti Akhtar Aziz, the bank's highest official, Dr. Mirakhor argued that the financial crises that began in 2008 were a harbinger of unprecedented changes in the global financial landscape and that the future would present tremendous opportunities for Islamic finance to emerge as a viable alternative to conventional finance.

In an address titled “Paradigm Change in Shaping the Future of Islamic Finance,” Dr. Mirakhor described a plan to facilitate the provision of capital on the basis of risk-sharing and equity investment rather than interest-bearing debt. He said, “After 30 years of development,” the next step in the “necessary evolution of Islamic finance” was the establishment of a stock market specifically dedicated to the provision of long-term investments in economic activity compliant with shariah norms. Dr. Mirakhor argued that such a market was advantageous because of the low levels of stock-market participation in majority-Muslim nations in Southeast Asia. He noted that “Malaysia and Indonesia have the lowest risk-sharing parameters in Southeast Asia, but risk-sharing is necessary to make Malaysia a hub [of Islamic finance].” He argued that risk-sharing that enables “economic growth and poverty reduction” is a central tenet of Islamic economic action and that “the best instrument for risk-sharing is a stock market.” He said that a stock market operates under a “partnership” model, in which investors receive a variable portion of the profits of a firm, dependent on performance, in the form of dividends, in contrast to a bond market, in which investors receive a fixed rate of interest on their investments. Thus, a stock market enables collective interests and partnership, unlike conventional financing, which promotes individual self-interest by endorsing sovereign subjects, each of whom bears risk individually.

Another characteristic of Islamic finance often invoked by Islamic finance experts is avoidance of uncertainty (gharar) in contracts. The insistence that all contracts be transparent in their initial iteration was made evident to me in courses I took in 2010 on shariah law at INCEIF, then housed in an office complex in the heart of Kuala Lumpur's financial district not far from Malaysia's Central Bank.15 In one meeting at the beginning of the semester, the professor, Dr. Sharif,16 gave an overview of some of the major contracts used in financial transactions permitted by Islam, including bai salam (a forward sale contract), istisna'a (a manufacturing contract), and ijara (a leasing contract).

In describing the terms and correct execution of each contract, he took great pains to emphasize that all aspects of the agreement must be unambiguous. For example, istisna'a is a contract used in exchanging a commodity before it comes into existence, as when a yet-to-be-fabricated machine is sold to a buyer for future delivery, and entails “an agreement to pay a definite wage or price for the article.” Dr. Sharif explained that an istisna'a transaction is permissible because, although the good does not yet exist, the manufacturer possesses the necessary skills and tools required for its production. Dr. Sharif focused sharply on the precision with which the contract must be explicated, insisting that there be a “definite wage or price,” that the good be “well defined,” and that the characteristics of the good be “clearly stated” in advance of its production. At first, the emphasis on complete transparency appeared to me to be redundant, but when I asked Dr. Sharif during the break in the three-hour lecture why he focused on this feature, he told me that the reason was to avoid “any appearance of uncertainty,” because uncertainty had the potential to lead to disputes, acrimony, and ill will. He explained that this aim was consistent with the balance Islam sought between the interests of individuals and the community. He claimed that these aims were not followed in Malaysia's Islamic banks and would regularly shout at our class in exasperated tones, “Just look at what they are doing!” when addressing their practices. He claimed that the banks interpreted injunctions to avoid uncertainty as a rationale to protect their own profits but did not take into consideration the “bigger message” behind those injunctions. For Dr. Sharif, the “bigger message” was attention to the social teachings of Islam, which were principles of equality and justice that he saw as incompatible with the imperative toward increased profits.

Those seeking to reform Islamic finance, like Dr. Sharif, argue that another constitutive feature of Islamic finance is enhancing social well-being and avoiding objects that are not commensurate with expressions of Islamic piety. The ethical dimension of Islamic finance has led some to compare it to socially responsible investing (Pitluck 2008). Several experts reported that Islamic finance required avoiding investment in objects or activities explicitly prohibited in the Qur'an, such as pork, alcohol, and gambling. More restrictive versions discourage investment not only in activities explicitly prohibited but also in any sectors that are contrary to a broad interpretation of Islamic morality. This includes investment in companies that make weapons, entertainment with sexual content, or financial activities that involve the payment or collection of interest. Maurer (2005:105–108) has described the screening technologies that have been developed to facilitate Islamic-compliant investment, most prominently, the Dow Jones Islamic Market Index. Malaysia's Securities Commission has its own shariah screening methodology, which is subject to periodic revision by the commission's Shariah Advisory Council.17 These ethical concerns further demonstrate how experts position Islamic finance with regard to the imperative toward economic rationality characteristic of conventional finance.

Debating intention and interest: Economy as a practical problem

Economic rationality presents a recurrent object of reflection and intervention for Islamic finance experts, and they have carved out a range of positions vis-à-vis the imperative to market reason. As Malaysia has sought to become the central global node in Islamic finance, obstacles have emerged among schools of Islamic jurisprudence (fiqh) as to what constitutes acceptable economic action. Indeed, the plurality of shariah interpretations has proved to be a chief obstacle in the global integration of Islamic finance (Siddiqui 2010). Differences in the interpretative traditions of various fiqh schools are exacerbated as increasing global integration has led to more frequent and intensive interaction between Muslims of different regions and fiqh traditions. For example, two key fiqh schools have come to different conclusions regarding the permissibility of certain instruments developed by Islamic banks (Rosly 2005:239–241). The Shafi'i tradition, the predominant fiqh school in Southeast Asia, has typically emphasized form over content and avoided legal decisions that ascribe intent to actors, asserting that only Allah can discern individual intentions. In contrast, fuqaha (fiqh scholars) from the Maliki and Hanbali schools, who define correct religious practice in the Middle East and North Africa, generally emphasize content over form and hold that intentions can be deduced from actions. In practice, this divergence in interpretation has led to a situation in which certain financial and banking instruments permitted by scholars in Southeast Asia have been explicitly prohibited by scholars in the Middle East. These differences have led to somewhat surprising interventions, such as cases in which bankers have weighed in on matters of religious scholarship. For example, Badlisyah Abdulghani, the CEO of CIMB Islamic (Malaysia's largest Islamic bank), has been particularly vocal, stating that while other fiqh traditions emphasize form over content, only some schools “advocate for ‘the substance over form' outlook, putting emphasis on the intention of both parties” (2009:14).

One particularly controversial contract about which scholars from different fiqh schools have come to differing opinions on the basis of the relative differentiation between form and content is bai al-inah, a sale-and-buyback contract. It entails the sale of an asset, such as palm oil or machinery, on a payment-deferred basis by the financial institution to a customer in need of capital. The customer immediately resells the asset back to the bank for a discounted price. This contract entails two linked sales but, in practice, essentially replicates an interest-bearing loan, because the customer obtains cash immediately and then repays it to the financial institution over time, with a markup. Islamic scholars from the Shafi'i school have deemed the transaction permissible (halal) because it involves a formal sale and the seller takes actual possession of the commodity or asset, “even if only for one minute.” Because “on paper” there is a sale, the form of the contract meets Malaysian shariah requirements. However, scholars from others fiqh schools have rejected bai al-inah contracts, arguing that, although the form of the contract appears permissible, its content demonstrates an unmistakable intention to replicate interest. Some have thus labeled it hiyal, or a “trick.” Critics and reformers often point out that, in practice, the markup on the repayment closely mirrors the prevailing interest rates set by LIBOR, the London Interbank Offered Rate. This is a daily reference rate based on the interest rates at which banks extend loans to other banks and is similar to the federal funds rate in the United States. In 2012, when the British bank Barclay's was fined more than $400 million for manipulating LIBOR rates to increase profits, many in the Islamic finance community saw this as just the latest piece of evidence of the immorality inherent of finance based on riba and governed by the imperative toward maximization at all costs.18

Some Islamic scholars and Islamic economists argue that, although bai al-inah financing conforms to the letter of Islamic law, it subverts its spirit. Dr. Sharif told me that bai al-inah financing is merely a “back door to collecting interest.” He scoffed at the notion that Islamic scholars had designated contracts like bai al-inah permissible because of their formal properties. Dr. Mustafa, an Islamic economist, told me that the proliferation of “debt-based” instruments such as bai al-inah, murabaha,19 and sukuk were indicative of a larger crisis in Islamic finance. He said, “If there weren't significant changes to Islamic finance it would become a bastard of the conventional system.” He felt that this problem was inherent in globalization, which elicited “convergence” among competing alternatives.

In expressing such anxieties, Dr. Mustafa alluded to critics who have asserted that Islamic finance is an elaborate rent-seeking technique in which banks and other financial institutions exploit Islam to manipulate naive consumers (El-Gamal 2007; Kuran 2004). However, many Islamic finance experts recognize that the perception of Islamic finance as guided by the same imperatives toward economic rationalization as conventional finance could result in widespread disaffection. Indeed, several skeptical consumers with whom I spoke in Malaysia expressed this sentiment. In late 2012, one scholar who sat on the Shariah Advisory Council for Malaysia's Central Bank (the highest shariah authority on Islamic finance in the country, whose rulings supersede the judgments of all other Islamic finance shariah bodies) demonstrated awareness of the problem posed by the perception of insincerity in Islamic finance. He argued that the industry needed to transition to what he termed “Islamic finance 2.0.” This would entail moving away from making permissibility the guiding question for transactions. Instead, Islamic finance 2.0 would be characterized not just by avoiding riba but also by fulfilling the “intent” (maqassid) of shariah. It could do so by emphasizing equity-based (as opposed to debt-based) instruments, “risk-sharing,” and linking financial transactions to what he called the “real economy.”

Those seeking to reform Islamic finance, such as Dr. Sharif, Dr. Mirakhor, and Dr. Mustafa, lament that the overreliance on bai al-inah and other “debt-based” contracts has crowded out partnership agreements such as musharakah and mudarabah, which appear more frequently in classical juristic texts and have a much longer historical precedent (Çizakça 2011:249–274). These contracts involve profit-and-loss-sharing agreements rather than the simple provision of credit and are thus considered “equity-based” rather than debt-based because they are premised on investments in real assets. A mudarabah, for example, is an equity-based contract in which a mudarib (an entrepreneur) and a capital provider enter into a partnership. The mudarib typically possesses expertise and entrepreneurial acumen but no capital. Hence, the entrepreneur forms a partnership, along the lines of the venture capital arrangements that have served as key sources of financing for entrepreneurial endeavors in places such as Silicon Valley. Profits generated by the business venture are split between the parties according to a predetermined ratio. However, the party providing the capital bears all financial losses, while the mudarib bears only the opportunity costs associated with managing the venture.

The preference among reformers for partnership contracts, such as mudarabah, instead of debt-based contracts, illustrates how reformers are posing the imperative toward economic rationality as a problem. Partnership contracts have extensive precedent in Islamic history and are viewed as promoting risk-sharing and collective solidarity. Advocates of partnership contracts see them as supporting mutual interests rather than individual interests. In contrast, reformers argue that debt-based contracts do not promote collective relationships and thus end up replicating the economic ethics of conventional finance. These ethics are premised on individualism and the sovereign subject of capitalism rather than collective interest. Dr. Mustafa told me, “The world will have to move toward an Islamic vision of the economy, because it is based on ensuring collective interests, whereas conventional finance is based nearly exclusively on self-interest … We're going to kill each other if we keep up with the self-interest based system!” His impassioned critique challenged the liberal notion that economic rationality premised on self-interest is innately human.

The Chicago School of Islamic economics?

Economic rationality as an object of reflection was also evident among Islamic finance experts who saw Islamic economic ethics as commensurable with market rationality. I realized this in March 2010, when I sat in a stark, glass-walled conference room on the 36th floor of a modernist office tower high above Kuala Lumpur's banking district with Shafeeq Ahmad, a superstar Islamic banking executive and the CEO of one of Malaysia's leading Islamic banks. Ahmad was openly dismissive of the opinions of those like Dr. Mirakhor, Dr. Sharif, and Dr. Mustafa, who sought to reform Islamic finance by refocusing it on equity-based contracts. He told me in animated terms that the panelists who advocated risk-sharing and equity-based financing were “totally stupid.” Ahmad vehemently disagreed with the conclusion that risk-sharing and equity-based contracts are more in keeping with Islamic prescriptions for economic action. Instead, he endorsed the conclusion of Islamic scholars from the Shafi'i tradition and argued that debt-based financing is entirely compliant with shariah prescriptions for economic action, “as long as each transaction involved a sale.” Ahmad said that the debt-based contracts, such as murabaha and bai al-inah, favored by Malaysian Islamic banks were, in fact, more Islamic because equity-based contracts were more “risky.” It was, in his words, “irresponsible to gamble with money under shariah.” Thus, he offered a counterargument to the moral claims of reformers who endorsed equity-based contracts with his own appeal to moral virtue, averring that, in fact, debt-based contracts were more true to Islamic prescriptions against gambling. He likened equity-based contracts to gambling because their profits entailed more risk than the guaranteed income promised by debt-based contracts.

Ahmad represents the view of Islamic finance experts who assert that Islamic economic ethics fit within a universal frame of market reason. With a slight smile and steadfast conviction, he told me, “At the end of the day,” Islamic banking “is driven by maximum profit.” I asked him how he reconciled this perspective with that of those seeking to reform Islamic finance and who advocated for Islam's emphasis on justice, equality, and collective, rather than solely individual well-being. He responded that, although Islam seeks to strike a balance between “profit and social responsibility,” Islamic banking is a “pure business that must protect the interests of its shareholders [and therefore] seeks maximum profit.”

In contrast, Hamza, an executive at an Islamic financial services firm who later became the CEO of a foreign-held Islamic bank active in Malaysia, did not view Islamic finance as conforming to the universal principles of market rationality and profit maximization. Instead, inverting this equation and echoing the arguments made by scholars such as Mahmoud El-Gamal (2006), he saw economic rationality as a manifestation of the already-existing logic inherent in Islam. Specifically, he argued that the injunction against interest was due to Islam's endorsement of profit derived from risk taking. Whereas Ahmad interpreted the prohibition of gambling as an injunction against overly risky economic action, Hamza came to the opposite conclusion. As interest entails a guaranteed payment, it does not require the lender to take risk, and, thus, the increase is unjust. Hamza interpreted the restriction on interest as evidence that Islam was authentic to market reason and offered a dramatic rethinking of banking based on profit and risk-sharing. He referred to the federal insurance on banking deposits, a key pillar of the U.S. banking system since the Great Depression, as prima facie evidence that conventional finance had diverged from the authentic market rationality that was intrinsic to Islam. Hamza told me that instruments like deposit insurance create irresponsible behavior because they discourage customers from “doing their due diligence.” Referring primarily to the U.S. banking system, he argued that, in conventional banking, insurance guarantees deposits and, therefore, customers do not “read the financial statements” of banks. He calmly remarked that consumers “don't ensure that the bank is acting responsibly with their money.” Rather, they simply rely on the external compulsion of the state to ensure the credibility of the banks. Hamza argued that in an ideal Islamic financial system, there would be no deposit insurance, because according to Islamic economic ethics, “making profit requires taking risks.” Thus, consumers would have to spend more time monitoring the activities in which their banks were engaged. As I pondered the unpleasant prospect of actually having to read my bank's financial statements, Hamza said, “At a conventional bank you just put your money in and you get a guaranteed return. With deposit insurance you don't need to worry about the possibility of a bank's failure. But interest and deposit insurance don't exist in the Islamic system—you may profit off the investment the bank makes with your deposit. But you might lose your money as well!” He argued that deposit insurance serves as an implicit subsidy because it enables banks to pay out low interest rates on deposits and to subsequently charge low interest rates on loans. In his eyes, the actual interest rate did not really matter to a bank's balance sheet: Its profit comes from the margin between rates. According to Hamza, the deposit insurance subsidy created a “moral hazard,” creating a situation in which consumers “did not monitor” the actions of their banks because they had “faith” that the “government” was insuring the system.

Hamza claimed that “the mudarabah model of banking” that he envisioned “is the truly free market model.” Rather than seeing Islamic finance as offering an alternative to economic rationality, he saw it as more authentic to market reason than what he referred to as “conventional finance.” He argued that mudarabah more accurately “price and distribute” risk. If people were dependent on profit sharing, he reasoned, rather than guaranteed interest income from their banking deposits, they would be more diligent about researching banks and they would demand higher rates of return because of the higher risk entailed in equity-based as opposed to interest-based banking. While Hamza spoke earnestly and demonstrated a deep commitment to both Islam and neoliberalism, it struck me that he ignored the vast differences in scale and scope of activity between megabanks deemed “too big to fail” and individual consumers. After all, the 2008 financial crisis demonstrated that the U.S. government was much more inclined to bail out the likes of Citibank and AIG, who had made bad bets on mortgage-backed securities, than to rescue the individual home purchasers who took out mortgage loans in a vastly overinflated housing market.

Hamza then asserted that the neoliberal “Chicago School” of economics was, “in fact, Islamic in principle.” He sketched out a radical rethinking of conventional banking according to what he argued were the fundamental tenets of Islamic economic action. As Islam holds that profit is only legitimate if one incurs risks, the proposal he outlined would offer different risk thresholds to consumers. Banks would have two kinds of accounts: demand deposit accounts and investment accounts. Customers would choose which kind of account better suited them. Those with no appetite for risk would use the demand deposit accounts, which would have “100 percent risk weightage,” meaning that funds on deposits would be held in full by the bank. This model would entail the end of fractional reserve practices, whereby banks create fiat money. Hamza noted that under Basel II regulations, banks were “required to hold only 8 percent of their funds on deposit in liquid form.”20 In contrast, the investment accounts would be profit generating. A customer would choose what kind of risk he or she wanted and then select a corresponding account. Low-risk accounts would be based on real estate investments, and high-risk accounts would be based on financing for instruments, such as credit cards. The returns from each investment would match the risk profile, unlike the current system, which, he argued, had become distorted because of the subsidy granted through deposit insurance and “the lender of last resort” dictum, in which the state essentially underwrites firms that are designated “too big to fail.” According to this scheme, depositing money in the bank would be much more akin to investing in the stock market. Before depositing money, people would have to do the same kind of research they now do when investing in stocks. Because it forced individuals to shoulder more risk without the security of deposit insurance, Hamza argued that Islamic finance was, in fact, more faithful to market principles than “conventional finance,” at one point exclaiming, “Milton Friedman was actually a proponent of Islamic finance!” Hamza viewed Islamic economic principles as representative of authentic market reason.

While both men represent Islamic finance as fully compliant with economic rationality, Hamza and Ahmad see the relationship between Islam and market reason in opposing terms. On the one hand, Ahmad argues that Islamic finance must comply with the universal principles of profit maximization and rational calculation. Neglecting to do so would mean that an Islamic financial institution was not acting in the best interests of its shareholders, which he interprets as contrary to Islamic injunctions to honesty and fair dealing. On the other hand, Hamza views economic rationality as intrinsic to Islamic principles. Thus, according to Hamza, the ideal Islamic economy is essentially a pure market system that eliminates all inefficiencies and external supports.

Hamza and Ahmad were divided over the injunctions of reformers to emphasize either debt-based or equity-based instruments. Hamza viewed equity-based instruments as compliant with economic rationality because they eliminated the intervention of the state in the market by eliminating instruments like state-guaranteed deposit insurance and the state as the lender of last resort. He interpreted the endorsement of profit sharing by Muslim scholars and in key Islamic texts as an implicit endorsement of market rationality, arguing that equity-based contracts would elicit subjects who acted according to market principles of individual responsibility and accountability. Thus, whereas many of those seeking to reform Islamic finance favored equity-based instruments because they saw them as creating stronger mutual bonds and partnership relationships (in contrast to the individualizing effects of economic rationality), Hamza favored them for the opposite reason: because they would heighten individual accountability.

Ahmad took an opposing view, arguing that equity-based instruments were, in fact, contrary to Islamic prescriptions. Whereas the proceeds in a debt-based bai al-inah transaction are known in advance, the proceeds from equity-based instruments are variable because profits from investment in a business are unpredictable. As noted above, a key tenet of Islamic economic action, in addition to the prohibition on the payment of interest, is that all contractual terms are to be clearly defined and thus free of gharar, that is, uncertainty, risk, or excessive speculation. The Qur'anic prohibition on gambling is closely associated with that on speculation (Warde 2010:56–58). Ahmad thus argues that the variable yields from equity-based contracts are uncertain and akin to gambling and speculation. Whereas he sees an imperative for Islamic commerce to conform to the universal principles of economic rationality premised on profit maximization, Hamza inverts this equation and represents market action as a manifestation of Islamic ideals. Thus, Hamza concludes that Islamic economic action is more faithful to true market principles than the capitalism practiced in the United States, which relies on what he sees as artificial supports, such as deposit insurance.

The differences of interpretation over the relationship between Islam and economic rationality have not been lost on influential figures in the Malaysian state. The former deputy governor of the Central Bank, Dato' Muhammad Razif,21 who held Malaysia's Islamic finance portfolio at the bank until 2011, stated, “If you critically review, even in Malaysia, [Islamic finance] has been based on imitation rather than innovation … our starting point is compliance, it's not shariah-based. The bankers right now are converts; conventional bankers transformed into Islamic bankers. Of course [their] mind sets are conventional…. My suggestion [is] that banks would employ shariah scholars as bankers” (ISRA Bulletin 2009). Dato' Razif's comments show that he shares some of the unease over Islamic finance's proximity to conventional finance and a sense that the long-term viability of the Islamic system is dependent in part on that system presenting itself as a convincing alternative to its conventional counterpart. He suggests that the position of Islamic finance could be improved if the numbers of conventional financial experts moving into it were approximately equal to the numbers of experts in Islamic law moving into conventional finance. Hence, the state has established institutions, such as INCEIF, that seek to educate students in both Islamic law and modern finance simultaneously (see Figure 4).

Figure 4.

Bankers active in Malaysia and an Islamic scholar from the Middle East discussing the future of Islamic finance at the 10th Kuala Lumpur Islamic Finance Forum, September 2013. Photo by Daromir Rudnyckyj.

These ongoing debates over form and content, over debt-based and equity-based contracts, and over the relationship between economism and Islam illustrate how Islamic finance experts pose economic rationality as a problem. Because debt-based contracts closely resemble existing interest-bearing loans, conventional bankers, who are transplants to Islamic finance and constitute the majority of managers and executives in the industry, have found them especially easy to work with. Thus, bankers like Ahmad are content with debt-based contracts because little new knowledge is needed to deploy them. Principles from conventional accounting denoting credits and debts can be easily imported to make clear balance sheets. In contrast, mudarabah are quite cumbersome and require a wholly different method of accounting from that practiced in the conventional system.22 While reformers problematize market reason, other practitioners see it in different terms. They either represent it as a universal norm to which Islamic finance must conform or as already intrinsic in Islam.

These debates and interventions illustrate a central problem evident in the reflections of Islamic scholars, government officials, and finance practitioners as they seek to formulate a viable alternative to what they see as “conventional finance.”23 This is, what limits, if any, should be placed on the extension of the market reason that undergirds the dominant technique for organizing conventional capitalism. Critics of debt-based financing who seek to reform Islamic finance along principles of profit sharing base their arguments on features that do not conform to the economism that undergirds dominant neoclassical economics. In so doing, they suggest a form of economic rationality not premised on the sovereign subject assumed in the liberal economic models that constitute the dominant economic paradigm of our times (Barry et al. 1996; Foucault 2008; Rose 1999). For example, risk-sharing in mudarabah contracts distributes economic hazards between a creditor and a debtor rather than placing the entire burden of risk on the borrower.24 Thus, some who seek to reform Islamic finance contend that it offers the possibility to create stronger collective relationships than does conventional finance. They further contend that it will create a more stable system as there is an acceptance of financial risk rather than a ceaseless attempt to find a counterparty to shoulder the burden. Indeed, as several Islamic finance experts have pointed out, it was the aggressive efforts of Wall Street investment banks to generate fees by shuffling risk through credit default swaps and collateralized debt obligations that precipitated the mortgage nightmare in the United States and the ongoing global financial crisis (Tett 2009).

Conclusion: Beyond economism?

Islamic finance should not be taken as the irreducible other of market reason. Rather, as I have demonstrated above, differently positioned Islamic finance experts represent economic rationality as an object of reflection and develop a range of practical responses to its problematization. Thus, there is no irreducible opposition between Islam and liberalism but, rather, a variety of ways in which proponents and practitioners of Islamic finance confront the specter of market reason, which they see as constitutive of what they call “conventional finance.” As proponents of Islamic finance seek to forge a viable global alternative to the conventional financial system, experts debate the extent to which it will resemble its conventional counterpart and suggest practical alternatives to the existing institutions of conventional finance. These debates and interventions reveal how the imperative toward economic rationality frames the knowledge practices of Islamic finance experts as they work to create a substitute for Wall Street.

I have developed the concept of “economy in practice” to capture this reflection and action. Two features distinguish an approach to economy in practice. First, it involves empirical attention to how research subjects themselves represent and reflect on economic calculation. Thus, it seeks to understand how actors make economic rationality the object of representation, reflection, and action. Second, approaching economy in practice entails attention to disciplinary effects—the reflexive relationship between the production of expert knowledge and the world that that knowledge represents and diagnoses. Thus, as Mitchell (2005), Callon (1998), and Çalışkan (e.g., Çalışkan and Callon 2009) have suggested, economy is not so much an objective reality within the world as an instrument dedicated toward its transformation.

Economies in practice are visible empirically in two respects: in the ways that economic rationality frames representations of Islamic finance by experts in the field and in the practical instruments that these experts seek to develop to enable economic action compliant with the dictates of Islam. Thus, approaching economy in practice entails analyzing how experts pose economic calculation as a problem and how they wrestle with identifying a zone of correspondence between religious and economic rationalities. Ahmad argues that economic rationality is completely commensurable with Islam because it is used to manage risk and distinguishes the actions of bankers from those of gamblers. Ahmad's claims illustrate the arguments of El-Gamal and other scholarly critics of Islamic finance who focus mainly on how the competitive logic of financial markets forces Islamic financiers to develop products that mirror conventional ones. However, approaching “economies in practice” offers an alternative methodological orientation to that of such critics, who are, by and large, inattentive to the actual practices, debates, and struggles of Islamic finance experts as they seek to balance religious reason with economism.25 Reformers such as Dr. Mirakhor, Dr. Sharif, and Dr. Mustafa argue that Islamic finance should offer an alternative to the economic rationality of conventional finance, by endorsing economic relations based on partnership and, ultimately collective, as opposed to individual, interests.

I have further demonstrated how Islamic finance experts seek to develop practical instruments to facilitate Islamic economic action and, in so doing, position this action in relationship to the economic rationality of conventional capitalism. Thus, Dr. Mirakhor proposes a new stock exchange that will enable equity-based financing to replace debt-based instruments, such as sukuk. He sees such financing as potentially engendering greater solidarity and collective relationships through risk-sharing, rather than risk transfer. Hamza suggests the creation of a banking system based on profit sharing, rather than interest, which he sees as more in keeping with what he conceives of as a “truly free market model” that is also desired by Islam.

A focus on economy in practice builds on one of the central problems that has long preoccupied economic anthropology: the universality of economism and debates over whether market reason is embedded in society (Burling 1965; Polanyi 1957). Ensuing debates have asked whether economic calculation, self-interest, and rational choice were essential attributes of human beings or were introduced through the technologies of colonial rule (Popkin 1979; Sahlins 1972; Scott 1976). A recurrent question has been whether the principles of economics were universally valid for all human beings and cultural groups (Donham 1990). In recognition of the historicity of the object known as the human, recent anthropological work has focused more on the norms and knowledge through which the human is created rather than on a search for its essential nature (Fassin 2008; Merry 2003; Rabinow 2003). Thus, approaching economy in practice focuses on how characteristics like maximization, efficiency, and self-interest are imparted to human beings and how the imperative toward economism presents a problem in efforts to develop alternatives (Hart et al. 2010). Rather than seeking an essential reason located within the human, approaching economy in practice seeks to illuminate the techniques through which humans are rationalized according to the principles of market liberalism and the alternatives to this imperative that may be possible.


  • Acknowledgments. I extend my sincere gratitude and deepest thanks for all the assistance I received from generous interlocutors in Malaysia for this article. I would particularly like to recognize the support of INCEIF for facilitating my research. I would especially like to recognize the kindness and support of Daud Vicary Abdullah and Mohd Pisal Zainal. This research project was generously funded by an Insight Development Grant and a Standard Research Grant, both courtesy of the Social Sciences and Humanities Research Council of Canada. I am profoundly grateful for this assistance. Versions of this article were presented at the Asian Research Institute of the National University of Singapore, the University of Michigan, King's College, the University of Victoria, the annual meetings of both the American Anthropological Association and the American Academy of Religion, the Eighth International Conference on Islamic Economics and Finance in Qatar, and the Social Sciences Research Council's Inter-Asian Connections Conference in Hong Kong. I thank participants in those settings for their generous comments and constructive criticism. I am especially grateful for the comments and insights of Angelique Haugerud and five anonymous reviewers for American Ethnologist, whose critiques greatly improved this article, both in form and content. Anke Schwittay, Chris Vasantkumar, and Nurfadzilah Yahaya provided exceedingly generous comments on versions of this article, for which I am grateful. The article was further improved by the editorial assistance of Basit Karim Iqbal. Any remaining errors of fact or interpretation are my own alone.

  • 1

    This institution is analogous to the Securities and Exchange Commission in the United States.

  • 2

    Although there are many female Islamic and conventional finance experts in Malaysia, in every variation of the story I heard, the Gulf-based investor was male. The current chief executive of the Central Bank of Malaysia is a woman and the former head of the country's Securities Commission was a woman, illustrating the relatively high status of women that has long characterized Southeast Asia (Atkinson and Errington 1990; Brenner 1995; Peletz 1996; Reid 1988).

  • 3

    Islamic finance experts, including bankers, regulators, academics, and Islamic scholars, refer to “conventional finance” as the other of Islamic finance. While the actual definition of Islamic finance is at times vehemently contested, as I show in this article, virtually all Islamic finance experts take an opposition between it and conventional finance as a point of departure in understanding the world of finance today.

  • 4

    Loans such as the qard-al-hasan are permitted in Islam. In this type of loan, no interest is charged and the full principal is returned to the creditor at the expiration of the loan.

  • 5

    The hadiths are compilations of the words and deeds of the Prophet Muhammad. Other than the Qur'an, they are the texts to which Islamic scholars refer most often regarding matters of Islamic law and jurisprudence. Muslims take them as guides for their own worldly actions.

  • 6

    I use economic rationality to refer to the logic of conventional finance. The experts who participated in my research did not use this term. However, as I show in the main text, they often referred to various components of economic rationality, such as competitiveness, cost–benefit analysis, and market calculations of supply and demand, in distinguishing between Isalmic and conventional finance.

  • 7

    Michel Foucault conceived of a problematization as “the ensemble of discursive and nondiscursive practices that make something enter into the play of true and false and constitute it as an object of thought (whether in the form of moral reflection, scientific knowledge, political analysis, etc.)” (Rabinow 2003:18).

  • 8

    Foucault describes neoliberalism as characterized by “generalizing [the economic form of the market] throughout the social body and including the whole social system not usually conducted through or sanctioned by monetary exchanges” (2008:243).

  • 9

    Daniel Miller criticizes Michel Callon's approach as “a defense of the economists' model of a framed and abstracted market against empirical evidence that contemporary exchange rarely if ever works according to the laws of the market” (2002:218). While Miller agrees with Callon's contention that economists “project their models onto economies” (2002:219), he argues that the models of economists are virtual and have little effect on everyday human action, which generally does not conform to such models (see also Miller 2005).

  • 10

    For a more detailed description of the development of Islamic finance in Malaysia, see Rudnyckyj 2013.

  • 11

    CIMB developed what its CEO, Badlisyah Abdulghani, called a “dual banking leverage model,” using its existing conventional infrastructure to grow the Islamic side of its business. Thus, it opened an Islamic bank and a conventional bank in the same physical space but used separate clearing and handling codes and profit-and-loss sheets for each branch, ensuring that they were virtually separate. Bank Rakyat's claims of “100% pure Islamic banking” suggest an attempt to assert its authenticity in the face of dominant market players like CIMB.

  • 12

    Several recent works have drawn attention to the forms of middle-class piety commensurate with capitalism and modernity that have proliferated in Southeast Asia in recent years (Hefner 1993; Jones 2010; Rudnyckyj 2010; Smith-Hefner 2008).

  • 13

    John Bowen (2010:137–149) provides an excellent synopsis of debates over whether Muslims living as minorities in Europe are permitted to participate in contracts that require the payment of interest. As he notes, these debates are often framed by the absence of any alternatives to interest-based financing in Europe.

  • 14

    In his analysis of derivatives trading in a conventional bank, Vincent Lepinay has questioned the opposition between a real and a financial economy often made by critics of the financial services industry. In arguing that derivation is central to the operations of economies, he asserts that even apparently stable goods, such as pharmaceuticals, obtain their value from “operations of derivation” (Lepinay 2011:228).

  • 15

    In 2012, INCEIF moved to a brand-new, purpose-built campus adjacent to the national university on Kuala Lumpur's southwestern border.

  • 16

    In compliance with human subjects protocols, I use pseudonyms to refer to those who participated in my research.

  • 17

    A Shariah Advisory Council (SAC) is the defining feature of an Islamic financial institution. It consists of a group of usually between three and seven scholars trained in Islamic sciences, such as fiqh and shariah. An SAC rules on whether the instruments and products developed by the institution comply with Islamic prescriptions for economic action.

  • 18

    I thank an anonymous American Ethnologist reviewer for helping me to clarify this point.

  • 19

    A murabaha is a marked-up sale in which a financial institution purchases a commodity, such as a car, for cash. The financial institution then sells the commodity to a customer with a built-in profit price on payment-deferred terms. The customer then pays the financial institution according to the terms of the contract. Like bai al-inah, this form of financing essentially replicates the form of an interest-bearing loan.

  • 20

    The Basel II banking regulations were under revision at the time of our conversation, and following reforms in the wake of the financial crisis, the third Basel accord is scheduled to be introduced between 2013 and 2018.

  • 21

    Dato' is an honorary nonhereditary Malaysian title, conferred by the ruler of one of the nine Malay monarchic states.

  • 22

    Maurer (2002) has described the complexity and “fractal-like” quality of the accounting practices used to manage mudarabah in comparison to the streamlined nature of conventional accounting practices.

  • 23

    I thank an anonymous American Ethnologist reviewer for helping me to clarify this point.

  • 24

    See McKay 2009 for an example of how actors in another context operate with an economic logic that emphasizes collective rather than sovereign subjects.

  • 25

    I thank an anonymous American Ethnologist reviewer for helping me to clarify this point.