Islamic Finance: In a Paradigm of Transition

Beyond mere proselytizing total assets within the Islamic Finance sector is currently worth 1.8 trillion and Ernst and Young has predicted it to grow to 3.4 trillion by 2018.[1] In the post-financial crisis era many conventional banks, economists and depositors have been inspired by the moral and ethical foundations of Islamic Finance, morality which seems to be void within the conventional banking system. [2]

Yet, the discourse about Islamic Finance tends to fall into a few false dichotomies: the first, is whether Islamic Finance conforms to capitalism or Marxism; the second, does Islamic Finance merely mask interest (usury/riba) with Arabic jargon i.e. conforming to the system[3] or is it a fully interest free system that is a radical departure from the capitalist system[4]. This discourse is narrow minded at best, it reduces Islamic Finance to the standard set by capitalism or Marxism, both of which can take many forms and both are creatures of modernity. Thereby it marginalizes Islam as a legitimate epistemology, which uses the Shari’ah to measure the credibility of Islamic Financial practices. Furthermore, the current discourse claims that Islamic Finance can only be credible if it were to create financial and social utopia, and, if it does not do this then it is entirely illegitimate; a standard which capitalism has not achieved. Those who hold these extreme positions stifle any substantive discussion regarding the current practice within the industry, and, whether or not there is any benefit that Islamic Finance provides in an era of Western globalized financial practices. Furthermore, the analysis of the legitimacy of Islamic finance is ahistorical, it does not take into account the struggle of former colonies to gain economic independence from neo-colonial institutions. Therefore, one must not only analyze the legitimacy of Islamic Finance based upon the standards set by the Shari’ah, but one must also analyze it in through a decolonial lens. For, this is the first time since the colonial period that an epistemology from the global south is manifesting itself on the global stage and providing solutions to the modern project. Credit must be given to Boaventura de Sousa Santos who provides the conceptual framework and is heavily relied upon for the analysis in this paper.[5]


Western modernity as a paradigm is predicated upon particular principles that emerged out of experiences within Central and Western European nations between the sixteenth and eighteenth century. This paradigm constitutes the current hegemonic power structure perpetuated by core countries in the West to peripheral countries in the global south.[6] The paradigm of modernity is a globalized western localism, the globalization of uniquely Western local practices, which marginalized other epistemologies as it has encroached onto the global south. Modernity is neither neutral nor objective as it claims. This is the insidious element of modernity, it marginalizes other epistemologies yet claims itself as being universal, rational and objective. The hegemonic conventional financial system is a product of modernity that by its very nature marginalizes those who do no accept its principles: an interest based, profit maximizing system that is now based on fiat currency (regime of managed flexibility). Beyond the physical colonization of the global south that led to the opulence and wealth of the West being created out of the exploitation of raw materials and labour in the global south,[7] colonization went hand in hand with the epistemicide of other intellectual traditions – perpetuated by liberal capitalism and Marxism.[8] As Western economic power erodes due to a re-centering of the global economy the intellectual assumptions that has underpinned Western modernity will begin to be contested as well.[9]

Pillars of Modernity

The paradigm of modernity is based upon two pillars: the first is the pillar of regulation, the second is the pillar of emancipation. Modern regulation is the set of norms, institutions, and practices that attempt to guarantee the stability of expectations. They do so by establishing a politically tolerable relation between present experiences, on the one hand, and the expectations about the future, on the other.[10]

The pillar of regulation is comprised of three principles: the principle of the state (Hobbes); the principle of the market (Locke and Smith); and, the principle of the community (Rousseau’s social and political theory). It was thought that these principles are used to regulate the animalist nature of humanity to prevent life from being nasty, brutish and short.[11]

The pillar of emancipation (Weber’s logic of emancipation) is also comprised of three principles: aesthetic emancipation– expressive rationality of the arts and literature; cognitive emancipation – instrumental rationality of science and technology; and, moral emancipation – practical rationality of ethics and the rule of law. [12] Modernity is thus grounded on a dynamic tension between the pillar of regulation and the pillar of emancipation.[13]

Failures of Modernity

It can be equivocally stated that modernity as a global project has failed to achieve the goals that it tended to achieved. The promises of greater: equality, liberty, peace and harmonious existence with nature; have failed on a grand scale.

The promise of equality made possible by the conversion of science into a productive force: in the twentieth century more people died of hunger than in any of the preceding centuries. Based on UNDP data, three decades ago people in wealthy nations were 30 times wealthier than those in countries where the poorest 20 percent of the world’s people live. By 1998, this gap had widened to 82 times.[14]

The promise of liberty: the prison population continues to rise globally with the United States of America having over 2 million citizen in prison, leading the world in incarceration rates and in prison population.[15] In 2011 UNICEF reported that over 150 million children aged between 5-14 are involved in child labour.

The promise of perpetual peace (Kant): in the 18th century, 4.4. million people died in 68 wars; in the 19th century, 8.3 million people died in 205 wars; in the twentieth century, 98.8 people had died in 237 wars by 1990.[16] We have not progressed towards a more peaceful society.

The promise of the domination of nature and its use for the common benefit of humankind: has led to an excessive and reckless exploitation of natural resources, the ecological catastrophe, the nuclear threat, the destruction of the ozone layer, and the emergence of biotechnology, genetic engineering and the consequent conversion of the human body into the ultimate commodity. Modern economic growth has led humanity to a precipice – one that we have never faced in the past. Yet, the final crisis of modernity is an epistemological crisis rather then as a social crisis. Here we enter into a paradigm of transition. As modernity collapses as an epistemological and cultural project such a collapse opens up a range of possible futures for societies.

Celebratory Post-modernism

Celebratory Post-modernism is the belief that modern problem have modern solutions. An example of this belief is that the current ecological crisis will only be solved by the continued use of the emancipatory potential of science and technology. There are various forms of this argument, ranging from those who believe a different form of modernity will provide the necessary solutions, to those who believe that it is with more intensity that modernity will be able to produce the solutions. The most famous proponent of celebratory post-modernism is Habermas, for whom modernity is an incomplete project that must be fulfilled.[17] This is similar to When dealing with the issue of global inequality between the global north and global south, it is often argued that continuing the current process of capitalism will lift millions from below the poverty line and will be able to close this gap. As mentioned above, this has not happened. So where does that leave us?

Oppositional Post-modernism

Opposition Post-modernism is a concept developed by legal theorist Boaventura de Sousa Santos. According to this theory, it is possible and necessary to think of social regulation and emancipation beyond the limits imposed by the paradigm of modernity.[18] He states that, ‘it is as important to acknowledge the historical and political actuality of the modern problems, as the impossibility of finding answers for them in the paradigm of modernity.’ [19] According to oppositional post-modernism, there are modern problem with no modern solutions. Here lies the transitional nature of our time. The paradigm of modernity may contribute to the solutions we look for, but it can never produce them. Therefore, furthering the principles of modernity will not solve these problems. Rather, we must use alternative epistemologies to find new principles to create new solutions.

Paradigm of Transition

The failures of modernity to achieve its goals and the imaginative limitation of its epistemological underpinnings have brought us towards a paradigm of transition. Obviously, transitional periods are difficult to define and often contradictory in nature, which leads to a simplistic rejection of its emancipatory potential – this is intellectually negligent to say the least. Paradigmatic transitions last several decades, often more then a century to develop themselves, as was the case for the scientific revolution or the transition from feudalism to capitalism in Europe. The collapsing of modernity as an epistemological and cultural project opens up a range of possible futures for society – one of such is Islamic finance.

Islamic Finance in a Paradigm of Transition

Islamic finance function within a paradigm of transition does lead to the difficulty in assessing its legitimacy and its potential of achieving the ideals that it claims. However, Islamic Finance does not function outside the spatial and temporal modes of modernity. There is not an Islamic world and a separate modern/Western world modernity is interconnected with the rest of the world as modernity part of the globalized hegemonic power structure. Therefore, as the hegemonic conventional financial system has moved towards neo-liberal market led growth, since the 1980’s, with increasing focus on generating alternative revenue streams from emerging markets in a post-financial crisis era, this will effect the modus operandi within Islamic Finance. It is necessary and eminent that we contextualize and place Islamic finance within the larger political-economic system in order to prevent us from abandoning ship right after we have set sail; as the current narrative within the industry, amongst Muslims and non-Muslims, is that Islamic finance is failing due to the lack of religious conviction on the part of Shari’ah scholars and/or the failure of Islam to provide an tangible alternative to the existing order.

In the post-financial crisis era we are seeing a renewed interest in Islamic finance from the conventional sector and the global south, which is going beyond trying to merely generate alternative revenue streams. There are serious discussions regarding whether the principles of Islamic finance would be able to sustain a more equal economic and social order. Recently, Mufti Muhammad Taqi Usmani, arguably the most influential Islamic finance scholar, spoke at the World Economic Forum in Davos about the ‘Causes and Remedies of the Recent Financial Crisis: From an Islamic Perspective.’[20] This is an acknowledgement of the legitimacy of Islamic finance, but also of Islam as an epistemology that can used to construct new paradigms of social interactions.

The basis of Islamic Finance is of course, on the Shari’ah, which provides the epistemology to produce new constellations of our understanding of property rights, environmental rights, economic systems, business transactions etc. Perhaps the most important pillar of the Shari’ah in a post-financial crisis era is that ethics and action cannot be compartmentalized. It seems that the basic requirement of Islamic finance is to benefit the social good of society is considered to be a radical and refreshing position considering the nature of the current financial system, which has grown to astronomical figures, yet has left more people with less.

The Shari’ah encompasses a comprehensive cosmology that provides guidance for all aspects of human life with the understanding that humanity is interconnected with the Oneness of God (tawhid). It is understood by Muslims that God created the universe, and every aspect of it reflects the unity of God, including the creation of human being. Kamali explains that tawhid ‘manifests itself into ritual devotion and personal piety, in theology and law, in politics and economics, in faith and deeds, all of which are manifestations of the same all-pervasive principle.’[21]


The industry is within its infancy and has developed largely from post-colonial Malaysia. For this reason, even though Sukuk (Islamic bonds) had been issued during the reign of the Ottoman Empire the first modern Sukuk was issued in Malaysia by Shell MDS in 1990.[22] The current Sukuk market has only existed for 20 years at most, this is in comparison to the convention bond market that has had at least a hundred years development in: human capital, institutions, academia, etc. The future of the industry will be based on continuing the development of the many disciplines within Islamic Finance and Economics. Both industries are attempting to manifest their true beliefs and achieve their ideals while working within a paradigm of transition. The failures of modernity as an epistemological and cultural project has allowed for the development of Islamic finance and economics to develop within a paradigm of transition. No one is entirely such if the industry will achieve the goals that it intents to achieve or the direction it may lead, but that is the nature of living within a paradigm of transition. The opportunity presented within a paradigm of transition is that societies from the global south can attempt to manifest their beliefs from their own epistemology – with the agency to manifest their destiny on their own terms.

[1] Ernst and Young Islamic Finance report

[2] Timothy Taylor, Economics and Morality http://www.imf.org/external/pubs/ft/fandd/2014/06/taylor.htm

[3] Financial Times, Islamic Finance sits awkwardly in a modern business school. http://www.ft.com/intl/cms/s/2/ee2a2b36-9de5-11e2-9ccc-00144feabdc0.html#axzz3Hlfv7TkH

[4] Financial Times, Harris Irfan article. http://www.ft.com/cms/s/0/993064ec-2dcc-11e4-b330-00144feabdc0.html#axzz3Hlfv7TkH

[5] http://www.boaventuradesousasantos.pt/pages/en/homepage.php

[6] Immanuel Wallenstein, “World System Theory”

[7] Jean Paul Sartre, Introduction to “The Wretched of the Earth”

[8] Boaventura de Sousa Santos, ‘Opening up the Canon of Knowledge and Recognition of Difference.” Another Knowledge is Possible.

[9] Pankjak Mishra, http://www.theguardian.com/world/2014/oct/14/-sp-western-model-broken-pankaj-mishra

[10] Boaventura de Sausa Santos, ‘Towards a New Legal Common Sense’ (2002) 2.

[11] Thomas Hobbes, Leviathan.

[12] Max Weber, ‘Economy and Society: An Outline of Interpretive Sociology’ (1922).

[13] Santos (n10) 2.

[14] http://www.globalpolicy.org/socecon/inequal/gates99.htm

[15] http://www.nytimes.com/interactive/2008/04/22/us/20080423_PRISON_GRAPHIC.html?_r=0

[16] Giddens, 1990.

[17] Bohman, James and Rehg, William, “Jürgen Habermas”, The Stanford Encyclopedia of Philosophy (Fall 2014 Edition), Edward N. Zalta (ed.), URL = <http://plato.stanford.edu/archives/fall2014/entries/habermas/>.

[18] Santos (n10) 13.

[19] Ibid xvii.

[20] Mufti Muhammad Taqi Usmani, ‘Causes and Remedies of the Recent Financial Crisis: From an Islamic Perspective.’ (2014) Turath Publishing.

[21] Mohammed Hashim Kamali, Shari’ah Law: An Introduction 2008 (Oneworld Publications) 14.

[22] Abdullah Saeed, Omar Salah. ‘History of Sukuk: pragmatic and idealist approaches to structuring sukuk The Islamic Debt Market for Sukuk Securities 51.

– Photo of Surrey Mosque – Surrey, BC, Canada (1990)

3 thoughts on “Islamic Finance: In a Paradigm of Transition

  1. You make some interesting points in this essay. However, I wish you had indicated why you think a period of transition is at hand and the possible ways in which Islamic finance and its epistemology (Islamic economics) can transform itself in ways that are more authentic or in keeping with its origins. You seem to indicate that the demise of the West opens up possibilities to Islamic finance and other epistemologies. But this is a very problematic assumption for a number of reasons: first, is the power of the West really declining? Or are other states merely catching up? What does it mean for poorer, less powerful areas/regions of the world? Second, Can we ever just think solely in terms of the compartmentalised epistemologies? Is it possible to speak of a single epistemology, for example, that derives from a certain region?; one which relates to nearly all individuals within that region? How has globalisation affected the very notion of epistemology? Is it actually a useful concept in describing the intertwined, interconnected relations of people, communities, states? These are just some initial ideas but I think they need to be addressed to deal with some of the ideas addressed in this essay.

    1. Dear Dr. Ercanbrack,

      Thank you very much for you comments and concerns that you’ve raised. If you like, can you copy and paste your comments onto the openDemocracy publication of this article? This way we might be able to get a few more people to weigh in on their opinions. I will respond to your comments on this website very shortly.




    2. Dear Dr. Ercanbrack,

      Sorry for the late response. Once again, you’ve raised some interesting questions and thank you for doing so. Firstly, I don’t think I’ve explicitly or implicitly eluded to “the demise of the West’. The West will not die or disappear, it’s physically impossible. What I am eluding to, is also what most economic/political analyst suggest, that as the economic power in Western nations (Western Europe, Canada, USA) diminish relative to the its former heights of power, it opens up space for competing epistemologies or ideologies. Read the Goldman Sachs N-11 report or PWC’s “The World in 2050 report” for more information. I don’t think these ’emerging markets’ are merely ‘catching up’ to the West, rather the global economic order is re-orienting itself back to a multi-polar world where nations which hold most of the natural resources in the world will use them for the consumption of the people within those nations rather then for cheap export; this analysis is based off of Immanuel Wallestein and relies on ‘dependency theory’. Power is relative, the UK might have the same GDP as it did in the 1990’s, but China’s GDP has grown to be 6 times the size of the UK; therefore, making the UK less powerful then is what before.

      Regarding epistemologies, the epistemology I am referring to throughout this essay is Islam; Islamic economics would be within this and Islamic finance would be a subject to Islamic economics. Islam as an epistemology has its own understanding of an ontology and eschatology. I don’t believe I ever eluded that Islam as an epistemology is ‘derived from a certain region of the world’ and ‘relates to to nearly all individuals within that region’. I hope my essay wasn’t creating a clear dichotomy between the West and the Rest or re-constitution a ‘Clash of Civilizations’ scenario. Rather, one must understand that there are core countries who construct the hegemonic power structure and those on the receiving end ‘peripheral countries’. Islam as an epistemology was practised for me in Vancouver, Canada, for my parents in Fiji and for my ancestors in India. I don’t mean to essentialize epistemologies around Nation states, but the nation state is the most influential political and economic entity. As economic power declines, so does political, and ideological, which provides spaces for new ideologies. Islamic being a source of knowledge to constitute an epistemology can provide solutions to people who believe in that epistemology. This hasn’t been the case during the colonial period or in a neo-colonial period.

      I believe I may not have been as straight forward in my explanation of modernity being a globalised western localism that lead to the epistemidice of many other epistemologies. In the current form of globalisation we have seen a particular epistemology, Western modernity, globalised as the hegemonic power structure. I believe epistemologies is an most important way of understanding global politics and global conflicts. It provides an understanding of what is the source of someone’s understanding of the world. This alters how we understand ‘growth’, ‘success’, ‘development’, etc; concepts which are necessary to re-evaluate as humanity reaches a precipice.

      In general, I believe there should be a pluri-versal of universal epistemologies (Grosfoguel). Western modernity doesn’t need to disappear, but it shouldn’t be the only legitimate epistemology, when many people in the world have their own ways of understanding the world. We need numerous epistemologies to be able to work along side one another. We can hardly have global justice without global cognitive justice; whether it be, Bhutan’s, Global Happiness Index, communal land rights for the First Nations, or profit and loss sharing economies for Muslims.

      Thank you for you questions. I hope I have answered some of them. I hope you are enjoying your sabbatical.

      *The references in the article are meant to supplement the claims that I make.*

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