Prospects for Islamic Ethical Finance in the United States of America

The United States of America has the deepest and most liquid financial markets in the world. It also has a regulatory environment that has historically been very permissive in the innovation of financial instruments. Given those characteristics, finance based on Islamic ethical principles should be able to thrive. However, among non-Muslim countries, most of this financial innovation is taking place in the United Kingdom and Hong Kong. By taking the lead, companies there are gaining first mover advantage over the United States. In the economic landscape after the Global Financial Crisis (GFC), US government regulators and financial players need to encourage a diversity of investments with growth potential. Unfortunately, prospects for that remain dim.

Islamic finance can be broadly described by the following three principles which prohibit: interest (riba), certain industries, and excessive risk (gharar). The first principle is similar to the prohibition on interest that the Catholic Church used to uphold. This means different kinds of contracts and structures are required for modern financing, such as mortgages. The second principle is an ideal that steers investment and finance away from certain industries, such as gambling. This is similar to existing ethical funds that make investments based on principles such as divesting from fossil fuels or other ideals. This practice is also not exclusive to Islam, as many religious principles based on Christianity have been codified into law in Western countries. The third principle encourages the sharing of risk and is a model of financing based on partnerships rather than payment of usury.

In the United States, there is a small finance industry based on Islamic ethical principles in the United States. (Nayeem et al., 2009) However, in the United Kingdom most of the large financial houses have an Islamic window that caters to those wanting alternative forms of finance. In comparison to the UK and Hong Kong, the most inhibiting factor to growth in the US is the regulatory environment. As well as dealing with different laws in fifty different states, a new bank requires approval from a number of institutions at the federal level. This is in contrast to the United Kingdom where new banks need only go to the Financial Services Administration to start providing services. In the long-term, finance based on Islamic ethical principles will also have to address political and sociological factors unique to the US.

The recent offering of a sukuk, or Islamic bond, in Hong Kong is an example of how regulations can encourage new growth areas in finance. The government there sold a US$1 billion dollar sukuk in September 2014 that was oversubscribed by almost five times the amount on offer. Since it was structured differently from traditional bond offerings, it fell under different tax regimes. The Hong Kong government addressed this specific situation by carving out an exception for sukuks and giving it equitable tax treatment. However, this process took seven years after the former Chief Executive of Hong Kong released a plan to take advantage of the growing market in finance based on Islamic principles. This foot dragging on regulatory reform is costly, since the market in Islamic finance is expected to double by 2017 and be worth over US$2.5 trillion. (Yiu, 2014).

Like Hong Kong, other countries such as South Korea, Thailand, Japan, and Australia have also expressed interest in Islamic bonds. Even though they have not yet made concrete steps towards issuing them, their appeal is an example of the universality of finance based on Islamic principles. This ethical base is compatible with other beliefs and would resonate strongly in the United States. The desire for a more stable and equitable financial system does not only come from religious groups, but has broad political support.

As recently as the 1980s, there was political consensus for accountability regarding those who commit white-collar crime. In that decade, the Securities and Exchange Commission, under a conservative Regan Administration, jailed hundreds of people for the Savings and Loans scandal. Even during the last Republican administration, under George W. Bush, there were prosecutions of financial fraud involving the Enron bankruptcy and the financial fraud that was perpetrated. The current Obama administration has not been as amenable towards the prosecution of financial crimes as previous ones have. Islamic finance has the potential to offer a more stable alternative, but unlike most infant industries, it must also face a sometimes hostile political environment.

Dubai Ports World: Manufactured Controversy

In 2005, Dubai Ports World (DP World) put in a successful bid for British-based company P&O, which managed a number of seaports in the US, including ones in New York and New Jersey. The transaction was examined by the Committee on Foreign Investment in the United States (CFIUS), tasked with balancing US security and commercial interests. CFIUS is made of up of various members of the executive branch and, in this instance, included the recently formed Department of Homeland Security to look at the port security aspects of the deal. The committee agreed unanimously to approve the transaction. Even though DP World would not actually own the ports or manage their security, the deal eventually collapsed. (Mostaghel, 2007)

The dynamics of the political process that led to the collapse is relevant to the growing Islamic ethical finance industry in the United States. In a post-9/11 environment, certain Democratic politicians saw an opportunity to burnish their national security credentials by opposing a deal that President George W. Bush himself actually supported. Democrats often feel that their party is perceived as less capable on “hard” issues such as security and economics. The tendency for national parties to engage in this manoeuvring, coupled with the underlying Islamophobia in society, creates uncertainty in long-term prospects for an ethical finance based on Islamic principles in the United States.

The manufactured controversy over DP World taking over port operations in the United States was a result of both Islamophobia in a post-9/11 environment as well as protectionist tendencies on the part of politicians. The support of even right-wing figures and pundits for the DP World ports deal highlighted the historical divisions among conservatives. In this instance, political pandering to isolationists, whose irrational fears caused them to be suspicious of anything from the Middle East, won over business interests, who understand the importance of keeping the United States open for foreign investment. The discourse about the DP World deal also did not consider the foreign policy of the United States, which regards states like Saudi Arabia and Bahrain as keystone allies in the region.

Perpetuation of Hate: Islamophobia in the United States

The United States is a pluralistic society where the number of Muslims is estimated to be from two million to as high as seven million. There is a wide disparity in estimates because the decennial census does not ask questions about religion. Regardless, of the exact number, “nowhere else in the world will one find such a diverse collection of Muslims”, as one finds in the United States, according to Mounir Azzaoui in a report on Muslim integration. Compared to communities in Western Europe, Muslims are much more integrated in the US when looking at measures such as educational attainment and income. The first Muslim House of Representatives member was elected from a district in Minnesota in 2007. He was sworn in using a Qur’an that was owned by Thomas Jefferson. His election is also a symbol of the many Muslims who work at all levels of government and business throughout the United States.

Unfortunately, there are also very strong illiberal traditions that exist in a country as diverse as the United States. The Southern Poverty Law Center (SPLC) is a human rights organisation that tracks active hate groups. They monitor “organised hate” in which groups actively recruit members and perpetuate hateful, violent ideologies. On their website, the interactive map shows nearly one thousand different groups active in 49 out 50 states. Of these, there are nearly forty solely dedicated to promoting hate against the religion of Islam and its adherents. This works by both twisting what is actually said by those who believe in the religion and by creating an atmosphere of imminent danger.

There is also “unorganised hate” as described in an extensive Center for American Progress report, released in 2011 and titled “Fear, Inc.: The Roots of the Islamophobic Network in America”. In contrast to the organised extremist fringe groups, the elements of this network are not part of a single organisation, but consist of individuals and media institutions that spread bigoted views.

The first amendment in the Bill of Rights of the Constitution of the United States is the freedom of religion. However, in practice, there is a complicated relationship between religion and the state. This is partly due to an electoral system that gives disproportionate representation to smaller, less populous states. Unfortunately, even politicians from more urbanised and cosmopolitan areas express hostile opinions towards religious plurality. Their thoughts echo the spurious findings of Islamophobic think tanks and are then repeated by the wider media.

Implications for Islamic Ethical Finance

The existence of these groups does not, in and of themselves, prevent innovation in the financial industry. However, there is an important difference between the political environment of the United States and other places where concrete steps towards Islamic ethical finance have taken place, like the United Kingdom or Hong Kong. The long-term prospects for the desirability and availability of these products is made more uncertain when politicians freely air and perpetuate misleading and disparaging stereotypes of Muslims/Arabs.

In the United States, the dominant perception of the Middle East and North Africa is one where Muslims and Arabs are conflated into a single ethno-religious group. This has no basis in reality. Arabs make up only a fraction of all Muslims in the world (about twenty percent, with most of the rest coming from South Asia and Southeast Asia) and within the United States itself, the majority of ethnic Arabs are actually Christian. This racialisation of a religious group slots into the pre-existing hierarchy of race in the United States. It is an ongoing system of thought that can be traced back to the founding days of the United States, when chattel slavery and the displacement of indigenous groups had to be rationalised and justified.

The effects of this thinking are real. The following examples show how the dominant mainstream media distort meanings of Arabic words that are supposedly associated only with Islam. The word “madrassa” is an Arabic word that is exactly equivalent to the word “school” in English. The existence in the United States of many Christian fundamentalist schools and universities does not mean the word “school” refers only to those kind of institutions. Similarly, in the parlance of mainstream news media, the word “sharia” is used in a purposefully deceptive way. It is used to evoke fear of a shadowy foreign entity bent on destroying the “American way of life”. In reality, it functions like the Catholic canon, or ecclesiastical law. Like other religious traditions, it also has many different schools of thought and interpretation.

The use of the word in that way is relevant to Islamic ethical finance. “Sharia” is so abused by the dominant mainstream media that some state legislatures have sought to pre-emptively prohibit its implementation. This absurd gesture is attempted even in places where there is almost no Muslim population, like Oklahoma. For finance based on Islamic ethical principals, this creates problems for products marketed as “sharia compliant.” How that word is misconstrued in the popular mindset creates problems on both a commercial and regulatory level.

Long-Term Considerations for Islamic Finance in the States

The survival of a financial industry committed to Islamic ethical principles is directly connected to regulatory and market stability. The unofficial network of “unorganised hate” as detailed in the Center for American Progress report, means that individuals have the potential to arbitrarily target banks and institutions that are providing alternatives for investments.

It is not clear at this point how Islamophobia within US society or among the political will affect the long-term growth of Islamic ethical finance. If and when the industry breaks into the mainstream, it will have to address these wider issues. There are also larger questions of whether or not modern Islamic finance offers a true alternative that is sustainable. (Rethal, 2011) There is growing awareness of what caused the Global Financial Crisis and how the government is not doing enough to prevent the next one. But beyond general platitudes, finance based on Islamic principles still has a long path to becoming a real and viable alternative to the current banking system.


Ali, Wajahat, Eli Clifton, Matthew Duss, Lee Fang, Scott Keyes, and Faiz Shakir. “Fear, Inc.: The Roots of the Islamophobic Network in America.” Center for American Progress (2011).

Azzaoui, Mounir. “Similarities in Difference: The Challenge of Muslim Integration in Germany and the United States.” American Institute for Contemporary German Studies Issue Brief 33 (2009).

Kepli, Mohd Yazid Bin Zul. “Islamic Finance in Hong Kong.” Hong Kong Law Journal 42:3 (2012).

Khan, Bilal and Emir Aly Crowne-Mohammed. “The Value of Islamic Banking in the Current Financial Crisis.” Review of Banking & Financial Law 29 (2009-2010).

Mostaghel, Deborah M. “Dubai Ports World under Exon-Florio: a threat to national security or a tempest in a seaport?” Albany Law Review 70 (2007).

Nayeem, Omar, Momhamed Shiliwala, and Wasim Shiliwala. “Conflict of Interest: Islamic Home Financing in America.” Economic Affairs (June 2009).

Pudner, Stephen K. “Moving forward from Dubai Ports World – the Foreign Investment and National Security Act of 2007.” Alabama Law Review 59:4 (2007-8).

Rethel, Lena. “Whose Legitimacy? Islamic Finance and the Global Financial Order.” Review of International Political Economy 18:1 (2011).

Shayesteh, Abdi. “Islamic Banks in the United States: Breaking Throught the Barriers.” New Horizons – Global Perspectives on Islamic Banking and Insurance (April-June 2014).

Yiu, Enoch. “City Sukuk Opens Door to More Islamic Finance in Hong Kong.” South China Morning Post, 15 September, 2014.

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