ESSAYS IN ISLAMIC MORAL ECONOMY: DEVELOPMENTALIST PROMISES, THE DELUSION OF FINANCIALISATION AND METHODOLOGICAL DILEMMA

Abstract

Islamic economics and finance emerged as a post-colonial counter-hegemonic attempt to develop a new economic paradigm based on Islamic normative principles and substantive morality, which could address the observed developmentalist failures of Muslim societies in a period where old colonial legacies had remained overwhelmingly shaping socioeconomic institutions in decolonized Muslim lands. It, hence aimed at redefining the meaning and function of human agency, land, labour and capital as well as the extended stakeholders in the Islamic social framework to generate a participatory and sharing economy. In doing so, Islamic economics is envisaged to eliminate the dependence upon capitalist formation of economic life and help to construct a new social formation of Muslim societies, beyond only economics and finance as single projects, in the light of Islamic ontology and epistemology.
In parallel with the normative aspects, Islamic finance and banking institutions were established as a peculiar mode of finance which is motivated by a religious concern of facilitating an alternative financial system that is constructed by Islamic principles, values and norms. According to such a construct, Islamic financial institutions (IFIs), therefore, are envisaged to circumvent social imbalance triggered by interest issue and generate particular modes of production by positing ‘profit and loss sharing’ and ‘risk sharing’ operations of financing within the umbrella of ‘sharing and participative’ nature of Islamic moral economy paradigm through redefining capital through the Islamic financial prohibitions and screenings.
This research aims at developing a critical perspective in examining the performance of Islamic banks in terms of development promises and outcomes as essentialised by Islamic moral economy. It also aims to extent the analytical perspectives on the factors and paradigms preventing such consequences to be borne out of Islamic finance such as financialisation, as an operational consequence, and missdefined maqasid al-Shari’ah, as an underlying methodological premise. In responding to the general aims of this research, three essays are developed.
The first essay aims to go beyond essentialising growth-based economic theories and explores the economic development impact of Islamic banking through discursive and empirical analyses. It aims, hence, to unearth to what extent aspirations of Islamic economics match up with its practical outcomes, which essentialises developmentalism as an objective and Islamic financial institutions as institutionalised forms of epistemological knowledge. Together with the discursive analysis in generating ‘Islamic developmentalism’, an empirical analysis is employed with a quantitative methodology through measuring and comparing performances of Islamic banks with an unbalanced panel of 21 cross section of countries observed during the period 2003-2014.
The second essay takes account of divergence from developmentalist ideals of Islamic economics empirically examined in the first essay, and hence delves into the dimensions of social failure of Islamic banks. As a response, among others, it relates the observed failure of Islamic banking in relation to the imagination of Islamic moral economy to ‘financialisation’ phenomenon. As the idea of Islamic economics was burgeoned at this stage of capitalist world system with the essentialisation of Islamic finance, this study argues, is a product of post-colonial discourse between religion and finance that was inspired by financialisation phenomenon. This chapter, therefore, aims to challenge the observed and developing financialisation of Islamic financing as an attempt that is invariably fictitious in nature leading to further disembeddedness and expansion of capitalist hegemony under the Islamic guise. Accordingly, it deploys a critical discourse analysis on financialisation within Islamic political economy frame by giving particular attention to the exploration of Islamic financialisation. In doing so, Polanyian understanding of embeddedness is adopted to address how Islamic financialisation impacts on social formation of Muslim societies by creating commodification and disembedment through Islamic finance operations. Upon elaborating on the theoretical construction of Islamic financialisation and its discursive analysis in a comprehensive manner, subsequently, an empirical analysis is conducted by witnessing the practical aspects of Islamic finance as a financialising activity within Islamic economics paradigm. Thus, the empirical part evidences how Islamic finance engenders a financialised view of (Islamic) economics through its operations. Specifically, it examines the impact of the ascendance of Islamic finance on financialisation trajectory of entire economy, with a panel of 14 Muslim-dominated countries covering the period of 2002-2014, to ascertain whether operations of Islamic finance, by and large, strengthen real economy or contribute to further financialisation in economies where domestic market share of Islamic finance reaches medium or high systematic importance.
Third essay argues that the social failure of Islamic finance in relations to fulfilling developmentalist outcomes and its negations of moral expectations is highly a methodological problem, not just an issue bounded with practical realities of the field. This essay, therefore, aims to suggest maqasid al-Shari’ah as the fundamental knowledge creation methodology for the theorisation of Islamic moral economy through which Islamic developmentalism conceptualised and transformed into public policy making. However, it criticises market-oriented understanding of maqasid as a fiqhi construct, which is extensively applied in Islamic finance as a legitimisation tool leading up to a new moral code of conduct for economic activities. In responding to this, this essay develops an authentic approach towards maqasid al-Shari’ah based on substantive morality beyond the instrumentalised meaning of maqasid and morality.
Based on the theoretical discussion and empirical findings, this research suggests that the objective of Islamic banking and finance should not be ensuring of the dominance of capital but rather to ensure that capital is working within the objectives of society whereby capital is de-centred. Considering that most of the Muslim societies and developing countries are in dire need of development, therefore, it is important as to how Islamic finance and banking can work to produce development and essentialise the interest of extended stakeholder as suggested by tawhidi paradigm. Therefore, this research expands the scope of non developmental expansion of Islamic finance and its capital fundamentalism through the introduction of the notion of Islamic financialisation. It, accordingly, suggests Islamic developmentalism, founded in the theoretical framework of Islamic moral economy, as an embedded form of establishing distributive justice that facilitates paradigmatic shift towards an authentic theory of development, which can be facilitated by Islamic finance working within the ‘essential goals of the society’. In achieving this, maqasid al-Shari’ah is essentialised as the fundamental knowledge creation methodology for the theorisation of Islamic economics through which Islamic developmentalism conceptualised and transformed into public policy making.