Book Review: ‘The Islamic Moral Economy: A Study of Islamic Money and Financial Instruments’ - Raficq Abdulla

Shafiel Karim, who took a religious studies degree at an American university before completing his post-graduate certificate in Islamic banking with the Institute of Islamic Banking and Insurance in London, has written a short and somewhat subversive account of Shari’ah finance both in terms of its principles and with regard to the pragmatic implementation of those principles in modern financial markets. Karim bases his thesis on the notion of the ‘Islamic Moral Economy’ (the title of his book), which he sees as ethically pure, but demanding; in fact a utopian ideal distant from the perennial and often underhand manipulations of the marketplace; in short, from reality. Karim defines it as ‘... a utopian theocracy and social economy that contains elements of free-market capitalism and communism’. A heady brew of contrasting, if not contradictory values, therefore, make up the Islamic moral economy.

As Karim points out, Islam’s moral economic universe is an idea rather than a reality; it asks for participants to give an account of themselves in moral terms rather than exercise their acumen in order to acquire riches and power. He gives a diligent if occasionally laboured account of the various types and effects of Shari’ah contracts and well-rehearsed precepts that underpin Shari’ah finance. Thus we are forbidden riba or interest (a pervasive and necessary catalyst in conventional finance, which is a more contested idea amongst Shari’ah scholars than is generally recognised), uncertainty, speculation and investment in forbidden products and activities such as gambling, arms manufacture, porcine products and so on.

These strictures are based upon rigorous ethical injunctions that all Muslims are exhorted to follow as found in the Qur’an, the Prophet’s exemplary life or Sunna and the sayings of the Prophet and his immediate followers, known as Hadith. These rules or injunctions are embellished and developed by the timely accruals of jurisprudential opinions over the ages, which make up Fiqh or the implementation of the Shari’ah into legal practice, authority and judgements. The Islamic Moral Economy, however, as envisaged by Karim, goes further than ad hoc injunctions; there is a seamless ethos which gives the injunctions their energy and cohesiveness. It demands from Muslims complete reciprocity, integrity, an obligation to serve and to be responsible for the community. This worthy expectation of how people should behave virtuously does not translate into how they do behave in modern secular societies, which are becoming increasingly impersonal, self-centred and complex. Karim questions the possibility of acting morally in accordance with the Islamic moral economy in modern contemporary financial markets. His cogent and challenging thesis is threaded with an abiding scepticism about truly realising the ethics underpinning Shari’ah finance, as opposed to indulging in window dressing by mouthing complacent slogans rather than making a reality of Shari’ah precepts.

Karim points out that there are three degrees of legitimacy with regard to financial products and contracts within the Islamic moral economy, namely Shari’ah tolerance, compliance and dependence. ‘Tolerance’ is the lowest degree of compliance with the requirements of Islamic law and ‘dependence’ is the highest. In all these contracts and products, however, there lies the danger of re-branding being regarded as a change in substance. Thus, riba or the payment of interest may in fact continue to exist in ubiquitous murabaha transactions although it is no longer named as such.

Karim tells us that in the Islamic moral economy’s market place, Allah or God is always the other omniscient and necessary partner in all transactions. According to Karim, He ‘...sets the prices.’ He does more than that. He sees all and knows all. He is the eternal policeman of our deeds and intentions. He abjures monopolies and unfair dealings, which imply asymmetrical knowledge, which in turn gives unfair advantage to one party against another. Risk and reward should be shared equally between all parties to a commercial transaction according to the rules of the Shari’ah. Omniscient and omnipotent immortality clearly has its drawbacks for venal mortals busy gaining advantage in the marketplace. In fact, after reading Karim’s critique, one wonders whether the principles of Shari’ah finance could ever be completely realised, given the vagaries of human nature in the marketplace and the perennial greed and desire to accumulate that drives most of us. Karim worries not only about the applicability of the obvious rules governing Shari’ah financial transactions, he also complains about the lack of ‘...a critical and holistic examination of conventional money, banking, and insurance models that may or may not be soluble [sic] with the utopian Islamic moral economy.’ He calls for a new Shari’ah perspective which is independent of ‘...conventional money, banking, or insurance.’

As it is, Shari’ah finance as presently practised and developed (it is a developing art, in fact it demonstrates the flexibility of fiqh, which is time-bound, but based on the eternal ethical principles of the Shari’ah) is new and in spite of the existence of a repertoire of Shari’ah finance contracts, which Karim analyses with varying degrees of clarity, it is limited in scope. As presently constituted it is unable to address the everexpanding and increasingly sophisticated plethora of financial products that constitute the Leviathan – some may call it a many-headed Hydra – that is the 24/7 casino of contemporary finance.

Recently, Moody’s Investor Service reported that the global Islamic financial market is calculated to be worth between $750bn and $1 trillion USD and may expand to $2.8 trillion by 2015 according to an estimate by the Kuala Lumpur-based Islamic Financial Services Board. Whilst Islamic finance is moving fast into the mainstream of global finance, when you compare those figures with one asset class of conventional finance – that of FX trading, – which runs at around $3,981bn a day, you get a sense of the relative stature of Islamic finance in the global market. It is interesting to note also that most FX trading, which is a high-speed, algorithmic business, has little to do with either trade or investment, but is a market for speculators with an instinct for gambling. It would never pass muster by the Shari’ah even as a tolerant practice, never mind being compliant or dependent.

Karim discusses many issues that cannot be covered in a short review of his book, he calls into question the compatibility of money creation by banks (by way of the pervasive use of the fractional reserve models in conventional banking) and by government with Shari’ah compliance; he points out the differing stances taken by various Shari’ah scholars and schools of thought on many points of law. Opinion is divided, authority questioned, precedents are sometimes vague and unreliable. Karim covers much ground in a concise space. The book’s short text of 93 pages has a long tail of a bibliography that runs to 24 pages. It appears that Karim has thrown in everything including the kitchen sink and one wonders who will be served by such a vast compendium of books. However, the body is well worth reading and pondering upon without the distraction of the tail.

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