Daromir Rudnyckyj, Beyond Debt: Islamic Experiments in Global Finance, University of Chicago Press, 2019; hbk £57, pbk £19.
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RATING: 86
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This is the second instalment in Rudnyckyj’s exploration of ways that Islam is being 'interpreted and deployed to be compatible with capitalism and modernity’ (225). The first, the excellent Spiritual Economies: Islam, Globalization and the Afterlife of Development (Cornell University Press, 2010) was a tightly focused study of a human resources training programme developed in Indonesia. It is highly recommended reading, and merits a review of its own. In short, however, it explored Emotional and Spiritual Quotient (ESQ) training (Figure 2.3, p. 86), the business leadership, human resources and life-coaching programme introduced by Ary Ginanjar at Krakatau Steel in Banten, and later developed on a much wider scale across other state enterprises, and abroad. Ginanjar advocated enhanced Islamic practice as a means to productivity and prosperity in the global economy in a period when Krakatau Steel was seeking to become more internationally competitive through privatization against the background of the elimination of protective tariffs. His method deployed a mix of 'spiritual exercises' backed by highly emotive testimony and exhortation with dramatic sound and light effects to bring about change in the mentality and behaviour of workers, conducive to acceptance of and commitment to the programme of reform. Or as the caption to a picture of participants in an ESQ training session wearing 3D glasses (Figure 2.2, p. 78) puts it: 'The training used sophisticated multimedia presentations to elicit affective dispositions'. The message of the book was simple and compelling: 'Spiritual reformers in contemporary Indonesia advocated religious virtues based on the understanding that doing so would create greater productivity, enhanced competitiveness, and the reduction of chronic corruption' (19). And its virtue was that precisely because it was a rich and detailed case study, admirably focused to set the programme in appropriate context, it yielded large implications for some important broader debates about globalisation - not least that depending on the ideological and historical context, Islam had no less affinity with capitalism than did Protestantism in a different time and place. From Rudnyckyj's secular perspective, the programme 'entailed the creation of a spiritual economy and a set of equivalences between Islam and scientific practice and technical knowledge, which I refer to as engineering Islam' (113); more generally, '[he does] not treat religious practice as a retreat into magic and mystery but rather as the deployment of a set of ascetic practices designed to make human beings into specific types of beings' (134): 'By interpreting work as a form of worship, everyday work is reconfigured as a means of achieving otherworldly salvation. Religious practices are reconfigured according to norms of maximum economy insofar as principles such as transparency, productivity, and rationalization are represented as ethics intrinsic to Islam' (154). Key chapters on 'Governing through Affect' and 'Spiritual Politics and Calculative Reason' link individual mentalities to Indonesia's 'post-development' project, but of course as always should not be read in isolation. Rudnyckyj's own assessment of the book is measured: 'Examining the effects of globalization, anthropologists have focused on the end of state social guarantees, the dissolution of the borders of the nation, and growing class inequality. This book reveals a less discussed dimension of globalization: the fact that it demands more individual labor, in terms of greater individual responsibility and accountability and ultimately more time invested in labor' (254). At the same time, he asks himself the obvious question with regard to spiritual training: 'Does it work?' (256); and he is not afraid to say, though in more sophisticated terms than I have space for here, that it is hard to know. A beautifully written and thought-provoking book, comparable in many ways to Aihwa Ong's Spirits of Resistance, and one that would merit 84 on my quantitative scale.
In Beyond Debt, Rudnyckyj turns to Malaysia’s Islamic finance project, which seeks to establish Kuala Lumpur as a global financial centre by offering new forms of finance compatible with the Islamic proscription on charging interest on debt (riba). The everyday politics of the project are well expressed by the 'exasperated' CEO of a Malaysian Islamic Bank: "Malaysian Muslims go out of the way to consume halal food. They're always checking the labels for a halal logo, but then they walk into a conventional bank and don't blink an eye" (151). The central issue as regards possible Islamic alternatives hinges on the contrast between finance contracts that are merely disguised forms of interest-based lending, meeting the letter but not the spirit of Islamic injunctions, and risk-sharing equity investments that create a genuine partnership between the contracting partners. The latter, Rudnyckyj argues, gives rise to 'a distinctive form of capitalism' (11), and intentionally so. What is at stake is 'a different vision of economic subjectivity': 'experts are engaged in experimental projects to create new forms of capitalism' (13). But for much of the time, still, perhaps transitional ways must be found to square quasi-interest based lending with religious injunctions that forbid it. Throughout, the distinction is based in a contrast between formal and substantive change, and shariah-compliant and shariah-based alternatives.
Like its predecessor, Beyond Debt is a well composed monograph in which the author is fully in command of both structure and argument. After a brief introduction, three chapters cover the infrastructure of the Malaysian project (Part I); three cover operations within it (Part II), and two (Part III) problematize the issues of risk-sharing and the subjectivity of debt versus equity. A very brief conclusion (214-20) then presents the Malaysian project as part of an 'emergent geoeconomics'. In the first substantive chapter, 'An Infrastructure for Islamic Finance', Rudnyckyj details the emergence of Malaysia's Islamic finance state project, 'from its initial goal of resolving a specific problem for Muslim citizens seeking to undertake the haji pilgrimage to a coordinated development strategy of the postcolonial state' (25). Importantly, it is not restricted to the introduction of new types of lending. Malaysia has built up an infrastructure of think tanks and research centres, created dedicated units in its Central Bank, and succeeded in bringing to Kuala Lumpur the Islamic Financial Services Board, an 'international standard-setting organization that develops global standards and guiding principles for Islamic financial institutions' (26). At the same time, it has sought to build an Islamic banking sector, first by offering conventional banks incentives to set up Islamic operations (1993), then by introducing legislation to force the (fairly successful) separation of these operations through a 'firewall' (2004). From roots in the Muslim Pilgrims Saving Corporation (1963) and Tabung Haji (1969), further development was superintended by the National Steering Committee on Islamic Banks, set up in 1981. This is a state project that has been practically four decades in the making, with its institutional foundations in the passage of the Islamic Banking Act ('the world's first national law specifically dedicated to the regulation of Islamic banks', 30) and the setting up of the Bank Islam Malaysia Berhad in 1983. Immediately following on this, the 1984 Takaful Act laid the basis for a complementary shariah-compliant insurance sector based on mutuality. The Bank Islam was given ten years to establish itself, after which a second Bank was licenced, and the opening of 'Islamic windows' in conventional banks was facilitated. An interbank money market and a securities market followed; in 1997 (and further in 2009) Malaysia's Central Bank made its National Shariah Advisory Council the sole authority advising the Bank on shariah issues, in order to avoid conflicting alternatives. In 1999 the Malaysian Stock Exchange (Bursa Malaysia) launched the Kuala Lumpur Shariah Index (33), and in 2009, as part of its efforts to establish its internationl position, it opened the Bursa Suq Al-Sila, a commodity-trading platform that functioned as a liquidity management system, using crude palm oil (and later hard- and softwood and other commodities) as underlying assets, thus making purchase and sale (the latter immediately upon purchase, and at a marginal loss) shariah-compliant because it technically involved the purchase and sale of real commodities, verifiable by audit on request, rather than financial instruments (47-8). Rudnyckyj's account of the tension this reflects and the manner in which it is managed (48-50) brings out well the kinds of challenges the Malaysian state faces as it seeks 'to adapt financial contracts that were characteristic of the Arabian peninsula during the seventh century CE to contemporary contexts, seeking to reconcile principles from the Qu'ran and the hadiths with the demands of modern capitalism' (46).
In short, this was a carefully planned state project, with national initiatives soon complemented by the creation of an Islamic financial network that 'was not limited by national borders but was in fact global in scope' (34). This came in the wake of the 'Asian financial crisis', when the standing of Western institutions was at an exceptional low. The first step was to make Malaysian state control of the Islamic finance sector unitary and watertight. So the 2009 Central Bank of Malaysia Act that gave the National Shariah Advisory Council (NSAC) supreme authority in the arbitration of matters connected to Islamic finance placed this authority in the system of civil courts, rather than in the parallel system of Islamic courts, and required other civil courts to refer relevant cases to the NSAC, which could issue binding decisions with legal force (37-8). At the same time, in order to establish its global credentials, Malaysia built on its position as host of the Islamic Financial Services Board (housed in the remarkable Sasana Kijang building, and usefully described as analogous to the Basel Committee on Banking Supervision) by creating the International Centre for Education in Islamic Finance in 2006 and the International Shari'ah Research Academy for Islamic Finance in 2008, which bring together students and scholars from around the Muslim world (43).
These introductory sections bring out, then, the potential tension between Islamic finance as a state project and as an issue of religious observance in the international field. In the rest of the book, Rudnyckyj draws his rich fieldwork to bring out the way in which this immanent tension was managed and played out, developing insights from his engagement with practitioners in Islamic financial firms, mostly university-based Islamic economists, regulators staffing supervisory and monitoring institutions, and shariah scholars schooled in branches of the classical Islamic educational disciplines, and especially fiqh (jurisprudence). Women, he notes, were 'strongly represented among all four categories of experts' (53). Among these heterogeneous groups, approaches, perspectives and habits of dress varied considerably: between the four different categories, between older and younger shariah scholars, or between those from Syria and Egypt, with their legacy, similar to Malaysia, of state-driven nationalism, and those from the Gulf States. For some practitioners, the relationship between capitalism and Islam was simply a matter of 'certain rules and regulations we have to abide by', said an employee of a major Islamic Bank in Malaysia; for him, scholars who looked at it from a very religious, faith-based perspective were 'politicizing the industry unnecessarily' (57). At this end of the industry, creating an Islamic financial device was 'purely a matter of testing an instrument against literal prohibitions in the texts' (58). Academic Islamic economists, in contrast, sought to build Islamic finance on distinctive principles and substantive values, often involving a critique of neoclassical and quantitative economics, and the crises it could neither predict nor prevent. Asad Zaman, of the International Islamic University of Islamabad, denouncing the figure of the maximising homo economicus, spoke for Islamic economics as a means of transforming human beings through generosity, kindness and compassion' (59); Dr Mustafa, an influential Islamic economist working in Malaysia, asserted that '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' (62). These differences are of course pretty much what you would expect. But Rudnyckyj captures them very deftly, and is therefore able to provide a rounded picture whose significance, for me, lies in three points. First, at a minimum level of ambition, ways can be found to mobilise finance and ancillary services that avoid practices forbidden in Islam, and highly respectable scholars are available to endorse them (for graphic examples, see 173-5). Second, Islam also has resources that can support and provide moral underpinning for forms of risk-sharing finance less at risk from the kinds of leveraging that have proved both lucrative and destructive in 'conventional' finance. Third, there is a degree of affinity not only between Islam and capitalism, but between Islamic finance and state-led projects of capitalist development. Specifically, while the tensions are evident, and well brought, Islamic precepts can be deployed to regulate finance in ways that both empower the state and limit the risk of instability, disciplining capital in ways that are conducive to more orderly accumulation than has been achieved recently in the centres of advanced capitalism, and even inculcating risk-taking entrepreneurial attitudes among Muslim subjects.
The principal shariah-compliant device Rudnyckyj details is the sukuk, commonly know as the 'Islamic bond'. In formal terms, it involves the notional purchase of an asset, from which a stream of income is derived. According to one representative definition, sukuk are 'transferable certificates representing a share in the ownership of assets or business ventures that entitle the sukuk holders to receive periodic fixed returns and full redemption on maturity of the sukuk' (103), and there are ancient and early modern equivalents that can be cited as historic precedents for this form of Islamic finance. However: 'The fact that Islamic instruments are, in the words of experts, "benchmarked" to interest rates, exposes the fiction that debt-based instruments avoid interest altogether, showing that they are in fact framed by interest-based finance and conceived of in ways that mirror interest-based finance' (107). True. But Rudnyckyj's strength is that his ethnographic method takes him beyond this uncontroversial judgement to reveal a richer underlying reality. A very well chosen case study (109-122) follows 'Uzair', the CEO of a Sydney-based finance company as he looks to raise a $500 million sukuk to support mortgages for Muslim clients in Australia who wanted to avoid a conventional mortgage. The 'everyday politics' of Islamic finance come out clearly: the large level of demand; the reluctance of Australian banks to introduce any form of Islamic finance; the dilemmas facing individuals of faith (for example - elderly parents won't visit for fear of dying in a house purchase through conventional mortgage); the detailed scrutiny by Islamic bank staff of the character of shariah compliance (in part because there is a real but unquantifiable risk that one or another shariah board will veto the scheme); and the contrasting approaches of a dedicated (Middle Eastern) bank and a Western bank with only a small part of its business "on the Islamic side" (119). It would have been nice to know if Uzair was eventually successful, but a quick trawl of the internet reveals the very considerable extent of Islamic banking and mortgage provision in Sydney and across Australia today.
Even so, the Malaysian authorities were not content to settle for a strategy of compliance: 'Malaysian experts were convinced that a more authentic, shariah-based version of Islamic finance would enable greater transnational integration of Malaysia's Islamic financial system, especially in the countries of the GCC [Gulf Cooperation Council]. Moving toward a standard of shariah-based Islamic finance was seen as a constitutive element in the broader project of making Malaysia a global hub for Islamic finance' (125-6). This mean a shift from a negative test in which anything not explicitly ruled out was acceptable, to a positive one where forms of finance were based on principles derived directly from Islamic texts and precepts - a strategy that required building a new financial system from the bottom up. It is not coincidental that this seemed both urgent and commercially promising in the face of evidence of the great instability of conventional finance. As Rudnyckyj makes clear, there were two distinct requirements to be satisfied in order to establish a shariah-based form of mortgage finance. First, the initial transaction had to be one of substance, based on shared equity or partnership rather than a loan. And second, the schedule of payments had to be linked to underlying asset values, rather than mimicking interest rates. Just as a fictitious sale and immediate buy-back (bai al ina) was accepted by some as compliant, but universally deemed not to be Islamic in substance, a sharing of equity ceased to be shariah-based the moment the process of purchase of the asset in installments by the client reverted to current interest rates as the measure against which payments were set. The device introduced to meet the first of these requirements was the 'diminishing musharaka', or a shared equity vehicle in which the bank initially purchased the property, and set up an equity partnership with the client. So 'the diminishing musharaka is considered an equity-based, risk-sharing contract because the client and the firm are effectively coinvestors in the property, with the client buying out the bank's share in the property over time' (145). Second, though, and just as important, the shariah-based complement was a system of repayment based on 'a rental rate indexed to rental prices on the real market' (146). The distinction here, as Rudnyckyj points out, is not between capitalism and some alternative economic system, but between debt and the market. According to 'Idris', a former conventional banking employee who had moved into research on Islamic finance, and was involved in the design, the scheme was authentic because the profit rate was "determined by supply and demand" (146):
'This claim reflected the fact that those seeking to reform Islamic finance assert the superiority of certain instruments not only because they are more authentic to Islam, but also because they better conform to the doctrines of liberal economics. When Idris affirms a preference for determining profits based on "supply and demand" as opposed to interest rates, he implicitly endorses the liberal dictum that it is natural that prices be set by the market. This view was further reflected when he argued that his version of diminishing musharaka was based on "fair profit sharing," because the rental rate is indexed to "real market conditions," not a guaranteed interest rate' (146-7).
The final chapter of Part II, 'Consuming Form, Investing in Substance' then explores the relative inattention of Malaysian Muslims to Islamic finance, compared to their hyperattention to dietary practice, arguing that while 'Malaysia's Islamic finance project has made the economy a domain in which debates over the integrity of Islamic practice are conducted', this apparent paradox 'is rooted in the relative complexity of the practice of creating halal financial products as opposed to halal food and uncertainty about the Islamicity of Islamic finance stemming from the common criticism that it is "not really Islamic"' (151-2). The reference to halal food is pertinent, as the Malaysian state has sought to capitalize on the multi-billion pound halal food industry by making the country 'a global centre for halal certification' (153; see Fischer, 2011, and his chapter here): a key issue concerns whether the ritual slaughter of a chicken, for example, is enough, or whether a more substantive approach would focus on environmental and other aspects of the raising and consumption of chickens (154-6). Broadly, this aligns with the substance of an ethical life, with its attention to the preservation of religion, life, progeny, intellect and wealth (maqasid). Applied to the finance sector, it implies making finance a source of social justice, a step beyond the alternative notion of sharing risk (161-2).
In Part III, Rudnyckyj addresses the question of whether a more substantive form of Islamic finance than one simply based on risk sharing and at a minimum mere technical compliance is emerging. The initial focus is on the 2013 Islamic Financial Services Act, passed with little prior consultation with industry professionals with the intention of 'pushing Islamic finance to the next stage' (168), primarily by ruling out leverage through a move from risk transfer to risk sharing. The 2013 Act made immediate sale and repurchase illegal, increasing the risk involved, and sought to encourage use of mudaraba contracts instead, modelled on those, reputedly used by the prophet Muhammed, in which a merchant advances money to an entrepreneur in return for a share of the profits of the funded enterprise. Notably, the parallels with venture capital were not lost on their advocates (177-8). At the same time, new rules separated 'Islamic deposits' from 'investment accounts in which the depositor could share in profits but had no guarantee that the sum invested would be returned in full. Rudnyckyj highlights all this as 'a bold effort to move the industry toward a shariah-based system by upholding what reformers saw as the authentic principles of equity finance' (182-3). It certainly does represent an autonomous intervention by the state to effect a 'paradigm shift', in pursuit of global leadership and competitiveness (Umar, senior employee of the Islamic Banking Department, Central Bank: "We just want the banks to start thinking differently from what they have been doing before", 183). And as Rudnyckyj comments, anticipating the final chapter: 'By producing subjects better at calculating risk, the state could elicit entrepreneurial citizens better capable of competing in a global economy' (184). Rudnyckyj's account of an IFSB workshop on 'Liquidity Risk Management and Stress Testing Standards for Islamic Finance' in late 2013 (184-94) offers insights into the extent of innovation in this arena and the centrality, in the minds of its developers, of the goal of constraining leverage; and he ends the chapter on a striking note: 'Ultimately, I argue that equity-based finance is more compatible with development strategies that emphasize entrepreneurialism, individual agency, and innovation and is thus broadly complicit with a neoliberal approach to development' (195).
Further light is thrown on the project in the penultimate chapter, 'Subjects of Debt, Subjects of Equity', which begins with a former CEO of a large Islamic Bank recalling that in the early days of the project, the fundamental message behind it was "about the financial inclusion of the Malays". Subsequently, Rudnyckyj suggests, as a strong Malay middle class emerged, it became "a technique for the entrepreneurialization of the Malay population" (197). Mahathir moved to create Bank Islam only when PAS (the rising Partai Al-Islam Se-Malaysia) included Islamic Banking in its 1982 election manifesto (200), and the shariah-compliant techniques initially introduced were chosen because they were deemed the most likely to be taken up by Malay Muslims. Commenting that this was part of 'a distinctive Malaysian governmentality designed to foster a productive population in the image favoured by the state', Rudnyckyj goes on to cite Aihwa Ong and expand upon her analysis:
'As Aihwa Ong has shown, the Malaysian state under Mahathir aggressively promoted a version of Islam conducive to the production of workers who possessed the skills desired by global capital. Nonetheless, these workers were also dependent on state benevolence: the "new Malay subject - the receiver of government scholarships, credit, business licences, civil service jobs, and innumerable other perks associated with being bumiputra - has been trained to obtain credentials, to be effective on the job, and also to view these activities as within the dictates of an official Islam"' (Ong, 1999, 204). Opening an account at an Islamic bank was part and parcel of the project of creating a middle-class Malay subject who was simultaneously capable of performing labour valuable in a global market and of conforming to the political and economic objectives of the state' (201).
The two closing sections of the chapter, 'Entrepreneurializing Muslim Subjects', and 'Eliciting Entrepreneurs', reveal just how attentive the Malaysian state has been to the challenges of global competitiveness. In its view, affirmative action towards Malays was beginning to have negative consequences, making them complacent and giving them a sense of entitlement, and driving many young and well-educated non-Malays to seek their fortunes in neighbouring Singapore and elsewhere. The state responded by seeking to make its Malay citizens 'enterprising agents of economic growth', or 'risk-managing and risk-calculating subjects' (204), and it in this objective that Rudnyckyj finds a strong additional motive behind the shift from a shariah-compliant to a shariah-based approach. He documents explicit reference to the mudaraba contract (based on investment risk rather than guaranteed return) in the Tenth Malaysia Plan (2010), in the context of promoting the creation of an entrepreneurial culture among Malays: 'Key here is the way in which entrepreneurship, risk, and equity financing are linked together. It makes explicit how the state sees Islamic finance, especially the way in which action premised on risk is represented as a key feature of Islamic finance. ... Indeed, much of the conviction that experts place in the superiority of Islamic finance stems from their conviction that it does a better job of eliciting values conducive to innovation, entrepreneurship, and individual economic autonomy' (209).
In the long run, as the brief conclusion remarks, Malaysia hopes to attract from the Middle East oil money that is currently parked to a large extent in Western financial instruments that fail the test of shariah compliance, and to become a bridge between Gulf capital on the one hand, and East and Southeast Asian industry on the other. More broadly, Rudnyckyj suggests that this might portend a geopolitical shift, as Malaysia in particular and Islamic finance more broadly promise to generate a new financial system based more upon risk-sharing and equity than on debt. He is knowingly pushing beyond the current evidence here. What is more, if the contrast with what he describes in passing as 'assumed practices of conventional finance' (218) is taken for granted, he is in danger of painting too monochromatic a picture. While there is no doubting the massive significance of debt, whether international, corporate or personal, in conventional Western finance, banking has not always been characterized by an appetite for leveraging, derivates and the like, and the banking systems of the advanced capitalist economies in the West have not always been oriented away from the 'real economy'. Equally, attempts to inculcate appetites for risk have been just as prominent, and could be parallelled in a myriad instances - Thatcher's envisaged 'share-owning democracy', tax-free savings accounts based on the stock market, 'whose value may rise or fall', and privatized pensions invested in money markets being three conspicuous examples. So the conclusion should be assessed with care. But this does not detract from the significance of the study as a whole. It not only documents the affinity between Islam and what I would call liberal as much as neoliberal capitalism (not in itself surprising, as Islam had its roots in a transnational trading society in which the sharing of risk made eminent practical sense), but it shows in depth and in detail that the Malaysian state has painstakingly worked its way towards a capacity to lead globally in the provision and development of Islamic finance by putting together the intellectual and institutional infrastructure, and found a way, often by pushing against the preferences of the industry, to innovate constantly, and at the same time to marry its global ambitions to an equal push to transform the attitudes and behaviour of its citizens. It's a fine book, and especially at the price, definitely one for your bookshelf.
References
Fischer, Johan (2011), The Halal Frontier: Muslim Consumers in a Globalized Market, Palgrave Macmillan, New York.
Ong, Aihwa (1999), Flexible Citizenship: The Cultural Logics of Transnationality, Duke University Press, Durham.
In Beyond Debt, Rudnyckyj turns to Malaysia’s Islamic finance project, which seeks to establish Kuala Lumpur as a global financial centre by offering new forms of finance compatible with the Islamic proscription on charging interest on debt (riba). The everyday politics of the project are well expressed by the 'exasperated' CEO of a Malaysian Islamic Bank: "Malaysian Muslims go out of the way to consume halal food. They're always checking the labels for a halal logo, but then they walk into a conventional bank and don't blink an eye" (151). The central issue as regards possible Islamic alternatives hinges on the contrast between finance contracts that are merely disguised forms of interest-based lending, meeting the letter but not the spirit of Islamic injunctions, and risk-sharing equity investments that create a genuine partnership between the contracting partners. The latter, Rudnyckyj argues, gives rise to 'a distinctive form of capitalism' (11), and intentionally so. What is at stake is 'a different vision of economic subjectivity': 'experts are engaged in experimental projects to create new forms of capitalism' (13). But for much of the time, still, perhaps transitional ways must be found to square quasi-interest based lending with religious injunctions that forbid it. Throughout, the distinction is based in a contrast between formal and substantive change, and shariah-compliant and shariah-based alternatives.
Like its predecessor, Beyond Debt is a well composed monograph in which the author is fully in command of both structure and argument. After a brief introduction, three chapters cover the infrastructure of the Malaysian project (Part I); three cover operations within it (Part II), and two (Part III) problematize the issues of risk-sharing and the subjectivity of debt versus equity. A very brief conclusion (214-20) then presents the Malaysian project as part of an 'emergent geoeconomics'. In the first substantive chapter, 'An Infrastructure for Islamic Finance', Rudnyckyj details the emergence of Malaysia's Islamic finance state project, 'from its initial goal of resolving a specific problem for Muslim citizens seeking to undertake the haji pilgrimage to a coordinated development strategy of the postcolonial state' (25). Importantly, it is not restricted to the introduction of new types of lending. Malaysia has built up an infrastructure of think tanks and research centres, created dedicated units in its Central Bank, and succeeded in bringing to Kuala Lumpur the Islamic Financial Services Board, an 'international standard-setting organization that develops global standards and guiding principles for Islamic financial institutions' (26). At the same time, it has sought to build an Islamic banking sector, first by offering conventional banks incentives to set up Islamic operations (1993), then by introducing legislation to force the (fairly successful) separation of these operations through a 'firewall' (2004). From roots in the Muslim Pilgrims Saving Corporation (1963) and Tabung Haji (1969), further development was superintended by the National Steering Committee on Islamic Banks, set up in 1981. This is a state project that has been practically four decades in the making, with its institutional foundations in the passage of the Islamic Banking Act ('the world's first national law specifically dedicated to the regulation of Islamic banks', 30) and the setting up of the Bank Islam Malaysia Berhad in 1983. Immediately following on this, the 1984 Takaful Act laid the basis for a complementary shariah-compliant insurance sector based on mutuality. The Bank Islam was given ten years to establish itself, after which a second Bank was licenced, and the opening of 'Islamic windows' in conventional banks was facilitated. An interbank money market and a securities market followed; in 1997 (and further in 2009) Malaysia's Central Bank made its National Shariah Advisory Council the sole authority advising the Bank on shariah issues, in order to avoid conflicting alternatives. In 1999 the Malaysian Stock Exchange (Bursa Malaysia) launched the Kuala Lumpur Shariah Index (33), and in 2009, as part of its efforts to establish its internationl position, it opened the Bursa Suq Al-Sila, a commodity-trading platform that functioned as a liquidity management system, using crude palm oil (and later hard- and softwood and other commodities) as underlying assets, thus making purchase and sale (the latter immediately upon purchase, and at a marginal loss) shariah-compliant because it technically involved the purchase and sale of real commodities, verifiable by audit on request, rather than financial instruments (47-8). Rudnyckyj's account of the tension this reflects and the manner in which it is managed (48-50) brings out well the kinds of challenges the Malaysian state faces as it seeks 'to adapt financial contracts that were characteristic of the Arabian peninsula during the seventh century CE to contemporary contexts, seeking to reconcile principles from the Qu'ran and the hadiths with the demands of modern capitalism' (46).
In short, this was a carefully planned state project, with national initiatives soon complemented by the creation of an Islamic financial network that 'was not limited by national borders but was in fact global in scope' (34). This came in the wake of the 'Asian financial crisis', when the standing of Western institutions was at an exceptional low. The first step was to make Malaysian state control of the Islamic finance sector unitary and watertight. So the 2009 Central Bank of Malaysia Act that gave the National Shariah Advisory Council (NSAC) supreme authority in the arbitration of matters connected to Islamic finance placed this authority in the system of civil courts, rather than in the parallel system of Islamic courts, and required other civil courts to refer relevant cases to the NSAC, which could issue binding decisions with legal force (37-8). At the same time, in order to establish its global credentials, Malaysia built on its position as host of the Islamic Financial Services Board (housed in the remarkable Sasana Kijang building, and usefully described as analogous to the Basel Committee on Banking Supervision) by creating the International Centre for Education in Islamic Finance in 2006 and the International Shari'ah Research Academy for Islamic Finance in 2008, which bring together students and scholars from around the Muslim world (43).
These introductory sections bring out, then, the potential tension between Islamic finance as a state project and as an issue of religious observance in the international field. In the rest of the book, Rudnyckyj draws his rich fieldwork to bring out the way in which this immanent tension was managed and played out, developing insights from his engagement with practitioners in Islamic financial firms, mostly university-based Islamic economists, regulators staffing supervisory and monitoring institutions, and shariah scholars schooled in branches of the classical Islamic educational disciplines, and especially fiqh (jurisprudence). Women, he notes, were 'strongly represented among all four categories of experts' (53). Among these heterogeneous groups, approaches, perspectives and habits of dress varied considerably: between the four different categories, between older and younger shariah scholars, or between those from Syria and Egypt, with their legacy, similar to Malaysia, of state-driven nationalism, and those from the Gulf States. For some practitioners, the relationship between capitalism and Islam was simply a matter of 'certain rules and regulations we have to abide by', said an employee of a major Islamic Bank in Malaysia; for him, scholars who looked at it from a very religious, faith-based perspective were 'politicizing the industry unnecessarily' (57). At this end of the industry, creating an Islamic financial device was 'purely a matter of testing an instrument against literal prohibitions in the texts' (58). Academic Islamic economists, in contrast, sought to build Islamic finance on distinctive principles and substantive values, often involving a critique of neoclassical and quantitative economics, and the crises it could neither predict nor prevent. Asad Zaman, of the International Islamic University of Islamabad, denouncing the figure of the maximising homo economicus, spoke for Islamic economics as a means of transforming human beings through generosity, kindness and compassion' (59); Dr Mustafa, an influential Islamic economist working in Malaysia, asserted that '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' (62). These differences are of course pretty much what you would expect. But Rudnyckyj captures them very deftly, and is therefore able to provide a rounded picture whose significance, for me, lies in three points. First, at a minimum level of ambition, ways can be found to mobilise finance and ancillary services that avoid practices forbidden in Islam, and highly respectable scholars are available to endorse them (for graphic examples, see 173-5). Second, Islam also has resources that can support and provide moral underpinning for forms of risk-sharing finance less at risk from the kinds of leveraging that have proved both lucrative and destructive in 'conventional' finance. Third, there is a degree of affinity not only between Islam and capitalism, but between Islamic finance and state-led projects of capitalist development. Specifically, while the tensions are evident, and well brought, Islamic precepts can be deployed to regulate finance in ways that both empower the state and limit the risk of instability, disciplining capital in ways that are conducive to more orderly accumulation than has been achieved recently in the centres of advanced capitalism, and even inculcating risk-taking entrepreneurial attitudes among Muslim subjects.
The principal shariah-compliant device Rudnyckyj details is the sukuk, commonly know as the 'Islamic bond'. In formal terms, it involves the notional purchase of an asset, from which a stream of income is derived. According to one representative definition, sukuk are 'transferable certificates representing a share in the ownership of assets or business ventures that entitle the sukuk holders to receive periodic fixed returns and full redemption on maturity of the sukuk' (103), and there are ancient and early modern equivalents that can be cited as historic precedents for this form of Islamic finance. However: 'The fact that Islamic instruments are, in the words of experts, "benchmarked" to interest rates, exposes the fiction that debt-based instruments avoid interest altogether, showing that they are in fact framed by interest-based finance and conceived of in ways that mirror interest-based finance' (107). True. But Rudnyckyj's strength is that his ethnographic method takes him beyond this uncontroversial judgement to reveal a richer underlying reality. A very well chosen case study (109-122) follows 'Uzair', the CEO of a Sydney-based finance company as he looks to raise a $500 million sukuk to support mortgages for Muslim clients in Australia who wanted to avoid a conventional mortgage. The 'everyday politics' of Islamic finance come out clearly: the large level of demand; the reluctance of Australian banks to introduce any form of Islamic finance; the dilemmas facing individuals of faith (for example - elderly parents won't visit for fear of dying in a house purchase through conventional mortgage); the detailed scrutiny by Islamic bank staff of the character of shariah compliance (in part because there is a real but unquantifiable risk that one or another shariah board will veto the scheme); and the contrasting approaches of a dedicated (Middle Eastern) bank and a Western bank with only a small part of its business "on the Islamic side" (119). It would have been nice to know if Uzair was eventually successful, but a quick trawl of the internet reveals the very considerable extent of Islamic banking and mortgage provision in Sydney and across Australia today.
Even so, the Malaysian authorities were not content to settle for a strategy of compliance: 'Malaysian experts were convinced that a more authentic, shariah-based version of Islamic finance would enable greater transnational integration of Malaysia's Islamic financial system, especially in the countries of the GCC [Gulf Cooperation Council]. Moving toward a standard of shariah-based Islamic finance was seen as a constitutive element in the broader project of making Malaysia a global hub for Islamic finance' (125-6). This mean a shift from a negative test in which anything not explicitly ruled out was acceptable, to a positive one where forms of finance were based on principles derived directly from Islamic texts and precepts - a strategy that required building a new financial system from the bottom up. It is not coincidental that this seemed both urgent and commercially promising in the face of evidence of the great instability of conventional finance. As Rudnyckyj makes clear, there were two distinct requirements to be satisfied in order to establish a shariah-based form of mortgage finance. First, the initial transaction had to be one of substance, based on shared equity or partnership rather than a loan. And second, the schedule of payments had to be linked to underlying asset values, rather than mimicking interest rates. Just as a fictitious sale and immediate buy-back (bai al ina) was accepted by some as compliant, but universally deemed not to be Islamic in substance, a sharing of equity ceased to be shariah-based the moment the process of purchase of the asset in installments by the client reverted to current interest rates as the measure against which payments were set. The device introduced to meet the first of these requirements was the 'diminishing musharaka', or a shared equity vehicle in which the bank initially purchased the property, and set up an equity partnership with the client. So 'the diminishing musharaka is considered an equity-based, risk-sharing contract because the client and the firm are effectively coinvestors in the property, with the client buying out the bank's share in the property over time' (145). Second, though, and just as important, the shariah-based complement was a system of repayment based on 'a rental rate indexed to rental prices on the real market' (146). The distinction here, as Rudnyckyj points out, is not between capitalism and some alternative economic system, but between debt and the market. According to 'Idris', a former conventional banking employee who had moved into research on Islamic finance, and was involved in the design, the scheme was authentic because the profit rate was "determined by supply and demand" (146):
'This claim reflected the fact that those seeking to reform Islamic finance assert the superiority of certain instruments not only because they are more authentic to Islam, but also because they better conform to the doctrines of liberal economics. When Idris affirms a preference for determining profits based on "supply and demand" as opposed to interest rates, he implicitly endorses the liberal dictum that it is natural that prices be set by the market. This view was further reflected when he argued that his version of diminishing musharaka was based on "fair profit sharing," because the rental rate is indexed to "real market conditions," not a guaranteed interest rate' (146-7).
The final chapter of Part II, 'Consuming Form, Investing in Substance' then explores the relative inattention of Malaysian Muslims to Islamic finance, compared to their hyperattention to dietary practice, arguing that while 'Malaysia's Islamic finance project has made the economy a domain in which debates over the integrity of Islamic practice are conducted', this apparent paradox 'is rooted in the relative complexity of the practice of creating halal financial products as opposed to halal food and uncertainty about the Islamicity of Islamic finance stemming from the common criticism that it is "not really Islamic"' (151-2). The reference to halal food is pertinent, as the Malaysian state has sought to capitalize on the multi-billion pound halal food industry by making the country 'a global centre for halal certification' (153; see Fischer, 2011, and his chapter here): a key issue concerns whether the ritual slaughter of a chicken, for example, is enough, or whether a more substantive approach would focus on environmental and other aspects of the raising and consumption of chickens (154-6). Broadly, this aligns with the substance of an ethical life, with its attention to the preservation of religion, life, progeny, intellect and wealth (maqasid). Applied to the finance sector, it implies making finance a source of social justice, a step beyond the alternative notion of sharing risk (161-2).
In Part III, Rudnyckyj addresses the question of whether a more substantive form of Islamic finance than one simply based on risk sharing and at a minimum mere technical compliance is emerging. The initial focus is on the 2013 Islamic Financial Services Act, passed with little prior consultation with industry professionals with the intention of 'pushing Islamic finance to the next stage' (168), primarily by ruling out leverage through a move from risk transfer to risk sharing. The 2013 Act made immediate sale and repurchase illegal, increasing the risk involved, and sought to encourage use of mudaraba contracts instead, modelled on those, reputedly used by the prophet Muhammed, in which a merchant advances money to an entrepreneur in return for a share of the profits of the funded enterprise. Notably, the parallels with venture capital were not lost on their advocates (177-8). At the same time, new rules separated 'Islamic deposits' from 'investment accounts in which the depositor could share in profits but had no guarantee that the sum invested would be returned in full. Rudnyckyj highlights all this as 'a bold effort to move the industry toward a shariah-based system by upholding what reformers saw as the authentic principles of equity finance' (182-3). It certainly does represent an autonomous intervention by the state to effect a 'paradigm shift', in pursuit of global leadership and competitiveness (Umar, senior employee of the Islamic Banking Department, Central Bank: "We just want the banks to start thinking differently from what they have been doing before", 183). And as Rudnyckyj comments, anticipating the final chapter: 'By producing subjects better at calculating risk, the state could elicit entrepreneurial citizens better capable of competing in a global economy' (184). Rudnyckyj's account of an IFSB workshop on 'Liquidity Risk Management and Stress Testing Standards for Islamic Finance' in late 2013 (184-94) offers insights into the extent of innovation in this arena and the centrality, in the minds of its developers, of the goal of constraining leverage; and he ends the chapter on a striking note: 'Ultimately, I argue that equity-based finance is more compatible with development strategies that emphasize entrepreneurialism, individual agency, and innovation and is thus broadly complicit with a neoliberal approach to development' (195).
Further light is thrown on the project in the penultimate chapter, 'Subjects of Debt, Subjects of Equity', which begins with a former CEO of a large Islamic Bank recalling that in the early days of the project, the fundamental message behind it was "about the financial inclusion of the Malays". Subsequently, Rudnyckyj suggests, as a strong Malay middle class emerged, it became "a technique for the entrepreneurialization of the Malay population" (197). Mahathir moved to create Bank Islam only when PAS (the rising Partai Al-Islam Se-Malaysia) included Islamic Banking in its 1982 election manifesto (200), and the shariah-compliant techniques initially introduced were chosen because they were deemed the most likely to be taken up by Malay Muslims. Commenting that this was part of 'a distinctive Malaysian governmentality designed to foster a productive population in the image favoured by the state', Rudnyckyj goes on to cite Aihwa Ong and expand upon her analysis:
'As Aihwa Ong has shown, the Malaysian state under Mahathir aggressively promoted a version of Islam conducive to the production of workers who possessed the skills desired by global capital. Nonetheless, these workers were also dependent on state benevolence: the "new Malay subject - the receiver of government scholarships, credit, business licences, civil service jobs, and innumerable other perks associated with being bumiputra - has been trained to obtain credentials, to be effective on the job, and also to view these activities as within the dictates of an official Islam"' (Ong, 1999, 204). Opening an account at an Islamic bank was part and parcel of the project of creating a middle-class Malay subject who was simultaneously capable of performing labour valuable in a global market and of conforming to the political and economic objectives of the state' (201).
The two closing sections of the chapter, 'Entrepreneurializing Muslim Subjects', and 'Eliciting Entrepreneurs', reveal just how attentive the Malaysian state has been to the challenges of global competitiveness. In its view, affirmative action towards Malays was beginning to have negative consequences, making them complacent and giving them a sense of entitlement, and driving many young and well-educated non-Malays to seek their fortunes in neighbouring Singapore and elsewhere. The state responded by seeking to make its Malay citizens 'enterprising agents of economic growth', or 'risk-managing and risk-calculating subjects' (204), and it in this objective that Rudnyckyj finds a strong additional motive behind the shift from a shariah-compliant to a shariah-based approach. He documents explicit reference to the mudaraba contract (based on investment risk rather than guaranteed return) in the Tenth Malaysia Plan (2010), in the context of promoting the creation of an entrepreneurial culture among Malays: 'Key here is the way in which entrepreneurship, risk, and equity financing are linked together. It makes explicit how the state sees Islamic finance, especially the way in which action premised on risk is represented as a key feature of Islamic finance. ... Indeed, much of the conviction that experts place in the superiority of Islamic finance stems from their conviction that it does a better job of eliciting values conducive to innovation, entrepreneurship, and individual economic autonomy' (209).
In the long run, as the brief conclusion remarks, Malaysia hopes to attract from the Middle East oil money that is currently parked to a large extent in Western financial instruments that fail the test of shariah compliance, and to become a bridge between Gulf capital on the one hand, and East and Southeast Asian industry on the other. More broadly, Rudnyckyj suggests that this might portend a geopolitical shift, as Malaysia in particular and Islamic finance more broadly promise to generate a new financial system based more upon risk-sharing and equity than on debt. He is knowingly pushing beyond the current evidence here. What is more, if the contrast with what he describes in passing as 'assumed practices of conventional finance' (218) is taken for granted, he is in danger of painting too monochromatic a picture. While there is no doubting the massive significance of debt, whether international, corporate or personal, in conventional Western finance, banking has not always been characterized by an appetite for leveraging, derivates and the like, and the banking systems of the advanced capitalist economies in the West have not always been oriented away from the 'real economy'. Equally, attempts to inculcate appetites for risk have been just as prominent, and could be parallelled in a myriad instances - Thatcher's envisaged 'share-owning democracy', tax-free savings accounts based on the stock market, 'whose value may rise or fall', and privatized pensions invested in money markets being three conspicuous examples. So the conclusion should be assessed with care. But this does not detract from the significance of the study as a whole. It not only documents the affinity between Islam and what I would call liberal as much as neoliberal capitalism (not in itself surprising, as Islam had its roots in a transnational trading society in which the sharing of risk made eminent practical sense), but it shows in depth and in detail that the Malaysian state has painstakingly worked its way towards a capacity to lead globally in the provision and development of Islamic finance by putting together the intellectual and institutional infrastructure, and found a way, often by pushing against the preferences of the industry, to innovate constantly, and at the same time to marry its global ambitions to an equal push to transform the attitudes and behaviour of its citizens. It's a fine book, and especially at the price, definitely one for your bookshelf.
References
Fischer, Johan (2011), The Halal Frontier: Muslim Consumers in a Globalized Market, Palgrave Macmillan, New York.
Ong, Aihwa (1999), Flexible Citizenship: The Cultural Logics of Transnationality, Duke University Press, Durham.