Page 8 - Valentino Cattelan - In the name of God: managing risk in Islamic finance

VALENTINO CATTELAN

2. Islamic finance, Muslim anthropology, and legitimate profit: al-kharaj bi-l-daman

Islamic finance has recently experienced increasing visibility as an ethical
alternative to conventional business, as well as exceptional growth in GCC and
18
South- Asian countries (above all, Malaysia), with an average growth rate between
10 and 20 per cent in the last decade. At any rate, while forming a promising niche
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in the Middle East and Asia, at present its market share is only around two to three
per cent of total transactions at a global level; moreover, as far as Europe and the
West are concerned, the United Kingdom, as the largest national market (after
Turkey), still attracts only a marginal percentage of Shari‘ah-compliant assets,
despite the favourable regulation fostered by the local government.
20
From a historical standpoint, modern Islamic finance finds no precedent in the
Muslim society of the past, which did not experience institutionalised credit
institutions such as the European banks of the Middle Ages. As shown by
21
Udovitch, financial support in classical Islam was mainly supplied by informal
capital providers or by credit- labour partnerships for commercial activities. In
contrast, the birth of contemporary Islamic finance relates to a flourishing
22
academic literature on Islamic economics, from the ‘70s onwards, and to the
first experiments of Islamic banking in Egypt, under the liberalization programme
23
by President Sadat, the Infitah (‘open-door’) policy. While these preliminary
examples of Islamic finance were primarily driven by purposes of social cohesion
through enlarging the access to credit for the poor, it was during the ‘80s that a
more advanced industry developed under the criteria of Shari‘ah-compliance,

18 TRIPP, Islam and the moral economy. The challenge of capitalism, Cambridge, 2006.
19 As noted in THE BANKER (2013), Top Islamic financial institutions, Special Report, London,
2013.
20 For one of the first overviews on the matter, see ERCANBRACK, Regulating Islamic finance in the
United Kingdom, in CATTELAN (ed.), Islamic finance in Europe: towards a plural financial system, Studies
in Islamic Finance, Accounting and Governance, Cheltenham, UK - Northampton, MA, USA,
2013, 157-178. In this light, the original enthusiasm shown by Western scholarship towards Islamic
finance as a «key dimension of the relationship between Arab banks and their European
counterparties» (WILSON, Islamic finance in Europe, in RSCAS Policy Papers, Musmine – Muslim
Minorities in Europe, European University Institute, Florence, 2007, 8) remains still today quite
premature.
21 UDOVITCH, Partnership and profit in medieval Islam, Princeton, 1970.
22 See, for instance, CHAPRA, Islamic welfare State and its role in the economy, Leicester, 1979;
SIDDIQI, Banking without interest, Leicester, 1976; SIDDIQI, Issues in Islamic banking: selected papers,
Leicester, 1983.
23 In order to uphold social mobility by facilitating the access of the poor to credit, the
government licensed Nasser Social Bank (1971) and Faysal Islamic Bank (1977), that had their
precursor in the Mit Ghamr Savings Bank (licensed by Nasser in 1963 and closed in 1968), deemed
to be the first historical experiment of modern Islamic banking. While observing Islamic precepts in
their operations (mainly the prohibition of interest, riba), these banks were primarily concerned with
realising social aims by providing credit to segments of Egyptian society that, otherwise, would not
qualify for loans (see MAYER, Islamic banking and credit policies in the Sadat era: the social origins of
Islamic banking in Egypt, in Arab Law Quarterly, 1985, 49).

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