No interest in Islamic Finance?

Aliya Ram claims that sukuk bonds may sound like a more moral way of banking, but they’re a rhetorical sham.

No interest in Islamic Finance?

No interest in Islamic Finance?

The antagonism between the theory and practice of Islamic finance will lead to the disinterest of the West. How could a financial system regress to a set of principles whose modern manifestations are a complete farce? Take sukuk bonds, for example, which have been in the news ever since David Cameron announced in October that the UK was going to issue £200 million worth.

Sukuk bonds enable investors to borrow against their future income by buying an asset from an investor and then renting it to them for a pre-determined price and on the condition that they (the issuer) will later buy it back. The issuer still gets interest but the interest has been refigured as profit: loans have been disguised as the more rustic ‘exchange of goods’.

A sentimental comment about sukuk bonds in the Arab News exposes the logical fallacy: “money ceases to be a commodity in itself and used as it ought to be – only as a medium”. But we have to ask author of the piece Alsir Sidhamed what, if not money, is being mediated when the purpose of a transaction is to give someone money they don’t have. And is it really more moral if just anyone can do it that way?

The real absurdity of the sukuk charade lies in how public the sham is. Even many of the most devout Muslims do not practice Islamic finance because they can see that the project is more about hammy rhetoric than actual financial practice.

The discussions about Islamic banking happen in negative terms: the debate, in the East at least, is precisely about rejecting the ways of the West. London will of course always cater to the preferences of investors with money, but it’s impossible that Islamic finance will become still more institutionalised than that.

For one, there’s no coherent moral landscape in the UK – and although there isn’t in a country like Saudi Arabia either, the UK actively encourages polyphony and secular politics, rendering impossible the homogeneity of a moralising financial industry.

The UK has lived that period of history already, and given our teleological conceptualisation of progress, it would be far too regressive to go back. No, if there’s going to be a reaction to what has happened in the last five years, it will be in pursuit of a present we have never seen and that is as yet an ideal.

Cameron’s £200 million sukuk issue is really just a token gesture.That Islamic banks are doing well is not indicative of anything significant. They are doing well because they are behaving just like normal banks, but are trading in an environment that is less financially toxic than that in Britain.

Much of the conversation about Islamic banking can be put down to the nationalistic politics that always follow a bad recession.

People reject individuation because it was alone that they suffered – and the charging of interest is saturated with the language of individuation. ‘Interest’ itself invites us to think about loans as the manifestation of a set of interests or advantages; ‘usury’, from the Latin word usura, essentially means to use, or exploit.

It would be too tragic to deal with the possibility that we are ourselves individuisers, and so we project them onto the monstrous ‘other’: Jews, bankers, “capitalism” – as though capitalism isn’t what happens each time our present self puts its own joy over the joy of our future self by spending into an overdraft.

British governments encourage the construction of this ‘other’ because it disguises their own partiality, or interests, and allows them to adopt passive neoliberal attitudes to financial questions.

But British banks will never restructure along Islamic lines. For one thing, Islamic finance also relies on the visible presence of a failing ‘other’. This is, currently, us: “some scholars argue that sukuk could be considered as one of the tools that should help in addressing some of the woes inflicted on capitalist societies as clearly exemplified in what happened to Greece, Spain, Ireland and to some extent Italy,” writes Sidahmed.

More importantly, adopting Islamic finance would have enormous implications for the UK’s global allegiances. We would alienate the US and no doubt lose all our major American financiers. We wouldn’t be able to justify the loss because we would still be doing the same kinds of banking, but now with more – and more unknown – procedural bureaucracies.

The failure of Islamic banks to delimit capitalism under transcendent Shari’ah values reveals an unpleasant truth about the Darwinism that structures our exchange relations.

The British financial sector will continue to change in the aftermath of the long recession, but the changes will involve reconstituting what we already have.