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The hidden network of Islamic microfinance

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The hidden network of Islamic microfinance

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I was surprised by the reach of Islamic microfinance. I had no idea that JP Morgan and the like offered parallel Islamic services, its interesting that this is seemingly kept underwraps. I wonder if this is the result of fears that Islamaphobia might damage other aspects of their business? Islamic microfinance appears to be where values and value converge, fiscal value is dealt with but morality and values are kept in mind and underpin transactions. I wonder if it would be possible to expand and migrate this model more into the mainstream or whether it is so intimately tied with religious values that this would not be possible?

- Georgia 686396

Marie's response to Georgia:

I remember a few years back in London a franco-marocan friend of mine needed money to pay for the deposit of her flat. She told me that it wouldn't be a problem for her to get it, she would just go to an Islamic bank she knew, who would give her a loan without needing a guarantee. The only thing she would have to do is to perform as a good Muslim. I remember being very surprised that she never mentioned it before, and that I had never heard of it. She told me: "This is how we do things!" I remember thinking that the process was both exclusionary (only for "good" muslims) and amazing since she couldn't have gotten a loan otherwise.
This week has helped me understand what this was all about!

Response to Georgia:

Agreed! I think Islamic Banking with Zakat and balanced distribution of wealth is a great concept through which social and financial objectives can be achieved based on religious principles. But for exactly that reason, it would  leave me wondering how this could be translated into a system that works for other societies.

How can we determine which entities/ industries/ institutions are moral to invest in, if we do not have something as meaningful and socially cohesive as the Quran as a guide? (But equally what are the disadvantages/ dangers in such a system?) For secular systems that would point to the basic law and ethics which vary and illustrate a different meaning. (675638)

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“The core belief in Islamic finance is that money is not an earning asset in and of itself” is a powerful statement indicative of the potential of Islamic finance to act as a countervailing force to capitalism. The accumulation of wealth through possession of capital has resulted in huge income disparities and inequalities around the world, and enabled a handful of billionaire CEOs/entrepreneurs owning the same amount of wealth as the bottom half of the global population. I wonder how Islamic microfinance compares to other bottom-up models such as community cooperatives, and what can be done for society to transition towards more equitable forms of financial management.
-Sheu Jeen

Response to Sheu Jeen:

I like your reference to Islamic finance as a countervailing force to capitalism. I wonder, however, if it offers instead a way to rework  capitalism, ultimately by using financial capital as a means of development and profit making within capitalist economies. The regulation of individual wealth via prohibitions of money making for its own sake could be instrumental in this and one can only hope that its success could bring about discussions regarding conventional finance institutions and the adoption of more collaborative investment strategies.

Chris

Responding to all of the above with a simple question - does anybody know about a Jewish, Christian, Hindu, Buddhist, equivalent? - Julis

In response to Julis:

I know that christianity prohibited moneylending for a long time, and considered loaning money with the expectation of interest in return to be 'usury' - an unethical loan which unfairly advantaged the lender. In fact, this was the root of a lot of antisemitism historically in Europe, as Jewish people were seen as 'moneylenders' (i.e. Shylock). This was due to the fact that jewish communities were often forced into this profession through a lack of options. I think a lot of these concepts still underpin many of the antisemitic tropes in contemporary Europe. I'm not sure what the Jewish scripture itself says about moneylending/usury, would definitely be interesting to check it out.
- Maria 687047

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I find Rudnyckyj's article fascinating, in particular in terms of his argument that Neoliberalism can take on vastly different forms outside  North America and Western Europe. It seems that whilst there are issues with risk and the navigation of Islamic jurisprudence in relation to how islamic micro financing can be structured, there is optimism lying in a vision of Neoliberalism that emphasises community development and collaboration, rather than individual gain.

Chris

Response to Chris by Bo Yang

Yes, but neoliberalism here is probably no more 'pure' neoliberalism as before. Because it encounters and merges with Islamic ideas in forms of micro finance. A clear-cutting classification about neoliberalism and Islamism is no more, but it is what we are seeing now in this local community as it shown. I feel it is optimism for neoliberalism, it is also optimism for Islamism belief of local people, and optimism for local communities in their daily life.

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I feel amazing about this combination between micro finance enterprise and Islamic doctrines, in means of time (temporality) particularly. A new economic-socio-religious niche is witnessed, its vitality seems strong, which ascribed and derived from local origin. Probably it is difficult to be totally �replicated in another place, but it is the pathway of conceiving some places' own micro finance in benefits for economic development, gender empowerment, religious-modernity reconciliation and many others.

Bo Yang

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This reading was great at briefly providing the context, definition of terms and challenges of Islamic Microfinance, a topic I knew not much about beforehand. One aspect I found interesting about Islamic Microfinance is the concept of risk sharing where investors are concerned about mutual growth rather than excessive profits. Another feature I found interesting was about Riba, but it was also a surprise to learn about the different ways people have tried to navigate this and still get some sort of “ interest”

Sarah Kazira

Response to Sarah
I completely agree with you, the reading provided a great background for the other readings. I also hadn't read about Islamic finance beforehand, and personally I did not even know about the Quranic prohibition of interest.  I think it is also a very interesting contribution to considering neoliberalism in general, and the fact that it can take so many different forms, even in completely different value systems.

Edda (667994)

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One notable point that Kostas brought out in his fieldwork is how Islamic Microfinance was being used as a way transforming the recipients from Zakat recipients to Zakat payers. I thought it was similar to the principles of bottom of the pyramid capitalism and CSR which works to economically empower the rural poor and make customers out of them.

Sarah Kazira

Response by Priyanka

I had initially explored the concept of Zakat a few years back as a concept influencing gaze and dehumanisation or religious duty. On re-learning in this form as "Zakat payers" I too like Sarah was reminded of CSR. Its like the corporate-tization of religious motive of good. In a way reverse of CSR for CSR tries to add the social responsibility to the cooperate, but similar.

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At first I found very curious that an ID agency should be concerned with instruments of Islamic finance;   however with hindsight, this reminded me of one potential layer in the argument which was very felt when I was doing humanitarian work in Palestine and that is - the competition between western relief agencies and Islamic relief, which always had a zakat dimension to it.   What's interesting is the zakat evolution into micro-finance (as Kosta's work and others show).   In this sense, international development comes in late into Islamic finance and the confusion of the two 'genres' - zakat vs microfinance  and the very clear political layers to this transformation - throws up a contestation between agencies, governments and religious establishment, with different agendas for the 'capture' of the audience. This is very well reflected in the authenticity of Islamic banking debate. In this sense, I read the choice to give an entrepreneurial cut version of the story as in the Kustin report a counter-response.   I agree there could be some resonance with  the bottom billion capitalism discourse, although I am not sure how this construct would apply in practice to Islamic banking because banking is mainstream.      I read the attempt of drawing the line on Islamic banking with (capitalist oriented) critical tones as 'inefficient' (whilst the efficiency of bottom billion capitalism does seem to go unchallenged other than by anthropologists), the mentions to 'undocumented funds' from Saudi Arabia, finance used to raise proselitism and the final tag line that assigns Islamic microfinance to the category of 'scattered experiments' seem to me canaries in the mine  that signals the contestation. As for all things, there may be some grounds for these criticisms but their presentation seems to me quite framed.   The 'old' concept of development discourse seems to me to pop up again.   /
Emanuela

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This discussion reminds me of similar debates from medieval Christian Europe, where very similar philosophical discussions were taking place between the need for interest bearing loans (“usury”) versus the perceived immorality of exploiting borrowers (« neither a lender nor borrower bee »)

“How like a fawning publican he looks! I hate him for he is a Christian, But more for that in low simplicity He lends out money gratis and brings down The rate of usance here with us in Venice. If I can catch him once upon the hip, I will feed fat the ancient grudge I bear him. He hates our sacred nation, and he rails, Even there where merchants most do congregate, On me, my bargains and my well-won thrift, Which he calls “interest.” Cursèd be my tribe If I forgive him! (Shakspeare, Merchant of Venice, A I, s iii)

It is interesting to think about how this tension unfolded in the Christian West: a yielding to lending credit with interest, which is now considered normal, and the judgement of whether it is good or bad takes place only in the % of interest offered. One might wonder how it will unfold in the Islamic micro-finance case, even though as explained in the article the system is starting to thin out in terms of the religious value. Micro-finance might be like Fair Trade for instance: one of those systems that start out well, but is soon diluted until it misses its core.

- Marie

Response to Marie:
Very interesting Marie! I would add that the problem is to think that no system can last forever without being reviewed and redefined periodically. Society changes and so should economic systems and values. I feel that by allowing certain economic premises to become dogmatic we sign ourselves for failure. - Laura Torres

Response to Marie
Really good point with the Shakespeare part – I remember reading (perhaps in Graeber, D. 2011. Debt: the first 5000 years) that there was so much protest to lots of 'modern' economic practices (in Europe, Britain and elsewhere) in their early developmental stages, which are all now ‘normal’ to ‘us’. There has been a historical hatred for many economic practices that ‘exploit’ someone for another’s gain (people know when they are being 'exploited'), yet here we are today, stuck with many of these practices in more advanced forms…

Jacob Heath 685615

In response to Marie & Jacob: I love the Shakespeare reference, and the reflection that throughout history economic practices have been controversial and exploitative yet seem to be unstoppable, stuck as we are in the capitalist system
Clare 677349

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Several elements came to my mind when reading this paper.  The paper develops a line of argument around  the political use of financialisation and in particular, given the complexity of the political discourse around ethnic differences between the Malay ethnicity (Muslim and poorer) and the Chinese (richer and non Muslim), the double discourse of using finance to uplift the social standing of the Muslim population and the political discourse of differentiation from the West, but also between internal ethnicities.  The subjectivisation of debt and the change in discourse from traditional -Islamic- banking practices towards equity and investment also concurs to the the political agenda of promoting political discourse around ethnic lines.  Clearly the double agenda is fraught with contradictions, such as those shown by the debate around whether Islamic banking is Islamic enough.    The argument of complacency is not just a piece of the neoliberalist discourse, but also a contentious line of attrition and contestation along ethnic disparities.  I think the research is focused (perhaps too much - or perhaps as the result of publication constraints) on the  liberalist viewpoint and how potentially impacts the subjectivity - but not on how this impacts collective / ethnic relations.  I would think that looking at the politics of purity of Islamic banking would involve some research around the 'constitutive other', i.e. practices and modes of non-Islamic entrepreneurship and finance in Malaysia. / Emanuela

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I found it particularly interesting how both neoliberal and islamic logics came together in the conceptualization of mudaraba contracts. As Rudnyckyj argues, the creation of risk-taking, entrepreneurial subjects embodies both neoliberal and islamic values, while also circumventing the Quaranic prohibition of interest. I also found the Islamic critiques of ‘risk-shifting’ in conventional finance fascinating.

At the same time, the article did not account for any agency among the Malay citizens. The history of various state projects, from affirmative action and financial inclusion to the creation of ‘entrepreneurial agents’ seems to present the citizens as complacent and passive, going along with the various whims of the state. The focus remains on banking regulators, shariah scholars, practitioners and islamic economists, as well as broader economic motivations for the creation of different financial subjectivities. There is no mention of how Malay individuals make sense of these shifts in their daily lives, or how they feel about the current turn towards equity-based contracts.
Edda (667994)

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I'm curious about the tension with gender that Islamic microfinance has. What does it mean when there is a hesitation to associate it with women's empowerment, with a preference to link it to "familial" values. Equally though, I understand the concerns it has that women can be exploited under the name of "empowerment". But my question is more around, what does   such a thinking preserve, and what does it disrupt?
-Anuradha-

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As a first, this is a subject I was completely unaware of. The depth of  integration of religious doctrines into economic mechanism not just as cultural context but mechanism and system in itself was incredibly fascinating to me.

Another point the article makes which I found curious was  the concept of self-interest-

"Self-interest is foundational to the principle of scarcity in conventional economics, where limited supply interacts with demand. As individuals are presumed to maximize self-interest, they ostensibly engage in ethical behavior only when it is in their self-interest to do so."

I wonder whether this is the case or is it the discourse of our temporal and contextual times driving this understanding of behaviour. Also what role would emotions play here. For doing good out of self-interest while seeming like a win-win situation could also trigger internal unvocalised guilt? Where as supporting for no personal tangible benefit could trigger emotions of positivity/pride; or may just be an act of duty. Which of course are driven by context and culture.

Priyanka

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perhaps a bit old but I found this quite clear (not anthropology focussed)  https://www.cgap.org/sites/default/files/CGAP-Focus-Note-Islamic-Microfinance-An-Emerging-Market-Niche-Aug-2008.pdf

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More on the practical implementation - Islamic Relief has a number of pages on zakat  https://www.islamic-relief.org/zakat/

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I was already familiar with some of the basic concepts in this reading as they have been mentioned in passing by some of my Muslim friends, but I confess that I have never had very detailed conversations about them! One close friend of mine in particular has voluntarily lent me money when he thought I was short before payday, and has explained that he will often make such offers to friends to ensure that they don't need to get involved in formal borrowing. But what is interesting to me, on reflection, is WHY didn't I feel as comfortable discussing this aspect of his worldview as other facets, such as diet for example. I now realise that as a Brit, I grew up in a cultural context which has a HEAVY taboo against discussions of money, and in the process, I feel financial education is stifled. It makes me think about how conversational taboos (be they about money, or sexuality, or anything else) can hinder access to information. Perhaps without the money taboo, I would be a lot more financially fluent and less intimidated by the topic of Microfinance appearing on my syllabus, haha!

- Sara L-K (684725)

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The layers of socio-economic meaning created in the  evolution of the gesture of zakat

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The layers of socio-economic meaning created in the  evolution of the gesture of zakat

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It was great to learn about zakat, and how its social role is layered with religious and economic meaning. From what I understand, it was a purely religious gesture at some point in time - faithful affluents could show their dedication to Allah and connect with the ones "in need"/do good. Over time, this religious way of connecting with people from a poorer social background, has been imbuded with more economic expectations and meanings - it is not meant to be a "one-sided" connection between "giver" and "receiver" anymore - the expectation is for zakat to be economically productive. The recipient makes something of the resource - i.e. money - received; and learns to "be" profitable. - Julis

Response from Will

I agree with that. Fascinating to learn of the link between religious and economic practices (and the difficulty in separating the two in practice).

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The text is very interesting as it shows the evolution of Islamic neoliberalism. This quote particularly caught my attention: “the problem was no longer the inclusion and integration of the Malay population into the national economy but rather inciting them to action—that is to say, making them enterprising agents of economic growth. This entailed reframing the domestic project of Islamic ﬁnance to be less a marker of identity and instead a means of inculcating entrepreneurial values among risk-calculating subjects who are economically autonomous rather than dependent on the state” (275) In other words, economy no longer needs to adapt to people’s identity but people’s identity needs to adapt to economy. How sustainable is this? I also wonder, what would be the implications of talking about capitalism as a cultural movement? - Laura Torres

Eleni, in response to Laura:
Following up on your last question of "what would be the implications of talking about capitalism as a cultural movement?" I also got thinking about how we essentially are moving from capitalism, to capitalism! How risk-free is this neoliberal alternative model promising to be? And how is the individual borrowing given agency once the risk comes at ownership of the congeries of entrepreneurs and investors?

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A really interesting article. Like many others, this was a subject I knew nothing about. Kustin recognises that despite a highly evolved and successful Islamic banking system and its partner, the microfinance business, different communities have not adopted it wholesale for various reasons. For example, the small villages in rural Pakistan mistrust large governmental or official institutions where smaller institutions are preferred showing the importance of personal relationships and trust as well as religiously compliance. Additionally, for convenience, customers are using other finance options like the women pawning their jewellery in Bangladesh to gain quick and easy access to cash as well as microfinance for longer term assets. In the same way the Islamic banks have to negotiate the Sharia laws, it seems the customers do to.

Susie

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Women, households and ethnographic lessons.

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Women, households and ethnographic lessons.

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This paper has given me a good introduction to the subject matter, which admittedly, I did not know much about. In particular, if found the ethnographic section very interesting, so see how this form of finance can help impoverished communities, highlighting its success and pitfalls… from a more on the ground approach to finance, where the officers build a relationship with the clients, becoming someone that they can turn to for advice, to the reality of a poor financial education or literacy, or lack of it. Enforcing a community versus individualistic attitude is a positive when it comes to some of the most excluded groups.

Natasha - (675589 )

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This paper was helpful in providing more of a general outline of Islamic Microfinance, showing the integration of economic structure with religious values. I must admit this is something I knew almost nothing about and was somewhat intimidated to see it on the course outline(!) This paper was helpful in its reflection of the key concepts, institutions, governments and countries to see the breadth of the financial enterprise and break it down into more digestible ideas. I was interested to learn about the preference of family empowerment compared to women’s empowerment and the challenges  female-headed households face. Kustin explains that a ‘women’s only’ approach is “alien to Islamic principles and values” (30) and that women may be often exploited instead of empowered, this is something I hope to reflect more on in this weeks seminar.
-Rebecca Luff

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Retsikas' chapter is fascinating. It reminded me of something I saw a while ago: 'sharia-compliant student finance', https://www.ucl.ac.uk/students/sharia-compliant-finance

Essentially, it is an alternative form of student finance for Muslims who wish to attend university in the UK, but feel they cannot due to the normal form of student finance. Sharia-compliant student finance promises the following (and I am not sure if it has actually been introduced/created yet):

‘Sharia-compliant financial services guarantee that money held in these accounts is not invested in industries such as gambling, alcohol or weapons manufacturing.  The proposed 'Takaful' fund would not be interest based, but would result in identical repayments to the current student loan system.’

What does the above tell us about UK student finance? Does it mean that this finance that I have taken out, maybe also you – with added interest – to fund our education, to pay soas and whatever university you went to for undergraduate, has possibly been invested in gambling, alcohol and/or weapons manufacturing…

I think the distinction you can make between these two forms of finance, via the definition of what sharia-compliant student finance is, really tells us what normal UK student finance is and what it is not.

To me, this really speaks to the naturalisation of inhumane and unethical economic practices via capitalism – no reciprocity or regard toward others is required –which ‘we’ are all intricately and often unknowingly complicit in...

Jacob Heath 685615

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I was interested in what Rudnyckyj highlights on the impact of introducing a new banking institution, as a means to integrate a society into a modern economy, whilst also enabling a mass civilising programme, in support of the modern state.

“This process was part of the civilizing imperative of the modern state, which sought to transform the new wage-earning masses ‘from irrational into rational subjects, from solipsistic barbarians into community-oriented civilized folk’”.

Clare W 677349

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I found the concept of Islamic microfinance discussed in this report to be extremely enlightening (like others, it was the first time I had come across it). The morality, routed in the religious beliefs of Islam, of how money, wealth, lending and distribution is dealt with - e.g. “money is not an earning asset in and of itself” -  was something completely new to me and almost came as a shock, showing how deeply rooted my associations with finance are in the system of profit making through exploitation. I think the concept demonstrates just how instructive the influence of religion on economics/finance can be - e.g. the prohibition of riba, having mutually agreed upon profit distribution, and perhaps most importantly the distribution of loss being equal to the capital contribution, meaning that the lenders hold responsibility (this was my understanding of musharaka).
Emma N

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This reminded me of the way in which certain people continue to gain wealth off the back of historical crimes - e.g. colonialism and slavery. In particular, it made me think of the arguments being made in the US for reparations being made to the descendants of slaves. It's a complicated but compelling argument. It should be recognised that although no-one alive is 'responsible' for owning slaves, many continue to profit from the wealth made from slavery.

Will 676615

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I think the pooling of financial losses is way more humanitarian than what the western practice suggests. I do not think it is just to penalize one individually after them being struck with a sudden financial disaster which rids them of the ability to make repayments. I think it should be understood that luck shows no mercy for no one, and no one is less able or valuable part of the population (in a socialdarwinistic way) because of having been unlucky. The practice of insurance recognizes that, although it is rarely implemented in terms of lending. Collective liability in Islamic microfinance goes a long way by reflecting the ability and value of a community, where some are allowed to make mistakes to be covered by the rest.

Andrew

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The thing that I find the most interesting in all of this is the way that the role of the receiver has shifted as Islamic Microfinance shifts and becomes closer to western financial practice (i.e. interest through the back door). It really made me think of last week, where we were discussing the creation of the 'entrepreneurial consumer' in CSR. Some interesting parallels to be drawn here - how much do financial institutions shape our identities and personhood?
- Maria 687047

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It was quite delightful for me to hear about the Indonesian empowerment program. It is great that someone work on lifting the ones less capable of navigating the capitalist reality. Conducting deferred payments, long-term planning and basic accounting are skills anyone is able to learn, and it is indeed vital for their survival in today's world. By teaching only the most plastic and essential, these initiatives may go further than many schools of our ongoing central education system.

Andrew

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I found the approach of Rudnycjyj very interesting, because it reminded me of week seven and our discussions of how communities can solve problems or how we can make communities an object of investment. In Islamic finance, it seems like banking and economy are tied into community in a very seamless way, and in that sense I would say it supports an optimistic approach to community based change. A traditional neoliberal, institution based way of thinking was adapted for and by communities. I found the overlap very interesting! And it reinforced my belief that the the way forward is a merging of new ideas with existing structures rather than starting from scratch. We can learn more about the consequences of and abilities of systems and improve them.

Jakob Lewis 686335