Capital Subjects

Debating Islamic Finance, Online and Off

by Daromir Rudnyckyj

Nov 08, 2017

Daromir Rudnyckyj (University of Victoria)

In recent years proponents and practitioners of Islamic banking and finance have enthusiastically announced its coming of age, asserting that it has reached a scale and level of global integration whereby it can rival conventional finance. Yet simultaneously a spirited debate has broken out, both in physical space and online, about the extent to which Islamic finance indeed upholds Islamic principles or, instead, whether it simply offers a religious veneer over what amounts to a conventional financial architecture. For example, on the “Islamic Finance Guru” blog a whole category of posts debated the question “Is Islamic Finance Really Islamic?” These debates often invoke the success of social media firms and in so doing reveal how Islamic finance experts recognize the subject-making capacities of capital and the mechanisms deployed in its provision.

Since 2010 I have been documenting these debates, online and off, as part of a broader project on the globalization of Islamic finance (Rudnyckyj 2014; 2017). I have found that over the past 30 years, the Malaysian state has deployed Islamic finance in conjunction with two distinctive strategies of subject formation. In its initial phase, in the early 1980s, a central goal was what one participant in my research called “the financial inclusion of the Malays.” For historical reasons, dating back to the colonial period, citizens from this indigenous ethnic majority, which is mostly Muslim, had been marginalized from commercial life on the Malay peninsula. The state facilitated the creation of a network of Islamic banks and insurance companies as a means of incorporating them into the modern economy. However, by the early 2000s the state’s goal of fostering a Malay Muslim middle class had been largely achieved through aggressive affirmative action policies (Ong 2006). The state’s objectives for Islamic finance shifted and today it is being redefined in such a way that it can serve as a technique for the entrepreneurialization of the indigenous Malay population. Empirically this shift is evident in recent efforts by reformers seeking to move Islamic finance away from what they call “debt-based” instruments to investment-oriented ones to which they refer as “equity-based.”

Online and off, critics argue that Islamic finance is Islamic “in name only” because it “reverse engineers” interest bearing contracts to make them shariah compliant. Because interest-bearing loans are specifically prohibited in the Qur’an, today Islamic banks frequently use “paper sales” of tangible assets to replicate the debt contracts that are commonly used in conventional finance. In Malaysia the most commonly used contract to facilitate this type of financing is called bai al inah, which is a “sale and buy back transaction” in which a customer sells an asset to a bank for cash on the spot and then buys the asset back shortly thereafter at a mark up on a deferred payment basis. The rate of the mark up typically mirrors prevailing interest rates.

In a blog post Arzim Naim, a Malaysian accountant, offered a rationalization for bai al inah. Although he noted that it was “not found in any classic Islamic commercial law” it had been approved within the Shafi’i school of fiqh, which holds that intent “is not a significant element in determining the validity of a contract” (Naim 2010). Indeed, citing the rulings of the 10th century Islamic scholar Imam Shafi’i such contracts “are valid (sahih) by the external evidence that they were properly concluded” thus “the unlawful intention (niyyah or qasd) of the parties is immaterial.” Malaysian Islamic scholars, grounded in the Shafi’i school of fiqh which predominates in Southeast Asia, have argued that as long as the form of a contract complies with shariah, the intent of the parties does not matter because “only Allah” can know human intentions.

Reformers seek to substitute what they call investment-oriented contracts for the “debt-based” ones that predominate in Islamic finance currently. I argue that investment-oriented contracts appeal to a state administration anxious about its continued ability to improve the livelihood of its majority Malay population because they offer the potential to instill practices deemed conducive to economic growth: entrepreneurship, risk-taking, profit and loss calculation, and autonomy from state patronage.

Those seeking to reform Islamic finance most often invoked a contract called a mudaraba as the epitome of investment-based Islamic finance. A mudaraba is a profit-sharing contract between an entrepreneur and an investor in which the latter invests in a business venture and then is granted a pre-agreed percentage of the profits of the enterprise, while the entrepreneur provides only his or her skills, labor, and managerial expertise. Proponents of mudaraba liken these contracts to the venture-capital arrangements that have financed Silicon Valley firms such as Facebook and Twitter.

Social media firms have captured the imagination of politicians and the public in Malaysia. Given the ubiquity of smartphones in the country and high participation in social media, these firms are household names in the country. Although it is only the 42nd largest in the world by population, it contains the 18th most Facebook users, with 12.7 million in 2013 (The Sun 2013). When Malaysian Prime Minister Najib Razak was en route to the United Nations General Assembly meetings in September 2013, his first stop was in California where he spent three days, making a special point to meet with Facebook founder Mark Zuckerberg.

Islamic finance experts point not just to the commercial success of social media, but often attribute their entrepreneurial dynamism to the financing mechanisms which have supported them. In so doing, they liken profit- and risk-sharing contracts such as the mudaraba to the venture capital arrangements that have been celebrated for Silicon Valley’s commercial success. In extolling the virtues of mudaraba an Islamic economist told a class full of Islamic finance students in which I was also taking part, “I became aware of venture capital in 1982, when I learned about mudaraba. Venture capital has been applied with enormous success . . . but it turns out we are talking about a classical Islamic partnership that was practiced by Muhammad. And today twenty-first century California, Silicon Valley, is doing the same thing. . . . They learned it from us, but we have forgotten it!” Proponents of mudaraba often assert that they were an instrumental part of a golden age in the history of Islam characterized by entrepreneurial energy, long-distance trade, and the rapid expansion of the faith.

What is significant here is how Islamic finance experts attribute the commercial success of Silicon Valley firms not so much to the imagination, vision, and risk-taking of their founding entrepreneurs, but to the subject-making capacities of the mechanisms for the provision of capital on which they have relied. In highlighting the success of social media, the form through which capital is made available holds the potential to elicit the qualities necessary for successful entrepreneurship: risk-taking, cost-benefit calculation, and innovation. In so doing, they acknowledge the subject-making capacities of both capital and the mechanisms deployed for its provision.

References Cited

Naim, Arzim
2010 "Issues in Bay’ Al-‘Inah and Bay’ Al-Dayn." Accessed May 11, 2017. Available at:

Ong, Aihwa
2006 Neoliberalism as Exception: Mutations in Citizenship and Sovereignty. Durham: Duke University Press.

Rudnyckyj, Daromir
2014 Economy in Practice: Islamic Finance and the Problem of Market Reason. American Ethnologist 41(1): 110-127.

Rudnyckyj, Daromir
2017 Subjects of Debt: Financial Subjectivication and Collaborative Risk in Malaysian Islamic Finance. American Anthropologist 119 (2): 269-283.

The Sun
2013 “Najib has private meeting with Mark Zuckerberg.” 25 September.
Accessed February 13, 2017. Available at:

Cite as: Rudnyckyj, Daromir. 2017 "Capital Subjects: Debating Islamic Finance, Online and Off" In "Piety, Celebrity, Sociality: A Forum on Islam and Social Media in Southeast Asia," Martin Slama and Carla Jones, eds., American Ethnologist website, November 8.