How to Tether an Investment Banker: Theorizing Innovation and Control in Islamic Finance

• In Event: 264 - Regular Session. Economic Globalization

Abstract

The development of Islamic finance provides scholars a key case for observing how critical outsiders can restructure global financial markets to conform with their moral vision. Of substantive interest to social scientists, this moral vision can be understood as an audacious attempt at tethering finance capital to non-financial economic activity and to subordinating financiers' power to external moral evaluation. This paper demonstrates the capacity and limitations of “tethering finance” by investigating two questions. First, how do ethical critics and financial engineers speak with one another with sufficient expertise so as to co-develop new financial instruments that conform both to theologians' interpretations of Islam as well as to financial engineers' best-practice? Moreover, how can religious scholars control financiers sufficiently to enforce minimum standards of moral compliance?

This paper draws on 48 focused, ethnographic interviews conducted in 2012 and 2013 with financial engineers and Islamic scholars in investment banks in Malaysia. The ethnographic interviews focus on the construction of "sukuk," a financial instrument designed as a moral replacement for sovereign and corporate bonds, $137 billion of which were created (issued) worldwide in 2012. Conventional bonds are understood by Islamic scholars as immoral because they are untethered from "real" (non-financial) economic activity and produce revenue streams based on interest. By observing how sukuk are co-constructed in Malaysia by investment bankers and religious scholars, the paper theorizes governance mechanisms that could potentially be supported in other morally-committed financial reform projects seeking to dialogue with and control investment bankers, such as Occupy Wall Street.

Author

• Aaron Z. Pitluck, Illinois State University