Whose legitimacy? Islamic finance and the global financial order

Abstract

ABSTRACT Islamic finance is a fast growing segment of international financial markets. Deriving its core principles from the Quran and the Sharia, the objective of Islamic finance is to install a more equitable financial and economic order that at the same time is transaction-friendly. Thus, Islam could be seen as a foundation for the inclusion of the ethical and moral dimensions of economics and markets. This coincides with rising demand for Islamic financial products. Indeed, recent years have witnessed increasing efforts to develop and to institutionalise Islamic capital markets and above all, to make Islamic finance acceptable (and thus investable) to the mainstream. In this article, I use the question of legitimacy to explore whether Islamic finance offers an alternative to the existing international financial order. To this end, I take a closer look at the knowledge base from which Islamic financial products are constructed and assessed as well as the emerging international regulatory framework for Islamic financial markets. I conclude that efforts to expand the social constituency of Islamic finance to the transnational sphere of global finance are overly focused on its epistemic legitimation as normal financial activity. As a consequence, the currently emerging power, knowledge and governance structures for Islamic finance tend to emulate, and therefore largely reproduce, the existing global financial order.