The Politics of Financial Ideas: Grafting Islamic Finance

The Global Financial Crisis has caused renewed interest in the diffusion and pluralization of financial ideas and practices. In this paper, we develop a new toolkit to conceptualize and assess how and in what ways emergent and alternative (financial) ideas challenge dominant ones as part of the diffusionist paradigm. Our new conceptual lens builds on and expands the extant literature on diffusion, which has thus far tended to identify and employ in its analysis three main types of diffusion: coercive diffusion, socialized diffusion and cosmetic diffusion. The degree of the host society’s agency and the extent to which foreign ideas are internalized by host societies explain the emergence of different types of diffusion. We argue that more attention needs to be paid to a fourth type of diffusion, namely grafting. Grafting represents a type of contested diffusion, where the diffusion of ideas is challenged, leading to the melding of distinctive sets of ideas, policies or practices, which produces a result that is more than just a simple combination of the originals. We employ this framework to analyze the evolution of a new and significant class of financial assets – sukuk, often also referred to as Islamic bonds – which emerges from a new sector in global finance that many see to be challenging dominant financial ideas and practices. In so doing, our paper also demonstrates that contestation does not just take place at the policy and institutional levels, but also with regard to market practices as manifest in the structuring of financial instruments.