Aristotle in Abu Dhabi: Islamic finance as scholastic modern

The biggest celebrities of the $2 trillion Islamic-finance industry are not CEOs or finance ministers, but shariah scholars: academic experts in classical Islamic law who certify financial products as “shariah-compliant” (i.e., Islamically lawful). Starting from sacred texts, these certification experts derive the rules governing twenty-first-century Islamic finance. Each Islamic bank has a “shariah board” of several scholars. Their stamp of approval must appear on every financial instrument the bank sells, ranging from Islamic credit cards to multi-billion-dollar Islamic securities issues. Banks appoint to their shariah boards famous scholars that customers know and trust. The top 10 scholars in the world sit on dozens of boards, earning millions of dollars in honoraria because they are trusted brand names.

This paper draws on 77 interviews conducted mostly in the Arab Gulf states, Malaysia, and the United Kingdom to explore how and why shariah scholars make Islamic finance commercially successful. What, I ask, does Islamic finance’s unique system of ethical regulation tell us about the relationship between Islamic law and twenty-first-century capitalism? Rebutting Weber’s argument that Islamic law is incompatible with capitalism because it lacks formal rationality, I find that Islamic finance is booming precisely because the scholars’ formally rational reading of Islamic law and ethics now forms the heart of a flexible, decentralized certification system. Their involvement serves the interests of firms, regulators, and customers — but also introduces ethical paradoxes.