A Social Movement Perspective on Finance: How Islamic Finance Emerged and Developed

The strong progress that Islamic finance made has been possible in the light of various stakeholders’ contribution toward the expansion of this alternative industry. In most emergence and development cases of Islamic finance across the world, new coalitional power between Shari’ah scholar and local businessmen has played important role in making possible the establishment and development of Islamic financial industry (Kahf, 2004). Executive power engagement in Islamic finance penetration was also recorded in number of countries, among others Bahrain, Kuwait, Malaysia, Sudan, and Jordan (Baskan, 2004: Malley, 2004; Stiansen, 2004; Smith, 2004). Nevertheless, within those parties contributing to the development of Islamic finance, middle-class Muslim contribution in filling the demand of Islamic financial product has been disregarded and underexplored. Albeit several studies have acknowledged the support of middle-class collective act (Nasr, 2009; 2010a; 2010b; Malley, 2004; Pepinsky, 2012), limited studies were conducted in the area of religiously-motivated behaviour of Middle-class that avoid engagement with conventional institutions by entrusting their fund management to Islamic financial institutions.

Over the past years, Islamic finance has become hot commodity in the literature as growing number of researches have been tapping into the issues. Albeit this substantial increase in the academic interest on Islamic finance, studies on Islamic finance was lack of significant importance on the social and economic implication of Islamic finance due to its ‘pre-ordained conclusions’ (Warde, 2010), leaving the legitimacy issue of this construct remain under question. In the demand side of Islamic finance, investors and account holders were presumed to be aspired by religious motivation over materialist motivation, contradicting to the initial assumption of economic man. Nonetheless, empirical finding of previous studies in Islamic finance selection criteria suggest otherwise.  Individual preference toward Islamic-catered financial product is still subjugated by factors other than religious one, including return and service provided (Erol and El-Bdour, 1989; Erol et al, 1990; Haron et al, 1994; Naser et al, 1999). Even, Pepinsky (2012) specifically stressed the weak involvement of Islamic orthopraxy in shaping preference of so-called religiously-motivated individual toward Islamic finance.

Such evidences is interesting to observe as it may lead into conclusion that this religiously-motivated individual is rather controlled by economic mind. Nevertheless, Le Menestrel (2002) conception of ethical behaviour under rationale economic terms proposes an explanation toward this phenomena. He argued that ethical dilemmas faced by ethical-aspired individual in economic activities imposed challenges to individual decision. The cost of maintaining values and beliefs in economic sense, which is often tied to the loss of economic gain, force individual to make difficult decision and often lead to unexpected outcome. Although this may not be the case in Islamic finance as the strong performance that Islamic finance suggest a superior outcome (Iqbal, 2001; Rosli and Bakar, 2003) and, hence, allow this institution to offer competitive benefits, this situation would prevail when this institution experience negativity and performance downturn.      

Furthermore, the behaviour of religiously-motivated investors also suggest a further expansion of individual behaviour from individual sphere to institutional domain. This transformation of individual religious reflection seems to depict holistic view of Muslim way of life (Siddiqi, 1985). Nevertheless, the finding of the previous studies on underlying factors influencing religiously-motivated investor suggest that such a linearity between domains of religious articulation (individual-social) might not stand out. This finding is in similar tone with earlier studies in multidimensional religiosities, highlighting non-linearity in different domains of religiosity (Lenski, 1963; Glock and Stark, 1965). Readers on multidimensional religiosity further stressed that such an incongruency of religiosity dimension were caused by multi-factors ranging from individual factor, such as gender (Miller and Hoffmann, 1995; Miller and Stark, 2002), intellectual development (Gross and Simmons, 2009; Smith and Snell, 2009) and wealth level (Solt et al, 2011), and to some extent institutional understanding in facilitating the transformation (Bardhan, 2000; Sindzingre, 2003). Therefore, beside the ethical dilemma, individual and environmental factors need to be considered in observing phenomena of religiously-motivated individual in Islamic finance.

As for Indonesia, the early emergence of Islamic finance is undeniably fuelled by the rise of middle-class modernist Muslim activism since in 1980s. The peripheral nature of the movement started by the establishment of first institutional experiment of Baitul Tamwil in 1984 and later succeeded in convincing socio-economic environment over the importance of having an alternative banking institution substantitate further the role of middle-class Muslim in the construction of Islamic finance. The civil society involvement in the making of Islamic finance underlines the distinction of Islamic finance story in Indonesia from other story of Islamic finance emergence as it emphasises the negotiation of middle-class Muslim articulation of its identity in economic sense. As such, it depicts a contestation of embedded Muslim morality against hegemonic sole economic mind, which situation is represented by ethical dilemma problem and multi-factors influences in actor decision-making.   

By utilising “Triangle Consistency Test of Religiosity” to define and to measure religiosity of Islamic-account holders in Indonesia and their attitude toward religious-return trade-off, the finding of this study suggests that religiosity is less significant than economic-motive in determining economic-decision of Islamic-account holders. In addition, institutional underdevelopment remains the issue within countries that is new to this Islamic religious institution, as in Indonesia. Nevertheless, the inconsistencies level of the account holder still depicts a picture of religiosity extension of Islamic-account holder in public domain. As such, this study suggests that the focus of attention in remerging Islamic finance institutions to ideal form should be on reducing the level of individual inconsistency between dimensions of religiosity achieved through investment in human capital that introduces the value system of Islam within the process, to complement the institutional development process instead of further alteration at the cost of economic performance and certainty.