Book Talk: "The Paradox of Islamic Finance"

In the 1960s, Islamic finance began as a utopian experiment in interest-free banking to serve pious peasants, operated from a Volkswagen van in Egypt’s Nile Delta. Today, Islamic finance is a $4 trillion industry present in over 100 countries and thoroughly intertwined with the global financial system. It is larger than the entire financial sector of South America, Eastern Europe (excluding Russia), or India. It offers Islamic analogues of most financial products, from auto finance and credit cards to bonds and derivatives. Instead of charging or receiving interest, which many Muslims consider sinful, Islamic products rely on complex legal justifications and baroque infrastructures to simulate the economic effects of interest.

So how did Islamic finance get so big in just half a century? I address this question in three parts. First, how do Islamic financial institutions make money without charging interest? Second, why is there a $4 trillion Islamic-finance industry, but no other “religious-finance industry” of comparable prominence? Even among the many comminglings of religion and modern rational capitalism, this industry’s sheer size and scope stand out. And third, why do hundreds of millions of Muslims patronize Islamic finance when it overtly simulates interest? I challenge Max Weber’s thesis that religious authority cannot regulate modern rational capitalism, showing how hyper-empowered shariah experts adapt classical Islamic law to the conditions of 21st-century finance. Belying media tropes of shariah as atavistic and irrational, the rise of Islamic finance demonstrates how contemporary shariah can be made consonant with neoliberal economic modernity. Along the way, Islamic finance has even spawned new ways of being a pious and ethical subject in a financial age.

Ryan Calder is associate professor of sociology and director of the Program in Islamic Studies at Johns Hopkins University. He studies the moral quandaries and ethical debates that arise when new markets and industries are born or existing ones change suddenly. Currently, he is pursuing one project on frequent-flyer miles and the financialization of travel, another on Saudi Arabia in the age of climate change and unprecedented domestic social reform, one collaboration on NIL and the emergence of a labor market in college sports, and another collaboration on “anti-woke” right-wing platforms for e-commerce and digital payments.

Host or Publisher Reischauer Center for East Asian Studies