Islamic Banking and Finance in GCC States

By Miriam R. Lowi
Submitted to Session P5393 (Whither Islamic Finance: Beyond Conventional Banking?, 2019 Annual Meeting
Pol Science
Arabian Peninsula;
Gulf Studies;
While there exists today a wealth of theoretical literature on Islamic Banking and Finance (IBF), and some empirical studies, there is a shortage of studies of its practice in the Gulf oil monarchies – and this despite the important concentration of Islamic financial assets in GCC states today. This paper seeks to contribute to the empirical literature. On the basis of interviews conducted in Kuwait, Oman, Qatar, Saudi Arabia in 2012, 2013, and 2015, it aims to uncover the actual goals and purposes of IBF in those states. The paper is in two parts – having to do with form, on the one hand, and the relationship between form and substance, on the other hand. The first part addresses a set of questions related to the adoption, regulation, and instrumentality of IBF: i) what can we learn from the variation in timing of adoption of IBF in the GCC states, and the resistance to it in Oman and Saudi Arabia? ii) why are controversial murabaha arrangements among the most common today? iii) what explains the absence of uniform rules, tools and oversight mechanisms in IBF within and across GCC states? The second part interrogates the conformity of the practice of IBF in GCC states with its alleged purposes: i) what does the absence of institutional transparency imply relative to equitable profit and loss-sharing? ii) what does the growth in personal debt suggest about efficacy? iii) how, if at all, and to what extent do IBs engage in socially responsible endeavors, as in job creation or other welfare ventures? Finally, how do citizens of GCC states evaluate IBFs and describe their real goals and purposes? On the basis of answers to these questions, I argue that the practice of IBF in the four GCC states is detached from Islamic principles of promoting the ‘common good’ and justice in distribution, and encouraging production over consumption. In effect, it shares goals of conventional finance related, among other things, to profit maximization for the owners of capital, but it masks those goals through the ‘Islamization’ of language and structures. Not only is IBF in GCC states a form of manipulation, as suggested by others (e.g., Kuran 2004), but it is one that provides spiritual solace while meeting the interests of a local (and powerful) ‘financial lobby.’