Date: April 21st, 2003

Title: The implications of globalisation for Islamic finance

Author: Professor Rodney Wilson, University of Durham, UK

To some extent these views of globalisation may reflect disciplinary biases rather than different strands of Muslim thought, this in itself demonstrating the dynamic interaction of western ideas with modern Islamic scholarship.

Leslie Armour, a social economist, has suggested one way forward. Although he sees globalisation reducing the powers of government and threatening cultures with homogenisation, this process occurs through individual empowerment, usually associated with the accumulation of riches. Faith communities through their strengthened social interaction can resist homogenisation, and use globalisation for their own purposes, including disseminating their religious values. Armour distinguishes between wealth, which is social, and riches, which are personal. Accumulation of riches builds personal barricades that divide society. Accumulation of wealth strengthens civil society and results in increasing power and influence by collective groups. WE NEED TO IDENTIFY THE CLASS ISLAMIC BANKS SERVE, IS IT THE WEALTH/SOCIAL OR RICH/PERSONAL! Is it a grass roots movement that serves all people?

These ideas can be applied to Islamic finance, which facilitates the creation of Muslim wealth that can be used for social purposes. The role of Islamic banks and financial institutions can be to enable this process. In contrast the hoarding of personal riches, even in Muslim countries, makes those that hoard subservient to and dependent on global secular capitalism with its corrupting influences. Capitalism without faith is corrupt but cannot generalize

In addition to the more general theoretical literature, there are some more specific articles, often containing empirical material, on the impact of globalisation on Muslim trade and investment. Much less has been written specifically on Islamic finance and globalisation. Ibrahim Warde’s book on Islamic Finance in the Global Economy is the most important contribution to date, but it is in the field of political economy rather than economics and finance, and is more about, as its title implies, the position of Islamic finance internationally, rather than the impact of globalisation on Islamic finance. The difference with this paper concerns causation, the concern here being with the latter, specifically the response of Islamic financial institutions to global competition and the opening up of financial markets in Muslim countries, especially those who are members of the World Trade Organisation (WTO) and signatories to the General Agreement on Trade and Services. (GATS).

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Leslie Armour, “Economics and civilisation”, International Journal of Social Economics, Vol. 26, No. 12, 1999, pp. 1455-1491.
Zaman M. Raquibuz, “Impact of trade and investment on economic transformations in East Asia, the Middle East and Latin America”, in J. H. Dunning, (ed.) Globalisation, Trade and Foreign Direct Investment, Elsevier, Amsterdam, 1998, pp. 237-254.
Ibrahim Warde, Islamic Finance in the Global Economy, Edinburgh University Press, 2000.