Intellectual brokerage within Islamic investment banks
What, therefore, constitutes Islamic banking and finance, and how is it distinctive from conventional finance? This kind of practical economic theology' requires a specific kind of work that I am calling intellectual brokerage.This intellectual brokerage takes place in Islamic finance conferences (Rethel 2018), in publications and workshops organized by sharia scholars who specialize in banking and finance (Daud Bakar 2016), and is hammered out in small group social interactions within Islamic financial institutions (Pitluck forthcoming). 1 will now elaborate and demonstrate this last point by drawing on Pitluck (forthcoming).This larger empirical project (Pitluck 2008,2016) draws on over 50 focused, ethnographic, tape-recorded interviews in Malaysia, conducted between 2005 and 2019, with investment bankers and sharia experts focused on their co-production of Islamic financial products.
Three parties interact within Malaysian Islamic investment banks: the investment bankers employed as financial engineers, the sharia scholars on the sharia committee, and the sharia personnel employed by the bank, notably in the Shari’a Department. Investment bankers are technicians that employ their financial expertise for their supervisors. Robert Shiller (2012) equates such financial expertise with that of engineers. In the Malaysian context, the investment bankers in Islamic banks are not necessarily Muslim or pious. The Malaysian government requires that financial institutions registered as “Islamic” must appoint a shari’a committee staffed by shari’a experts to supervise the bank’s management (Bank Negara Malaysia 2011). These positions are analogous to the corporations board of directors insofar as the members have part-time appointments, are not employed by the bank, and have careers elsewhere (or are retired). Shari’a experts are also employed internally by the bank as shari’a personnel as full-time employees. Some of these positions are required by corporate governance regulations. For example Islamic financial institutions must have shari’a research and shari’a secretariat positions to provide support for the shari’a committee. Those appointed to these positions must have the same minimum credentialing qualifications as persons holding positions on the shari’a committee. However, Islamic banks in Malaysia pragmatically experiment with hiring additional sharia personnel, both for the Shari’a Department and for other departments, including in Audit, Risk, or Legal. 1 argue that these three parties engage in intellectual brokerage to create, maintain, modify, and adapt the world’s largest project in economic theology'.
How do (typically non-Muslim) investment bankers make shari’a-compliant products and financial instruments? These bankers are typically termed “product sponsors” or “product specialists”, or are referred to by the department in which they work. Many are like Lee, an executive vice president employed in the conventional parent bank’s Debt Capital Markets Department rather than the bank’s Islamic banking subsidiary. Lee is a dealmaker, engaged with the client services team at the earliest “pitch” stage of a product for a prospective client. He “works hand in hand” with what he terms an “Islamic structuring team”, composed of investment bankers in his department and shari’a personnel assembled from the bank for each project based on expertise and availability. He also works quite closely with “Shari’a Advisory” in the Shari’a Department. From Lee’s perspective, as a banker making bespoke transactions for businesses, some of which are shari’a compliant, shari’a makes finance “quite limited”.Therefore, to make a financial instrument sharia compliant, you must explore ways to get around things. He perceives himself as “layering in the Islamic structure” on top of “the underlying commercial intentions” of the client. He described his team in Debt Capital Markets as a “check and balance for the commercial aspect” of the transaction. For Lee, being “shari’a compliant” means above all compliant to a client’s best interests. He perceives himself as advocating for the client’s economic interests, while it is the responsibility of the shari’a experts to ensure that the client and the client’s investors will perceive the product as Islamic. Generalizing from our case to other empirical projects in economic theology, we can conceptualize the investment bankers as entrepreneurs creating moralized markets. As entrepreneurs, they are deeply concerned for the marketability and profitability of their goods (cf. Godechot 2008).
Globally, including in Malaysia, the shari’a experts who sit on corporate firms’ external shari’a committees are referred to as “shari’a scholars”. This is an honorific expression rarely used to refer to shari’a experts employed full-time in firms (discussed below), who are variously described as “shari’a officers” or referred to in organizational terms (e.g. “the shari’a team” or “the Shari’a Advisory”). In the language of the corporate governance literature, shari’a scholars are independent and external persons not employed by the bank, representing neither management nor shareholders. Looking outward from our case, the shari’a scholars can be understood as economic theologians with an institutionalized position vis-à-vis the entrepreneurs.
In contrast to other countries, the Malaysian Central Bank stipulates that a shari’a scholar may not sit on the shari’a committee of more than one bank or insurance company (Alkhamees 2013). Therefore, in Malaysia, all shari’a scholars are, in the words of one such scholar,
“part-timers” with full-time jobs outside of the industry — often in universities or Islamic finance think tanks — or are retired. The shari’a scholars I interviewed, without exception, did not identify as employees of the bank on whose shari’a committee they served. They did not refer to the bank as “we”. Rather they referred to “the bank”, “the business”,“the function”, or “management”. Some emphasized that they were distant and critical observers of the corporation. Mohd stressed at diverse points in our interview that, as a scholar,
we are answerable to God. We believe that we cannot go against God’s will. Shari’a is there and we should exhaust our effort to apply all of God’s orders. So we should obey the shari’a and we should be able to change our policy, our bank’s policy, our legal constraints ... to God’s will.That is our philosophy.
He then posed the rhetorical question, “So why do you ask us to change our shari’a in order to satisfy [Central Bank] policy? They are the ones that should change policy! This always creates a sort of tension between the shari’a committee and management”. Another shari’a scholar, Ahmad, emphasized that the bankers and shari’a scholars have independent and autonomous roles:
To them [the bankers], they just want to do it ... To them, I don’t think [the detailed requirements of shari’a] makes much difference. But they also want to comply, if possible. We are the ones who tell them whether what they want to do is complying with the shari’a or not.
However, such uncompromising positions are exceptional. Much more common among scholars employed on shari’a committees is a relationship to the bank of pragmatic incrementalism. This is partly theological and partly political. Numerous scholars explicitly or implicitly put forward the theological argument that permissibility is the core of muainalat (Islamic economic jurisprudence). As al-Qaradawi (2001: 7), a scholar influential in Malaysia and the Islamic world explains, “In Islam, the sphere of things prohibited is very small, while that of things permissible is extremely vast. [Hence] ... the general principle of the permissibility of things and within the scope of Allah’s favor”.The other component is political. As Faruq explained:
We need to sort of strike a balance between the readiness of the industry and what needs to be done immediately; what can be done in five years’ time; what can be done in ten years’ time. So the industry needs to grow. We don’t want to be seen as too rigid. We don’t want to be seen as too many requirements to fulfil ... a lot of things that we need to balance.
In a separate interview, his colleague on the same bank’s shari’a committee made a very similar point:
I think that for most Islamic investors, for them they are like, “Okay, I know [Islamic finance] is not perfect but 1 will live with it” ... Because if you look to it 20 years ago what was Malaysia with regard to Islamic finance? Nothing. Thirty years ago, we didn’t even have Islamic finance ... So it takes time, to fine tune. And so I think that is basically one of accommodation. We know it is not perfect, but better than we were before. Hopefully, we will [get] into a better situation in the future ... So I know some of the things we approve are not 100 per cent right, but I also know that [if] you want it to be hundred per cent it won’t fly ... This is the compromise we have to do; this is the only way to do it. It is a work in progress, so we go.
When shari’a scholars described themselves in a positive light, or described others in a positive light, they tended to present themselves as engaging intellectually with the banks products and modifying them, rather than preventing a product from materializing. For example Harun argued that a shari’a scholar shouldn’t engage in “sheikh sitting”, which he imagines as “a sheikh in long white robes comes in and issues a fatwa and says this is what you have to do”. It is better to be “proactive” and to “be very imaginative”, to imagine the products from the perspective of what is fair to the customer as well as the bank. Ashraff emphasized that the shari’a committee cannot simply say what is “allowable”: “You cannot stop at that level. If it is not allowable, what is the alternative?”
In contrast to self-described “Islamic economists” based outside of the finance industry who emphasize social justice rather than commerce (also see Rudnyckyj 2018), numerous shari’a scholars paused in their narratives to emphasize that Islamic financial institutions are profitmaking commercial institutions and not charities:
There is nothing wrong with getting profit from the activities because ... even though you are an Islamic bank, [that] does not mean you are a charitable body. You are a profit-making body with some responsibilities to the shareholders, to the depositors ... Profit also is one of [our] targets but having said that ... You can get as much as possible profit gains, but you cannot ignore the Shari’a side, the ethical side of it.
So far, I have discussed the intellectual brokerage and meaning-making between entrepreneurs (the investment bankers) and the economic theologians (the shari’a scholars). However, there are also important issues of control that take place within these small group social interactions. There are spatial and temporal limits to the capacity of the shari’a committee, convening at least once every other month (Bank Negara Malaysia 2011: 36), with its five or so “part-timers”, to evaluate and monitor bank practices to ensure that they are shari’a compliant. For some, the responsibility weighs heavily. Irfan explained that he serves as a shari’a scholar because it is his responsibility as a human, and as part of a community. He described how he feels accountable for his work, both now and in the hereafter:
1 myself, 1 told my colleague, if I am not comfortable, I do not want to continue. Simply because you [are] a shari’a committee [member], you have responsibilities, and therefore you are accountable, and the responsibilities actually [are] beyond what we can bear. So if you don’t do extra, are we comfortable? Are we being responsible here?
To enable “part-timer” shari’a scholars to supervise a vast, potentially transnational, Islamic investment bank and to fulfil its obligations under Malaysia’s Shari’a Governance Framework, Islamic banks employ “full-timer” shari’a personnel to assist the shari’a scholars. Generalizing from our case, we can understand these shari’a personnel as bureaucratic ethicists (Abend 2014). In Islamic banks, these employees are tasked with empowering two parties with partly conflicting interests: other bank employees (such as the investment bankers and management) tasked with generating revenues and minimizing costs, and the external shari’a scholars on the shari’a committee tasked with supervising the bank to ensure it is profiting (and cost-cutting) using shari’a-compliant means. The Shari’a Governance Framework specifies little regarding these employees, other than that Islamic financial institutions are required to provide administrative support for the shari’a committee, and to ensure that their decisions are carried out.
Analytically, we can imagine Islamic banks as organizing their Shari’a Departments on an advocacy spectrum. At one end of the spectrum, the Shari’a Department is simply an advocate of management’s interests. As a shari’a scholar observes of the Shari’a Department with which he works, “So they, of course, they are always on the CEO’s side. The CEO wants something, so they are always trying to [advocate a shari’a opinion to support] the CEO and the management”. At the other end of the spectrum, the Shari’a Department — although not independent — may advocate on behalf of the shari’a committee within the bank. For example one head of a Shari’a Department, throughout our three-hour interview, consistently identified himself and his department with the bank — using the word “we”, for example. However, at a crucial point in the interview he emphasized that he perceived himself and the shari’a scholars as forming a single profession, contrasted with the management:
Because shari’a people want to talk among themselves, it is easier to understand, compared to when they talk to outsiders. Because outsiders tend to — bankers always have secrets. They will not tell everything to shari’a scholars. So that one, we want to protect [against]. They won’t tell everything to shari’a scholars, so Shari’a Advisory’s role is to know everything, what basically [the bankers] want out of this proposed structure.
However, even at this bank, other shari’a personnel are staffed in the product development team to ensure unconflicted shari’a advocacy on behalf of the investment bankers’ areligious interests. To summarize, Islamic banking and finance are co-produced by the three parties - the investment bankers, the shari’a scholars, and the shari’a personnel. This intellectual brokerage of meaning-making is not conducted among equals. In some banks, despite national corporate governance protections, the investment bankers who dominate these small group social interactions and Islamic products are more likely to closely resemble those of the conventional sector. In banks in which the shari’a scholars hold autonomy and power within the firm, the scholars have the opportunity to create financial products and services that they view as theologically distinctive from conventional financial products.Whether the shari’a personnel expend their time and energies to support the shari’a scholars or the investment bankers is also influential in shaping the balance of power between these parties. What constitutes Islamic banking and finance — and what practices are theologically determined to lay outside of Islam — is shaped by an asymmetrical intellectual brokerage conducted in small group social interactions within Islamic financial firms. At least in this case, economic theology is not the product of economic practitioners or of theologians, but of the intellectual brokerage between the entrepreneurs, economic theologians, and bureaucratic ethicists. This intellectual brokerage is directly shaped by the banks’ organizational structures, by national corporate governance regulations, and (outside of the scope of this chapter) by the international “demand” by clients for“Islamic” products.
