New Label, Same Vintage? Reassessing Participatory Islamic Banking in Pakistan

Islamic Banking and Finance (IBF) advocates relentlessly promote it as a more inclusive and less rapacious (i.e., “participatory”) alternative to conventional finance as it ostensibly eschews interest-based, collateralized debt in favor of Profit and Loss Sharing (PLS, or Islamic venture capitalism). The US$ three trillion global IBF industry, they argue, “invests” in a wide range of economically beneficial activities and expands the pool of eligible beneficiaries. IBF’s critics have long argued that it is “a distinction without a difference” that uses close analogues of conventional financial products (aka the “murabahah syndrome”), and equity participation (PLS) has an insignificant share of global IBF assets. However, between 2006–2020, Islamic banks in Pakistan (an IBF pioneer) seemingly shifted away from conventional debt-analogue products to PLS financing. A closer analysis of these “participatory” Pakistani IBF products confirms the Kuran Thesis—that IBF will invariably and continually emulate conventional banking due to unchangeable environmental factors—since the banks developed new PLS financial products that allowed them to avoid being seen as ribawi (usurious) banks without having to take on the risks associated with actual venture capitalism. IBF, therefore, continues to be a higher cost, murabahah syndrome, version of conventional banking.