Bringing Islamic Banking into the Mainstream is not an Alternative to Conventional Finance

The latest economic crisis shook the previously firm belief in the prosperity-bringing financial sector around the globe. For many months after the catalytic bankruptcy of Lehman Brothers, the economy was in apparent freefall. News about plunging equity, housing, and commodity markets, dried out inter-bank lending, nose-diving industrial production and trade, and rising unemployment have characterized our daily routine. But between all this doom and gloom some parts of the deeply shaken financial sector attempted to promote themselves as bearers of hope for a new, improved, and more stable financial system. Economists, politicians, and clergymen alike increased their efforts during the financial crisis to make the mainstream aware of the advantages of Islamic finance. Islamic financial assets today are believed to barely exceed U.S.$1 trillion, but have been observed to grow in the two-digit area over the last decade [Economist (2008)]. Hence, Islamic finance has its foot in the door of the financial mainstream. The mentioned economists, politicians, and clergymen are helping with the last push to open this door. But what will happen once Islamic finance tumbles into the mainstream? Will we enter an era of new, religion-like belief in stable and prosperity-bringing finance? The announcement in late 2009 by Dubai World, the emirate’s flagship for investment in the region, that it was not able to repay an Islamic bond in time cast fresh doubts on Islamic finance’s claim of inherent stability. This article argues that Islamic finance is not a stable alternative, since Islamic banking in particular and Islamic finance in general do not differ significantly from conventional banking and finance. In the following the reasons for the alleged superiority of Islamic finance will be explored, namely its developmental character, the inherent stability, and the importance it assigns to individuals’ morality. Being based on Islamic economics, Islamic finance simply replaces the religion-like belief in the neoclassical dogma of the efficient market with the religiously motivated belief in the morality of the homo Islamicus. The outcome is strikingly similar.