Geography Directions

by David Bassens

Goldman Sachs New World Headquarters (photo by Z4dude via Wikimedia Commons)

Last October, Goldman Sachs registered Islamic bonds – sukuk as these are called – for a total value of US$2 billion on the Irish Stock Exchange. Remembering the sobering BBC-statement late September by independent trader Alessio Rastani that “Goldman Sachs rules the world”, this paradoxical feat inevitably triggers the question of how it can be that a global investment bank renowned for its speculative behavior tries to attract ‘Shari’a-compliant’ capital that shuns interest, uncertainty, and speculation to finance its day-to-day business.

Our recent study, published in Area, which focused on office networks of transnational Islamic Finance (IF) firms and which produced empirical insights with regard to the heavy entanglement of IF and conventional financial circuits, makes the above far less counterintuitive. IF firms have indeed emerged as an answer to faith-based demands for Shari’a-compliant finance, when during the oil-boom of the 1970s Gulf bankers laid the basis for a domestic sector. However, next to full-fledged Islamic banks, ‘conventional’ banks with a strong historical presence in the Muslim World have developed ‘Islamic windows’ to cater to the growing demand for Shari’a-compliant products. This globalization of IF has produced a geography that is marked by the emergence of a number of financial centers in the Gulf (e.g., Abu Dhabi, Dubai, and Manama), where IF is gradually becoming a dominant finance form, but which are in turn heavily interconnected with ‘conventional’ financial centers that are striving to attract business in growing sukuk markets.

The recent engagement between IF and Wall Street investment bankers, then, allows us to conclude that these geographical entanglements imply that IF’s acclaimed ‘alterity’ is largely inflated. While the increased involvement of IF actors in ‘mainstream’ global financial circuits could potentially import a ‘new world’ of customs, values, demands, and ideologies into the realm of global finance, even in times of financial turmoil global finance is being persistently reproduced from Wall Street and The City through a formal, but not substantial adaptation of financial techniques to demands from ‘new’ places. Indeed, although much is done to present the bonds as Shari’a-compliant, a thorough investigation of the prospectus by Khnifer shows that Goldman Sachs has, put simply, issued conventional debt.

The motives for such formal adaptations are grounded in the current phase of capitalist crisis since it is mainly aimed at channeling surplus oil-liquidity through conventional financial centers, while still not actually adapting the ‘nature’ of global finance itself. This means that IF can also be understood as a manifestation of global finance as it reaches out and integrates ‘new and exciting’ emerging markets. In times when liquidity has become a scarce good, such engagements are likely to proliferate, but whether it will mean that Wall Street’s – or The City’s for that matter – investment banking community will start to limit its speculative behavior to conform to the Shari’a remains largely a rhetorical question.

The author: David Bassens is postdoctoral fellow of the Research Foundation – Flanders at Ghent University’s Geography Department. He was the winner of the 2010 Area prize for new researchers.

Bassens D, Derudder B and Witlox F 2010 Searching for the Mecca of finance: Islamic financial services and the world city network Area 42 35-46

BBC 2011 ‘Anyone can make money from a crash,’ says market trader 26 September

Khnifer M 2011 Disclosure of three likely flaws in Goldman Sachs’ milestone sukuk 9 December