By Alexander Leo Phillips
Public confidence in the banking sector has been significantly shaken over recent years. Given the turmoil caused by the global financial crisis, the depression and the public bail-outs of banks like RBS and Northern Rock; the raising levels of doubt and mistrust are hardly surprising. Furthermore, such doubts show little sign of abating this week, as seven EU banks fail newly imposed ‘stress tests‘ by the Committee of European Banking Supervisors (CEBS). As a result increasing numbers are looking for an alternative form of banking in which to invest and Islamic finance could just fit the bill.
Unlike the traditional banking sector, Islamic banking is based upon a strict set of principles; the central of which is that “money itself has no intrinsic value. [Also] as a matter of faith, a Muslim cannot lend money to, or receive money from someone and expect to benefit – interest (known as riba) is not allowed. To make money from money is forbidden – wealth can only be generated through legitimate trade and investment in assets. Money must be used in a productive way” (IBB). As a result of this central principle Islamic finance is considered more stable (as the temptation to risk in search of profit is reduced) and more ethically appealing to many private savers and investors dismayed by increased profits and bankers bonuses. Moreover, Pollard (2010) suggests that many organisations like the IBB, are attempting to market themselves as ‘ethical banks’ in areas such as the EU and USA which could otherwise be sceptical of the Islamic name.
In a recent issue of Area geographers Bassons, Derudder and Witlox detail the global spread of the Islamic finance model in recent years, charting how Islamic financial services have moved out of their historical base in the cities of the Middle East and become “anchored in the more conventional world cities” (2010, 44) of London and Paris, challenging our pre-existing geographical imaginations of the global financial sector.
These changes should be of great interest of all Human Geographers, as they offer a potentially fruitful intersection between social & cultural, political and economic geographical research; as we explore how the actions and values of the individual impact upon these globalised networks.
Bassons, D, Derudder, B and Witlox, F. 2010. ‘Searching for the Mecca of finance: Islamic financial services and the world city network’, Area, 42 (1). pp. 35-46.
Pollard, J. 2010. Faith in Economic Geography: some reflections on Islamic finance. In: Geographies of Religion: a new dialogue, Newcastle University, 9th March 2010.