Total assets within the Islamic finance sector are currently worth $1.8 trillion, and Ernst and Young has predicted this figure to grow to $3.4 trillion by 2018. In the post-financial crisis era, many conventional banks, economists and depositors have been inspired by the moral and ethical foundations of Islamic finance, which seem to be absent from the conventional banking system.
Yet, the discourse about Islamic finance tends to fall into a few false dichotomies: the first is whether it conforms to capitalism or Marxism; the second asks whether it merely masks interest (usury/riba) with Arabic jargon i.e. still conforming to the current system or whether it is a fully interest-free system that is a radical departure from the capitalist system. This discourse is narrow-minded at best, as it reduces Islamic finance to the standards set by capitalism or Marxism, both of which can take many forms and both of which are features of modernity.
These arguments tend to marginalize Islam as a legitimate epistemology which uses the shari’ah to measure the credibility of Islamic financial practices. Furthermore, the current discourse claims that Islamic finance can only be credible if it were to create financial and social utopia, and, if it does not do this then it is entirely illegitimate; a standard nonetheless which capitalism has not achieved. Those who hold these extreme positions have so far stifled substantive discussion regarding the current practice within the industry, and, whether or not Islamic finance provides any benefit in an era of western globalized financial practices. Furthermore, these readings of the legitimacy of Islamic finance are ahistorical; they do not take into account the struggle of former colonies to gain economic independence from neo-colonial institutions.
We must not only analyse the legitimacy of Islamic finance based upon the standards set by the shari’ah, but also through a postcolonial lens. For, this is the first time since the colonial period that an epistemology from the global south is manifesting itself on the global stage and is offering some solutions to the modern project. 
Western modernity as a paradigm is predicated upon particular principles that emerged out of experiences within central and western European nations between the sixteenth and eighteenth centuries. This paradigm constitutes the current hegemonic power structure perpetuated by core countries in the west with regard to peripheral countries in the global south. The paradigm of modernity is a globalized western localism: the globalization of uniquely western local practices, which marginalized other epistemologies as it has encroached onto the global south.
But modernity is neither as neutral nor as objective as it claims. This is the insidious element of modernity: it marginalizes other epistemologies yet claims to be universal, rational and objective. The hegemonic conventional financial system is a product of modernity that by its very nature marginalizes those who do no accept its principles: an interest based, profit maximizing system that is now based on fiat currency (the regime of managed flexibility). Beyond the physical colonization of the global south that led to the opulence and wealth of the west being created out of the exploitation of raw materials and labour in the global south, colonization went hand in hand with the epistemicide of other intellectual traditions – perpetuated by both liberal capitalist and Marxist thinking. As western economic power erodes due to a re-centering of the global economy, the intellectual assumptions that have underpinned western modernity will begin to be contested as well.
Pillars of modernity
The paradigm of modernity is based upon two pillars: the first is the pillar of regulation, the second is the pillar of emancipation. Modern regulation is the set of norms, institutions, and practices that attempt to guarantee the stability of expectations. They do so by establishing a politically tolerable relationship between present experiences on the one hand, and expectations of the future on the other.
The pillar of regulation is comprised of three principles: the principle of the state (Hobbes); the principle of the market (Locke and Smith); and, the principle of the community (Rousseau’s social and political theory). It was thought that these principles could be used to regulate the animal nature of humanity, and to prevent life from being nasty, brutish and short.
The pillar of emancipation (Weber’s logic of emancipation) is also comprised of three principles: aesthetic emancipation– expressive rationality of the arts and literature; cognitive emancipation – instrumental rationality of science and technology; and, moral emancipation – practical rationality of ethics and the rule of law.  Modernity is allegedly grounded on a dynamic tension between the pillar of regulation and the pillar of emancipation.
Failures of modernity
It can surely be unequivocally stated that modernity as a global project has failed to achieve its goals. The promises of greater equality, liberty, peace and harmonious existence with nature have failed on a grand scale.
The promise of equality
This was made possible by the conversion of science into a productive force, yet in the twentieth century more people died of hunger than in any of the preceding centuries. Based on UNDP data three decades ago, people in wealthy nations were 30 times wealthier than those in the countries containing the poorest 20% of the world. By 1998, this gap had widened to 82 times.
The promise of liberty
The prison population continues to rise globally with the United States of America having over 2 million citizens in prison, leading the world in incarceration rates and in prison populations. In 2011 UNICEF reported that over 150 million children aged between 5-14 are involved in child labour.
The promise of perpetual peace (Kant)
In the eighteenth century, 4.4 million people died in 68 wars; in the nineteenth century, 8.3 million people died in 205 wars; in the twentieth century, 98.8 people had died in 237 wars by 1990. We have not progressed towards a more peaceful society.
The promise of the domination of nature and its use for the common benefit of humankind has led to an excessive and reckless exploitation of natural resources; ecological catastrophe; nuclear threat; the destruction of the ozone layer, and the emergence of biotechnology, genetic engineering and the consequent conversion of the human body into the ultimate commodity. Modern economic growth has led humanity to a precipice – one that we have never faced in the past. Yet, the final crisis of modernity is an epistemological crisis rather than a social crisis. Here we enter into a paradigm of transition. As modernity collapses as an epistemological and cultural project, a range of possible futures for societies is opened up.
Celebratory post-modernism is the belief that modern problems have modern solutions. An example of this belief is that the current ecological crisis will only be solved by the continued use of the emancipatory potential of science and technology. There are various forms of this argument, ranging from those who believe a different form of modernity will provide the necessary solutions, to those who believe that it is with more intensity that modernity will be able to produce the solutions. The most famous proponent of celebratory post-modernism is Habermas, for whom modernity is an incomplete project that must be fulfilled. This is similar to dealing with the issue of global inequality between the global north and global south, when it is often argued that continuing the current process of capitalism will lift millions from below the poverty line and will be able to close this gap. As mentioned above, this has not happened. So where does that leave us?
Opposition post-modernism is a concept developed by legal theorist Boaventura de Sousa Santos. According to this theory, it is possible and necessary to think of social regulation and emancipation beyond the limits imposed by the paradigm of modernity. He states that, ‘it is as important to acknowledge the historical and political actuality of the modern problems, as the impossibility of finding answers for them in the paradigm of modernity.’ According to oppositional post-modernism, there are modern problems with no modern solutions. Here lies the transitional nature of our time. The paradigm of modernity may contribute to the solutions we look for, but it can never produce them. Therefore, furthering the principles of modernity will not solve these problems. Rather, we must use alternative epistemologies to find new principles to create new solutions.
Paradigm of transition
The failures of modernity to achieve its goals and the imaginative limitation of its epistemological underpinnings have brought us towards a paradigm of transition. Obviously, transitional periods are difficult to define and often contradictory in nature, which leads to a simplistic rejection of its emancipatory potential - this is intellectually negligent to say the least. Paradigmatic transitions last several decades, often taking more then a century to develop themselves, as was the case for the scientific revolution or the transition from feudalism to capitalism in Europe. The collapse of modernity as an epistemological and cultural project opens up a range of possible futures for society – and one of these, I want to argue, is Islamic finance.
Islamic finance in a paradigm of transition
The fact that Islamic finance functions within a paradigm of transition does lead to some difficulty in assessing its legitimacy and its potential for achieving what it claims it can achieve. However, Islamic finance does not function outside the spatial and temporal modes of modernity. There is not an Islamic world and a separate modern world. Modernity is interconnected with the rest of the world as part of the globalized hegemonic power structure. Therefore, as the hegemonic conventional financial system has moved towards neoliberal market-led growth since the 1980s, with increasing focus on generating alternative revenue streams from emerging markets in a post-financial crisis era, this must effect the modus operandi within Islamic finance. It is necessary that we contextualize and place Islamic finance within the larger political-economic system in order to prevent us from abandoning ship right after we have set sail. For Islamic finance too has its problems. The current narrative within the industry amongst Muslims and non-Muslims alike is that Islamic finance is failing due to a lack of religious conviction on the part of shari’ah scholars and/or the failure of Islam to provide a tangible alternative to the existing order.
Nevertheless, in the post-financial crisis era we are seeing a renewed interest in Islamic finance from the conventional sector and the global south, which is going beyond trying to merely generate alternative revenue streams. There are serious discussions regarding whether the principles of Islamic finance would be able to sustain a more equal economic and social order. Recently, Mufti Muhammad Taqi Usmani, arguably the most influential Islamic finance scholar, spoke at the World Economic Forum in Davos on ‘causes and remedies of the recent financial crisis from an islamic perspective.’ This is an acknowledgement of the legitimacy of Islamic finance, but also of Islam as an epistemology that can used to construct new paradigms of social interaction.
The basis of Islamic finance is of course, the shari’ah, which provides the epistemology to produce new constellations of our understanding of property rights, environmental rights, economic systems and business transactions. Perhaps the most important pillar of the shari’ah in a post-financial crisis era is that ethics and action cannot be compartmentalized. It is this basic requirement of Islamic finance - the social good of society - that is considered a radical and refreshing stance in stark contrast to the nature of the current financial system, which has grown to astronomical figures, yet has left more people with less.
The shari’ah encompasses a comprehensive cosmology that provides guidance for all aspects of human life with the understanding that humanity is interconnected with the oneness of god (tawhid). Muslims believe that this is a god-created universe, and that every aspect of it reflects the unity of the divine, including the creation of human being. It is argued that tawhid ‘manifests itself into ritual devotion and personal piety, in theology and law, in politics and economics, in faith and deeds, all of which are manifestations of the same all-pervasive principle.’
The industry is within its infancy and has developed largely from post-colonial Malaysia. For this reason, even though Islamic bonds (sukuk) were issued during the reign of the Ottoman empire, the first modern sukuk was issued in Malaysia by Shell MDS in 1990. The current sukuk market has only existed for 20 years at most, in comparison to the conventional bond market that has had at least a hundred years development in human capital, institutions and academia. The future of the industry will be based on continuing the development of the many disciplines within Islamic finance and economics.
Both industries are attempting to manifest their true beliefs and achieve their ideals while working within a paradigm of transition. The failures of modernity as an epistemological and cultural project has allowed for the development of Islamic finance and economics to develop within a paradigm of transition. No one is entirely sure if the industry will achieve its goals or the direction in which it might lead us, but this is the nature of living within a paradigm of transition. The opportunity presented within a paradigm of transition is that societies from the global south can attempt to manifest their beliefs arising from their own epistemology, while evolving the agency to manifest their destiny on their own terms.
(Open Democracy / 13 December 2014)
Alfalah Consulting - Kuala Lumpur: www.alfalahconsulting.com
Islamic Investment Malaysia: www.islamic-invest-malaysia.com