Variegated Finance Capital and the Political Economy of Islamic Banking in the Gulf

ABSTRACT

The significant expansion of Islamic Finance (IF) over recent years provides a useful vantage point for examining the variegated nature of global finance. Nonetheless, within the substantial political economy literature on IF, there has been surprisingly little reflection on the concrete forms of class and capital accumulation underlying IF in particular national contexts. Against a methodological tendency to divorce Islamic financial markets from the wider circuit of capital, this article employs a Marxian conception of ‘finance capital’ to examine the class composition of Islamic banking in the six Arab states of the Gulf Cooperation Council (GCC). The core argument is that the expansion of GCC Islamic financial markets reflects the growth of a distinct class-fraction of privately-controlled finance capital in the Gulf. The specificity of this process in the Gulf involves a set of privately-controlled conglomerates whose interests are uniquely interlocked with the ownership of Islamic banks but extend beyond these to a range of other moments of capital accumulation – most prominently those connected to the transformation of the built environment. These class relations differ from conventional banking in the Gulf, and highlight the importance of critical political economy in developing alternative interpretations to the dominant, industry-linked literature.

KEYWORDS:

• Islamic Finance
• finance capital
• Gulf Cooperation Council
• class formation

Disclosure Statement

No potential conflict of interest was reported by the author.

Notes on Contributor

Adam Hanieh is a Reader in Development Studies at SOAS, University of London.

Notes

1 The other side to class relations in the Gulf is the region's overwhelming dependence on a large, migrant workforce lacking citizenship and political rights. It is beyond the scope of this paper to deal with this feature of class composition in the Gulf – but it should be remembered that the heavy role of construction and real estate activity in the narrative that follows is fully reliant on the presence (and precarity) of these workers.

2 Some authors have stressed the rise of new rentier classes connected to rent extraction from bank lending and financial dealing; others ascribe financialisation to processes of monopolisation, or falling profitability rates and overaccumulation in sectors productive of value. It is beyond the scope of this paper to fully discuss these debates (see Powell 2018, for a survey).

3 Krippner (2005), for example, discusses this in relation to the US; Chesnais (2016) for US, Britain, France, Germany; Serfati (2011) analyses transnational corporations through the lens of finance capital.

4 The only exception to this is Qatar, where legislation passed in 2011 mandated the complete separation of Islamic and conventional banking activity. According to an interview with a Gulf-based banker in Doha in December 2017, the reason for this decision stemmed from an opinion that conventional banking assets might violate Islamic law due to the difficulties of separating account sources; as well as an attempt by Qatari authorities to strengthen the Islamic banking sector.

5 Author calculations, Bankscope Database.

6 The Kuwaiti exception is partly explained by the fact that the Kuwaiti merchant class was historically more independent from the ruling family, and thus had a greater initial presence in commercial banking (Crystal 1995).

7 Al Bilad Capital, for example, reports that its Amwal Fund had at least 75 per cent of its investments directed to the banks listed in Table 2 as of end-2017. Similarly, the firm's real estate fund was predominantly focused on companies owned by the conglomerates shown in the table (including those owned by AlBilad Bank's shareholders).

8 Jadwa Investment, for example, recently acquired a 49 per cent stake in Al Zamil Company for Industry, Trade, & Transport (part of the Zamil Group).

9 For example, Bukhamseen's 35 per cent share of Kuwait International Bank is partly held through one of its hotel subsidiaries.

10 Author calculation from GCC stock market data.

11 Calculated by author through an analysis of the subsidiary information available from Bankscope for all GCC Islamic and conventional banks. Majority ownership is defined as owning 50 per cent or more of the firm's shares.

12 Interview with lawyer for GCC-based construction firm, Dubai, February 2017.

13 The Real Estate Development Fund, for example, saw its lending levels more than triple in size between 2011 and 2014. Al Rajhi Capital, Saudi Arabian Economy, Economic Research March 2014, p. 4.

14 Interview with employee of Al Rajhi Bank, Riyadh, May 2018.

15 Notably, Dar Al-Arkan is also exploring the establishment of a separate construction and contracting firm, which would carry out the actual work on its real estate projects and allow it ‘to meet the current housing demand in the Kingdom’ (p. 132).

16 Interview with lawyer of GCC-focused construction firm, London, January 2018.