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Western Financial Agents and Islamic Ethics


This paper investigates Western professional bankers’ perceptions of Islamic finance. Exploiting data from an original survey, we carry out a principal component analysis (PCA) to characterize the main dimensions on which financial agents diverge. The PCA extracts five dimensions—accounting for 61 % of the variance in the agents’ answers—that we interpret with the help of a pilot field survey. In addition to confirm the increased association of Islamic financial values with ethical practices in the West, our results allow us to understand how the observed growth of the industry has been conceptualized by conventional agents. The five dimensions identified shed light on the multitude of constructs that have informed the diffusion of Islamic financial ideas to international markets. This supports the fact that Islamic finance cannot be seen as a single movement but is characterized by opposing and concurrent logics in global markets.

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  1. The industry was recently estimated to have reached a value of US$1.2bn globally (UKIFS 2012), with active institutions in more than 75 countries worldwide.

  2. As opposed to the Gulf Cooperation Council (GCC), Middle East and North Africa (MENA)—excl. GCC—and Malaysia. This trend is most obvious in the United Kingdom, where the number of financial institutions and law firms offering Shariah-compliant financial products and services grew from a handful in the late 1990s to 47 in 2012 (UKIFS 2012).

  3. As r corresponds to a certain distribution of risk in the market, assuming that v is heterogeneous among agents would boil down to considering agents’ varying preferences toward competing risk structures, thereby avoiding the “ethical” or “religious” aspect of the financial asset in question. In this case, the choice of investment would depend on differences in the risk aversion of economic agents.

  4. If, for some agents, the expected utility of r E is higher than the expected utility of r*, the δ i become obsolete as the choice between ethical/Islamic and conventional products would be obvious for all α i,j given that g i,j(1) and h i,j(1) are assumed to be non-negative.

  5. The concepts of PC and IC refer to the traditional incentive model in microeconomic theory, which traces back to Hurwicz (1972). In a nutshell, the decision of an economic agent to take a specified action is understood to be contingent upon two concurrent conditions. First, in order for an agent to take action—that is switch from conventional to alternative financial solutions—the new option must make him better off than in the initial instance (PC). Second, the new option adopted must be better than any other available options (IC).

  6. The pilot study that helped us to build our questionnaire is described in Fang (2013).


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Author information

Authors and Affiliations


Corresponding author

Correspondence to Renaud Foucart.

Additional information

We thank two anonymous reviewers for their comments, Rodney Wilson and Charles Jones for their inputs at the early stage of this research and participants at the 2nd International Conference in Political Economy at the University of Istanbul (2011), the 4th Oxbridge Taiwan Scientific Symposium at the University of Oxford (2011) and the EABH conference in Sarajevo (2012) for their discussions and comments. A previous version of this work can be found in the proceedings of the EABH conference.

Appendix 1

Appendix 1

The Survey

A. Personal Information

The only criterion for taking part in this survey is your connection with the broader field of economics/finance/banking. Respondents can be working in either the private or public sector, or may even be in education at present, but should have at least 3 years of work experience in their field.

  1. 1.

    Where is your main workplace located?

    Continental Europe South East Asia
    United Kingdom Oceania
    North America Middle East
    South America North Africa
    East Asia Other (please specify)
  2. 2.

    Religious background.

    Muslim Jewish Agnostic
    Christian Buddhist Prefer not to say
    Catholic Atheist Other (please specify)
  3. 3.

    What is your age range?

    20–25 36–40 51–55
    26–30 41–45 56–60
    31–35 46–50 Other
  4. 4.

    Please choose the category that best describes the nature of your profession.

    Investment banking Accounting
    Retail banking Law firm
    Private equity Other financial services (e.g., support, research, etc.)
    Commercial banking Public institution (whether national or international)
    Auditing Still in education (university, college or higher education)
  5. 5.

    What is the highest-level course you have taken in finance/economics?

    High school Masters/MBA
    Undergraduate PhD
  6. 6.

    How familiar are you with the “ethical investment” movement (this includes socially and environmentally “responsible” investments)?

Never heard of it
I have heard of the concept and I know roughly what it is
I am familiar with ethical finance
I have a good knowledge of its core principles
I have worked with ethical financial products/services

B. What is Islamic Finance?

  1. 1.

    How do you perceive the importance of Islamic finance within the global financial system in terms of market size?

    No opinion Fair
    Negligible Significant
    Small Important
  2. 2.

    Regardless of your familiarity with Islamic finance, what words and ideas does the notion of Islamic finance evoke to you?

Open question.

  1. 3.

    How familiar are you with the concept of “Islamic finance”?

    Never heard of it
    I have heard of the concept and I know roughly what it is
    I am familiar with Islamic financial ideas
    I have a good knowledge of the core values of Islamic finance
    I am active at the professional level in Islamic finance
  2. 4.

    What are the points of divergence between conventional and Islamic finance that you are familiar with? (You may tick more than one answer).

    Prohibition of interest The prohibition of illicit activities/products such as tobacco, alcohol, pornography, pork-related goods, etc.
    The ethical and social purpose of finance Solely asset based
    Prohibition of speculation None of the above points
  3. 5.

    Where did you first hear of Islamic finance? Feel free to elaborate on your sources

Open question.

C. Conceptual Questions

Do you agree with the following statements (on a five-point scale, 1 meaning strongly disagree, 2 meaning disagree, 3 neither agree or disagree, 4 agree, and 5 strongly agree).

If this is the first time you have heard about Islam-based finance, please answer the following questions based on the core concepts of Islamic finance listed in the previous question:

  • Prohibition of interest.

  • Prohibition of speculation.

  • Prohibition of gambling.

  • Prohibition of illicit activities/products such as tobacco, alcohol, pornography, pork-related goods, etc.

  • Asset based.

  • Ethical and social purpose of finance.

1 Financial practices based on Islamic principles are sustainable in the global financial system
2 At the practical level, there are no real differences between Islamic and conventional finance
3 Regardless of the type of finance considered (whether conventional finance or Islamic finance), the global financial market will converge on its own toward the most efficient system
4 The modern global financial system is a fair system as resources are allocated in an effective manner
5 Islamic finance offers investment opportunities with interest rates, just under a different name
6 It is possible to include ethical considerations in the realm of finance
7 Recent events have demonstrated the necessity of promoting the moral/ethical side of finance
8 Islamic finance can be seen as a type of ethical finance
9 Islamic financial transactions should be conducted by people of Muslim faith in order to preserve their essence
10 Islamic finance should be introduced to the general public
11 As Islamic finance integrates into the global financial system, it will converge toward “conventional” finance and the differences will become smaller and smaller over time
12 Islamic and conventional finance are based on different sets of practices but the ultimate motivation is the same. Both Muslims and conventional financial agents’ primary is on profit making
13 The attention recently brought upon Islamic finance matches the potential of this alternative financial system
14 The subprime financial crisis has shown us that the modern financial system needs additional supervision in order to avoid excessive speculation and risk taking
15 Islamic finance is a potential source of norms that could be used to limit speculation and promote a more socially responsible form of finance
16 Individuals who invest in Islam-based financial products/services are willing to pay a premium to comply with their religion/ethics
17 Islamic finance would be more acceptable as a range of financial products if the word “Islamic” was removed

Appendix 2: Principal Component Analysis—Methodology

See Appendix Tables 3, 4, and Fig. 4.

Table 3 PCA test of sample adequacy
Table 4 PCA communalities test
Fig. 4
figure 4

PCA scree plot

Appendix 3: PCA Results

See Appendix Tables 5, and 6.

Table 5 PCA results
Table 6 PCA components loadings

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Fang, E.S., Foucart, R. Western Financial Agents and Islamic Ethics. J Bus Ethics 123, 475–491 (2014).

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  • Islamic finance
  • Business ethics
  • Global finance
  • Social psychology
  • Principal component analysis