There are at least three distinctive types of Islamism that coexist today, and each individual may subscribe to different types in different domains at different times. To use a familiar example, numerous Muslims may exhibit a form of pietism by accepting traditional views on female “dress codes” while being progressive/modern in their views on financial transactions and oppose political Islam. Likewise, many “Islamic finance” professionals benefit as parasitic-Islamists (meant in a strictly non-pejorative sense) from the rents accrued from reengineering financial contracts to adhere to traditional jurisprudence in a manner that allays the religious anxieties of pietist-Islamist customers and/or serves the economic and political empowerment agendas of political Islamists. Unfortunately, survey questionnaires always conflate all three types of Islamism. For example, the Arab Barometer question on whether banks should be forbidden from charging interest may elicit affirmative responses driven by the pietist needs of the voluntarily financially disintermediated, the professional ambitions of current or potential “Islamic finance” professionals, or the political goals of Islamists who desire to use “applying Shari`a” as a power vehicle. Likewise, questions on “applying Shari`a,” which we can find in World Values Survey, Pew, and other surveys, conflate the three potential motives, which may coexist or diverge for any given respondent. Thus, direct regression analysis using such survey data requires indefensibly unreasonable assumptions about the specific aspects salient in respondents’ minds, and their uniformity across respondents. Nonetheless, there is a wealth of useful information that can be gleaned from such data, and so-called “Islamic finance” remains one of the best examples of the way Islamist forces of the various pietist, parasitic, and political types negotiate the reconciliation of pseudo-traditional Islamic identity with modernity. (The other obvious examples, which have been studied much more extensively, have been ``hijab’’ as a dress code for women, and to a lesser extent facial hair and forehead ``prayer marks’’ for men, among other physical signals of religious identity and intensity that vary in cost, provision of business opportunities, and leverage of religious identity politics.) In this paper, I propose using a hybrid of three methods: (1) economic analysis of the methods of Islamic finance, (2) summarization of anecdotal evidence based on writings of industry participants, and (3) cross-tabulation of opinion surveys to construct mental mappings of the different combinations of Islamist mindsets and their correlations with economic and political attitudes (with special focus on attitudes toward income pre- and re-distribution).

While there exists today a wealth of theoretical literature on Islamic Banking and Finance (IBF), and some empirical studies, there is a shortage of studies of its practice in the Gulf oil monarchies – and this despite the important concentration of Islamic financial assets in GCC states today. This paper seeks to contribute to the empirical literature. On the basis of interviews conducted in Kuwait, Oman, Qatar, Saudi Arabia in 2012, 2013, and 2015, it aims to uncover the actual goals and purposes of IBF in those states. The paper is in two parts – having to do with form, on the one hand, and the relationship between form and substance, on the other hand. The first part addresses a set of questions related to the adoption, regulation, and instrumentality of IBF: i) what can we learn from the variation in timing of adoption of IBF in the GCC states, and the resistance to it in Oman and Saudi Arabia? ii) why are controversial murabaha arrangements among the most common today? iii) what explains the absence of uniform rules, tools and oversight mechanisms in IBF within and across GCC states? The second part interrogates the conformity of the practice of IBF in GCC states with its alleged purposes: i) what does the absence of institutional transparency imply relative to equitable profit and loss-sharing? ii) what does the growth in personal debt suggest about efficacy? iii) how, if at all, and to what extent do IBs engage in socially responsible endeavors, as in job creation or other welfare ventures? Finally, how do citizens of GCC states evaluate IBFs and describe their real goals and purposes? On the basis of answers to these questions, I argue that the practice of IBF in the four GCC states is detached from Islamic principles of promoting the ‘common good’ and justice in distribution, and encouraging production over consumption. In effect, it shares goals of conventional finance related, among other things, to profit maximization for the owners of capital, but it masks those goals through the ‘Islamization’ of language and structures. Not only is IBF in GCC states a form of manipulation, as suggested by others (e.g., Kuran 2004), but it is one that provides spiritual solace while meeting the interests of a local (and powerful) ‘financial lobby.’

After enjoying many years of continuous growth, the future of Islamic finance industry faces new challenging dynamics in the form of slowing growth combined with sharply decreasing profitability. Meanwhile, the practice of Islamic finance continues to deviate from the theoretical and socio-economic premises upon which the industry was built, thus, causing significant damage to its credibility and raising questions on its very raison d’être. This paper argues that such deviation and erosion of credibility was inevitable due to the flawed methodology adopted by the industry, namely, building institutions as pure imitations that provide the optimal legal form capable of mimicking the function and substance of existing conventional financial institutions. This approach was motivated by the need of Islamic financial institutions to be as competitive as possible with their conventional counterparts and to offer an immediate alternative or replacement for the conventional financial system. The Islamicization of conventional financial institutions and instruments proved successful in attracting investments and securing fast growth but that was only achieved at the cost of compromises of principles and deviations from the ethical and socio-economic principles which were presented as the main justifications for offering Islamic financial solutions. The paper further argues that Islamic finance should have focused on offering niche and innovative solutions to some of known challenges of conventional banking and finance, such as community banking, micro finance and SME finance. Rather than competing head on with conventional institutions, Islamic finance should focus on complementing the conventional system in such areas. The paper concludes that in order to bring consistency and coherence between the theory and practice of Islamic finance, a new methodology concentrating on the main problems that conventional banks and institutions have regularly failed to address should be adopted.