Across the world, there is widespread belief that humanity must conduct itself responsibly and sustainably—a view shared by many Muslim communities as they endeavor to express their faith-based values in business. Their initiative is commonly known as “Islamic finance,” a niche of global financial markets, even within Muslim majority nations. In many respects, Islamic finance is akin to socially responsible investing; both place principle-based limits on profit motive and have grown considerably over the last two decades—much more so than their “non-responsible” counterparts. Since the onset of the financial crisis, the Islamic finance industry, a subset of international financial and responsible markets, has continued to expand at a rate of 17 percent per annum; today, assets under management are estimated at close to $2 trillion. Also like the world of responsible investment, Islamic finance began as a private faith-based initiative, and is largely self-regulating and self-enforced. Only recently have some governments—both inside and outside the Muslim majority world—developed regulations specific to Islamic banking and investment. Their mutual concern for responsible business provides opportunities for collaboration. But despite these similarities, the worlds of responsible investment and Islamic finance have unfortunately rarely overlapped.

From Islamic Finance to Responsibility

Islamic commercial principles are rooted in the Shari’ah, the faith’s scriptural foundations. Their objectives are to bring about welfare and prevent harm, particularly in the preservation of religion, life, intellect, property, and posterity. Islamic ethics have been interpreted to require risk-sharing, rather than risk-shifting, in business and finance. Perhaps their most noteworthy principle, one shared by other faiths, is the avoidance of “riba,” loosely translated as interest, which precludes debt sales and the toxic assets widely considered to have contributed to the recent global crisis. The Qur’an’s warnings against riba are interestingly juxtaposed with giving and charity, indicating that it is diametrically opposed to the latter in ethical value and collective consequences.

Some have interpreted the Shari’ah to emphasize the consideration of consequences to engender spiritual and material well-being. Muslim communities are increasingly discussing sustainability, resilience, and intergenerational ethics as part of broader religious conversations. Various commentators have recognized Islamic finance as a means to address developmental challenges, eliminate extreme poverty, and enable prosperity in developing and emerging economies. That is because of Islamic finance’s link to real economy assets and the inclusive consequences of its requirement of risk-sharing. For many of these and perhaps other reasons, empirical evidence following the financial crisis shows that Islamic finance is more resilient than its counterpart and may thus promote systemic financial stability.

Augmenting the usual expertise involved in business, contemporary Islamic finance has integrated a layer of advisors responsible for assessing the ethical value of products under Islamic principles. Some advise privately, while others do so on a centralized basis. While they each interpret the Shari’ah, their determinations are certainly not monolithic. As responsible markets debate stakeholder theories, they would be well served by seeking to learn about Islam’s “tiered, multifiduciary stakeholder approach, which grants various communities—including animals, the natural environment, and labor—not only a moral claim, but also legal standing.

From Responsibility to Islam

Like any young endeavor, contemporary Islamic finance faces challenges. Among these is the persistent critique of its focus on transaction and cash flow structuring that is more “form” than “substance,” and the consequent inability to produce greater social balance and justice. But proponents, stakeholders, and critics of Islamic finance appear ready to take up contemporary concerns by implementing more of Islam’s substantive ethical teachings.

Amidst US pluralism, and given its history of innovation, American Muslim communities hold a rare opportunity to contribute to contemporary Islamic finance. By finding their history in the present, they may model mechanisms to express notions of responsibility through business. The religion of Islam presents a long-standing historical tradition of concern for the environment, and human and non-human life; empathy for laborers and straitened debtors; and a principle of inclusive consultation in decision-making processes to build strong governance. The values of compassion, balance, fairness, and moderation underlie Islamic thought. Thus, social responsibility and impact should be methods and consequences of any commerce conducted in light of Islamic teachings. And yet Islamic investors have neither fully expressed these values, nor been afforded ample opportunity to affirm them in their financial commitments.

The United States is usually considered a smaller market for Islamic finance relative to the Middle East/North Africa and Europe. However, Muslim and non-Muslim business owners, investors, lawyers, bankers, regulators, and many others—in the United States and abroad—have formulated numerous innovations of global relevance. Given the breadth of contract freedom and opportunity in the United States, Muslim communities and markets have a rare opportunity to explore the implementation of these ethical teachings using existing frameworks and responsibility initiatives. Muslim businesses may contribute to the communities in which they live and work by engendering impact through their businesses, whether seeking social returns in business or creating partnerships with philanthropy. This would be a tremendous innovation.

Islamic norms of responsibility find parallel with a number of contemporary sustainability and responsibility initiatives, such as the Equator Principles, which place upon financiers an environmental responsibility for the projects they support. Islamic institutions may be able to (thoughtfully) adopt contemporary responsibility and sustainability frameworks to support Islamic ethical values. Some have begun to do so, such as Arabesque based in Europe and SEDCO from Saudi Arabia. Muslim communities and markets may rediscover the integration of the financial alongside the social, affirmatively seeking out efforts to achieve good. For many generations of Muslim history, social impact was created by way of endowments (in Arabic, “waqf”) that may have been precursors to common law trusts. These vehicles housed very significant assets, supporting institutions such as schools, hospitals, and places of worship. By linking trade and commerce with charity, philanthropy, and social progress, as we find in more recently developed impact investing methods, Muslim communities may demonstrate an authentic faith-based impetus to both learn from others and construct significant platforms of dialogue and sharing.

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