The battle to define the parameters of Islamic finance – and more generally the struggle over the authoritative interpretation of Islam – is not exclusively or even principally about religion. Indeed, one of the themes developed in this book is that religion cannot be separated from other factors – economic, political, cultural, ideological, historical, etc. Yet since political and economic struggles are fought on the religious terrain and expressed in religious terms, we need to be able to isolate, insofar as it is possible at all, religious issues. This chapter provides a framework for understanding the religious challenges faced by Islamic banks. It seeks to answer three questions: what are the mechanisms by which financial institutions interpret religion?; what are the bases (scriptures, traditions) of the various possible interpretations?; what interpretations are likely to prevail? The chapter begins with a discussion of Shariah Boards and other mechanisms designed to interpret religion for banking purposes. It then broadens the discussion to contending views on religious interpretation, before adopting a comparative perspective designed to map the likely direction of change in religious interpretations. The final section of the chapter discusses current debates among Islamic finance scholars.

Interpreting the Shariah

Since the aggiornamento of Islamic finance, one of the defining characteristics of an Islamic bank has been the existence of a “Legitimate Control Body,” or “Shariah Board,” whose purpose is to ensure that the bank operates in conformity with the Shariah. Such a religious supervisory board enhances the credibility of the bank in the eyes of its customers, and bolsters its Islamic credentials. The somewhat unexpected and haphazard appearance of the first Islamic institutions, respectively, the IDB and the DIB,1 may explain why neither had, at their inception, a Shariah Board. Virtually all subsequent institutions did, and in due course, both the IDB and the DIB established Shariah Boards.