Accounting and pseudo spirituality in Islamic financial institutions

Abstract

The global financial crisis was followed by calls for a transformation of conventional finance, towards more ethico-aesthetic models. One avenue was to consider the alternative aesthetic of Islamic financial institutions (IFIs). IFIs offer profit-loss sharing (PLS) schemes as a distinctive spiritual alternative to conventional investment products. IFIs ontotheology clashes with the epistemology of modern banking and finance. The accounting for PLS creates tensions due to practical complexity that militates against implementation of the authentic Islamic financial contracts. This paper seeks to identify the role of accounting in IFIs' practice of interpretation to resolve the struggles that have taken place around the implementation of PLS schemes as a means of spiritual based financial alternatives. We explore how IFIs use accounting in rendering notions of spiritual/prophetic values applicable to practice or how it colludes against their implementation. Our study adopts a qualitative research methodology, framed around 40 interviews and observations of PLS implementation in IFIs in five Muslim countries in Asia and the Middle East, and one in the United Kingdom. We combine the literature on accounting and religion with the ideas/concepts from the literature on religion in organizations, political economy and Islamic law/finance. These perspectives enable us to better reveal how accounting works to reinvent spirituality. In our context we show how accounting mediates the conflicting interests and intentions that arise within the epistemological clashes that happen as the scared/religious strives to take its place in the capitalistic context of the conventional finance industry. Highlights: The struggles IFIs face in implementing profit and loss sharing schemes  The tensions around PLS schemes induce the use of accounting to offer pseudo-spiritual finance  Accounting role in mediating conflicting interests and intentions revealing 'intentio (the end)' Quattrone, 2015a) by showing how accounting resolves the struggles between the sacred/religious ontotheology and the secular capitalistic epistemology of modern banking. We provide insight on how accounting works to manage the invention and reinvention of spirituality in modern financial institutions by creating pseudo spiritual financial products. This involves mediation among various interests and intentions to foster the innovative adaptation of spirituality.IFIs use accounting in a fabrication, and commodification of the original PLS schemes. In our case, spirituality and accounting are combined in the negotiation of a balance between the religious/spiritual ideals and the situational requirements of product design/legitimation. Our study suggests that IFIs should reflect on the modification/appropriation of PLS schemes that induce complex financial engineering, and whether those financial products in the end provide an alternative or just another incarnation of capitalistic financial hegemony.The remainder of this paper is structured as follows. Firstly, we o...

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