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Islam, Society, and Politics in Central Asia Jones, Pauline

Published by University of Pittsburgh Press

Jones, P.. Islam, Society, and Politics in Central Asia. Pittsburgh: University of Pittsburgh Press, 2016. Project MUSE., https://muse.jhu.edu/.

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C H A P T E R E L E V E N

Tr a n s n a t i o n a l I s l a m i c B a n k s a n d L o c a l M a r k e t s i n C e n t r a l A s i a

Aisalkyn Botoeva

We first established a regional financial center in Almaty, since it has a high con- centration of banks. But the goal and idea was that the center would facilitate growth of Islamic finance as a niche in Kazakhstan, then in the Central Asian region, and then in NIC broadly.

— Representative of the National Bank of Kazakhstan How are state officials going to openly practice Islam, or actively promote us, if the state leaders are banning prayer rooms in government buildings?

— Representative of a community of entrepreneurs, striving to establish a small-scale Islamic company in Kazakhstan

S tarting in the early and mid-2000s, the Central Asian states of Ka-zakhstan and Kyrgyzstan have become another node in the worldwide network of Islamic financial institutions, hosting an array of such institu- tions that vary from large banks that serve businesses, to banks that offer retail products, and finally to microfinance companies that offer services to mostly rural populations.1 Despite their foreign origins and their transna- tional scope, these institutions are framed, translated, and implemented by local actors: state regulators, religious authorities, and entrepreneurs. As the quotes above illustrate, however, these different sets of actors do not always share a singular vision of why and how Islamic financial institutions (hereafter, IFIs) should be expanding in this post-Soviet region. Contrary to some analysts’ arguments that openness to IFIs is an indicator toward “Islamic activism in general” (Aliyev 2012), I argue that disaggregating the different actors within these national contexts and attending to their dis- tinct rationales and narratives reveals a polarized dynamic. Drawing from

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my research on IFIs in the two countries, I aim to explore the ethical, political, and normative narratives of this triangle of actors who have been promoting IFIs in particular, as well as promoting sharia-compliant busi- nesses in general. Such analysis gets us away from perspectives centered on the state and foreign investment (Aliyev 2012; Gresh 2007), which presume the political and economic powers to be the sole drivers in this moralized “market niche” (Pitluck 2013, 17).

Some authors equate Islamic finance with the organic food and Fair Trade movements, which are widely known examples of the struggle to make market activities more moral. As with these initiatives to make capi- talism less exploitative, damaging, and hazardous, IFIs represent a moral- ized market. The two major moral religious precepts that are incorporated into IFIs are the avoidance of riba (unjustified increase, interest), and gharar (uncertainty, risk).2 It is also prohibited to finance haram—illicit products and activities such as production and sale of alcohol, guns, tobacco, and pork and the promotion of gambling, among others. While some authors question the extent to which these precepts are actually embedded in the work of Islamic banks (Kuran 2005), heightened attention to the moral work of economic transactions offered by IFIs, as well as their explicit symbolic identity, still serve as sites for exploring the complex relations be- tween religion, market, and state (Wolters 2013, 3). Exploring this market niche may be of further importance in light of the 2008 global financial crisis, when “the new forms of scrutiny . . . exposed finance as a social activity subject to considerable dishonesty and recklessness” (Fourcade et al. 2013, 602).

The origins of IFIs trace back to Egypt, Pakistan, Iran, and Malaysia, where they first emerged in the 1970s, and the global scope of the industry has grown rapidly since then to reach an estimated $822 billion (Imam and Kpodar 2010) to $1.3 trillion (Warde 2010) in revenue. But why has there been a rapid growth of these institutions in the Central Asian context recently? Are the states behind the wheel in the process of introducing them, or are private for-profit enterprises simply seeking new markets? Does the bottom-up revival of Islam in the region (McGlinchey 2009), through which Muslim identities are increasingly becoming a dominant part of national identities among the local population, play a significant role in this process? Or is it perhaps the financial resources available to Islamic banks from the petrodollars of the Gulf countries that make these institutions attractive to local market players? These kinds of speculations circulate among the local population, which is itself engaged in making

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sense of this new market phenomenon in the region. Scholars and policy analysts who have written on IFIs in the region have mostly centered their analysis on the foreign investors who made “Islamic money” available to this post-Soviet region (Gresh 2007) and state actors (Aliyev 2012) who supposedly have more open policies toward Islamic finance if they endorse Islamic activism broadly. These analyses are in line with broader theoreti- cal camps that explain the rise of IFIs globally in terms of the high liquidity of capital available from the Gulf (Beck, Demirgüç-Kunt, and Merrouche 2010) and the growing global community of pious Muslims, who ostensibly strive to incorporate “Islamic guidelines for behavior in various aspects of everyday life” (Pepinsky 2013 1).3

What these analyses cannot explain, however, is why Kazakhstan as a state that has restrictive policies toward the practice of Islam, would never- theless take a proactive role in establishing Islamic banks. They also fail to explain why in contexts such as that of Kyrgyzstan, where there is less state facilitation of the growth in IFIs, the networks and reach of Islamic banks and microfinance companies is nevertheless expanding. To answer these questions, I attend to the states’ narratives, but also bring in the less pub- licized accounts of entrepreneurs and religious authorities, whose vision, strategies, and actions vis-à-vis the state and the local population are cru- cial in understanding this market niche in its complexity. My discussions here are based on in-depth interviews with state regulators, entrepreneurs in large and small-scale IFIs, and religious authorities in Kazakhstan and Kyrgyzstan, conducted in 2012–13. Moreover, I rely on secondary data, such as relevant newspaper articles and policy reports. Inspired by social studies of the finance and economic sociology literatures, I aim to explore this financial market niche in terms of involved actors, “who have a particular web of relations,” with “contested and fallible interpretations of economic reality rather than unproblematic representations” (De Goede 2005, 23; cf. MacKenzie 2003 and Maurer 2002).

It is important to highlight what this chapter is not about. I do not aim here to bring in the voices of the broader players in conventional financial markets. Rather the chapter focuses on the narratives of proponents of sharia-compliant business owners and actors who are involved in the cre- ation of this market niche in one way or another. Moreover, despite the differences that I must note between Kazakhstan and Kyrgyzstan, for ex- ample, varying levels of state collaboration with entrepreneurs and religious factions in the cases (see table 11.1), this chapter does not intend to present a comparative analysis of IFIs in the two settings. The multitude of IFIs

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in two countries is rather taken as constitutive of one field, and the purpose is to explore the different rationales and meanings of “Islamic finance” for three different sets of actors: the state, entrepreneurs, and religious author- ities in the two countries. They all are engaged in translating what “Islamic finance” means, and offer distinct rationales. These rationales warrant our attention if we are to understand the political dynamics within developing economies, where competing visions of “fairness, moral tolerability, right and wrong courses of action” (Fourcade et al. 2013, 602) among different actors shape their strategies, actions, and perceptions of each other. After all, as economic sociologists contend, “economies are shaped by the moral dispositions and beliefs of the individuals who govern them as much as they are governed through techniques and numbers” (Fourcade et al. 2013, 603).

F o r e i g n I n v e s t o r s a n d t h e S t a t e

The initial engagement of the governments of Kyrgyzstan and Kazakh- stan with Islamic finance started with their membership in the Islamic Development Bank (IDB). The IDB provided $65 million and $76 million in investments to the Kyrgyzstani and Kazakhstani governments, respec-

Ta b l e 1 1 .1 . T h e F i e l d o f I s l a m i c F i n a n c e i n K a z a k h s t a n a n d Ky r g y z s t a n

Kazakhstan Kyrgyzstan Membership in the Islamic Development Bank (IDB)

1995 1993

Legislation signed 2007 2009 Local actors that initiated promotion of Islamic Financial Institutions (IFIs)

BTA bank working group Shamil Murtazaliev and his colleagues at EcoBank

Existing large IFIs Al Hilal Bank, daughter of Abu Dhabi–based bank

EcoIslamic Bank, pilot project of IDB

Existing smaller- scale IFIs

— Fattah Finance, consul- tancy and financial broker for Islamic investments and securities — Takaful Insurance Company

— Kompanion Invest microfinance company — Kausar, microfinance company

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tively, by the year 2003 (Gresh 2007, 3–4).4 These cash flows were primarily targeted at the construction of roads, dams, and other forms of physical infrastructure. Remarkably, both governments are also known for their systematic exclusion and eradication of Islamic groups that are not aligned with traditional Islam, broadly defined by the state and state-aligned reli- gious authorities of each country (Jones Luong and Weinthal 2002; Khalid 2007; Naumkin 2005; Olcott 2007a). Why would they welcome investors with “Islamic money,” while being so cautious about foreign Islamic groups in general? Some analysts have argued that “the policies towards this financial industry have taken their lead from the individual countries’ policies towards Islamic activism in general” (Aliyev 2012, 4), concluding that the higher tolerance of activism in the religious sphere leads to more openness to Islamic finance. In contrast, drawing from my interviews with state regulators in the two countries to demonstrate, I argue that the “openness” of these states to Islamic finance is in fact driven by their vision of it as a source of viable alternative cash flows and tools for diversifying investment portfolios. Moreover, as I will demonstrate later, state policies in Kazakhstan and Kyrgyzstan that support Islamic finance have fostered strategies of prioritizing larger banks, while neglecting pious entrepreneurs who own small and medium enterprises.

According to state officials in the two settings, the emergence of IFIs followed a linear process (often traced only to the early and mid-2000s), and their gradual expansion is mostly due to their economic utility. In Ka- zakhstan, the state’s support for Islamic finance has taken force especially after many Western banks closed channels of capital inflow as a result of the global financial crisis in 2007.5 The following excerpt from an interview exemplifies a common narrative among state officials both in Kazakhstan and Kyrgyzstan: “Kazakhstan views Islamic finance as an alternative source of investments. At the time of the financial crises, you may remember that Western cash flows drastically shrank, and at one point became completely inaccessible to Kazakh banks, making the major ‘cash pillow’ absent. Our banking sector had not developed [local] deposits, because it was easier for them to attract foreign investments with lower interest rates, and then to give out loans here like hot cakes. Without the Western cash flows, the National Bank started looking for other options.”6

In his push for Kazakhstan to become a regional Islamic financial hub, President Nursultan Nazarbayev stated that the “global economic crisis has shown that the Islamic financial and economic model is stable and viable.”7 Under the guidance of state leaders, upper-echelon political elite started

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to sing the chorus regarding the economic benefits of Islamic finance. This narrative is pervasive in these circles in both countries. Regulators in Kazakhstan, for example, frequently make statements along the lines that “the development of Islamic finance . . . will put [their country] in a favorable light for foreign investors, who prefer to operate in accordance with Shariah Law. Such investors are widely represented in the Middle East, Malaysia and even Europe.”8 Echoing this, Omurbek Babanov, then the deputy prime minister of Kyrgyzstan, expressed his interest in creating centers of Islamic financial services in the capital city. According to him, “the development and spread of Islamic principles of finance would yield fast and effective returns, bearing a direct impact on economic develop- ment and social welfare.”9 The instrumental rationality of IFIs is hence at the core of these state regulators’ rationalization.

The high hopes of these regulators for inexhaustible investments into their markets once they declared themselves open to Islamic finance have pushed state officials to rush through and revise existing laws on banking and the securities market. In Kazakhstan, lobbying groups such as the Association for the Development of Islamic Finances (ADIF or ARIF in Russian), which included the Islamic Development Bank, Kazakh BTA bank, and state agencies such as the Ministry of Industry and Trade, made initial progress. This alliance of upper-echelon state officials and large in- vestors has been steadily leading discussions and negotiations with large infrastructure projects and corporate clients as a priority.10 In Kyrgyzstan, Shamil Murtazaliev, the official representative of the IDB in Kyrgyzstan, is often mentioned as the initiator of legislative changes.11 Allegedly well con- nected to then president Kurmanbek Bakiev (2005–10), he facilitated the passing of a decree “On the Pilot Project of Introduction of Islamic Financ- ing Principles in the Kyrgyz Republic” in July 2006. Based on the decree, the National Bank later adopted a statute for Islamic financing principles, with banking instruments like mudarabah, ijara, murabaha, musharakah, and istisna’a discussed in detail.12 Starting in December 2006, the National Bank gained the right to hand out licenses to IFIs in the country. Mov- ing further, “state regulators continued their talks with consultants of the IDB and investors from Malaysia, further introducing amendments in the legislation to allow micro-finance companies to offer credit in form of mudarabah, musharakah, ijara and others” (Wolters 2013, 13).

As a result of active state facilitation, the two largest Islamic banks in Kazakhstan and Kyrgyzstan were established. In Kazakhstan, Al Hilal was established as a daughter company of the Abu Dhabi–based bank in 2010.

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The bank serves only large corporations, giving preference to corporate clients in oil and gas, rail transport and other infrastructure industries.13 In Kyrgyzstan, EcoIslamic Bank took off as a pilot project under the aegis of the IDB in 2010, after an intergovernmental agreement was signed. Shamil Murtazaliev, who first bought the shares of a conventional Russian/Kyrgyz bank and then led the initiative to make it a pilot project of the IDB, built on the foundation of an already mature organization with core personnel, a large customer base, and its own “archetypal” form of finance and credit lending. Although already a functioning bank, according to bank manag- ers, EcoIslamic Bank has grown considerably in size since its transition to sharia-compliant finance.14

The discourse of state officials, strongly anchored in their vision of Islamic finance through the lens of economic utility, has shaped their strategies of prioritizing larger banks. This is particularly true in Kazakh- stan. The government even eased some of the regular requirements for the banking sector in the case of Al Hilal. For example, the bank was allowed to enter the market despite its parent bank’s low (in fact absent) credit rat- ing. It was also allowed to have a higher ratio of foreign specialists than other companies. In contrast, the initiatives of local entrepreneurs to build sharia-compliant commercial companies have not fared as well. The pri- mary critique of these entrepreneurs is that the legislation that has been passed on Islamic banking barely touched on issues of taxation, customs, insurance, and securities. The existing legislation does not allow a full range of activities for new sharia-compliant businesses, nor are the state agencies in charge enthusiastic about passing the amendments they propose. These contentions shed light on a different side of state policies toward Islamic finance, otherwise seen as welcoming.

Legislative changes that were publicized as generally conducive to IFIs in Kazakhstan have not guaranteed favorable conditions in all cases, as evidenced by the deprivation of economic freedom to particular initiatives such as businesses striving to deliver retail products to the local popu- lation. Fattah Finance is one such company, which was established by a local devout Muslim economist as the first sharia-compliant brokerage and investment company. The company’s leadership aimed to include nongov- ernment securities on the official list of Kazakhstan’s stock exchange and to provide services to help investors analyze and make investments that were sharia-compliant. Fattah Finance’s CEO Zaratkazy Nurpiisov and his colleagues, who were very optimistic about the presidential decrees on the support of Islamic finance in the country, invested considerable time,

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energy, and capital in researching both local and foreign markets and subsequently drafting legislation—the 2020 road map for Islamic finance development, approved by the government. They gained significant inter- est from potential investors in Malaysia, Brunei, and other countries with well-institutionalized IFIs. Fattah Finance’s leadership signed an agree- ment with the state-owned Malaysian group AmanahRaya and the Devel- opment Bank of Kazakhstan (DBK) to open a second Islamic bank in the country. This bank, it was hoped, would deliver retail financial products that would finally be available to the community of devout Muslims, who have long been waiting to access sharia-compliant mortgages and loans. Despite these hopes, however, the initiative has stalled.

One of the reasons, according to Nurpiisov,15 was the fact that Amanah- Raya had a subsidiary firm in an offshore zone in Labuan, which was blacklisted by the National Bank of Kazakhstan. According to Kazakh- stani legislation, no local banks could invest in financial institutions that have any connections to this offshore zone. To resolve this technicality, the Malaysian prime minister requested that the Kazakhstani prime minister facilitate the removal of Labuan from the blacklist. The management of Fattah Finance sent official requests to the upper-echelon state officials, but once the process stalled, state officials took little further initiative to resolve the matter, attributing the lack of progress to technical problems. However, from discussions with the entrepreneurs, the reason appears to be more culturally laden than state officials seem willing to admit. Ac- cording to representatives of Fattah Finance, they have already lost hope of opening the bank in the near future. The situation is a direct illustration of Ronen Palan’s (2003) argument that offshore is first of all a legal space, created and enabled (or disabled) by the state, and that decisions on ju- ridical status of a geographical space are driven by international relations. Here, local entrepreneurs estimate that the process would have taken much less time if the government had been willing to work with their Malaysian counterparts and, more important, to show support for its own devout Muslim constituents.

As the discussion above shows, the states of Kazakhstan and Kyrgyz- stan viewed Islamic finance as an economic tool. Hence, I argue that it was not so much the endorsement of Islamization broadly that guided these states (Aliyev 2012), but quite the opposite—the incorporation of Islamic values into policymaking and finance was a means to expand their legiti- macy with foreign investors from the Gulf, with the purpose of generating revenue. Other Central Asian states have reportedly engaged in similar

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practices. According to Tim Epkenhans (chapter 8, this volume), Tajik- istan’s President Rahmon, despite his uneasy relationship with religious groups, has attempted to elevate Dushanbe to the “Capital of Islamic Cul- ture” in 2010, in order for he and his administration to appeal to foreign Muslim investors and to improve their position in the Organization for Islamic Cooperation. These processes in Central Asia are very much in line with S. V. R. Nasr’s (2001) observations of Pakistan and Malaysia, where he contends the state instrumentally used Islamization processes in its efforts to boost economic development and as a means to expand state power. One of the implications of this instrumental approach in my cases was the lopsided playing field, tilted by the state in favor of larger Islamic banks. Smaller-scale entrepreneurs fared worse, and therefore unsur- prisingly they criticize large state-supported banks for focusing solely on profitability, rather than the religious and ethical logics of Islamic finance. According to these entrepreneurs, large IFIs are seen as apolitical by the state, due to their lower interest in purporting Islamic precepts and serving the local Muslim population. While the state regulates the market and religion as separate domains, state policies toward Islam have served as another signal to smaller-scale entrepreneurs that their initiatives will not enjoy governmental support. Taking stock of recent state policies toward religion in Kazakhstan such as the ban of the Tablighi Jama’at movement in February 2013 and the 2012 ban on prayer rooms in state institutions, one of the entrepreneurs asked rhetorically, “How are state officials going to openly practice Islam, or actively promote us, if the state is banning prayer rooms in government buildings?”

L o c a l E n t r e p r e n e u r s : A p p l y i n g “ I s l a m i c F i n a n c e ” i n P r a c t i c e

The community of entrepreneurs striving to build sharia-compliant com- panies highlight the centrality of their Muslim identity in their businesses. If instrumental rationality was at the core of the state regulators’ discourse, value rationality, that is, the religious identity and ethical values and prac- tices of a pious Muslim, was at the center of entrepreneurs’ discussions. Founding smaller-scale brokerage and insurance companies, these entre- preneurs discovered that the playing field was not equal for all companies, and that the large Islamic banks represented the priority for the state. Consequently, there have been very few chances for smaller-scale entrepre- neurs to build linkages with the large banks, due in part to their size, but also due to the shared perception among these bottom-up enthusiasts of

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sharia-compliant finance that the large Islamic banks are mostly concerned with profitability, rather than with ethical business.

Attending to the less publicized narratives and experiences of these entrepreneurs is important, as they are the ones implementing Islamic finance in practice. Although the origins of IFIs in Kyrgyzstan are often tied to the initiative of the Islamic Development Bank, and in Kazakhstan to the state’s active role in searching for investors and changing legislation, both state officials and entrepreneurs acknowledge that the field has been primarily driven by local enthusiasm. A representative of the National Bank of Kyrgyzstan stated that if not for Shamil Murtazaliev’s own en- thusiasm, EcoIslamic Bank would not have launched the pilot project in agreement with the IDB. Murtazaliev’s vision of Kyrgyzstan as an Islamic financial hub in the region was instrumental in instigating new legislation supportive of Islamic finance (Aliyev 2012; Wolters 2013). Similarly, a rep- resentative of the National Bank of Kazakhstan noted in his interview that the path to introducing IFIs was initially paved by an enthusiastic group from BTA bank, which was driven by young, local professionals, some of whom were pious believers. The first large conference on Islamic finance in Kazakhstan was similarly organized and sponsored by BTA bank.

In my interviews with these entrepreneurs, they commonly started their stories with why they believed that the formation of sharia-compliant business was important. For example, Kuralai Yeldesbai, who founded the first sharia-compliant insurance company in Kazakhstan, talked about the community of pioneers in the field: “Like myself, they all initially came to Islam, started practicing it, and then gradually started learning more about Islamic finance. Being good specialists in this area . . . being educated, yes I especially like the fact that all of the people who are now enthusiasts of IF are educated . . . and being fluent in three languages, they just came to understand that it is in their hands to do good deeds not just for them- selves, but for the society as well.”16

In discussing her motivation for promoting Islamic finance, Yeldesbai explained the rationale for opening the company in terms of her own ben- efits as a devout believer—“I thought if I’d earned money in a non-halal sector previously, I should at least gain sabap [benefaction] by shifting to a halal sphere.” At the same time, she connected this motivation to a second rationale that focused on benefits for the broader community of believ- ers—“I wanted to make sharia-compliant insurance available to people who care.”

In their conceptualization of Islamic finance, entrepreneurs often

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criticize the usurious conditions of the conventional financial market that has been too focused on “selling money for money.” In Islamic financial practices, products like murabaha tackle these money-making practices and partly address the misuse of funds. Murabaha, as a kind of fiduciary sale, involves three parties: the bank, a commodity seller, and a client. The bank obtains a good from the seller and resells to the client with a profit. In these and other transactions, all information on costs should be honestly declared and rooted in real commodity trade, not just financial dealing (Wolters 2013, 5). While discussing Islamic finance as a solution may be idealistic, these views suggest a shared denunciation of the conventional financial system among a growing clique of businessmen. Zamir Pusurov, the director of Kompanion Invest in the southern Kyrgyzstani city of Osh, explains the reasons behind increasing interest in Islamic finance in terms of the general public discontent with the lack of transparency in the interest rates of conventional financial products, as well as with the generally usu- rious conditions of loans at conventional financial companies.17 Hence, the themes of ethics and social justice (exemplified by principles of prohibiting the exploitation of labor and money, and equal partnership with customers) have resonated in discussions, not only with proponents of Islamic finance but also with a wider circle of people in Kyrgyzstan.

Most of the local enthusiasts of Islamic finance that I spoke with shared the sentiment that money should only be the equivalent of a commodity, and should not be torn away from tangible commodities. In an interview in September 2012, Yerlan Baidaulet, the executive director of the Islamic Development Bank in Kazakhstan and the chair of the ADIF, reiterated this point and added: “Islamic finance seeks to tie money to real commod- ities and services. In that sense, IF is a recipe for curing [ozdorovlenie, in Russian] the economy; if someone doesn’t like the words ‘sharia’ or ‘Islam- ic,’ these are just equivalents of ‘ethical.’”18 In his discussion, the benefits of IF represented a direct critique of the existing neoliberal capitalist system: “In the last couple of centuries, there has been a powerful growth of usury, and what do we see now? What we have is constant crisis situations, social inequalities, and the narrowing of the real sector of the economy. That to- gether with the constant growth of the financial sector, which sells money for money, reinforcing usurious approaches, quick profits, and bets. All of this tears us away from moral principles and values.”19

As can be seen, the community of entrepreneurs conceptualizes Islamic finance as a “social project,” and “something more than a credit lending institution,”20 due to their belief in its potential to tackle existing economic

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problems and provide devout Muslims with the ability to incorporate reli- gious precepts into their daily lives.

Reflecting on their experiences of implementing the principles of Is- lamic finance in their work, most of the respondents voiced concerns about the state’s prioritization of larger IFIs, as well as with the “legitimacy” of large banks. In the past decade, local entrepreneurs in Kazakhstan and Kyrgyzstan have been involved in establishing various organizations, from microfinance to sharia-compliant insurance and brokerage companies. In Kazakhstan, however, entrepreneurs have encountered significant diffi- culties in turning these ostensibly Islamic companies into profitable and sustainable businesses. Their misfortunes appear to result from the uneven playing field that they shared with larger market players. The legislation on Islamic banking that was passed by the state in 2009 was created in a rushed manner, with only the banking sector in mind. This framework therefore restrains their economic activities and makes it difficult to gen- erate profits and returns on their capital investment. Companies that were established by local entrepreneurs and aim to deliver retail products to individual customers have received little if any facilitation from the state. This is particularly well illustrated in the experience of Kuralai Yeldesbai,21 who established Takaful, a sharia-compliant insurance company. A spe- cialist in insurance products and a devout practitioner of Islam, Yeldesbai actively participated in drafting the roadmap and legislation for Islamic finance. The amendments that they have drafted with a close group of supporters have not, however, been passed after two years. Due to the lack of legislation on sharia-compliant insurance, her company cannot offer as wide a range of products as conventional companies can. In her under- standing, the regulators have been delaying the passage of amendments partly because they are not as deeply convinced of its necessity as are local enthusiasts of sharia-compliant finance—“It’s only one among a whole list of other things that they have to work on.”

Technical issues related to size and profit turnaround challenge the ef- forts of smaller-scale entrepreneurs to tap into the resource and knowledge network of large Islamic banks. “They’re just too large to be interested in us,” said Yeldesbai, who had hoped to collaborate with Al Hilal when she founded her insurance company. If her suggestions of collaboration were accepted, she could have gained a large pool of customers from this one bank alone, and delivered comprehensive medical insurance coverage from within a trusted network of medical professionals. Al Hilal’s management was initially interested, “but when they found out our size and portfolio,

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they quickly lost interest,” said Yeldesbai. To be able to offer inclusive health insurance to the workers of Al Hilal, her company would need to grow and be registered as a joint-stock company.

Besides technical issues, however, the moral critique that smaller-scale entrepreneurs voiced of large IFIs indicated the low potential of collabora- tion in terms of knowledge and expertise sharing. Zamir Pusurov, director of Kompanion Invest, shared his experience of working for the major Islamic bank in Kyrgyzstan. At first, excited about the opportunity to gain experience at EcoIslamic Bank, he later became disillusioned by the management’s way of doing business because, to his mind, they were more concerned with profitability than with honesty. In one such practice that for him served as evidence of how large IFIs bend the sharia law in their favor, is the EcoIslamic Bank’s sharia board allowing loans to be granted to entrepreneurs engaged in commerce and trade that involved sales of to- bacco and alcohol. The management and the sharia board would not care, as long as only 50 percent of these businesses’ profits came from the sales of illicit commodities. Pusurov left EcoIslamic Bank, and was later contacted by Kompanion Invest,22 one of the largest microfinance companies in the country, which asked him to lead their subsidiary microfinance company in the south of Kyrgyzstan according to sharia principles.

For the practicing devout Muslims who have been financially and emotionally investing in their projects, questions of religion, morality, and ethics are inseparable from their aspirations to lead sustainable, profitable, and ever-expanding commercial companies. Hence, the state’s offensive on Islam is for them an open signal that their economic activities, which they would like to be compliant with sharia principles, are not going to be easily allowed. Moreover, the state’s lack of support for their activities is interpreted as unwillingness to allow the strata of devout Muslims to become economically and politically active in the public domain. The technical specificities of operation among larger- and smaller-scale IFIs further catalyze the disconnection in their practices and efforts to build sharia-compliant finance. Moreover, similarly to the Tajik youth that Manja Stephan-Emmrich (chapter 12, this volume) artfully depicts, local entrepreneurs in Kazakhstan and Kyrgyzstan have been exposed to dif- ferent sources of Islamic education. However, most of the “new Muslim subjectivities,” as Stephan-Emmrich calls them, revolve around ideals of being an “authentic Muslim” as well as a “moral entrepreneur” who seeks economic profit through sharia-informed ethical codes. Hence, in this quest they often cast doubt on the moral legitimacy of larger IFIs. The per-

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ceived lack of legitimacy is tied to the disconnection of large projects from the demands and wishes of local devout believers and the general ulema.

R e l i g i o u s A u t h o r i t i e s

The tenets of sharia are ingrained in the work of IFIs primarily through sharia boards, which interpret and apply sharia to finance by serving as ar- biters of what does and does not count as compliant with religious precepts. Hence, every Islamic bank and microfinance company in Kazakhstan and Kyrgyzstan has such a board.23 The sharia board of Al Hilal Bank in Ka- zakhstan is primarily foreign, while in Kyrgyzstan IFIs work actively with local religious authorities (including imams of mosques) and theology ex- perts, who sit on the sharia boards of IFIs and generally serve as a support network. Products such as musharakah and mudarabah that IFIs deliver to their customers cannot gain popularity among customers overnight, by order of the state, or through mere appearance in the financial market. In order to understand the broader process of the legitimization of IFIs in the region through the eyes of local devout believers, it is important to address the work of imams and theologians,24 who are arguably producing “a value system” (Zelizer 1978, 594) that condemns the usurious practices of the conventional financial sector and diffuses knowledge about IFIs as more morally diligent and sustainable.

In her historical analysis of the legitimation of life insurance in the United States, Viviana Zelizer (1978, 593) suggested that “including certain items in the social order . . . into a market-type of exchange introduces structural sources of strain and ambivalence into their marketing.” As can be seen from the previous sections, taking on the “Islamic” identity and incorporating religious precepts into financial transactions did in fact pro- duce strains and ambivalence in the relations of the state and entrepreneurs. Drawing from my interviews with religious authorities,25 and also a month of ethnographic work at Kompanion Invest, I aim to shed light on the processes in which imams lend their moral authority to IFIs as they gain legitimacy and build bases of trust vis-à-vis their existing and potential clientele. Studies of the bottom-up nature of Islamic revival in the country (McGlinchey 2009) imply the growing influence of these authorities.

These religious officials equate Islamic principles of finance to the mo- rality and honesty that they see lacking in the practices of conventional financial practices. For them, terms such as “usury” and “aversion of un- certainties” are core precepts of the Koran. In Kyrgyzstan, in which large

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segments of the population regularly borrow micro and small loans, imams report having observed general public discontent with high interest rates and with the conditions of repayment. The difficulties customers face in repaying local microfinance companies and banks are regularly publicized, leading imams to incorporate these general trends and their communities’ concerns into their narratives of what differentiates “appropriate” from “inappropriate” terms of loans and credit. Imams, actively promote the “non-quantifiable element” (Maurer 2002) of Islamic finance, with the ethical principles of risk evasion and fair treatment of the borrower at the center of their vision. The imam of the central mosque in Bishkek, who is on the sharia board of EcoIslamic Bank, condemned conventional banks for their “forceful” and “confusing” methods: “If people ask me, I tell them that it’s not permissible in Islam to force someone into a transaction with unclear terms, and then strip them of their property when they are unable to pay back their debt. People call me constantly, asking ‘Can I take a loan here? Should I lend on these or those terms?’”26 For the religious factions, who unsurprisingly need to address issues of misuse of loans regularly in their meetings with communities of believers, Islamic financial practices are seen as part of the solution. In their views, financing “the real needs of customers” by buying them the needed construction materials or house- hold appliances represents a far better model than giving away cash that often gets misused by customers. In the words of the imam quote above, it is honesty (yiman) that is lacking among people who are used to taking loans for one purpose, but then misusing them in other ways. Honesty and integrity among both financiers and customers are thus key components in the narratives of religious authorities.

Through this process of framing Islamic finance as more morally dili- gent and ostensibly more sustainable, practitioners and religious authorities reject the conceptualization of money as a neutral and fungible medium of exchange (Zelizer 1998). These observations suggest that the financial products of IFIs are culturally informed as much as they are shaped by expertise and their competitiveness with other conventional products. Distinct multiple symbolizations (Parry and Bloch 1989, ch. 1) carried by IFI products and services lend them a favorable image in this context. One episode from my participant observations within Kompanion Invest, the Islamic microfinance company in the south of Kyrgyzstan illustrates this point well. One afternoon in April, when I shadowed two workers of the company, Olaberdi and Nasiba,27 we went door to door in one of the ma- hallas around Sulaiman. The following dialogue that took place during one

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of the encounters with a local resident offers a vivid example of how the moral authority of imams is used:

“Well, you also have an interest rate, isn’t that an interest rate?” “No, it’s not; we call it a koshumcha nark [commission fee]. Go ask your imam if you don’t trust me, and see what he says about our work.”

Moreover, mosques have come to serve as a physical infrastructure that is open for practicing Muslims, especially in Kyrgyzstan, and as a result have become spaces of information diffusion about Islamic precepts regarding financial deals. In the language of marketing, these religious officials (both those who are on sharia boards of local IFIs and those who are not) have been playing a crucial role in making “sales pitches” to the population of devout believers. In the words of the imam quoted above:

The numbers of people newly entering Islam are growing. There are more people giving alms [sadaqa], going on hajj trips, and proselytizing [davat]. They are also finding out more and more that taking credit with interest rates is forbidden. We’ve got many people these days . . . entrepreneurs . . . the majority of them are not taking credit from conventional banks these days. They ask their com- munities [ jama’ats], if they can take credit and so on. The majority of them are intentionally not using conventional banks, not because there’s any kind of propa- ganda against banks, but because they’re listening to their heart. Everyone trusts Jigitaaly damla [teacher], Maksat damla and Mahmud damla, and these people approve of EcoIslamic Bank whenever people ask . . . they used to be on the sharia board [of EcoIslamic Bank] if you know.

It is through such processes, depicted here only superficially, that the value system is created, which gradually promotes IFIs as reinforcing life projects and ensuring the welfare of individuals (Zorn et al. 2005). The epistemic knowledge structures offered by imams and theology experts (at least nominally and cognitively) facilitate the conceptualization of Islamic finance as constitutive of principles and practices that are antithetical to those of pervasive conventional financial institutions.

The state’s more relaxed policies toward practicing Islam in Kyrgyzstan have left more space for IFIs to actively seek out and employ the exper- tise and authority of religious authorities as reputational guarantors, and channels of informational exchange. One of the workers at Kompanion Invest was recruited through the mosque, which he used to attend. As we

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discussed how he got interested in working for the company, he admitted that he had faced drinking problems and unresolved financial issues in the past. Working for a sharia-compliant company would be a way of “begging God’s forgiveness,” as he explained. This divide between haram (forbidden) and halal (permissible), dishonest and honest were reiterated numerous times in my conversations with workers, existing customers of Kompanion Invest, and attendees of taalim (Koran study) groups. In one such discus- sion, my respondent, a resident of Nookat in the south of Kyrgyzstan, told me about his extensive readings in a circle of practicing believers about the haram nature of conventional credit and loans.

This close collaboration with the network of imams and theology ex- perts, however favorable to the work of IFIs, influences the formation of factions among IFIs. My interviews with imams elicited contested visions of EcoIslamic Bank as the largest IFI in terms of reach; those imams formed opposing camps that divided those who were in immediate col- laboration with IFIs through membership in sharia boards and those not directly connected. One imam based his critique primarily on the lack of piety among the workers of the bank, but others questioned the reputation of the bank owner, Murtazaliev, since he was known to be involved in al- cohol production in the past. Besides criticism based primarily on religious dimensions, still others suggested that EcoIslamic bank is not yet fully “Islamic,” since the largest share of its profits come from cash transfers rather than Islamic financial products per se.

As authors on Islam in the region observe, many of the contributors to this volume (e.g., Borbieva, Tasar, Stephan-Emmrich, and others), Islam as a religious institution is constituted and practiced through various factions and political alliances. In my observations, EcoIslamic Bank’s network of religious authorities do not overlap with that of Kompanion Invest’s, and the criticism that exists between these diverse religious political cliques translates into perceptions of these IFIs as less pious and diligent, and therefore less legitimate. Hence, the religious authorities that break down into political cliques are partly the reason for a contested rather than a unified vision of what Islamic finance really is and how it should be implemented.

A n U n n a t u r a l A l l i a n c e ?

I have aimed in this chapter to shift the focus away from state-centered and foreign investment–centered perspectives in analyzing the emergence and

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expansion of Islamic financial institutions in Kazakhstan and Kyrgyzstan. Bringing in the accounts of the community of entrepreneurs and religious authorities who are engaged in the field, I have argued that Islamic finance as a moralized market niche is understood, rationalized, and promoted by these different sets of actors due to distinct value systems. The states of these countries have altered their legislation and sought international investors due to their instrumental-rational perspective of Islamic finance as an economic tool for attracting alternative, non-Western sources of fi- nance. In their narratives, state regulators speak of IFIs as depoliticized and distant from any taboo discussions of religion in the public sphere. This stance in part explains why the governments favored large Islamic banks.

In contrast, the community of local entrepreneurs, striving to build smaller-scale IFIs, explain their motivation in value-rational terms, ex- pressed in part by positioning their Muslim identity and beliefs at the cen- ter of their narratives. In collaboration with local religious authorities, they are engaged in an ongoing production of knowledge about what constitutes “proper” and sharia-compliant lending and borrowing. Their accounts contribute toward our understanding of those culturally informed political dynamics that provide broader legitimacy to IFIs in the eyes of the local population.

Due to their alleged unease with the “moral legitimacy of effortless fortunes” (Sen 1991, 38) and core rationales of committing to a financial order based on equity, mutuality, and sustainability, IFIs hold the potential for reimagining dominant Western financial systems. With these ideals in the background, preliminary research demonstrates, however, that the for- mation of Islamic finance in the region is far from consolidating a natural alliance of all the involved parties that some observers (Wolters 2013) hope to see. The large IFIs that have enjoyed more state support remain dis- engaged from smaller-scale local initiatives, and the linkages that would allow information and knowledge flows between these levels are largely absent.