Theorizing Ethical Market Designs

In the literature on financialization, social scientists have extensively documented how financial firms, organizations, and markets are frequently exploitative, aggravating existing societal inequalities based on social identities, or oppress populations by excluding them from financial services. This raises the empirical question of whether structural change in financial markets to address these inequities is possible, or whether the only path for reform is incremental change to make the terms of trade more equitable and the clients more inclusive.

One such transnational decades-long experiment is Islamic banking and finance, which seeks to revise conventional financial arrangements based on interpretations of Islamic morals and ethics. Admittedly, much of this market is incrementalist, seeking small changes in existing conventional products and services. This presentation focuses on an unusual attempt in Malaysia to create and institutionalize a wholly novel moralized commodity finance market.

To provide background context, one of the defining features of Islamic banking and finance is that financial services should not be speculative and should always be tied to entrepreneurial activity. To tether financial services to the real economy, the back-office infrastructure of many Islamic financial contracts, products, and services have relied on conventional commodity markets. However, in the past few decades, there has been a growing understanding and appreciation among both proponents and critics of Islamic finance that these commodity markets can be interpreted as contrary to Islamic finance.

This presentation draws on primary ethnographic interviews with bankers, traders and entrepreneurs in Islamic commodity markets, as well as the secondary literature. The presentation briefly summarizes the case study using cultural analysis and political economy. It concludes by proposing this as a case of ‘ethical market design’ and proposing expanding the financialization literature to include a comparative research agenda of market designs and how entrepreneurs and social justice movements attempt to alter them.