I. The Mirage of Authenticity
There is a question that the Islamic finance industry does not wish to be asked. It is not a question about compliance with Sharia, or about the mechanics of Murabaha contracts, or about the correct interpretation of the prohibition on riba. Those questions it answers fluently, with volumes of technical scholarship. The question it does not wish to be asked is simpler and more damaging: compared to what?
The multi-billion-dollar Islamic finance industry has consolidated itself as a “received position” in the modern Muslim world (Alatas 1972, 11). It is marketed as a robust, faith-based alternative to the predatory structures of conventional economics, and many Muslims accept this marketing uncritically. The acceptance is not accidental. It is the product of structural conditions that Syed Hussein Alatas identified half a century ago and called, with characteristic precision, the “captive mind”: the product of higher institutions of learning whose way of thinking is dominated by Western thought in an imitative and uncritical manner (Alatas 1974, 692). The term itself carries a significant intellectual genealogy: Alatas adapted it from Czeslaw Milosz’s The Captive Mind (1953), which analysed how intellectuals in Soviet-dominated Eastern Europe surrendered independent thought under ideological pressure. Where Milosz’s captive minds were great minds acting out of fear, Alatas’s are minds whose creative capacity has been structurally diminished through the mechanisms of colonial knowledge production, making the condition both harder to escape and harder to diagnose.
This essay argues that the modern Islamic finance industry is not an authentic extension of Islamic intellectual history. It is a captive mind operating under dual hegemonies: the ontological framework of Western neoliberalism and the normative authority of Saudi financial dominance. These two hegemonies reinforce each other in ways that the industry’s internal scholarship is structurally ill-equipped to critique. The task of this essay is not to dismiss the Islamic intellectual tradition’s capacity for a genuine economic philosophy. That capacity is real and significant. The task is to demonstrate that the current industry is not that philosophy, and to sketch what a genuinely autonomous Islamic economic thought might look like.
II. From Liberation to Niche: A Historical Regression
Islamic economic thought did not begin as a financial product. It began as a political philosophy rooted in anti-colonial resistance. In the late nineteenth and early twentieth centuries, Muslim scholars across the Global South identified an urgent need for an economic system that departed from the frameworks of the colonising powers and recovered the egalitarian impulse of the Quranic tradition (Asutay and Yilmaz 2024, 268). The aspiration was genuinely revolutionary: not to reform the prevailing order but to construct an alternative epistemological foundation for economic life.
That aspiration has not been realised. What has been realised instead is what scholars writing in the ReOrient journal have called a “niche in the global economic order”: a specialist sub-category of conventional finance that has traded its post-colonial revolutionary zeal for market-share metrics and Sharia-compliance certificates (Khawar 2023a). Islamic banking, which grew from community credit initiatives in rural Egypt in the 1960s into a global industry managing assets now exceeding three trillion US dollars, has in the process of its growth absorbed the structural logic of the system it was intended to replace (Asutay and Yilmaz 2024, 269–270).
This trajectory is not a mystery. It is the predictable result of what James Duesenberry called the “demonstration effect” and what Alatas developed into a broader theory of intellectual captivity (Alatas 1974, 693; Duesenberry 1949). When the institutions of Islamic economics were being established, including the first Islamic Development Bank in 1975 and the first commercial Islamic banks in the Gulf in the late 1970s, they were established within a global financial architecture that had been designed elsewhere, for different purposes, according to different metaphysical assumptions. > Rather than redesigning the architecture, Islamic finance designed alternative wallpaper for the existing rooms.
III. The Captive Mind and Its Academic Dependency
The concept of the captive mind is worth dwelling on precisely because it is so precisely applicable. Alatas defined it as an “uncritical and imitative mind dominated by an external source, whose thinking is deflected from an independent perspective” (Alatas 1974, 692). He identified four structural features of this captivity as it operates in academic and professional life: constant exposure to Western academic standards through globalised curricula; the active erosion of indigenous knowledge habits in favour of foreign methodologies; the unexamined assumption that Western-origin social science is inherently more “scientific” or valid; and the adoption of theories and methods that have no utility for solving the specific problems of indigenous societies (Alatas 1974, 693–694).
All four are visible in contemporary Islamic economics. The discipline’s flagship journals overwhelmingly cite Western economic theory. Its methodological frameworks replicate the quantitative modelling of neoclassical economics. Its doctoral training occurs overwhelmingly at Western-affiliated institutions. And its practical outputs, the Murabaha contracts, the Sukuk bonds, and the Takaful insurance products, are instruments designed to replicate the functions of conventional financial products within a formally compliant structure, rather than instruments derived from first principles about what an Islamic economic order would actually require.
Syed Farid Alatas, extending his father’s analysis, has demonstrated how academic dependency operates as a structural condition rather than an individual failing (Alatas, S.F. 2003, 600–602). The global division of labour in the social sciences assigns theory production to the Western centre and data production, application, and implementation to the peripheral institutions of the Global South. Muslim economists trained in this system internalise its assumptions not through any conscious act of capitulation but through the very structure of their formation. The problem is not bad faith. It is what Alatas called “thinking in installments”: the inability to proceed with indigenous analysis without awaiting external validation (Alatas 1972, 15).
This dependency is most insidiously manifested in what the ReOrient scholarship calls the construction of Homo Islamicus (Khawar 2023a). Designed as an Islamic alternative to the liberal Homo Economicus, this “Islamic agent” in practice retains the same core rationality, the same preference-maximising logic, and the same gender blindness as his supposedly secular counterpart. He is furnished with a “superficial dressing of ideational morality”: a commitment to avoiding riba and an acknowledgement of Zakat obligations, but his fundamental ontology remains that of the capitalist subject. This is not a reconstruction of the human being in relation to the divine. It is a religious overlay on a secular anthropology.
IV. The Juridical Monopoly and the Reduction of Justice
The instrument of this overlay is what may be called the juridical monopoly: the institution of fuqaha (Islamic jurists) as the sole legitimate arbiters of economic ethics, with the practical consequence that the rich ethical resources of the Islamic tradition are reduced to a binary of halal and haram.
This reduction is not theologically neutral. The Quran’s engagement with economic life is extensive, detailed, and fundamentally concerned with structural justice: the condition of the debtor, the dignity of labour, the obligations of the wealthy, the rights of the dispossessed. The ayat on usury are embedded in a broader ethical framework that addresses exploitation in all its forms, not merely the technical mechanism of interest. When the fuqaha monopolise economic ethics and frame the central question as “is this instrument compliant?”, the broader question of “does this system produce justice?” is systematically displaced.
The result is an industry that can issue elaborate compliance certificates for financial instruments that produce, in practice, the same concentration of wealth, the same exclusion of the economically marginal, and the same subordination of social welfare to capital accumulation as the conventional finance it nominally replaces. The obsession with the technicalities of Murabaha and Sukuk serves to occlude what ReOrient scholars identify as the “total inability of Zakat to mitigate the exorbitant wealth of elites” within the current paradigm (Khawar 2023a). In the current arrangement, that wealth is structurally protected. Inequality is not a failure of the system. It is its outcome.
Alatas observed that the captive mind is “alienated from the main issues of indigenous society” (Alatas 1974, 694). The main issue of Muslim societies in the present moment is not whether financial products can be certified as Sharia-compliant. It is the persistence of poverty, the concentration of wealth, the exclusion of women from economic agency, and the structural vulnerability of Muslim-majority economies to global financial crises they did not cause and cannot adequately resist. A genuinely autonomous Islamic economic thought would address these questions as its primary concern. The current industry addresses them, if at all, as secondary considerations subordinate to compliance.
V. The Internal Hegemon: Saudi Arabia and the Geopolitics of Islamic Norm-Setting
The decolonial critique of Islamic finance must apply to internal hegemonies within the Muslim world with the same rigour it applies to the Western centre. Decoloniality is not simply about the relationship between the Global South and the West. It concerns the reproduction of hierarchical power relations wherever they occur, including within the ostensibly unified body of the Muslim Umma.
Within the Islamic finance sphere, Saudi Arabia occupies the position of what ReOrient scholars call a “middle power” and “primary norm-setting entity” (Khawar 2023a). Saudi Arabian banks own and manage approximately forty percent of the world’s Sharia-compliant banking assets (Everington 2023, cited in Khawar 2023a). This financial dominance translates directly into normative control: the Saudi state, operating from a political economy that is actively capitalist and increasingly oriented toward global capital markets, exports its version of Islamic economics as the global standard.
The consequences are structural. Saudi Arabia is a state of profound wealth concentration that has managed to position itself as the custodian of Islamic financial orthodoxy. The research agenda of Islamic economics is shaped by the priorities of institutions that operate in and largely serve this political economy. Critical scholarship on wealth concentration, labour rights, gender exclusion, and class inequality is not merely underrepresented in mainstream Islamic economics journals; it is structurally marginalised by the funding architecture of the discipline.
Pakistan illustrates the dynamic clearly. The Islamisation of finance in Pakistan has proceeded through the adoption of the fiqh-centric models of the Saudi hegemon, not through any indigenous reconstruction of economic thought from within the Islamic tradition (Khawar 2023a). The Federal Shariat Court’s 2022 ruling mandating the complete elimination of interest from the Pakistani financial system by 2028 exemplifies this trajectory: a landmark legal intervention framed in the language of Islamic justice that in practice accelerates precisely the juridical monopoly this essay critiques, substituting compliance-certification for the structural economic questions the ruling leaves entirely untouched. This adoption serves the interests of domestic elites who find in Islamic compliance certification a legitimating framework for economic arrangements that benefit them. It is not incidental that the most energetic proponents of Islamic banking in Pakistan have rarely been its most economically marginalised communities.
Rizvi and Bdaiwi’s analysis of decolonising Islamic intellectual history offers a framework that is directly applicable here (Rizvi and Bdaiwi 2024). They distinguish between decolonisation, understood as a historical and political process, and decoloniality, which is an ontological and epistemological shift: a change not merely in institutional arrangements but in the fundamental categories through which a tradition understands itself and its purposes. Islamic finance has achieved the former, in a limited sense, by developing distinct institutional forms. It has not achieved the latter. Its fundamental epistemological categories remain those of the neoliberal order it claims to contest.
VI. From Relativism to Relationality: The Decolonial Turn
Any genuine alternative to the current paradigm must be distinguished from two inadequate responses. The first is reactionary traditionalism: the claim that a return to pre-modern jurisprudential forms is sufficient to produce an Islamic economic order. It is not, because pre-modern Islamic economics operated within a social and political framework that no longer exists, and because the material conditions of contemporary economic life require new conceptual tools, not merely the reapplication of old ones.
The second inadequate response is cultural relativism: the claim that since Western economic theory is not universal, Islamic economics need only be internally coherent to be valid. This position, while understandable as a defensive response to Eurocentrism, concedes precisely the wrong ground. It abandons the claim that Islamic economic thought has something to say to the universal human condition, which is the claim that makes it worth defending.
Rizvi and Bdaiwi offer a more adequate framework in their distinction between relativism and relationality (Rizvi and Bdaiwi 2024). Relationality demands an “interdependent conversation that contests the totalising epistemic claims of modernity” without collapsing into the position that all frameworks are equally valid and equally incommensurable (Rizvi and Bdaiwi 2024). An Islamic economics that takes this turn does not merely contest Western economics. It brings the resources of the Islamic intellectual tradition, with its distinctive account of the human person in relation to the divine, its sustained engagement with the ethics of wealth and poverty, and its conception of justice as a cosmic and not merely procedural value, into genuine dialogue with other traditions of economic critique, including heterodox Western economics, post-colonial political economy, and feminist economic theory.
Farid Esack’s concept of “interreligious solidarity” and amina wadud’s Tawhidic feminist methodology are instructive here (Esack 1997; wadud 1999, 2008). Both operate from within the Islamic tradition while refusing to accept that the tradition’s insights are the exclusive property of a particular cultural or juridical establishment. Esack argues that the unity of the divine (tawhid) entails a solidarity across religious and cultural boundaries in the face of shared structural injustice. Wadud argues that the same Tawhidic principle demands a gender-egalitarian reading of moral agency: if the universe is one and its moral order is universal, the exclusion of women from that order cannot be theologically justified. These arguments are not accommodations to secular liberalism. They are demands made from within the tradition itself, against the juridical monopoly that has claimed to speak for it.
VII. Toward an Autonomous Islamic Economic Thought
What would it mean to reconstruct Islamic economics as an autonomous social science tradition rather than a compliance sub-industry? Alatas identified four pillars of such a tradition: foundational knowledge, which involves understanding the core foundations of societies, cultures, and religions; consolidative knowledge, which strengthens and protects those indigenous foundations; reactive knowledge, which critiques ideas that undermine ethical social life; and developmental knowledge, which is specifically aimed at achieving peace, justice, and human welfare (Alatas 2002, 153–155).
Applied to Islamic economics, this framework demands a fundamental reorientation of research priorities. The centre of gravity must shift from banking products to the economic agency of labour, the structural conditions of poverty, the role of gender in economic exclusion, and the mechanisms by which wealth concentration reproduces itself across generations. These are the “main issues of indigenous society” that the captive mind is systematically unable to address (Alatas 1974, 694). A genuinely autonomous Islamic economic science would address them as its primary intellectual obligation.
This requires recovering what the early history of Islamic economic thought actually contained. The classical tradition did not understand economics as a separate discipline governed by its own autonomous logic. It understood economic life as an expression of ethical and metaphysical commitments that encompassed the whole of human existence. Nasir al-Din al-Tusi’s Nasirean Ethics (Tusi 1964) situates economic justice within a comprehensive account of the virtuous household and the virtuous city. Ibn Khaldun’s Muqaddimah contains perhaps the most sophisticated pre-modern theory of economic development ever written, one that integrates material analysis with an account of social solidarity (‘asabiyya) that modern Islamic economics has almost entirely ignored (Ibn Khaldun 2015, 123–125). These are not antiquarian curiosities. They are resources for a tradition that has not yet adequately drawn upon them.
The Tawhidic paradigm provides the overarching epistemological framework for this reconstruction. If the unity of the divine is the first principle of Islamic thought, then economic life, encompassing the organisation of production, distribution, and exchange, must be understood as a domain in which that unity is either expressed or violated. > An economic system that concentrates wealth, excludes the marginal, exploits labour, and marginalises women is not merely unjust in a procedural sense. It is a violation of the cosmic order. This is a significantly stronger claim than anything that Sharia compliance can deliver, and it is the claim that a genuinely decolonised Islamic economic thought must be prepared to make and defend.
VIII. Conclusion: The Door That Must Be Wider
The Islamic finance industry is not the enemy. Its practitioners include many scholars and practitioners who are genuinely committed to a better economic order and who work within the current framework because they perceive no credible alternative. The enemy is the structural condition that prevents the development of that alternative: the captive mind that cannot raise original problems, the academic dependency that frames questions within categories inherited from elsewhere, the juridical monopoly that reduces justice to compliance, and the internal hegemon that sets the terms of what counts as Islamic.
Nahj Institute’s stated conviction is that the argument at stake is not that the bar should be lower but that the door should be wider. In Islamic economics, that conviction requires widening the door in a specific direction: toward the scholars from the Muslim world and the Global South who have the most at stake in the construction of a genuine alternative, and away from the compliance-certification apparatus that currently occupies the centre of the discipline’s attention.
That widening requires, first, recovering the intellectual tradition that the industry has largely abandoned: the political philosophy of al-Farabi, the social theory of Ibn Khaldun, the ethical framework of the Nasirean tradition, the feminist Tawhidic hermeneutics of wadud, the liberation theology of Esack. These resources exist. They are not currently central to the research agenda of Islamic economics, not because they are inadequate, but because the captive mind does not know what to do with them.
It requires, second, the development of a critical scholarship that applies to Islamic finance the same rigour that the tradition applies to other received positions. An industry whose most powerful institutions are governed by one of the most unequal states in the Muslim world cannot generate a revolutionary thesis on economic justice from within its own structures. That thesis must be generated from outside, by scholars who have nothing invested in the compliance economy and everything invested in the genuine intellectual tradition.
The door must be wider. The question is whether the Muslim intelligentsia has the will to walk through it.
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