GaWC Research Bulletin 309

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This Research Bulletin has been published in Geoforum, 42 (1), (2011), 94-103 under the title ' Setting Shari'a Standards: On the Role, Power and Spatialities of Interlocking Shari'a Boards in Islamic Financial Services '.


Please refer to the published version when quoting the paper.


Setting 'Other' Standards: On the Role, Power and Spatialities of Interlocking Shari'a Boards in Islamic Financial Services

D. Bassens*, B. Derudder ** and F. Witlox ***


This paper aims to refine earlier research on the geographies of Islamic financial services (IFS) through a study of how cities are being connected through interlocking directorates in Shari’a advisory boards of IFS firms. The relevance of this analysis is discussed against the backdrop of recent critiques on mainstream research on ‘world cities’ and ‘international financial centers’ because of structuralist and universalizing tendencies. Using John Allen’s concept of ‘networked power’, we explore the nested city/firm/actor structure behind Shari’a board membership, and reassess the connectivity of cities in the IFS network in terms of the role, power and spatialities of interlocking Shari’a boards. The results suggest that networked power in IFS networks is very much concentrated in a few powerhouses, most notably Manama, but also in mainstay financial centers within and outside the Middle East, such as London, Dubai, Kuwait City and New York. The dominant position of Manama is traced back to its role as a standard-setting city for Shari’a-compliant investments, which materializes through the enacted presence of an array of highly interlocked regulatory bodies and mediating elites.

Keywords: Gulf cities, Middle East, Islamic banking, world cities, Shari’a boards, interlocking directorates

Introduction: a different kind of ‘financial power’ in the Islamic sphere

In November 2007 the Pakistani Taqi Usmani, president of the Bahrain-based Accounting and Auditing Organization for Islamic Financial Institutions (AAOIFI) Shari’a board, pronounced a fatwa on Islamic bonds (sukuk). Usmani claimed that sukuk, in their aim to compete with interest-based bonds, which generate a guaranteed return, often resemble ‘conventional’ (i.e. largely Western) debt-based instruments. Most of the contemporary sukuk were therefore considered to violate the principles of Islamic economics, most notably the profit-and-loss sharing idea. As this fatwa shook the very fundaments of Islamic financial practices, it immediately launched a shockwave throughout the Islamic financial world: sukuk issuance suffered a 40% decline during the first half of 2008 when compared to the 18.3bn US$ issued in the same period in 2007 (Oxford Business Group, 2008, page 100).

This anecdote exemplifies the very different nature of the notion ‘financial power’ in the Muslim world when compared to the ‘international’ financial sphere, which is often implicitly and explicitly equated with practices and products of Western financial institutions. The crucial role of parallel institutional networks such as the boards that bring together Shari’a scholars has at least two major implications for the study of the spatialities of such ‘alternative’ financial networks: (i) ‘agency’ is of key importance as individuals (i.e. Shari’a scholars specialized in financial products) make and break the rules, while (ii) the concept ‘international finance’ must be decentered to help steering it away from the practices and products of Western financial institutions. This call for a more grounded and versatile perspective in the study of transnational financial networks has obviously a more general relevance, as there are myriad regions where Western corporate spheres do not represent a significant – used here in both statistical and substantive terms – proportion of financial and economic activities and processes (Grant, 2001). The Muslim world, and the Gulf region in particular, has been identified for its ‘differing’ religion-based economic and financial rationale rooted in Islam (Bassens et al, 2011; Kuran, 1995; Tripp 2006; Warde, 2000). This is exemplified by the importance of the IFS sector at large, whose recent surge has certainly been influenced by a general ‘Islamic revival’. This upsurge of what is generally understood as political Islam, or Islamism as some commentators prefer to call it, is closely related to the failure and demise of the pan-Arab project after the 1967 Arab-Israeli War. In many ways this event triggered a return to Islam as a comprehensive critique of the existing order, that challenges it and aims to change it (Denoeux, 2002, page 71). In this context, Hereby grew the increasingly accepted idea has been that all economic (and other) actions of a Muslim should be governed by Islam and thereby adhere to its chief principles1.

Central to Islamic economics and the way in which it is financed is a resolute focus on the ‘real’ economy and risk-aversion. Building on the Shari’a, the Islamic Law grounded in religious sources (i.e. Koran and hadiths, the sayings of the Prophet), Islamic economics renounces all interest (riba), gambling (maysir) and contractual ambiguities (gharar) that lead to excessive risk taking (Iqbal and Molyneux, 2005). It also prohibits investment in certain forbidden products (e.g. pork meat, weaponry, pornography, alcohol, etc.). In theory, this system aims to replace the debt-based capitalist economy by a system of profit-and-loss sharing. In so doing, the Islamic rationale implies that investments should refrain from unacceptable profit and loss asymmetries that can lead to societal disruptions. In practice, however, an extensive range of mark-up based products has moved to the centre of Islamic banking and finance, often imitating conventional products (loans, bonds, etc.). Although questions about the actual Shari’a-compliance of the IFS sector can be raised, its rationale and success are undeniably based on its Islamic character, making the sector as a whole very much reliant on the (religious and juridical) authority vested in Shari’a scholars such as Taqi Usmani .

Indeed, while the ‘conventional’ financial sector is highly sensitive to decisions and measures decreed by large central banks such as the Federal Reserve and the European Central Bank, regulatory bodies such as the Basel II–committee, and leading elites in the sector who primarily operate from the major global cities (Beaverstock, 2004), financial authority within the Islamic sphere clearly has an additional, often religiously-inclined dimension to its geographies. In practice, this dimension is secured by relying on the advice of a (permanent) council of renowned Shari’a scholars (Siddiqi, 2007). All Islamic banks – except for the Iranian banks, which are de jure Shari’a compliant given the Islamic nature of the Iranian economy – have appointed Shari’a boards of clerics and laymen who are experts in Islamic jurisprudence (fiqh). They assess the financial products devised by the banks and reassure the customers that their practices are truly Islamic (Tripp, 2006, page 144). These scholars are bridging the gap between extensive knowledge of Shari’a law and more technical knowledge of financial products as they oversee the practices of the financial institution and the development of new products. The authority of these scholars is often founded in their education2 with famous teachers or at renowned institutions such as the al-Azhar university in Cairo. A fatwa proclaimed by a scholar from this landmark institution carries tremendous authority in the Sunni3 Muslim world.

Because of the multidisciplinary and complex nature of the required skills and the fact that the spectacular growth of the IFS sector is a rather recent phenomenon, the actual size of this Shari’a class is very limited. Since IFS firms heavily rely on these scholars for their customer credibility and the international pool of scholars is limited, many of these scholars end up sitting in multiple boards, thus setting and spreading standards in the world of IFS. As a consequence, these high-profile and extremely influential Shari’a board scholars constitute a veritable transnational business elite that cannot be left out of the picture if one wishes to understand financial products and processes in the Muslim world in general and the Gulf region in particular. From a spatial perspective, the key point is that, through their multiple board memberships, individuals belonging to this elite are not only linking up various firms, but in doing so simultaneously establish networks between various booming cities in the Gulf region in particular. Shari’a scholars thereby enact and sustain urban networks in the region and help linking it up to the rest of the world economy, thus (re)producing forms of territorial cohesion that are not accounted for when solely focusing on ‘conventional’ financial power and its elites.

Drawing on these observations, the purpose of this paper is to refine earlier research on the geographies of Islamic financial services (Bassens et al, 2009) through a study of how cities are being networked through interlocking directorates in Shari’a advisory boards of IFS firms. However, as we will argue in the next section, the relevance of this analysis can also be cast in a very different form. That is, through our analysis of the role, power and spatialities of interlocking Shari’a boards, we specifically aim to contribute to recent research that has begun rethinking the literature on ‘world cities’ and ‘international financial centers’ because of baleful (i) structuralist and (ii) universalizing tendencies: through our focus on the importance of the ‘agency’ of Shari’a scholars in the creation of ‘other’ financial networks, we aim to help putting some empirical flesh on the bones of this emerging line of enquiry.

To this end, the remainder of this paper is organized as follows. The next section sketches some of the most important critiques voiced against contemporary world cities research in more detail. Based on these critiques, we propose to help ‘decentering’ this research agenda through an analysis of interlocking Shari’a boards in the IFS sector. The ensuing sections deal with data collection and methodology and the main insights emerging from of our empirical analysis respectively. The paper is concluded with an overview of our main conclusions and an overview of possible avenues for further research.

Agency in a ‘decentred’ transnational urban geography

The most influential contributions within the broad field of what is no commonly called ‘world cities’ or ‘global cities’ research put forward that a limited set of large-scale metropolitan areas can now most fruitfully be conceptualized as the key powerhouses in an increasingly networked and globalized economy. Key firms and institutions in these cities have the capability to attract, channel and control transnational flows of commodities, people, information and capital, thus granting them the status of ‘world city’ or ‘global city’ (Castells, 1996; Friedmann, 1986; Knox & Taylor, 1995; Sassen, 2001; Taylor, 2004). More specifically, these cities are said to be the ‘command-and-control’ centers of the global economy because they harbor numerous corporate headquarters of MNEs and/or a vast array of advanced producer services (APS) firms – i.e. accountancy, advertising, banking/finance, insurance, law, management consultancy firms – needed to manage increasingly complex production networks (Parnreiter, 2005; Sassen, 2001). Given the acclaimed relevance of corporate HQs and ‘globalized’ APS firms for studying transnational urbanism, empirical world cities research has in practice often been narrowed down to large-scale analyses of the urban geographies of ‘major’ firms across the globe (although there are many different methodologies, data sources and often quite intricate techniques involved, see, for instance Beaverstock et al, 1999; Derudder et al, 2003; Derudder and Taylor, 2005; Godfrey and Zhou, 1999; Taylor, 2004).

In recent years, this analytical lens in research on ‘world cities’ has increasingly been criticized because of structuralist and universalizing tendencies (e.g. Massey, 2007; Robinson, 2002; 2005; Short, 2004; Smith, 2001). Although both critiques are obviously related, for reasons of clarity we will discuss them in separate subsections below. Our main purpose is to use both critiques as a starting point for arguing that an analysis of the transnational urban geographies of the Shari’a elite in IFS firms allows for a more relevant and grounded approach in the study of transnational urbanism in the Muslim world in general and the Gulf region in particular, and this because of the focus on enacted networks of transnational power within the Islamic sphere.

The Question of ‘Agency’ in World City Networks

The first major critique of mainstream world cities research that has emerged in recent years is the structuralist nature of a lot of the research. For instance, although the research that has emerged out of the Globalization and World Cities (GaWC) group has certainly helped providing a more stable empirical basis for some of the key assumptions in the early writings on world cities, much of it overlooks the agency of the people who live and work in various urban contexts and connect cities through their day-to-day activities. By dubbing APS firms the key network makers in this context (see Taylor, 2004), the ‘world city-ness’ of cities is ‘evaluated’ in terms of how much power cities are assumed to hold over one another by looking at the geographies of intra-firm organization of major global firms. Although Taylor is careful not to reify cities in this context, there is always a clear and present danger that the results are interpreted in this way.

A major point of debate has thus been the extent to which the different aggregated connectivity measures derived from intra-firm linkages between cities reflect actual and meaningful connections between these cities (Allen, 2008; Beaverstock, 2007; Smith, 2001). By identifying cities as entities with actual power because of the presence of major firms, the actual agency within and surrounding these firms is left out of the picture. As such, a top-down firm-level approach is unable to break the black box of transnational urbanism and consequently understand the actual processes which take place in and through these firms. As argued in detail in Smith (2001, pp. 48-71), accounts of globalization in general and globalized urbanization in particular should primarily focus on the transnational (or transurban) forces arising from agency-based networks. One of the most notable ‘black boxes’ in this context has been the activities and decisions of powerful financial and business elites and their creation of transnational urban networks through their business travel, high-level tourism, temporary detachments, multiple board memberships, etc. (see e.g. Beaverstock et al, 2004).

Allen (2008) has recently re-highlighted the restrictions of structuralist accounts of transnational urban networks by emphasizing that ‘power’ is not a straightforward product of the presence of numerous corporate headquarters. Rather it should be regarded as ‘networked power’ arising from the associations and bridging connections of financial and business elites who are active in the city. Or, as Beaverstock (2002, page 527), drawing on Smith (1999) has put with respect to the geographical movements of business elites: ‘These elites are the highly educated, highly-skilled, high-paid, highly mobile and ‘translocal’ corporate actors/agents of global capital.’ Furthermore, in addition to the ’politically inclined’ networks of international governmental organizations (e.g. UN, NATO, World Bank, IMF, Organization of the Islamic Conference (OIC), trade organizations, etc.), power is equally a product of the activities and decisions of these transnational corporate elites (executives, board members, advisors, etc.). Their strategic decisions (e.g. on mergers and acquisitions, emerging market entrance, the establishment of new branches, product development, R&D, marketing, etc.) fine-tune corporate networks vis-à-vis the world city network and eventually determine the geographical face of the world economy.

To unpack this networked power, Yeung (2003, page 449-450) proposes an actor network methodology, in which special attention should be paid to the interconnections of nodes in the network, since it is from these nodes that actors can control and exercise power from a distance. In the context of research on world cities and international financial centres, then, we should focus more on how networked power arises from the activities of transnational actors in and between cities. Several authors have already taken up this critique by focusing on the actual interlocking activity of these elites, either through high-skilled labor migration, business travel or interlocking directorates, which refers to multiple corporate board memberships. While high-skilled migration or business travel studies (e.g. Beaverstock, 1996; 2002; 2005; 2007; Faulconbrigde et al, 2009), focusing on just a few professionals in a few firms provides empirical ground to the conceptualization of world city networks ‘from below’, their qualitative focus on micro-processes made them inherently small-scope. Carroll, on the other hand, has recently helped filling the ‘agency gap’ by opening up the scope of such analyses by “exploring the interlocking corporate directorship as an interorganizational practice […] to generate a global interurban network (Carroll, 2007, page 2298, our emphasis).” Whereas the WCN approach has mainly focused on intra-firm linkages, the interlocking directorate approach stands out because of its emphasis on the relevance of agency in the conceptualization of the networked power of cities.

Although the exploration of the geographical dimensions of social networks is a rather recent phenomenon, the origins of social network analysis of interlocking directorates go back to the 1970s and 1980s. Originally, research on interlocking directorates was set up as a method of measuring power and control in corporate networks and was mainly focused on the evolution of the American corporate and financial complex (Bunting, 1983; Koenig and Gogel, 1981; Mizruchi, 1983; Roy, 1983a; 1983b). It was only in the 1990s that social networks were beginning to be assessed in spatial terms. Through this spatial turn, the geographical dimension of interlocking directorate analysis was acknowledged, thereby identifying multiple board memberships as a source of inter-city connectivity4.

It was Carroll (2007) who took the step of expanding the urban dimension in interlocking directorate analysis (IDA) to a global level, thereby appropriately integrating the latter within the existing WCN literature. Based on board composition data for 350 of the largest corporations taken from the Fortune Global 500, his study shows evidence for an interurban network of corporate interlocks that manifests itself somewhat differently from the WCN studied up till then. His study shows, for instance, that there is indeed a transnational – or a transurban for that matter – corporate elite that knits together firms and thus cities through their social networks. The agency-based network proved to be substantially more concentrated in a few cities and much more nationally and regionally based (Carroll, 2007, page 2317). So, while the empirical description of the WCN in GaWC studies of Taylor (2004) and Derudder et al (2003) is very extensive, Carroll shows that from an agent-based perspective corporate power is very much limited to a dozen or so interconnected nodes, both intra-regionally (e.g. Paris-Brussels) and inter-regionally (e.g. Paris-Montreal, London-New York, and London-Hong Kong).

Empirical Gaps Outside the Core: Gulf Cities as Nodes on Islamic Financial Circuits

Caroll’s (2007) IDA approach is one of the many possible methodologies through which agency can be brought back into WCN research. At the same time, however, it is clear that his usage of Fortune 500 companies as a starting point for selecting whose agency matters results in empirical results that replicate the findings put forward in structuralist accounts of WCN-formation: his study suggests that ‘powerful cities’ in the WCN are indeed concentrated in the three ‘prime globalization arenas’ (North America, Western Europe and Pacific Asia) as identified in GaWC’s research (e.g. Taylor et al, 2002). This brings us to the second critique that has been raised against dominant discourses on globalized urbanization. Robinson (2002, page 31-32) in particular has highlighted the limitations of mainstream WCN research for studying urbanization and globalization processes in other parts of the world. The main limitation, she argues, lies in the ‘Western’ bias of the processes under study (see also Grant, 2001), thus – albeit often implicitly – preventing us from imagining alternative geographies of globalized urbanization (see also Massey 2007, page 24). Robinson therefore wants to counter dominant and possibly damaging discourses of inter-city competitiveness and global processes and instead study cities as what she calls ‘ordinary’ cities – be it ‘global’ cities such as London, or cities in the global periphery. This could imply studying them as platforms for all kinds of economic activity, with resources, infrastructure and many opportunities for innovative connections across different firms and sectors (Robinson, 2008, page 86).

What this means in practice can clearly be observed in the Carroll and Carson (2003) study, which formed the empirical basis of Carroll (2007). In the event, the authors noted that they encountered a problem of ‘geographical representation’ when composing their dataset. Taking Fortune’s Global [sic] 500 as a starting point, they selected all financial institutions with assets of at least 100bn US$ and all non-financial corporations with revenues of 14bn US$ or higher. While the geographical dispersion was satisfactory in core regions, countries in the semi-periphery and the periphery suffered from underrepresentation when the size criterion was neatly applied (Carroll and Carson, 2003, page 38-39). To deal with this problem, the criterion was relaxed and additional firms, especially those based in the semi-periphery, were selected to enforce ‘global’ representation. However, the final sample of 350 firms still only included 40 firms outside North America, Europe and Pacific Asia, thus showing that is hard to escape a ‘Western’ bias when one uses Western standards as a starting point. As a consequence, the observation that the resulting networks are largely centered on cities in these regions is tautological rather than meaningful. Or, as Massey (2007, page 24) has recently put it: because WCN researchers often assume what they set out to establish, the results are nothing less than ‘a self-fulfilling prophecy’.

Robinson (2002) has discussed the implications of this preoccupation with Western models when studying major cities in other parts of the world at greater length. Her main assertion is that this approach has led to a number of baleful conceptual and geographical lacunae on the world city map. We can summarize Robinson’s critique in three points: first and perhaps foremost, Robinson (2002, page 536) complains that equating globalized urbanization with APS-driven urbanization processes implies that “millions of people and hundreds of cities are dropped off the map”. This exclusion is from two ‘maps’: (i) the geographical map of world cities wherein most cities located in the ‘Global South’ are missing; and (ii) the conceptual map of world cities which focuses on a narrow range of economic processes (i.e. ‘advanced’ servicing of globalized production) so that myriad other connections between cities are missing. Second, and related to this first critique, although recent attempts to analyse the WCN in greater geographical detail have most certainly extended our understanding beyond a limited number of leading cities, these studies have continued to equate ‘Western’ practices with global economic processes, and have continued to fail explaining the connection to other scales and regions (Robinson, 2005). Third, and perhaps most substantively, some researchers complain about the fact that cities outside the West are assessed in terms of pre-given standards of (Western) world city-ness (e.g. Robinson, 2002, page 531-2). Building on Robinson, Massey (2007, page 24) takes issue with the fact that the spatial organization of very limited array of often Euro-American APS firms has become the main approach for studying economic globalization and urbanization processes on a global scale. She suggests that use of the term ‘advanced’ when studying the urban geography of these largely Western business services firms implicitly grants these services (and the firms and the cities that provide them) a normative status.

It needs to be emphasized that the crucial point in these critiques is not to deny the obvious scale and impact of ‘conventional’ interest-based financial and business circuits articulated in a network of IFCs and so-called world cities more generally. Rather, it suggests that much more attention should be paid to t he existence of ‘other’, non-mainstream circuits of intermediation and accumulation, which may serve as the starting point for a ‘decentred’ (Pollard and Samers, 2007) or alternative (Lai, 2009) world cities research agenda. This is especially the case when wandering outside the so-called ‘prime globalization arenas’ of North America, Western-Europe and Pacific Asia. For instance, the double-digit growth of the IFS sector in the last few years has challenged the idea that globalization in the Gulf (the core region for IFS) can solely be understood as a process of expansion of a Western capitalist system. Although some processes and events in the Gulf region may well lend themselves to such an interpretation, it denies the rather commonsensical observation that globalization and urbanization in the Middle East at large has been increasingly mediated through Islam as a religion and culture. Gulf cities are most certainly emerging as world cities in a shifting global economy (Taylor et al, 2009), but they are also becoming powerful cities in different economic spheres through the growth of regional or niche markets, and especially through their role in the globalizing IFS network. This is especially the case for cities such as Abu Dhabi, Dubai, Manama, Riyadh, Jeddah, Doha, etc., which have undoubtedly benefited from the enormous petrodollar influx into the larger region, money that is increasingly being recycled and reinvested in accordance with the Shari’a. Unsurprisingly, therefore, the financial (and economic) crisis, has affected the IFS sector far less when compared with Western financial firms, mainly because of the divide between the Islamic and the conventional debt-based system (Bassens et al, 2011). In fact, the IFS sector has not invested in interest-bearing products of conventional banks and has largely escaped from the vicious cascade effects induced by the global financial crisis. This assumption seems to be correct at time of writing, as Figure 1 shows. The figure compares the combined stock evolution of the top 10 ‘conventional’ financial services firms (based on Fortune’s Global 500) with the top 10 of listed IFS firms, for the last two years. This comparison suggests that IFS firms have indeed been substantially less affected by the fast-spreading global financial crisis. While the leading ‘conventional’ financial stocks have dropped over 75%, the IFS firms’ stocks have kept 70% of their initial value. Furthermore, since last year the global amount of Shari’a compliant assets has risen with 27,6% (The Banker, 2008, page 3)5.

Figure 1: Combined stock evolutions of the top 10 conventional financial services firms from Octobre 1 st 2006 (100 %) until May 1 st 2009 (FI: ING Group, Fortis, Citigroup, Dexia Group, HSBC Holding, BNP Paribas, Crédit Agricole, Deutsche Bank, Bank of America Corp., UBS) and top 10 listed IFS firms (IFI: Al Rahji Bank, Kuwait Finance House, Dubai Islamic Bank, Blom Bank, Abu Dhabi Islamic Bank, Al Baraka Banking Group, BIMB Holdings, Bank Alfalah, Bank Al Jazira, Qatar Islamic Bank).


Although the role of IFS is still rather small in the regional economy and conventional banking and finance are (still) much larger, the growth of the sector is closely interwoven with massive urban developments. While urban policy designed by the often ‘visionary’ ruling class in the Gulf treats IFS from a ‘level playing-field’ perspective, governments often take active stake in large Islamic banks (e.g. the Dubai-based Noor Islamic Bank) or through the issuance of sukuk (Islamic asset-based bonds) for large-scale infrastructure projects executed by construction giants such as Emaar and Nakheel. These evolutions indicate that Middle Eastern cities and Gulf cities in particular are developing along different trajectories than existing or developing world cities in core regions of the world economy (Sidaway, 2008). Given the growing importance of the IFS networks in Gulf cities, connectivity assessments should move away from the univocal ‘Western’ approach when trying to understand urbanization in this region (Bassens et al, 2009).

Interlocking Shari’a boards: methodology and data collection

In the previous section, we have built upon recent critiques of the world cities literature to argue that (i) spatialized interlocking directorate analyses are one of many ways to incorporate the importance of agency (e.g. Carroll and Carson, 2003; Carroll, 2007), while a focus on the IFS is perhaps a more appropriate analytical lens for studying the recent and rather spectacular urban changes in the Gulf region. We therefore propose to combine both insights by investigating the interlocking activities of Shari’a scholars, who play a crucial role in the design, mediation and ensuing (spatial) diffusion of these increasingly important financial circuits. In this section, we outline our methodology and data collection, which will then be used in the next section as the input for a spatial analysis of interlocking Shari’a boards.

Data Source

We retrieved all our information from the Failaka Report (2008), which is to our knowledge the largest up-to-date source on ISF in general and Shari’a board membership in particular. The report contains information on 253 scholars in 212 Islamic financial institutions. The dataset not only provides information on full-fledged IFS firms, but also on the broader affiliations of the sector with ‘conventional’ financial circuits. The latter clearly shows that ‘conventional’ interest-based finance aims to tap into the emerging ISF market through non-interest baring ‘Islamic windows’ within their existing frameworks. Most of the firms in the sample, however, are Islamic institutions in the strict sense (Islamic banks, asset management groups, funds, Islamic takaful companies), together accounting for ca. 63% of the firms in the dataset. The second largest group (ca. 29%) consists of Islamic windows in conventional banks, offering Shari’a-compliant services. Further, a number of regulatory bodies (e.g. AAOIFI, Liquidity Management Centre, International Islamic Financial Markets, Islamic Interbank Money Market, The Islamic Fiqh Academy, etc.) which are of crucial importance for the IFS sector as a whole, are included in the sample (4%). Finally, the last group (4%) consists of business service firms that help sustaining the daily functioning of the globalizing IFS sector. Examples of the latter include the international market advisors such as Dow Jones Islamic Financial Markets (DJIM), Dubai Financial Market, but also major APS firms such as Standard & Poor’s, who actively seek to tap into this market.

The geographical distribution of IFS firms at the city-level can be straightforwardly described by means of a ‘headquarter index’ based on the presence of IFS headquarters (corporate and non-corporate alike). Based on the 212 firms in the database, Figure 2 shows the largest IFS centers in terms of headquarter presence6. The largest center overall is Kuala Lumpur, with as much as 30 IFS headquarters. Other major concentrations of IFS-related headquarters are found in the Middle East, especially in Gulf cities such as Manama, Kuwait City, Dubai, and Riyadh. As these cities are the top locations to tap into the growing regional demand for Shari’a compliant products (both retail and wholesale), they are the prime locations for full-blown IFS firms.

Outside the Muslim world, London and New York are the most important centers of Islamic finance. It should be emphasized, however, that New York’s importance is not so much a result of a large presence of full-blown IFS firms (only two in this database), but rather reflects the role of facilitating firms/institutions (Dow Jones Islamic Market Indexes (DJIM), MSCI Islamic Indexes, Standard & Poor’s) and Islamic windows within the conventional sector. London, on the other hand, under the benevolent eye of the UK government, is much more developing into an ‘entrepot’ and channel of Shari’a-compliant money. This happens partly through actual presence of a growing number of full-blown IFS firms (e.g. European Islamic Investment Bank, Bank of London and the Middle East), but also through Islamic windows (e.g. HSBC, Lloyds Bank) that are designed to cater to the potential UK Muslim market and at the same time make their entrance in the world of high-street finance (Bassens et al, 2009).

Figure 2: Major IFS centers in terms of headquarter presence (standardized by the highest value, i.e. Kuala Lumpur). The size of the nodes varies with the number of IFS-related HQs.


Interlocking Directorates

The HQ distribution of key IFS firms and institutions obviously paints a decent introductory sketch of financial circuits, just as the GaWC analyses do a good job in providing a broad overview of where ‘conventional’ business and financial services are produced in today’s global economy. However, our purpose here is to focus on the process of networking, i.e. the actual way in which these services are created, sustained and disseminated across space. More specifically, u sing interlocking directorate analysis, we will study how Shari’a scholars link up cities through their multiple Shari’a board memberships and how these connections give rise to power relations between them.

To this end, based on the information in the data set, three consecutive steps were taken: i) at the actor-level, we screened for multiple Shari’a board memberships; ii) these Shari’a board overlaps were considered to generate interlocking connections at the firm-level; and iii) these firm interlocks were then ‘spatialized’ at the city-level, assuming that these inter-firm interlocks reflect actual flows within and between cities through the actions and movements of Shari’a board scholars. First, in order to detect interlocking, a 212 x 253 firm-scholar matrix was constructed. Mapping the interlocks showed that 199 of the studied firms have inter-firm linkages by their interlocking Shari’a advisory boards. 97 Shari’a scholars, sitting in two or more boards, create a total of 583 interlocks. More than half of these interlocks (51%) stems from a small group of 13 very active Shari’a scholars who all sit at more than ten boards. Prominent examples among the Shari’a elite are the Bahraini Shaikh Nizam Mohammad Saleh Yaquby who alone produces 49 interlocks (i.e. 8.4%); the Syrian Abdul Sattar Kareem Abu Ghuddah with 46 interlocks (7.9%), the Saudi Arabian Mohammed Ali El-Gari with 36 interlocks (6.2%), and the Malaysian Mohammad Daud Bakar with 33 interlocks (5.7%). The importance of the earlier mentioned Taqi Usmani speaks from his 16 interlocks (2.7%). In a second step we used the reduced the firm-scholar matrix – only showing interlocking Shari’a scholars and interlocked firms – to construct a 199 x 199 firm-firm matrix. This matrix provides insights in how interlocking occurs at firm-level. Third, in order to generate a spatial network fit for further analysis, we assumed that Shari’a advisory board’s activities within a firm are very much centralized in the headquarters of the firm (compare with O’Hagan and Green, 2004, page 131 on corporate directorate interlocking), which leads to an approach in which interlocking primarily occurs where an IFS institution’s headquarters are located (see Figure 3). Aggregating the firm-level interlocks per city, we derived a 39x39 city-city matrix that shows how cities are being connected through the actions of Shari’a scholars. As a consequence, any cell in this squared matrix reflects the connectivity between two cities, whereby intra-city connectivity is also acknowledged (i.e. when a scholar sits on the board of two firms with a HQ in the same city). Taken together an interlocking value of 3 between two cities can arise from various situations. For instance, firm i in city a shares three Shari’a board scholars with firm j in city b, or firm i in city a shares 1 scholar with firm j, k and l in city b, or a combination of both situations. The analysis presented in the next section is based on this 39x39 matrix, whereby the relevance and meaning of the various intra-city and inter-city linkages will be discussed in more detail.

Figure 3: Basic scheme of intra-city and inter-city Shari’a board interlocking.


Powerful cities in the IFS network

For each city, the different inter-city connections in the matrix were then aggregated to obtain an overall measure of how a city is being networked by Shari’a elites. For reasons of clarity, this measure is expressed as a proportion of the most-connected city, i.e. Manama which thus has a connectivity of 1.00. In contrast to the map presented in Figure 2 and some of the earlier GaWC research on world city networks, then, this connectivity score is not an expression of a city’s position within the various intra-firm networks that run through it, but rather refers to a city’s role as a site where the linkages are actively produced and the power that arises from this. This section describes the main results as summarized in Table 1 and Figure 4: the table ranks cities in terms of their total connectivity (the listed cities have a connectivity of at least 10% of the leading city), and thereby distinguishes between the relative importance of intra- and inter-city linkages; the figure, in turn, reveals the geography of the inter-city linkages sustained and reproduced by Shari’a scholars.

The first thing to note Table 1 is that – in line with Carroll’s (2007) observations - networked power is much more concentrated in a limited number of metropolitan areas, whereby Manama rather than Kuala Lumpur assumes a leading role. Indeed, Manama is by far the best connected city, with more than twice the value of London (0.40), the second-best connected city in this interlocking network. Other well connected cities are Kuwait City (0.36), Dubai (0.35), New York (0.27), Kuala Lumpur (0.24) and Riyadh (0.20). Another notable feature of these results is that Kuwait City and Kuala Lumpur score particularly well in terms of intra-city connectivity (pointing to a well-embedded IFS sector within the city), but they are superseded by other IFS centers, notably London, Dubai and New York, in terms of inter-city connectivity (on which more below).

Table 1: Most networked cities in the interlocking Shari’a board network


Gross Connectivity


Intra-city degree (%)

Inter-city degree (%)











Kuwait City










New York





Kuala Lumpur


























Figure 4: Major IFS centers in the interlocking Shari’a board network. Node size represents inter-city network connectivity, standardized by the highest value (Manama = 1.00). Line width represents inter-city connectivity, standardized by the highest value (Manama – London = 1.00).


Manama’s sizable connectivity in both inter- and intra-city terms indicates that it simultaneously sustains a highly integrated and embedded IFS sector with a well-developed regulatory framework and has the competitive advantage of hosting a highly skilled Shari’a elite through which it plays a fundamental international standard setting role. The dominance of Manama as the Mecca of Islamic finance (Bassens et al, 2009) is a result of larger political and economic evolutions within the Middle East. As investors fled Beirut after the outbreak of the Lebanese war in 1975, Bahrain became the most important offshore centre in the region, thereby diversifying its economy away from oil. Tapping into the excess oil income in the region and driven by an Islamic revival, government policy and corporate financial expertise provided Manama with a competitive edge in the IFS sector as well (hence the sizable number of intra-city connections when compared to Doha and Dubai), which is related to a well-developed legal framework for Islamic finance (Warde, 2000, page 128). Perhaps more importantly, however, Manama is actually setting the international standards for the future development of Islamic finance on a global scale. This is mainly a result of the great influence regulatory bodies such as AAOIFI, the Islamic International Rating Agency, the International Islamic Financial Markets, and the Liquidity Management Center on the entire sector. A key point here to make is that this influence goes hand and hand with a high level of Shari’a board interlocking between the Manama-based regulatory bodies and IFS firms, both on intra-city and inter-city levels, within and beyond the Gulf region. T ogether, AAOIFI, the Islamic International Rating Agency, the International Islamic Financial Markets, and the Liquidity Management Center account for more than a quarter of Manama’s connectivity. AAOIFI alone is interlocked with 132 firms. In fact, the Manama-centered Shari’a network spans the globe, linking up with financial centers along the Gulf, such as Kuwait City and Dubai, and also with New York and London. This reflects the centralized efforts to create a global Shari’a standard through organizations such as AAOIFI (Hassan and Dicle, 2007, page 37). Such an appraisal also shows why firm rankings per se, which would point to a Kuala Lumpur-centered urban network, can be quite problematic, as our focus on the key agents clearly shows that Manama is in practice the prime node where IFS practices are created and standardized and consecutively disseminated across space through inter-city networking of these key agents.

Figure 4 shows that London, Kuwait City, Dubai, and New York are well-connected with Manama, indicating that these cities are emerging as crucial hubs in the emerging global IFS sector. Within the Gulf region, Kuwait and Dubai both have a well-developed conventional and Islamic financial services sector. Especially Dubai is becoming a crucial hub for IFS, both in the field of retail banking (e.g. Dubai Islamic Bank, Noor Islamic Bank) and sukuk issuance. Our analysis suggests that the establishment of a ‘trustworthy’ IFS sector in both Kuwait and Dubai heavily relies on the religious authority of well-known Shari’a scholars who sit on various boards, whereby Dubai and Kuwaiti firms mainly turn to the regulatory bodies in Manama to secure the bearings of their services. T he absence of inter-firm linkages from Iranian firms with the predominantly Sunni Gulf-based IFS sector is a sign that Shiite Iran is developing its IFS sector along a different path. This situation is fairly comprehensible given the century-old sectarian divides that have run through the Middle East.

Outside the Muslim world, New York’s position primarily reflects the importance of actors active in the Dow Jones Islamic Market Indexes (DJIM, founded in 1999), which plays a fundamental role in establishing a global benchmark for Shari’a-compliant investments. However, as was argued by Maurer (2003, page 327), there is nothing really Islamic about the index. In fact, the over 70 indexes consist of investment products that are permissible from an Islamic point of view and simply filter out those that are not. Nevertheless, our analysis indicates that the influence of the DJIM is related to intense Shari’a board interlocking between the DJIM and IFS firms and regulatory bodies such as AAOIFI, linking up New York as a financial center with the IFS hubs around the Gulf, and especially with Manama.

London’s position in the interlocking Shari’a board network reflects its role as an emerging European and global hub for Islamic finance more generally. Supported by government policy, legal adaptations have been made to create a level playing field for Islamic finance, including the elimination of double stamp tax for Islamic mortgages and, in the field of sukuk trading, juridical equalization with interest-bearing bonds (The City UK, 2009). As a product of neoliberal deregulation since its ‘Big Bang’, London has always been a center for financial innovation, thereby actively looking to channel and control global capital flows, as was the case earlier with the Eurobond market. Nowadays, with the international financial system shaking and power relations shifting, London is now altering its legal framework again, for instance to attract oil-based investments from the Middle East. It has hereby willingly acknowledged the emerging Islamic character of a lot of those investments. In line with the UK’s historical relations to the Gulf States (especially Bahrain, and the UAE), London has become a crucial location for a number of (full-fledged) Islamic banks, thereby linking The City up with IFS hubs along the Gulf, such as Manama and Dubai. The current analysis shows that the intra-firm links between the Gulf cities and London highlighted in Bassens et al. (2009) do coincide with inter-firm connectivities through interlocking Shari’a boards. This suggests that The City (e.g. through financial service associations such as The City UK) aims to partially reinvent itself as a site where key IFS actors are welcome to pursue their innovative role in the rescaling of Islamic finance towards a global financial sector.

However, the emergence of a global Islamic financial sector and the concomitant debate on ‘true’ Shari’a standards is not a straightforward process. Uniformity is strongly hampered by the fact that most of the Shari’a evaluation is performed by individual firm boards, sometimes leading to ‘fatwa shopping’ when IFS firms simply seek quick recognition for their products (Hassan and Dicle, 2007, page 37). This phenomenon has been strongly criticized by Maurer (2003, page 326), who describes Shari’a board members as “ bricoleurs, drawing from any jurisprudential source which they deem to be appropriate for a particular problem.” The network here described mainly shows the geographical dimension of the centralized efforts within this emerging transnational sector, propelled by key institutions such as AAOIFI, which in fact try to counter such opportunistic tendencies. The question at ground-level remains, however, whether IFS can be truly acknowledged as an alternative or parallel system for mainstream capitalism, or rather that it produces heterogenous spaces through different social, economic and political rationalities, either national or transnational (see Pollard and Samers 2007, page 320). The existence of an ‘integrative’ all-encompassing alternative Islamic financial system could be questioned by at least two observations. First, the emergence of Islamic economics and the IFS sector cannot be understood without reference to broader evolutions political economic and the recognition or cooption of political Islam by the State, which differs significantly across countries. For instance, in secular Turkey, the status of ‘Islamic’ organisations (NGOs, banks, funds etc.) is experienced as politically controversial. By contrast, in Malaysia, Islam was co-opted in the project of nation-building (Nasr, 2001), while in Iran, Islam gave ground to a revolution of State power. Second , although the Muslim world provides a huge potential demand base for Shari’a compliant products, there is great variation in the actual nature of these products and, more fundamentally, the regional Shari’a interpretation, which varies along Sunni – Shia sectarian lines, but also within the four main Schools of Sunni Islam. In the Maghreb, the call for interest-free products is less pronounced due to the dominant Maliki interpretation. Similarly, Shari’a interpretation in Asian Islam (e.g. Malaysia) is much more relaxed in comparison to its counterparts on the Arabian Peninsula, e.g. the rigorous Wahabi in Saudi Arabia. To provide an example, this interpretational Shari’a divide can be read from the fact that the leading position of Kuala Lumpur in the headquarter index is accompanied by a surprising isolation in terms of inter-city connectivities. The reason for this is that Kuala Lumpur’s importance as an IFS hub is very much related to the Malaysian state-building project and the establishment of centralized power, in which Islam was a thrusting force from the 1980s onwards (Nasr, 2001). Only nowadays, by making the country a global Islamic brand, Malaysia is also trying to tap liquidity from the Gulf States, thereby relying on a well-established regulatory framework. In fact, the city is the home-base for the Islamic Financial Services Board (IFSB), which has developed the capital adequacy guidelines for Islamic banks by itself. The IFSB has actually translated the Basel II regulations to the concepts of Islamic finance and has conceived new guidelines for Shari’a-compliant products without conventional counterparts. Indonesia, the largest Muslim country, Malaysia and also Bahrain have adopted these standards (Hassan and Dicle, 2007, page 37). Although this provides some degree of interlocking with Manama, the network position of Kuala Lumpur suggests that IFS developments in Asia are escaping the homogenizing force of Gulf-based institutions and regulatory bodies, and give room to other forms of Shari’a interpretation.


The main purpose of this paper has been to flesh out one of very many alternative ways of studying urban networks in ‘other’ (non–Western) parts of the world. Our analysis of the role, power and spatialities of interlocking Shari’a boards in the IFS sector has thereby been framed in the context of two major critiques of world cities research that focuses on the geographies of firms with a predominant Western focus in terms of presence and practice. The first critique, primarily formulated by Robinson (2002), is mainly conceptual in nature: she argues that by equating “Western” APS-driven urbanization processes with global economic processes, world cities research has been narrowed done to the study of a few major metropolitan centers in the Western world. We agree that world cities research has indeed been unable to explain numerous processes outside the core regions of the world economy. Therefore, in line with earlier research (Bassens et al, 2009), we have argued in this paper that in future research on globalized urbanization an ‘emic’ approach may provide a more adequate framework. Because this paper’s focus was on the Muslim World, our analytical starting point has been to focus on the rapidly globalizing Islamic financial sector. As such, the sector is developing into a parallel system in regions within the Muslim world, most notably the oil-rich Gulf region (e.g. Bahrain, Saudi Arabia and the UAE), some fully Islamic economies (Iran, Pakistan), and growing Asian economies such as Malaysia.

Second, rather than merely focusing on the shared presence of firms, we have based our analysis on the key actors in the (re)production of city networks through a study of interlocking directorates. Drawing on Allen’s (2008) recent implementation of his earlier work on ‘power’ in research on urban networks, we have emphasized that cities are not ‘powerful’ because they are harboring numerous corporate headquarters per se, but rather because of the associations and bridging connections made by financial, business and cultural elites who are active in and between cities. In the context of the IFS sector, this implies a clear-cut focus on the particular role of Shari’a board scholars, who are interlocking cities through their activity in various corporate and regulatory advisory bodies. With the IFS sector as an emerging global player still in its infancy, the development of a unified Shari’a interpretation is far from complete. In fact, the tremendous variance in Shari’a interpretation along sectarian fault lines and along the various schools of Sunni Islam has a major geographical component to it.

The most notable results of our interlocking Shari’a board analysis can be summarized as follows. First, on the actor-level, an analysis of the interlocking activity of Shari’a scholars has shown that there is evidence for the existence of a transnational Shari’a elite. These scholars are experts in Islamic law and have considerable (religious) authority throughout the ummah. Mainly as a means to enjoy customer credibility, both full-fledged IFS firms and Islamic windows within and beyond the Muslim world, employ these renowned scholars to sit on their Shari’a boards. As such, these high-profile scholars not only exert power through traditional fatwas, but they actually shape the face of a globalizing IFS sector as well, through their role in product screening and innovation. Second, on the firm-level, our analysis has highlighted the intense Shari’a board interlocking of a limited number of regulatory bodies, which set the standards for the IFS sector. Through these interlocks, especially the Manama-based institutions AAOIFI, IIRA, IIFM, and LMC are able to influence Shari’a interpretation on a firm level. This reflects the centralized efforts of these institutions to create a uniform Shari’a interpretation with global standards, and shows why Manama rather than Kuala Lumpur with its many firms constitutes the urban core of the IFS network. Third, on the city-level, the interlocking Shari’a board network spans the globe and is articulated in a few crucial IFS hubs, both within the Muslim world and beyond. Although the global reach of the IFS-based city network described by earlier intra-firm network analyses (Bassens et al, 2009) is confirmed, the inter-firm interlocking network here presented is much more concentrated in a few global powerhouses, notably in Manama, London, Kuwait City, Dubai, New York and Kuala Lumpur, which are the best connected cities in the network. Manama is clearly becoming a global reference point for the globalizing IFS sector, regionally through its interlocks with Kuwait and Dubai, and globally, through its connections with international financial centers, such as London and New York.

As the study of IFS shows, globalization in the Middle East in general, and Gulf cities in particular not only entails increased integration in the world economy along the lines of ‘Western’ MNCs or TNCs, NGOs, and International Financial Institutions. Rather, it reflects a process of hybridization, highlighting and reasserting existing religious and cultural value and knowledge systems, which find their way in shaping the political economies of emerging ‘world’ cities in the region. With the results of both intra- en inter-firm analyses of the globalizing IFS sector in mind, future research will further explore the urban interface between the alleged ‘reorientation’ (i.e. a global financial agency shift towards the East, see e.g. Taylor et al, 2009) and emerging forms of intermediation and accumulation (IFS).


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* David Bassens, Department of Geography, Ghent University, Krijgslaan 281, S8, 9000 Ghent - Belgium. Email:

** Ben Derudder, Department of Geography, Ghent University, Krijgslaan 281, S8, 9000 Ghent - Belgium. Email:

*** Frank Witlox, Department of Geography, Ghent University, Krijgslaan 281, S8, 9000 Ghent - Belgium. Email:

1. In parallel with the steady growth of the ‘conventional’ interest-based financial sector operating from Gulf off-shore centers such as Dubai and Manama, the IFS sector is indeed growing at a tremendous pace: in 2008, the sector grew with a staggering 27,6% in spite of the financial turmoil of the second half of the year; the sector is now worth 639 bn US$ of Shari’a-compliant assets (The Banker, 2008, page 3). The IFS sector has developed largely as a separate sphere, either as full-fledged institutions (e.g. Al Rahji Bank, Dubai Islamic Bank) or as Islamic ‘windows’ within conventional banks (e.g. HSBC Amanah).

2. On the other hand, a lot of Shari’a scholars have also studied outside the Muslim world, and often hold B.A.s, M.A.s, and PhDs from universities in the UK and the USA. Quite a few of these scholars are actively involved in education, as professors at various universities in the Muslim world, and as popular lecturers at academic and business conferences on Islamic finance throughout the world.

3. The reason for this lies in the existing ‘Shia – Sunni divide’ within the Muslim world. This goes back to the first decennia of Islam (7 th century), when the followers of Ali (the Party of Ali, Shia Ali), The Prophet Mohammad’s nephew and son-in law, refused to acknowledge the authority of Muawiyah (the founder of the Ummayad dynasty). Nowadays, while Islamic economics emerged within a context of anti-Western post-colonial sentiment shared by both Sunni and Shias, it appears that the globalizing Islamic sector is predominantly gaining strength in countries with a (politically or numerically) dominant Sunni population, i.e. the Gulf countries, and especially Bahrain ( where a Shia majority is ruled by an originally Sunni Qatari Al-Khalifa family), the UAE, and Saudi Arabia, and Malaysia as a prime market outside the Gulf (see Bassens et al, 2011). Furthermore, the discussed Shari’a scholars are in fact Sunni ulama (religious scholars), adhering to influential sects, such as Saudi Wahhabi and Indian Deobandi (e.g. Taqi Usmani) interpretations. S ectarian fault lines, as well as various interpretations within sects, will therefore shape politics and economies in the Gulf, the cradle of the actual practice of Islamic finance, and its relations with the wider region (e.g. with Shiite Iran or ‘Asian’ Islam in Malaysia).

4. Initially, analyses were however still largely centered on the northern American city network, placing US and Canadian cities in the interlocking directorate networks of large firms (e.g. Green and Semple, 1981; Rice and Semple, 1993; O’Hagan and Green, 2004) or studying spatial aspects of social networks at intra-city level (Kono, 1998).

5. In the long run, however, the IFS sector’s oil dependence could very well drag these firms further down. Indeed, given the high oil prices in the spring of 2008, soaring to as much as 145 US$ per barrel, the sector’s position had remained untouched. Now, with oil prices at a much lower level, it is thinkable that the financial crisis will eventually hit the IFS sector as well. Time will tell if the IFS sector will turn out to be a safe haven for global investors, and a shelter for the global financial downturn.

6. Some regions in the Middle East with Islamic economies, such as Iran, escape our analysis. Iranian (mainly Tehran-based) IFS firms do not apply the Shari’a advisory board system, since the entire economy is considered to be Islamic.


Edited and posted on the web on 25th June 2009

Note: This Research Bulletin has been published in Geoforum, 42 (1), (2011), 94-103