Abstract
In recent years, Turkey has witnessed a new form of corporate finance in which companies, commonly called ‘Islamic’, borrow directly from lenders without using any financial intermediaries. Trust among lenders and borrowers has initiated market exchange, secured deals and lowered transaction costs. This paper claims that the base of trust in direct financing for Islamic companies should be largely attributed to the self-interest of the parties rather than just to Islam or ‘shared values’. Here we do not see an individual calculation of ‘economic man’, as argued by neo-classical economists, but individuals embedded in relations within social groups and sharing ethics of money-based relations. Second, we illustrate that self-interest based trust stems from the calculations of trusters using available information in the market about trustees. However, information asymmetry between borrowers and lenders in favour of borrowers has been a source of deep instability and abuse. Finally, the paper shows how groups have used the rhetoric of Islamic economic revival to expand the scope of transactions while trust eroded in favour of abusers. The anonymity came with thousands of investors who eroded the strength of reciprocity, surveillance and retribution in trust-based relations. This case study also illustrates that Islamic societies seek new solutions within capitalist economic systems to maximise their gains and they do not wish to be destined to live in poverty.
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Notes
What the Koran clearly prohibits is Riba, a pre-Islamic practice of doubling the debt of a borrower who is unable to repay his loan. The definition and content of usury, and the applicability of verses on Riba to the term ‘interest’ are problematic issues among Islamic scholars (Kuran, 1995). For the purpose of this paper, we use the term ‘usury’ for any kind of interest banned by Islam.
The edited volume of Ben-Ner and Putterman (1998) is one of the rare examples of such a work, devoted to the relationship between values and economics.
The source of instability stemming from asymmetric information problems is well illustrated by Mishkin (1992).
For an interesting discussion of the contradictions of modern Muslims, see Shayegan (1992) and Kuran (1989, 1995, 1997). The source of modern discontent is not only an issue for the Muslims but a general concern linked to increased inequality and globalisation. Nevertheless, poverty, the radicalisation of religion, and the economic backwardness of the Islamic world raises deep existential and moral dilemmas for modern Muslims.
Turkey has long suffered endemic high inflation rates ranging between 60% and 70% throughout the last decade. Thus, the recent drop to 10% is considered a remarkable success.
The degree of diversity among the Islamic sects and fraternity organisations shows that this notion of common Islamic principles and moral beliefs do not form a unique and homogeneous entity or any ecclesiastical hierarchy and geography. Indeed, the Islamic business groups reflect this difference of interpretation under the influence of different philosophies and religious leaders (see Çakır, 1995).
Without being too puritanical about this, what we refer to includes extensive broadcasting of soft pornography, voyeuristic ‘reality TV’, and crass game shows and talk shows, as well as their print counterparts. Mainstream Turkish newspapers and TV channels seem to rely on scandals, celebrity gossip, and shocking stories of mafia violence, sex and drugs. One recent case, the death of a former beauty queen, Burçin Bircan, at the age of 21 years from an overdose of drugs revealed the sad account in her diary of the confusion and decadent behaviour of her peers.
Çakir (1995) gives an elaborate account of Islamic groups and their intensified political and economic presence in Turkey during the 1980s and early 1990s. A notable organisation, the Iskender Paşa School, has led a significant intellectual debate on Islam and industrialisation through its thinkers and associated young graduates since the 1950s. Interestingly, among these graduates there have been high ranking civil servants and politicians who occupied influential positions in government institutions and politics.
Islamic brotherhoods like Fetullahcis, Nakşibendis, and Süleymancis had their own business and finance groups both in Turkey and Germany. According to the study of the Turkey Research Centre, Asya Finance supported many businesses that favoured the moderate Fetullah Gülen group known as Fetullahci while Işhlas Finance had ties with the Nakşibendi order and supported businesses associated with this group (Special Report on Islamic Finance and Businesses, 1999).
The SPK Article 4 requires all issued papers to be regisreted with the Board and Article 47 requires transparancy and full information about issued papers and shares. All Islamic companies persistently disobeyed Artciles 4 and 47 of the SPK.
This situation is similar to that described in Williamson (1987).
As Kuran (1998) points out, the everyday life moral dilemmas of individuals highlight the clashes between values rooted in the conditions of small communities and the experiences of surviving in a dynamic modern economy for ordinary Muslims.
According to a recent article in Der Spiegel (26.01.2004), more than 200,000 Muslims who lived in Germany have deposited billions in dubious Islamic firms. The report claims: ‘that money has just disappeared’.
According to Parry and Bloch (1989), the meaning of monetary transactions in pre-capitalist societies is ‘the relationship between a cycle of short-term exchange which is the legitimate domain of individual-often acquisitive-activity, and a cycle of long-term exchanges concerned with the reproduction of social and cosmic order’ (p. 2). However, the findings of White (1994) and our study illustrate that a moral economy and an internal social code can be interwoven within market exchange practices and transactions in capitalist relations, too.
Süleyman Demirel, a former president and many time prime minister, now a retired veteran politician, was commonly referred as ‘Father-Baba’. The ultimate example of this is the cult of Atatürk whose gazing portraits are displayed not only in official buildings but also in shops and houses voluntarily.
Haşim Bayram was a very clever chemistry teacher who grew up in a poor rural area of the Konya Province and always imagined revolutionary industrial growth in the middle of Anatolia. His narratives are often repeated and cultivated in the Islamic press. When he desperately started seeking finance for his investment projects and was refused by rich financiers, the father of one of his former students came up with a sum and invested in the project. Mr. Bayram cites this incident as the starting point for Kombassan. As a missionary merchant he often travelled to Germany to give religious sermons in mosques, cafes and private homes and introduced his idea of bringing prosperity to Anatolia. The notions of ‘teacher’ and ‘believer of Islam’ were frequently used to convince potential investors through Islamic organisations with whom Kombassan had close ties. In a conservative city like Konya, where communities are tied to each other with respected figures like preachers and teachers, people usually know about leaders and educated people are admired; being a teacher and businessman brought recognition in the local and national media. Mr. Bayram as the CEO of Kombassan still prefers to be called ‘the teacher’. A TV series titled ‘The Chemistry Teacher’ has even been produced by the company describing his poor childhood, intelligence, and the story of Kombassan.
Another example is the chairman of Büyük Selçuklu Holding, a Kayseri-based company, who enjoyed the public visibility as the mayor of the city between 1994 and 1997.
An interview in April 2001 with Mr. Haşim Bayram, Chairman of the Board of Kombassan remarkably illustrates this marriage of religion, entrepreneurship, charisma and opportunism.
The still surviving cooperative movement is known by its founder's name, Friedrich Wilhelm Raiffeisen. See Matis (2002).
In addition to anecdotal information in many newspaper articles, the study of the Turkey Research Centre in Essen provides valuable insight for this. See Special Report on Islamic Finance and Businesses, Turkey Research Centre, Essen, Germany, 1999.
The success of the Siirt Jet-Pa soccer team had a symbolic meaning for many people in Turkey. Siirt is a poor city in southeastern Turkey where Mr. Akgündüz promised to build an automobile factory.
Some infeasible and careless investments in the hands of incompetent managers went bankrupt as well.
Companies offer other benefits as well. For instance, an investor who bought 25,000 DM in shares had the right to employ a relative or friend in one of Yimpaş companies. When the number of 25,000 DM investors caused over-employment in the company the holding raised the limit to 100,000 DM.
In this discussion of anonymity versus impersonal trust there appears a question ‘What is the optimal size of a community or business where trust can be maintained bilaterally and multilaterally?’ We will deal with this issue elsewhere.
See Kuran (1989), (1995), (1996) and (2001) for a detailed analysis of the rise of Islamic economics, its appeal for largely poor Muslim countries, and the flaws of Islamic economic principles. Apart from being highly consensus-oriented in solving economic problems, Islamic economics tends to reduce the recognition of individual liberty versus fairness and equality. As Kuran puts it: ‘The positions taken by Islamic economists make clear, however, that in the event of conflict between an Islamic injunction and individual liberty, it is liberty that must yield’ (1989, p. 187).
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Özcan, G., Çokgezen, M. Trusted Markets: The Exchanges of Islamic Companies. Comp Econ Stud 48, 132–155 (2006). https://doi.org/10.1057/palgrave.ces.8100073
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DOI: https://doi.org/10.1057/palgrave.ces.8100073