The Illusion of Ethical Finance?
When Islamic Banking Looks Islamic but Behaves Otherwise
For nearly twenty-five years, Pervez Saeed was not a critic of Islamic banking. He was one of its architects.
He worked inside the system, helped shape its rules, and rose to the post of Director of Islamic Banking at the State Bank of Pakistan. This was not a man throwing stones from the outside. This was someone who built the house.
Which is why his recent argument unsettles so many people. Saeed does not say that Muslims should abandon faith or that finance must be secular. His claim is more uncomfortable than that. He argues that what is marketed as Islamic banking today may fail the very ethical test it claims to pass.
That sentence alone makes people uneasy. It should.
Riba, Interest, and a Question Nobody Wants to Touch
The heart of Saeed’s critique lies in a distinction most of us were taught not to question. Riba is forbidden. Interest is riba. End of discussion.
Saeed says this equation may be intellectually lazy.
He does not deny that the Qur’an forbids riba. He questions whether all forms of modern interest automatically fall into that category, especially when stripped of exploitation and coercion. In his view, scholars collapsed a moral prohibition into a technical shortcut. Over time, tradition hardened into certainty.
During the COVID lockdowns, Saeed says he revisited the Qur’anic language itself, not through inherited rulings but through economics. What troubled him was not faith, but method. He felt that riba had been analysed historically, not economically.
At one point, he uses an analogy that many found offensive. He compares today’s scholarly certainty to the era when religious authority rejected established science. Like Galileo, he suggests, dissent is dismissed not because it lacks logic, but because it threatens settled power.
You don’t have to agree with him to feel the weight of that comparison.
When Trade Exists Only on Paper
Islamic banking avoids interest by structuring transactions as trade. On paper, the bank buys a commodity. On paper, it sells it at a markup. Profit replaces interest. Faith is preserved.
But Saeed asks a simple, almost rude question. Where is the trade?
Most Islamic banks do not own warehouses. They do not handle cotton, metals, or goods at scale. They do not employ traders. What actually happens is a rapid sequence of paper transactions, often completed in minutes, involving brokers who never see the customer.
The customer never wants the commodity. The bank never wants the commodity. Everyone wants cash.
At that point, calling the transaction “trade” starts to feel like theatre.
This is where I paused when listening to him. Because once you see it, you cannot unsee it. If the economic substance is a loan, but the legal form is a sale, then the moral question does not disappear. It just gets buried under Arabic terminology.
Hilah and the Cost of Looking Pure
Islamic jurisprudence allows legal stratagems, known as hilah, to navigate constraints. Saeed argues that modern Islamic banking has turned hilah into an industry.
Layer upon layer of contracts exist not to change outcomes, but to rename them. Each layer adds legal cost. Each layer adds complexity. And each layer is justified as the price of compliance.
The result is something many customers quietly notice but rarely say out loud. Islamic banking often costs more.
Higher documentation costs. Higher profit rates. More intermediaries. More fees. All to achieve an outcome that looks almost identical to conventional finance.
The ethical irony is hard to miss. A system meant to reduce injustice ends up charging belief-driven customers a premium for reassurance.
Regulation by Exception
There is another uncomfortable reality Saeed points to. Islamic banking survives not by replacing the conventional system, but by carving exceptions inside it.
Regulators have had to adjust tax laws, accounting rules, and banking ordinances to accommodate Islamic products. Sales that look like loans receive special treatment. Trading permissions are granted to banks that do not trade in any meaningful sense.
This is not proof of innovation. It is proof of adaptation.
When a system constantly requires exemptions to function, one has to ask whether it is genuinely different, or merely differently labelled.
Belief, Profit, and a Captive Market
None of this would matter if Islamic banking were struggling. It is not.
It is expanding faster than conventional banking in Pakistan. Conventional banks are opening Islamic windows. Not out of theology, but because margins are better.
Belief-driven customers do not negotiate the way logic-driven ones do. They seek moral safety, not pricing efficiency. Banks understand this. The market rewards it.
This does not make customers naïve. It makes them sincere. But sincerity is precisely what turns belief into a profit centre if no one asks hard questions.
The Question That Refuses to Go Away
Saeed is not calling for the abandonment of Islamic ethics. He is calling for intellectual honesty.
His challenge is simple and deeply unsettling. If riba is meant to prevent exploitation, then should we not evaluate modern finance by outcomes rather than contract gymnastics? If Islamic banking claims moral superiority, should it not be more transparent, cheaper, and more just?
These are not blasphemous questions. They are ethical ones.
What makes them dangerous is not their content, but their timing. Islamic banking is no longer an experiment. It is an industry. And industries do not like mirrors.
Whether Saeed is right or wrong is almost secondary. What matters is that someone who once believed completely now doubts openly.
And in systems built on certainty, doubt is the most disruptive force of all.
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