Mutuality as an antidote to rent‐seekingShariaharbitrage in Islamic finance

Islamic finance is a prohibitions‐driven industry, which aims primarily to circumvent the canonical Islamic prohibitions of riba and gharar. The concepts of riba and gharar may best be understood as unbundled sales of credit and risk, respectively. An obvious solution is to adopt mutual structures for financial intermediaries of credit (e.g., banks) and risk (e.g., insurance companies), as early experiments in Islamic finance had apparently done. However, growth in Islamic finance over the past three decades has been led by rent‐seeking Shariah arbitrageurs, whose efforts continue to be focused on synthesizing contemporary financial products and services from classical nominate contracts, without regard to corporate structure of financial institutions. In this article, I argue that mutuality should be given back its central role in our discourse on Islamic finance. In particular, I argue that mutuality in intermediation of credit and risk can assist significantly in implementing the substance of Shariah as well as its forms, including the financial empowerment of Islamic financial customers (be they Muslims or otherwise) to face the challenging domination of Islamic finance by international financial behemoths.