Committed Actors, Institutional Complexity, and Pathways to Compromise: The Emergence of Islamic Banking in Germany

Gümüşay, Ali Aslan; Meyer, Renate E.; Höllerer, Markus A. Article — Published Version Committed Actors, Institutional Complexity, and Pathways to Compromise: The Emergence of Islamic Banking in Germany Journal of Management Studies Provided in Cooperation with: John Wiley & Sons Suggested Citation: Gümüşay, Ali Aslan; Meyer, Renate E.; Höllerer, Markus A. (2024) : Committed Actors, Institutional Complexity, and Pathways to Compromise: The Emergence of Islamic Banking in Germany, Journal of Management Studies, ISSN 1467-6486, Wiley Periodicals, Inc., Hoboken, NJ, Vol. 62, Iss. 1, pp. 408-445, https://doi.org/10.1111/joms.13061 This Version is available at: https://hdl.handle.net/10419/313697 Standard-Nutzungsbedingungen: Die Dokumente auf EconStor dürfen zu eigenen wissenschaftlichen Zwecken und zum Privatgebrauch gespeichert und kopiert werden. 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Journal of Management Studies published by Society for the Advancement of Management Studies and John Wiley & Sons Ltd. Committed Actors, Institutional Complexity, and Pathways to Compromise: The Emergence of Islamic Banking in Germany Ali Aslan Gümüşaya,b , Renate E. Meyerc,d and Markus A. Höllererc,e aLMU Munich; bHumboldt Institute for Internet & Society; cWU Vienna University of Economics and Business; dCopenhagen Business School; eUNSW Sydney Business School ABSTRACT The formation of the first Islamic bank in Germany in 2015 came with considerable tensions at the interface of the religious logic, on the one hand, and the state logic, on the other. With the Islamic religious logic being novel to the German field of banking and finance, innovative templates were established to deal effectively with the resulting tensions and conflicts. Drawing on qualitative data, we investigate how the bank, with its strong commitment to Islam, navigated such novel institutional complexity and the challenges stemming from the jurisdictional overlap. We identify four distinct compromise mechanisms in this institutionally complex situation, in which a committed actor prioritizes one logic over another: explaining, convincing, conceding and suspending. Importantly, as options, these mechanisms are situated in a cascading order of preference for the focal actor. More generally, our research posits that in any encounter between institutional logics in which the specific instantiation of a logic stems from a foreign interinstitutional system, the resulting novel institutional complexity may necessitate the development of innovative templates which, at the same time, may imply ‘stretching’ an institutional logic and, in consequence, impact the compatibility of its jurisdictional claims. Keywords: commitment, compromise, institutional complexity, institutional logics, interinstitutional system, Islamic banking Journal of Management Studies 62:1 January 2025 doi:10.1111/joms.13061 Address for reprints: Ali Aslan Gümüs¸ay, LMU Munich, Giselastrasse 10, 80802 Munich, Germany ([email protected]). This is an open access article under the terms of the Creative Commons Attribution-NonCommercial License, which permits use, distribution and reproduction in any medium, provided the original work is properly cited and is not used for commercial purposes. Committed Actors, Complexity and Compromise 409 © 2024 The Authors. Journal of Management Studies published by Society for the Advancement of Management Studies and John Wiley & Sons Ltd. INTRODUCTION With the receipt of a banking licence for KT Bank, 2015 marked the beginning of Islamic banking in Germany. Media attention at the time highlighted the significance of this event with headlines dubbing KT Bank a ‘Shariah Bank’, ‘Islambank’, or ‘Allah Bank’. Apart from the (potentially derisively) catchy headlines, though, the first Islamic bank received quite positive coverage in German media, mirroring the general openness from society and politics. However, its prospects from a legal and regulatory perspective – i.e., whether an Islamic banking model was at all viable – were much less certain. The bank’s founding process was preceded by extensive conversations, exchanges, and negotiations between the bank and regulatory authorities regarding the Islamic characteristics of the organizational model and business practices, exemplifying the considerable tensions between the prescriptions of the Islamic religion, on the one hand, and the German bureaucratic state, on the other. In tandem, they posed contradictory and conflicting institutional demands that were novel in the German field of banking and finance, and which KT Bank had to wrestle with. Conceptually, not only did the bank face various instances of institutional complexity in the form of ‘incompatible prescriptions from multiple institutional logics’ (Greenwood et al., 2011, p. 317); importantly, it was exposed to ‘causes of institutional complexity’ (Faulconbridge and Muzio, 2016, p. 99) that were unprecedented in the focal setting. We argue that with the emergence of KT Bank, a specific religious logic – Islam – ‘entered’ the German field of banking and finance, which represents a religious logic that was derived from another ‘interinstitutional system’. An interinstitutional system here comprises the totality of interrelated logics present within a focal society (Friedland and Alford, 1991; Thornton et al., 2012). The Islamic logic, previously not present in the German field of banking and finance, then gave rise to a novel ‘constellation’ of relevant logics (Goodrick and Reay, 2011) in this highly regulated setting. As a result, the bank (as well as other actors) faced institutional complexity of various types. On the one hand, there were tensions between religious and market demands. When addressing these tensions, the bank could draw on a long history of Islamic banking that offered specific templates for dealing with complexities between these two logics. On the conceptual level, this type of complexity – organizations operating across two or more institutional logics from within the same interinstitutional system – is relatively well researched in existing literature. On the other hand, it experienced tensions between religious and state demands that were novel in this specific empirical setting. For instance, the Christian religious logic has established interfaces with the state logic in the German field of finance; no such precedents or templates existed for the Islamic religious logic. Thus, the bank faced a type of institutional complexity with a logic from a different interinstitutional system entering the constellation that was novel to the field, and, on a conceptual level, has not yet drawn sufficient scholarly attention. KT Bank was strongly committed to the Islamic religious logic but was aware that compliance with the regulatory regime in place was a conditio sine qua non for receiving a licence. Although there was a general openness for Islamic banking in the field, there was also a considerable jurisdictional overlap of the Islamic religious and 410 A. A. Gümüs¸ay et al. © 2024 The Authors. Journal of Management Studies published by Society for the Advancement of Management Studies and John Wiley & Sons Ltd. state logics – two logics with high specificity, that yield highly scripted prescriptions and a limited discretion for actors to interpret them creatively (Meyer et al., 2021; Raynard, 2016). This novel complexity necessitated a prolonged process of negotiating about Islamic banking specifically, but also, more generally, about the interface between the state and the Islamic religious logic within the banking and finance context. This type of complexity, a novel constellation of logics with considerable jurisdictional overlap, along with the strong commitment of a key actor and their willingness to provide sufficient resources, was important: innovative templates needed to be negotiated and developed, which, once established, could then shape the interface of logics and open new possibilities for actors – present and future – to effectively deal with overlap and tensions. These considerations inform our research question: How do committed actors navigate novel constellations of institutional complexity in which one logic has entered from a foreign interinstitutional system? Empirically, we study the formation of the first Islamic bank in Germany. Islamic banking has been a controversial and increasingly pertinent topic for some time (Boone and Özcan, 2016, 2020; Boone et al., 2022; Gümüsay et al., 2020; Syakhroza et al., 2019). Having obtained privileged access to the banking project, our case study is predominantly based on a 24monthlong account spanning the initial planning phase up to the acquisition of the banking licence and formal opening. Our unique, contemporaneous data allowed us to follow the process of the bank’s foundation, its interactions with regulatory agencies such as the Federal Financial Supervisory Authority (BaFin) and other actors in the field such as the Auditing Association of German Banks, and the joint development of novel Islamic banking templates – innovative organizational and regulatory solutions to effectively deal with institutional complexity. By theorizing our empirical findings, this study contributes to the literature on institutional theory in general and to institutional logics in particular. We identify explaining, convincing, conceding, and suspending as four distinct mechanisms. These mechanisms depict diverse pathways towards what has been summarized as ‘compromise’ (Kraatz and Block, 2008; Oliver, 1991; Pache and Santos, 2010). As a menu of potential options they can be situated in a cascading order of preference, given a context where there is a committed focal actor that prioritizes one logic over another and an (in)compatibility of logics arising from jurisdictional overlap and institutional demand specificity. We also elaborate that, in encounters between institutional logics that stem from different interinstitutional systems, the resulting novel complexity may necessitate the development of innovative templates. By establishing such templates at the interface of a novel constellation of logics, organizations may redefine the very prescriptions they and others are subjected to and impact the compatibility of jurisdictional claims of these logics. THEORETICAL ORIENTATION The institutional logics perspective has become a prominent lens to ‘bring society back in’ to institutional analysis with logics forming a social order’s ‘organizing principles’ Committed Actors, Complexity and Compromise 411 © 2024 The Authors. Journal of Management Studies published by Society for the Advancement of Management Studies and John Wiley & Sons Ltd. (Friedland and Alford, 1991, p. 248). They are ‘socially constructed, historical patterns of material practices, assumptions, values, beliefs, and rules by which individuals produce and reproduce their material subsistence, organize time and space, and provide meaning to their social reality’ (Thornton and Ocasio, 1999, p. 802). In modern societies, multiple institutional logics coexist, form specific constellations (Bohn and Gümüsay, 2023; Goodrick and Reay, 2011) and yield complexity (Greenwood et al., 2011). We have considerably advanced our understanding of how, mostly within specific interinstitutional systems, logics impact organizations and, in return, how organizations manage logics (Besharov and Smith, 2014; Glynn and Lounsbury, 2005; McPherson and Sauder, 2013; Oliver, 1991; Pache and Santos, 2010; Reay and Hinings, 2009). Recently, however, scholars have started to call for the unpacking of different types of complexity depending on the characteristics of logics (such as their compatibility, specificity, jurisdictional overlap, or malleability) and their constellations (Bohn and Gümüsay, 2023; Goodrick and Reay, 2011; Lok and de Rond, 2013; Meyer et al., 2021; Raynard, 2016). In addition, Lounsbury et al. (2021, p. 263) called for seeing logics as ‘complex, dynamic phenomena in their own right’. This is a call to examine the social ontology of logics (Friedland, 2021; Steele, 2021) and its implications for their relationships. They note that ‘it is surprising that more research has not focused on how logics as complex phenomena, cohere and endure’ (Lounsbury et al., 2021, p. 267). In the following, we note five characteristics of institutional logics that are important for our argument: (a) logics are both structuring axioms and modes of reasoning; (b) they claim validity in specific jurisdictions and with different degrees of institutional compatibility and demand specificity; (c) they are temporarily situated and malleable; (d) they influence both means and ends; and (e) they unfold their impact within and across the constellations of interinstitutional systems. First, logics are conceived as structuring axioms (e.g., Thornton et al., 2012) and as modes of reasoning (e.g., McPherson and Sauder, 2013). As structuring axioms, they prescribe and proscribe meaning and practices, and purport sensemaking. As modes of reasoning, they enable agency because organizations may purposefully draw from logics (Dalpiaz et al., 2016). Logics are, in fact, both. In line with debates around embedded agency (Seo and Creed, 2002), organizations are shaped by institutional structures and are likewise agentic given their values and beliefs, which are, of course, also influenced by institutions. Institutional logics thus have the potential to bridge what Selznick (1996, p. 276) calls the ‘pernicious dichotomies’ between old and new institutionalism, and to ‘incorporate both the macrolevel influences, disregarded by old institutional theory, and the role of norms and values, of underlying reasons for action, neglected by new institutional theory with its focus on cognitive legitimacy’ (Gümüsay, 2020, p. 9; see also Greenwood and Hinings, 1996). Organizations are not indifferent towards the institutional logics that are in tension with each other, but are potentially more aligned with those logics that they care more about (Lee and Lounsbury, 2015; Mair et al., 2015; Malhotra et al., 2021; Ocasio and Radoynovska, 2016; Pache and Santos, 2010; Thornton et al., 2012); or, alternatively, are strategically interested in certain logics as instrumental tools ready to be used (McPherson and Sauder, 2013; Swidler, 1986). Organizations are regularly embedded in multiple logics at the same time and may internally prioritize one logic visàvis another, 412 A. A. Gümüs¸ay et al. © 2024 The Authors. Journal of Management Studies published by Society for the Advancement of Management Studies and John Wiley & Sons Ltd. strategically or otherwise, with their propensity to prioritize specific logics impacting how they attend to institutional expectations, demands, and prescriptions (Almandoz, 2014; Malhotra et al., 2021). For instance, Raaijmakers et al. (2014) found that decisionmakers may delay and challenge compliance with a focal logic based on their beliefs and collective sets of values. This internal prioritization within the organization can be aligned to the fieldlevel prioritization of logics (Raynard, 2016) or deviate from it as in our case. To capture the varying degrees to which actors embrace institutional logics, we can distinguish between commitment to and compliance with institutional demands (Ocasio and Radoynovska, 2016). The former implies embracing institutional demands as much as possible, while the latter implies conforming with them as much as necessary. This distinction is especially relevant when actors face institutional complexity, as the way they deal with tensions is also dependent on their own values, norms, and standpoints towards particular institutional logics. Second, logics claim validity in specific jurisdictions. If multiple logics are present in the same social space, their jurisdictional claims overlap (Dunn and Jones, 2010; Jancsary et al., 2017; Schüssler et al., 2023). ‘Jurisdictional overlap occurs where the prescriptive demands of logics target the same jurisdictional spaces’ and logics speak to the same concern (Raynard, 2016, p. 314). This overlap is what actually yields institutional complexity (Thornton et al., 2012, p. 57). Further, logics may be more or less (in)compatible and have varying degrees of specificity (Meyer et al., 2021; Pache and Santos, 2010; Raynard, 2016). Highly specific logics provide clear scripts for action and grant little discretion regarding interpretation and jurisdiction. Complexities that result from jurisdictional overlap and tensions between highly specific logics are more challenging to resolve than complexities that stem from overlaps between logics with low specificity because actors have less leeway in their interpretations. Religion and state can be regarded as logics with a high degree of specificity: states are commonly based on binding legal texts, and religions refer to scriptures that are deemed sacred. Such texts have relatively clear guidelines, exhibit significance, and often come with enforcement mechanisms. Third, logics are malleable across time and space. They are resilient social norms, structures and practices and as such are relatively stable and durable (Lounsbury et al., 2021), with some degree of plasticity (Lok and de Rond, 2013). Logics are not static but rather resilient yet changing (Gümüsay et al., 2020). As Quattrone (2015) noticed, logics may change in the long run. He highlights the historicity of logics as they influence space and time, yet also exist in it. For instance, with LGBTQA+ movements, the family logic has been transforming from one of male–female union in marriage to diverse forms of partnerships. Over time, the multitude and magnitude of organizational behaviour has an impact on the substance of logics while logics have an impact on organizational behaviour. Other work has highlighted how a change of logics ‘trickles up’ from everyday improvisations (Smets et al., 2012) or as fieldlevel ‘rebound effects’ based on the repercussions of organizations’ bottomup theorization (Höllerer et al., 2017). Yet, the jurisdiction and interpretation of logics may also change in the short run when organizations deliberately reinterpret and ‘stretch’ logics as they develop new practices and templates in their attempts to conform to a particular logic in situations of institutional complexity. With stretching we mean that novel and innovative practices that were previously not approved become Committed Actors, Complexity and Compromise 413 © 2024 The Authors. Journal of Management Studies published by Society for the Advancement of Management Studies and John Wiley & Sons Ltd. acceptable within logics. Thus, organizations not only have agency; their agency impacts the very underlying structures that influence reasoning and behaviour. As the jurisdictional claims of logics are constantly in motion, ‘institutional complexity – including the degree of incompatibility between logics – is in continuous flux’ (Boone and Özcan, 2020, p. 17). Fourth, logics can be decomposed into means and ends (Pache and Santos, 2010; Yan et al., 2019) as sets of ‘meansends couplets’ (Friedland, 2002, p. 383). Through logics, organizations ‘make sense of their environment and … identify, express, and justify particular means and ends’ (Kroezen and Heugens, 2019, p. 979). Yan et al. (2019) note that logics are both providers of means, such as resources, practices and knowledge, as well as of ends or purposes, such as wealth maximization or social justice so that ‘the means/ end distinction can be a powerful lever to grasp complexity’ (Yan et al., 2021, p. 933). Demands of logics may be aligned with regards to the outcome, but not the pathway towards that outcome. To realign logics, then, requires active work to render logic means malleable. Fifth, logics form an interinstitutional system (Friedland and Alford, 1991). Within an interinstitutional system, logics have developed certain alignments over extended periods of time. Friedland and Alford (1991) explicitly focused on the interaction of logics within the interinstitutional system of the West. As a result, extant research examines cases in which different logics within one and the same interinstitutional system (e.g., Greenwood et al., 2011; Malhotra et al., 2021), or different instantiations of logics within a single institutional sphere such as professions (Smets et al., 2012) or the capitalist market (Meyer and Höllerer, 2016), coexist. However, a logic may become relevant across interinstitutional systems. In such situations and settings, jurisdictional overlaps are emerging, compatibility or incompatibility of logics must be negotiated, and established guidelines or templates for how to manage the novel intersection of logics do not (yet) exist. As a result, organizations may need to provide interpretations of the pressures and complexity, and creatively develop innovative solutions to manage the jurisdictional overlaps. We echo Lounsbury and Wang’s (2020) call for a global perspective. Such a global perspective could examine institutional patterns across interinstitutional systems. This includes situations like our case of Islamic faith entering the German field of banking and finance. An understanding of the social ontology of logics that conceives them as structuring yet enabling, with varying jurisdictional claims, (in)compatibility, and specificity, malleable yet resilient, separable in means and ends, and situated within and across interinstitutional systems has important implications for institutional complexity. Organizational agency, for instance of committed actors, impacts how they engage with complexity. The degree of jurisdictional overlap and logic specificity impact the level of complexity. The malleability of logics allows for ways to attend to complexity through stretching logics. A focus on means versus ends highlights that even when the purpose is not changing, means and practices may be able to adapt. Lastly, less work has examined complexity across interinstitutional systems and what happens when a new logic enters such a system. Hence, we focus here on novel institutional complexity, where a committed actor negotiates the entry of a new logic in an interinstitutional system, with novel tensions over the means to resolve or accommodate this complexity. 414 A. A. Gümüs¸ay et al. © 2024 The Authors. Journal of Management Studies published by Society for the Advancement of Management Studies and John Wiley & Sons Ltd. RESEARCH CONTEXT AND EMPIRICAL DESIGN Islamic Banking Principles Islamic Banking is derived from the scriptural norms of Islam on finance. Islam, at its minimal core, is the declaration of belief in God and that Muhammad is God’s messenger. Its primary sources are the Quran and Sunnah. For Muslims, the Quran contains the words of God in 114 surahs (chapters) with over 6000 a ˉya ˉt (verses; singular: a ˉyah) gradually revealed between 610 and 632 AD. Many of these verses entail socioeconomic aspects and have hence an extensive application to social and individual activities. The Sunnah is the deeds, sayings, and silent or tacit (dis- )approvals of the prophet Muhammad. Secondary sources and practices are Ijma’ (consensus) and Qiya ˉs (analogy). Ijma’ is the unanimous agreement amongst a certain group of people like religious scholars or the entire Muslim community depending on the Madhhab (i.e., the specific school of jurisprudence). Qiya ˉs is a form of analogical reasoning which is somewhat contested amongst Islamic scholars. In addition, for some religious scholars there exist certain tertiary sources such as the common good or public interest (maslaha). Together, these sources and their interpretation underpin the Shariah and hence the religious foundation of Islamic Banking. Islamic Banking builds particularly on the prohibition of interest (riba), uncertainty (gharar), and gambling (maisir), as well as unethical investment (Ayub, 2007). Riba is divided into riba alfadl, an interest on excess in countervalue, and riba alnasi’ah, an interest for delayed payment. So while riba alfadl relates to trade such as a direct exchange of superior goods with a greater quantity of inferior goods, riba alnasi’ah relates to loans. Riba was explicitly forbidden in the Quran in a gradual process of revelation culminating in the verse 2:275 that ‘Allah has permitted trade and forbidden usury’. The Quran even entails a declaration of war against those who use usury (2:279). The underlying understanding is that transactions are assetbacked and linked to the real economy so that wealth increase is not guaranteed ex ante, but risk – and therefore also profit and loss – is shared ex post. Deposits with a return are thus participation or investment accounts. Money for a house or company inventory, for instance, is not borrowed but the house or inventory is purchased and sold by the bank. Islamic sources not only prohibit certain activities, but they also encourage others, such as specific partnerships. In a Muda ˉrabah partnership one party, the rabbulma ˉl, provides capital and the other, the muda ˉrib, offers entrepreneurial labour. In a Musha ˉrakah the various parties provide capital and some also engage in management. While Muda ˉrabah is effectively a form of trust financing, Musha ˉrakah is a joint venture partnership. Religious scripture also offers general guidelines on business activities, for instance to act in accordance with economic (62:10), ecological (2:60; 28:77), and social (4:29; 11:85; 55:9) sustainability. They include specific financial prescriptions akin to a social tax (9:103), prohibitions on hoarding wealth (3:180; 9:34), and a worldview of humans as vicegerents of God (2:30; 57:7), so that ultimate ownership lies with God (24:33). From scriptural sources Islamic Banking hence derives both specific and generic rules that are central to the beliefs and values of many Islamic Banking employees and customers – and which are also visible in the vignettes below. Committed Actors, Complexity and Compromise 415 © 2024 The Authors. Journal of Management Studies published by Society for the Advancement of Management Studies and John Wiley & Sons Ltd. Global Islamic Banking Practices The global market for Islamic finance has developed from 150 billion US dollars in the mid1990s to 2.4 trillion in 2017, with Islamic banking accounting for 71 per cent of this sum (Di Mauro et al., 2013; Thomson Reuters, 2018). The remainder are other asset categories such as takaful (Islamic insurance) and sukuk (Islamic bonds). This market, tailored particularly but not exclusively to Muslims, is expected to grow further, with increased customer interest in Islamic financial products and an increasing customer base being the drivers (Thomson Reuters, 2018). Islam is the fastest growing and second largest religion in absolute numbers, with 1.8 billion adherents in 2015 – that is 24 per cent of the world’s population. It is expected to reach 3 billion or 31 per cent of the world’s population by 2060 (Pew Research Center, 2017). Historically, modern Islamic finance began in the 1960s with three developments: the establishment of Mit Ghamr Local Savings Bank in Egypt, regulatory reforms in Pakistan for noninterest banking, and the establishment of the Malaysian Pilgrims Savings Board. In 1975, the Islamic Development Bank and the Dubai Islamic Bank were founded. In 1979, the first Islamic insurance company opened in Sudan. Citibank began offering Islamic banking services in Bahrain in 1996. In 1999, the Dow Jones Islamic Market Index, which is the first Islamic equity index, was established, and in 2001, the first sovereign sukuk, a shariah compliant bondlike instrument, was issued by the Central Bank of Bahrain. In Europe, financial service firms such as Citi offered products as early as the 1980s. Some established firms such as HSBC created socalled Islamic windows, which are ‘run as separate organizations within conventional banks’ (Boone and Özcan, 2020, p. 5). The UK has had Islamic retail banks since 2004. Around the time of our study, European Islamic funds made up 8.3 per cent of the global Islamic fund industry (Di Mauro et al., 2013). Commonly, such funds have a commercial rather than a retail focus and serve clients outside of Europe. Islamic finance in Europe has also benefitted from political support and growing demand. In 2014, for instance, the UK government issued a 200millionpound sovereign sukuk. Overall, then, while Islamic finance was gaining momentum, at the time of the founding of KT Bank it was ‘still at a fairly embryonic stage’ in Europe (Di Mauro et al., 2013, p. 9). Islamic Banking and the German SocioLegal Setting In Germany, prior to the founding of KT Bank in 2015, multiple organizations offered Islamic finance advice, such as the Institute for Islamic Banking and Finance (since 2006) and ZinsFrei (since 2008). As early as 2004, SaxonyAnhalt, a German federal state, issued a sukuk. Finance institutions like Commerzbank and Deutsche Bank also offered Islamic compliant funds, but generally with a focus on the Middle East and Asia rather than the domestic market. With its founding, KT Bank effectively kicked off Islamic banking in Germany; later, in 2018, a second Islamic bank was created. From a business perspective, the prospects for Islamic finance in Germany were seen as favourable, with Germany being the largest economy in Europe and home to five million Muslims. As one manager (KTB8a) noted: ‘The number of potential Muslim 422 A. A. Gümüs¸ay et al. © 2024 The Authors. Journal of Management Studies published by Society for the Advancement of Management Studies and John Wiley & Sons Ltd. requirements arose, as well as on understanding how the bank experienced, interpreted, and navigated these tensions. In a first step, we coded attempts to resolve them. In a second step, we looked for relationships between firstorder concepts to collapse them into secondorder themes via axial coding (Corbin and Strauss, 1990). This involved oscillating between data, experiences, analysis, and reflection until we refined the data into conceptual categories, which we derived to capture our observations. Our secondorder themes thus abstract from these specific observations. The third step entailed organizing the secondorder themes into overarching theoretical dimensions. Four dimensions emerged that revealed four distinct compromise mechanisms: explaining, convincing, conceding, and suspending. In the findings section, we present these in detail and structure them according to four case vignettes that address central concerns of Islamic banking in relation to German regulation. Table IV presents illustrations of firstorder categories and outlines the data structure. Figure 1 illustrates the derived theoretical dimensions. It shows the four distinct compromise mechanisms and positions them in cascading order, from most to least preferred option from the bank’s perspective. The institutional demands of logics A and B are depicted as circular areas. The idea for this depiction came from a KT Bank presentation that showed the legal system and Islam as spatial areas that needed to overlap to find the common ground. Where the circular areas do not intersect, their demands are not in congruence. We note four mechanisms. Three mechanisms reduce complexity through solutions that bring the interface of the two logics together; two of these include the development of innovative templates, while the fourth mechanism keeps the tensions pending resulting in a form of suspense. FINDINGS A Novel Constellation: Requirements, Tensions, and Priorities With a positive sentiment both in the media and amongst regulators towards Islamic banking in general, the tensions were over means – not ends. The media reported on the potential of Islamic banking and challenges in its implementation. Multiple articles called KT Bank a ‘pioneer’. The BaFin expressed ‘goodwill’ with ‘a certain caution’ (int, Table III. Ideal type institutional order in the research setting Ideal type institutional order Religion State Specific domain Islamic banking German banking regulation Overarching aim Metaphysical pursuit Bureaucratic order and due process Source of specificity Sacred scripture Law Internal oversight Compliance Department; Internal Ethics Council Regulatory agencies, public servants External oversight Shariah/Ethics Council Courts Conduct Religious commitment Legal compliance Committed Actors, Complexity and Compromise 423 © 2024 The Authors. Journal of Management Studies published by Society for the Advancement of Management Studies and John Wiley & Sons Ltd. Table IV. Representative data Theoretical dimensions Secondorder themes Firstorder categories Representative data* Explaining Concrete explanation A. Explanation of existing governance structure ‘There were many discussions about the Ethics Council; that the Executive Board remains unaffected by it …’ (int, KTB4a) B. Detailed answers regarding status quo Responses to queries regarding governance and Islamic compliance. (doc) Explicit specification C. Revision of documents to make status quo structure clear Explanation that management has final decision, not Ethics Council. (obs) D. Rephrasing to emphasize status quo Shariah Board is called External Ethics Council with an advisory role. (doc) Convincing Innovative resolution of other’s concerns E. Product innovation through analogy from outside the field ‘This is indeed an innovative product taken from outside the field of finance’. (int, IFE4) F. Process innovation can be accepted by regulatory framework Product profile document details specific processes of real estate purchase with detailed steps and various scenarios. (doc) Novel justification of other’s concerns G. Advocating for novel construct Real Estate Financing with Islamic compliance would consist of two sales requiring property acquisition tax to be paid twice. Special purpose vehicle circumvents this. (doc) H. Justification with legal framing from outside the field ‘The special purpose vehicle is an existing legal construct. So it should be possible to use it for real estate financing’. (int, CONS5) Conceding Innovative resolution of own concerns I. Rethinking Islamic compliance rules ‘We had to reconsider what features of the credit card are forbidden by Islamic compliance and what not’. (int, KTB2b) J. Identifying innovative approaches to Islamic compliance ‘You either leave this project and do not offer the product, and potentially even don’t pursue the business. The other solution: You find a way out: innovatively. (…) This was particularly challenging given our beliefs’. (int, KTB1c) Creative interpretation of own concerns K. Extending product attributes through Islamic exegesis The time between sale and resale can be infinitely small and not oppose Islamic compliance. (obs) L. Easing adherence to Islamic compliance Islamic compliance can be established through ex ante selfdeclaration of customers regarding intended purchases. (obs) (Continues) 424 A. A. Gümüs¸ay et al. © 2024 The Authors. Journal of Management Studies published by Society for the Advancement of Management Studies and John Wiley & Sons Ltd. REG3). For regulators, there was no problem as long as KT Bank templates were in line with regulatory requirements. ‘I can tell you that there is no separate permit for Islamic banking in Germany. Banks offering Islamic finance require a regular permit from BaFin’. (int, REG2) ‘BaFin organized two Islamic finance conferences with the aim, among other things, of exploring or better understanding the extent to which Islamic rules can be interpreted in line with the laws here’. (int, REG1a) In this situation, KT Bank needed to negotiate solutions which both followed Islamic rules and complied with the relevant regulations. We thus zoom in on the bank and first present how managers experienced the tensions between regulatory and religious requirements and then offer four case vignettes, each of which illustrates specific struggles and solutions to the central tensions. Developing an Islamic banking template within the German context was commonly regarded as the crux of the project, as these remarks from interviewees point out: ‘To establish a bank is one thing, an Islamic bank a completely different one. (…). For all regulatory agencies [in Germany]: this is virgin soil for them, too; how do we want to deal with it? It is an unprecedented case’. (int, KTB10a) Theoretical dimensions Secondorder themes Firstorder categories Representative data* Suspending Consensual vagueness M. Vague juristic expression ‘We are exuberantly happy that this vague juristic formulation, that we are principally prepared to take on all losses, was accepted, because this was the biggest hurdle’. (int, KTB5d) N. Equivocal formulation ‘… to find a designation of risk costs, that is sufficient for the legal transparency requirements and at the same time adequately accommodates the business interests of the bank’. (doc) Benevolent postponement O. No final discussion ‘The deposit guarantee was actually the biggest project risk and God willing, it is now through. We are not certain yet, but since we stated our position there was also a meeting and it was not even brought up as an issue’. (int, KTB1d) P. Assumed acceptable solution for now ‘It seems to be remedied for now with the bank’s willingness to take on losses’. (int, CONS8) *Documentary data not in quotation marks where paraphrased. Table IV. (Continued) Committed Actors, Complexity and Compromise 425 © 2024 The Authors. Journal of Management Studies published by Society for the Advancement of Management Studies and John Wiley & Sons Ltd. ‘We are in a Christian state, and this makes it obviously more difficult’. (int, MOR2) ‘If it works here, it will work anywhere in the eurozone’. (int, KTB2a) Managers were well aware that the whole endeavour might fail. ‘What we need to do is to work out how to build an Islamic bank here. In Germany, banking regulations are much more complex, particularly the tax system is very complex, very difficult, and one is not sure whether it is possible or not to integrate taxes and banking regulation together with Islamic banking’. (int, KTB5b) The exchange with regulators was hence considered of highest importance and urgency, and compliance with the regulations was regarded as very important. Project documents listed and highlighted milestones for document submission to regulators, discussions with those regulators, and their potential approval of the documents. One document, for instance, referred to the ‘ongoing effort to manage requests from authorities’. The title of the document was ‘Framework | KT Germany in the context of German authorities’ and the document itself contained three columns. The first column was ‘regular reporting […] required by BaFin’ and included multiple ‘personal meetings’. The second column referred to the Auditing Association of German Banks, which decided on membership of the Deposit Guarantee Scheme; it posed 89 detailed questions and also necessitated regular status updates. Iteratively, they asked for further clarifications and modifications. The third column concerned the bank’s engagement with tax authorities. After identification of potential tax concerns, the bank requested a binding statement from the tax authorities with feedback on suggested products and processes. The significance of this engagement with regulators Figure 1. Four compromise mechanisms, innovative templates, and institutional tensions Perceived situation ex ante Perceived & actual situation ex post Institutional logic A Institutional logic B Institutional logic A Institutional logic B Mechanisms along cascade Explaining Convincing Conceding Suspending No compromise, ongoing complexity Innovative templateInstitutional tensions Not developed Developed by stretching other‘s concern Not developed Developed by stretching own’s concern Dissolved Resolved Pending Resolved 426 A. A. Gümüs¸ay et al. © 2024 The Authors. Journal of Management Studies published by Society for the Advancement of Management Studies and John Wiley & Sons Ltd. was also apparent in the long working hours, stress, and tensions before submission deadlines or visits by regulators (obs). Despite intense preparations there was a common unease and concern as to whether an identified solution would be deemed acceptable as well as uncertainty as to how meetings and submitted documents would be received (obs). Managers eagerly waited and hoped for positive responses from regulators (obs). It became clear that bank managers approached religious concerns differently from regulatory requirements. This was often not mentioned explicitly, but it became apparent when we asked managers for explanations or when we observed them dealing with contradictory demands. The strong commitment to Islamic religious beliefs and values were the drivers of the whole endeavour, while complying with banking regulations and obtaining a banking licence was a prerequisite. In conversations, managers stressed that love for their God as well as potential rewards in heaven and punishments in hell were key considerations for their activities and decisions. They emphasized that if adherence to Islamic rules was not possible ‘then the project is dead’ (int, KTB1b). While shariah compliance is a common term in Islamic finance, the meaning underlying it and ways in which it is enacted often suggest a certain commitment to religious beliefs, guidelines, and values. In that sense, the bank was dedicated to Islamic rules and practices rather than just trying to comply with them. ‘Shariah compliance means to stick as much as possible to Islamic guidelines, to follow the Quran and the Prophet – his deeds and sayings’. (int, KTB15a) ‘The challenge was initially to look: what do we actually want? And what is Islamic about the product? Trading is allowed, riba (interest) is forbidden. But what does riba mean precisely? (…) For me, Islam is not operationalized. And we need to operationalize it’. (int, KTB11a) KT Bank started with generic Islamic banking concepts that needed to be integrated into the novel cultural setting. Given the large potential market of Muslim customers in Germany and promising market studies and surveys about their interest in Islamic finance, the bank’s business prospects were not seen as a major challenge. Instead, interviewees frequently listed legal ‘challenges’ and regulatory ‘obstacles’ that needed to be overcome and reconciled. Overall, it was obvious to them that complying with German regulations was necessary but difficult. ‘What are the challenges? One is for sure German banking regulations. To adapt and adjust Islamic products to here. This is not an easy obstacle to overcome: legal questions, tax questions. These are challenges’. (int, IFE1) ‘It was important to clarify how Islamic views on banking and financial products fit at all into the existing system in Germany. Germany is not a developing country. Everything is largely designed: There are legal regulations, tax regulations, an institutional framework. So one needs to look how one may try to establish Islamic principles within these existing regulations’. (int, KTB7a) Committed Actors, Complexity and Compromise 427 © 2024 The Authors. Journal of Management Studies published by Society for the Advancement of Management Studies and John Wiley & Sons Ltd. To form a modified template of banking that adhered to both German regulations and Islamic prescriptions, KT Bank drew on various sources of expertise. It built internal professional capacity and competence by hiring and training experts in German law and Islamic finance. An Internal Ethics Council, consisting of three people, monitored religious adherence, and a legal department observed legal compliance. The bank also drew on external expertise. They hired lawyers and consultants to develop and structure products and processes in accordance with legal and religious obligations. The Internal Ethics Council was connected to an External Ethics Council of eminent religious scholars who provided expert advice. At various conferences, managers also engaged with experts on key issues (obs). Ultimately, difficult decisions needed to be taken. ‘The bank sees a problem. We consider which steps need to be taken, which third parties need to be involved – be it tax consultants, lawyers. They are then asked: how can we solve this problem. They then propose something, and we make a decision’. (int, KTB14a) Central to the endeavour was the formal and informal dialogue with regulatory agencies. The bank submitted written documents for assessment and presented their progress to representatives in both the project office and at public agencies (obs). Various civil servants on these occasions displayed what KT Bank employees described as a Weberian bureaucratic mindset in that they focused on due process and on working within their mandate without imposing their own views. In interviews, they also stressed that they did not oppose an Islamic bank but were trying to assist within the corridor of what was legally possible. In the following, we focus on four representative case vignettes. These vignettes exemplify Islamic banking principles and the tensions that arose due to the regulatory setting. They concern governance structure, real estate purchases, overdraft credit, and the deposit guarantee scheme (see also Table V). Other challenging matters such as Islamic compliant leasing or loans to firms required similar resolutions. However, these four concerns were commonly regarded as the most pressing and important ones by interviewees; they were also apparent in meetings and discussions and featured extensively in documents. Moreover, they are excellent instances to exemplify the four aggregate dimensions – or pathways to compromise – that emerged from our coding. Our analyses revealed consecutive steps that were taken when engaging with the tensions that arose from the overlapping jurisdictional claims of the religious and bureaucratic state logics. The bank’s staff translated and explained Islamic concepts both literally and conceptually into German legal terms. Where possible, they explained that perceived incompatibilities were merely misconceptions and, in fact, no incompatibility existed. In cases that could not be resolved through explanation, the bank expended considerable financial resources on consultancy and legal fees and proceeded to develop innovative solutions that were consistent with both Islamic guidelines and the German legal system. In cases where the bank could not resolve incompatibilities between religious and regulatory demands, solutions that suspended the tensions were sought. Each step is effectively an addition to the response repertoire and does not replace previous steps, but rather builds on and complements them. 428 A. A. Gümüs¸ay et al. © 2024 The Authors. Journal of Management Studies published by Society for the Advancement of Management Studies and John Wiley & Sons Ltd. Explaining: Governance Structure In relation to governance, a structural issue arose regarding the role of the Shariah Board – later to be called the Ethics Council. According to German law, the executive board needs to be fully responsible for the activities of a bank. No individual or body other than the executive board may have ultimate decision authority. There are also very specific rules about who may be appointed as a board member of a bank and their responsibilities. At the same time, an ethics council is a body that ensures that the bank’s practices adhere to Islamic rules and principles. Thus, a key concern was the relationship between the Executive Board and the Ethics Council – specifically, whether the council could overrule the Executive Board and who had the final say about banking activities. ‘The ethics council is welcome, but it must not have codecision powers, it must not act as a “shadow government”’. (int, REG1a) ‘“Other banks also have their own distinctive features”, the German financial regulator BaFin says. “However, these features must always be in line with regulatory requirements. For example, when there is an ethics committee, it is imperative to ensure that it does not impact on the sole responsibility of the board”’. (Die Presse, 2015) Table V. Four compromise mechanisms and case examples Mechanism Case example Tension (ex ante) Compromise (ex post) Explaining Governance structure Role of Shariah Board visàvis Executive Board questioned. German law requires ultimate decision authority to lie with management Shariah Board renamed Ethics Council; its advisory function specified with no authorization to issue directives. Internal commitment is in line with regulation Convincing Real estate purchase Loan to customer based on interest – prohibited in Islamic finance. Purchase and sell through bank results in payment of property acquisition tax twice Special purpose vehicle owned by bank and customer buys real estate; bank sells share to customer for a markup. No interest. Tax paid only once Conceding Overdraft credit Flexible overdraft credit offered with interest – prohibited in Islamic finance. Also, cards typically can be used to buy nonIslamiccompliant products Customer buys on behalf of the bank (trading – not lending). Selfdeclaration, product blacklisting and 5% tolerance threshold employed Suspending Deposit guarantee According to German law deposit investments need to be guaranteed by the bank. Islamic Finance does not allow such guarantees Profit stabilization reserve to offer extensive assurance. Bank intention to cover losses can be interpreted as a de facto but not de jure guarantee Committed Actors, Complexity and Compromise 429 © 2024 The Authors. Journal of Management Studies published by Society for the Advancement of Management Studies and John Wiley & Sons Ltd. ‘There was this worry, that this Shariah and Ethics Council create a form of shadow regime, which would endanger the sole responsibility of the board and be removed from regulatory checks through the public agencies’. (int, KTB1b) KT Bank established two bodies – an internal and an external one – and called both ethics councils. Their overall task was to formulate general principles of fairness, social responsibility and solidarity, sustainability, profit and loss participation, and transparency and communication (doc). They also issued fundamental prohibitions on matters such as interest (riba), uncertainty and vagueness (gharar), speculation and wagers (maisir), and forbidden goods and services (doc). In addition, they were tasked with addressing all ethical and Islamic compliance questions for KT Bank (doc). The Internal Ethics Council was responsible for monitoring ethical guidelines, providing staff training in ethical issues, and overseeing the implementation of Islamic compliant processes and transactions in departments and branches. It was involved in the development of products and was also the point of contact for staff regarding Islamic compliance. The External Ethics Council addressed questions regarding Islamic finance compliance as it applied to products, services, and other issues for which no adequate standards had yet been defined. It was also involved in the development of novel products and advised bank management on interpretations of Islamic finance. The Internal Ethics Council had relevant expertise in banking, law and religion, and was embedded in the bank’s regular activities on an ongoing basis, but it did not necessarily have training in Islamic theology, while the External Ethics Council consisted of three trained and certified Islamic scholars who focused on more fundamental concerns. ‘The Internal Ethics Council is organizationally embedded into the banking practices. It consists of three employees. The External Ethics Council consists of independent religious scholars, who are always consulted when new products or new processes are developed, or new questions to existing products or processes arise’. (int, KTB1b) In their Islamic compliance reviews, these ethics councils could object to certain practices, processes, or products. BaFin required written clarifications regarding the extent to which council decisions could bind the Executive Board. While, under German law, the rulings of such councils must not be binding, the bank could bind itself to rulings on a voluntary basis. In other words, the bank could choose to adhere to a ruling but it could not be formally obliged to do so. During the founding period, KT Bank renamed the Ethics Board and Shariah Board as the Internal and External Ethics Council, respectively. The bank also stated that it intended to adhere to advice from the ethics councils in all cases. Such declarations of intent are not formally binding, meaning that the ultimate decision and legal liability remains with the Executive Board. This solution was relatively simple and there was a common expectation that this would pose no serious challenge, but that all that was required was to provide the regulator with concrete explanations and explicit specifications (obs.), which turned out to be correct. These explanations were sent to the regulator and received written approval. It was codified in the highest 430 A. A. Gümüs¸ay et al. © 2024 The Authors. Journal of Management Studies published by Society for the Advancement of Management Studies and John Wiley & Sons Ltd. levels of documents such as the bank’s Internal Regulations (Geschäftsordnung), which state explicitly: ‘The External Ethics Council is solely an advisory committee. The External Ethics Council is not authorized to issue directives to banking bodies’. (doc) Convincing: Real Estate Purchase While a conventional bank can provide a loan to a customer to purchase a property, in Islamic finance this is forbidden. Managers in the bank referred to the Quranic verse 2:275, which says: ‘Allah has permitted trade and forbidden usury’. They also stressed the significance of this prohibition in relation to another verse, 2:279, which amounts to a declaration of war on those who use usury. For the bank, breaking with this religious rule and charging interest was unthinkable. Yet, they wanted to offer real estate financing, particularly for Muslims in Germany, noting – with pride and satisfaction – the potential benefits for Muslims who would not otherwise be able to purchase a home and comply with their faith. In Germany, using this socalled mura¯- b ahah contract meant that property acquisition tax would have to be paid twice, in accordance with the Real Estate Transfer Tax Act (Grunderwerbsteuergesetz). In contrast, in the United Kingdom, legislative changes were made to cater for Islamic finance. Such a legislative change was also demanded in Germany. In 2012, the Financial Times Germany remarked that: ‘The British amended the Finance Act 2003 a few years ago precisely because they wanted to make London the global center of Islamic banking. France later followed suit. A comparable change in the law would also be needed in Germany’ (Dohms, 2012). Initially, the bank tried to obtain regulatory approval for their banking practice so that purchasing a property and selling it to their customer for a markup would be seen as only one sale. ‘The goal would be in order to have an easier way to simply speak to the state and say: “listen, you know that in the end this is only one sale. So levy the real estate transfer tax only once” – like they did in England’. (int, KTB1c) However, this was not approved by the regulatory authorities, who viewed this as entailing two transactions. A manager explained: ‘We asked BaFin whether a similar construct as in England is possible for Germany, but they said no’ (int, KTB7c). Legislative changes were thus not likely in Germany, and the regulatory authorities were not willing to accept the clarifications provided by the bank that, in fact, this could be considered as only one sale. In order to align religious rules with legal requirements, KT Bank had to develop an innovative solution within existing laws and obtain approval for it – ‘So we needed to develop this new construct’ (int, KTB16a). To develop an innovative solution to the challenge of property purchase, the bank’s management looked for and ultimately identified an existing product from a different business field. The bank transferred it to the field of finance and modified it to fit the needs of KT Bank. Committed Actors, Complexity and Compromise 431 © 2024 The Authors. Journal of Management Studies published by Society for the Advancement of Management Studies and John Wiley & Sons Ltd. ‘With regard to real estate, there is an existing method of resolution, which we take and implant into the Islamic banking context.’ (int, KTB20a) The relevance of this construct could be inferred inter alia from KT Bank’s careful attempts to guard this construct by not sharing its specifications and the associated intellectual property until the bank’s launch (obs). In fact, one manager emphasized that ‘thousands of euros were spent to research, develop, and codify the real estate financing product’ (int, KTB13b). The bank proposed this solution to the regulatory authorities and incorporated feedback into the product’s characteristics. In the product development document, KT Bank states that their ‘Real estate financing is structured differently to typical German real estate financing’. A special purpose vehicle (SPV), which is owned by the bank and the customers and has a certain division of shares, is used to finance property purchases. For legal reasons, a purchase with three parties is the most costeffective. In such a case, the bank might own 89.8 per cent, while customers 1 and 2 would own 5.1 per cent of the SPV, respectively. With private clients, for instance, the bank signs a contract with the customers to establish a company under civil law. The SPV acquires the real estate and pays the real estate transfer tax and other fees. The bank then sells its stake in the SPV at a profit to one of the remaining stakeholders of the SPV. The customers finance this stake by taking a loan provided by the bank. This specific SPV construct, drawn from outside the finance industry, circumvents the twotransaction problem described above without infringing Islamic guidelines. The regulator was ultimately convinced to accept such a novel construct. Conceding: Overdraft Credit While issues regarding the governance setup were structural, both real estate purchase and overdraft credit posed product challenges. An overdraft facility comes, for instance, with a credit card. Again, in conversations the regulator highlighted that its sole concern was that current law was upheld. For KT Bank this gave rise to two challenges concerning Islamic norms and rules. First, these rules and norms do not allow for lending on credit and the charging of interest. Second, the provision of assistance in purchasing products and services that are forbidden in Islam – such as, for instance, alcohol or pornography – is not allowed. Hence, religious demands were inconsistent with this payment method: ‘Conventional credits are a taboo’ (Heller, 2015). Yet, the credit card, with its underlying mechanism of flexible overdraft credit, was deemed a core product feature. ‘We need to offer a credit card. Our customers expect us to do so. There is no way around it. And we need to do so while satisfying legal requirements for credit cards and considering what is Islamically possible. What we have to do and what we are allowed to do’. (int, KTB5b) Early product development work gave rise to questions from regulators about product characteristics. Simple clarifications were insufficient, and there was no similar product within the German sociolegal setting. Bank managers agreed that changes in general 438 A. A. Gümüs¸ay et al. © 2024 The Authors. Journal of Management Studies published by Society for the Advancement of Management Studies and John Wiley & Sons Ltd. highlight that an institutional logic can be more or less central to an organization, we show that, regardless of centrality, a logic may be more or less valued, leading to a different level of commitment. Importantly, this adds a third dimension to what Besharov and Smith (2014) have described as the centrality and compatibility of a set of institutional logics: the degree of commitment to one logic over another one. This complements work that highlights how organizations can respond to conflicting institutional demands (e.g., Greenwood et al., 2011) by integrating how they wish to engage with them. It responds to the ‘constitutive question of how actors become variably committed to logics [that] has not been fully worked out’ (Lounsbury and Wang, 2020, p. 11). Our findings build on but also differ from work by Boone and Özcan (2016). In their study, ideological purity as the adherence to an institutional logic is contrasted with the decision of Islamic banks to hire managers from conventional banking and thereby mix logics and hybridize. If an organization remains faithful to a logic, it is ideologically pure. We complement this notion of ideological purity with the notion of commitment to a logic as aspiration, which is not (yet) fulfilled, with the degree of ideological purity being an outcome. This outcome would be achieved when the aspiration is fulfilled. For instance, companies focusing on shareholder value maximization as the ultimate organizational objective represent cases of ideological purity regarding the market logic (Thornton et al., 2012). In contrast, social ventures that experience ‘mission drift’ away from their social vision represent cases of ideological aspiration, where a community logic is aspired to but not instantiated (Ebrahim et al., 2014). In our case, then, the aspiration to ideological purity regarding the Islamic logic, which is new in the German banking field, was the driver of the venture but led to novel institutional tensions and resolutions. It was the focal organization’s commitment to the Islamic logic – rather than to the ideology of the market as in Boone and Özcan’s (2016) study – that determined the tradeoff: There is a limited extent to which creative interpretation and action is possible without infringing on logic specificity. The order of escalation demonstrated the bank’s hesitancy to follow this route, which was also evident in the utmost care it took in designing innovative templates. There were careful attempts by the bank to avoid jeopardizing purity by stretching the other logic before their own, and a willingness to accept a state of suspension rather than to give up the commitment and the aspiration to purity. Furthermore, our findings present a case with tensions over means, not ends. Yan et al. (2021, p. 5) note that ‘[m]ost research on the compatibility of institutional logics has focused on the extent to which their ends are aligned’. We contribute here towards our understanding of tensions over means. Both regulator and bank agreed that it should be possible to set up the bank and that the bank should be able to offer core products and services in line with both religious and state logics. The disagreement was over how this outcome could be achieved. This was particularly challenging given the high logic specificity of both the Islamic religious and the German state logics. As Yan et al. (2021) note, the means of the state logic are laws and regulations while sacred scripture is the means of the religious logic. KT Bank’s struggle was to bring these different means together, while having an internal representation of the religious logic (Pache and Santos, 2010, 2021). Pache and Santos’ (2010) third proposition notes that an organization that faces conflicting demands as to means, with Committed Actors, Complexity and Compromise 439 © 2024 The Authors. Journal of Management Studies published by Society for the Advancement of Management Studies and John Wiley & Sons Ltd. an internal representation of one side, is more likely to avoid or defy the external demand. Our data speaks to this asymmetry between internal and external representation, yet without the option to avoid or defy those demands. Complementing Pache and Santos (2010, 2021), we present an empirical case where an organization uses multiple response strategies and does so in cascading order, given its preferences and commitments. Islamic Banking Emergence, Jurisdictional Struggles and Template Development Our study zooms in on the institutional complexity that arises from changes in the interinstitutional system in which the focal organization operates. Malhotra et al. (2021) show how actors dealt with a new logic that was already available in the interinstitutional system and how logicbased resistance was handled. By contrast, the setting for our case was an environment where the Islamic religious logic was new to the German field of finance as a whole, and not just to an organization. Hence, established templates for jurisdictional overlap did not exist but needed to be borrowed, emulated, recombined, and developed (Boone and Özcan, 2016, 2020; Gümüsay and Smets, 2020; Munir et al., 2021). We thus respond to the call by Vermeulen et al. (2016) to focus on the nature of institutional complexity and point out that organizations that draw from logics from different interinstitutional systems face a different type of institutional complexity compared to organizations that operate across institutional logics within one interinstitutional system. In the case of KT Bank, we observed purposeful, deliberate agency, where the organization had to create complexity to subsequently engage with it (Perkmann et al., 2022). KT Bank combined multiple institutional logics to create and pursue new market opportunities (Dalpiaz et al., 2016) and attend to the interests of the growing Muslim community. In the case of Dalpiaz et al. (2016), Alessi sought a deliberate exposure to conflicting logics to create creativity. In our case, KT bank sought a deliberate integration of institutional demands to achieve the organizational setup of an Islamic bank. They were able to do so given their structural position and exposure to alternative logics (Greenwood and Suddaby, 2006). This complements work by Seo and Creed (2002, p. 238) who speak of ‘available logics’ with what we would call making a logic available that was not available before. The novel logic (the Islamic religious logic) was drawn from a different interinstitutional system. This has implications for the interface between the novel logic and the other logics in the established constellation and for the level of complexity where jurisdictional overlap exists. While in instances of institutional complexity within the same interinstitutional system, more or less strongly institutionalized templates exist (Meyer et al., 2021), logics from different interinstitutional systems do not (yet) have such solutions. There are no frames or ‘complementary configurations’ (Ahmadjian, 2016, p. 13) nor established ‘readymade templates’ to draw from (Kroezen and Heugens, 2019, p. 1006). As a result, ‘actors may face higher hurdles regarding the acceptability of combinations when the combination is novel and not recognized by stakeholders in their context’ (Perkmann et al., 2022, p. 8). Perkmann and colleagues continue that it ‘may also be that specific contexts are so tightly coupled with a specific logic that stakeholders resist 440 A. A. Gümüs¸ay et al. © 2024 The Authors. Journal of Management Studies published by Society for the Advancement of Management Studies and John Wiley & Sons Ltd. attempts to import other logics’. This is all the more challenging in historically grown interinstitutional systems, in particular in mature settings which are highly institutionalized (Perkmann et al., 2022). KT Bank had to develop innovative solutions to manage the intersection and overlap of novel institutional complexity. Such innovative templates have a payoff that may be greater the higher the challenge and thus opportunity to differentiate oneself (Perkmann et al., 2022). In our case a huge investment was made to develop templates, yet these solutions may also have paved the path for followers, and, indeed, a second Islamic bank was founded in Germany in 2018. Innovative templates become woven into, and thus impact, the existing institutional fabric. We thus contribute to the understanding of the malleability, temporality, and historicity of institutional logics (Ocasio et al., 2015) as well as their ‘vibrant, unfolding, and contingent’ nature (Lounsbury et al., 2021, p. 6) given the interplay of local activities and translocal patterns (Steele et al., 2019). Quattrone (2015) has rightly made the criticism that institutional logics are often portrayed as stable sets of beliefs. He showed that logics can change over extended periods of time. The number of logics, their relationships, and their significance may also change over time (Bohn and Gümüsay, 2023). Our case highlights that organizations are not passive recipients but actively shape the institutional context in which they are embedded. They may be able to disrupt institutional settlements through the development of novel arrangements that become recognized and potentially institutionalized as new templates at the field level. For instance, through creative interpretations they may transform what is considered to be within the scope of a logic and may eventually even create a novel archetype – a set of ideas, values, and beliefs coupled with organizational structures, practices, and processes that reflect a specific interpretive scheme (Greenwood and Hinings, 1988, 1993). This addresses important calls for research on ‘how organizational responses have feedback effects on field structure and institutional pluralism’ (Greenwood et al., 2011, p. 357) and ‘how spatial and temporal contexts create conditions that give rise to actors, who, in turn, work with the structure of opportunities and constraints found in their habitats’ (Hwang and Colyvas, 2020, p. 588). It also relates to questions ‘on how religion affects the entrepreneurial emergence of novel markets’ (Yan, 2020, p. 558) by showing how religion may affect the formation of innovative institutional templates. Lastly, by examining institutional developments across interinstitutional systems, our findings speak to recent calls to connect institutional logics with world society institutionalism, thereby bringing in a more global perspective (Lounsbury and Wang, 2020; see also Faulconbridge and Muzio, 2016). IMPLICATIONS FOR FUTURE RESEARCH AND PRACTICE We note several limitations of and future research potential from our study. The data set covered a single case and our findings need to be contextualized for other settings. Future research could thus examine market entry and change processes in diverse emerging and mature fields. This includes contexts where – unlike in our case, in which both sides were in favour of a compromise and hopeful that an agreement Committed Actors, Complexity and Compromise 441 © 2024 The Authors. Journal of Management Studies published by Society for the Advancement of Management Studies and John Wiley & Sons Ltd. could be reached – cooperation is missing, the situation is conceived or framed differently, or solutions could not be developed. In addition, in our study, we focus on the formation of the first Islamic bank in Germany but do not follow the subsequent development of the German banking field. Following the work of Faulconbridge and Muzio (2021), we encourage future research to explore whether the need to adhere to a shared regulatory framework while being committed to a specific logic may or may not be the starting point of field partitioning or even subfield formation and, if so, whether novel templates that are developed in this process become part of the institutional infrastructure of such fieldlevel change. We also see potential for delving deeper into the interrelationship between and intricacies of faith and other institutions. Yan (2020), for instance, noted that religious diversity within Islam across countries impacts Islamic investment fund demand and supply behaviour. To mention a related example within Islamic finance, regulations across countries are very diverse at present, for instance through different forms of Shariah boards. As institutional processes are intertwined with the regulatory setting, these warrant comparative analyses across different settings. Future work could examine further the implications of the social ontology of logics including their structuring yet enabling nature, jurisdictional claims and specificity, malleability and resilience, meansend coupling, and positioning within and across interinstitutional systems. Additionally, our case sheds light on the disruptive potential of an organization that needs to cocreate innovative templates because it is institutionally embedded in logics from diverse interinstitutional systems. It thus highlights how, over time, organizations may alter the very prescriptions they are subjected to. We thus welcome more work that analyses organizations whose disruptive potential lies in the very nature of their underlying institutional makeup – one that cuts across interinstitutional systems (Ahmadjian, 2016). Our study also offers insights for regulators and public policy makers. As their actions impact institutional settings, they can perform an important role in preventing conflict or improving the process of resolving tensions. They can ease, facilitate, or aggravate, market entry. State actors might consider the option of stretching existing institutional demands to form a field that is in accordance with the desired regulatory outcome while at the same time conducive for innovation and change. In contrast to our case, the UK allowed for such change by removing the double tax issue for Islamic banking. Finally, our work addresses central concerns of the Islamic finance and management field. The socalled ‘form versus substance’ debate can be conceptualized as a debate about how demands from the religious logic are approached and integrated into business practices. Effectively, the simple notion of Islamic compliance – despite its wide use in Islamic finance – can be deemed misleading. We suggest a continuum that spans from commitment to compliance with Islamic guidelines, within which Islamic banks with their diverse practices can position themselves. ACKNOWLEDGEMENTS We wish to thank Daniel Muzio for his constructive editorial guidance throughout the review process, as well as three anonymous reviewers who helped us, with their critical comments and suggestions, to shape this article. In addition, we are grateful to the participants of AOM, EGOS, LOST, OTREG, and WK ORG 442 A. A. Gümüs¸ay et al. © 2024 The Authors. 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