Ethical decision‐making in Islamic financial institutions in light of Maqasid Al‐Sharia: A conceptual framework

• Author: Naser Alziyadat,Habib Ahmed
• DOI: http://doi.org/10.1002/tie.22025
• Published date: 01 September 2019
• Date: 01 September 2019

RESEARCH ARTICLE

Ethical decision-making in Islamic financial institutions in light

of Maqasid Al-Sharia: A conceptual framework

Naser Alziyadat

1

| Habib Ahmed

2

1

Centre for Responsible Citizenship and

Sustainability, School of Business and

Governance, Murdoch University, Perth,

Western Australia, Australia

2

Durham University Business School, Durham

University, Durham, UK

Correspondence

Naser Alziyadat, Centre for Responsible

Citizenship and Sustainability, School of

Business and Governance, Murdoch

University, Perth, Australia.

Email: n.alziyadat@murdoch.edu.au

This article develops a conceptual framework for ethical decision-making in Islamic financial

institution based on the Islamic methodological approaches on ethics. While making use of the

similarities between the scientific method and the Islamic jurisprudence method, a framework is

developed by means of argumentation and reasoning to integrate Sharia doctrines with the

“plan, do, check and act”(PDCA) cycle as a managerial tool. Using Al-Raysuni's analysis of Al-

Shatibi's work on maqasid al-sharia, this article develops a framework to assess the ethical

aspects of Islamic financial operations, which is then applied to hypothetical cases. This

approach can help overcome the methodological deficiencies in measuring ethical performance

in Islamic finance by focusing on the process of ethical decision-making that leads to the out-

comes of organizational behavior beyond legality of contracts. The framework outlines the con-

ditions under which an activity that is considered legal and permissible contractually could lead

to outcomes that can make it ethical or unethical.

KEYWORDS

ethical decision-making, Islamic ethics, Islamic financial institutions, Islamic jurisprudence

method, maqasid al sharia, PDCA

1|INTRODUCTION

The Islamic financial services industry (IFSI) has been growing rapidly

over the past decade. The global assets of the Islamic financial sector

are estimatedto reach US$ 1.89 trillionin 2016 with the banking sector

accountingfor US$ 1.49 trillion (Islamic Financial Services Board, 2017).

With an annual growthrate of 17.5 present over the 3 years preceding

2014, the spread of fully fledged Islamic financial institutions (IFIs) cov-

ered 40 Muslim and non-Muslim countries across the world (Ernest &

Young, 2013; General Council for Islamic Banks and Financial Institu-

tions, 2011).In some specific jurisdictions, the shareof the Islamic bank-

ing sector has become large and systematically important. The demand

for Islamic banking is growingnotably in some markets withpredictions

that more conventional banks willconvert into Islamic banks (Alziyadat,

2011). IFIs, which work under the umbrella of conventional economies

and regulatory environments, have also become an integral part of the

global financial system

1

(Moodys, 2008).

A unique feature of Islamic finance is its compliance with the Sha-

ria. Accordingly, the articles of associations and licenses for the opera-

tions of IFIs state that their operations comply with the Sharia. In

many jurisdictions where financial institutions are licensed as Islamic,

instituting a Sharia-governance framework is a regulatory requirement

to ensure Sharia compliance. This may require IFIs to not only have a

Sharia Supervisory Board (SSB) consisting of Sharia scholars specializ-

ing in Islamic jurisprudence and financial transactions

2

but also to

have Sharia control departments that provide the internal advisory

and auditing functions (Islamic Financial Services Board, 2009). As

Islamic legal principles are deemed inherently ethical, consumers and

other stakeholders expect IFIs to be ethical. Thus, the use of Islamic

jurisprudence is expected to lead to moral and legal norms that are

generally accepted by the majority of Muslim communities.

Despite the theoretical assumption that IFIs are ethical, criticisms

of their lack of contribution to the aspirations of Sharia and Islamic

socioeconomicobjectives have been increasinglynoticed in recent liter-

ature. When trying to diagnose this issue, researchers usually subscribe

to the claim that IFIs donot work to achieve broader Sharia objectives

(e.g., Asutay, 2007; Badr El Din & Ibrahim, 2006; Bedoui, 2012; Bed-

oui & Mansour, 2015; Mohammed, Abdul Razak, & Taib, 2008; Sairally,

2008; Antonio, Sanrego & Taufiq, 2012; Zaman & Asutay, 2009). Stud-

ies addressing this issue vary from subjective arguments to empirical

DOI: 10.1002/tie.22025

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