Exploring the ethical aspects of Islamic banking

Abstract

Purpose – The purpose of this paper is to look into the ethical practices of a profit-driven financial institution that is currently adopting Islamic banking and whether it can actually be ethical from an Islamic perspective. The recent decade has seen an upsurge of the increasingly integration of ethical management into operational strategies by businesses across the globe. Like any other religion, Islam wants its followers to be truthful and honest and to be compliant with its teachings and especially in a business transaction. This research paper explores the ethical factors of Islamic banking and how it is perceived by its stakeholders. Design/methodology/approach – Due to the exploratory nature of the research and the fact that it involves in-depth theoretical analysis, a qualitative research method was adopted to explore the details of ethics in Islamic banking sector. The aim of this research was to explore the ethical options of an Islamic bank. This was done by carrying out in-depth interviews with the managers and executives of Islamic banks having authority over the subject of Islamic banking and Shariah finance. Furthermore, a detailed session of interviews was also carried out with the customers of Islamic banking to take their views on the subject issues. The data are analysed through thematic content analysis and matched with the existing theory with the objective of coming up with detailed findings that would contribute to knowledge on the subject of ethical Islamic banking. Findings – The paper provides empirical insights about ethical management as a vital part of Islamic banking modus operandi. The findings highlight the involvement of ethics in different procedures, operations and approaches of Islamic banking and how it is perceived by its many stakeholders. Practical implications – The motivation of this thesis comes from literature review to explore the ethics of Islamic banking and how it Islamic banking is perceived by stakeholders at an ethical banking practice. This research aims to aid bankers in identifying what practices they can enhance and what practices should be dropped to bring about a more ethical banking system. This research was prompted as a result of the gaps identified in the literature review followed by the observations made of the market by the researcher. It was evident that further research on this topic was required to aid the subject. Originality/value – The research is original in its nature, as there have not been many instances where the ethical management theory has been explored within the Islamic banking sector. Given the new literature on corporate branding and customer perception, this research can contribute very positively towards the subject area. This research would pave new research avenues to be explored and enhance academic contribution on the common subjects.

The Good, the Bad and the Ugly of Islamic Credit Cards

“…Islamic banking is labelled as competitors to the existing conventional banking instead of complementing and providing alternative products. The word Islamic is also the main impediment for customers, especially those of different religions and faith to approach Islamic banks compared to conventional banks (Gilani, 2015). Therefore, for all other Islamic banking products and services should consider rebranding the products without including the word Islamic, instead, highlight shariah compliance as the main attraction and attention-grabbing products for them to be visible locally and internationally.…”

“…As Gilani (2015) stated, the word Islamic banking is a significant impediment for customers from other religions to work closely and for the banks to gain more market shares than conventional banking. He further added that the Islamic banking stands for a unique Islamic religious following and therefore, restraints its territory to Muslim customers only (Gilani, 2015). Another displeasing fact about Islamic financial services is the permanent barrier of the terminology Islamic in the product range offered to the market compared to the conventional products (Wilson, 2011).…”

“…An Important proposal to Islamic financial institutions to be more open and informative about the terminologies and meaning of shariah-compliant component, i.e. non-riba, gharar and mysir (Gilani, 2015).…”

Does Dual Banking System in Indonesia Differentiate Investment Account Requirement?

“…In the mudhārabah contract, the investment amount (deposit amount) might lessen due to the nonperformance of the financing activities. Bank gives no guarantee to depositors since its status of investment account (Anuar et al, 2014;Gilani, 2015).…”

Zamir Iqbal and Abbas Mirakhor. Ethical Dimensions of Islamic Finance: Theory and Practice

“…As Ahmed (2011) asserted that Islamic banks have challenges in applying ethical values in a highly rival market environment. Some studies revealed that there is a gap in ethics from Islamic point of view and the reality in today's Islamic banks' practices (Pesendorfer and Lehner, 2016;Mansour et.al., 2015;Al-Jarhi, 2010) whereas other studies suggested that some Islamic banks function based on ethical guidelines (Gilani, 2015;Slimene et.al., 2014). Though not conclusive, most of the studies illustrate that Islamic banks are deviating from some ethical practices and this situation needs due consideration from Shariah advisory committees and regulatory bodies.…”