Ethics has always been a part of business. The article of Islamic Business Ethics & Finance: An Exploratory Study of Islamic Banks in Malaysia written by Muhammad Adli Musa studied about how Islamic finance which claims to offer global financial stability and high ethical standards should reflect Islamic values in all facets of behaviour to bring about collective morality and spirituality, which when integrated with the production of goods and services advance the Islamic way of life.
This paper also attempts to investigate the consistencies or, if any, inconsistencies and explore the relationship between the Islamic business ethical norms and the practices of Islamic banks in Malaysia. In doing so it tries to address the current imbalance of emphasis and the lack of a comprehensive discussion on business ethics from a wider cultural and religious perspective with reference to Islam, particularly focussing on selected Islamic banks in Malaysia. The main research question of this study is how do the current practices in Malaysian IFIs mirror the Islamic ethical norms in business?
The findings in this paper would potentially assist in the improvement of practices among IFIs to conform to the ethical norms established by Islam, which are in fact the core of their existence. For Muslims, Islam is considered as a way of life and not merely a religion. Hence, business ethics cannot be separated from ethics in other aspects of a Muslim’s daily life. It is claimed that in the climate of Islamic philosophy, it is ethics that dominate economics and not vice versa, and that Islamic economics is characterized as being ethical besides being Godly, humane and balanced.
The concept of Taw? id has been identified as the core of Islamic ethics, along with trusteeship or stewardship, justice or equilibrium, free will or freedom, responsibility and generosity. On a more practical level, the manner for proper Islamic ethical conduct in business is based on leniency, which encompasses good manners, forgiveness, removal of hardship and compensation; service motive, where businesses provide needed services to the community; and consciousness of Allah, which requires Muslim businessmen to be mindful of Allah in their conduct of business.
In the financial services sector, ethics has become increasingly important on the basis that the purpose of business activities in general and financial services in particular is the creation of value for the consumer. The financial services environment should not be an environment where there is a dichotomy between the personal ethical attitudes and the attitudes governing one’s business life. Moreover, it is suggested that an ethical environment will coincidentally pave the way to improved performance as in the case of the British Cooperative Bank’s ethical policy, and provides essential support for maximizing long-term owner value.
The recent global financial crisis might have been averted if ethics played a larger role in the financial services sector. Islamic finance has been recognized as a rapidly increasing integrated compartment of global finance with assets worldwide estimated to be worth $700 billion as a result of growth at a rate of more than 10% annually during the past decade. With respect to ethics, IFIs are considered to be ethical since the foundation of their business philosophy is grounded in the shariah, often referred to as ethics in action, which is concerned with promoting justice and welfare n society and seeking God’s blessing.
The difference between Islamic and conventional financial systems is that the former has to preserve certain social objectives and is based on equity rather than debt. Malaysia’s Financial Sector Master-Plan explicitly mentions that it would like to symbolize Malaysia as a regional Islamic financial centre. A distinguishing feature of the Malaysian economy is that Islamic finance has been fully integrated into its existing financial system, which demonstrates the sector’s inventiveness and capacity for innovation.
It is also worth highlighting that the Malaysian Islamic finance market is considered to be well developed with a huge future potential. The first IFI established in Malaysia was the Malayan Muslims Pilgrims Savings Corporation which began operations in 1963. Twenty years later in 1983, the first Islamic bank, Bank Islam Malaysia Berhad, started operations after continuous pressure on the Malaysian government to assist in establishing an Islamic bank.
The seriousness of the Malaysian government in furthering the cause of Islamic finance can be seen in the Financial Sector Master-Plan’s vision to see Islamic banking evolve in parallel with conventional banking to achieve 20% of the banking market share, represented by a number of strong and highly capitalized Islamic banking institutions, offering financial products and services which are underpinned by a comprehensive and conducive shariah and regulatory framework.
To sum up, from the study presented, it can be fairly assumed that the practices of the Islamic banks in Malaysia under study do conform to the Islamic ethical norm in business based on the perception of executives working in the banks concerned. Individual positive and negative statements are areas where the Islamic banks concerned must strive to improve. Particularly, the perception of the management among employees of the banks must improve as it is the management who determines the issue of business conduct and principles in a business organisation.
Issues surrounding the treatment of employees such as equality and fair wages must also be addressed in line with business ethical norms established by Islam. A preliminary look into the qualitative data of the Ph. D. research of the author, which is not presented in this paper, suggests that the senior management, Shariah heads and Shariah Supervisory Board members of the Islamic banks under study are aware of the importance of incorporating Islamic ethics in the operations of their respective banks.
However, the climate in which the banks operate does not necessarily support such notions. Furthermore, Islamic banks might not feel compelled to abide by Islamic ethical norms in business if the consumers of their products and services do not strongly demand so. The emphasis on shariah compliancy of products and services has arguably resulted in the ethical dimension of Islamic finance to be somehow sidelined.
Shariah compliancy is indeed the essence of Islamic finance but beyond that, Islamic banks should be at the forefront of ethical banking, whereby they take into consideration the impact of their activities on the society at large. Islamic banks must also strive to adopt the recommendations by the IFSB and AAOIFI in their published Guiding Principles and Conduct of Business for Institutions offering Islamic Financial Services and the Code of Ethics for the Employees of IFIs respectively as best practices in the industry.
Research needs to be conducted using various techniques to answer the research question at hand. Realising that, the author in his Ph. D. study has interviewed the senior management, Shariah heads and Shariah Supervisory Board members of the banks concerned to obtain their views on Islamic business ethics in relation to Islamic banking practices in Malaysia. The author also included in his Ph. D. research the ethical identities of the banks concerned based on their annual reports and other materials accessible to the public such as the banks’ websites and other publications.
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