On the Ethicality of Islamic Banking’s Business Model

Jatmiko, Wahyu; Iqbal, Abdullah; Ebrahim, Muhammed Shahid

Abstract

This paper scrutinizes the ethicality of Islamic banks’ (IBs’) business model by employing the ‘objectives of Islamic law’ (Maqāsid al-Sharī’ah). This necessitates developing an ethical framework to construe two primary injunctions of Islamic finance, namely ribā and gharar. The former embodies financial decoupling and unjust price gouging, while the latter involves asymmetric information and excessive risk-taking behavior. We empirically and theoretically illustrate that these unethical issues are still prevalent in the IBs’ modes of financing, despite the Sharī’ah-compliant endorsement of religious scholars (i.e., Sharī’ah Supervisory Boards). This affirms that ethicality is merely an impression management exercise of IBs instead of their true business identity. The way forward is to conceptualize IBs’ modes of financing beyond just Sharī’ah compliance by scrutinizing their ethical impact on society at large. This would require updating centuries old Islamic rulings (Fatāwā) on financial transactions and consulting finance academics and practitioners.

Citation

Jatmiko, W., Iqbal, A., & Ebrahim, M. S. (2024). On the Ethicality of Islamic Banking’s Business Model. British Journal of Management, 35(1), 115-136. https://doi.org/10.1111/1467-8551.12703

• Journal Article Type: Article
• Acceptance Date: Dec 4, 2022
• Online Publication Date: Jan 30, 2023
• Publication Date: 2024-01
• Deposit Date: Dec 5, 2022
• Publicly Available Date: Feb 3, 2023
• Journal: British Journal of Management
• Print ISSN: 1045-3172
• Electronic ISSN: 1467-8551
• Publisher: Wiley
• Peer Reviewed: Peer Reviewed
• Volume: 35
• Issue: 1
• Pages: 115-136
• DOI: https://doi.org/10.1111/1467-8551.12703
• Public URL: https://durham-repository.worktribe.com/output/1185171