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

Abstract

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 outcomes of organizational behavior beyond legality of contracts. The framework outlines the conditions under which an activity that is considered legal and permissible contractually could lead to outcomes that can make it ethical or unethical.

Analysing Islamic banking ethical performance fromMaqāṣid al-Sharī‘ahperspective: evidence from Indonesia

“…Moreover, IBs need an active Sharī'ah-compliant audit system to ensure that all activities adhere to Maqās id al-Sharī'ah objectives (Alziyadat and Ahmed 2019) and report this to shareholders and community. This will ensure that IBs maintain their ethical obligations by being transparent and not misleading stakeholders, investors and community.…”

“…Furthermore, although the financing and investment instruments used by IBs may be permissible in and of themselves, the social and environmental factors may be projected in the end results and affect Maqās id al-Sharī'ah (Alziyadat and Ahmed 2019). Therefore, this study conducts the MSI analysis related to education, social justice, and redistribution of wealth to evaluate the ethical and social performance of IBs in Indonesia.…”

Abu Zahrah’s Maqasid Sharia Model as a Performance Measurement System

“…The initial questionnaires were deve loped from previous researchers, such as Alziyadat & Ahmed (2019), Baehaki et al (2020, Mergaliyev et al (2019), Moham mad & Shahwan (2013), Mohammed & Taib (2015), and . Then the questionnaires were modified and added according to the context of Islamic banking in Indonesia such as brotherhood in the fi nancing, qordhul hasan funds and net opera ting margin.…”

“…This concept is presumed to be appropriate for directing and evaluating the performance of Islamic financial institu tions, including banks. Alziyadat & Ahmed (2019), Akhan & Hassan, (2020), Amaroh & Masturin (2018), Jazil & Syahruddin (2015), Laela et al, (2018), Mergaliyev et al (2019), Mutia & Musrifah (2017), and Soediro & Meutia (2018) develop performance mea surements and examine the implementation of maqasid sharia in financial institutions.…”

Shariah Compliant Financial Intermediation in Dual Banking System

“…Islamic principles of financial intermediation require IFIs to not only refrain from performing financial transactions with impermissible traits but also play an active role in the achievement of objectives of Shariah and promote equity and distributive justice in financial dealings (Alziyadat & Ahmed, 2018). On the other hand, conventional financial institutions, by design, do not possess any such moral values and, at best, they invest a portion of their income on CSR related activities, considering it sufficient in respect of their obligations towards the society.…”