Exploring the “social failures” of Islamic banks: a historical dialectics analysis

Abstract

Purpose This paper aims to argue that the current environment in which the Islamic banking system is situated is not ideal for the system’s pursuance of its socioeconomic ideals, thus necessitating the system’s shift from pursuing falah to maximizing profits. Design/methodology/approach The paper theorizes and conceptualizes this shift from falah to profit maximization using two complementary theories – systems theory and institutional theory – to prove that such a shift is not unexpected. The paper further adopts a dialectical analysis that is somewhat historical to analyse the shift. Findings The measure of the Islamic banks’ performance in terms of their social ideals is misplaced, as the environment in which they currently operate does not support such goals. Thus, stemming from the theoretical base, the Islamic banks’ pursuance of profit maximization instead of falah should not be unexpected. The paper concludes that despite the unfavorable environment, the social ideals of the Islamic banking system may still be met, to an extent, through investment in microfinance and awqaf. Research limitations/implications The paper adopts document analysis for sourcing data majorly from prior studies. Hence, the authors do not conclude that the analysis herein is applicable to all Islamic banks. Secondly, as the authors could not get a complete historical account of the Islamic banking system’s development, some aspects of the dialectical analysis – contradiction and change – have been discussed in a general fashion. Practical implications The need for Islamic banks in the current environment, especially for the Muslim population, cannot be over emphasized; however, the achievement of falah given this current environment may be daunting. Originality/value The current analyses of the shift of Islamic banks from pursuing falah to pursuing profit maximization are not well-defined, as they lack a proper theorization of the challenges faced by Islamic banks. This paper fills this gap.

A review on literature of Islamic microfinance from 2010-2020: lesson for practitioners and future directions

“…Qardhulhasan financing is interest-free financing which is one of the characteristics of Islamic financial institutions such as IMFI. Abdul-Baki and Uthman (2017) argue that the role of IMFI in the social aspect needs to be supported by all stakeholders, especially Islamic banks. In this case, Islamic banks need to invest in IMFI to support this role.…”

“…Second, the role of Islamic microfinance in poverty alleviation needs to be supported by all stakeholders from the community, Islamic banks, and especially the government. Government support can realize providing adequate infrastructures such as regulations that support the growth and development of IMFI, infrastructure, and all aspects that facilitate IMFI's performance in alleviating poverty ( Ali, 2017 ; Abdul-Baki and Uthman, 2017 ; Abbas and Shirazi, 2015 ).…”

Relevance of the application of institutional theory in Shariah governance of Islamic banks

“…Definitely, the most suitable is to be fully Islamic, but most of the Islamic banks have chosen for the third position and opt for stability instead thereby becoming isomorphic to the counterpart banks. (Abdul-Baki and Uthman, 2017).…”

Konsep Harga Jual Betawian dalam Bingkai Si Pitung

“…Artinya, kuat tidaknya hubungan seseorang dengan Allah akan memberikan kekuatan dan pengaruh kehidupan. Mo dal spiritual (spiritual capital) merupakan sum-ber kebajikan yang dalam pandangan Is lam tujuannya hanyalah untuk meraih ridho A lla h SWT melalui ketundukan dan kecintaan kepada Allah (Abdul-Baki & Uthman, 2017;Khairi, 2013). Di sisi yang lain, Ibu Ramlah menuturkan tentang alokasi hasil penjual an yang diperolehnya.…”