Identity Drift: The Multivocality of Ethical Identity in Islamic Financial Institution

Abstract

In today's neo-liberalist world, Islamic financial institutions (IFIs) face many difficulties combining contemporary financial thinking with Islamic, faith-based principles, on which their day-today operations ought to be based. Hence, IFI are likely to experience shifts/changes in organizational and ethical identity due to tensions that the combination of these principles invokes. We present an in-depth case study that focuses on these shifts in a major European based IFI across a 14-year period. We conceptualize identity change as drift, highlighting the multivocal nature of identity construction. The ethico-faith principles that were meant to serve as living codes of ethics guiding the IFI's organizational culture, operational processes, and strategy formation turned out to mainly have been discursively rationalized to respond to regulatory, market and institutional imperatives. The company is aware that it needs to engage in a continuous dialogue with those who set these requirements. Its ethico-faith principles may consequently be adapted quite radically, especially in periods of turmoil and takeover, as we show across the analysed time period. The paper provides valuable insights for faith-inspired organizations to reflect on the extent to which they wish to engage in the discursive justification and legitimization of current market hegemonies, whilst they actively encourage their managers to behave ethically as well.

A shared boundary object: Financial innovation and engineering in Islamic financial institutions

“…The key differentiators between Islamic FIE and conventional financial engineering, is that faith-based financial engineering is either asset-based or asset-backed, unlike its conventional counterpart (Hidayah et al, 2019). Research has acknowledged that, at least in part, IFIs offer a way to connect financial innovation to the real economy (Hidayah et al, 2020, Hidayah et al, 2019, Iqbal and Mirakhor, 2007. IFIs have sought to provide alternative finance, at least ostensibly with an aim to promote equality, entrepreneurship, and partnership in line with a religious orientation and spirit (Grais and Pellegrini, 2006, Asutay, 2012, Hegazy, 2006, Rethel, 2017, Iqbal and Mirakhor, 2007.…”

“…The literature on faith-based FIE, however, shows how the identity of IFIs and the Islamic financial products been drifting away from their original faith-based rules and mission (Hidayah et al, 2020, Rethel, 2017. Commentators on the theory and practice of Islamic finance and the financial engineering process (e.g.…”

“…In line with Pollard and Samers (2013), we argue that the governance of IFI practices requires actors to mobilize and adapt to the local legalities that include inscribed laws, policies, regulations and standards to shape, enable and circumscribe financial innovation and engineering (FIE). Pressure to follow global financial logics (Maurer, 2001, Pitluck, 2012, Hidayah et al, 2019 have led the governing structures of FIE process in IFIs to exhibit a lack of inclusiveness in their decision-making processes (Rethel, 2010, Maurer, 2012, Hidayah et al, 2020. As a result, recent innovations in IFIs have focused on repackaging modern financial instruments and making them compatible with Islamic principles (Pitluck, 2012, Maurer, 2005, Fang, 2014.…”

“…We use boundary objects (Carlile, 2002, Leigh Star, 2010, Nicolini et al, 2012, Scarbrough et al, 2015 and the pragmatic view of the boundary object concept (Carlile, 2004, Trompette and Vinck, 2009, Sapsed and Salter, 2004 to explore the capacity of religious artefacts to support collaboration across diverse specialist groups. We seek to provide an in-depth understanding of the role religious values play in underpinning alternative/ethical models of finance and its mobilisation when it has to interact and integrate with the dominant knowledge and perspective derived from the capitalist models of finance (Warde, 2010, Rethel, 2017, Pollard and Samers, 2013, Hidayah et al, 2020, Hidayah et al, 2019.…”

Derivatives as Risk Management Tool in Sharia’h

“…The greatest potential of the novel product lies in its capability of transforming an asset's future cash flows into present cash flows ). Since the structure of sukuk is woven around the concept of conventional securitization, there are various risks underlying the same (Hidayah, Lowe, & De Loo, 2021). These risks, despite similarity of the sukuk structure with that of securitization, are unique because of different contours of Islamic financial contracts (IFCs) underlying the structure.…”