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On the ethicality of Islamic Banks’ business model

Jatmiko, Wahyu, Iqbal, Abdullah, Ebrahim, Muhammad-Shahid (2023) On the ethicality of Islamic Banks’ business model. British Journal of Management, 35 (1). pp. 115-136. ISSN 1045-3172. E-ISSN 1467-8551. (doi:10.1111/1467-8551.12703) (KAR id:98721)

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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 (aggravating risk-shifting) and unjust price gouging (provoking economic stagnation and financial exclusion), while the latter involves asymmetric information and excessive risk-taking behavior (exacerbating financial fragility and thus systemic risk). 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.

Item Type: Article
DOI/Identification number: 10.1111/1467-8551.12703
Uncontrolled keywords: ethical business model, risk management, financial decoupling, Islamic banking, Maqāsid al-Sharī’ah, unjust price gouging
Subjects: H Social Sciences > HG Finance
Divisions: Divisions > Kent Business School - Division > Department of Accounting and Finance
Funders: University of Kent (
Depositing User: Abdullah Iqbal
Date Deposited: 05 Dec 2022 22:13 UTC
Last Modified: 31 Jan 2024 15:27 UTC
Resource URI: (The current URI for this page, for reference purposes)

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