Islamic business ethics and finance: an exploratory study of islamic banks in Malaysia

Ethics has become increasingly important in the financial services sector on the grounds that the aim of business activities in general and financial services in particular is the creation of value for the consumer. Furthermore, an ethical environment in the business and financial sectors provides vital support for maximising long-term owner value. If ethics played a larger role in the financial services sector, the recent global financial crisis might have been averted. Islamic finance which claims to offer global financial stability and high ethical standards should reflect Islamic values in all facets of behaviour to bring about collective morality and spirituality, which when integrated with the production of goods and services advance the Islamic way of life. However, there is an apparent lack, in the current literature around Islamic finance and Islamic business ethics, of an evaluation of the extent to which the ideal ethical norms of Islam are implemented by Islamic Financial Institutions (IFIs). International standard setting organisations such as the Islamic Financial Services Board (IFSB) and the Accounting and Auditing Organisation for IFIs (AAOIFI) have published the Guiding Principles and Conduct of Business for Institutions offering Islamic Financial Services and the Code of Ethics for the Employees of IFIs respectively. While the relevant authorities may issue appropriate frameworks or standards, which are necessary to ensure that public interest is adequately served, joint commitment from the IFIs concerned is essential. Against the above-mentioned background, this paper attempts to investigate the consistencies or, if any, inconsistencies and explore the relationship between the Islamic business ethical norms and the practices of Islamic banks in Malaysia. In doing so it tries to address the current imbalance of emphasis and the lack of a comprehensive discussion on business ethics from a wider cultural and religious perspective with reference to Islam, particularly focussing on selected Islamic banks in Malaysia. The main research question of this study is: How do the current practices in Malaysian IFIs mirror the Islamic ethical norms in business? The findings in this paper would potentially assist in the improvement of practices among IFIs to conform with the ethical norms established by Islam, which are in fact the core of their existence