Although theology and religion have in the past been important inpromoting ethics in business, their contributions may be ignored in the currentdiscourse and literature on business ethics. Nowadays, business ethics istreated narrowly as an applied philosophy and social science, even though, on apractical level, religious teachings inform and shape the morality of asubstantial portion of the business population. The literature is fragmentedand spread over a variety of sources, and does not sufficiently provide asystematic framework of business ethics despite the existence of many richdiscussions about this concept in Islamic sources. The institutionalisation ofIslamic finance aimed at promoting certain ethical values, such as theprohibition of unjust practices, encouraging moderation, balance and harmony inlife, and assisting the underprivileged. However, current practices of Islamicfinancial institutions have been criticised for failing to promote such values,as they often adopt a ‘form over substance’ approach in Islamising conventionalfinance.
Bank Negara Malaysia has made it compulsory for Malaysian banks tobe transparent and disclose pertinent information, and that corporate and shariahgovernance structures are in place to promote integrity in fulfilling theirduties. However, in general, the banks depend heavily on sale and lease basedcontracts in providing financing. Profit/loss-and-risk-sharing contracts arealmost absent. The banks have also yet to actively introduce microfinancingschemes, and there seems to be a decline in the percentage of financingprovided to small and medium enterprises.
Since an inadequate emphasis on ethics is one of the banes of theconventional system, there is need to guard against all sorts of marketindiscipline on the part of the stakeholders. Policy makers and standardsetting organisations need to exhibit knowledge, integrity and, mostimportantly, the fear of Allah. Regulators are to implement regulations to thebest of their ability. To avert a systemic crisis in the industry, or toprevent Islamic finance from being assimilated to conventional finance, therebycompromising its identity, issues of ethics need to be adequately addressed.There is a need for a transition from a shariah compliant to a shariah basedapproach. Shariah screening should be both internal and external.
While it hasbeen argued that ethics and profits are valid business objectives,complementary to each other rather than substitutes, there is no empiricalevidence to demonstrate that a trade-off exists between the two. Lastly,ethical concerns need to be given priority over profitability, if the long-termsurvival of the industry is to be ensured.