The Challenges to a Moral Islamic Banking
While bankers and industry players talk about the bright future of Islamic finance and its rapid growth in the world, a lot of intellectuals and Shariah scholars express their fear and concern that Islamic finance has not been reflective of the Islamic economic moral values and that is it converging with the conventional finance, eliminating thus the chance of embracing any moral values. The justification for such fear and concern is predicated on the fact that Islamic finance is noticeably losing its credibility as being truly Islamic and reflective of the Shariah norms and principles. Large waves of criticism have started recently to sweep this emerging industry for its being driven by nothing but profit making even if at the expense of the Islamic rules and values. To Islamic finance critics, this industry has deviated from the true teachings of Islamic and introduced products and services that are genuinely no different from their conventional counterparts. To them, no banking products in Islamic banks have been propagated from the womb of Shariah, but rather all the existing Islamic banking products have been somehow modeled after the conventional ones. Moreover, the Islamizing process of the banking products and services has been limited in most cases to technicalities and terminology rather than the essence and the substance of the product or the service.
In fact, the methodology currently in use in Islamic banks for products structuring is a serious challenge to a moral financial system since it has been yielding products borrowing their legitimacy from the mere adherence to certain useless and perplexing technicalities in an attempt to market them as Shariah compliant. The current methodology of product development in Islamic finance in general is commonly criticized for not looking beyond the product formal and structural conditions and for defeating the Shariah moral objectives in financial deals. Although maintaining a proper form is a Shariah requirement, but what is more important is to maintain a proper substance. Equally important is to also look into the possible implications of the contract. From a Shariah perspective, a contract could be valid in view of its form and essence but invalid in view of its implications and consequences. In other words, the ramifications of the contract should also be taken into account when determining its Shariah validity, and this necessitates that the results and the far implications of the contracts on all levels must not contradict or be in conflict with Maqasid al-Shariah, the later being inherently moral and ethical.
In addition to the serious challenge describe above, another challenge manifests itself as a possible potential impediment to the creation of a just banking system that embraces the moral values of Islam. It is the Shariah governance of the system, according to critics, although Islamic banks are supervised by Shariah boards, the nature and governance of these boards’ involvement is prone to exploitation, manipulation and conflict of interests in a way that may defeat the very moral mission of the industry. This is because it is practically the bankers who select the Shariah controllers, pay them salaries and have the power to dismiss them; creating thus a huge avenue for conflict of interests and placing an enormous pressure on the Shariah controller not to challenge the self-interests of the Islamic banks. In other words, the industry of Islamic banking and finance has been regulating itself since its start, without the supervision or intervention of genuinely independent authorities. AAOIFI (Auditing and Accounting for Islamic Financial Institutions) is a regulatory authority from within the industry and yet its resolutions are non-binding. Moreover, some of its resolutions have been challenged by many Shariah scholars and sometimes found in conflict with some Fiqh academies’ resolutions. For example, AAOIFI has issued a standard for Tawarruq though this product has been ruled as categorically unlawful by the International Fiqh Academy; the largest representative of the cotemporary Shariah scholars! IFSB (Islamic Financial Service Board), another regulatory authority from within the industry, has dodged the issue of setting governance rules for Shariah boards to weed out the unqualified Shariah supervisory board members (Aljarhi, 2009). This shows that the self-regulation of this industry has been unpractical and unreliable. The intervention of central banks, on the other hand, to regulate the Shariah aspects of the industry has also proved unsuccessful, because the core problem Islamic banking is facing relates to the credibility of its products and their resemblance to the conventional banking products, and, naturally, central banks will not be pleased with Islamic banks offering genuinely Islamic products, because these products will then inherently carry various business risks. Therefore, a balanced Shariah regulation is required, and the full independence of any potential Shariah regulatory authority from the Islamic financial institutions is a must.
Undoubtedly, the lack of proper and effective Shariah governance has significantly contributed to the impediment of the aspirational moral mission of Islamic banking and finance but however, Shariah governance is not the only regulatory challenge to a moral Islamic banking since there exist other challenges as to be detailed in this study.
The paper comes to analyze the above important issues and address their multi-dimensional causes and implications through focusing only on the internal challenges affecting the moral aspect of the Islamic banking business. The challenges from outside the industry whose tackling is beyond the capacity and the power of Islamic banks, like the legal challenges, are not meant for discussion in this paper, though they represent an obstacle to achieving a comprehensively moral banking system. The challenges to aspirational moral Islamic banking treated in this paper are the ones that come from inside the industry and which cannot be blamed on external factors. The paper also discusses the policies and procedures needed to introduce the necessary reforms in order for the Islamic banking practices to be real reflective of the moral and the just Islamic financial system. Practical examples are given in this study to illustrate the highlighted problems and their prescribed solutions.