Edited by Abbas J. Ali
Chapter 12: Managing the ethical aspects of Islamic banking and finance
The Islamic banking and finance sector has experienced rapid growth since the 1970s and has established a reputation for being an ethical and socially responsible alternative to the conventional banking sector (Kamla and Rammal, 2013). The operations of Islamic finance have received much attention in the last few years due to the sector’s strong performance during the global financial crisis triggered in 2008 (Chapra, 2011). However, despite the growing importance of the sector, little attention has been paid to the way that Islamic financial institutions are governed and managed, and the social role they play in bettering the lives of the community. This chapter addresses this issue by highlighting the ethical aspects of Islamic banking and finance, the role it can play in the achievement of social justice, and the issues related to management and governance in Islamic financial institutions. The next section provides a historical overview of the Islamic banking and finance sector, followed by a detailed discussion of issues of social justice and distribution of wealth under the Islamic system. The chapter then explains the management issues and governance structures of Islamic financial institutions, and concludes by providing the setting for a future research agenda. The Islamic financial system has its roots in shariah law, which is the moral code derived from the Holy Qur’an (Aggarwal and Yousef, 2000). The guiding principle of the Islamic financing system is the prohibition of the use of interest in lending and commercial practices.
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