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Publication date: 2 September 2019

Sarah Lenz and Sighard Neckel

German ethical banks have experienced a significant increase in customers, deposits, and lending. They aim to establish a fairer banking system. But the simultaneous…

Abstract

German ethical banks have experienced a significant increase in customers, deposits, and lending. They aim to establish a fairer banking system. But the simultaneous pursuit of social, ecological, and economic goals leaves them vulnerable to conflicting orders of worth. The authors examine the normative foundations that ethical bank employees refer to when they describe their everyday practices and identify the specific problems that arise from negotiating between moral principles and economic demands to provide insights into the impacts, constraints, and paradoxes of normatively oriented business practices. Drawing on the theoretical framework of the sociology of critique, the authors assume that moral categories, social processes of interpretation, and justification are an essential part of markets. Ethical banking is characterized by the need to meet both market-limiting and market-expanding requirements, and this particularly becomes contentious when dealing with economic growth. By analyzing ethical banks’ freely accessible documents, the authors first outline the institutional guidelines. In a second step, the authors analyze 27 qualitative interviews with employees of ethical banks to gain insights into everyday lending practices and action-guiding normative orientations. The goal of this chapter is to examine the tensions that may arise from applying normative guidelines under the condition of increasing economic requirements and to disclose the way that ethical banks negotiate between mechanisms of expansion and limitation. The analysis of this chapter points out a paradox of ethical banking: due to the banks’ economic expansion, investments corresponding to their ethical commitments tend to become a luxury they cannot afford.

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Article
Publication date: 20 January 2020

Muhammad Adli Musa, Mohd Edil Abd Sukor, Mohd Nazari Ismail and Muhd Ramadhan Fitri Elias

The purpose of this paper is to empirically examine the perception of Islamic bank employees in Malaysia and selected Gulf Cooperation Council (GCC) countries, namely…

Abstract

Purpose

The purpose of this paper is to empirically examine the perception of Islamic bank employees in Malaysia and selected Gulf Cooperation Council (GCC) countries, namely, Bahrain, Oman and the UAE, on various issues related to Islamic business ethics and the practices of the Islamic banks at which they work.

Design/methodology/approach

The required data to determine Islamic bank employees’ ethical perceptions is sourced from 144 completed survey questionnaires and interviews with 12 Islamic bank senior executives. Islamic model of normative business ethics is used to measure the relationship between attitudes and behaviours of employees and the ethical practices of Islamic banks.

Findings

Results show that the Islamic bank personnel working in Malaysia and the GCC perceived that their banks conform to Islamic ethical norms in business. These banks were seen to be concerned with their impact on society, and ethics prevailed over profit-maximisation. The findings also suggest that despite being less regulated compared to Malaysia, Islamic bank personnel in GCC had a better impression of the ethical standard practised in their institutions compared to the feedback given by their Malaysian counterparts. Additionally, this research also proves that, in general, there is a positive correlation between attitudes and behaviours of employees and the ethical practices of Islamic banks.

Research limitations/implications

The main limitation of the study is that the respondents were not selected randomly but rather through a convenient sampling of personal contacts. Despite the inherent limitation of the sampling method because of the constraints of time and resources, the large number of respondents from 12 different banks are representative of the Islamic bank employees in Malaysia and the GCC.

Practical implications

The findings may serve as a useful input for Islamic financial institutions in improving their practices to conform with Islamic ethical norms.

Originality/value

The topic of Islamic business ethics and the practices of Islamic banks have not been fully understood by its stakeholders. This paper aims to give insights on how far Islamic bank business practices in Muslim majority societies fit with the prescribed business framework in Islam and its contributing value for both the organization and employees.

Details

Journal of Islamic Accounting and Business Research, vol. 11 no. 5
Type: Research Article
ISSN: 1759-0817

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Article
Publication date: 20 January 2020

Tuan Azma Fatiema Tuan Ibrahim, Hafiza Aishah Hashim and Akmalia Mohamad Ariff

The purpose of this study is to investigate the relationship between ethical values and performance in the context of the banking sector in Malaysia.

Abstract

Purpose

The purpose of this study is to investigate the relationship between ethical values and performance in the context of the banking sector in Malaysia.

Design/methodology/approach

Based on the philanthropic model, this study posits that firms undertaking zakat and charity are ethical firms. Zakat disclosure index (ZDI) and charity disclosure index (CDI) were constructed to measure ethical values. This study hypothesises that ethical values are positively associated with bank performance. Ethical values (i.e. CDI and ZDI) and financial performance data (i.e. return on assets) were collected from the disclosures made in the annual reports of 50 banks for a period of five years (2010-2014).

Findings

A positive association was found between zakat disclosure and bank performance. The results indicate that higher zakat disclosure is associated with greater bank performance. However, no relationship was found between charity disclosure and bank performance.

Research limitations/implications

Considering the limitation of the index used in this study, other dimensions such as corporate governance, sustainability, products and environment can be considered in the development of index to measure ethical values in future studies.

Originality/value

This study offers additional explanation on the relationship between ethical values and performance by examining the role of zakat disclosures that characterize the unique aspects of Malaysian companies.

Details

Journal of Islamic Accounting and Business Research, vol. 11 no. 1
Type: Research Article
ISSN: 1759-0817

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Article
Publication date: 2 July 2018

Leire San-Jose and Jon Cuesta

The purpose of this paper is to extend the literature on Islamic banking by examining their ethical dimension using transparency, placement of assets, guarantees and…

Abstract

Purpose

The purpose of this paper is to extend the literature on Islamic banking by examining their ethical dimension using transparency, placement of assets, guarantees and participation from Radical Affinity Index.

Design/methodology/approach

To this end, a sample of 20 Islamic banks from 13 countries (Bahrain, Saudi Arabia, Malaysia, Pakistan, Kuwait, Tanzania, Great Britain, Oman, Iraq, Egypt, Bangladesh and Qatar) was used.

Findings

The results are robust to ethical effects. The evidence suggests that among Islamic banks, at least some of them could improve their ethical requirements of the Sharia; they obtained lower scores than ethical banks in terms of RAI variables (transparency, placement of assets, guarantees and participation).

Research limitations/implications

It is used a random sample rather than population with the limitations that entails. The variables in the index are based on ethical perspective; then, the index is applied in Islamic banking but with the ethical view limitation.

Practical implications

The Islamic banks have the option to increase their transparency including further information regarding the beneficiaries of the benevolent funds; moreover, it would offer a clearer view about their ethical and social commitment towards society.

Originality/value

Additionally, this paper broadens the scope of the literature by analysing the determinants of Islamic banking around ethical dimensions of financial entities.

Details

International Journal of Islamic and Middle Eastern Finance and Management, vol. 12 no. 1
Type: Research Article
ISSN: 1753-8394

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Article
Publication date: 7 September 2012

Francesc Relano and Elisabeth Paulet

The aftermath of the subprime mortgage crisis has accelerated a pre‐existing process of ethical approach in the banking industry. Today, all banks claim to be socially…

Abstract

Purpose

The aftermath of the subprime mortgage crisis has accelerated a pre‐existing process of ethical approach in the banking industry. Today, all banks claim to be socially, environmentally and economically committed with the philosophy of sustainable finance. The purpose of this paper is to show that, beyond the outward similarities, there are three different types of banking approach, each reflecting a distinct business model: banks whose ethical/social approach is mainly based on what they say, represented by universal banks; banks whose ethical/social approach is based on what they are, essentially the co‐operative banks; banks whose ethical/social approach is based on what they do, the so‐called ethical banks.

Design/methodology/approach

The paper bases its argument on the German banking industry, which is a big European country with a fairly diversified banking sector. The paper examines three types of sources for each of the above‐mentioned categories of banks: the social and environmental reporting, the conformity or not with the principles of the social and solidarity‐based economy and the different types of financial activities as reflected in their balance sheet.

Findings

The paper concludes that more ethical behaviour leads to both economic performance and social gains which increase wealth for all partners.

Research limitations/implications

The proposed methodology could be extended to other European banking systems to discuss their implications as regards corporate social responsibility.

Practical implications

This contribution will help the reader to evaluate banking communication as regards corporate social responsibility in their daily activity.

Originality/value

This research will give an insight based on the documents published by banking institutions to measure their implication on corporate social responsibility.

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Article
Publication date: 10 April 2018

Mohd Haniff Zainuldin, Tze Kiat Lui and Kwang Jing Yii

This paper aims to discuss and explore the unique agency issues in Islamic banks which give rise to different agency conflicts exist in Islamic banks as compared to…

Abstract

Purpose

This paper aims to discuss and explore the unique agency issues in Islamic banks which give rise to different agency conflicts exist in Islamic banks as compared to conventional banks. In addition, this paper critically examines agency theory in Islamic banking perspective by incorporating Islamic ethical considerations in the principal–agent setting.

Design/methodology/approach

This is a conceptual paper, and the discussions revolve around the review of literature of which important sources have been cited in a way that demonstrates a reasonable understanding of the topic. It attempts to create a discourse around the inclusion of Islamic ethical system in understanding the governance structure of Islamic banks.

Findings

This paper concludes that Islamic ethical system embedded in the Islamic banks business activities shapes Islamic banks into organisations that place higher ethical considerations than conventional banks. Therefore, Islamic banks are likely to have less severe agency problems relative to their conventional counterparts.

Research limitations/implications

Because of the chosen research approach, the research results may lack generalisability. Therefore, researchers are encouraged to test the proposed propositions further.

Practical implications

As the discourse generated by the paper, it can ultimately enhance the understanding of Islamic governance structure in the perspective of agency issues.

Social implications

As the discourse generated by the paper, it can ultimately enhance the understanding of Islamic governance structure in the perspective of agency issues.

Originality/value

The paper attempts to bring to attention the important aspect of principal–agent relationship within the Islamic banking structures and explain the role of incorporating Islamic ethical system in enhancing the understanding of the principal–agent relationship.

Details

International Journal of Islamic and Middle Eastern Finance and Management, vol. 11 no. 2
Type: Research Article
ISSN: 1753-8394

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Article
Publication date: 10 November 2020

Shinaj Valangattil Shamsudheen and Saiful Azhar Rosly

This paper aims to examine the influence of ethical judgement on decision-making behaviour related to ethical issues of Islamic banking practitioners in the United Arab…

Abstract

Purpose

This paper aims to examine the influence of ethical judgement on decision-making behaviour related to ethical issues of Islamic banking practitioners in the United Arab Emirates (UAE).

Design/methodology/approach

The study adopted a confirmatory approach in which validated/established “normative ethical standards” are taken into the consideration as theoretical underpinning. In total, 262 samples are collected from Islamic banking practitioners in the UAE and data analysis is conducted using structural equation modelling.

Findings

The empirical findings indicate that the decision-making behaviour related to ethical issues of Islamic banking practitioners in UAE does not adhere to any set of normative ethical standards and respondents are pragmatic in nature when it comes to the decision-making behaviour related to ethical matters.

Practical implications

The study elucidates to what extent Islamic banking practitioners have encountered themselves with situations that demand the proper attention to the ethical aspects, which affecting decision-making behaviour related to ethical issues. According to the findings, those situations considerably demand the attention of ethical judgement in the decision-making behaviour of Islamic banking practitioners. Hence, it is recommended for Islamic banks in UAE to contain or intensify the training on the importance of ethics, Islamic thought and worldview to enhance corporate decision-making and banking profitability within the purview of Islamic principles.

Originality/value

While ample emphasis has been given to the juristic (fiqh) aspects of Sharīʿah-compliant in Islamic banking and finance, relatively little has been attempted to explore its ethical dimensions (akhlaq) in the compliance parameters. Further, Sharīʿah-compliant has been product-centric rather than people-centric. While there is numerous literature documented that links ethics and Islamic banking and finance, ethical framework and practice in Islamic finance institutions, studies focusing on the “people” and their “ethical decision-making behaviour” in Islamic financial institutions found missing in the literature. These gaps serve as justification for undertaking this research.

Details

International Journal of Islamic and Middle Eastern Finance and Management, vol. 14 no. 2
Type: Research Article
ISSN: 1753-8394

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Article
Publication date: 24 May 2011

Maruf Hossan Chowdhury

Ethics have always played a crucial role in the realm of business and commerce. This paper aims to extract the principle factors of ethical practices to develop a model…

Abstract

Purpose

Ethics have always played a crucial role in the realm of business and commerce. This paper aims to extract the principle factors of ethical practices to develop a model for competitive advantage in banking and to show the relation between ethical practice and customer satisfaction and the linked reason for satisfaction as a tool for competitive advantage.

Design/methodology/approach

Based on the literature review, ethical issues in banking have been identified as a foundation work. Then an empirical study using survey research has been completed. The survey questionnaire has been designed using the literature and pilot survey input. Factor analysis has been conducted to derive ethical factors for competitive advantage from the survey data, which included 186 responses. χ2 tests were also carried out to show the linked relationship between ethical practice, customer satisfaction and reason for satisfaction.

Findings

From the analysis, two principle factors have been extracted: the cost leveraging factor; and the value leveraging factor which lead to competitive advantage. More over, it also revealed that high ethical practice results in high customer satisfaction and performance.

Practical implications

This study develops a guideline of competitive advantage for bank management through ethical practice.

Originality/value

The paper extracts how ethical factors create competitive advantage in banking and the linked reason of ethical practice and performance of banks which has not often received much focus from previous studies.

Details

Humanomics, vol. 27 no. 2
Type: Research Article
ISSN: 0828-8666

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Article
Publication date: 20 April 2015

Hasan Gilani

The purpose of this paper is to look into the ethical practices of a profit-driven financial institution that is currently adopting Islamic banking and whether it can…

Abstract

Purpose

The purpose of this paper is to look into the ethical practices of a profit-driven financial institution that is currently adopting Islamic banking and whether it can actually be ethical from an Islamic perspective. The recent decade has seen an upsurge of the increasingly integration of ethical management into operational strategies by businesses across the globe. Like any other religion, Islam wants its followers to be truthful and honest and to be compliant with its teachings and especially in a business transaction. This research paper explores the ethical factors of Islamic banking and how it is perceived by its stakeholders.

Design/methodology/approach

Due to the exploratory nature of the research and the fact that it involves in-depth theoretical analysis, a qualitative research method was adopted to explore the details of ethics in Islamic banking sector. The aim of this research was to explore the ethical options of an Islamic bank. This was done by carrying out in-depth interviews with the managers and executives of Islamic banks having authority over the subject of Islamic banking and Shariah finance. Furthermore, a detailed session of interviews was also carried out with the customers of Islamic banking to take their views on the subject issues. The data are analysed through thematic content analysis and matched with the existing theory with the objective of coming up with detailed findings that would contribute to knowledge on the subject of ethical Islamic banking.

Findings

The paper provides empirical insights about ethical management as a vital part of Islamic banking modus operandi. The findings highlight the involvement of ethics in different procedures, operations and approaches of Islamic banking and how it is perceived by its many stakeholders.

Practical implications

The motivation of this thesis comes from literature review to explore the ethics of Islamic banking and how it Islamic banking is perceived by stakeholders at an ethical banking practice. This research aims to aid bankers in identifying what practices they can enhance and what practices should be dropped to bring about a more ethical banking system. This research was prompted as a result of the gaps identified in the literature review followed by the observations made of the market by the researcher. It was evident that further research on this topic was required to aid the subject.

Originality/value

The research is original in its nature, as there have not been many instances where the ethical management theory has been explored within the Islamic banking sector. Given the new literature on corporate branding and customer perception, this research can contribute very positively towards the subject area. This research would pave new research avenues to be explored and enhance academic contribution on the common subjects.

Details

International Journal of Islamic and Middle Eastern Finance and Management, vol. 8 no. 1
Type: Research Article
ISSN: 1753-8394

Keywords

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Article
Publication date: 12 February 2021

Fatima Khaleel, Pervez Zamurrad Janjua and Mumtaz Ahmed

The purpose of this paper is threefold. First, it assesses communicated (information disclosed in annual reports and websites) ethical values of Islamic banks (IBs) by…

Abstract

Purpose

The purpose of this paper is threefold. First, it assesses communicated (information disclosed in annual reports and websites) ethical values of Islamic banks (IBs) by using an index based on Islamic precept. Second, this research paper analyzes the perception of employees working in IBs of Pakistan regarding previously mentioned dimensions constructed in the form of index. Third, it explores the difference (if any) between communicated and perceived ethical values of IBs in Pakistan.

Design/methodology/approach

This study incorporated two research methods, namely, content analysis (qualitative method) and descriptive analysis (quantitative method) to assess communicated and perceived ethical values. A checklist was designed that includes total six dimensions with 106 items or constructs. For perceived ethics, survey method is used to explore how far in practice IBs are operating in line with Islamic finance ethics in Pakistan by distributing questionnaires among employees.

Findings

This research study revealed overall satisfactory communicated and perceived ethical values in IBs of Pakistan. It is generally concluded that Meezan Bank is doing well in all dimensions as compare to other three banks in Pakistan. Some banks such as Dubai Islamic Bank and Albaraka Islamic bank lack proper format of annual reports. It recommended proper training and development of employees particularly about Islamic banking products and procedure. Moreover, it is recommended to take initiative of attracting female segment of the society and environment protection related campaigns.

Research limitations/implications

Because of data and time constraints, an extended beneficiary analysis could not be materialized in this study. Therefore, for future research, it is recommended to expand the stakeholders’ analysis beyond employees of IBs.

Practical implications

This study may be helpful for policymakers and other stakeholders to improve the image and for further growth of IBs in Pakistan.

Social implications

This study is the part of corporate social responsibility, so it will add value to social norms of banking sector and provide different dimensions and constructs based on Islamic ethical and moral system. It highlights banker’s responsibilities toward society.

Originality/value

This paper supports the phenomena of Islamic banking and finance in emerging markets and shows its potential growth for the economy.

Details

Journal of Islamic Marketing, vol. ahead-of-print no. ahead-of-print
Type: Research Article
ISSN: 1759-0833

Keywords

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