Thursday, March 25, 2010

Islamic Financial Institutions:Between Values Inculcation And Profit Maximization

Leading an organization relates directly or indirectly with the worldview that drives the organization. Capitalism recognizes the need to achieve efficiency, as for the 'unlimited' demand that we get, we will always have 'limited' resources. That, we can say 'noble'. However, need to be understood that behind the ‘noble’ objectives of this worldview, they puts profit maximization as main objective above all cost[1]. A sustained growth due to the profitability gained by the organization however reflects absence and proves how problematic 'classical' capitalism worldview is hence you have to deal with such issues like exploitation of labor, disregard for society, deterioration of the environment and so forth.

Scientific and technological revolution had also played a big role in shaping industrial revolution. Protestant ethics also does help. It is being impregnated with enlightenment values that are humanist and secular in nature. Moreover, idea of Darwinism spillover effect unto economics thinking added the chaotic elements into the equation. This issue being highlighted by Prof. Syed Muhammad Naquib Al-Attas in many of his writings, whereby Western civilization is like broken mosaic[2]! So we must understand how these many pieces come and made up into a big picture. Thus we must go back to the fundamental discussion of how we should perceive the correct worldview.

If we wanted to conclude by saying sustainable growth and profitability of the organization is a valid measurement to value the effectiveness on the organizations inculcating the values, I doubt it. Since the values inculcated by the organizations should be seen from various aspects. Western economists like EF Schumacher, Theodre Roszack, Paul Hawken and so forth have already elucidating many good points about it. But the fact is Western big organizations with big amount of profit still having problem to adjust with the main problem they faced- which is inculcating correct values to their organizations before they end up with failure of ethic-management despite the fact of having good system of management. Some may take this issue as a serious problem while some others may still views growth of the organizations as their main objective although have shed people's blood and undermining the environment for mere profit making.

Western economics have teaches the important of ethics through ecological economics. Due to this some organizations which practices 'modern' capitalism includes other 'costs' into consideration, thus look at the socio-economic and environmental impact of its operation. But if you go deeper to the root cause, one will find the problem of worldview that can never be solve merely by introducing ecological economics. It needs the touch of faith-based system which we could firmly believe as a comprehensive system that includes value inculcation. A faith-based system that we believes able to shows the way of simplicity, active and real redistribution of wealth, with that the needs of society can be satisfied.

The question that we should not look back is whether in the context of IFIs, values inculcation in any of IFIs should be taken seriously since so called Islamic organizations shall not fall into this worldly trap of making money out of people's livelihood. Effectiveness of values inculcation on organizations should be measure from many aspects whereby not only emphasizing more on cost effectiveness, efficiency but rather how often do people consider things like equity, accessibility, availability, quality and so forth.

Ethical issues in IFIs should be viewed and considered as ‘cost’, or at least it is in the equation, and it yields positive results. Most people think that jump into the field of finance or the likes just the matter of getting a hold of a job in the IFIs and make money. Are we go to universities for such objective! Then what about the importance of ethics and the fiqh muamalah? Of this catastrophic we face now, IFIs responsible to have illuminated Islamic worldview to be implemented in the fundamental of business operations.

Profit maximization indeed recognized in Islam, however it is not the ultimate objective of how Islamic organizations should be operates. Interesting to note here, Tan Sri Muhammad Ali Hashim's idea on ‘Jihad Business’, CEO of Johor Corporation with his idea reflects an interesting idea of how Islamic organizations should be operated. The idea of jihad in doing business is such a unique idea and reflects that religion should, ideally, lower the standards of the believer, that they should be satisfied with less, differing the idea on how the Western view economics with the worldview of ‘unlimited wants’ that driven the market with the idea of profit maximization[3].

Ethics, is a way a validating actions. IFIs are being understood to be govern by Shariah, where actions are categorized into valid, invalid, disliked, recommended, or indifferent. Thus without understand and have full knowledge of religion boundaries (Shariah framework), IFIs can’t easily validate some pretty sick stuff that will later on jeopardize their image as Islamic organization. Example is when validating such products or services that lead to the economic destruction in the name of market 'justice' and efficiency; this is not how the spirits of IFIs should look like.

Value inculcation in IFIs shall be given extra attention from those in leadership positions in IFIs to start to affect the type of change needed to prevent dysfunction in the organization as laid out by Patrick Lencioni which he sees from the matters of trust, commitment, conflicts, accountability and results-driven[4]. Effective value inculcation in IFIs can be seen from the products and services that being offer to the society as a whole. This is where the Maqasid Shariah plays its role in their functions.

The prime objectives of Maqasid al-shariah is centralized on the objective of accomplishing the development of both the spiritual and socio-economical well-being of Muslims. Adl or Justice is another very important principle and objective of the Shariah and its purpose is to create and maintain equilibrium within a society. “The goal of shariah is the good (maslahah) of human being as vicegerent in the society he lives in, accountable to Allah who made him in charge for establishing justice and fairness, ensuring intellectual and social wellbeing and psychological contentment for every member of the ummah.”[5]. The fulfillment of justice can bring social and moral uplift in the society in which there is no crime, life security, honors that could bring peace in the society.

Thus IFIs should play its role by serving social objective, not only an individual objective. The noble vision to promote social welfare of the society is in need to develop a welfare economics oriented paradigm, and he also believes that the social justice and ethical norms can be exercised. Despite that fact, IFIs are equally expected to play a leading role in promoting social-welfare. Their opinion are supported by the majority of the Muslim economists who posit that Islamic banking is much more than offering Shari`ah compliant products. It is a system which aims at making a positive contribution to the fulfillment of the socio-economic objectives of the community at large[6].

From the discussion above we must understand that the value inculcation may be cultivated through top-down approach, or/and with grassroots approach. Approaches that encompass 2-level of bottom-up development which is in terms of individuals and the organizations themselves.

The individual aspect relates to something that within human’s spiritual domain; development of aql (reasons), qalb , nafs.This will help to determine one’s attributes; mazmumah, mahmudah. These feeling of inward relation are between individuals with God via faith and piety and the outward relation with mankind by good attributes. Cooperation shown merely to support such fardhu kifayah systems form a sustainable relationship as mentioned in the Quran ‘wa Hablum Minanas wa Hablum Minallah’. These reflects the senses of belongings that will never be found in any other worldview other than faith-based system[7].

In a small scale of IFIs, it is something that potential and manageable to be implemented and surely something will that later on result an effective management. Development of human inner sphere is considered to be more important than profit maximization. We believe that Islamic development afresh within human inner-self Islamic development paradigm can help the individuals to survive side by side with existing conventional development system. Moreover, the system able to provide comprehensive Islamic development model which elastic enough to expand to state level wherever possible. This is what we believe as the power of grassroots approach if the IFIs successfully implementing it.


Ibn Yusof

25 March 2009 / 9 Rabi Thani 1431

11.18 p.m

[1] Shutt. H. (2005). The Decline of Capitalism: Can a Self Regulated Profits System Survive?. Malaysia: SIRD.

[2] Syed Muhammad Naquib Al-Attas. (1995). Prolegomena to the Metaphysics of Islam: An Exposition of the Fundamental Elements of the Worldview of Islam. Kuala Lumpur: ISTAC.

[3] “Jihad Biisnes” Satu Pendekatan Strategik Ke Arah Pemerkasaan Ekonomi Ummah, Kongres Ekonomi Iislam Ke Tiga (Ke-3)

[4] The Five Dysfunctions of a Team: A Leadership Fable

[5] Shidiqi, Nejatullah (2006), Islamic Banking and Finance in Theory and Practice: A Survey of State of The Art, Journal of Islamic Economic Studies, Vol.13 No. 2, p. 6.

[6] Asyraf Wajdi, and Nurdianawati Irwani Abdullah. (2006). The Ideal Of Islamic Banking: Chasing A Mirage?

Retrieved January 16, 2009, from


[7] Muhammad Suykri Salleh and Choudhury, M.A. (1996), 'Grassroots Approach to Sus- tainable Development', Humanomics, Vol. 12, No. 3.

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