DISCOVER NEW PERSPECTIVES
DISCOVER NEW PERSPECTIVES
The Accounting and Auditing Organization for Islamic Financial Institutions (AAOIFI) was established in 1991 in Bahrain and is the leading international not-for-profit organisation primarily responsible for development and issuance of standards for the global Islamic finance industry. It has issued standards in the areas of Shari’ah, accounting, auditing, ethics and governance for international Islamic finance. It is supported by a number of institutional members, including central banks and regulatory authorities, financial institutions, accounting and auditing firms, and legal firms, from many countries. AAOIFI standards are currently followed by all the leading Islamic financial institutions across the world and have introduced a progressive degree of harmonisation of international Islamic finance practices.
AAOIFI has issued a ‘Code of Ethics’ in 2021 applicable on both individuals (Islamic finance professionals) and the Islamic financial institutions (IFIs).
AAOIFI decided to develop a separate “Islamic” code of ethics as opposed to adopting an existing conventional code (with or without minor tweaks). This was done in spite of the realisation that a large common ground exists between Islamic and conventional ethics. The decision was taken in order to duly accommodate the vast implications imposed by some unique concepts grounded in revelation. For example, the belief in Akhira (hereafter) leads to the concept of a higher level of accountability beyond this world. It is difficult to imagine how a person can be motivated to act ethically even when not being observed or when the fear of being caught is non-existent, without such a concept. Similarly, Islamic ethical values such as earning income from Halal sources, moderation in spending and avoiding extravagance, refraining from social evils such as backbiting, slander, arrogance, excessive greed, etc. all contribute to the uniqueness of this code. (Extract from the Introduction)
Extract from Preface
PR4: An effective way to conceptualize ethics is through the lens of Adl (justice) and Ihsaan (excellence), where the former is to be seen as mandatory conduct while the latter, highly recommended. Failure to achieve and maintain Adl results in Zulm (injustice). Such is the interplay between the concepts of Adl and Ihsaan that typically one cannot maintain Adl on continuing basis unless one pursues Ihsaan. This implies that constant pursuit of excellence in ethics is what is aspired in Islam, as opposed to a minimalist, checklist-based approach. One ought to make proper investment of time, effort and money to ensue ethical conduct at all times.
Extract from Introduction (Overview)
IN1 Ethics is not just about doing the right thing; it is about doing the right thing with the right intention and the right mindset, in the right manner, even when not being observed and to the best of one’s capability. Being ethical also involves reaching out to and engaging with others positively, in a prudent and effective manner, by encouraging them to behave ethically. In other words, ethics is about internalizing specific beliefs and virtues and externalizing them to exhibit certain behaviors.
IN2 The executable and the operative part of the code is set out in two parts:
a. part ‘A’ comprises of the Adl and Ihsaan equation, the ethical virtues, and the ethics protocols which together provide Islamic finance professionals the conceptual framework to understand what constitutes as ethics and how to make ethical decisions; and
b. part ‘B’ discusses how the conceptual framework shall be applied in real world. Islamic finance professionals shall uphold the proposed ethical virtues and achieve and maintain Adl as a mandatory requirement by avoiding violations of those virtues. The illustrative violations cover a broad spectrum including those related to transactions (e.g. conflict of interest), culture (e.g. backbiting), leadership or management (e.g. discrimination), interpersonal (e.g. harassment) and personal
IN3 The non-executable or the non-operative part of the code is also set out in two parts:
a. part ‘C’ discusses the various proposed ideals within each of the given ethical virtues which an Islamic finance professional may aspire for as highly recommended conduct in their pursuit to achieve Ihsaan or excellence in ethics; and
b. this code is also accompanied with a ‘Handbook’2 which shall serve as supplementary reference material to explain the violations of the ethical virtues for enhanced understanding and improved application. It shall consist of the following sections:
i. the ‘Worldview’ underpinning the code;
ii. role-based ‘Checklist’ for voluntary self-evaluation;
iii. undertaking for self-accountability; and
iv. real-world and hypothetical case studies / examples to help the reader navigate through ethical dilemmas or difficulties effectively.
IN4 The visual depiction of the code
Knowledge