Moral Code in Islamic Finance

Islam provides a framework of rules representing values that are neither time-bound nor biased by the whims of human beings; they prescribe compassion, leniency and benevolence over and above the general values and are intended to secure the welfare of society as a whole. They are concerned “with determining the right way or ways for financial dealings where right is interpreted in a moral sense and distinguishing right from wrong or sinful”.

Individuals of all faiths and no faith should always endeavour to commit to follow a Moral Code of Conduct in their personal and professional dealings even though individuals and businesses may not be legally required to adopt such a moral code. Individuals can simply make a declaration to abide by norms of behaviour and conduct defined in the code to reflect their commitment to upholding socio-economic justice in their dealings that encompasses all benefits, material, moral and spiritual.

For Muslims a moral code is laid down in the Qur’an and the traditions of Prophet Muhammad. The Islamic belief is that human beings are guided by motivations that are capable of being governed by higher instincts for goodness which their Creator has placed within them; when such instincts are properly guided and supervised, it can lead to a fair and just system of production, exchange and distribution, which in turn becomes the basis of welfare in society.  On the contrary, if no proper checks and balances are maintained, these instinctive motivations lead to injustice, exploitation, selfishness, intolerance and a mad race to accumulate wealth.

The Moral Code which defines Islamic banking and Islamic insurance (takaful) are based on universal principles and specific requirements that include:

To Seek knowledge

Individuals should acquire knowledge before acting in any matter in which they do not have any competence.

"We have no knowledge except what You taught us".[The Qur'an 2:32]

"Seek knowledge from cradle to the grave" [Prophet Muhammad (pbuh)]

To Respect right to freedom of religion and belief

"There is no compulsion in religion, truly the right way has become distinct from error". [The Qur'an 2.256]

To Be righteous, fair and just

Individuals should observe equity and fairness in giving and taking and in general conduct in dealings with others; act with honesty and trust requiring all parties to be unambiguous and open in personal and business dealings and have goodwill for each other. Every step toward the goal of justice requires sacrifice and struggle; the tireless exertions and passionate concern of righteous and sincere individuals.

“… render back your trusts to those to whom they are due; and when ye judge between man and man, that ye judge with justice"… [The Qur'an 4:58]

"… Devour not riba, doubled and redoubled …" [The Qur'an 3:130]

“ … give just measure and weight, not withhold from the people the things that are their due..” [The Qur'an 11:85]

“ … give just measure and weight, not withhold from the people the things that are their due..” [The Qur'an 11:85]

“”Treaties are not dissolved with those with whom you have entered into alliance and have not subsequently failed you … so fulfil your engagements with them to the end of their term…” [The Qur'an 9:4]

Fulfil contracts and undertakings

“… When ye deal with each other, in transactions involving future obligations in a fixed period of time, reduce them to writing. Let a scribe write down faithfully as between the parties” [The Qur'an 2:282]

Engage in moral and lawful activities

Certain means of earning livelihood and wealth have been declared morally reprehensible such income derived from any form of exploitation in the form of riba, gambling and games of chance, speculation, short weighing and short measuring, business malpractices, etc. Individuals should also observe applicable law, regulations and best practice in the conduct of all personal and business dealings.

“And do not eat not up your property among yourselves for vanities, nor use it as bait for the judges with the intent that ye may eat up wrongfully and knowingly a little of (other) people's property".[The Qur'an 2.188]

“O ye who believe! Betray not the trust of Allah and the Messenger, nor misappropriate knowingly things entrusted to you” (The Qur'an 8:27)

Cooperate with one another in good deeds

“Help ye one another in righteousness and piety, but help ye not one another in sin and rancour…” [The Qur'an 5:2]

Practice of virtue and morality

Individuals should follow the people of good character who display a practical wisdom that flows from the virtues they possess, virtues like truthfulness, justice, sympathy, love, kindness, care, reverence, discretion, fortitude, gentleness, and patience. They know what is right in the context of real circumstances,

“Perfection of moral virtue does not wholly take away passions, but regulates them” [Saint Thomas Aquinas]

Be Responsible and accountable for actions

The Earth was made ‘to endure’ for all future generations. All resources on Earth made available to human beings are in the form of trust and every individuals must be is accountable not only for their own actions (and inactions), but also for the conduct in all their dealings with others. In the performance-oriented work world, thoughts and actions define credibility at work and in the society. Self-supervision is an essential dimension.

“It is He who has made you (His) vicegerents, inheritors on the earth …” [The Qur'an 6:165]

“ Each one of you is a guardian and each guardian is accountable to everything under his care” [Prophet Muhammad]

Show leniency to debtors in distress

“If the debtor is in difficulty, grant him time till it is easy for him to repay. But if ye remit it by way of charity this is the best way for you..” [The Qur'an 2:280]

Give due alms
Individuals should be willing to share a part of their excess wealth with those in need in society; it is a moral obligation and an essential part of living a just life.

“By no means shall ye attain righteousness unless ye give freely of that which ye love ..” [The Qur'an 3:92]