Integrating the social maslaha into Islamic finance

Abstract

PurposeThe purpose of this paper is to analyse the extent of the contribution of the current Islamic financial system to society in terms of social responsibility (SR) required by the concept of social maslahah.Design/methodology/approachThe paper adopts a critical analytic approach in considering the reasons of the failure of the social dimension of Islamic financial intermediation based on real figures of selected Islamic banks.FindingsConcepts of SR and corporate social responsibility (CSR) are not enough to describe Islamic Banks' responsibilities. Also, this failure cannot be understood only with reference to the “external environment”, i.e. competition‐driven, capitalistic market conditions; but it is also closely related to the transformation of Islamic finance into an almost exclusively murabaha‐based Islamic banking, which promotes more individual maslahah than social maslahah. Compared to the murabaha, other product structures such as mudaraba and musharaka seem to be better instruments for expanding welfare and alleviating poverty.Practical implicationsThere is a close relationship between Islamic banking contracts and social contribution of Islamic banks. This paper provides some practical solutions in this context. Also, empirical evidence derived from several conventional and Islamic banks supports these arguments.Originality/valueThis paper is the first to analyse the reasons for the social failure of Islamic Banks and to recommend substantial solutions in this scope and also offers practical help to practitioners of Islamic banking on the issue of social contribution of the Islamic banking business.