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‘Fatwa Repositioning’: The Hidden Struggle for Shari’a Compliance Within Islamic Financial Institutions

Author

Listed:
  • Shakir Ullah

    (Stratford University
    Institute of Management Sciences)

  • Ian A. Harwood

    (University of Southampton)

  • Dima Jamali

    (American University of Beirut)

Abstract

Islamic Financial Institutions (IFIs) have recently witnessed remarkable growth driven by their holistic business model. The key differentiator of IFIs is their Shari’a-based business proposition which often requires some financial sacrifices, e.g. being ethical, responsible and philanthropic. It also requires them to refrain from investments in tobacco, alcohol, pornography or earning interest. For IFIs’ sponsors and managers, however, the key motivational factor for entering the Islamic financial market is not the achievement of Shari’a objectives through the holistic business model, but rather the urge to tap this highly profitable market where customers are inclined to pay a premium for Shari’a compliance. In order for IFIs to be accepted by the market, their financial instruments need to be approved by Shari’a scholars, known for their integrity and expertise in Shari’a. One can therefore expect potential tensions between IFIs’ managers and Shari’a scholars. The purpose of this research is to probe the hidden struggle between managers and Shari’a scholars in pursuit of their respective objectives. The study investigates this phenomenon using grounded theory as a methodological framework based on data collected from three IFIs from two countries. The findings reveal that Shari’a scholars and managers of IFIs have divergent objectives, which creates incongruence of objectives at the strategic level. The findings illustrate the tension and latent struggle for Shari’a compliance, which has been termed as ‘Fatwa Repositioning’ resulting in four possible consequences: deep, reasonable, minimum and superficial Shari’a compliance. Fatwa Repositioning is the core category of this study, which exhibits how managers and Shari’a scholars struggle to position the Shari’a compliance of their institutions so as to best serve their respective objectives. Interestingly, Shari’a scholars are seemingly not always in control of what they are supposed to be controlling, i.e. Shari’a compliance.

Suggested Citation

  • Shakir Ullah & Ian A. Harwood & Dima Jamali, 2018. "‘Fatwa Repositioning’: The Hidden Struggle for Shari’a Compliance Within Islamic Financial Institutions," Journal of Business Ethics, Springer, vol. 149(4), pages 895-917, June.
    • Handle: RePEc:kap:jbuset:v:149:y:2018:i:4:d:10.1007_s10551-016-3090-1
    DOI: 10.1007/s10551-016-3090-1
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    Cited by:

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    2. Kok, Seng Kiong & Shahgholian, Azar, 2023. "The impact of proximity within elite corporate networks on the Shariah governance-firm performance nexus: Evidence from the global Shariah elite," Emerging Markets Review, Elsevier, vol. 54(C).
    3. Aziz, Saqib & Ashraf, Dawood & El-Khatib, Rwan, 2021. "Societal trust and Sukuk activity," Journal of International Financial Markets, Institutions and Money, Elsevier, vol. 74(C).
    4. Aditya Putri Lidyaningtyas & Makhrus, 2019. "Role Of Purwokerto Financial Services Authority In Improving Sharia Banking Market Share," Malaysian E Commerce Journal (MECJ), Zibeline International Publishing, vol. 3(2), pages 30-32, August.
    5. Kok, Seng Kiong & Akwei, Cynthia & Giorgioni, Gianluigi & Farquhar, Stuart, 2022. "On the regulation of the intersection between religion and the provision of financial services: Conversations with market actors within the global Islamic financial services sector," Research in International Business and Finance, Elsevier, vol. 59(C).

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