Institute of Islamic Banking and Insurance, London, UK (IIBI)

International Shariah Research Academy for Islamic Finance, Malaysia (ISRA)

4
th
INTERNATIONAL ANNUAL THEMATIC WORKSHOP 10 SEPTEMBER 2012
Legal Compliance versus Moral Responsibility in Islamic Finance

Recommendation for a Moral Code of Conduct in Islamic Finance

DECLARATION (Draft)
I (name of person making the declaration) make this declaration on my own free will, and
upon my honour.

My purpose is to serve the greater good of society. I will comply with the laws, regulations and
codes of ethics applicable generally and recognise that I also have moral obligations to
ensure that my behaviour conduct and actions do not adversely affect the well-being of
society, the natural environment and future generations. I recognise that I will face challenges
and difficult choices in upholding the highest moral values and the goals of socio-economic
justice underpinning all contracts and dealings in Islamic financial services.
I declare that
I will be ever vigilant in aiding the general welfare of society, not engaging in such behaviour
and conduct that will in any way bring harm, shame or dishonour upon myself and the
reputation of the Islamic financial services industry. I will deal in a manner that I would like
others to deal with me and abstain from whatever is likely to cause harm and considered
immoral.
I will be mindful always to honour the rules of honesty, equity, fairness and justice and do
my utmost to abide by these in my professional and personal dealings. I will at all times
remain vigilant and conscious that I am a guardian for everything placed under my care and
will not misappropriate or misuse things entrusted under my care or engage in immoral
practices.
I will not advance my personal interests above my moral obligations to society nor seek
unjust enrichment at the expense of others. I will be concerned always about the right way or
ways in dealings where right is considered in a moral sense and distinguished from wrong or
immoral and does not involve exploitation of the innocent and gullible.
I will always have good intentions in all my dealings with others and take responsibility for
my actions. I will remain accountable to my colleagues, peers and society for the harmful
consequences of my negative intentions and actions. I will be truthful and not conceal,
attempt to conceal or withhold information that will cause or likely to cause intentional injustice
or harm to those I deal with and oppose any intentional injustice and harm by others.
I will not be ashamed to recognise ignorance in my knowledge and competence. I will seek
advice from colleagues and peers to increase my knowledge and competence to ensure my
behaviour, conduct and actions upholds honesty, justice, equity and fairness in all my
personal and professional life. I recognise that I must set an example of honesty, integrity and
highest moral standards of behaviour and conduct that define my credibility in all my dealings
and in society at large.
WHILE I CONTINUE to abide by my declaration I may be granted to enjoy a good life
and the trust and respect of my colleagues, my peers and other members of society,
but should I fail to do so and my intentions and dealings are immoral in pursuit of self-
interest and unjust enrichment, may I be guided toward what is right and moral
otherwise may the opposite be my fate.
continued / Why a Code of Moral Conduct should be adopted in Islamic Finance


Why a Moral Code of Conduct should be adopted in Islamic Finance
In financial services, there are codes for professional ethics, but it is uncommon to hear
about a moral code of conduct for professional. Islamic finance already has the
underpinnings of a moral framework yet there has been no desire to codify a formal system
or set of explicit rules of behaviour and conduct that people engaged in the Islamic financial
services industry should be committed to follow in their personal and professional dealings. It
should be accepted that if a practitioner of financial services is not infallible, then there can
be no disagreement that there exists a need for limitation and guidance which can assist their
decision making, especially when such decisions can harm and endanger the lives and
properties of other people, society and future generations.
It is commonly assumed that the Shariah framework of rules and guidance is an adequate
safeguard for moral hazard in the Islamic financial services industry. This usually assumes
that the Shariah Supervisory Boards are responsible for Shariah compliance of products,
transactions and services by Islamic financial services industry. It is not easily apparent to
what extent the various stakeholders in the industry subscribe to uphold the Shariah rules
and whether they are aware of what it entails in their personal and professional dealings.
The Institute of Islamic Banking and Insurance UK (IIBI) and the International Shariah
Research Academy in Islamic Finance Malaysia (ISRA) have drafted a Moral Code of
Conduct in Islamic Finance based around a behavioural code laying down the principles that
should be subscribed by the various stakeholders in Islamic financial services industry;
particularly the leaders, senior managers and Shariah advisors. Professor Rodney Wilson,
founder of the Islamic Finance Programme at Durham University, UK aptly says, respect
for Shariah is concerned with determining the right way or ways for financial dealings where
right is interpreted in a moral sense and distinguished from wrong or sinful. Citizens can abide
by national laws, yet behave in an immoral way, including in financial dealings where laws are
unable to curb speculative behaviour or exploitation of the gullible. [Legal, Regulatory and
Governance Issues in Islamic Finance]

It is believed that a Moral Code of Conduct in Islamic Finance would have the following
benefits:
It is likely to be the first of its kind in the financial services industry responding to
demands for morally responsible bankers and standards in banking services.
It should enable individuals to look at their own consciences and freely choose
between moral behaviour for a better way of life aligned to the interest of society as a
whole, and immoral behaviour that has the opposite result.
It should be a step towards realising the benefits of the higher objective of the
Shariah for achieving socio-economic justice in society.
It would further the own prestige of professionals and Shariah advisors engaged in
Islamic financial services.
The idea should eventually become a distinguishing feature of the Islamic financial
services industry and enhance its credibility.
It should generate and maintain public debate about the potential problem of moral
failures and setting higher moral standards for bankers and in banking practices.
Rationale for a Moral Code of Conduct
Code of Ethics
A code of ethics is generally defined as a set of guidelines on acceptable and expected
behaviour of members of a professional group, however; most do not define moral
behaviour of individuals and organisations.

Morals and ethics though seemingly similar are in fact quite distinct. Morals are more about
good and bad, what constitute right conduct and behavior as part of an individuals personal
life; whereas ethics normally entails a set of guidelines that defines accepted practices and
behaviour for a certain group of people. Although ethics can define a code that a society or
group of people adhere to morality delves into right and wrong at a much deeper level which
is both personal and spiritual.

Morals and Financial Services Practitioners
Moral failures in banking and finance have shown that humans are not infallible and do not
always act in the interests of the wider society. Despite attempts by professional and
regulatory bodies in financial services to promote a Code of Ethics, their adoption by banks is
often reduced to mere "compliance", which entails a literal adherence to regulatory
obligations. Broadly, the banks Code of Ethics will normally be restricted to an outline of
operating procedures and principles and also potential ethical issues such as confidentiality,
bias and misuse of information, etc.

There are constant calls for moral reform within banks and financial institutions. However,
unless the regulatory framework requires that the behaviour of bankers has moral
underpinnings, society is likely to continue to suffer the financial and economics consequence
of immoral behavior. Banking when conducted at the margins of the law with little or no regard
for right or wrong in the moral sense will always lead to financial destruction and harm for the
people. The moral underpinnings will require an understanding that moral obligations should
take precedence over other obligations. A regulatory framework, no matter how sophisticated,
may not be able to prevent the cycle of financial crises if the regulatory framework does not
provide for certain rules to be held sacred and inviolable and prohibit transactions where the
harm is disproportionately greater compared with the benefits.

In reality, decision making will always be influenced by substantial commercial pressures and,
moreover, the overwhelming greed for greater riches. This is what drives the creation of
financial products that are structured for an immoral purpose yet made to comply
(technically) with the prevailing laws and regulations. However, despite these moral failings, it
is also true that bankers of different religious faiths, and those without religious faith, have a
personal sense of what is morally right and morally wrong. Unfortunately, society at times of
financial crises find itself locked in a culture that accepts lower standards of morality that open
the doors for self-interest for maximising profits and unregulated markets. The challenge for
society is to change the status quo and emphasise moral education at all levels.


Examples of Moral Codes of Conduct

MBA OATH
It is this humility and acceptance of human behaviour that led Graduates of the Harvard
Business School to take initiative in 2009 and promote a widespread movement for MBAs
graduates; their campaign was designed to inspire people to lead in the interests of the
greater good and commit toward living out the principles articulated in an oath, a voluntary
pledge to create value responsibly and ethically. (http://mbaoath.org/).
MORAL AND ETHICAL CONDUCT CODE OF DUTCH BANKERS ASSOCIATION
The members of the Managing Board of NIBC Bank N.V. each signed a moral and ethical
declaration proposed by the Dutch Banking Code which entered into force on 1 J anuary 2010.
(http://www.nibc.com/about-nibc/corporate-governance/moral-and-ethical-conduct-
declaration.html).
OLYMPIC COACHES CODE
The code for the Olympic coaches committing them to the highest ideals of sport and
requiring them to observe the code, to act professionally and take responsibility for their
actions, not to drink alcohol, smoke or take illegal drugs while representing Special Olympics
at training sessions, competition or during Games.
(http://www.specialolympics.org/Sections/Sports-and-
Games/Coaches_Code_of_Conduct.aspx).
HIPPROCRATIC OATH
The Hippocratic Oath envisaged over 2,500 years ago for qualified Physicians continues to be

an invaluable moral guide with the same aspirations requiring that doctors should act in the
best interests of their patients, and when unjust circumstances arise they should strive to
correct the injustice harming their patients.
The Hippocratic Oath
(A Modern Version)
I SWEAR in the presence of the Almighty and before my family, my teachers and my peers that
according to my ability and judgment I will keep this Oath and Stipulation.
TO RECKON all who have taught me this art equally dear to me as my parents and in the same spirit
and dedication to impart a knowledge of the art of medicine to others. I will continue with diligence to
keep abreast of advances in medicine. I will treat without exception all who seek my ministrations, so
long as the treatment of others is not compromised thereby, and I will seek the counsel of particularly
skilled physicians where indicated for the benefit of my patient.
I WILL FOLLOW that method of treatment which according to my ability and judgment, I consider for
the benefit of my patient and abstain from whatever is harmful or mischievous. I will neither prescribe
nor administer a lethal dose of medicine to any patient even if asked nor counsel any such thing nor
perform the utmost respect for every human life from fertilization to natural death and reject abortion
that deliberately takes a unique human life.
WITH PURITY, HOLINESS AND BENEFICENCE I will pass my life and practice my art. Except for
the prudent correction of an imminent danger, I will neither treat any patient nor carry out any research
on any human being without the valid informed consent of the subject or the appropriate legal protector
thereof, understanding that research must have as its purpose the furtherance of the health of that
individual. Into whatever patient setting I enter, I will go for the benefit of the sick and will abstain
from every voluntary act of mischief or corruption and further from the seduction of any patient.
WHATEVER IN CONNECTION with my professional practice or not in connection with it I may see
or hear in the lives of my patients which ought not be spoken abroad, I will not divulge, reckoning that
all such should be kept secret.
WHILE I CONTINUE to keep this Oath unviolated may it be granted to me to enjoy life and the
practice of the art and science of medicine with the blessing of the Almighty and respected by my peers
and society, but should I trespass and violate this Oath, may the reverse by my lot.
THE BUDDHIST CODE OF MORAL CONDUCT
The First Precept : Panatipata Veramani (Abstaining from taking the lives of living beings)
The Second Precept : Adinnadana Veramai (Abstaining from taking that which is not given.)
The Third Precept : Kamesumicchacara Veramani Abstaining from sexual misconduct
The Fourth Precept : Musavada Veramani (Abstaining from false speech)
The Fifth Precept: Suramerayamajjapama datthana Veramani (Abstaining from distilled and
fermented intoxicants which are the occasion for carelessness which also includes drugs).
MARRIAGE VOWS
Marriage vows taken at weddings stand upon the foundation of justice and truth rooted in
morality and evoke the moral values, whether or not a person has a religious belief. For
example, pledge to remain faithful and fulfil obligations, sharing, generosity, honour and care
for each other.







Institute of Islamic Banking and Insurance, London, UK (IIBI)
International Shariah Research Academy for Islamic Finance, Malaysia (ISRA)
10 September 2012