The Islamic Financial Intermediation Model and the Stakeholder Paradigm of Governance: A Theoretical Analysis
Dr. Sheharyar S. Hamid
Law School – University of Warwick
Abstract:
The recent mushroom growth of Islamic finance in many countries has been hailed as a great achievement for the industry, especially after the financial crisis of 2007-2008. One of the main triggers for this mushroom growth is the assertion by the Islamic finance industry experts and academics that Islamic finance is an ethical and socially more responsible method of financial intermediation and therefore remained relatively risk free in the recent financial crisis.
This paper argues that the fundamental ethos of Islamic business and financial law and practices derive their legitimacy from the idea that business activity is considered to be a socially useful function leading to better social and economic conditions for society. Thus, any business activity that is deemed harmful towards the achievement of societal benefit is banned or restricted under Islamic laws. The importance attached to business activity and its surrounding regulatory jurisprudence in a society dominated by Muslims is attributable to the fact that the Prophet Muhammad was involved in trading for much of his life; he and his early followers attached great importance to views relating to consumption, private and public ownership of property, the ultimate goals of a business enterprise and the code of conduct of various business agents.