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Whether finance is Islamic, and whether it is ethical, are independent questions.
Posted 17 March 2026
In over 20 years of involvement in Islamic finance, I have regularly encountered the assumption that when finance is Islamic, it is automatically ethical. In my view this assumption is just wrong.
A comment from a website reader led me to explain the issue in my June 2025 column in the magazine "Islamic Finance News." You can read it below.
A comment on my website about my 1 May 2024 article “Some thoughts on stock index futures” got me thinking. My reader had concluded with the following sentence:
“How do you reconcile permissibility in this case with the broader concern that Islamic finance should not just comply with formal rules, but also uphold the ethical aims behind those rules?”
The reader clearly believes that compliance with formal rules is insufficient – to be “really Islamic,” Islamic finance must also uphold some ethical aims.
He has plenty of company. I often encounter similar views, not just from students but also from industry practitioners.
However, I think this view mashes together two separate questions:
For example, consider a 10-year fixed interest loan from an international bank to a silicon chip manufacturer to finance the purchase of a USD 100 million chip making machine. I would expect all Shariah scholars to conclude that the interest-bearing loan is religiously prohibited.
Conversely if the finance is provided by an Islamic bank (to ensure that the source of funds is not prohibited) using a 10-year murabaha transaction, with identical cash flows and economics, I would expect them to say that this is Islamic.
In both cases I would consider the transaction to be perfectly ethical. Both parties are large, well advised, companies with neither being able to exploit the other.
Moving on to retail consumer finance, Shariah scholars can immediately tell you that conventional credit cards are un-Islamic since interest charges arise. However, provided that the rates and other charges are reasonable (for example many cards are free, and if you pay in full each month you pay no interest), then I see no reason to consider them unethical.
Sadly, many conventional credit card companies target cards at low-income individuals and aim to have them spend on items they cannot really afford, running up debts with very high interest charges. I consider such company behaviour unethical.
Islamic banks also offer credit cards, structured to be Shariah compliant. The offer can be ethical or unethical, depending on the behaviour of the bank, the rates it charges, how it selects customers, how it markets to them etc.
The problem is that these are all matters of degree. While extremes are easy to categorise as ethical / unethical, there is a large spectrum in between where people will genuinely differ on whether the behaviour is ethical or not.
My view is that whether or not a transaction is Islamic needs to be, and is, a “bright line test.” Essentially all Shariah scholars should be able to agree almost immediately which side of the line a transaction falls. Without such a bright line test, it becomes impossible for regulators to decide whether a bank is Islamic or not.
Conversely, whether or not a transaction is ethical is something on which views will normally vary, apart from the extreme cases.
Of course, that has never stopped governments trying to legislate for such “fuzzy” issues. For example, there is a regulatory requirement in the UK for financial services companies to “treat customers fairly.” However, such fuzzy tests are not suitable for answering questions such as “Is this bank Islamic?” where you need a clear and universally accepted answer.
Mohammed Amin is an Islamic finance consultant and former tax partner at PwC in the UK.
