Reimagining Islamic banking in the light of Maqasid Shariah

Purpose This paper aims to explore Islamic banking through the lens of Maqasid Shariah so that it can be reimagined to achieve societal well-being and greater confidence of Islamic banking stakeholders in Islamic banking products and practices. Additionally, it aims to identify the gap between Islamic banking theory and its existing practices. Design/methodology/approach This paper uses the qualitative content analysis method based on the data gathered through semistructured interviews with Islamic banking stakeholders, including Shariah scholars, Islamic economics and finance researchers and Islamic bankers. Findings This study suggests that Maqasid Shariah represents Islam’s holistic view as a comprehensive code of life that considers individual and societal well-being. If an Islamic bank needs Shariah compliance, it is required to comply with Maqasid Shariah as well. For this purpose, this study proposes that Islamic banks should adopt value-based intermediation. Findings further suggest that the Islamic banks of Pakistan are realizing the Maqasid Aammah and many of the Maqasid Khassah relevant to Islamic banking and finance. It is revealed that Islamic banks are not merely working to maximize shareholders’ wealth but are conducting real economic activities, which bring employment, and distribute charity funds besides corporate social responsibility for the community’s welfare. This study proposes that Islamic banks, along with corporate financing and sovereign Sukuk, should also provide microfinancing to the underprivileged segments of society, which will empower and uplift their communities. This way, IBF practices can be harmonized with the idealized ones Islamic economists advocate. Ultimately, this study proposes specific reforms in Islamic banking in the light of Maqasid Shariah. Originality/value To the best of the authors’ knowledge, this is the first study that contributes to Islamic economics and finance knowledge by integrating different perspectives of Shariah scholars, bankers and economists on Islamic banking. It also offers context for policy implications, especially regarding financial engineering.