Finance & Banking


Islamic banking and finance (IBF) is legalistic in its
very nature. Those who are involved in product
development in Islamic financial institutions are
very well aware that the Islamic jurisprudence of
financial transactions is deeply rooted in ethics.
There is an explicit emphasis on understanding
of contractual arrangements and honouring the
terms and conditions therein. Morality in Islam is
governed by implicit and explicit contracts that
people enter into for different economic activities.
There is no conflict between the Islamic law and
morality; the former merely formalises the latter.

Working for an Islamic business (i.e., an Islamic
bank) in itself should induce good behaviour on part
of its employees. In addition, it is the responsibility
of Islamic banks and financial institutions to provide
character-building training to its employees so that
the business does not face undue reputational

It may not be too demanding to ask Islamic banks
to start spending on character-building of their
customers and clients. There are well-established
credit score cards that banks (including Islamic
banks) use to assess credit worthiness of their
customers. Similarly, character score cards can easily
be developed to assess morality of their customers.
In the beginning, the proposed character score
cards may be based on the voluntarily provided
information by their employees and customers,
which can be further developed and refined with
the availability of more detailed data.

This is not a far-fetched idea, as the government
of China has already embarked upon a project to
develop a social credit score, which will be based
on all the actions and activities of the companies
and individuals, stored in a central place. Although
this project has temporarily been halted for a
number of socio-political concerns, the project will
resume after these concerns have been addressed.
Based on the social credit scores, the individuals
and businesses will be given certain concessions
or will face restrictions if their score falls short of
a threshold. Credit scoring companies like Experian
have credit files off all the individuals (who are
listed on the national voters list) in the UK. The
proposal here can be seen as an extension of the
practice to include social behaviour

As such social credit scores are not available at
present, CSR-related activities of corporate clients
of Islamic banks should be taken as preliminary
indicators of good behaviour, and hence they
should be positively discriminated. Inclusion of
positive screens in addition to negative screens in
Islamic asset management is a relevant trend in this

Islamic banks should also start investing in a
character score card similar to the proposed
Chinese social credit card, which could be based
on certain social, moral, and economic factors.
For example, if someone is found to be involved
in domestic violence, that person could be denied
access to financial services offered by Islamic
banks. In the beginning, it will be difficult to collect and collate data on customers, but it should be
relatively easier to have such information on the
employees of Islamic banks. Hence, a good start will
be to develop the system for employees of Islamic
banks, later to extend it to customers.

Some people may opine that this will amount to a
Big Brother watching you all the time, which goes
against civil liberties and individual freedom. This is
certainly a valid argument. However, in this world
of big data analytics, we are all being watched all
the time in one way or the other. Smart phones
and social media platform continuously collect and
store data on their users and customers. Credit
card companies have detailed information on
their cardholders and can very easily analyse their
spending behaviour.

Obviously, a comprehensive character score card
can only be developed with the help of government
bodies and other big market players. The national
citizenship registration authorities have data on
all the individuals living in a country and through
IT systems each and every individual is assigned
a unique registration number. More data can be
stitched around these unique registration numbers
to develop a character score card. Without
suggesting to have an open-ended all-encompassing
character score system, we suggest that it should
initially be based on five pillars:

Financial integrity can easily be quantified by
looking into the factors like involvement in fraud,
tax evasion, and wilful default etc.

Personal morality should be based on whether
the person has lied in the past, is involved in child
labour (e.g., whether the person employs a child as
a domestic worker), has been proven to be involved
in domestic violence, and the related factors.

Social behaviour should refer to contribution
to charitable and good causes, involvement in
promotion of civic services, and voluntary services
like lollypop man services (or what is otherwise
known as crossing guide services), etc.


Commitment to Islamic banking and finance may
be gauged by looking into multiple accounts
(with Islamic and conventional banks), attitude
towards the prohibition of interest, and the general
perception of Islamic banking and finance the
person may have, etc.

Adherence to Shari’a is perhaps the most
controversial from a secular viewpoint, and Islamic
banks must take extra care to incorporate it in the
proposed character scoring. It is recommended
that the non-Muslims should not be discriminated
against on the basis of Shari’a adherence.

In the beginning, the proposed character scoring
system may not be perfect but it will evolve into
something meaningful. Like Human Development
Index (HDI), as developed by United Nations
Development Programme (UNDP), was not all
encompassing in the beginning but over the years
it has given birth to a number of other sub-indices
that have incorporated human development more
comprehensively. Similarly, the proposed character
character scoring will also improve with the passage
of the time.

Why is the proposed character scoring system
important and why Islamic banks should spearhead
this initiative? The proposed character scoring
system is important because it will be a marketled process to reform Islamic societies. All other
efforts (political, religious and purely reform-based)
have failed to bring social reforms in the Muslim
world. With the IT revolution it has for the first time
become possible for the private sector to collect and
collate information on individuals and corporates
on various aspects of their lives and businesses.
Hence, it is important for Islamic banks to come
forward and play an important role in this respect.
Access to finance is a basic need and there is huge
emphasis being placed on financial inclusion all over
the world. Islamic banks, emerging as important
players in the financial systems of the countries
where they operate, are in the best position to
induce the required changes in individual behaviour
and through an aggregation process in the social
thinking and practices.

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