Competing Logics in the Islamic Funds Industry: A Market Logic Versus a Religious Logic
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ORIGINAL PAPER
Competing Logics in the Islamic Funds Industry: A Market Logic Versus a Religious Logic Khaled O. Alotaibi1 · Christine Helliar2 · Nongnuch Tantisantiwong3 Received: 15 May 2019 / Accepted: 10 October 2020 © Springer Nature B.V. 2020
Abstract In contrast to the conventional fund management industry with a profit-oriented logic based on risk and return, ethical and faith-based funds should follow the religious principles of their investment-style philosophy. Islamic funds should obey the theological teachings of the primary sources of Islam, the Quran and Sunnah, as stakeholders expect these religious teachings to influence the investment decisions of fund managers. In practice, Islamic fund managers use Accounting and Auditing Organization for Islamic Financial Institutions (AAOIFI)’s screening criteria, based on secondary sources of Islam, which allow investments that are only partially halal (allowable) to be included in their portfolios. This study finds that a more religious logic in screening practices, although impairing diversification, does not necessarily harm performance. Thus, Islamic investment funds, and the wider ethical fund management industry, should, and could, adopt stricter screening criteria that match their investment mandates and bring more ethical business practices to the industry. Keywords Islamic funds · Religious logic · Partially compliant Shariah stocks · Commingled (mixed) stocks
Introduction Business ethics applies theories of what is right and wrong to business practices (Crane and Matten 2016) and considers how “business conducts itself in its ordinary, everyday, routine activities… and the way it designs and support its products” (Sternberg 1994, p. 17). This paper examines a particular business sector, Islamic funds, and their ethical The views expressed in the paper are those of the authors and do not necessarily represent those of the public authority for applied education and training. * Christine Helliar [email protected] Khaled O. Alotaibi [email protected] Nongnuch Tantisantiwong [email protected] 1
College of Business Studies, The Public Authority for Applied Education and Training, Al Ardiya, Kuwait
2
University of South Australia Business, University of South Australia, Adelaide, Australia
3
Global Business Development and Strategy Group, Krungthai Bank, Bangkok, Thailand
actions within an Islamic context,1 by offering products to customers that fulfill societal expectations, namely, they follow the Islamic faith and Shariah (Islamic law). CapelleBlancard and Monjon (2014) note that to act ethically funds need to (i) be honest with their customers about the investment products they are selling; and (ii) offer transparency around their screening processes that underpins their asset allocation decisions. Acting ethically will gain and maintain customer loyalty as unethical businesses become less successful in the long-term (Sternberg 1994). Islamic funds carry out an important financial function fo
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