Ethical entrepreneurship: Islamic financial principles for Small and Medium Enterprises (SMEs)

Islamic ethics prescribe its followers to zealously guard their behavior, words, thoughts, and intentions and observe certain norms and moral codes in their financial transactions; in their social affairs; and in private and public life. The unique feature of the Islamic ethical system is that it permeates all spheres and fields of human life. Islam therefore has its own distinctive value-based ethical system for finance dealings. It prescribes certain specific guidelines governing finance ethics, which are dictated primarily by the notion of halal (lawful or permitted) and haram (unlawful or prohibited) as per Islamic jurisprudence (fiqh). The current global economic meltdown is a clear revelation of the shortcomings of the conventional financial set-up and the weakness of self-designed system devoid of spiritual and divine guidance, hence the yearning and desire for a socially just financial system by conscious individuals and corporate bodies. The assertion that Islamic financial system is only distinguished from other economic systems in its emphasis on interest free and other usurious transactions coupled with the fact that many concepts are springing up contending with the Islamic financial system inform the need to study the system within the context of Islamic ethical principles. This paper is therefore out to articulate the ethical principles of financial institutions as enshrined in the Qur’an and the Sunnah of the Prophet so that Islamic financial system will not lose focus and to avoid being carried away by the flamboyant and excessive profits and surpluses of the conventional financial institutions.