Purification of non-halal income by islamic banks in Malaysia : a shari`ah analysis

Abstract

As Islamic banks are established within the Shari`ah realm, all activities are expected to follow Shari`ah principles. However, ensuring Shari`ah compliance is not a straightforward matter. Although Islamic banks are striving to develop their products, activities and operations according to Shari`ah principles by enhancing their Shari`ah governance framework, Shari`ah non-compliance events still occur which in some situations involve a financial impact that leads to non-halal income. Non-halal income realised in Islamic banks could not be utilised for their own benefits and thus needs purification. This research focuses on developing a guideline or mechanism in purification of non-halal income for Islamic banks in Malaysia. It delineates the concept of non-halal income, its sources, the purification treatments from the Islamic perspectives based on the discussion of Muslim scholars as well as the Shari`ah and operational issues that distract the success of the purification process. This research is qualitative in nature and it utilized textual analysis technique in analyzing the data. The findings argue that there are differences of approach in purifying non-halal income by Islamic banks. This position acknowledges that there are shortcomings to the existing approach which need further improvement and standardization. The research is a very useful source of information that may provide relevant guidelines in purification of non-halal income. It is worth noting that an Islamic bank will not be truly Islamic unless all the income and the profits generated are pure and no impure income and profits are retained by the banks.