Chapter 11: Governance of Ethical Finance Institutions: Need for Moving to the VBI-based Paradigm

This chapter revisits the governance paradigm of Islamic banking and financial institutions (IBFIs), arguing for a shift from form-based sharīʿah compliance to value-based intermediation (VBI) that embeds social, ethical, and environmental imperatives. It critically analyses global governance models, including Malaysia, Gulf Cooperation Council states, Pakistan, and others, highlighting strengths, weaknesses, and gaps in aligning governance with maqāṣid al-sharīʿah. The discussion covers standards from Accounting and Auditing Organization of Islamic Financial Institutions and Islamic Financial Services Board, emerging VBI initiatives, and the integration of corporate social responsibility, socially responsible investment, and environmental, social, and governance (ESG) principles. A revised governance paradigm is proposed, built on seven pillars: embedding a social compass for market-based economy, institutionalising VBI and social finance, ensuring independence of sharīʿah boards, operationalising cash waqf and impact-driven products, reforming deposit management and profit distribution, advancing financial ecology through ESG integration, and enforcing compliance in both form and substance. The chapter concludes by outlining steps to transform IBFIs into drivers of justice, sustainability, and inclusive prosperity, thereby laying the groundwork for effective implementation strategies.