A Comparative Study of Islamic Banking in Malaysia and Ethical Banking in Western Countries

Abstract

This study is to provide a comparative analysis of Islamic banking in Malaysia and ethical banking in Western countries, with a focus on their founding values, governance frameworks, investment principles, transparency mechanisms, as well as the social and environmental impacts. Islamic banking, which is rooted in Shariah principles, emphasizes justice, risk-sharing, and the prohibition of interest (riba). Ethical banking is guided by environmental, social, and governance (ESG) considerations, as well as the accountability of stakeholders. Using document analysis, policy review, and secondary data, this research explores how both systems result in ethical finance and how they respond to regulatory, societal, and market demands. The key findings highlight the fact that while Islamic banking ensures theological legitimacy through Shariah governance structures, it faces challenges in the areas of transparency and stakeholder engagement. Ethical banks, on the other hand, excel in participatory governance and sustainability disclosure, although they operate within secular legal systems. The study concludes that despite their distinct origins, both models have the shared goal of promoting socially responsible finance. The study recommends cross-learning opportunities, especially in enhancing transparency, inclusivity, and regulatory innovation to create a more ethical and resilient financial system.