Exploring and Proposing a Framework for Sharī‘ah Governance and Maqāsid-e-Sharī‘ah for Islamic Banking Institutions (IBIs)

Abstract

Islamic Finance Industry have expanded over past few decades. Despite expanding rapidly, the industry continues to face strong criticism over deepening identity crisis marked by systematic conventionalization that contradicts its theological foundations. Although existing research has extensively examined Sharī‘ah compliance, governance mechanisms and financial performance, it has largely approached Islamic finance as a modified version of conventional finance. This approach emphasizes the elimination of prohibited elements while leaving its underlying conceptual structure largely unchanged. Consequently, the ontological foundations from which Islamic finance should be understood and evaluated remain insufficiently developed. To address this gap, this paper introduces a novel six-stage model which is called Ontological Cascade framework that reconstructs Islamic finance from Qur’anic teleology. It traces Qur’anic teleology from divine creation through tawhid ideology, Muslim life-system manifestations, khalifah economics, Maqāsid al-Sharī‘ah evaluation, to Sharī‘ah Governance Framework institutionalization. It is grounded in Qur’anic verses such as 51:56 on worship, 2:30 on vicegerency, and 67:2 on moral testing and posits that authentic IFIs must exhibit ontology-derived behaviors like risk-sharing and Maqāsid-optimized governance rather than procedural compliance alone. It proposes seven propositions linking creational purpose to measurable financial practices and offering diagnostic tools for expected-versus-actual gap analysis. It redefines success by prioritizing spiritual alignment over financial profit, filling major gaps in Islamic economic theory and sparking a modern revival in the field.

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