Prelims

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Monetary Policy, Islamic Finance, and Islamic Corporate Governance

Title Page

Monetary Policy, Islamic Finance, and Islamic Corporate Governance: An International Overview

EDITED BY

TOSEEF AZID

Qassim University, Saudi Arabia

MURNIATI MUKHLISIN

Institut Agama Islam Tazkia, Bogor, Indonesia

NASHR AKBAR

Institut Agama Islam Tazkia, Bogor, Indonesia

and

MUHAMMAD TAHIR

COMSATS University Islamabad, Pakistan

United Kingdom – North America – Japan – India – Malaysia – China

Copyright

Emerald Publishing Limited

Howard House, Wagon Lane, Bingley BD16 1WA, UK

First edition 2021

Copyright © 2021 Emerald Publishing Limited.

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ISBN: 978-1-80043-787-6 (Print)

ISBN: 978-1-80043-786-9 (Online)

ISBN: 978-1-80043-788-3 (Epub)

Contents

List of Illustrations

List of Tables

About the Editors

Nashr Akbar is the Head of Islamic Economic Department at Tazkia Islamic University College, Indonesia. He earned his Master’s degree in Economics from International Islamic University of Malaysia. He has authored two books. One of the books namely Tafsir Ayat Ekonomi Kontemporer (Economic Interpretations of the Qur’anic Verses) has been awarded as the best book in Islamic Book Fair, Indonesia 2018. He specialized in Islamic economics and history of economic thought. He participated in several conferences held in Turkey, Malaysia, and Indonesia. He also participated in the several joint research projects with Bank Indonesia and financial service authority. Since 2015, he is assigned as Managing Editor of journal Tazkia Islamic Finance and Business Review.

Toseef Azid is a Professor of Economics at the College of Business and Economics, Qassim University, Saudi Arabia. He holds a PhD in Economics from the University College of Wales, Aberystwyth, UK (1993). He received Overseas Research Scholarship from the British government, an Fulbright Award Scholar in Residence (2006). He taught in Pakistan, Brunei, United Kingdom, United States, and Saudi Arabia. His research focuses on technological change, labor economics, Islamic economics, and Islamic finance. He published five books: one is in Pakistan (Some Basic Principles of Islamic Economics) while other two are published by Routledge, United Kingdom (Labor in Islamic Setting: Theory and Practice and Social Justice and Islamic Economics: Theory, Issues and Practice) whereas the fourth is published by Emerald (Corporate and Shari’ah Governance in the Muslim World: Theory and Practice), and fifth one is published by World Scientific Publishers, Singapore (Women Empowerment in the Islamic World: Theory and Practice).

Murniati Mukhlisin is currently an Associate Professor in Islamic Accounting and Rector at Tazkia Islamic University College/Institut Agama Islam Tazkia, Bogor, Indonesia. She earned her Bachelor’s degree on Islamic Accounting from International Islamic University Malaysia, Masters degree in Accounting from Universitas Indonesia, and PhD in Accounting from University of Glasgow, United Kingdom. She has working experiences in banking, financial, and IT services. She started her career as a lecturer in Islamic Accounting and Finance in 2002 and she is currently Islamic Accounting certified. She taught Accounting at Essex Business School, University of Essex, Colchester, United Kingdom from 2015 to 2017. Her research interest is in the areas of financial reporting, Islamic accounting, Islamic banking and finance, Islamic political economy of accounting, and Islamic financial literacy. She authors tens of books and international journal papers, as well as hundreds of articles published in national and international media. She co-authored a best seller book “Sakinah Finance” that concerns on Islamic family finance. She currently assumes position as a Shari’ah Expert at BRI Corporate University, Islamic Compartment Management at the Indonesian Institute of Accountants, Expert Team at Indonesian Association of Islamic Economist, Board Member at Indonesian Economist Association, and Advisor to Indonesian Islamic FinTech Association.

Muhammad Tahir is currently working as an Assistant Professor of Economics at the Department of Management Sciences, COMSATS University Islamabad, Abbottabad Campus. He has obtained his PhD in Economics from the Universiti Brunei Darussalam (UBD) School of Business and Economics, UBD in 2014. He is an active researcher and is interested to write about different topics such as international trade, growth issues of developing countries, terrorism, migration, and Islamic Economics. Previously, he has published extensively in refereed and esteemed international journals such as Asia Business Studies, Chinese Journal of Economic and Foreign Trade Studies, Contemporary Economics, Asian Social Sciences, Quality and Quantity, International Journal of Disaster Risk Reduction, International Journal of Islamic and Middle Eastern Finance and Management, Applied Research in Quality of Life, Economic Systems, and Applied Economics Letters.

About the Contributors

Dr. Abu Umar Faruq Ahmad, an alum of Western Sydney University, Australia, is an international figure renowned within the world of Islamic Economics and Finance. Featured in the 2018 and 2019 ISLAMICA500 Global Leaders of the Islamic Economy, His additional accomplishments include Faculty at universities in Saudi Arabia, USA, Brunei, Malaysia, and UAE. When not teaching, he focuses his many talents toward academic literature. He serves as the Founding Editor of the International Journal of Excellence in Islamic Banking and Finance, Managing Editor of Journal of Business Strategy, Finance and Management, Editor of International Journal of Islamic Thought, Associate Editor of ISRA International Journal of Islamic Finance, and Consultant Editor of The Journal of Islamic Governance. He also sits in the editorial boards of a dozen of top-class journals. He has about 100 published research to his credit, and presented over 60 research papers at international scholars’ forums held in Australia, Bahrain, Bangladesh, Brunei, Germany, Indonesia, Ireland, Nigeria, Malaysia, Oman, Pakistan, Qatar, Saudi Arabia, Sudan, UAE, and USA including the 6th & 11th Harvard University Forum on Islamic Finance held in 2004 and 2014, respectively.

Eva Misfah Bayuni is a Graduate of the Sharia Economics Postgraduate Program at Institute Agama Islam Negeri Syekh Nurjati, Cirebon 2012. Since 2012, she has been a Lecturer of Sharia Banking Study Program at Universitas Islam Bandung, Indonesia. She has published several journal articles, proceedings, and other researches focusing on Islamic monetary system.

Fatima El Morabit is a PhD Student in Islamic Economic and Finance at Mohamed V University in Rabat-Morocco. She obtained her Bachelor degree in Business Administration and Management from the same university. After that she took her Master in Business Finance, and started working as a financial analyst. Now she is continuing her study for doctoral degree. She is a member in two associations related to Islamic finance and participated and published some papers in the same field.

Hanimon Abdullah graduated with a PhD in Islamic Finance from Durham University in January 2015 with her thesis entitled “An Exploratory Examination into the Relationship between Corporate Governance and Risk Management in Islamic Banks: Disclosure and Survey Analysis.” She has an MA in Economics (Development) from Manchester University. She served at the Economics Department of the Central Bank for nine years before moving on to a supervisory role as a Bank Examiner. In the Economics Department, she was responsible for various portfolios such as Public Finance and the Money Market. In her capacity as a Bank Examiner, she led various on-site examinations on commercial banks, insurance companies, development banks, and other institutions while also undertaking corporate governance, internal audit, and business continuity portfolios in the same role. She was “Visiting Research Fellow” at the Durham Centre for Islamic Economics and Finance, Durham University Business School from February 2015 until her sudden death in February 2016. She is survived by a daughter and three sons..

Hasan Kiaee is an Assistant Professor of Economics at Faculty of Islamic Studies and Economics at Imam Sadiq University and specially focused on quantitative area of Islamic economics and finance. He earned his Master’s in 2008 and PhD in 2013 from University of Tehran, his PhD thesis was about using stochastic optimal control theory in modeling the Islamic banking behavior. In addition to contributing in some papers and books in this field, he actively participates in the Islamic banking and finance conferences inside and outside of Iran. Beside this academic background, he has a good practical knowledge in Islamic finance, as he has the experience of working as an advisor for a number of banks and financial institutions in Iran.

Israa El-bendary is an Assistant Lecturer at the Department of Business Administration, Faculty of Commerce, Cairo University, Egypt. She is studying her PhD degree in Strategic Management and Dynamic Capabilities at Xi’an Jiaotong University, China. Her research interests lie in the areas of business and strategic management studies.

Khairunnisa Musari is an Assistant Professor of the Department of Islamic Economics, Postgraduate Program, and the Faculty of Islamic Business Economics, KH Ahmad Shiddiq State Islamic University (UIN)/State Institute for Islamic Studies (IAIN) of Jember. She is a Deputy Coordinator of Indonesia of Central Region for Central Board (DPP) of the Indonesian Association of Islamic Economist (IAEI), Secretary of Indonesian Economist Association (ISEI) of Jember, and Member of Expert Board of Islamic Economic Society (MES) of Lumajang. She has experiences as a Senior Specialist for Islamic Finance of United Nations Development Programme (UNDP) Indonesia. She was listed as the Top 300 Most Influential Women in Islamic Business & Finance 2019 and Top 150 Most Influential Women in Islamic Business & Finance 2020 by Cambridge-IFA. Now, she also becomes a Lead Independent Associate Ambassadors of VentureEthica. She has a great interest in sukuk, waqf, esham, fiscal & monetary policies, circular economy, halal logistics, and Islamic microfinance and nanofinance.

Kheled Hussainey, PhD, is a Professor and the Research Lead of Accounting and Financial Management at the University of Portsmouth, UK. He has a rapidly growing research reputation around his principal research area concerned with corporate narrative reporting. He has successfully received a number of research grants and has been awarded many international prizes for the quality of his research papers. He has a significant number of research papers published in top-ranked international journals. His research appears in Accounting and Business Research, British Accounting Review, International Review of Financial Analysis, Journal of Accounting and Public Policy, Review of Quantitative Finance, International Journal of Finance and Economics, and Accounting and Journal of International Accounting, Auditing, and Taxation. He is a Co-editor-in-Chief of Journal of Financial Reporting and Accounting and Associate Editor of Journal of Applied Accounting Research and International Journal of Accounting, Auditing and Performance Evaluation.

Lili Wardani Harahap is a Lecturer in Universitas Negeri Medan. She was born in Medan, Indonesia in 18 August 1978. She completed the undergraduate study in Universitas Sumatera Utara. She holds Master’s degree in Accounting from Universitas Sumatera Utara in 2006. Currently, she is a doctoral candidate in Universitas Sebelas Maret, Indonesia with a dissertation title, “Evaluasi Prinsip Etika Islam Terhadap Pengalokasian Dana CSR Pada PT. Pertamina (Persero) Di Pulau Jawa/Evaluation of Islamic Ethic Principles in the Allocation of PT Pertamina’s CSR in Java Island).”

Masudul Alam Choudhury is an Adjunct Professor and International Chair of the Post-Graduate Program in Islamic Economics and Finance, Trisakti University, Jakarta, Indonesia. He served as a Professor of Economics in Cape Breton University, Canada. He also served as a Professor of Economics in Sultan Qaboos University, Muscat, Oman. His specialization in the field of economics and finance is analytical methodology derived from the Qur’an and sunnah in the socio-scientific field with special focus in Islamic economics and finance studied from the Qur’anic worldview of monotheism. He earned his Master of Economics and PhD in Political Economy from the University of Toronto. He is Editor-in-Chief of Humanomics: International Journal of Systems and Ethics.

Mehmet Asutay, PhD, is a Professor of Middle Eastern and Islamic Political Economy & Finance at the Durham University Business School, is the Director of the Durham Centre in Islamic Economics and Finance as well as the Program Director for MSc in Islamic Finance and MSc in Islamic Finance and Management. His teaching, research, publication, and supervision of research is all in Islamic moral economy/Islamic economics, Islamic political economy, Islamic finance and banking, and Islamic governance and management. His articles on his research interest have been published in various international academic journals and professional magazines. He has also published and edited books on aspects of Islamic moral economy and Islamic finance, the latest of which are: A Model for Islamic Development: An Approach in Islamic Moral Economy (with S. Jan, 2019), Mapping the Risks and Risk Management Practices in Islamic Banking (with W. Eid, 2019), and Islamic Finance: Political Economy, Values and Innovation, Islamic Finance: Performance and Efficiency, and Islamic Finance: Risk, Stability and Growth (co-edited with A. Turkistani, 2015).

Md. Akther Uddin is currently working as an Assistant Professor (Banking & Finance) and Program Coordinator of School of Business at the University of Creative Technology Chittagong (UCTC), Bangladesh. He has already published 38 scholarly papers, five book chapters, 1 monograph, and 16 international conference papers. His papers were published in Economic Modelling, Australian Economic Papers, International Journal of Finance and Economics, Studies in Economics and Finance, Managerial Finance, International Journal of Law and Management, and Psychological Science and Education. He participated in international conferences, workshops, and seminars in Russia, England, Malaysia, Lithuania, Maldives, and Indonesia. His current research interests include sustainable finance, policy uncertainty and emerging capital markets, bank stability, Islamic economic institutions, educational technology, and crypto currency.

Moehammad Fathorrazi is the Head of the Shari’ah Economics Study Program, Faculty of Economics and Business (FEB), University of Jember since 2017. He has also been the Dean of FEB in the University of Jember (2013–2017) and the Chairman of Indonesian Economist Association (ISEI) Jember (2013–2017) and the Chairman of the Indonesian Association of Islamic Economist (IAEI) Besuki Raya (2014–2017). Currently, he is a Secretary-General of IAEI East Java Province (2017–2021) and Advisory Board of ISEI Jember (2019–2022).

Mohammad Omar Farooq earned his PhD in Economics from the University of Tennessee, Knoxville. He was a Ciriacy-Wantrup Post-doctoral Fellow at the University of California, Berkeley. He is an Associate Professor of Economics and Finance at the University of Bahrain. His primary research interests are economic development, financial institutions, history of economic thoughts, and Islamic economics/finance/banking/law. His works have been published in Journal of Economic Issues, International Journal of Islamic and Middle Eastern Finance and Management, International Journal of Social Economics, Review of Islamic Economy, Arab Law Quarterly, and more. In addition to academic research, he frequently contributes to various Islamic media outlets on a wide range of Islamic issues. He also has a keen interest in gender economics and genocide studies.

Muhammad Ayub is currently the Director of Research at Riphah International University Islamabad, and Editor of their Journal of Islamic Business and Management (www.jibm.org). He is a Non-resident Editor of the Accounting and Auditing Organization for Islamic Financial Institutions’ (AAOIFI) Journal of Islamic Finance Accountancy as well. He is also the Member of the Shariah Supervisory Committee of Bank of Khyber (Pakistan); and Jurisconsult at the Federal Shariat Court of Pakistan. He served the State Bank of Pakistan (SBP), the Central Bank for 28 years in areas of Islamic economics, banking, and training. His unique contributions include “Islamic Banking Certificate Course” being offered by SBP/NIBAF since 2005, and the textbook book “Understanding Islamic Finance” that has been translated into Arabic, Malaya Bhasa, Urdu, and other languages. He also contributed about five dozen papers to various journals and presented many research papers in international conferences on Islamic economics and finance.

Mohamed Marie is an Assistant Lecturer at the Department of Business Administration, Faculty of Commerce, Cairo University, Egypt. He is studying his PhD degree in corporate governance and banking at Xi’an Jiaotong University, China. His research interests lie in the areas of corporate finance, Islamic banking, and corporate governance.

Muhammad Syukqran Kamal was a Shariah Management Trainee at International Shariah Research Academy in Islamic Finance. He received his MSc in Islamic Finance from International Centre for Education in Islamic Finance. His degree in Shari’ah, majoring in Islamic Banking was from the University of Jordan. His research interest is in the areas of Islamic law, Islamic banking & finance and Islamic social finance. He is currently working as a Shariah Officer at Public Islamic Bank Berhad, Malaysia.Murniati Mukhlisin earned her Bachelor degree in Islamic Accounting from International Islamic University Malaysia, Masters degree in Accounting from Universitas Indonesia, and PhD in Accounting from University of Glasgow, UK. She taught Accounting at Essex Business School, Essex University, UK. She works on critical perspective of research in the areas of financial reporting, Islamic accounting, Islamic banking and finance, Islamic political economy of accounting, and Islamic financial literacy. Currently, she is a Rector at Tazkia Islamic University College/Institut Agama Islam Tazkia, Bogor, Indonesia. She co-authored a best seller book “Sakinah Finance’ ” that talks about Islamic family finance.

Mushfeka Reza Siddiqua is an Independent Young Researcher of Finance discipline, who did her BBA (Hons) and MBA at the University of Chittagong, Bangladesh. She has conducted a significant research on some new areas of Islamic finance such as “transaction cost in Islamic banks compared to their conventional counterparts.” As a finance graduate, her aim is to explore multidimensional areas of finance, such as bitcoin, FinTech, cryptocurrency, share markets’ trends in Bangladesh, budget declaration and its impact on social life, and so on. She has contributed to writing some research papers and poster presentations on her relevant discipline. She also wrote on Shari’ah rules and regulations, Shari’ah non-compliance risks of Islamic finance products, need for introducing innovative products for Islamic social finance, the current practice of Islamic finance in Bangladesh.

Nashr Akbar is the Head of Islamic Economic Department at Tazkia Islamic University College, Indonesia. He earned his Master’s degree in Economics from International Islamic University of Malaysia. He has authored two books. One of the books namely Tafsir Ayat Ekonomi Kontemporer (Economic interpretations of the Qur’anic verses) has been awarded as the best book in Islamic Book Fair, Indonesia 2018. He is specialized in Islamic economics and history of economic thought. He participated in several conferences held in Turkey, Malaysia, and Indonesia. He also participated in the several joint research projects with Bank Indonesia and financial service authority. Since 2015, he is assigned as Managing Editor of journal Tazkia Islamic Finance and Business Review.

Noor Suhaida Kasri is the Head of Islamic Capital Market Unit at International Shari’ah Research Academy for Islamic Finance. She received her PhD in Islamic Banking Finance and Management from the University of Gloucestershire (in collaboration with Markfield Institute of Higher Education), UK. Her Master’s in Laws was from King’s College of London. Her research interest is in law, regulation, social, and ethical finance. She has written a number of research papers, articles, and textbook chapters, and presented in conferences globally.

Popon Srisusilawati is a Graduate of the Sharia Economics Postgraduate Program at Universitas Islam Negeri Sunan Gunung Djati, Bandung. Since 2015, she has been a Lecturer in the Sharia Economics Law Study Program at Universitas Islam Bandung, Indonesia. She has written several journal articles, proceedings, and other articles on the national and international scenes.

Rashedul Hasan is a Senior Lecturer in the Faculty of Business, Communication and Law at INTI International University, Malaysia. He obtained his BBA (Accounting and Finance) and MBA (Finance) from American International University Bangladesh with Summa Cum Laude distinction and PhD in Accounting from International Islamic University Malaysia. His research interests include Islamic finance, corporate governance, voluntary disclosure, intellectual capital, and sustainability. His papers are appeared in Thunderbird International Business Review, Islamic Quarterly, Journal of Economic Development and Cooperation, Journal of Islamic Economics, Banking and Finance, Journal of Islamic Economic Studies, and International Journal of Public Sector Performance Management. He served as the Guest Editor for the Journal of Business and Globalization. He also has served as the Editor of the Book of Proceedings for Asian Conference on Entrepreneurship. He is actively involved in applied research and has worked on projects under the funding of the South-Korean and the Malaysian government.

Samaneh Eftekhari Mahabadi, is an Assistant Professor of Statistics, College of Science, School of Mathematics, Statistics and Computer Science, University of Tehran, Tehran, Iran. She received the BS degree in Statistics from the University of Tehran, Tehran, Iran, in 2005, and MS and the PhD degrees in Statistics from Shahid Beheshti University, Tehran, Iran, in 2007 and 2011, respectively. She is a Faculty Member at School of Mathematics, Statistics and Computer Science, University of Tehran, since 2012. Her current research interests include longitudinal and panel data modeling, missing data and sensitivity analysis, machine learning, and data mining.

Shafiqur Rahman’s qualifications include PhD (Macquarie University, Australia), MBA (IBA, Dhaka University), and Marine Engineering. He teaches subjects related to marketing, management, and information systems. He has published 20 research papers (including ABDC, ERA, and SCOPUS ranked journals), three book chapters, and one book. Currently, he teaches at Central Queensland University, Kent Institute Australia, and Kings Own Institute, Sydney. He has been teaching in the higher education industry since 1997. He supervises PhD students, examines PhD theses, reviews journal articles, serves in a journal editorial board member, and mentors scholarly activities. He acts as a Visiting Professor for United International University and Northern University of Bangladesh. His industry experiences include serving the American Embassy in Bangladesh as an Economic Specialist and as a Vice President for Australian Academy of Business Leadership, Australia. He received many awards for his professional competencies and research grants for outstanding research performance.

Sherif El-Halaby is an Assistant Professor in Accounting Department in Business School in the Arab Open University in Kuwait. His research interest is concerning with Islamic banks, Accounting and Auditing Organization for Islamic Financial Institutions (AAOIFI), Corporate Governance (CG), and disclosure. He published several papers in different journals such as Journal of Islamic Accounting and Business Research, Journal of Financial Reporting and Accounting, International Journal of Customer Relationship Marketing and Management, Journal of Governance and Regulation, Accounting Research Journal, and International Journal of Emerging Markets. In addition, he presented many papers in more than 20 conferences such as American Accounting Association (AAA) and British Accounting and Finance Association (BAFA). He reviewed papers for International Journal of Accounting, Auditing and Performance Evaluation (2018–2020), Journal of Financial Reporting and Accounting (2020), International Journal of Emerging Markets (2020), Asia-Pacific Management Accounting Journal (2020), Journal of Business Ethics (2016), and Journal of Islamic Accounting and Business Research (2020).

Shim Pui Sen is persuing her Doctor of Philosophy in Finance at Taylors University. She has completed her Bachelor of Business in Banking and Finance from Taylors University and Master of Business Administration in Banking and Finance from Nilai University.Sutrisna Amijaya, M.M. He is a Lecturer in Institut Bisnis dan Informatika Kesatuan, Bogor-Indonesia. He holds his Master degree in Islamic Finance from Universitas Paramadina. Besides, he is also the Head of Shariah Business & Devolepment in MNC Sekuritas with 10 years working experience in Islamic Capital Market).

Tauhidul Islam Tanin works at the Department of Finance, Monash University, Australia, as a final-year PhD Researcher and Teaching Associate. He previously served as a Research Analyst (industry) and Finance Manager in reputed Spanish and Bangladeshi companies. He obtained his MSc in Islamic Finance from INCEIF, the Global University of Islamic Finance, Malaysia, and MBA and BBA in Finance and Banking from International Islamic University Chittagong, Bangladesh. He also completed one part of CMA from The Institute of Cost and Management Accountants of Bangladesh (ICMAB). His research interests cover financial economics, energy finance/economics, Islamic finance, corporate finance, international finance, applied econometrics, and machine learning. As of February 2021, he has two top-tier (ISI/SSCI-indexed Q1 and Q2) publications, a book chapter, a Master’s dissertation with High Distinction, two international conference papers (one proceeding), a best paper award, and two industry reports (with High Distinction). He is blessed to complete PhD’s coursework, MSc, MBA, and BBA with High Distinction and won seven awards and scholarships, including the Monash Merit Scholarship for PhD.

Toseef Azid is a Professor of Economics at College of Business and Economics, Qassim University, Saudi Arabia and International Visiting Scholar, Economics Department, Wayne State University, Detroit, Michigan, USA (2017). He holds his PhD in Economics from the University College of Wales, Aberystwyth, UK. He received Fulbright Award as Scholar in Residence where he worked on a research project on “Economics of Middle Eastern Countries.” His research focuses on technological change, development Economics, labor economics, Islamic economics, and Islamic finance. His recent books as Co-editor entitled Labour in an Islamic Setting: Theory and Practice and Social Justice and Islamic Economics: Theory, Issues and Practice are published by Routledge, UK; Corporate and Shari’ah Governance in the Muslim World: Theory and Practice is published by Emerald, UK; and Economic Empowerment of Women in the Islamic World: Theory and Practice is published by World Scientific Publications, Singapore.

List of Contributors

Preface

In a typical literature, one can see that monetary transmission works through the channel of interest rate, and policy analyst are observing its impact on inflation, for example, if nominal interest rate increases it leads to incremental change in the user cost of capital, therefore, leading to an overall decrease in general prices level. Because higher interest rate has a negative impact on consumption (postponement) and also on desired investment due to which prices are going down. Another important channel of monetary transmission is the exchange rate. It is observed that an increase in the domestic interest rate has positive impact on the strength of currency which ultimately leads to downward pressure on the prices of tradable goods. A stronger exchange rate has a negative impact on net exports and aggregate demand. It is also an undeniable fact that appreciating currency increases the activities of the economy. Likewise, financial market development or institutional policy frameworks, and other country characteristics have impact on the transmission of monetary policy. Generally, in developing countries, majority of the households and firms are dependent on the bank lending.

On the contrary, the management of the corporations are always keeping their eyes on the amount of leverage. In this respect, financial stability has a strong relationship with the corporate governance. There is a strong consensus among the policy makers that financial stability increases the confidence of all stakeholders in the business sector. Financial stability reflects the overall stability and consequently if provides an effective platform to all stakeholders to perform their functions efficiently. Consequently, it leads to an effective corporate governance.

However, there is no room for the interest rate in the system of Islam, therefore, its monetary policy and the way it is transmitting should be different. Consequently, the impact of Islamic monetary policy on corporate governance should be different than the conventional monetary policy. Moreover, those corporations offering the Shari’ah compliance products and services are also behaving in a different way. It is witnessed that during the financial crises of 2007–2008, Islamic financial institutions (IFIs) showed more resilience than their conventional counterparts.

With this standpoint, the current volume argues that monetary policy based on moral and religious values plays a different role in building the confidence of the business sector in attaining its objectives, and the necessary outcomes under the umbrella of Shari’ah. Therefore, a humble effort is made to integrate the three dimensions of the subject together in one volume, that is, monetary policy, corporate governance and financial sector under the umbrella of Shari’ah. We hope our humble effort would provide better understanding in developing a substantial research in future. In this volume, we followed two assumptions. The first is, that Islamic monetary policy approximately has the same targets but works with the different instruments, this fulfills the necessary condition. Whereas the second assumption is that moral and religious values are basic foundations of human behavior, this fulfills the sufficient condition.

Keeping these assumptions, the scholars are invited for their contributions. Therefore, as editors of this current volume, we provide a platform to our readers to start a discussion on the above mentioned three dimensions. We invited scholars to contribute their theoretical discourse, empirical investigations and relevant analysis. The contributors put a lot of efforts to discuss their arguments by following the above assumptions and provide a new path for the further research. However, the credit goes to the contributors for their discussion, analysis, and filling the gap in the current literature of monetary policy and corporate governance under the moral and religious environment with special reference to Islamic jurisprudence. In this environment, 2Rs (responsibility and resilience) are in front of the actors of policy makers and corporate governance.

The current volume has three parts, after introductory chapter, we presented theoretical underpinning in Part I, while in Part II, the association between governance and monetary policy is discussed. Finally, in Part III we shed light on corporate governance by focusing on IFIs.

Chapter 2 insinuates that CG can probably be improved by applying Islamic Moral Economy principles from Islamic economics. However, Abdullah and Asutay argued that for the achievement of this objective a strong political ground is required, that is, Islamic political economy to help with setting up laws and regulations to operationalize Islamic Economy.

Chapter 3 is based on the analytical study of the available material on features of Islamic finance and the applicable regulations, evaluates the effectiveness of the governance framework and steps taken for evolving the systems, Ayub argues, in order to align the business of the IBFIs (Islamic Banking and Financial Institutions) with the Divine objectives of Shari’ah and the value-based and corporate social responsibility (CSR) related functions, the governance framework must provide for the focus of financial institutions on the value based direct and indirect intermediation. In Chapter 4, Harahap discusses the implementation of Zakat through CSR partnership in overcoming poverty. In her opinion, this principle of social concern is realized through the concept of zakat. And the people living in the same jurisdiction, must be materially responsible for the poverty in their environment. Furthermore, the concept of zakat is aimed at maintaining religion, mind, soul, descent and wealth. Akbar and Amijaya, in Chapter 5, review the stock waqf product of Indonesian securities company. They suggested the capital gain or dividend will be distributed to the beneficiaries according to the demand of waqif (investors). In Akbar’s view, there are five categories of benefits stipulated in the waqf statement form: (a) economic empowerment, (b) public welfare, (c) scholarship, (d) health services, and (e) Islamic preaching.

Choudhury, in Chapter 6, explains the complementary use of monetary and fiscal regimes although much desired for economic expansion, this phenomenon remains plagued with uncertainty, unpredictability, and subject to perturbations that adversely affect stable price and output relations. Throughout this chapter, fiscalism is equated with spending (aggregate demand stimulation) rather than with government spending only. In Chapter 7, Uddin et al. explore the suitability of interest rate as monetary policy instrument for OIC countries. In their findings, interest rates have lost its edge significantly as a monetary policy instrument after the global financial crisis in Muslim countries. They suggested that in this changing macroeconomic condition, Muslim countries need to explore the alternative policy instruments for maintaining stable economy and sustainable development. Bayuni and Srisusilawati describe the contribution of Shari’ah monetary instrument to control inflation in an Islamic country like Indonesia in Chapter 8. They suggested that Shari’ah monetary instruments applied in Muslim countries might be applied in Indonesia such as Modharabha Certificate, COM, Commercial Papers-i, and Promissory FX Contract-i. Kiaee and Mahabadi elucidate the effects of monetary policy on the stability of Islamic banks with different governance models in Chapter 9. They carry out comprehensive empirical investigations by focusing on the economy of Iran. They endorsed that for Iranian Islamic banks, institutional investors and large investors, are those corporate governance characteristics which could bring stability to the banks. Also, the cost–deposit ratio is the only bank’s stability variable which is affected by both monetary and corporate governance variables. In Chapter 10, Ahmad and Siddiqua find that through using transaction cost theory, Islamic finance institutions can ensure that they do not make money against money, rather make asset against money through their transactions applying ethical values. So far, the theoretical analysis of the study is concerned, the “Ronald Coase” model has been taken into consideration.

Marie et al. examine whether culture moderates the relation between AAOIFI adoption and earnings management (EM). Using Gray and Hofstede culture framework a sample of 122 Islamic banks across 24 countries for the period 2010–2017 is utilized in Chapter 11. Their analysis shows that cultural values of individualism; masculinity and UA positively strength the AAOIFI-EM association. Abdullah and Asutay, in Chapter 12, explore the corporate governance and risk management disclosure performance nexus in Islamic banks of Malaysia. They documented that one of the most profound traits of Islamic banks is its ethical foundation, and ethicality in contemporary times is not limited to the ethical nature of businesses but also the disclosure of activities as stipulated by international agencies. In Chapter 13, Rashedul Hasan et al. highlight the importance of appointing an appropriate number of independent members on the board and strengthening the internal control system as part of the efficient governance framework for IFIs. This chapter also contributes to addressing areas of improvement required in the Malaysian Code of Governance which will be helpful for regulators, market analysts, investors and financial institutions. Tanin et al. investigate how different variables drive the profitability of Turkish banks, conventional and Islamic in Chapter 14. Their findings show that non-fund-based income (and conventional bank’s non-interest income) noticeably affects profitability. However, Islamic banks appear to be more profitable, which is in line with their initial expectation. Kasri and Kamal explore the application of integrated reporting (IR) in annual reports of two Malaysian Islamic banks namely Bank Islam Malaysia Berhad and Bank Muamalat Malaysia Berhad in Chapter 15. Their chapter contributes to the dearth of literature on IR particularly on Malaysian IFIs as the existing literature focus more on the application of IR in conventional commercial institutions.

In Chapter 16, Rahman and Ahmad indicated that how corporate governance of IFIs can play their role in the context of a developing country. They found that the governance of IFIs in Bangladesh is an excellent blend of CG and IG. Several indicators demonstrate that the performance of IFIs is superior compared to their conventional counterparts. Given that, effective governance of IFIs can lead them toward achieving excellence in their respective businesses. Furthermore, such achievements of IFIs will ultimately contribute to society and Bangladesh’s economy enormously. Musari and Fathorrazi, in Chapter 17, describe some of the practices of the Islamic social finance partnership model for micro-small-medium enterprises in Indonesia. They discuss five partnership models. Then, they explain the relationship between each stakeholder of the five partnership models by the Helix Approach. In the last chapter, editors present the summary and their suggestions for the further future research.

Foreword

This edited volume is a welcome addition to the literature on Islamic finance. It covers two important areas, hitherto not treated together, namely monetary policy and corporate governance. Monetary policy is in the realm of macroeconomics, whereas corporate governance choices are at the institutional level, and, therefore, can be classified as microeconomic. There have been considerable advances in developing models of corporate governance that adequately serve Islamic financial institutions. Unfortunately, the same cannot be said for monetary policy, where there remains confusion about how Shari’ah law can be applied.

From an Islamic perspective, conventional monetary policy is, at best problematic, as interest rates are the most important policy tool. Manipulation of interest by central banks and monetary authorities to stimulate or restrain economic activity all too often has unjust consequences and is socially divisive. An increase in interest rates will not only result in the costs of financing new debt rising, but may also adversely affect existing borrowers. Those with variable rate contracts linked to interest rate proxies will have to immediately pay more, irrespective of whether they can afford the increased premiums. Of course, some may argue that borrowers were foolish in signing variable rate contracts. Many have taken on these contracts, however, because they are cheaper than fixed rate agreements.

Even those with fixed rate contracts will be exposed to higher rates when they re-finance. Banks are increasingly unwilling to provide fixed rate contracts for longer than 3–5 years, despite long-term residential mortgages often not repaid until 20 or even 30 years have elapsed. At present with negative interest in many economies to avoid Covid-19 having a recessionary effect, the only direction for interest rates is up. Consequently borrowers should beware.

Given the amoral financial consequences of relying on interest rates as the main determinant of monetary policy, economists committed to Islamic finance have sought alternative instruments. The authors of three of the chapters in this volume have addressed this issue. Md. Akther Uddin, Abu Umar Faruq Ahmad, and Fatima El Morabit ask if interest rates are an appropriate monetary policy instrument for OIC countries. The simple answer is undoubtedly no, but they describe themselves as on a quest. Their efforts represent a preliminary investigation which has considerable promise. A major strength of this book is the country experiences outlined. Hasan Kiaee and Samaneh Eftekhari examine the effects of monetary policy on Islamic banking in Iran. This is of particular interest as Iran portrays itself as having a Shari’ah compliant financial system with all its banks designated as Islamic. However, as the researchers report, the banks have adopted different governance systems. Does this make a difference? Read the chapter and find the answer! At the macroeconomic level, the chapter by Eva Misfah Bayuni and Popon Srisusilawati on Indonesia is especially interesting. There, as in Malaysia, Shari’ah complaint monetary instruments have been introduced to control inflation. How do these work, and how successful have they been? Again, read the chapter and find out!

Ten of the eighteen chapters are focused on corporate governance issues in Islamic financial institutions. Hanimon Abdullah and Mehmet Asutay contribute two of these chapters, one which is categorized as theoretical and a second which focuses on the critical areas of risk management and financial disclosure. Again much of the strength of the corporate governance chapters is the country case studies covering Pakistan, Malaysia, Turkey, Bangladesh, and Indonesia. There is a wealth of material in these country studies that will be invaluable to future researchers, especially as the experiences have been so variable. Nevertheless, the advances in introducing appropriate corporate government structures for Islamic financial institutions is a story of success. It is a pity that this has been much less the case for monetary policy in spite of the efforts of some countries, notably Indonesia.

Rodney Wilson

Emeritus Professor

Durham University, UK