Advances in Islamic Finance, Marketing, and Management

Cover of Advances in Islamic Finance, Marketing, and Management

An Asian Perspective

Synopsis

Table of contents

(17 chapters)

Prelims

Pages i-xiv
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Section I Islamic Finance

Purpose

Ever since the publication of the original Jegadeesh and Titman (1993) study, momentum effect has been tested vigorously to validate its pervasiveness for different time periods and across different markets. In spite of numerous out-of-sample tests, there is one apparent alibi – little research has been devised for steady increasing of Shari’ah compliant stocks.

Methodology/approach

This study is to examine the momentum strategy returns in a global Shari’ah compliant stock setting.

Findings

It finds strong presence of stock momentum returns for Pakistan and Malaysia. And the momentum returns are neither driven by industry momentum nor by the small size stocks. Though no momentum profits are found for the portfolios formed by global Shari’ah compliant stocks, this seems to be largely due to return reversal for the small size Shari’ah compliant stocks.

Originality/value

The strong presence of momentum profits for relatively large Shari’ah compliant stocks is a desirable trait as it indicates that the momentum trading strategies are practical and implementable.

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Purpose

Sukuk are popular means for governments to raise money through sovereign issues, and for corporations to obtain finance through corporate sukuk offerings. The purpose of this study is to critically examine the issues revolving around various aspects of sukuk such as regulation, performance and future challenges from different Asian market jurisdictions.

Methodology/approach

Using various sukuk structures and other literatures, this chapter critically investigates some general legal and regulatory requirements for sukuk issuance, its required infrastructure in various jurisdictions in addition to some other relevant important issues to generate cash flows and raise finance through Islamic capital market (ICM) operations without violating the tenets of Sharī’ah in sukuk structures which ultimately helps the economic growth of the Asian region.

Findings

The study finds that in many Asian countries, a separate and specialised regulatory framework, as demanded by sukuk, is lacking and this instrument is treated under the same regulations as of conventional capital markets and their instruments. Some of the regulations may be appropriate for ICM and sukuk, however, most of these regulations need proper modification in order to treat sukuk with clear understanding.

Practical implications

Being part of a niche and new area of Islamic finance in the global financial market a plethora of confusion exists regarding various aspects of sukuk including regulation, performance and future challenges particularly in Asian jurisdiction where sukuk are largely in operation. Findings from this study can be used as a reference to understand the need of the proper modification of conventional regulations, the performance of sukuk in better ways, and meeting other relevant challenges.

Originality/value

Although the demands for having specialised regulatory framework of sukuk, or at least amendments in the current framework for conventional bonds is gaining momentum worldwide in order to accommodate sukuk in the capital markets according to their peculiar nature, it has not caught much attention of researchers and practitioners involved with Islamic finance. Therefore, this study is expected to add value to regulation, standardisation and performance of sukuk in the Asian market, and it deals with the obstacles in the growth of sukuk, which were not extensively covered earlier by the researchers and the Islamic finance industry practitioners.

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Purpose

The main objective of this study is to identify the main determinants of the Islamic banks’ performance in Gulf Cooperation Council (GCC) regions.

Methodology/approach

The research uses both static model (fixed effects and random effects) and Generalized method of Moments (GMM). The data for this study are obtained from the annual reports of 29 Islamic banks from GCC countries using Bankscope database for the period from 2005 to 2013.

Findings

The empirical findings reveal that Islamic banks’ specific factors such as the equity financing and bank size are positive and statistically significant to the profitability of Islamic banks. The operating efficiency ratio is negatively and statistically significant to return on asset. It is also found that macroeconomic variables such as money supply and inflation are negatively and statistically significant to the performance of Islamic banks whereas oil price has been found positive and statistically significant to the performance of Islamic banks in the GCC region.

Research implications

The present study seeks to fill a demanding gap in the literature by providing new empirical evidence on the factors that influence the profitability of the Islamic banking sector in GCC regions.

Originality/value

These findings have significant contribution to the literature by comprehensively clarifying and critically analyzing the current state of profitability among the Islamic banks in GCC regions.

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Purpose

This chapter compares the returns performance of the Islamic mutual funds (IMFs) with that of conventional mutual fund (CMF). It covers both pre- and post-ASEAN financial crisis and global financial crisis data for an overall sample of 128 IMFs and 350 CMFs. It also covers two market cycles from January 1995 to December 1998 and from January 2005 to December 2008.

Methodology/approach

The net raw returns of all expenses and market risk-adjusted return performance measurements are employed to examine the portfolios’ performance, and to capture the difference movement of the funds based on the particular market trend.

Findings

We observed that on average both portfolios outperform the market return. In general, average returns performance of IMFs is not better than the CMFs during bullish and bearish market trend periods. However, the empirical results based on time-series regression model reveal that the IMFs portfolio slightly outperform the conventional counterparts.

Practical implications

The study would benefit the investors and market players to consider IMFs in their portfolio selection, if in future such an expected event may occur.

Originality/value

The study provides insights to regulators and market players who plan to access investment plan in an emerging market, particularly in Malaysia.

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Purpose

The purpose of this study is to examine the effect of risk sharing and non-risk sharing instruments on both the profitability of Islamic banks and the economic growth of the country. This study also aims to improve the profit and loss sharing-based asset growth of Islamic banks.

Methodology/approach

The data for this study are obtained from the annual reports of all Islamic banks from Bangladesh using Bank scope database and annual report for the period of 1983–2014. The research uses Autoregressive Distributive Lag approach.

Findings

The findings reveal that risk sharing instruments are positively related to profitability and the economic growth of the country. This study also finds that non-risk sharing instruments play a predominant role in the profitability of the Islamic bank but are negatively related to the economic growth of the country.

Research implications

Banks and other financial institutions need to pay greater attention to systemic risk created by risk transfer and apply risk sharing methods of financing more vigorously than has hitherto been the case.

Originality/value

This study will also contribute to the literature as relatively few Islamic financial literatures deal with the relationship between equity financing and profitability which may make a strong contribution to the area of Islamic finance.

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Purpose

The objective of the chapter is to discuss the role of wa’d (promise) to mitigate risk in different Islamic banking products. The chapter will illustrate the element of wa’d in different Islamic banking products in Malaysia.

Methodology/approach

The study has adopted the document review method to get information on different banking products. Moreover, it conducted semi-structured interviews with bankers to get in-depth information.

Findings

The study finds out that wa’d plays a vital role in structuring several products including retail products, trade financing products, and treasury products. Along with the unilateral wa’d there is a usage of double wa’d (wa’dan) in some product structures. In most of the products, wa’d is included as a risk mitigation instrument along with other major underlying Shari’ah contracts. Some Shari’ah issues are involved with these products namely the Shari’ah rulings related to wa’dan, “form over substance,” etc.

Originality/value

This is an in-depth field study which adds new knowledge on wa’d-based products. The experience of Malaysia might be a lesson for other countries to minimize risk in their Islamic banking products.

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Purpose

The purpose of this chapter is to examine how the broader characteristics of Pakistan’s public policies reflect Islamic law, how the financial crime rate has been affected by policy rules, and if the policies do indeed reflect Islamic law, how do they help the process?

Methodology/approach

It is a qualitative exploratory study where structured interviews have been conducted with experts and practitioners in Islamic Ideological Council and Parliament.

Findings

The findings constitute a threadbare discussion of financial crimes which policy takes into account under Islamic law; along with the relevant ramifications and recommendations.

Research implications

It is suggested that the laws of Pakistan be studied taking Shariah density into consideration. Future research can focus on implementation of laws and policies as a factor improving governance.

Originality/value

This study is pertinent because financial crimes in light of Islamic law and public policy are not discussed in detail in previous research.

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Purpose

Inquiring into the role of Islamic and conventional banks regarding the core responsibility of lending is an established phenomenon. This chapter is based on key findings regarding dynamic changes in the structural mix of credit portfolios in Islamic banks and conventional banks of Pakistan.

Methodology/approach

The nature of the study is exploratory; the sample consists of 5 Islamic banks and 20 conventional banks of Pakistan comparatively evaluated for the time frame of 2008–2014.

Findings

Our findings show that for Islamic banks, there is an increasing trend in the credit portfolios as a proportion to assets as well as to equity, whereas in case of conventional banks the findings are opposite. The results further prove a positive and negative growth of credit portfolios as proportional to assets and equity in case of Islamic and conventional banks respectively. It is also observed that credit portfolios of Islamic banks are growing with higher degree as a proportion to equity as compared to proportion to assets. On the other hand, conventional banks show higher degree of decline of credit portfolios as a proportion to equity as compared to assets.

Originality/value

These findings also show that primary stakeholders in Islamic banks are more risk seekers thus more inclined towards risky investments than ordinary credits.

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Section II Islamic Marketing

Purpose

This chapter discusses whether marketing can ever be Islamic given the common view of marketing functions as unsustainable and sometimes unethical, for example, how marketing promotes materialism.

Methodology/approach

This chapter reviews extant literatures in Islamic marketing, with a particular emphasis on stakeholder orientation in marketing.

Findings

We argue that Islamic marketing is indeed compatible with the concepts of ethical and sustainable marketing encompassing social, environmental as well as economic perspectives and encourages ethical behaviour.

Originality/value

This chapter highlights that discussions on Islamic marketing should include sustainable marketing and emphasises the growing importance of stakeholder orientation in marketing.

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Purpose

Islamic banking contributes significantly to the total assets of Malaysian banking sector. Yet, many argue that Islamic banking in Malaysia does not receive satisfactory support and participation from the public mainly due to poor awareness of its products and services and misconception about the Islamic banking system. It is timely to study consumers’ awareness of Islamic banking in the hopes of providing useful strategies for and assistance with marketing plans. This study is to explore consumer awareness towards Islamic banking products and services across a diverse set of demographic variables.

Methodology/approach

A quantitative approach was used in this study. A total of 1,000 questionnaires were distributed via convenience and snowballing sampling method to bank customers in a public university in Malaysia, and 817 responses from the survey were used for the analysis. Descriptive and non-parametric statistics were employed to answer objectives of this study.

Findings

The findings of this study are anticipated to provide a holistic and comprehensive marketing insight to improve and strengthen Islamic banking in Malaysia.

Originality/value

This study examines the role of demographics such age, gender, race/religion, education level, occupation and income level in trying to understand the issues of Islamic banks’ product awareness. It is well accepted that the consumer’s attitude or behaviour should be studied among others through understanding customers’ demographics.

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Purpose

This study aims to explore the presumed relationship between religion and purchase behavior of consumers in the context of Bangladesh.

Methodology/approach

This research is divided into two main parts. In the first one, the authors reviewed some of the most important studies relative to religion and marketing and those specifically relative to Islamic marketing. In the second part, this research shows the findings of a structured questionnaire administered to a sample of Muslim consumers currently residing in the capital city of Bangladesh – Dhaka. The questionnaire also sought to find out the respondents’ attitude towards the modern marketing tactics, in terms of the physical and visual appearance of local products, their perception of religious principles in the purchase decision and their attitude towards imported products of non-Muslim countries.

Findings

Results of this study highlight that religion often represents an essential reference point in influencing the perception and purchase behavior of consumers in the context of Bangladesh. This implies that marketing strategies based on Islamic ethics is going to be quite instrumental in order to reach out to the consumers in Muslim countries. As such, there is largely a strong positive relationship between religion and the purchase behavior of Muslim consumers.

Research limitations/implications

The lack of research on Islamic marketing limits the intensity of arguments in this study. For this reason, the literature review is not completely exhaustive. A small sample size has also been used due to time and resource constraints. Future research can be done on a bigger sample size of Bangladesh or other Islamic countries across the world. Other research avenues may include the study of Islamic marketing mix and exploring the factors that can influence non-Muslim consumers to select products and services based on Islamic ethics.

Practical implications

It is very important for businesses to introduce healthy practices in countries like Bangladesh and this can be rightly achieved through the use of Islamic marketing. Furthermore, the use of Islamic ethics in marketing strategies can eventually influence the religious perception of consumers and make them loyal towards any brands, products, and services in the context of Bangladesh.

Originality/value

The chapter draws attention to Bangladesh as one of the potential markets where the concept of Islamic market mechanism can be established. It also highlights the challenges that global marketers can face with Islamic marketing in Muslim countries like Bangladesh. Besides, it is the only study to date that focuses upon the relationship of religion, marketing, and consumer behavior for consumer products of the manufacturing industry.

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Purpose

Islamic finance and Halal product sectors are thriving successfully. This chapter is a general review of the perception of Asian consumers on Islamic finance and Halal sectors in the global Halal economy.

Methodology/approach

The first section will briefly describe the Halal concept in both Islamic finance and Halal industries, and the growth of both sectors in Asian countries. The second part highlights the review of Asian consumers’ perception towards Islamic finance products and Halal products.

Findings

The review found that the consumers’ perception towards the Islamic finance products and Halal products is distinctive. This is due to the diversity of Asian countries in terms of geography, religion, culture, ethnic, school of thoughts (madzahib), income per capita and government’s involvement.

Originality/value

The third part of the chapter concentrates on planning towards Halal marketing, which involves the move and future challenges in different layers of industries to gear up and strengthen the Halal economy.

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Purpose

This chapter aims to extend the knowledge and understanding on the role of halal ports in halal logistics. Halal logistics is a relatively new area in supply chain management. It refers to the process of managing the logistics operations such as fleet management, storage/warehousing, and materials handling according to the principles of Shariah law in ensuring the integrity of the halal products at the point of consumption.

Methodology/approach

This chapter studies how, in halal logistics, ports play an important role as the main processes of delivering halal products to the end consumers should be performed through their gateway. At port, the logistical handling of goods is performed through four systems, namely, transfer, delivery/receipt, ship, and storage.

Findings

The halal control and assurance activities conducted at transport, terminal, and warehouse should be clearly inspected in preserving the halal status of the products, thus enhancing the halal supply chain performance. Such activities include having a dedicated halal warehouse and transport, use of tertiary packaging in shipment as well as segregation of halal products from non-halal products to avoid contamination.

Practical implications

This chapter also highlights the issues and challenges of adopting halal logistics faced by the industry. The issues and challenges discussed in the literature includes disunity of halal certification, high cost and low demand of the halal processes, inadequate Shariah compliant personnel and lack of a general and worldwide acceptable halal compliant process.

Originality/value

The chapter concludes with recommendation to perform qualitative research and case studies at specific ports in order to assess the role and implementation of halal ports in their supply chain processes.

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Section III Islamic Business and Management

Purpose

Despite the establishment of the Zakat, its role has been argued by the new Muslim (Muallaf) community. This research attempts to examine the role played by the Zakat institution in Selangor in distributing funds and supporting Muallaf.

Methodology/approach

A qualitative approach through a series of interview sessions with management of the Zakat institution was carried out.

Findings

The results show that the department has supported Muallaf, particularly in terms of education, finance and monitoring the Muallaf through various programmes starting from the first day they convert to Islam.

Research limitations/implications

This chapter has its limitations in terms of the data collection from the Islamic religious centre. Future research should collect information from all rightful recipients, particularly the Muallaf community in order to measure the efficiency of the institution of Zakat. Future studies are important to understand how efficient the Islamic institution plays its role in managing and ensuring social economic justice among the other Muslim community.

Practical implications

This chapter indicates that the management of the Zakat institution should provide more systematic guidelines in managing Zakat fund for the efficient promotion, collection and distribution. Managing the institution of Zakat efficiently and effectively will help to enhance the image of religion, particularly Islam.

Social implications

This chapter confirms that the Islamic Religious Department of Selangor has managed to successfully administer the Zakat fund. On top of that, the department has organized several programmes for Muallaf in order to support them to be a new Muslim in a majority Muslim country.

Original/value

This chapter also clarifies the issues raised by the Muallaf community concerning the unfair treatment in distributing the Zakat fund and supporting them. This chapter contributes towards an understanding of the Zakat institution with regards to its concepts, role, issues and challenges.

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Purpose

This chapter is derived from the result of research conducted by Firman Menne, Lanita Winata and Mohammad Hossain. The emergence of Islamic Financial Institutions (IFIs) is expected to provide enormous benefits for the Muslim community in Indonesia such as the availability of IFIs based on Sharia law and the implementation of Islamic value in the community. Like Corporate Social Responsibility (CSR) practices in all business organizations, the IFI’s CSR becomes one of the important factors in improving organizational performance. The implementation of CSR in IFIs is unique as it is based on Sharia law. Zakat and Qardh are the unique IFI CSR practices. There are many studies which have investigated the relationship of Zakat and Qardh on organizational performance in Arabic and Muslim countries. In Muslim countries, Islamic laws, including providing Zakat and Qardh, are practices of every business organization. As Indonesia is not a Muslim country, Zakat and Qardh are only required for IFIs as part of CSR practices. This study aims to analyse the influence of CSR practices on the financial performances of IFIs in Indonesia using gender as a control variable.

Methodology/approach

The samples of this research were taken from the annual reports of nine Islamic banks for the period of 2010–2014. Regression method was used to analyse and test hypotheses.

Findings

The results of this research indicate that the relationship between CSR practices and financial performance is significant, the value of R is 0.737, and R square is 0.543.

Practical implications

This means that the implementation of CSR practices (Zakat and Qardh) improves organizational financial performances of IFIs in Indonesia.

Originality/value

This study also has a limitation as it only focuses on Zakat and Qardh; thus in the future, it is necessary to advance the variable of CSR practices on the real social and environmental practices such as environmental improvement, increasing the quality of human resources, involvement in any jobs or reducing unemployment and any other activities.

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Index

Pages 363-372
Content available
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Cover of Advances in Islamic Finance, Marketing, and Management
DOI
10.1108/9781786358981
Publication date
2016-12-19
Editors
ISBN
978-1-78635-899-8