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Article
Publication date: 3 May 2016

Muhammad Rizky Prima Sakti, Ahmad Syahid, Mohammad Ali Tareq and Akbariah Mohd Mahdzir

The purpose of this study is to investigate shari’ah scholars’ views and experiences pertaining the shari’ah issues, challenges and prospects in Islamic derivatives…

Abstract

Purpose

The purpose of this study is to investigate shari’ah scholars’ views and experiences pertaining the shari’ah issues, challenges and prospects in Islamic derivatives. Specifically, this paper critically examines the criticisms toward conventional derivative instruments and the controversies surrounding underlying contracts and current Islamic derivative products.

Design/methodology/approach

This study uses qualitative methods to form a deeper understanding of shari’ah scholars’ perception and experience on Islamic derivatives. Semi-structured interviews were conducted with five shari’ah scholars who are currently working in Islamic financial institutions in Malaysia and Singapore. This study used phenomenological techniques for its data analysis.

Findings

This study has found that shari’ah scholars are aware of the shari’ah issues surrounding Islamic derivatives and have provided comprehensive insight on the solution to these issues. It was found that it is important to take into account the derivatives instruments in Islamic financial industry because of the need for hedging and risk mitigation within Islamic financial institutions. Nonetheless, the study has also found that the use of wa’ad contracts to structure Islamic profit rate swaps and foreign currency exchanges are problematic because of it having features of bay’ al-kali’ bil-kali (the sale of one debt for another).

Originality/value

This study is one of few studies that highlight the shari’ah issues of Islamic derivatives in Islamic banking and finance industry. This paper is of value in discussing risk management and Islamic derivatives in Islamic financial institutions and how there are many issues under the investigation process, particularly issues related to controversial underlying contracts and products.

Details

Qualitative Research in Financial Markets, vol. 8 no. 2
Type: Research Article
ISSN: 1755-4179

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Article
Publication date: 16 September 2020

Rasyidin

The purpose of this study is to critically understand and to find out the social political role of the Acehnese ulamas (Muslim scholars) in solving and coping with social…

Abstract

Purpose

The purpose of this study is to critically understand and to find out the social political role of the Acehnese ulamas (Muslim scholars) in solving and coping with social issues faced by contemporary Acehnese society.

Design/methodology/approach

This study was conducted in the province of Nanggroe Aceh Darussalam, especially in the districts of Aceh Utara, Pidie, Aceh Besar, Aceh Selatan and Aceh Timur. The locations were chosen based on the consideration of the objective conditions that many ulamas are dwelling and easily be found within these areas. Besides, the locations are historically believed as the origins of the Acehnese that are so diverse. In addition, a large number of social problems frequently arose within those regions. The subjects of this research study were a number of community determined by purposive sampling technique. The instruments used for the data collection in this research were observation, in-depth interview and library study; and interpretative understanding was also used to analyze the data.

Findings

The existence of the Acehnese ulamas represents the government’s recognition to word the traditional institutional in Aceh. However, some people think that institutions are used by government to exploit ulama as the mediator between government and society. For the Acehnese ulamas, the presence of the institution could be used to consolidate their power for the benefit of the people.

Originality/value

The originality of this research can be seen from the effort to explain how contemporary Acehnese society views Theologian (ulama) in solving social problems, which were little studied by previous researchers. This question is important to examine, given the position of ulama in people’s lives since the pre-independence period and during the social revolution that had occurred in Aceh until the early 1970s was very dominant. That is, even the symbolic world of Acehnese society formed through the dominance of ulama discourse has structured how people’s responses typically must be expressed.

Details

Journal of Global Responsibility, vol. 12 no. 1
Type: Research Article
ISSN: 2041-2568

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Article
Publication date: 5 June 2019

Tengku Muhammad Jamil

The purpose of this study is to critically understand and find out the socio-political role of the Acehnese ulamas (Muslim scholars) in solving and coping with social…

Abstract

Purpose

The purpose of this study is to critically understand and find out the socio-political role of the Acehnese ulamas (Muslim scholars) in solving and coping with social issues faced by contemporary Acehnese society.

Design/methodology/approach

This study was conducted in the province of Nanggroe Aceh Darussalam, especially in the districts of Aceh Utara, Pidie, Aceh Besar, Aceh Selatan and Aceh Timur. The locations were chosen based on the consideration of the objective conditions that many ulamas were dwelling and could easily be found in these areas. Besides, the locations are historically believed as the origins of the Acehnese that are so diverse. In addition, a large number of social problems frequently arose within those regions. The subjects of this research study were a number of community determined by purposive sampling technique. The instruments used for the data collection in this research were observation, in-depth interview and library study; and interpretative understanding was also used to analyze the data.

Findings

The existence of the Acehnese ulamas represents the government’s recognition to word the traditional institutional in Aceh. However, some people think that institutions are used by the government to exploit ulama as the mediator between the government and the society. For the Acehnese ulamas, the institution could be used to consolidate their power for the benefit of the people.

Originality/value

The various theories discussed are considered the framework and guidance for this study, especially in terms of data collection and data analysis. The new theories and relevant references will also possibly be added to the following study.

Details

Journal of Islamic Marketing, vol. 11 no. 1
Type: Research Article
ISSN: 1759-0833

Keywords

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Article
Publication date: 13 May 2020

Md Akther Uddin and Abu Umar Faruq Ahmad

This paper aims to compare and contrast the concept of conventional futures contract from the Islamic law of contract perspectives. The underlying theory and practice of…

Abstract

Purpose

This paper aims to compare and contrast the concept of conventional futures contract from the Islamic law of contract perspectives. The underlying theory and practice of Islamic finance is based on the principles of Islamic law of contract. Although the necessity of derivative instruments such as the case with futures contract is essential for developments in Islamic finance, the permissibility of using these instruments still remains a debatable issue.

Design/methodology/approach

The paper discusses arguments for and against using derivative instruments as in futures, for example, in light with the Qur’an and Sunnah (the Prophet’s traditions), as well as the views of classical scholars, jurists and contemporary researchers. Arguments for and against are analysed systematically to derive a logical conclusion.

Findings

The study finds that majority scholars consider futures contracts as non-compliant with the Islamic law due to the fact that selling something that does not exist, deferment in the both counter values, gharar or ambiguity and excessive risk taking, pure speculation and sale of one debt for another.

Research limitations/implications

The study focuses narrowly on conventional futures contract. Analysing other financial derivative contracts could be a future research endeavour.

Practical implications

The study has so far found the verdict of impermissibility of conventional futures contract in its current form as has been argued by majority scholars in the premise that they do not comply with the Islamic law. Policymakers and industry practitioners need to take this opinion of majority scholars while developing new Islamic financial derivatives.

Originality/value

To the best of the author's knowledge, the present research is the first attempt so far that explained the validity of conventional futures by analysing arguments of classical and contemporary jurists, scholars and researchers.

Details

International Journal of Law and Management, vol. 62 no. 4
Type: Research Article
ISSN: 1754-243X

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Article
Publication date: 20 September 2021

Azlin Alisa Ahmad, Mohd Hafiz Mohd Dasar and Nik Abdul Rahim Nik Abdul Ghani

This study aims to analyse the Shariah issues in the implementation of tawarruq contract in the Islamic profit rate swap (IPRS) instrument in Malaysia.

Abstract

Purpose

This study aims to analyse the Shariah issues in the implementation of tawarruq contract in the Islamic profit rate swap (IPRS) instrument in Malaysia.

Design/methodology/approach

This is a qualitative study in applying data analysis and semi-structured interview approaches. Data was collected from various documents including journals, articles and past studies conducted by scholars. To achieve the purpose of this study, the data is analysed based on thematic analysis.

Findings

The study found several Shariah issues regarding the implementation of tawarruq contract in the IPRS instruments, which have remained a dispute amongst the Islamic financial scholars such as its profit-making purpose, encouragement of debt, impediment of shared risk concept, disputed underlying assets, a deception towards allowing riba and dual agency.

Research limitations/implications

This study recommends several improvements such as the establishment of a neutral agency that does not represent any banking institution to manage the tawarruq contract commodity purchase from Bursa Suq al-Sila’ (BSAS). In addition, a neutral agency can provide aid in terms of transaction facility or at least consultation service for clients to enable them to conduct the commodity transactions independently.

Practical implications

Moreover, guidelines should be established on the separation of the deadline to sign the agreement of appointment of a bank as the commodity purchase agent and the agreement of appointment of the bank as the commodity sale agent on behalf of clients. All transactions related to tawarruq contract commodity must be done through BSAS. The regulators and industry experts may create a guideline for the IPRS based on the issues and recommendations that have been discussed in this study.

Originality/value

On the basis of the analysis of the criticisms and issues in the implementation of tawarruq contract in the IPRS instrument, the current study found that an intermediating institution is allowed to gain profits from transactions conducted so long as they are based on Shariah principles of contract in Islam. As there is no parameter specifically for IPRS, thus the suggested parameter can be used by policymakers such as the Central Bank of Malaysia to ensure the industry complies with Shariah principles.

Details

Qualitative Research in Financial Markets, vol. ahead-of-print no. ahead-of-print
Type: Research Article
ISSN: 1755-4179

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Article
Publication date: 14 October 2019

Ruzita Abdul-Rahim, Adilah A. Wahab and Nor Amalina Yusoff

The purpose of this paper is to investigate whether the shariah-compliant status of the firms negatively influences their use of foreign exchange hedging instruments.

Abstract

Purpose

The purpose of this paper is to investigate whether the shariah-compliant status of the firms negatively influences their use of foreign exchange hedging instruments.

Design/methodology/approach

This paper uses a logit panel regression on 350 firm-year observations from 70 nonfinancial listed firms over the period from 2010 to 2014. Shariah-compliant companies account for about 84 per cent of the sample firms.

Findings

Preliminarily, the results show that none of the samples of the shariah-compliant firms report any use of Islamic hedging instrument, either in the form of wa’d or tawarruq. The results of the study’s logit panel regression contradict the authors’ prediction that the shariah-compliant status negatively influences firms’ decision to hedge. In contrast, shariah-compliant companies are twice as likely as their conventional counterparts in adopting forex hedging.

Research limitations/implications

This study is limited to information disclosed in the items 31, 36 and 37 of financial management policies in the annual report. However, given that shariah-compliant firms must abide by the limit of 5 per cent profits before tax from clearly prohibited activities (including riba’), the need for exclusive disclosure on the adoption of Islamic or conventional hedging appears to be imperative for the viability of the Malaysian Islamic capital market.

Practical implications

In evaluating the shariah compliance of a company, investors (individual or institutional) must look further than just interest-based riba’ in mixed-business companies to ensure that they comply with the 5 per cent maximum requirement on the non-halal business contribution to profit. This is because the finding of this study indicates that shariah-compliant companies are twice as likely to adopt forex hedging, when none of them reports the use of Islamic hedging tools. Investors must therefore give ample allowance to riba’ that can be induced through the use of conventional forex hedging instruments. This is until the security market regulator imposes a requirement on shariah-compliant companies an explicit disclosure of the use of Islamic versus conventional hedging tools, as they had done in the case of Islamic versus conventional debt instruments.

Social implications

Muslim and socially responsible investors rely on the Shariah-compliant status of the company in ensuring that their wealth grows according to the Shariah principles. To sustain and develop the Islamic capital market which the firms have been relying on for external capital, Shariah-compliant firms and the authority awarding the status are equally responsible for honoring the trust that these investors by ensuring the permissibility (halal) of the business and the conduct of their business.

Originality/value

Conventional forex hedging instruments are criticized for violating as-sarf, a shariah principle, which requires the exchanges of particular assets (gold, silver and currency) to be delivered on the spot, and thereby infusing riba’ al-fadhl. Although Islamic (wa’d- or tawarruq-based) hedging instruments are widely available by Islamic banks in this country since they were introduced by Bank Negara Malaysia in 2010, paradoxically, the authors’ observation indicates that none of the studied firms reports the adoption of these instruments in their annual reports.

Details

Journal of Islamic Accounting and Business Research, vol. 10 no. 5
Type: Research Article
ISSN: 1759-0817

Keywords

Content available
Article
Publication date: 21 May 2021

Zaminor Zamzamir@Zamzamin, Razali Haron, Zatul Karamah Ahmad Baharul Ulum and Anwar Hasan Abdullah Othman

This study examines the impact of hedging on firm value of Sharīʿah compliant firms (SCFs) in a non-linear framework.

Abstract

Purpose

This study examines the impact of hedging on firm value of Sharīʿah compliant firms (SCFs) in a non-linear framework.

Design/methodology/approach

This study employs the system-GMM for dynamic panel data to examine the influence of derivatives usage on firm value (Tobin's Q, ROA and ROE). The sample comprised of 59 non-financial SCFs engaged in derivatives from 2000 to 2017 (18 years). The Sasabuchi-Lind-Mehlum (SLM) test for U-shaped is performed to confirm the existence of the non-linear relationship.

Findings

This study concludes that hedging significantly contributes to firm value of SCFs based on the non-linear framework. This study suggests that, first, the non-linear relationship occurs due to the different degree of derivatives usage and risk. Second, firms practice selective hedging to maintain the upside potential of firm value.

Research limitations/implications

This study has important implications. First, the importance of risk management via derivatives to increase firm value, second, the evidence of selective hedging from the non-linear relationship between derivatives and firm value and third, the need for quality reporting on derivatives engagement by firms in line with the required accounting standard on derivatives.

Originality/value

This study fills the gap in the literature in relation to the risk management strategies of SCFs in three aspects. First, re-examines the relationship using recent data. Second, examines the relationship in the non-linear framework as the limited studies found in the literature on Malaysian firms are only based on linear relationship. Third, determines whether hedging undertaken by firms is optimal as this can only be addressed using the non-linear framework. This study is robust to the various definitions of firm value (Tobin's Q, ROA and ROE) and non-linear methodologies.

Details

Islamic Economic Studies, vol. 28 no. 2
Type: Research Article
ISSN: 1319-1616

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Article
Publication date: 7 August 2017

Muhammad Rizky Prima Sakti, Mohamad Ali Tareq, Buerhan Saiti and Tahir Akhtar

This paper aims to critically evaluate theoretical and empirical research into capital structure practices in Islamic banks (IBs) from four perspectives, namely…

Abstract

Purpose

This paper aims to critically evaluate theoretical and empirical research into capital structure practices in Islamic banks (IBs) from four perspectives, namely, theoretical aspect and its nature, determinants of capital structure in IBs, links between capital structure and risk management and nexus between capital structure and performance of IBs.

Design/methodology/approach

The authors will review and examine past studies on IBs’ capital structure from both theoretical and empirical research.

Findings

The paper concludes that most of the literature on IB capital structure is largely theoretical than empirical. The existing studies on IB capital structure have various limitations, which suggest a need for detailed empirical work. Detailed empirical research in the field of capital structure will support bank managers and policymakers in making decisions about improving capital structure.

Originality/value

This research will make several noteworthy contributions to address literature gaps for IB capital structure. Furthermore, this paper will identify areas for future research into capital structure practices and IB financing decisions. Lastly, this paper will equip regulators with guidelines for establishing sound capital requirements for IB.

Details

Qualitative Research in Financial Markets, vol. 9 no. 3
Type: Research Article
ISSN: 1755-4179

Keywords

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Article
Publication date: 19 March 2021

Simon D. Norton and Vahid Molla Imeny

This paper aims to compare products traded in secular and Islamic banking environments prior to the credit crunch of 2007–2008; to locate the comparison in a Schumpeterian…

Abstract

Purpose

This paper aims to compare products traded in secular and Islamic banking environments prior to the credit crunch of 2007–2008; to locate the comparison in a Schumpeterian model of creative destruction of dynamic innovation in the capital markets; and to evaluate the implications for diversity of investor product choice.

Design/methodology/approach

Financial products are critiqued using qualitative criteria, including underestimation of risk implicit in mortgage-backed securities and securitisation, excessive speculative activity in credit default swaps and the magnification of leverage and volatility. Comparable Islamic products are considered for the extent to which they facilitate the same precursors of market crises.

Findings

Innovation in secular financial markets has traditionally led to asset bubbles, underestimation of risks and market exuberance. Islamic banking constrains creativity by prohibiting risk transference and disconnection of financing activity from social context and economic purpose. As such, the latter reduces Schumpeterian creative destruction but at the cost of reduced investor choice and market liquidity. Restriction of the reallocation of risk between those who do not wish to hold it and those who do dampens innovation but would have prevented the trading of products which contributed to the credit crunch.

Originality/value

The constraining effect of Islamic banking upon creativity and innovation is considered alongside its capacity to reduce market volatility, speculation and systemic instability. Schumpeterian theory deepens the analysis in terms of the drivers of innovation and market collapse.

Details

Qualitative Research in Financial Markets, vol. 13 no. 2
Type: Research Article
ISSN: 1755-4179

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Article
Publication date: 22 June 2021

Fahmi Ali Hudaefi, Rezzy Eko Caraka and Hairunnizam Wahid

Zakat during the COVID-19 outbreak has played a vital role and has been significantly discussed in the virtual environment. Such information about zakat in the virtual…

Abstract

Purpose

Zakat during the COVID-19 outbreak has played a vital role and has been significantly discussed in the virtual environment. Such information about zakat in the virtual world creates unstructured data, which contains important information and knowledge. This paper aims to discover knowledge related to zakat administration during the pandemic from the information in a virtual environment. Furthermore, the discussion is contextualised to the socio-economic debates.

Design/methodology/approach

This is a qualitative study operated via text mining to discover knowledge of zakat administration during the COVID-19 pandemic. The National Board of Zakat Republic of Indonesia (BAZNAS RI) is selected for a single case study. This paper samples BAZNAS RI’s situation report on COVID-19 from its virtual website. The data consists of 40 digital pages containing 19,812 characters, 3,004 words and 3,003 white spaces. The text mining analytical steps are performed via RStudio. The following R packages, networkD3, igraph, ggraph and ggplot2 are used to run the Latent Dirichlet Allocation (LDA) for topic modelling.

Findings

The machine learning analysis via RStudio results in the 16 topics associated with the 3 primary topics (i.e. Education, Sadaqah and Health Services). The topic modelling discovers knowledge about BAZNAS RI’s assistance for COVID-19 relief, which may help the readers understand zakat administration in times of the pandemic from BAZNAS RI’s virtual website. This finding may draw the theory of socio-economic zakat, which explains that zakat as a religious obligation plays a critical role in shaping a Muslim community's social and economic processes, notably during the unprecedented times of COVID-19.

Research limitations/implications

This study uses data from a single zakat institution. Thus, the generalisation of the finding is limited to the sampled institution.

Practical implications

This research is both theoretically and practically important for academics and industry professionals. This paper contributes to the novelty in performing text mining via R in gaining knowledge about the recent zakat administration from a virtual website. The finding of this study (i.e. the topic modelling) is practically essential for zakat stakeholders to understand the contribution of zakat in managing the COVID-19 impacts.

Social implications

This work derives a theory of “socio-economic zakat” that explains the importance of a zakat institution in activating zakat for managing socio-economic issues during the pandemic. Thus, paying zakat to an authorised institution may actualise more maslahah (public interest) compared to paying it directly to the asnaf (zakat beneficiaries) without any measurement

Originality/value

This study is among the pioneers in gaining knowledge from Indonesia’s zakat management during the COVID-19 outbreak via text mining. The authors’ way of analysing data from the virtual website using RStudio can advance Islamic economics literature.

Details

International Journal of Islamic and Middle Eastern Finance and Management, vol. ahead-of-print no. ahead-of-print
Type: Research Article
ISSN: 1753-8394

Keywords

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