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Article
Publication date: 31 August 2010

Rifki Ismal

The paper attempts to analyze the volatility of returns and expected losses of Islamic bank financing. In particular, it takes the case of Indonesian Islamic banking industry.

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Abstract

Purpose

The paper attempts to analyze the volatility of returns and expected losses of Islamic bank financing. In particular, it takes the case of Indonesian Islamic banking industry.

Design/methodology/approach

The paper uses Value at Risk (VaR) approach to compute the volatility (risk) of returns and expected losses of Islamic bank financing. In particular, it uses variance‐covariance method to calculate VaR of multi‐asset portfolios (groups of equity‐, debt‐ and service‐based financing).

Findings

First of all, equity and debt‐based financing produce sustainable returns of bank financing. Moreover, they are also very resilient during unfavorable economic conditions. Second, the performance of service‐based financing is very sensitive to the economic conditions. Lastly, VaR computation on the volatility of returns and expected losses of bank financing finds that risk of investment and expected losses are well managed.

Practical implications

The paper demands Islamic banks to keep intensifying equity‐based financing rather than only debt‐based financing and improve the banking services to support the performance of service‐based financing.

Originality/value

To the best of the author's knowledge, this is the first paper to assist the volatility of returns and expected losses of the Islamic banking financing in Indonesian.

Details

International Journal of Islamic and Middle Eastern Finance and Management, vol. 3 no. 3
Type: Research Article
ISSN: 1753-8394

Keywords

Article
Publication date: 3 August 2022

Salman Ahmed Shaikh

This paper aims to discuss the views of scholarship in South Asia regarding Riba and Riba-free finance, including the conservative and realist schools in mainstream…

Abstract

Purpose

This paper aims to discuss the views of scholarship in South Asia regarding Riba and Riba-free finance, including the conservative and realist schools in mainstream thought and the assimilative and interpretive schools in liberal thought.

Design/methodology/approach

The paper uses textual analysis to critically review the writings of scholars in South Asia on contemporary issues regarding Riba and Riba-free finance. It provides a critical review in the light of Islamic jurisprudence and extant Islamic economics literature.

Findings

There are several characteristics in conventional banking and finance products that do not comply with Islamic teachings. In this scenario, Islamic banking is comparatively a better alternative to conventional banking and finance products to achieve Shari’ah compliance and avoid indulging in Riba.

Practical implications

Voluntary financial exclusion to avoid Riba is significant in Muslim-majority countries. Increased penetration of Islamic finance requires clarity on what is Riba and confidence in Riba-free alternatives. Outreach efforts of Islamic financial institutions use conventional banking as a frame of reference to provide a critique of interest-based banking. However, the apprehensions within the Islamic finance literature also need to be answered to change perception and enhance people’s willingness to use Islamic banking. Doing this can expedite the process of financial inclusion as well as help in the transformation of the economy on Riba-free foundations in a reasonably quick timeframe.

Originality/value

This is the first study to critically evaluate the financial proposals presented and propagated by the contemporary interpretive school in South Asia.

Details

International Journal of Ethics and Systems, vol. ahead-of-print no. ahead-of-print
Type: Research Article
ISSN: 2514-9369

Keywords

Article
Publication date: 14 April 2022

Mosab I. Tabash, Fatima Muhammad Abdulkarim, Mustapha Ishaq Akinlaso and Raj S. Dhankar

The paper examines the relationship between Islamic banking and the growth of the economy in Nigeria in both the short run and long run.

Abstract

Purpose

The paper examines the relationship between Islamic banking and the growth of the economy in Nigeria in both the short run and long run.

Design/methodology/approach

The study employs quarterly secondary time series data for Islamic banking as well as major macroeconomic variables to study the contribution of Islamic banking to the economy of Nigeria. It employs autoregressive distributed lags (ARDL) and error correction model (ECM) approaches from 2013 quarter 1 up to 2020 quarter 2.

Findings

The results show that Islamic banking has a positive contribution to Nigeria's economy in both short run and long run, but this contribution is insignificant.

Practical implications

Policymakers should endeavor to redesign the country's financial architecture and come up with policies that can support the growth of Islamic finance sector. This will significantly strengthen Nigeria's position as one of the leading Islamic finance hubs in Africa.

Originality/value

This is the first study to examine the contribution of Islamic banking to the Nigerian economy according to the best knowledge of the authors.

Details

African Journal of Economic and Management Studies, vol. ahead-of-print no. ahead-of-print
Type: Research Article
ISSN: 2040-0705

Keywords

Open Access
Article
Publication date: 6 January 2021

Ibrahim Musa Gani and Zakaria Bahari

Malaysia is one of the fastest-growing Asian economies with a properly designed and developed Islamic financial system. This unique feature of the Malaysian economy made…

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Abstract

Purpose

Malaysia is one of the fastest-growing Asian economies with a properly designed and developed Islamic financial system. This unique feature of the Malaysian economy made it an important case study, and the purpose of this study is to assess for the dynamic contribution of Islamic finance to the growth of the real economy.

Design/methodology/approach

The study uses a quarterly data set of 20 years analysed via the autoregressive distributive lag bounds test approach to cointegration.

Findings

The results in the short-run show a non-significant relationship between Islamic banking indices and the real economy. However, in the long-run, financing and deposits of Islamic banks are favourable and contribute significantly to the growth of the Malaysian economy. There was an accumulation of meaningful and wide-ranging investment over the period of the study and productivity of capital was also extra-efficient. The direction of causality is found to be bidirectional between Islamic banking deposits and Malaysian gross domestic product (GDP), but there is a weak causal effect from Islamic banking financing to GDP.

Research limitations/implications

Malaysia has a dual financial system (conventional and Islamic) and both can affect its real economy. This research is limited to Islamic banking’s effects on Malaysian economic growth. The research also limits the scope and coverage for 20 years, from 1998 to 2017 to cover the years for which data is available for all the variables used in the study.

Practical implications

The results confirm that the Islamic banking sector in Malaysia is performing well in carrying out its major function of financial intermediation, which is the pooling and channelling of funds to productive investment activities. Consequently, the fact that Malaysia excels in Islamic finance is not a fluke. It is because of the effective performance of Islamic financial institutions in the country. Furthermore, Malaysian authorities are doing their level best in promoting Islamic financial activities.

Originality/value

The study fulfills the need to uncover the relationship between the Islamic financial system and the real economy in Malaysia. It differs from other studies as it uses the most recent available data, introduces new variables and identifies the channel by which Islamic banking development transmits growth.

Details

ISRA International Journal of Islamic Finance, vol. 13 no. 1
Type: Research Article
ISSN: 0128-1976

Keywords

Article
Publication date: 7 May 2021

Umar Habibu Umar, Mustapha AbuBakar, Abubakar Jamilu Baita, Tasiu Tijjani Kademi and Md Harashid Haron

The purpose of this study is to examine the contribution of academic and professional institutions in promoting the awareness and knowledge of Islamic banking and finance

Abstract

Purpose

The purpose of this study is to examine the contribution of academic and professional institutions in promoting the awareness and knowledge of Islamic banking and finance in Nigeria.

Design/methodology/approach

The data were generated through a documentary research method by examining the Benchmark Minimum Academic Standards (BMAS) for Nigerian universities and Nigerian university curricula for the relevant undergraduate programs, as well as examination syllabi and training brochures for the relevant professional associations.

Findings

The study found that universities do not promote significantly the awareness and knowledge of Islamic banking and finance. Similarly, the relevant professional associations through their examinations and training programs contribute little or nothing to the promotion of awareness and knowledge.

Research limitations/implications

This study solely relied upon documentary evidence upon which the findings were based. In addition, for academic institutions, only undergraduate BMAS and curricula were examined.

Practical implications

There should be collaborations between the National University Commission of Nigeria, relevant Islamic and non-Islamic professional bodies and Nigerian Universities to ensure that courses (subjects) that could promote the awareness and knowledge of Islamic banking and finance are fully integrated into academic and professional curricula and training programs.

Social implications

The integration of an adequate number of relevant courses/topics into academic curricula and professional institution examination syllabi and their Mandatory Continuing Professional Development programs would greatly contribute to the production of competent and skillful employees to work for the growth and development of the Islamic banking and finance industry.

Originality/value

This study provides better ways of ensuring that knowledgeable and qualified employees are produced to work for the sustainability of the global Islamic banking and finance industry.

Details

Journal of Islamic Accounting and Business Research, vol. 12 no. 3
Type: Research Article
ISSN: 1759-0817

Keywords

Article
Publication date: 9 October 2019

Nur Dyah Nastiti and Rahmatina Awaliah Kasri

The 2015 global economic crisis has triggered the issuance of several banking regulations in Indonesia, including those related to temporary stimulus for Islamic banks and

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Abstract

Purpose

The 2015 global economic crisis has triggered the issuance of several banking regulations in Indonesia, including those related to temporary stimulus for Islamic banks and branchless banking (fintech). However, few studies attempt to evaluate the effectiveness of such regulations. Thus, this study aims to determine the role and assess the effectiveness of such banking regulations.

Design/methodology/approach

The data used cover all 12 Islamic commercial banks in Indonesia during the stimulus period of Q3.2015 to Q2.2017. The variables included were banks’ fundamental factors (Islamic financing, capital adequacy ratio, investment, non-performing financing, return on asset, efficiency, financing deposit ratio and fintech) and macroeconomic variables (inflation, exchange rate and money supply). The model was analyzed by using multiple linear regressions with generalized least square estimation technique.

Findings

The main finding suggests that the stimulus regulation indeed played a positive role in the acceleration of Islamic bank financing. However, the fintech-related regulation was not yet effective to achieve the goal, at least in the short term. Furthermore, the study found that return of assets, operational efficiency, financing deposit ratio and money supply also influenced Islamic financing.

Practical implications

For policymakers, the effectiveness of the temporary stimulus in accelerating Islamic banking financing and preventing the possible negative impacts of the external crisis provides indications that the regulator could conduct similar policy in the future. More generally, the findings are also expected to enrich Islamic banking literature.

Originality/value

This is possibly one of the few studies to investigate the role and effectiveness of banking regulations on Islamic banking financing in Indonesia.

Details

International Journal of Islamic and Middle Eastern Finance and Management, vol. 12 no. 5
Type: Research Article
ISSN: 1753-8394

Keywords

Article
Publication date: 6 November 2017

Umair Riaz, Musafar Khan and Naimat Khan

The aim of this study is to examine the perceptions of consumers on Islamic banking and finance in Pakistan. Islamic finance is an emerging phenomenon, and its survival…

1856

Abstract

Purpose

The aim of this study is to examine the perceptions of consumers on Islamic banking and finance in Pakistan. Islamic finance is an emerging phenomenon, and its survival depends on the availability, affordability and awareness. This paper attempts to fill the gap in the literature by exploring the perceptions of consumers and bankers in an attempt to gain insights so that the availability of products and awareness can be increased.

Design/methodology/approach

The study uses a regression model by using perception as a dependent variable and awareness, knowledge and religious motivation as independent variables. Primary data is collected using 150 questionnaires distributed amongst finance students in several universities and employees of Islamic banks in the Khyber Pakhtunkhwa (KPK) Province of Pakistan.

Findings

The findings reveal that overall consumers’ perception is positive about Islamic banking and finance in Pakistan. Statistical analysis shows that awareness, knowledge and religiosity level have a positive influence on the perception of consumers about Islamic financing products and services in Pakistan. To improve the awareness and understanding, Islamic banks could make better marketing strategies and could increase their presence by mosque visits and conferences. Cooperation between the industry and scholars could help in providing more innovative products to the consumers.

Research limitations/implications

There has been a limited amount of work carried out on the perceptions of consumers about Islamic banking in Pakistan. The present study represents the start of a larger context for examining Islamic banking practices in Pakistan. The findings of the study can be used as a reference in future research projects in the areas of perceptions and awareness.

Originality/value

Little research has been conducted to study this problem from the perspectives of consumers and Islamic banking employees. Most of the research associated with Islamic banks fails to pay attention to these stakeholder groups in one study.

Details

Qualitative Research in Financial Markets, vol. 9 no. 4
Type: Research Article
ISSN: 1755-4179

Keywords

Article
Publication date: 27 June 2019

Taslima Julia and Salina Kassim

Environmental degradation has been identified as one of the major impediments for development in Bangladesh. The World Health Organization has ranked Bangladesh fourth…

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Abstract

Purpose

Environmental degradation has been identified as one of the major impediments for development in Bangladesh. The World Health Organization has ranked Bangladesh fourth among the most polluted countries in the world. Faced with this challenge, the Government of Bangladesh introduced the Green Financing Policy and encouraged banks to participate in offering green financing as part of the efforts to promote environment-friendly economic activities for sustainable economic development. This study aims to examine the financial performance of selected commercial banks that offered green financing in Bangladesh in the period from 2012 to 2014.

Design/methodology/approach

In achieving this objective, the paper has divided the various sections of green banking policy under Maqasid Shariah framework of Imam Al-Ghazali, which is preserving faith, life, intellect, posterity and wealth. After that, green performance is compared between five conventional banks and five Islamic banks, according to the secondary data gathered from the annual reports and sustainability reports, as well as verified based on interviews. Finally, based on quantitative and qualitative thematic analysis approach, it is identified which banks meet most of the Shariah objectives along with performing sustainably.

Findings

The study finds that none of the banks fully meet the green/sustainable policy requirements; however, the Islamic banks are ahead in preserving faith, intellect and wealth circulation.

Research limitations/implications

This research is mostly based on secondary data; banks’ non-disclosure of green data was an impediment to run in-depth and fair comparisons. However, to check the reliability and validity of secondary data, two heads of sustainable banking department from conventional bank and two from Islamic bank have been interviewed.

Practical implications

Based on the findings, several recommendations are made on ways to expedite green financing, which can ultimately enhance contribution of Islamic banks toward the sustainable economic growth of the country while fulfilling Maqasid Shariah.

Social implications

Because the green banking policy aim is very much in line with Maqasid Shariah which is the aim of Islamic banks, Islamic banks can presumably contribute more to the sustainable economic growth of the country by aligning their entire operations with green policies.

Originality/value

To the best of the authors’ knowledge, this study is perhaps the earliest initiative to compare Islamic and conventional banks’ green performances in Bangladesh.

Details

Journal of Islamic Marketing, vol. 11 no. 3
Type: Research Article
ISSN: 1759-0833

Keywords

Article
Publication date: 4 June 2019

Yasmeen Al Balushi, Stuart Locke and Zakaria Boulanouar

This paper aims to investigate small and medium enterprises’ (SMEs) owner–managers’ awareness, willingness and perceptions concerning Islamic financing instruments as an…

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Abstract

Purpose

This paper aims to investigate small and medium enterprises’ (SMEs) owner–managers’ awareness, willingness and perceptions concerning Islamic financing instruments as an alternative sourcing decision in SMEs’ businesses.

Design/methodology/approach

The research employed mixed methods to gather data. A questionnaire survey was conducted via face-to-face interviews with 385 SME owner–managers operating in Muscat, Oman’s capital city, along with face-to-face discussion on Islamic finance with 86 SME owner–managers. Descriptive and thematic analysis were used to analyse the data.

Findings

The findings indicate that SME owner–managers are aware of Islamic banking principles and have knowledge of Islamic financial instruments, despite Islamic finance being new to Oman. Interestingly, although the majority of the participants indicated their intention to adopt this new finance method, they were motivated by special requirements other than finance. Their positive perception of Islamic financing methods could play a significant role in developing the Islamic banking industry.

Research limitations/implications

The research is limited in that its data came only from Omani SME owner–managers in Muscat. Future research could investigate wider samples. Secondly, the study’s findings lack generalisability to larger and public enterprises, because only SME owner–managers were surveyed.

Practical implications

This study will be important for policy makers concerned about SMEs’ financing, Islamic financial institutions and new entrants into the Islamic banking industry, as it provides empirically evidence of Omanis’ views, and more specifically those of Omani SME owner–managers, on the recent introduction of Islamic finance into the country. The insights this study offers should help them to develop the strategies required to attract SMEs and to construct policies and regulations to improve Oman’s Islamic banking industry.

Originality/value

The research is significant, as it is the first study to investigate the awareness, willingness and perceptions of Omani SMEs regarding Islamic banking in Oman. Even though all Omanis are Muslims, Oman was the last of the six-nation Gulf Cooperation Council countries to introduce Islamic finance. Thus, this emerging market provides an important basis from which to extend future research on Islamic finance to other potential Islamic finance markets.

Details

Qualitative Research in Financial Markets, vol. 11 no. 4
Type: Research Article
ISSN: 1755-4179

Keywords

Article
Publication date: 29 August 2008

M. Mansoor Khan and M. Ishaq Bhatti

The main objective of this paper is to highlight the unprecedented growth of Islamic banking and finance in the contemporary finance world. It captures the advancements of…

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Abstract

Purpose

The main objective of this paper is to highlight the unprecedented growth of Islamic banking and finance in the contemporary finance world. It captures the advancements of Islamic banking and finance industry across the tools, systems, sectors, markets and over 75 countries from Africa, Asia, Europe and North America.

Design/methodology/approach

The paper deals with the paradigm of Islamic banking and finance. It constitutes a general review that bears special features, facts and figures over the recent developments of Islamic banking and finance across the globe. It takes stock of the growing institutional and infrastructure support for the Islamic banking and finance system in Muslim countries and Western financial markets.

Findings

The findings of the paper hold that Islamic banking and finance industry has been making breakthrough improvements to become a truly viable and competitive alternative to conventional systems at the global level. Islamic banking and finance institutions have acquired booming grounds in the Middle East, South East and South East Asia. These growing Islamic hubs have been acting as a launching pad to promote Islamic banking in Western business and financial markets. There are some core factors contributing to the recent success of Islamic banking and finance, such as spiraling oil prices worldwide, prolonged boom in the Middle Eastern economies, product innovation and sophistication, increasingly receptive attitude of conventional regulators and information technology advancements that have been acting as a catalyst for the Islamic banking and finance industry to go global. Given all growth patterns, Islamic banking may be able to win over the majority of customers from the Muslim world that constitutes almost 24 per cent of the world's population (over 1.3 billion), and other ethical groups across the globe in times ahead.

Research limitations/implications

The paper takes stock of on‐going developments in Islamic banking and finance industry worldwide. It deals with latest information, facts and figures, which however do not amount to a substantive volume to allow statistical testing and analysis to figure out the main factors and their actual contributions in making Islamic banking and finance emerge as the fastest growing industry of the global finance. This paper mostly bears a subjective outlook.

Originality/value

The paper aims to attract the global attention towards the fastest growing industry of the contemporary world of finance. It presents the case of the Islamic banking and finance industry in the most powerful, comprehensive and logical fashions to remove all misgivings about it in some circles, and let it be seen as an industry adding more ethical, competitive, flexible and diversified tools and systems to global financial markets. The paper highlights the increasing moral and material support that Islamic banking has been enjoying from Muslim governments and the public, and Western market players and regulators. It draws attention towards the growing number of products, systems, infrastructures and supporting institutions of Islamic banking over the recent years. The current trends of Islamic banking industry worldwide captured in this paper can tell all about its strength and weakness, future prospects and ambitions to become a truly innovative, competitive and integrated part of contemporary global finance.

Details

Managerial Finance, vol. 34 no. 10
Type: Research Article
ISSN: 0307-4358

Keywords

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