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Article
Publication date: 2 January 2018

Asim Ehsan Wahla, Hamid Hasan and M. Ishaq Bhatti

The main aim of this paper is to measure customers’ perception of car Ijarah financing transactions services provided by the Islamic banks and financial institutions in Pakistan.

Abstract

Purpose

The main aim of this paper is to measure customers’ perception of car Ijarah financing transactions services provided by the Islamic banks and financial institutions in Pakistan.

Design/methodology/approach

The paper uses two research methodologies: Kruskal–Wallis and Mann–Whitney test (non-parametric) and logit regression model (parametric). Both methods are then applied to a real data set of 300 respondents from various cities of Pakistan in the car Ijarah financing industry. The demographic effects are also investigated to see the perception about the degree of Shari’ah compliance and the quality of service of transaction offered by banks.

Findings

Main finds of the paper reveal that the customers who used the car Ijarah facility from Islamic banks have positive attitude toward this sort of transaction. In addition, gender, income, marital status affect the perception about the quality of Shari’ah compliance, and the quality of service of transaction issues are very important to selected clients in the industry.

Research limitations/implications

These findings are limited to the car Ijarah financing industry and may not be applicable in other banking products in Pakistan and elsewhere.

Practical implications

Based on the results of this study, potential Islamic bank customers may find it helpful choose products or make product decisions conveniently. The findings of the paper also support Islamic banks in improving the Ijarah facility to increase their customer base in the geo-political locality with similar characteristics as Pakistan.

Social implications

Shari’ah compliance in the Islamic finance industry is a sensitive issue in Pakistan, and hence, car Ijarah’s Shari’ah compliance can affect banks’ reputation and sensitivity.

Originality/value

The work reported in this paper is original, unpublished and the paper is not submitted elsewhere for publication.

Details

Journal of Islamic Accounting and Business Research, vol. 9 no. 1
Type: Research Article
ISSN: 1759-0817

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Article
Publication date: 28 May 2019

Iman Adeinat, Naseem Al Rahahleh and M. Ishaq Bhatti

The purpose of this study is to assess customers’ perceptions of Islamic banks (IBs) of customers who have used or intend to use Ijarah service to purchase a car. The…

Abstract

Purpose

The purpose of this study is to assess customers’ perceptions of Islamic banks (IBs) of customers who have used or intend to use Ijarah service to purchase a car. The study further examines the mediating role of clarity and accuracy (CAA) of service offered between customer perceptions and customer satisfaction. This paper focuses on connecting in quantitative terms customers’ perceptions of IB services to customer satisfaction by providing the first evidence of this relationship in the context of car Ijarah financing.

Design/methodology/approach

In this paper, a model is proposed to assess customers’ perceptions of the Ijarah service used by IBs to finance car purchases. The model connects customers’ perceptions to customer satisfaction with this Shariah-compliant service. The data are drawn from 300 randomly selected customers living in five major cities in Pakistan, and factor analysis and structural equation modeling are used to understand the patterns of correlation/covariance among a set of variables and to evaluate customers’ perceptions of Ijarah financing for car purchases.

Findings

The results of the study show a significant positive relationship between customers’ perceptions and customer satisfaction. In particular, the CAA of the services provided is a significant predictor of customer satisfaction. This paper finds that CAA is a partial mediator between customers’ perceptions and customer satisfaction.

Research limitations/implications

As this study is based on only one country and one simple car Ijarah financing product, the results cannot be generalized to the entire industry. Therefore, deeper research is needed in which data from other countries are used and a range of models and approaches are applied to secure knowledge about the multinational and multifactor variations of Ijarah financing.

Practical implications

In terms of their implications for IBs, the study results provide a basis for the banks to more effectively cater to their customers by improving the services offered in line with customers’ expectations and thereby increasing profitability. This investigation is much needed in academia and industry because the market share for Ijarah financing is growing and competition between IB products and conventional banking products is increasing.

Originality/value

This study presents the first endeavor to use exploratory factor analysis, confirmatory factor analysis and structural equation modeling to assess customer satisfaction in Ijarah financing using Pakistani banking clients’ data. This approach is also applicable to various IB financial products and Shariah contracts.

Details

Qualitative Research in Financial Markets, vol. 11 no. 2
Type: Research Article
ISSN: 1755-4179

Keywords

Content available
Article
Publication date: 18 March 2019

Muhammad Bilal, Ahamed Kameel Mydin Meera and Dzuljastri Abdul Razak

This study aims to examine the issues and challenges in contemporary affordable public housing schemes and proposes an alternative affordable public housing model for low…

Abstract

Purpose

This study aims to examine the issues and challenges in contemporary affordable public housing schemes and proposes an alternative affordable public housing model for low- and middle-income households in Malaysia.

Design/methodology/approach

The paper applied qualitative research method. Semi-structured in-depth interviews with four government officials were conducted to understand the provision, framework and working mechanism of selected affordable public housing schemes. A focus group with nine participants was conducted with low- and middle-income households to validate pertaining residential issues and problems in affordable public housing schemes.

Findings

The overall findings reveal that the growing plights of unaffordability, poor maintenance and mismanagement have undermined the performance of affordable public housing schemes in Malaysia. The paper indicates that Islamic Public–Private Housing Co-operative Model (IPHCM) possibly has a comparative advantage in its design and operation and therefore can be implemented as an alternative model to address these issues in contemporary affordable public housing schemes in Malaysia. The findings also offer guidelines to government officials and managers of public housing schemes to implement the IPHCM model that can help in reducing the financial burden on low- and middle-income households, improving maintenance work and enforcing effective management practices with residents’ participation.

Research limitations/implications

The paper is limited to develop a new Shariah-compliant affordable public housing model. The paper presents a design and defines the underlying Shariah concept and contracts and their working mechanisms in the proposed model. The paper has not considered other related areas in the development of IPHCM model including Shariah and subject matter expert’s perspective, consumer behavioural intention, legal and regulatory requirements.

Originality/value

The paper has relevance for policymakers and government institutions offering affordable public housing schemes to ensure successful deliverability of sustainable and affordable public housing for low- and middle-income households in Malaysia.

Details

International Journal of Housing Markets and Analysis, vol. 12 no. 6
Type: Research Article
ISSN: 1753-8270

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Article
Publication date: 23 September 2019

Sayeda Zeenat Maryam, Mian Saqib Mehmood and Chaudhry Abdul Khaliq

Islamic banking (IB) is growing rapidly not only in Islamic countries but also in all over the world. The purpose of this paper is to stumble on the features that have an…

Abstract

Purpose

Islamic banking (IB) is growing rapidly not only in Islamic countries but also in all over the world. The purpose of this paper is to stumble on the features that have an impact on Islamic banking adoption (IBA) in case of Pakistan.

Design/methodology/approach

The identification of the factors that affect IBA has made by extending the theory of reasoned action (TRA). However, the conceptual model for this study includes knowledge (K), business support (BS), government support (GS), reputation (Rep), religious obligation (RO), cost-benefit (CB) and social influence (SI) as the independent variables. To test the conceptual framework data were collected through a survey by distributing the 400 questionnaires among users- and non-users of Islamic banks. Multiple regression analysis was applied to test the hypothesis of this study.

Findings

The findings of the study suggest that Rep, CB, RO and SI has a highly significant and positive influence on IBA. On the other hand, K, GS and BS have insignificant influence on IBA. The bottom line of this study suggests that more the ROs will be adopted by Islamic banks, more will be the tendency to adopt it by a bank customer in case of Pakistan.

Research limitations/implications

The generalizability of the findings of this research is limited to IB.

Practical implications

Findings of the study present worthy insight especially for the practitioners to develop significant strategies to bridge the gap between industry and academia in case of IB.

Originality/value

This study is an extension of TRA.

Details

International Journal of Islamic and Middle Eastern Finance and Management, vol. 12 no. 4
Type: Research Article
ISSN: 1753-8394

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Article
Publication date: 10 April 2017

Faatima Kholvadia

The purpose of this study is to understand the economic substance of Islamic banking transactions in South Africa and to analyse whether the economic substance is closely…

Abstract

Purpose

The purpose of this study is to understand the economic substance of Islamic banking transactions in South Africa and to analyse whether the economic substance is closely related to the legal form. Additionally, this study highlights the similarities and differences in the execution of Islamic banking transactions across different South African banks. The transactions analysed are deposit products of qard and Mudarabah and financing products of Murabaha, Ijarah and diminishing Musharaka.

Design/methodology/approach

The study was conducted through interviews with representatives from each of the four South African banks that offers Islamic banking products. Interviews were semi-structured and allowed interviewees to voice their perspectives, increasing the validity of the interviews.

Findings

The study found that specific Shariah requirements of Islamic banking transactions are considered and included in the legal structure of the contracts by all four banks offering Islamic banking products. However, the economic reality of these transactions was often significantly different from its legal form and was found to, economically, replicate conventional banking transactions. The study also found that all four banks offer Islamic banking products under the same Shariah principles, but in some instances (e.g. diminishing Musharaka), execute these transactions in different ways. This study is the first of its kind in South Africa.

Research limitations/implications

While safeguards have been used to ensure the reliability and validity of the research, there remain a few inherent limitations which should be noted: interviewees, while chosen for their expertise and level of knowledge, may provide highly technical insight which may be difficult to interpret. Detailed technicalities were therefore excluded from this research. The regulatory environment of banks in South Africa, for example, regulation imposed by the Financial Service Board on all financial institutions in South Africa, has not been explored. However, the regulatory environment was brought to the readers’ attention to help illustrate certain themes. This research uses only Shariah requirements as detailed in Section 2.2 to analyse transactions. Fatwas (rulings) issued by the Shariah Boards of South African Islamic banks have not been included in this study and may be an area of future research.

Originality/value

This study is the first of its kind in South Africa. The study adds to the Islamic banking literature by analysing the real execution of Islamic banking transactions rather than the theoretical compliance with Shariah law.

Details

Meditari Accountancy Research, vol. 25 no. 1
Type: Research Article
ISSN: 2049-372X

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Article
Publication date: 17 August 2015

Namrata Gupta

This paper aims to discuss the accounting treatment of one of the most popular instruments of financing in Islamic banks, which is Islamic leasing or Ijarah. This research…

Abstract

Purpose

This paper aims to discuss the accounting treatment of one of the most popular instruments of financing in Islamic banks, which is Islamic leasing or Ijarah. This research undertakes an empirical investigation of the accounting practices of Ijarah followed by UAE’s Islamic banks. The main objective of this paper is to compare the accounting practices followed by UAE Islamic banks and accounting practices recommended by Accounting and Auditing Organization for Islamic Financial Institutions (AAOIFI) for the accounting treatment of Ijarah.

Design/methodology/approach

This study also aims to examine the justification and explanation behind this practice and clarify the accounting treatment of Ijarah as defined in the regulatory framework and standards.

Findings

The author has found that the accounting treatment of Ijarah practiced by four UAE Islamic banks, it is clear that all of them are following IAS-17 and not FAS-8 of AAOIFI. The main difference is: FAS-8 issued by AAOIFI suggests that the accounting treatment for both Ijarah and Ijarah Muntahia Bittamleek be similar to operating lease transactions with certain exceptions. On the other hand, these Islamic banks are accounting for Ijarah as a financing transaction, just like finance lease – in accordance with IAS-17.

Research limitations/implications

Taking out the right information from banks officials regarding Ijarah was a big hassle.

Practical implications

After considering the above-mentioned points, according to the researcher, Western accounting standards are not appropriate to be applied in Islamic financial institution because of their different nature and treatment of financial instruments. Therefore, Islamic banks and other Islamic finance professionals should consider making the standards of AAOIFI mandatory, and they should stick to these standards for information disclosure, building investors’ confidence, monitoring and surveillance. These standards would also ensure the integration of Islamic financial markets with international markets.

Social implications

This study also aims to examine the justification and explanation behind this practice of bankers when the researcher approached these four banks, their officials mentioned that Ijarah contracts are similar to conventional form of financing, and it does not involve the central tenet of Islamic capitalism, i.e. to share risk and profit; therefore, they are justified and convinced to adopt IAS-17 in accounting for Ijarah transactions.

Originality/value

It is an original case study based on secondary research data.

Details

International Journal of Islamic and Middle Eastern Finance and Management, vol. 8 no. 3
Type: Research Article
ISSN: 1753-8394

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Article
Publication date: 20 June 2016

Muhammad Hanif

Islamic financing is based on the ideology of Islam, proposing a different economic system than capitalism. The essence of Islamic financing lies in trading of goods…

Abstract

Purpose

Islamic financing is based on the ideology of Islam, proposing a different economic system than capitalism. The essence of Islamic financing lies in trading of goods, provision of services and/or investment under profit and loss sharing. This study aims to examine legal forms and economic substance of the contracts used by the Islamic financial industry.

Design/methodology/approach

To conclude on the objectives of the study, five most widely used contracts (modes/products), including Murabaha, Ijarah, Diminishing Musharaka, Sukuk and Mudaraba (deposits), were selected to test against the theory of the Islamic financial system.

Findings

It is found in the process that legally (legal form) contracts/products are in line with theory; however, economic substance is not very different from conventional counter parts.

Practical implications

Through application of alternative calculation measures/methods and proper training of human resources, Islamic financial institutions can shift economic substance of contracts in line with the theory of Islamic finance.

Originality/value

Islamic finance is an emerging area, and reasonably good amount of literature is available; however, perhaps, this is the only piece of work focusing on calculation methods, contributing in economic substance of contracts, being used in modern Islamic finance in addition to legal form as per essence of Islamic financial system.

Details

International Journal of Islamic and Middle Eastern Finance and Management, vol. 9 no. 2
Type: Research Article
ISSN: 1753-8394

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Article
Publication date: 13 April 2012

Fahad Zafar

This purpose of this paper is to highlight the weakness in vehicle Ijarah contract.

Abstract

Purpose

This purpose of this paper is to highlight the weakness in vehicle Ijarah contract.

Design/methodology/approach

A real life example of a vehicle Ijarah contract was studied in which a customer gets a car from an Islamic bank and then misuses the system.

Findings

The case study provides a path for more research on Ijarah contract for vehicle leasing. Islamic bankers should take into account the amount of down payment requested besides the fulfilment of other criteria. Vehicle Ijarah contract is only appropriate when the amount of deposit or down payment requested is below 40 per cent threshold, otherwise a diminishing Musharakah contract should be preferred.

Research limitations/implications

The research is only on one case reported in one of the Islamic banks in Pakistan. The solution is also by only one Shariah scholar. The future research should be on similar contract at entire Islamic Banking Industry. Views of all top Shariah scholars should be taken to mitigate such kind of risks for Islamic banks.

Practical implications

This paper would trigger management of all Islamic banks to alter the structure of their vehicle Ijarah contracts.

Social implications

Islamic bankers would be warned against making a vehicle Ijarah contract with individuals wanting to contribute more than a down payment, just for the sake of cheating the system.

Originality/value

This paper is of great importance to the management of Islamic banks as this would raise flag against any future losses due to loopholes in the structuring of contracts.

Details

Journal of Islamic Accounting and Business Research, vol. 3 no. 1
Type: Research Article
ISSN: 1759-0817

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Article
Publication date: 17 August 2015

Md. Faruk Abdullah and Asmak Ab Rahman

– The study aims to consider wa’dan-based products in Islamic banks in Malaysia and discuss the validity of wa’dan in those products from the perspective of Shari’ah.

Abstract

Purpose

The study aims to consider wa’dan-based products in Islamic banks in Malaysia and discuss the validity of wa’dan in those products from the perspective of Shari’ah.

Design/methodology/approach

Case studies were conducted of three Islamic banks in Malaysia. Semi-structured interviews were carried out with bankers as well as Shari’ah scholars. The document analysis method was adopted to strengthen the findings.

Findings

The study shows that three Islamic banking products: Musyarakah Mutanaqisah (MM) home and property financing; Al-Ijarah Thumma Al-Bai’ (AITAB) vehicle financing; and Ijarah rental swap (IRS) use wa’dan in their product structures. After discussing the different views of the scholars, the study concludes that wa’dan should be allowed in the above-mentioned products because it is different from muwa’adah. In wa’dan, every single wa’d is separate from each other, as every one of them is related to different types of events. With regard to the issue of Shari’ah in MM home and property financing, it was concluded that wa’d from the customer to purchase the bank’s share is not a capital guarantee. Moreover, IRS is not a form of gambling but is in line with Maqasid al-Shari’ah.

Research limitations/implications

The study is limited to three Islamic banks in Malaysia that focus on retail and commercial banking products. Therefore, the study excludes application of wa’dan in sukuk and some other Islamic derivatives that are not the practice of these three banks.

Originality/value

This empirical study adds new knowledge by developing the concept and practice of wa’dan. Wa’dan as an innovative tool for product development to overcome Shari’ah issues in conventional banking may be of interest to practitioners all around the world.

Details

International Journal of Islamic and Middle Eastern Finance and Management, vol. 8 no. 3
Type: Research Article
ISSN: 1753-8394

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Book part
Publication date: 19 December 2016

Md. Faruk Abdullah and Asmak Ab Rahman

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…

Abstract

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.

Details

Advances in Islamic Finance, Marketing, and Management
Type: Book
ISBN: 978-1-78635-899-8

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