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Article
Publication date: 3 August 2012

Jamal Ali Al‐Khasawneh, Karima Bassedat, Bora Aktan and Priya Darshini Pun Thapa

The purpose of this paper is twofold. The first and the most important is to examine the efficiency of Islamic banks relative to conventional banks operating in North…

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1208

Abstract

Purpose

The purpose of this paper is twofold. The first and the most important is to examine the efficiency of Islamic banks relative to conventional banks operating in North African Arab countries, in terms of cost and revenue efficiency. The second objective is to assess more evidence regarding the banking system efficiency trend and dynamics in each single country, and to compare such trends among countries included in the study.

Design/methodology/approach

The non‐parametric data envelopment analysis (DEA) was used to estimate cost and revenue efficiency scores assuming variable returns to scale (VRS). The sample consists of nine Islamic banks and 11 conventional banks.

Findings

The results indicated that Islamic banks achieved higher average revenue efficiency scores over conventional banks in this region, while the growth rate of revenue efficiency score of Islamic bank was less than conventional banks. In terms of cost efficiency, the results varied from country to another. The results also showed that both groups of banks were close to each other, with an advantage to conventional banks, which suffer less cost efficiency loss over time compared to Islamic banks.

Research limitations/implications

The very limited data sources (banks' web sites) was was the main limitation faced during preparing for this research. Another limitation was the non‐regularity of annual reports.

Practical implications

Islamic banks are highly challenged in finding investment opportunities/avenues that comply with Islamic regulations, unlike conventional banks that can invest in fixed income securities. There is a serious need for some countries to deregulate their banking systems more, in order to enhance the compatibility and the efficiency of their banking, such as the case of Sudan.

Originality/value

Given the previously mentioned difficulties, decent data set were collected. The value of this paper is the use of nonparametric DEA to analyse cost and revenue efficiences in the countries of this region.

Details

Qualitative Research in Financial Markets, vol. 4 no. 2/3
Type: Research Article
ISSN: 1755-4179

Keywords

Content available
Article
Publication date: 10 July 2017

Muhammad Adeel Ashraf and Ahcene Lahsasna

Customers of Islamic banking industry continue to be skeptical on Sharīʿah compliance of Islamic banks despite receiving fatwa from the competent authorities. The purpose…

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3034

Abstract

Purpose

Customers of Islamic banking industry continue to be skeptical on Sharīʿah compliance of Islamic banks despite receiving fatwa from the competent authorities. The purpose of this paper is to quantify the Sharīʿah risk taken by Islamic banks, so that customers are better informed on the level of Sharīʿah compliance that will help in removing the persistent level of skepticism toward Sharīʿah compliance.

Design/methodology/approach

This research has used the scorecard based modeling approach to build the Sharīʿah risk rating model, which consists of 14 factors that capture Sharīʿah risk and are grouped in 5 major areas revolving around regulatory support, quality of Sharīʿah supervision, business structure, product mix and treatment of capital adequacy ratio. The score calculated by applying the model is grouped into 4 tiers reflecting the level Sharīʿah compliance at bank as non-compliant, weak compliance, satisfactory compliance and high level of Sharīʿah compliance. Three case studies were conducted by applying the model to Islamic banks from Malaysia, Pakistan and Saudi Arabia.

Findings

The final Sharīʿah risk scores calculated by the model clearly differentiate the 3 banks on basis of their Sharīʿah risk. The underlying scores also highlighted the areas where banks need to improve to reduce their Sharīʿah risk.

Originality/value

This model can be applied by customers of Islamic banks who are interested in understanding Sharīʿah-related aspects of Islamic banking industry. This model can be applied on standalone basis or as an extension to the conventional counter party risk rating models. This model can benefit management of Islamic banks toward allocation of capital against Sharīʿah risk under Basel III, and regulators can apply the model to measure industry wide risk of Sharīʿah non-compliance.

Details

ISRA International Journal of Islamic Finance, vol. 9 no. 1
Type: Research Article
ISSN: 0128-1976

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Article
Publication date: 3 August 2012

Nafis Alam and Kin Boon Tang

The paper aims to gain an insight into behavioural characteristics of Islamic banks and how they influence the risk‐taking decisions of Islamic banks in financial markets…

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1584

Abstract

Purpose

The paper aims to gain an insight into behavioural characteristics of Islamic banks and how they influence the risk‐taking decisions of Islamic banks in financial markets within the prospect theory context.

Design/methodology/approach

The study employs review and application of prospect theory in Islamic banking industry across the globe, making use of 99 Islamic banks across 14 countries.

Findings

Empirical evidence shows that Islamic banks located above target risk level tend to show risk‐adverse behaviour, while banks below target risk level inclined towards risk‐seeking attitude. Results also highlighted that banks which have higher loans to total asset ratio tend to take on lower risk.

Practical implications

Islamic bank regulators will be better prepared to monitor the Islamic banking system if they understand risk‐taking behaviour of Islamic bank managers. The findings will provide more effective bank regulatory oversight, thus preventing Islamic bank failures in future.

Originality/value

Since there are relatively few studies conducted in risk‐taking behaviour of Islamic banks, specifically global Islamic banking, this study will broaden the scope of the literature by providing novel empirical evidence on risk‐taking practice of Islamic banks worldwide.

Details

Qualitative Research in Financial Markets, vol. 4 no. 2/3
Type: Research Article
ISSN: 1755-4179

Keywords

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Article
Publication date: 3 August 2012

Omar Masood, Hasan Al Suwaidi and Priya Darshini Pun Thapa

The purpose of this paper is to identify any differences between the Islamic and non‐Islamic banks in the UAE on credit risk management.

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3170

Abstract

Purpose

The purpose of this paper is to identify any differences between the Islamic and non‐Islamic banks in the UAE on credit risk management.

Design/methodology/approach

The study uses survey based methodology for data collection. The sample for the study consists of six commercial banks from UAE with three non‐Islamic and three Islamic banks and with 148 credit risk managers as respondents for the survey. The study aims to investigate factors which distinguish between Islamic and non‐Islamic banks in UAE. This is achieved by fitting a binary logistic regression model.

Findings

The study shows that the managers in Islamic banks now do not rely only on personal experiences and simple credit risk analysis. The Islamic banks appear also to be developing and practising the newer and robust techniques, in addition to traditional methods, to manage their credit risk in UAE compared to non‐Islamic banks, which indicates a possibility of further improvement in their credit risk management.

Originality/value

The paper uses questionnaire‐based methodology, which has not been used previously in the UAE financial sector, as well as in studies of credit risk management. Therefore, this research could become the cornerstone of further academic research in other developing countries using this methodology.

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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…

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1972

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: 7 September 2015

Farihana Shahari, Roza Hazli Zakaria and Md. Saifur Rahman

The purpose of this paper is to investigate the expected outcomes, both of positive and negative returns occurred by shariá credit instruments in global Islamic banks. The…

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1027

Abstract

Purpose

The purpose of this paper is to investigate the expected outcomes, both of positive and negative returns occurred by shariá credit instruments in global Islamic banks. The annual panel data from 2005 to 2012 is collected from 40 Islamic banks from 12 countries and value at risk (VaR) technique is employed in the investigation process. The findings of this study indicate several outcomes: first, majority of Islamic banks use debt-based financing (DBF) and avoid asset-based financing (ABF) due to the lack of secured rate of fixed returns and collateral. Second, the ABF financing shows the positive returns. Third, interestingly, DBF financing faces higher credit risk compared to ABF even DBF secures its financing through tight policy implementation. Finally, this paper comes up with policy recommendations for the further reduction of credit risks and improvement of bankers’ confidence level in implementing the ABF financing policy.

Design/methodology/approach

VaR on panel data.

Findings

Shariá credit instruments play an important role.

Research limitations/implications

Data findings.

Originality/value

Fully original.

Details

International Journal of Managerial Finance, vol. 11 no. 4
Type: Research Article
ISSN: 1743-9132

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Article
Publication date: 1 March 1995

Ibrahim A. Hegazy

The purpose of this paper is to determine the number of selection criteria of Islamic and commercial banks in Egypt and to identify the relative influence that each…

Abstract

The purpose of this paper is to determine the number of selection criteria of Islamic and commercial banks in Egypt and to identify the relative influence that each attribute may exert on the selection process. Findings indicate differences in the important selection criteria of Islamic and commercial banks in Egypt. Although the number of attributes was similar, differences prevailed in the relative importance of selection criteria. This finding could be linked to the fundamental difference between these two banking systems that are widely spread in the Middle East.

Details

International Journal of Commerce and Management, vol. 5 no. 3
Type: Research Article
ISSN: 1056-9219

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Article
Publication date: 8 March 2013

Yusniza Kamarulzaman and Azian Madun

The rapid growth of Islamic banking in Malaysia warrants banking institutions being more proactive and innovative in marketing their products. The purpose of this paper is…

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13390

Abstract

Purpose

The rapid growth of Islamic banking in Malaysia warrants banking institutions being more proactive and innovative in marketing their products. The purpose of this paper is to re‐evaluate the progress and achievements of Islamic banking in Malaysia, particularly in the area of sales and marketing of Islamic banking services.

Design/methodology/approach

This paper adopts a comprehensive literature review from various published sources. All related references were discovered through electronic databases, journals and books in the area of the relevant literature in Islamic finance, banking and services marketing.

Findings

The driving force for the growth of Islamic banking and financing products is the corporate clients, and not the Muslim individuals. In fact, the non‐Muslim individuals also use Islamic banking if they find that the service is good and meets their expectations. This paper shows evidence that the marketing activities of Islamic banking products is relatively ineffective compared to the conventional banking products in Malaysia. This paper also discusses the reasons for the ineffectiveness of marketing Islamic banking products at the micro and macro‐level. Depending on religion alone is not the best strategy to attract customers.

Practical implications

The products offered by the Islamic banking system have to compete with those of the conventional banking system. Hence, a continuous review of marketing strategies for Islamic banking products is crucial in every Islamic financial institution.

Originality/value

This paper fulfils a need to study whether the common methods in marketing conventional banking products would be effective in the context of marketing Islamic banking products.

Details

Business Strategy Series, vol. 14 no. 2/3
Type: Research Article
ISSN: 1751-5637

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Article
Publication date: 15 October 2021

Syed Tehseen Jawaid, Aamir Hussain Siddiqui, Rabia Kanwal and Hareem Fatima

This study aims to find the determinants of internal and external customer satisfaction of Islamic banks of Pakistan through service quality indicators that are assurance…

Abstract

Purpose

This study aims to find the determinants of internal and external customer satisfaction of Islamic banks of Pakistan through service quality indicators that are assurance, reliance, empathy, tangibility, responsiveness. Compliance has also been added as a determinant of customer satisfaction. In this study, customers are divided into two groups, internal customers are those who are an employee in the Islamic bank and also an account holder. While external customers are account holders only in Islamic banks of Pakistan.

Design/methodology/approach

In this study, a quantitative research approach is used for analyzing the behavior of internal and external customers of Islamic banks in Pakistan. The instrument which is used to analyze the study’s data, is a structured five-point Likert-scale questionnaire. The structural model was analyzed with the help of the partial least squares structural equation modeling approach.

Findings

This study concluded that internal customers of Islamic banking are well aware and have full information and their level of satisfaction is positive toward the bank’s services. While external customers feel satisfied while using the Islamic banking services in Pakistan. Service quality indicators are positively and significantly related to customer satisfaction in the external customer model. On the other hand, some of the indicators are not showing a significant impact on the internal customer multi-group analysis shows a difference of coefficients are insignificant between internal and external customers.

Practical implications

This study helps policymakers, to understand the behavior of internal and external customers of Islamic banking in Pakistan for creating favorable policies for an interest-free banking service.

Originality/value

This research study provides an analysis of the customer satisfaction of Islamic banks in Pakistan by dividing Islamic bank customers into two groups (internal and external customers). The purpose for dividing Islamic bank customers into two groups is that this study wants to highlight that external customer’s perception is the same as internal customers or not? Before this study, it is difficult to find single research on this topic, whereas only one study is find-out on the factors that affect internet banking adoption among internal and external customers.

Details

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

Keywords

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Article
Publication date: 13 October 2021

Sunil Khandelwal and Khaled Aljifri

This study aims to compare the use of risk-sharing and risk-shifting contracts (RSFCs) in Islamic banks using a triple grouping of conservative, moderate and liberal…

Abstract

Purpose

This study aims to compare the use of risk-sharing and risk-shifting contracts (RSFCs) in Islamic banks using a triple grouping of conservative, moderate and liberal Islamic banks based on the Khaled Khandelwal (KK) model. Six fundamental Islamic contracts are used in this study, namely, Mushãrakah, Mudãrabah, Murãbaha, Salam, Ijãrah, Istisnã. Mushãrakah and Mudãrabah represent profit and loss sharing contracts (i.e., risk-sharing contracts – RSHCs), whereas Murãbaha, Salam, Ijãrah and Istisnã represent RSFCs. This study extends the previous studies by addressing an issue that has been neglected in the literature. The extent to which the two groups of contracts are used is extremely important because of its effect on the valuation of Islamic banks and on their earning quality.

Design/methodology/approach

This study aims to analyze, using descriptive statistics and inferential statistics, the use of RSHCs and RSFCs made by 72 fully Islamic banks, using a sample that includes banks in most of the countries where Islamic banks are present. Only fully Islamic Banks were considered, that is, banks that are essentially mainstream banks; therefore, banks that include only a specific line of Islamic products, often called the Islamic Window, were excluded. The total number of the sample was 118, but the study was restricted to 72 banks due to the availability of time series data covering the period of study, 2007 to 2015.

Findings

The study documents that over the period 2007 to 2015 the moderate banks have better distribution and balance of RSHCs and RSFCs than the conservative and liberal banks. The conservative banks are found to depend greatly on RSFCs, whereas the liberal banks are found to depend almost completely on RSFCs. Unexpectedly, the conservative banks have not shown a noticeable improvement over the period of analysis on their level of reliance on RSHCs. The results show that there is a significant difference in the percentage income distribution of the two contracts between the moderate banks and the conservative banks and between the moderate banks and the liberal banks. However, no significant difference was found between the conservative banks and the liberal banks.

Originality/value

The study uses an alternate rating model for Islamic financial institutions. The study examined the issue of risk sharing and risk shifting contracts usage in banks for a long period of nine years and at a global level and with an additional dimension of three categories of Islamic Banks based on the KK model.

Details

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

Keywords

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