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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…

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: 17 May 2013

Sulaiman Abdullah Saif Al Nasser, Datin and Joriah Muhammed

The purpose of this paper is to review the history of Islamic banking in Malaysia from 1963 until 2010.

Abstract

Purpose

The purpose of this paper is to review the history of Islamic banking in Malaysia from 1963 until 2010.

Design/methodology/approach

To review the history of Islamic banking in Malaysia, data have been gathered from different articles, books and reports about the Islamic banking system in Malaysia.

Findings

The paper found that Malaysia as an Islamic country has an outstanding infrastructure to support the establishment of an Islamic banking hub in the Islamic region.

Originality/value

The paper shows that Malaysia was of the first countries to take a systematic planning approach to develop the Islamic finance system in the region. Islamic banking systems in Malaysia are growing rapidly and progressively, in spite of some other countries wishing to be ahead of Malaysia, such as Singapore and the UK.

Details

Humanomics, vol. 29 no. 2
Type: Research Article
ISSN: 0828-8666

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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…

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…

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: 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: 6 April 2012

Gabriella Opromolla

The purpose of this paper is to analyze the compatibility of Islamic banking with the Italian banking system, to report what Italian legislators are currently doing to…

Abstract

Purpose

The purpose of this paper is to analyze the compatibility of Islamic banking with the Italian banking system, to report what Italian legislators are currently doing to accommodate Islamic finance in the Italian banking system, and to explore solutions to the obstacles that have been identified.

Design/methodology/approach

The paper provides background on the Italian banking system as it works within the European Union (EU); shows some analogies between ethical and Islamic banking; traces the development of Islamic finance; explains the principles of Islamic finance and their impact on common transactions; describes the development of the Islamic finance industry; and analyzes the compatibility of Islamic finance with the Italian banking system.

Findings

Although Italy offers a fertile and flexible legal environment, dedicated banking laws and regulations and, consequently, Islamic banks have not yet been established in Italy. Further research is needed on how to reconcile Islamic banking with EU regulations and the Italian banking system.

Originality/value

The paper presents practical analysis from an experienced Italian financial services lawyer.

Details

Journal of Investment Compliance, vol. 13 no. 1
Type: Research Article
ISSN: 1528-5812

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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…

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

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Book part
Publication date: 25 August 2014

Aishath Muneeza

This chapter aims to explore the Shari’ah governance rules applied in the Malaysian Islamic banking arena and the effect of Islamic Financial Services Act 2013 on it.

Abstract

Purpose

This chapter aims to explore the Shari’ah governance rules applied in the Malaysian Islamic banking arena and the effect of Islamic Financial Services Act 2013 on it.

Design/Methodology/Approach

This is a legal exploratory study primarily focused on library research.

Findings

Shari’ah governance is a concept that has been developed and applied gradually in Malaysia and the new Islamic Financial Services Act 2013 has taken it to the next level. However, this does not mean that it has resolved the problems in Shari’ah governance that existed before the enactment of the act.

Originality/Value

Islamic Financial Services Act 2013 is a new statute that repealed Islamic Banking Act 1983. As such, not many have reviewed this new piece of legislation. This chapter will give insight into the evolution of Shari’ah governance as part of corporate governance of Islamic banks in Malaysia and will help explain the most recent developments in this arena along with the challenges.

Details

The Developing Role of Islamic Banking and Finance: From Local to Global Perspectives
Type: Book
ISBN: 978-1-78350-817-4

Keywords

Content available
Article
Publication date: 19 June 2018

Najmul Hussein Rassool

The purpose of this research study is to explore and analyze the factors that will favour or constrain the introduction of an Islamic Retail bank in a Muslim-minority…

Abstract

Purpose

The purpose of this research study is to explore and analyze the factors that will favour or constrain the introduction of an Islamic Retail bank in a Muslim-minority country such as Mauritius. This research attempts to fill the gap in the empirical literature on the setting up of an Islamic Retail bank in a Muslim-minority country. It recognizes upfront that Islamic banking offers an alternative banking system that is attractive to both Muslims and non-Muslims.

Design/methodology/approach

The research adopts a mixed approach to address the prospects and challenges of establishing an Islamic Retail bank in Mauritius.

Findings

The research finds that there are various prospects for an Islamic retail bank in Mauritius for Muslims and non-Muslims, including enabling legal, fiscal and regulatory framework, the financing of small- and medium-sized enterprises and the issuance of ṣukūk (Islamic investment certificates). The research also finds that the development of an Islamic retail bank in Mauritius face various challenges. Some of these challenges are lack of Sharīʿah-compliant liquidity instruments and inter-bank deposits, lack of knowledge and understanding of Sharīʿah-compliant products and the enforcement of Islamic contracts in court.

Originality/value

This in-depth study appears to be comprehensive and will help in developing a solid foundation for establishing an Islamic retail bank in Mauritius.

Details

ISRA International Journal of Islamic Finance, vol. 10 no. 1
Type: Research Article
ISSN: 0128-1976

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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.

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

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