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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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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

Keywords

Article
Publication date: 13 April 2012

Fahad Zafar

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

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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

Keywords

Article
Publication date: 14 February 2024

Amer Morshed

This study aims to evaluate Islamic bank compliance with the accounting and auditing organisation for Islamic financial institutions (AAOIFI), assess the impact of multiple…

Abstract

Purpose

This study aims to evaluate Islamic bank compliance with the accounting and auditing organisation for Islamic financial institutions (AAOIFI), assess the impact of multiple accounting standards in Islamic banking, examine the need for private accounting standards and assess international financial reporting standards (IFRS) compatibility with Islamic banking and analyse financial leasing accounting in Islamic banking compared to IFRS 16.

Design/methodology/approach

A combination of comparative theoretical analysis, physical examination, and semi-structured interviews has been used as a research methodology. These methods are interconnected and complement each other to provide a comprehensive approach to address the research questions.

Findings

Islamic banks in various countries show varying compliance with AAOIFI accounting standards. Some fully comply, while others adopt a hybrid approach combining AAOIFI and IFRS. Differences in accounting treatments can result in conflicts, asset inflation and financial statement discrepancies. Challenges and criticisms faced by AAOIFI standards include violating the matching principle and lacking faithful representation. Collaboration among academics, standards-setting bodies and organisers is crucial for guiding the reporting of Islamic financial statements.

Practical implications

The research identifies gaps in implementing Islamic accounting standards and proposes strategies to enhance compliance, improve performance and increase transparency in Islamic financial institutions. It highlights the importance of a harmonised and universally accepted accounting framework for Islamic banking, considering the compatibility between IFRS and Islamic principles.

Social implications

Social implications have arisen regarding the global acceptance of Islamic finance, which leads to an increase in socially Islamic finance exchange.

Originality/value

This research examines the consequences of using multiple accounting standards in the Islamic banking industry and discusses the need for private accounting standards and compatibility with IFRS.

Details

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

Keywords

Article
Publication date: 14 June 2022

Almira Z. Nagimova

Over the past decades, Islamic finance has expanded its presence to many countries including Muslim-majority post-Soviet Central Asian and Transcaucasian region. Undoubtedly, this…

Abstract

Purpose

Over the past decades, Islamic finance has expanded its presence to many countries including Muslim-majority post-Soviet Central Asian and Transcaucasian region. Undoubtedly, this expansion has aroused keen interest among the representatives of a range of areas such as science, politics and business. The purpose of this paper is to describe the scope, the key players and the main investment strategies of the Islamic finance market based on the evidence obtained from Kyrgyzstan.

Design/methodology/approach

The main empirical corpus was formed from Bureau van Dijk’s databases (Zephyr and Orbis) and includes approximately 80 deals involving Shariah-compliant investments in Kyrgyzstan from 1991 to 2020. The initial corpus was then significantly expanded by means of content analysis of open media sources. Being still insufficient for deeper generalization, these data were further complemented by the analysis of an array of corporate information (press releases, presentations and financial reports) related to the identified deals. To ensure the credibility of the conclusions to be made on the nature of Islamic finance in Kyrgyzstan, the desk analysis was also complemented with field research using qualitative method of in-depth expert interviews.

Findings

This paper has shown that despite the yet modest market volumes represented by Islamic bank, Islamic windows, Islamic leasing company and microfinance companies, Islamic finance in Kyrgyz Republic has further growth prospects, which are associated with the arrival of large foreign Islamic banks that bring innovative financial products, the issuance of Islamic securities (sukuk) and launch of Islamic insurance (takaful). Being more open and consistent in the development of Islamic finance industry, the authorities of Kyrgyzstan understand the need for the initial development of the market by their own forces.

Originality/value

This paper is original and up-to-date, as it contains new and significant information. Suggesting a new approach to studying Islamic finance in post-Soviet area, this paper identifies the most active Islamic investors in Kyrgyzstan, classifies them, reveals their investment strategies and assesses the financial performance of Islamic investors as well as the total volume of Shariah-compliant capital in Kyrgyzstan. The findings of this paper can contribute to shaping policies toward Islamic finance in the post-Soviet region and, therefore, may be beneficial to the development of Islamic finance industry.

Details

Journal of Islamic Accounting and Business Research, vol. 13 no. 8
Type: Research Article
ISSN: 1759-0817

Keywords

Article
Publication date: 12 January 2023

Almira Z. Nagimova

Over the past decades, Islamic finance has expanded its presence to many countries including post-Soviet region. The purpose of this paper is to empirically investigate this…

Abstract

Purpose

Over the past decades, Islamic finance has expanded its presence to many countries including post-Soviet region. The purpose of this paper is to empirically investigate this phenomenon in Kazakhstan by adopting qualitative sociological approach. The study also aims to provide vital information and propose recommendations for market participants to contribute to the development of Islamic finance industry in Kazakhstan.

Design/methodology/approach

Primary data were gathered using the qualitative method of in-depth expert interviews with nine Islamic finance professionals representing Islamic banks, ijarah companies, funds and development institutions in Kazakhstan who occupy senior positions (directors, managers, heads of departments, etc.). Furthermore, the primary data of interviews were analyzed and processed using another qualitative method of cognitive mapping, the essence of which is to graphically display the concepts that are most often used by informants.

Findings

The study has shown that first there is a demand for Islamic finance among Kazakh business and population. At the same time, Muslims are not the only consumers of Islamic financial services; therefore, it is affordability rather than religiosity that is an important criterion for choosing Islamic finance. Second, murabaha and ijarah are the two most popular Islamic financial products in Kazakhstan, while equity-based instruments are hardly ever used. Third, Kazakhstan government policy toward Islamic finance received controversial assessments of experts: the state support is declared, but specific actions required by the market participants are not taken. Fourth, key factors that significantly limit the development of the Islamic finance market in Kazakhstan include a shortage of supply, which, in turn, is strongly associated with the second factor – limited funding of local Islamic finance institutions, the absence of insurance (or guaranteeing) system of investment accounts of the local Islamic banks, insufficient economy of scale, lack of convenient service and weak marketing policy of the existing Islamic banks and, finally, lack of educational programs.

Practical implications

The study reveals the potential development of Islamic finance in Kazakhstan which is a rarely studied topic. The findings and recommendations of this study can be used by the regulators, market players and policymakers of Islamic finance industry in Kazakhstan, post-Soviet and other Islamic finance-oriented countries.

Originality/value

This study offers new insights on the future of Islamic finance in Kazakhstan: in long term, the development will be determined by new financial technologies – Islamic FinTech, but in short term – by Islamic windows (currently not allowed by Central Bank) that will help to significantly expand the audience, increase awareness and demand for Islamic finance among local businesses and public. The current study is original, important and up-to-date, as it uses an approach that sources primary data in the form of experts’ point of view instead of relying on literature or document analysis. It is not a mere theoretical study of the literature but an empirical investigation of the problem. Moreover, it seeks to contribute to the Islamic finance literature in the post-Soviet region, particularly from the experts’ perspective.

Details

Journal of Islamic Accounting and Business Research, vol. 14 no. 8
Type: Research Article
ISSN: 1759-0817

Keywords

Article
Publication date: 26 September 2008

Alsadek Gait and Andrew Worthington

The purpose of this paper is to review the attitudes, perceptions and knowledge of Islamic financial products and services.

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Abstract

Purpose

The purpose of this paper is to review the attitudes, perceptions and knowledge of Islamic financial products and services.

Design/methodology/approach

A synoptic survey of empirical analyses about Islamic financial products and services and comparison with the literature on conventional financial services and products.

Findings

It was found that while religious conviction is a key factor in the use of Islamic finance, consumers also identify bank reputation, service quality and pricing as being of relevance. When selecting a financial institution's products and services, business firms usually employ criteria that are more conventional, such as the cost of finance, in their decision making. There is also interest among financial institutions in supplying Islamic financial products and services, but this is mitigated by complications with firm management and a lack of familiarity with business conditions. The concept of risk sharing with borrowers serves as a substantial barrier to most financial institutions engaging in Islamic methods of finance. Research limitations/implications – This survey is limited to work published in refereed journals, books and book chapters.

Practical implications

Need for further theoretical and empirical research on how religious convictions affect consumers in their financial decision making. In addition, most work on Islamic finance is in a single national context, international comparisons are required.

Originality/value

This paper is the only known empirical survey of attitudes, perceptions and knowledge of Islamic financial products and services. It provides guidance for future research in Islamic finance and serves as an aid for decision making by policymakers, consumer interest groups, business firms and financial institutions.

Details

International Journal of Social Economics, vol. 35 no. 11
Type: Research Article
ISSN: 0306-8293

Keywords

Article
Publication date: 16 November 2015

Alsadek Gait and Andrew C. Worthington

– This paper aims to analyse the attitudes of Libyan retail customers to Islamic methods of finance.

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Abstract

Purpose

This paper aims to analyse the attitudes of Libyan retail customers to Islamic methods of finance.

Design/methodology/approach

The study conducted a survey of 385 Libyan retail consumers. Descriptive, factor and discriminant analyses of responses were performed to identify principal factors affecting attitudes towards and the potential use of Islamic financial products and services.

Findings

The results indicate that while most respondents have at least some knowledge about some Islamic products, especially Musharakah (full-equity business partnerships) and Quard Hassan (interest-free benevolent loans), they are generally unaware of many other products. Nonetheless, most respondents (85.9 per cent) are potential users of Islamic methods of finance at the retail level, though potential use varying markedly according to age, level of education, employment, income and nationality. Factor analysis reduces the large number of variables that determine retail consumers’ attitudes towards Islamic methods of finance to just community service, profitability, religion and unique services. Discriminant analysis shows that religion and community service are the most important positive attitudes determining the potential use of Islamic methods of finance by retail consumers in Libya.

Research limitations/implications

The study is undertaken in a single national context, so there is no possibility of comparing the results with alternative financial systems in different stages of the adoption of Islamic finance. Research was completed in 2010, with the ongoing unrest in Libya precluding publication until recently.

Practical implications

Religious motivations rank highest in determining positive attitudes to Islamic methods of finance, and marketers should ensure that Islamic financial products and services strictly comply with Sharia. However, it may be possible to strengthen these positive attitudes by promoting that the community service role of Islamic finance is also important. Consumers also react favourably to marketing that either admits something negative about the product (e.g. Islamic finance is Sharia-compliant, but less profitable for depositors) or something positive about a competing product (e.g. conventional finance is more profitable, but cares less about the community). Marketers should emphasise the strengths of Islamic finance across the several sources of positive attitudes the authors have identified.

Originality/value

There is no published work on Libyan retail consumers and limited study of attitudes towards Islamic methods of finance more generally.

Details

International Journal of Islamic and Middle Eastern Finance and Management, vol. 8 no. 4
Type: Research Article
ISSN: 1753-8394

Keywords

Article
Publication date: 19 December 2023

Afaf Akhter, Mohd Yousuf Javed and Javaid Akhter

This study aims to present a bibliometric analysis of Islamic social finance (ISF) by addressing gaps in the existing research, exploring the current trends of publications and…

Abstract

Purpose

This study aims to present a bibliometric analysis of Islamic social finance (ISF) by addressing gaps in the existing research, exploring the current trends of publications and determining possible future research directions in this field.

Design/methodology/approach

Relevant bibliometric data of published research during 1914–2022 was extracted from the Scopus database and 1,355 studies were considered for the analysis. Biblioshiny app from RStudio, VOSviewer and Microsoft Excel were the tools used for analysis.

Findings

The identified current research streams are management and distribution of ISF funds especially zakat through fintech; governance and accountability of ISF institutions; Islamic microfinance for poverty alleviation and financial inclusion; ISF for promoting sustainable development and achieving United Nations sustainable development goals; waqf endowments and cash waqf; and Islamic charities. The identified themes for future research directions are Islamic fintech, integration of ISF, sustainable development, economic recovery, social entrepreneurship, sustainable ISF ecosystem and supporting refugees.

Practical implications

It provides extensive and up-to-date literature on the current trends in ISF and future research themes which can be useful for researchers, professionals and policymakers in the field.

Social implications

The findings of this research contribute to the solutions to socio-economic challenges and support sustainable development through ISF.

Originality/value

To the best of the authors’ knowledge, this research is one of the first attempt to provide a pervasive bibliometric review on ISF by including various aspects of ISF and extending the study period to more than 100 years.

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: 23 September 2013

Zayyad Abdul-Baki, Ahmad Bukola Uthman, Atanda Aliu Olanrewaju and Solihu Aramide Ibrahim

This paper aims to argue that the methodologies adopted by the conventional management accounting in selecting between or among two or more alternative courses of action, both in…

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Abstract

Purpose

This paper aims to argue that the methodologies adopted by the conventional management accounting in selecting between or among two or more alternative courses of action, both in the long-term and the short-term decision making endeavours conflict with the overall objective ( falah) of Islamic enterprises.

Design/methodology/approach

The paper explores relevant literatures (including the Qur'an and the Hadeeth) to ascertain the objective of an Islamic enterprise and suggest an alternative approach, in making a choice among alternative courses of action, that aligns with the Islamic socio-economic objective ( falah).

Findings

The paper suggests that both in long-term and short-term decision making endeavours, cost-benefit comparison (where cost includes negative externalities) rather than discounted cashflow techniques or contribution margin should be adopted in making a final choice among alternatives to achieve falah.

Research limitations/implications

The paper has not considered other objectives that may be pursued by an organisation beside profit maximization whether short-term or long-term.

Practical implications

The paper expands the frontiers of knowledge in Islamic accounting by exposing the inadequacy of the conventional management accounting decision making methods.

Originality/value

This paper explores the Islamic perspective of the conventional management accounting which is rare among scholars of accounting.

Details

Journal of Islamic Accounting and Business Research, vol. 4 no. 2
Type: Research Article
ISSN: 1759-0817

Keywords

Abstract

Details

Monetary Policy, Islamic Finance, and Islamic Corporate Governance: An International Overview
Type: Book
ISBN: 978-1-80043-786-9

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