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Article
Publication date: 13 July 2020

Issam Tlemsani, Farhi Marir and Munir Majdalawieh

This paper revolves around the usage of data analytics in the Qur’an and Hadith through a new text mining technique to answer the main research question of whether the…

Abstract

Purpose

This paper revolves around the usage of data analytics in the Qur’an and Hadith through a new text mining technique to answer the main research question of whether the activities and the data flows of the Murabaha financing contract is compatible with Sharia law. The purpose of this paper is to provide a thorough and comprehensive database that will be used to examine existing practices in Islamic banks’ and improve compliancy with Islamic financial law (Sharia).

Design/methodology/approach

To design a Sharia-compliant Murabaha business process originated on text mining, the authors start by identifying the factors deemed necessary in their text mining techniques of both texts; using a four-step strategy to analyze those text mining analytics; then, they list the three basic approaches in text mining used for new knowledge discovery in databases: the co-occurrence approach based on the recursive co-occurrence algorithm; the machine learning or statistical-based; and the knowledge-based. They identify any variation and association between the Murabaha business processes produced using text mining against the one developed through data collection.

Findings

The main finding attained in this paper is to confirm the compatibility of all activities and the data flows in the Murabaha financing contract produced using data analytics of the Quran and Hadith texts against the Murabaha business process that was developed based on data collection. Another key finding is revealing some shortcomings regarding Islamic banks business process compliance with Sharia law.

Practical implications

Given Murabaha as the most popular mode of Islamic financing with more than 75% in total transactions, this research has managed to touch-base on an area that is interesting to the vast majority of those dealing with Islamic finance instruments. By reaching findings that could improve the existing Islamic Murabaha business process and concluding on Sharia compliance of the existing Murabaha business process, this research is quite relevant and could be used in practice as well as in influencing public policy. In fact, Islamic Sharia law experts, Islamic finance professionals and Islamic banks may find the results of this study very useful in improving at least one aspect of the Islamic finance transactions.

Originality/value

By using a novel, fresh text mining methods built on recursive occurrence of synonym words from the Qur’an and Hadith to enrich Islamic finance, this research study can claim to have been the first of its kind in using machine learning to mine the Quran, Hadith and in extracting valuable knowledge to support and consolidate the Islamic financial business processes and make them more compliant with the i.

Details

Journal of Islamic Accounting and Business Research, vol. 11 no. 9
Type: Research Article
ISSN: 1759-0817

Keywords

Article
Publication date: 13 June 2016

Mezbah Uddin Ahmed, Ruslan Sabirzyanov and Romzie Rosman

The purpose of this paper is to examine the accounting treatment and reporting of a murabaha contract and its implication to the financial statements of Islamic banks. In…

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Abstract

Purpose

The purpose of this paper is to examine the accounting treatment and reporting of a murabaha contract and its implication to the financial statements of Islamic banks. In addition, the paper also explains the implication of time value of money on the measurement of a murabaha contract and the concept of substance over form in recognising financial transactions.

Design/methodology/approach

This study reviews the accounting treatment and reporting for a murabaha contract as stated in the Financial Accounting Standards (FAS) of the Accounting and Auditing Organization for Islamic Financial Institutions (AAOIFI) and the application of a murabaha contract as a financial instrument based on International Financial Reporting Standards (IFRS).

Findings

The paper finds that, while IFRS-based financial reporting primarily focuses on economic consequences of financial instruments, AAOIFI further takes into consideration the legal structure of the instruments, which are based on Shari’ah precepts. The paper also finds that IFRS-based financial reporting cannot always capture the distinctive structure of the murabaha and, hence, may lack representational financial reporting. However, the IFRS recognizes the substance of a murabaha contract as financing, and the majority of Islamic banks in Malaysia report it as one of financing and not as a trading contract. For measurement, IFRS adopted the concept of time value of money where the profit allocation is based on amortized cost, which is similar to the measurement of conventional loan transactions that apply the concept of effective interest rate. Meanwhile, AAOIFI uses a straight-line basis to allocate the profit of a murabaha contract.

Practical implications

The forthright discussion and the observations of the paper are expected to assist regulators and standard setters in developing accounting standards that are in convergence but also cater to the unique characteristics of Islamic financial transactions.

Originality/value

The paper criticizes both accounting treatment of a murabaha contract based on the AAOIFI and IFRS and then suggests an extension of these treatments to be adopted to improve the reporting.

Details

Journal of Islamic Accounting and Business Research, vol. 7 no. 3
Type: Research Article
ISSN: 1759-0817

Keywords

Article
Publication date: 1 December 2020

Naqeeb Ullah Atal, Mohammad Iranmanesh, Fathyah Hashim and Behzad Foroughi

The purpose of this paper is to investigate the determinants of Muslims’ attitude and intention towards Murabaha financing by considering religiosity as a moderator.

Abstract

Purpose

The purpose of this paper is to investigate the determinants of Muslims’ attitude and intention towards Murabaha financing by considering religiosity as a moderator.

Design/methodology/approach

The data were collected through a survey of 373 Muslims in Afghanistan and were analysed using the partial least squares technique.

Findings

The results showed that social influence and religious obligation have a positive effect on attitude towards Murabaha financing. Furthermore, social influence and attitude have a positive effect on the intention to use Murabaha financing. Religiosity moderates negatively the impact of social influence on attitude towards Murabaha financing.

Practical implications

Managers and marketers of Islamic banks may benefit from the findings of this study, which provide insight into the factors that should be considered to promote Murabaha financing.

Originality/value

The findings contribute to the literature on Islamic financing products by demonstrating the drivers of attitude towards and intention to use Murabaha financing. The study also extends the literature by testing the moderating role of religiosity. Furthermore, the study extends the theory of reasoned action in the context of Islamic financing by introducing religious obligation as a potential driver of attitude and religiosity as a moderator.

Details

Journal of Islamic Marketing, vol. 13 no. 3
Type: Research Article
ISSN: 1759-0833

Keywords

Article
Publication date: 18 May 2021

Ahmad Abed Alla Alhusban, Ali Abdel Mahdi Massadeh and Haitham Haloush

This study aims to examine the validity of the installment payment contract when using the first Islamic credit card (ICC) in Jordan and will explore the hidden techniques…

Abstract

Purpose

This study aims to examine the validity of the installment payment contract when using the first Islamic credit card (ICC) in Jordan and will explore the hidden techniques that are used to operate such a financial product. The purpose of the study will be achieved by examining the structure and the issues surrounding the first ICC that was introduced to the Jordanian market as a hybrid contract of Qard Hassan (benevolent loan), Murabaha, Wakalah (agency) and Bay‘ Al Ajjal (credit sale). In addition, a further objective is to examine whether this credit card is a Sharia-compliant financial product.

Design/methodology/approach

A qualitative research method approach was adopted to understand the issues, nature and structure of the first Jordanian ICC. This was due to the explanatory nature of the product, the different financial solutions it offered and the fact that the ICC in Jordan is, to date, relatively unexplored. This paper used the technique of content/thematic analysis that involves multiple sequenced steps to analyze these matters.

Findings

The main finding of this research is that the first ICC in the Jordanian financial market has caused a degree of uncertainty. This is because, once a customer decides to choose the installment payment contract option, the bank does not have real possession of the assets in question. The issue of constructive possession has been denied by several classic and contemporary Islamic scholars, including the General Iftaa Department of Jordan. Therefore, it can be seen that the installment payment contract option does not comply with Islamic principles and particular Fatwas that have been decreed.

Originality/value

This is the first study that shows how the first ICC, being a new Islamic financial product in Jordan, operates in relation to the installment payment contract. In addition, focusing on the concept of changing the nature of the contract from a Qard Hassan (benevolent loan) to a hybrid contract is significant, to encourage Islamic scholars to take a clear, legal stand under Sharia law.

Details

International Journal of Law and Management, vol. 63 no. 6
Type: Research Article
ISSN: 1754-243X

Keywords

Open Access
Article
Publication date: 9 July 2018

Jabir Al-Sulaiti, A.A. Ousama and Helmi Hamammi

This paper aims to examine the compliance of disclosure with the financial accounting standards of the Accounting and Auditing Organisation for Islamic Financial…

6110

Abstract

Purpose

This paper aims to examine the compliance of disclosure with the financial accounting standards of the Accounting and Auditing Organisation for Islamic Financial Institutions’ (AAOIFI) related to Islamic financing products by Islamic banks in Bahrain and Qatar.

Design/methodology/approach

The study measures compliance using disclosure indexes. The disclosure indexes include the three financial accounting standards of Murabaha, Mudaraba and Musharaka. The data are collected from the annual reports of 24 Islamic banks in Bahrain and Qatar over a period of 2012-2015.

Findings

The paper found that Islamic banks in Bahrain and Qatar comply with AAOIFI financial accounting standards related to Murabaha, Mudaraba and Musharaka. However, there was a level of non-compliance in both countries. In addition, it found that the extent of compliance had increased over the 2012-2015 period. Also, the Murabaha standard had the highest mean of compliance. Moreover, the results showed that the Islamic banks in Qatar tend to have more compliance of overall Murabaha and Mudaraba disclosures compared to the Islamic banks in Bahrain.

Research limitations/implications

The findings are preliminary and highlight that the issue is of high interest to Islamic banks and AAOIFI. Hence, it requires a detailed follow-up to form a complete picture that would assist AAOIFI and regulators gear their policies toward better quality disclosure by Islamic financial institutions. Even though the findings are encouraging, future research is recommended to enforce compliance with the AAOIFI financial accounting standards.

Originality/value

This is a pioneer empirical study that focuses on the level and trend of compliance with AAOIFI financial accounting standards related to the Islamic financing products of Murabaha, Mudaraba and Musharaka standards, especially in Qatar. Additionally, it is the first study comparing between the only two Gulf Cooperation Council (GCC) countries, i.e. Bahrain and Qatar, that mandatory apply the AAOIFI standards.

Details

Journal of Islamic Accounting and Business Research, vol. 9 no. 4
Type: Research Article
ISSN: 1759-0817

Keywords

Article
Publication date: 8 February 2016

Yasushi Suzuki and S. M. Sohrab Uddin

– This paper aims to assess recent trends in lending modes and to address the reasons for and consequences of changes in Bangladesh’s Islamic banking sector.

Abstract

Purpose

This paper aims to assess recent trends in lending modes and to address the reasons for and consequences of changes in Bangladesh’s Islamic banking sector.

Design/methodology/approach

Theoretical discourse is used to generate an underpinning for the issues covered by the study. In addition, empirical evidence from the banking sector, including the information derived from interviews with the staff of three Islamic banks, is presented to achieve the research objectives.

Findings

The findings clearly demonstrate that the Islamic banking sector has experienced a paradigm shift from participatory financing to asset-based financing. In particular, the murabaha mode of financing dominates the current lending structure, which follows the general trend of the global Islamic banking sector.

Research limitations/implications

It is necessary to concentrate on the potential negative outcomes of the trade-based murabaha mode of financing in a developing country such as Bangladesh, as banks have less incentive under protective rent (profit) opportunities to train the experts to screen and monitor projects in other socially desirable sectors such as agriculture and manufacturing including the small and medium enterprises.

Originality/value

Despite substantial growth of the Islamic banking sector, less research has been conducted to shed analytical light on the operations of Islamic banks from the perspective of loan disbursement to identify the disparities, if any, in between theory and practice in countries where both Islamic and conventional banks operate simultaneously. Using country-specific evidence, this study contributes to the debate by highlighting the paradigm shift of Islamic banks from participatory financing to the dominance of asset-based murabaha and other modes of lending, by identifying the fundamental causes that contribute to such a shift and by highlighting the consequences of such changes.

Details

Journal of Islamic Accounting and Business Research, vol. 7 no. 1
Type: Research Article
ISSN: 1759-0817

Keywords

Article
Publication date: 24 December 2020

Bassam Mohammad Maali, Usama Adnan Fendi and Muhannad Ahmad Atmeh

This paper aims to investigate the economic substance of Islamic banks’ transaction as perceived by the employees and regulators of banks and the effect of such substance…

Abstract

Purpose

This paper aims to investigate the economic substance of Islamic banks’ transaction as perceived by the employees and regulators of banks and the effect of such substance on the need for special accounting standards for Islamic banks. If there is a distinctive “Islamic economic substance”, then special accounting practices may be necessary such as the standards of the Accounting and Auditing Organization for Islamic Financial Institutions.

Design/methodology/approach

A qualitative inquiry on one of the leading Islamic banks in the Middle East was conducted to investigate the economic substance of the bank’s main two transactions; the deposit system and Murabaha financing, as perceived by informants within one of the earliest Islamic banks and its regulators.

Findings

It is found that despite the belief that the transactions under examination were different from equivalents within conventional banking, practice within the bank was not consistent with such a belief. Informants largely perceived the economic reality of the investigated transaction as being not different from conventional banks’ transactions, and this would affect the need for special accounting and regulatory frameworks.

Research limitations/implications

This investigation is confined to informants working within one Islamic bank; their views and perceptions may not coincide with those working in other Islamic banks in the world.

Practical implications

The results of this investigation provide policy implications for Islamic banks, regulators and standards setters in regard to the need for special accounting standards for Islamic banks.

Originality/value

The paper is one of the first papers that uses a qualitative inquiry on the main transactions of Islamic banks and the related need for special accounting practices. The paper provides a new perspective on the debate over whether Islamic banking is genuinely innovative or is merely a replicate for conventional banking.

Details

International Journal of Islamic and Middle Eastern Finance and Management, vol. 14 no. 2
Type: Research Article
ISSN: 1753-8394

Keywords

Article
Publication date: 12 August 2014

Seng Kiong Kok, Gianluigi Giorgioni and Jason Laws

– The purpose of this paper is to highlight the possibility of structuring an Islamic option which includes an element of risk sharing as opposed to risk transfer.

1952

Abstract

Purpose

The purpose of this paper is to highlight the possibility of structuring an Islamic option which includes an element of risk sharing as opposed to risk transfer.

Design/methodology/approach

The approach adopted in this research involved a combination of a wa’ad (promise) and murabaha (cost plus sale) and examining if they could form a risk-sharing Islamic option. The payoffs were assumed to be dependent on bi-period outcomes.

Findings

The paper attempted to create a hybrid risk-sharing option by combining elements of both wa’ad (promise) and murabaha (cost plus sale). The results yielded are dependent on the eventual direction of the market (in-the-money, at-the-money and out-the-money). While the results are not definitive, they do provide arguments for the adoption of a risk-sharing, as opposed to a risk-transfer, methodology when it comes to structuring risk management instruments.

Research limitations/implications

One of the major limitations of this research is the inability to assess the Shariah compliance of the proposed instrument. Shariah compliance is determined by a Shariah Supervisory Board, and every effort has been made to ensure that Shariah financial principles are adhered to in the creation of this structure.

Practical implications

The structure provides some interest arguments in the creation of risk management tools under a Shariah financial framework. The structure illustrates the benefits of having a risk-sharing mode over the conventional risk-transfer stances of most risk management tools.

Originality/value

The paper offers a new way of structuring a risk management tool in Islamic finance. It explores the highly debated area of derivatives in Islamic finance and proposes a new way of creating a risk management tool that involves some elements of risk sharing.

Details

International Journal of Islamic and Middle Eastern Finance and Management, vol. 7 no. 3
Type: Research Article
ISSN: 1753-8394

Keywords

Article
Publication date: 20 January 2020

Rida Ahroum, Othmane Touri and Boujemâa Achchab

This study aims to provide an interest-free valuation methodology for Murabaha and Musharakah Moutanaquissah contracts. Indeed, In Islamic finance, Murabaha contracts are…

Abstract

Purpose

This study aims to provide an interest-free valuation methodology for Murabaha and Musharakah Moutanaquissah contracts. Indeed, In Islamic finance, Murabaha contracts are widely negotiated. Their yield depends mainly on the contracted profit margin. In the current practices, this latter is based on a reference interest rate, which is highly criticized in Islamic literature, just like Musharakah Moutanaquissah contracts. In this perspective, authors suggest a new valuation methodology with parameters related to the real economy.

Design/methodology/approach

The authors apply an indirect method to determine a lower bound of the profit margin of a Murabaha contract. Considering Musharakah Moutanaquissah as an equivalent contract, the new valuation methodology is based on participation and focuses on parameters from the real economy: the market rent and the rate of return used for an equivalent project.

Findings

The results show that the pricing of Musharakah Moutanaquissah contracts could be based on several parameters linked to the real economy. Consequently, an implied value of the profit margin could be computed. Also, the interest rate is no longer implicated in the pricing of neither Murabaha nor Musharakah Moutanaquissah contracts.

Research limitations/implications

The valuation methodology is applicable only if the underlying asset’s financing can be made with Murabaha and Musharakah Moutanaquissah contracts.

Practical implications

This work will restore the link between Islamic contracts and the real economy. For Islamic banks in particular, the suggested model would reduce the exposure to reputational risk and enhance the compliance to the Sharia (Islamic Law).

Originality/value

Several studies have analyzed the dependence between Islamic contracts and interest rates. In general, these studies confirm this dependence and few of them have suggested alternatives. Thus, the authors contribute to the literature by providing a practical and applicable model to detach the valuation of Murabaha and Musharakah Moutanaquissah from the interest rate.

Details

Journal of Islamic Accounting and Business Research, vol. 11 no. 1
Type: Research Article
ISSN: 1759-0817

Keywords

Article
Publication date: 29 January 2020

Mohammad Dulal Miah and Yasushi Suzuki

This paper aims to explain the “murabaha syndrome” of Islamic banks. It further attempts to offer alternatives for the expansion of profit and loss sharing (PLS)-based financing.

Abstract

Purpose

This paper aims to explain the “murabaha syndrome” of Islamic banks. It further attempts to offer alternatives for the expansion of profit and loss sharing (PLS)-based financing.

Design/methodology/approach

Audited financial statements of 18 Islamic banks in the GCC countries are analyzed to assess the financing structures of banks. Moreover, additional data about financing pattern of Islamic banks in other Muslim majority countries are collected from the Islamic finance literature. A comparative analysis is offered to examine the financing structures of Islamic banks.

Findings

The paper confirms murabaha (mark-up financing) concentration of Islamic banks. About 90 per cent of the total financing are concentrated on murabaha, which is the result of existing institutional underpinnings. Islamic banks would logically be involved with PLS-based financing only limitedly unless the current governing institutions are changed. Entrepreneurs’ financing needs based on PLS contracts should be catered by venture capital, whereas micro-finance enterprises can meet the demand for funds of marginal clients.

Practical implications

PLS investment in the portfolio of Islamic banks would result in higher risk and uncertainty. Ambiguity, or its equivalent uncertainty, is prohibited in Islam. This is a dilemma which the existing literature does not sufficiently explain.

Originality/value

Ideally, Islamic banks should practice PLS-based financing; otherwise, their raison d’être would be difficult to justify. Islamic finance literature does not shed sufficient analytical lights in explaining Islamic banks’ preference of mark-up financing to PLS-based financing. Moreover, strategies to ameliorate this condition have largely remained unexplored.

Details

Journal of Islamic Accounting and Business Research, vol. 11 no. 7
Type: Research Article
ISSN: 1759-0817

Keywords

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