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Article
Publication date: 15 February 2021

Nik Abdul Rahim Nik Abdul Ghani, Ahmad Dahlan Salleh, Amir Fazlim Jusoh @ Yusoff, Mat Noor Mat Zain, Salmy Edawati Yaacob, Azlin Alisa Ahmad and Muhammad Yusuf Saleem

This paper critically aims to examine the concept of beneficial ownership and its application in musharakah-based home financing.

Abstract

Purpose

This paper critically aims to examine the concept of beneficial ownership and its application in musharakah-based home financing.

Design/methodology/approach

The study applies the method of juristic interpretation in analyzing the meaning of beneficial ownership in legal documentation of musharakah-based home financing. This qualitative study uses content analysis approach that investigates the works of Islamic scholars on the concept of ownership and evaluates the concept of beneficial ownership in musharakah-based home financing from the Islamic perspective.

Findings

The result finds that beneficial ownership is considered a true ownership, as Shari’ah allows the transfer of ownership based on the offer and acceptance in a contract. Furthermore, the absence of legal registration does not mean the absence of true ownership, whereas all documentations and agreements have clearly stated rights and liabilities of each contracting parties.

Originality/value

This paper provides a fiqhi discussion of analyzing beneficial ownership in musharakah-based home financing. It shows that Shari’ah parameters are essential for the use of beneficial ownership to ensure its compliance with the Shari’ah requirements of milkiyyah (ownership).

Details

Qualitative Research in Financial Markets, vol. 13 no. 2
Type: Research Article
ISSN: 1755-4179

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Article
Publication date: 20 February 2020

Aisyah Abdul Rahman, Shifa Mohd Nor and Mohd Fadzli Salmat

This paper aims to explore the strategies used by venture capital (VC) firms in assisting entrepreneurs who have business potential but lack capital. The study also aims…

Abstract

Purpose

This paper aims to explore the strategies used by venture capital (VC) firms in assisting entrepreneurs who have business potential but lack capital. The study also aims to investigate whether the VC strategy can be adopted by Islamic banks through musharakah financing.

Design/methodology/approach

Apart from content analysis, primary data were gathered from several interview sessions with the management of three VC firms and two Islamic banks.

Findings

Islamic banks in Malaysia have great potential to offer musharakah financing and mitigate risk by adopting the following five VC strategies: method of selection, channelling of funds, monitoring, non-capital assistance and period of investment. We propose the channelling of corporate social responsibility funds for musharakah financing as an initial step in applying VC strategy.

Research limitations/implications

Given the limited number of willing and eligible respondents in Malaysia, the scope of this study can be widened to a cross-country analysis where musharakah financing is widely adopted.

Practical implications

This study motivates regulatory bodies and Islamic banks to consider musharakah financing using the risk monitoring strategy adopted from the VC industry.

Originality/value

This study is the first to empirically explore the strategy adopted by VC companies and evaluate whether such a strategy is suitable for the concept of musharakah financing.

Details

Journal of Islamic Accounting and Business Research, vol. 11 no. 3
Type: Research Article
ISSN: 1759-0817

Keywords

Content available
Article
Publication date: 12 November 2018

Hatem Adela

This paper aims to contribute to formulating the methodological framework for a paradigm of Islamic economics, using the development of the conventional economics…

Abstract

Purpose

This paper aims to contribute to formulating the methodological framework for a paradigm of Islamic economics, using the development of the conventional economics, theoretical and mathematical methods.

Design/methodology/approach

The study based on the inductive and mathematical methods to contribute to economic theory within the methodological framework for Islamic Economics, by using the return rate of Musharakah rather than the interest rate in influence the economic activity and monetary policy.

Findings

Via replacement, the concept of the interest rate by the return rates of Musharakah. It concludes that the central bank can control the monetary policy, economic activity and the efficient allocation of resources by using the return rates of Musharakah through the framework of Islamic economy.

Practical/implications

The study is a contribution to formulate the methodological framework for a paradigm of Islamic economics, where it investigates the impact of return rates of Musharakah on the money market and monetary policy, by the mathematical methods used in the conventional economy. Also, the study illustrates the importance of further studies that examine the methodological framework for Islamic Economics.

Originality/value

The study aims to contribute to formulating the Islamic economic theory, through the return rate of Musharakah financing instead of the interest rate, and its effectiveness of the monetary policy. As well as reformulating the concepts of the investment function, the present value and the marginal efficiency rate of investment according to the Islamic economy approach.

Details

Review of Economics and Political Science, vol. 3 no. 3/4
Type: Research Article
ISSN: 2631-3561

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Article
Publication date: 3 August 2012

Mariam Jamilah Abdul Jalil and Zuriah Abdul Rahman

The purpose of this paper is to determine whether the amount of profits gained from musharakah mutanaqisah model using coupon rate of 4.5 per cent, price at par and tenure…

Abstract

Purpose

The purpose of this paper is to determine whether the amount of profits gained from musharakah mutanaqisah model using coupon rate of 4.5 per cent, price at par and tenure of five years was greater than using ijarah principle where the price is at a discount. Also to compute and compare the profits obtained from sukuk investment in ijarah and musharakah mutanaqisah for 3.5 per cent coupon rate and price at par for a sukuk with tenure of 12.5, 15, 17.5 and 19 years.

Design/methodology/approach

In total, two models were used to calculate profit. These models are based on ijarah and musharakah mutanaqisah principles. Formulas are derived from ijarah and musharakah and mutanaqisah principles used in sukuk.

Findings

Sukuk investment using ijarah principle is found to be a better investment alternative than musharakah mutanaqisah principle, regardless of the number of years of the sukuk, as long as it is a long‐term tenure. However, for short‐term tenure, the latter is preferred based on the amount of profits generated.

Research limitations/implications

The formulas and results shown in this research are just one of the mathematical approaches that can be used for decision making in sukuk investment. There are other approaches which may deemed to be more effective in decision making. This research was applied only to ijarah and musharakah mutanaqisah types of investment.

Practical implications

The results in the research will assist in making a quick decision on what type of sukuk investment for the investors and issuers and which will be suitable given the amount of financial resources and duration of the investment period.

Originality/value

Many researchers have attempted to study the implications of using mathematical formulas to guide decision making on the choice of sukuk investment and this research has, to a certain extent, concurred with and complemented the works of past researchers. Additionally it will create awareness and provide more information to potential investors on better sukuk investment alternative principles from a mathematical point of view.

Details

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

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Article
Publication date: 29 August 2008

Gaffar Abdalla Ahmed

The purpose of this paper is to evaluate the performance of musharakah (equity participation) in terms of profitability and risk; to investigate musharakah management to…

Abstract

Purpose

The purpose of this paper is to evaluate the performance of musharakah (equity participation) in terms of profitability and risk; to investigate musharakah management to recognise the obstacles and factors influencing decision‐making and to investigate the implications of using musharakah mode of finance.

Design/methodology/approach

Data from Sudan, which fully adhere to interest‐free principles of finance, will be used. Part of the data source is the Sudanese banks’ balance sheets and annual reports, which provide bank level data for all Sudanese banks for the period 1990‐2004. Initially, some descriptive analysis is provided. The concentration of musharakah in the Sudanese Islamic banks each year is provided so as to give an indication of the influence of musharakah. The second part of the data is survey data collected from nine banks. The survey has been distributed and collected from staff members of investment departments at the Sudanese banks.

Findings

The results show the high preference of musharakah among banks’ staff compared with other modes of finance. The results indicate that the lack of knowledgeable bankers in selecting, evaluating and managing profitable projects is a significant cause for the lack of profit and loss (PLS) projects. The results show the high profitability and risk performance. The paper has exposed the key issues involved in bad debt and general risk degree for musharakah.

Originality/value

The advantages and disadvantages of using musharakah have been discussed, obstacles for the scheme have identified, and the performance of musharakah has been evaluated. The paper should contribute to a better understanding of the implications of using PLS modes of finance, particularly musharakah.

Details

Humanomics, vol. 24 no. 3
Type: Research Article
ISSN: 0828-8666

Keywords

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Article
Publication date: 4 September 2017

Rida Ahroum and Boujemaa Achchab

Participatory contracts reflect the true spirit of Islamic finance. However, these contracts face several challenges during their implementation. This is reflected by the…

Abstract

Purpose

Participatory contracts reflect the true spirit of Islamic finance. However, these contracts face several challenges during their implementation. This is reflected by the low volume of contracts processed by Islamic banks and the low number of Sukuk issued. This study aims to introduce a new parameter related to the valuation of Sukuk Musharakah when the underlying asset is a joint venture.

Design/methodology/approach

The author applies the Gordon & Shapiro model on the valuation of Sukuk Musharakah with a joint venture as underlying. A new pricing framework is introduced with several usual parameters such as the profit and loss sharing ratio, besides a new parameter, which is the dividend payout ratio. The framework shall contain price, duration and convexity computation. The new framework differs from the classic bond pricing methodology broadly used nowadays in determination of Sukuk prices.

Findings

The results indicate that negotiating only the profit and loss sharing ratio is not sufficient to have a fair price of Sukuk Musharakah when the underlying is a joint venture. It is due to the mismatch of interest between investors and issuers. Thus, another parameter should be negotiated which is the dividend payout ratio.

Research limitations/implications

The research focuses exclusively on Sukuk Musharakah with joint venture as underlying. Also, the choice of Gordon & Shapiro formula, by definition of the model, restricts the calculation of the net asset value by using only the future expected dividends with constant growth. This choice is made primarily to explain the objective of this paper in a simple way.

Practical implications

For investors, a compatible pricing framework with the underlying flows and risks of an asset is essential to create a liquid market. This work would help investors to boost the Sukuk Musharakah market.

Originality/value

Several studies have analyzed the various challenges in Sukuk markets. Few of them dealt with specificities of Sukuk Musharakah by focusing on the underlying nature. So far, the profit and loss sharing ratio is the only parameter analyzed in these studies. Thus, the authors contribute to the literature by studying other parameters that can solve the various challenges of Sukuk Markets.

Details

Journal of Islamic Accounting and Business Research, vol. 8 no. 4
Type: Research Article
ISSN: 1759-0817

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Article
Publication date: 24 August 2012

Rasem N. Kayed

The purpose of this paper is to find out whether profit‐and‐loss‐sharing (PLS) modes of finance have become viable financial alternatives for entrepreneurship and…

Abstract

Purpose

The purpose of this paper is to find out whether profit‐and‐loss‐sharing (PLS) modes of finance have become viable financial alternatives for entrepreneurship and enterprise development or whether they are still merely an academic endeavour.

Design/methodology/approach

The method employed in this study is a combination of extensive examination of existing literature and critical analysis of the outcomes of several relevant studies in order to establish the convergent/divergent relationship between theory and practice in Islamic finance.

Findings

Based on available bank level and country level data, the paper presents evidence that the divergence between the theoretical perspective and the practical implementation of PLS modes of finance is widening to an alarming level. The paper argues that this divergence by no means can be attributed to the construct and the disposition of the PLS instruments; it is rather the product of the negative attitude and the lack of proper infrastructure of the majority of Islamic financial institutions (IFIs) – and their (reluctance) to accommodate entrepreneurship through the genuine implementation of PLS instruments.

Practical implications

The findings of this study draw attention to the visible shortage in practical research pertaining to the application of the principles of PLS modes in financing entrepreneurial activities. The study suggests that the relevance, the direction and the resilience of future research undertakings should be focused on bridging the increasing gap between the prescribed role of PLS instruments and the actual performance of IFIs in promoting socio‐economic development through the creation of a vibrant entrepreneurship sector.

Originality/value

The paper points out that while PLS models dominate the theoretical literature on Islamic finance, and whereas the majority of mainstream Muslim scholars and financial authorities overwhelmingly judge PLS models as being compelling financial options and practical developmental tools, the reality of Islamic finance paints a different picture. The paper emphasizes the need for IFIs to conform to their own charters and assume a leading developmental role in order to realize al‐Shariah objectives (maqasid al Shariah). The paper identifies key research areas that warrant the attention of keen researchers with interest in the field of Islamic finance and entrepreneurship development.

Details

International Journal of Islamic and Middle Eastern Finance and Management, vol. 5 no. 3
Type: Research Article
ISSN: 1753-8394

Keywords

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Article
Publication date: 9 March 2020

Nor Syahirah Zain and Zulkarnain Muhamad Sori

This study aims to explore a sustainable and responsible investment (SRI) sukuk model based on Musharakah that could be implemented to develop waqf properties and assets…

Abstract

Purpose

This study aims to explore a sustainable and responsible investment (SRI) sukuk model based on Musharakah that could be implemented to develop waqf properties and assets under the SRI sukuk framework in Malaysia. This includes proposing and designing a potential SRI sukuk model and seeking the opinion of subject-matter experts and industry practitioners on the model, its attractiveness to investors and its feasibility to implement in Malaysia.

Design/methodology/approach

The study adopts desk research and semi-structured interview as its methodology. A desk research is where a detailed critical review and analysis of past literature from reports, journals, framework, books and practices are undertaken. To establish a SRI sukuk model, the paper also studies the cases of the first SRI sukuk issued in Malaysia and other waqf-related sukuks that have been structured for the development of waqf property/asset in the past. Following that, the opinion of subject-matter experts and industry practitioners on the proposed SRI sukuk model is sought in a semi-structured interview.

Findings

Based on the interviewees’ response, the study proposes the most feasible SRI sukuk model that could be implemented in the Malaysian context for the development of waqf properties/assets, which is a Musharakah-based sukuk model. The model will be elaborated based on the purpose of development, functionality, choice of Shari’ah contract, obligor and return mechanism.

Research limitations/implications

This paper is exploratory in nature. While it explores the structural point of view only, future research could analyse and identify the legal, regulatory, financial and Shari’ah aspects of the proposed model. Further empirical studies can be done to provide more comprehensive idea and knowledge regarding the subject matter.

Practical implications

The study serves great benefit to the government, waqf administrators, regulators, policymakers, foundations, corporations and interested investors to explore SRI sukuk as one of the feasible financial instruments to develop waqf in Malaysia.

Originality/value

This study proposes the use of an innovative financial instrument called SRI sukuk and structures a feasible SRI sukuk model to help realise the true roles of waqf as not only a religious tool but also one of the instruments for human, economic and social developments.

Details

Qualitative Research in Financial Markets, vol. 12 no. 3
Type: Research Article
ISSN: 1755-4179

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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

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Article
Publication date: 1 August 2019

Muhammad Hanif

The purpose of this paper is to present an analysis of current practices of Islamic mortgages in the light of the principles of Islamic financial system, to document…

Abstract

Purpose

The purpose of this paper is to present an analysis of current practices of Islamic mortgages in the light of the principles of Islamic financial system, to document divergences – if any. A subsidiary goal is to develop an Islamic Mortgage Model (IMM) based on Musharakah principles.

Design/methodology/approach

The author documents theoretical underpinnings of risk-return sharing from the Shari’ah perspective. A comparative study of conventional and Islamic mortgages is completed; existing practice of Islamic mortgages analyzed in the light of Musharakah principles and divergences identified. IMM is developed after taking divergences and Musharakah principles into considerations. A housing case is used to highlight differences (in financial terms) under multiple methods and scenarios.

Findings

Study documents multiple divergences from Musharakah principles in the existing practice of Islamic mortgages including ignorance of market pricing in the negotiation of rentals and trading of equity units, and transfer of all ownership risks and rewards (vacancy, damage, destruction and market) to one partner (i.e. customer). Practice is divergent from principles in the area of economic substance. Modified IMM is developed by taking into account Musharakah principles; and differences highlighted by calculating financial figures – to determine financial rights and liabilities of the parties.

Practical implications

Divergence from the principles of risk-return sharing leads to failure in the achievement of Islamic finance objective of equitable distribution of wealth. Moreover, protection of capital for financier reduces the market abilities to achieve financial stability by matching credit expansion with the rise in the real economy. Shari’ah boards and regulators, as well as, management of Islamic banking industry are expected to incorporate proposed changes in-practice for the realization of Islamic finance objectives.

Originality/value

This study contributes to Islamic finance literature in the area of risk-return sharing. Based on important objectives of Islamic finance – equitable distribution of wealth and financial stability – divergences identified and a modified IMM in the light of Musharakah principles is presented. Descriptive rules are transformed into financial figures to document financial rights and liabilities of the concerned parties.

Details

International Journal of Emerging Markets, vol. 14 no. 5
Type: Research Article
ISSN: 1746-8809

Keywords

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