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The purpose of this paper is to find applicable Islamic pricing benchmarks (IPBs) instead of the market interest rates which are currently used in Islamic finance as benchmark.

The suggested model (Islamic pricing benchmark model (IPBM)) obviously reveals the feasibility and practical effectiveness of a substitute to London Interbank Offered Rate (LIBOR) and as an evaluator tool to suggested investment projects. The model is a suggested mechanism which could be used as an alternative choice to the conventional borrowing based on the forbidden Riba or on interest. The suggested IPBM depends on estimating the rate of return for any project on consideration of the cash flows in future which is expected to be relative to the invested capital.

The IPBM approach might be applied to financial tools, where the fund owner bears the loss since it is not because of negligence. An instrument to help identify the investment for target rates of return (as an alternative choice to LIBOR) to identify a breakeven point based on expected cash flows for the project to be financed instead of based on seeking the indicators of interest or Riba (as LIBOR). This feature of the IPBM model as an Islamic benchmark renders it as a Shariah pricing mechanism for the Islamic financial products.

The IPBM could be used as a financial instrument to assist in identifying the investment for the target return rates to determine a breakeven point based on expected cash flows for the project to be funded instead of being based on seeking the interest indicators or Riba (as LIBOR). This feature as an Islamic benchmark is considered as a Shariah pricing mechanism for the Islamic financial products. In particular, the proposed model incorporates the Shariah parameters. In that, it is hoped that the Islamic financial instruments will be more comprehensive in their Shariah compliance and thereby may bring more credibility to the Islamic financial system in general.

This paper highlights several important issues related to the IPBMs in Islamic financial institutions which are not widely discussed among researchers. This study contributes to finding an alternative IPB for the Islamic financial products which is currently using the conventional interest rate (LIBOR) as its benchmark. The current study provides empirical evidence for the possibility of relying on the IPBM as an Islamic benchmark to price Islamic financial transactions.

This paper aims to understand the issue of interest rate benchmarking in Islamic financial institutions (IFIs) from a macro-economic perspective and assessing the relevance of creating a Sharīʿah-compliant profit rate benchmark to solve this issue. This paper also aims at suggesting an Islamic alternative that will handle both the negative economic impact on IFIs as well as on their financial performance.

The paper is based on literature review of conventional finance and Islamic finance theories to construct a theoretical model to assess the impact of interest rate benchmarking on the ability of IFIs to achieve the objectives of the Islamic economy.

The macro-economic perspective concludes that conceiving a profit rate benchmark for the Islamic finance industry is not relevant to raising the Sharīʿah credibility of the industry. Indeed, several adjustments need to be introduced in terms of the business model.

The recommendations of this paper require the involvement of financial authorities and governments for their implementation. Indeed, the adjustments require a macro-economic review.

The paper considers a profit rate benchmark irrelevant and inefficient. Instead, it suggests the necessary adjustments in terms of business model and economic approach for IFIs to achieve their objectives.

The paper considers zakat implementation and the adjustment of IFIs as the real path to implement a fair wealth distribution in the society.

The creation of a profit rate benchmark has always been the only solution for the pricing issue in IFIs. This paper challenges this idea and tries to give a deeper understanding of the situation.

The purpose of this paper is to emphasize that interest-rate benchmark cannot be used for pricing of Islamic financial products. This paper will help in pricing basis for Islamic financial products, which are currently based on interest-rate benchmarks. Shariyah perspective and ground realities are considered as evident to the viewpoint.

Viewpoint has been evident through comparison of conventional and Islamic financial product pricing, and through comparison of interest rate with macroeconomic indicators to analyze whether interest really represent economy, since Islamic finance based on real economic activities.

It has been analyzed that interest based benchmarks do not represent real economic activities.

This paper brings new light to the product development in Islamic financial instruments and institutions. Islamic finance should have its own footings in terms of product development.

This paper aims to examine the issue that arises in the context of benchmark rate (or interest rate) changes made for reasons of monetary policy in a jurisdiction with a significant presence of Islamic banks. Changes, especially increases, in the prevailing interest rate made by central banks raise issues of asset-liability management for banks, which typically have longer maturities on the asset side than on the liabilities side, resulting in exposure to interest rate risk for conventional banks, and what is known as rate of return (RoR) risk for Islamic banks, which for reasons of compliance with Islamic religious law (Shari’ah) do not use interest in their operations. Islamic banks use various financial instruments which reflect the cost of funds by means of contracts of sale on credit or of leasing or forms of partnership, which allow them to earn returns on their funds and to pay returns to customers who deposit funds with them.

The methodology of this study consisted of a descriptive analysis of the relevant characteristics of Islamic banks and their economic and regulatory environments, illustrated by a case study approach applied to two jurisdictions, namely, Sudan and Malaysia.

In jurisdictions where Islamic banks represent a significant share of the market for financial services, if the contracts used in Islamic financing allow for periodic adjustments of the profit rate or lease rental, this could result in a significant impediment to the full implementation of monetary policy and hence to the maintenance of financial stability.

This study is (to the best of authors’ knowledge) the first thorough analysis in the literature of the issues arising from the exposure of Islamic banks to RoR risk and has clear implications for regulatory and central bank policy.

This paper aims to provide a critical review of the literature on the rate of return risk faced by Islamic banks.

Through a thorough review of the literature, this paper presents the discussion among scholars regarding the rate of return risk in Islamic banks.

One of the major issues highlighted is the sensitivity of Islamic banks to the changes in the conventional interest rate due to the fact that many Islamic banking products are benchmarked against the conventional interest rate. Moreover, the limited techniques and instruments available to mitigate the rate of return risk also need serious attention by the regulators.

The study relies solely on the literature and highlights important issues in the area but does not provide any empirical evidence of the importance of rate of return risk to Islamic banks as it is beyond the scope of the paper.

There are several issues that should be taken into consideration. First, the dearth of empirical research on the identification of the rate of return risk in Islamic banking highlights the need to develop appropriate methodology to enrich the study on the rate of return risk. Second, more focus is needed to determine the impact of rate of return risk on the financial stability and the performance of Islamic banks.

This paper highlights several important issues relating to the rate of return risk in Islamic banks that are not widely discussed among researchers. In particular, this paper emphasizes the need to identify, handle and mitigate such risks to ensure the stability of Islamic banks. Therefore, this paper identifies a gap that needs further exploration so as to contribute towards enriching the existing literature in this area.

This paper aims to propose a new pricing alternative called Rental Rate Index (RR-I) that captures the true value of property to be used by Islamic banks in Musharakah Mutanaqisah (MM) contract for home financing.

By formulating a profit rate based on Rental Index (RI) and House Price Index (HPI), the proposed rate eliminates conventional profit rate benchmarking, and, at the same time, suggests a fair, equitable and sustainable financing. This new RR-I (measured by RPI/HPI) enables computerization of the MM system in home financing to be easily implemented. A financial simulation is developed to demonstrate the feasibility of this newly proposed rate.

This newly proposed RR-I is found to be more stable, having less fluctuations, resilient to macroeconomic conditions and yet comparable to the conventional interest rates, without depending on them. It can also be regarded as a rate that is fair and sustainable to both the customer and the bank, as it measures the actual rate of return to both parties in MM contract.

The paper confines one contract, namely, MM, as it is claimed to be more Shariah-compliant than others.

The finding also sheds some light on the recommendation by Bank Negara Malaysia, which is to consider RR that is more indicative of the actual rental price while taking into account the competitiveness of the product. (BNM, 2007).

This paper wreaks customer patronage in selecting the contract of home financing.

This paper attempts to resolve the issue of benchmarking RR to the conventional interest rate in the MM contract. Studies conducted on this issue via simulation approach are meager.

The purpose of this paper is to examine customers' perception on two modes of home financing namely Bai Bithaman Ajil (BBA), debt‐based financing, and diminishing partnership (DP), an equity‐based financing, focusing on the concepts used, methods of computation and pricing, Shariah compliant, justice and equality, societal well being and equitable distribution of wealth and income and preference for the products.

The perception of respondents towards BBA and DP home financing were obtained by distributing a self‐administered survey questionnaire to a sample of 320 postgraduate students from three universities. Postgraduate students are considered suitable samples for this study because they are educated and own a house or intended to own one in the future.

Customers are dissatisfied with the prevailing mode of BBA financing as the bank's profit is computed upfront resulting in high pricing, injustice and a burden to individuals and society. On the other hand, the DP home financing mode is more preferred as profit and risk is shared between the customer and bank resulting in greater fairness, justice and equity. Its features also meet the purpose of the Shariah (Maqasid al Shariah).

The use of convenience sampling and postgraduate students may not sufficiently capture the variations that could potentially exist in the market.

There is a need for Islamic banks to move away from their dependence on debt mode of financing such as Murabahah and BBA to equity financing. The latter mode provides them with greater flexibility and innovation which can be used to fulfill customers' needs and wants.

The paper provides empirical evidence on the viability of home ownership based on equity financing which reduces customers' debt over a long period. This is due to the flexibility of purchasing the bank's share to own the house earlier. The DP model can also be used for the purchase of equipment and vehicles. It can also be applied to joint ventures and private equity arrangements.

The purpose of this paper is to examine the customers’ perception regarding the current shari’ah issues of Islamic banks in Malaysia. Specifically, the study attempts to examine the awareness of the current criticisms of the main shari’ah issues in Islamic finance, and the perception of the selected customers towards these criticisms.

The study uses a qualitative approach to understand in detail the customers’ perception and experiences about shari’ah compliance of Islamic banks. Semi-structured interview is used with ten Islamic banks’ customers in Malaysia. The study also used phenomenological techniques to analyse the data.

The findings revealed that the interviewees have considerable exposure and awareness of the current criticisms of the shari’ah compliance of Islamic banks.

This research is the first to study the shari’ah issues of Islamic banks in Malaysia from the customers’ perspective, by using a qualitative research approach. The findings of this study are of original importance, because they unveil the customers’ experience in an area that has been severely looked at from the professional and experts’ point of view only.

This paper aims to draw on the bank rent approach to evaluate the existing pattern of financing of Islamic banks and to propose a fairly new conceptualization of Islamic bank rent.

The bank rent theory is adopted to generate the theoretical underpinnings of the issue. After that, empirical evidence from the banking sector of Bangladesh is used to support the arguments.

Repeated transactions under murabaha are observed in the Islamic banking sector of Bangladesh. The asset-based financing gives the Bangladeshi Islamic banks relatively higher Islamic bank rent opportunity for protecting their “franchise value” as Shari’ah-compliant lenders, while responding to the periodic volatility in transaction costs of profit-and-loss sharing.

The bank rent approach suggests that the murabaha syndrome can be ironically justifiable. On the other hand, the current profit-and-loss sharing risk provides an idea of the difficulty in assuming the participatory financing with higher credit risk in practice. Islamic scholars and the regulatory authority need to design an appropriate financial architecture which can create different levels of rent opportunities for Islamic banks to avail the benefit from the variety of Islamic financing as declared by Islamic Shari’ah.

This paper introduces a fairly new concept of “Islamic bank rent” to make sense of the murabaha syndrome. This approach also contributes to clarifying the unique risk and cost to be compensated with the spreads that Islamic banks are expected to earn. To draw empirical evidence, as far as it could be ascertained, the data of both Islamic banks and conventional banks with Islamic banking windows/branches are used for the first time.