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Article
Publication date: 15 June 2015

Mohammad Abdullah

This paper aims to explore the moral aspect of qard (loan) from shariah perspective, and attempts to examine whether each interest-free qard is qualified for the Quranic…

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1093

Abstract

Purpose

This paper aims to explore the moral aspect of qard (loan) from shariah perspective, and attempts to examine whether each interest-free qard is qualified for the Quranic term qard hasan (loan par excellence)? Also, the study attempts to establish the key constituents of qard hasan in the light of the primary sources of shariah, and seeks to define the legal status of the interest-free qard which fails to qualify for the “term” qard hasan.

Design/methodology/approach

This study uses both the primary and secondary sources of shariah to examine the desired character of qard hasan. It employs pure qualitative paradigm to analyse and interpret the data.

Findings

This study finds that in between the qard hasan and qard ribawi, there exists a third category of qard too, which neither qualifies for the former nor does fit under the definition of later.

Originality/value

The findings presented in this paper illuminate the blurred line of contemporary understanding of qard hasan. The study adds original value to the corpus of contemporary literature on qard; as it collects and enumerates the ten vital conditions of qard hasan, without which, even an interest-free qard holds no virtuous sanctity in the sight of shariah.

Details

International Journal of Islamic and Middle Eastern Finance and Management, vol. 8 no. 2
Type: Research Article
ISSN: 1753-8394

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Article
Publication date: 13 June 2016

M. Nusrate Aziz and Osman Bin Mohamad

The purpose of this paper is to identify some well-set instruments in Islam that can efficiently alleviate poverty, solve social problems and reduce social inequality…

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2922

Abstract

Purpose

The purpose of this paper is to identify some well-set instruments in Islam that can efficiently alleviate poverty, solve social problems and reduce social inequality through a new operational framework called “Islamic social business (ISB)”.

Design/methodology/approach

This is a conceptual research that is based on Al-Quranic principles as well as contemporary social welfare philosophies, such as, augmented stakeholder theory, social enterprise and social business. Al-Quran, Al-Hadith and existing traditional and Islamic literature are consulted for this study.

Findings

The study proposes an efficient system of Islamic wealth sourcing and management to make the process of poverty alleviation sustainable. Other social problems for disadvantaged people, such as, health-, shelter-, literacy- and environmental-related issues are also addressed in the proposed system. The study identifies the inefficiency in the current practices and makes some propositions that are in conformance with Islamic principles and implementable by Islamic institutions all over the world. The authors propose a theoretical framework and operational propositions for ISB.

Practical implications

In following this study, social policymakers, Islamic financial institutions, Islamic social enterprises and Islamic charity organizations will find organized guidelines to initiate “new entities” or “reshape existing entities”.

Social implications

The study will be effective in solving social problems, alleviating poverty and reducing social inequality.

Originality/value

This is the first study that identifies all the potential Islamic sources of funding and the efficient management thereof through ISB. The study also proposes an ISB model and makes several propositions for different types of ISB.

Details

International Journal of Social Economics, vol. 43 no. 6
Type: Research Article
ISSN: 0306-8293

Keywords

Content available
Article
Publication date: 10 July 2017

Seyed Kazem Sadr

Several indigenous credit and savings schemes have been accredited recently in developing countries for the benefit of households and entrepreneurs alike. Famous among…

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2206

Abstract

Purpose

Several indigenous credit and savings schemes have been accredited recently in developing countries for the benefit of households and entrepreneurs alike. Famous among them are the Rotating Savings and Credit Associations (ROSCAs) that exist in almost all continents currently. The rapid development of ROSCAs and their varied structures in many countries have been the subject of numerous studies. What has not been thoroughly analysed is the optimum size of these associations and the fact that lending and borrowing is without interest. The aim of this paper is to present a model that would determine the optimum size of ROSCAs and deal with the following issues: how the group size varies with changes in the income level of the members, the demand for the loan, the size of the collected loan and its duration. Further, the question of whether or not lending to the association in return for obtaining larger sums is a violation of the qarḍ (loan) contract is dealt with, and several Sharīʿah compatible formulations are provided.

Design/methodology/approach

Economic analysis has been applied to show the optimum size of Qarḍ Ḥasan Associations (QHAs), which are the Sharīʿah-compliant equivalent of ROSCAs, and the Sharīʿah rules of the qarḍ contract to illustrate the legitimacy of group lending.

Findings

The major findings of this study are determination of the optimum size of QHAs, the factors that affect the size and suggestion of alternative legal forms for group financing.

Research limitations/implications

Inaccessibility to sources of data to test the hypothesis that has been put forth is the main difficulty encountered when conducting research on the subject.

Practical implications

The paper concludes that the development of informal interest-free ROSCAs in both Muslim and non-Muslim countries is an efficient informal microfinance scheme and that it is compatible with Sharīʿah rules.

Originality/value

The optimum size of ROSCAs and QHAs has been presented in this paper.

Details

ISRA International Journal of Islamic Finance, vol. 9 no. 1
Type: Research Article
ISSN: 0128-1976

Keywords

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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. ahead-of-print no. ahead-of-print
Type: Research Article
ISSN: 1754-243X

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Article
Publication date: 20 January 2020

Mohammad Selim and M. Kabir Hassan

This paper aims to examine how a central bank (CB) can act as a lender of last resort (LOLR) for both Islamic and conventional interest-based banks by pursuing a Qard

Abstract

Purpose

This paper aims to examine how a central bank (CB) can act as a lender of last resort (LOLR) for both Islamic and conventional interest-based banks by pursuing a Qard-al-Hasan (QH)-based monetary policy (MP).

Design/methodology/approach

The role of the CB as LOLR under QH-based MP and its effects on major macroeconomic variables, including deposits, loan creation and aggregate expenditures, are examined on theoretical grounds by using the aggregate output and aggregate expenditure model under the framework of Islamic MP.

Findings

When the CB acts as LOLR by pursuing QH-based MP, it automatically empowers Islamic banks (IBs) by providing access to borrowing funds from the CB on a QH basis. As a result, IBs will not be required to hold billions of dollars as liquid assets against liquidity risks. Thus, the lending capacity of IBs will increase and deposit expansion, loan creation and aggregate expenditures in the economy will all expand. This will in turn increase real GDP and employment while reducing the unemployment rate.

Originality/value

This is the first paper to analyze CBs acting as LOLR for both IBs and conventional interest-based banks by pursuing a QH-based MP, thus providing equal opportunities and equal access to borrowing facilities from the CB, along with equal partnership and fair competition for all and absolutely no discrimination to anyone. The LOLR service to all banks under QH-based MP will unveil a new horizon of opportunities where all financial institutions are expected to thrive. IBs will escape the constraints of the constant fear of liquidity risks and find a level-playing field.

Details

Journal of Islamic Accounting and Business Research, vol. 11 no. 2
Type: Research Article
ISSN: 1759-0817

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Article
Publication date: 10 April 2017

Faatima Kholvadia

The purpose of this study is to understand the economic substance of Islamic banking transactions in South Africa and to analyse whether the economic substance is closely…

Abstract

Purpose

The purpose of this study is to understand the economic substance of Islamic banking transactions in South Africa and to analyse whether the economic substance is closely related to the legal form. Additionally, this study highlights the similarities and differences in the execution of Islamic banking transactions across different South African banks. The transactions analysed are deposit products of qard and Mudarabah and financing products of Murabaha, Ijarah and diminishing Musharaka.

Design/methodology/approach

The study was conducted through interviews with representatives from each of the four South African banks that offers Islamic banking products. Interviews were semi-structured and allowed interviewees to voice their perspectives, increasing the validity of the interviews.

Findings

The study found that specific Shariah requirements of Islamic banking transactions are considered and included in the legal structure of the contracts by all four banks offering Islamic banking products. However, the economic reality of these transactions was often significantly different from its legal form and was found to, economically, replicate conventional banking transactions. The study also found that all four banks offer Islamic banking products under the same Shariah principles, but in some instances (e.g. diminishing Musharaka), execute these transactions in different ways. This study is the first of its kind in South Africa.

Research limitations/implications

While safeguards have been used to ensure the reliability and validity of the research, there remain a few inherent limitations which should be noted: interviewees, while chosen for their expertise and level of knowledge, may provide highly technical insight which may be difficult to interpret. Detailed technicalities were therefore excluded from this research. The regulatory environment of banks in South Africa, for example, regulation imposed by the Financial Service Board on all financial institutions in South Africa, has not been explored. However, the regulatory environment was brought to the readers’ attention to help illustrate certain themes. This research uses only Shariah requirements as detailed in Section 2.2 to analyse transactions. Fatwas (rulings) issued by the Shariah Boards of South African Islamic banks have not been included in this study and may be an area of future research.

Originality/value

This study is the first of its kind in South Africa. The study adds to the Islamic banking literature by analysing the real execution of Islamic banking transactions rather than the theoretical compliance with Shariah law.

Details

Meditari Accountancy Research, vol. 25 no. 1
Type: Research Article
ISSN: 2049-372X

Keywords

Content available
Article
Publication date: 10 July 2017

Mahadi Ahmad and Riaz Ansary

Islamic banks are obliged to carry out transactions that only comply with Islamic commercial laws. Malaysia has been championing the Sharīʿah-based banking system, and so…

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1803

Abstract

Purpose

Islamic banks are obliged to carry out transactions that only comply with Islamic commercial laws. Malaysia has been championing the Sharīʿah-based banking system, and so, continuous improvement on the compliance level of the institutions offering Islamic financial services is key to its global recognition in this industry. One of the issues that can affect deposit products is existence of a sale contract and loan facility in one transaction. Famous prophetic tradition prohibits this. Hence, this paper aims to examine the linkage between bayʿwa salaf (combination between a sale contract and loan in one transaction) and deposits accounts in Malaysia.

Design/methodology/approach

The subject matter of this paper is one that is researchable within library-based research. It is on this premise the research used the non-empirical qualitative research methodology. It used inductive method of analysis of both Islamic and policy documents on Islamic banking in Malaysia. Literature from Islamic jurisprudence, websites of some of the Islamic banks in Malaysia and relevant resolutions from the Shariah Advisory Council of Central Bank of Malaysia were consulted.

Findings

Based on the methodology mentioned above, the researchers arrived at the following findings: that, although there is no juristic disagreement about the prohibition of bayʿwa salaf, disagreement, however, occurs in results of some contracts. The most notable area of agreement on the existence of bayʿwa salaf is when there is express stipulation of sale or rendering of service and express or implied stipulation of loan alongside of the sale or service rendering. In an organized reversed tawarruq, the use of these deposits by the banks is regarded as loan from the depositors to the banks, who will soon put the money into sale that will generate profit to be divided between the banks and their depositors. However, this study finds that this is not bayʿwa salaf prohibited by the prophetic tradition.

Originality/value

The originality of this topic is proven by the new banking regulation regime of Malaysia, which compels Islamic banks to guarantee all deposits under them. As Islamic banks carry out their banking activities through trading, there is need to conduct a research such as this. This is to examine whether Islamic banks’ unilateral use of depositors’ funds in non-investment accounts which is translated, constructively, as loan from the depositors to Islamic banks amounts to bayʿwa salaf before the future tawarruq. Here there is loan and sale, which is the tawarruq. Hence, the need to do this research.

Details

ISRA International Journal of Islamic Finance, vol. 9 no. 1
Type: Research Article
ISSN: 0128-1976

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Article
Publication date: 16 November 2015

Necati Aydin

The purpose of this paper is to report that the social business model has emerged to mitigate the failure of free-market capitalism driven by self-interest in creating…

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1636

Abstract

Purpose

The purpose of this paper is to report that the social business model has emerged to mitigate the failure of free-market capitalism driven by self-interest in creating social value. It shows how social business contradicts with free-market capitalism while being compatible with Islamic moral economy due to the axiomatic differences between the two economic systems.

Design/methodology/approach

The paper follows conceptual, axiomatic and theoretical approach to show how the social business model contradicts with free-market capitalism, but is compatible with Islamic moral economy. The paper provides a theoretical framework for Islamic social business based on an Islamic human and social development perspective. The paper first discusses the failure of free-market capitalism and the emergence of social business in the capitalist system. It then defines Islamic social business and lays out its axiomatic foundation based on the Islamic worldview. It also presents Islamic financial instruments and funds for social business. Finally, it makes a case for sustainable socioeconomic development and subjective well-being within the Islamic development paradigm.

Findings

The paper shows that a cosmetic change to capitalism is not sufficient for enabling the social business model to take the main stage in the free-market system. There is a need for a new paradigm of reality, truth, telos and human nature to support social business. Tawhidi paradigm can be such alternative. The paper makes a strong case for social business from an Islamic worldview. Particularly, certain economic axioms within the Tawhidi anthropology, teleology and axiology provide intrinsic causes for pursuing such business model. The multi-dimensional nature of humans from the Tawhidi anthropology sets the intrinsic foundation for social business. Indeed, although the social business model is new to the West, it has been practiced in certain forms in the Muslim world throughout history. Zakat, sadaqah, and qard hasan can be used to support social business in addition to some Islamic banking instruments. The paper suggests that Muslim countries should embrace the social business model for sustainable development and greater subjective well-being.

Research limitations/implications

The paper is purely theoretical. Future studies might shed light on the issue through empirical evidence.

Practical implications

The paper is likely to enhance the interest in social business in the Muslim world.

Social implications

The paper has potential to lead the creation of social value through dissemination of the social business model.

Originality/value

The paper contributes the Islamic moral economy doctrine by making a strong case for Islamic social business.

Details

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

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Article
Publication date: 30 August 2011

Mohd. Fuad, Sawari, Razi Hassan and Faruk Abdullah

Considering the popularity of the premium savings certificate (PSC) of the National Savings Bank of Malaysia (Bank Simpanan Nasional (BSN)) the paper aims to justify the…

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2042

Abstract

Purpose

Considering the popularity of the premium savings certificate (PSC) of the National Savings Bank of Malaysia (Bank Simpanan Nasional (BSN)) the paper aims to justify the Shari'ah compliancy of this product by analyzing its underlying contracts and to propose a Shari'ah compliant savings certificate, if the current practice is invalid in the Shari'ah.

Design/methodology/approach

Inductive methodology is first used to obtain a basic understanding of this product and the characteristics of Shari'ah approved contracts as well as the views of the jurists. Interviewing method is also used to acquire first‐hand information when the inductive method is not sufficient. Afterwards, an analytical approach is adopted to justify the validity of this contract with the Shari'ah principles. Finally, an innovative methodology is used to propose a Shari'ah compliant savings certificate.

Findings

The paper argues that the underlying contract used in PSC violates the conditions of wadi'ah contract, as in wadi'ah, the bank is not allowed to spend the money for investment, but in practice, BSN uses the money for investment. Therefore, the underlying contract in PSC turns into qard (loan) contract. Since the scholars unanimously declare that giving any kind of benefit like prizes to the creditor is riba, then PSC is considered as invalid according to the Shari'ah. On the other hand, although PSC might seem like gambling, it is different from gambling as the prizes given to PSC are from a third party. The paper proposes implementing mudarabah contract in PSC where the bank is allowed to invest according to its interest and the depositors share the profit and loss but the huge fluctuation of profit and loss could be shrunk by a special fund method.

Originality/value

In particular, it attracts the attention of BSN management to change their product's features. In general, it discovers a non‐Shari'ah compliant feature of savings certificates and outlines the feature of a Shari'ah compliant saving certificate for the practitioners of Islamic banking all over the world.

Details

International Journal of Islamic and Middle Eastern Finance and Management, vol. 4 no. 3
Type: Research Article
ISSN: 1753-8394

Keywords

Content available
Article
Publication date: 7 June 2021

Azniza Hartini Azrai Azaimi Ambrose and Fadhilah Abdullah Asuhaimi

The purpose of this paper is to comprehensively discuss the issue of risk vis-à-vis the perpetuity restriction principle inherent in waqf (Islamic endowment)…

Abstract

Purpose

The purpose of this paper is to comprehensively discuss the issue of risk vis-à-vis the perpetuity restriction principle inherent in waqf (Islamic endowment). Specifically, it attempts to consolidate the axioms in both conventional and Islamic finance, such as the risk-return trade-off and al-ghunm bi al-ghurm (liability accompanies gain), with the perpetual nature of waqf. Overall, this paper attempts to find a resolution to the dilemma of perpetuity restriction inherent in cash waqf against the natural occurrence of the risk.

Design/methodology/approach

This paper is based on the secondary research methodology; past literature encompassing journal articles, books, relevant financial axioms, fatwas (Islamic rulings) and state enactments is critically reviewed to present its case. In regard to state enactments, only Malaysian state enactments have been used, thus restricting the study to the Malaysian case only.

Findings

This study contends that the dilemma of the perpetuity restriction and the natural occurrence of risk can be resolved through the integration of waqf risk management, especially concerning cash waqf, with the Islamic spiritual approach. By implementing standard operating procedures that inculcate awareness on waqf risk management and Islamic spirituality in waqf stakeholders (wāqif (donor), trustee and beneficiaries), the stakeholders may accept the reality of risk that is inevitable even after all efforts have been exhausted. In other words, the violation of perpetuity is exonerated given that mental faculties aligned with revealed texts have been exhaustively used beforehand.

Practical implications

Findings from this study may broaden the choice of investment avenues for waqf trustees while adhering to the perpetual restriction of waqf. More importantly, waqf trustees will not be forced to invest in interest-bearing securities or be involved in any usurious transactions just to obtain guaranteed returns and preserve the corpus of waqf.

Originality/value

This study offers a unique perspective on cash waqf risk management by re-analyzing the axioms and concepts of finance and waqf while observing the welfare of the beneficiaries.

Details

ISRA International Journal of Islamic Finance, vol. 13 no. 2
Type: Research Article
ISSN: 0128-1976

Keywords

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