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1 – 10 of 59Ashraf Md. Hashim, Farrukh Habib, Ziyaat Isaacs and Mohamed Anouar Gadhoum
The purpose of this paper is to explain and critically analyse the Sharīʿah screening criteria and cleansing process for income generated from stocks with a special focus on a…
Abstract
Purpose
The purpose of this paper is to explain and critically analyse the Sharīʿah screening criteria and cleansing process for income generated from stocks with a special focus on a newly developed ISRA-Bloomberg methodology.
Design/methodology/approach
The paper focuses on the methodology of ISRA-Bloomberg in terms of Sharīʿah screening of stocks and the income cleansing process. To achieve this objective, this paper adopts a descriptive approach.
Findings
The methodology of ISRA-Bloomberg is unique in terms of its criterion for screening stocks, the cleansing process and coverage of the universe of stocks. It facilitates the investors by offering a novel colour-coding scheme to indicate the Sharīʿah compliance of a stock. It also provides the exact ratios of the Sharīʿah-compliance criteria to the investors so they can closely observe changes in the trend of ratios and decide beforehand whether or not a company is likely to remain within the Sharīʿah-compliant list. The paper further discusses the issues in the screening and cleansing practices faced by the industry.
Research limitations/implications
This research is limited to the criteria of screening and income purification of stocks which have been used by ISRA-Bloomberg from a Sharīʿah perspective.
Practical/implications
The robust screening criteria and comprehensive analysis of the stocks will enhance the confidence of Islamic capital market participants. The investors, regulators and index providers will be equally able to benefit from this initiative.
Originality/value
The paper focuses on the recently established methodology of ISRA-Bloomberg, which has not been discussed in the literature until now. The methodology, because of its exceptionality, may add a new dimension to Sharīʿah screening and cleansing of stocks.
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Mustafa Mohd Hanefah, Muhammad Iqmal Hisham Kamaruddin, Supiah Salleh, Zurina Shafii and Nurazalia Zakaria
The existence of internal control for Sharīʿah-compliance promotes reasonable assurance that the Islamic financial institution’s (IFI’s) objectives are achieved in the following…
Abstract
Purpose
The existence of internal control for Sharīʿah-compliance promotes reasonable assurance that the Islamic financial institution’s (IFI’s) objectives are achieved in the following categories, namely, the effectiveness and efficiency of operations, the reliability of financial reporting and the level of compliance with applicable laws and regulations, as well as accounting and auditing standards. Sharīʿah non-compliant income (SNCI) is an important issue in IFIs’ operations. Thus, the purpose of this paper is to identify issues related to governance and internal control of SNCI in selected IFIs in Malaysia.
Design/methodology/approach
This research uses a case study approach to gather data on the measures of governance and risk management in relation to the internal control for SNCI in IFIs. Interviews were conducted with officers of the Sharīʿah and internal audit departments on internal control practices regarding SNCI.
Findings
Regulator’s guidelines on SNCI are simple and brief, lacking rigour in terms of governance, risk management and audit procedures. The section on SNCI is only a brief statement within the Bank Negara Malaysia’s Guidelines on Financial Reporting for Islamic Banking Institutions and also in the Operational Risk Integrated Online Network system operated by IFIs. Most of the respondents in the interviews suggested that there should be a proper guideline in determining the classification of SNCI. Second, although IFIs have established the purification account to manage SNCI, the real practice varies from one IFI to another. Third, although there are supposedly documented procedures established in relation to management and administration of SNCI, the following events still occur in practice, namely, no authorisation from the Sharīʿah Committee (SC) on various types of income channelled to the SNCI account; unauthorised use of SNCI for other purposes; SNCI not being reported in the annual financial reports; and distribution of SNCI prior to obtaining the SC’s consent. Fourth, there is an absence of Sharīʿah risk assessment conducted on operational risk by IFIs to identify any potential Sharīʿah non-compliant event.
Research limitations/implications
This research contributes to the importance of Islamic corporate governance theory and Sharīʿah risk management, as well as strengthening the case for reporting SNCI to shareholders. It also contributes to the body of knowledge on the capability of the management in managing the internal control system of IFIs’ SNCI.
Originality/value
A new internal control assessment matrix is proposed for Sharīʿah-compliance in IFIs.
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Anna Che Azmi, Romzie Rosman and Normah Omar
The purpose of this study is to understand the reasons behind the different patterns of Sharīʿah non-compliant income (SNCI) disclosures amongst Islamic banks and, in particular…
Abstract
Purpose
The purpose of this study is to understand the reasons behind the different patterns of Sharīʿah non-compliant income (SNCI) disclosures amongst Islamic banks and, in particular, the extent to which Islamic banks make SNCI disclosures. The process involved in gaining and maintaining moral legitimacy forms the framework for this study.
Design/methodology/approach
Interviews were conducted with managers of Islamic banks involved in the reporting of SNCI in company annual reports.
Findings
The interview findings show that Islamic banks prefer to use procedures to gain and enhance moral legitimacy amongst their customers, business partners and staff. The constraints and challenges that Islamic banks face in SNCI reporting make this a popular means of securing moral legitimacy. However, these practices may not lead to enhanced and more communicative SNCI disclosures by Islamic banks.
Originality/value
To the best of the authors’ knowledge, this is the first study that explains the motivations behind SNCI reporting by Islamic banks and frames these motivations under the moral legitimacy framework.
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Babak Naysary, Marhanum Che Mohd Salleh and Nurdianawati Irwani Abdullah
This study aims to empirically investigate the impact of the Sharīʿah Governance Framework (SGF) on improving Sharīʿah governance practices in Islamic banks in Malaysia and in…
Abstract
Purpose
This study aims to empirically investigate the impact of the Sharīʿah Governance Framework (SGF) on improving Sharīʿah governance practices in Islamic banks in Malaysia and in addressing its related issues.
Design/methodology/approach
Data collection was carried out using a comprehensive questionnaire survey, which was developed primarily based on SGF-2010 and arguments in the literature. The sample for this study includes key functionaries in Sharīʿah governance including senior managers, Sharīʿah committee (SC) and Sharīʿah team members of Islamic banks in Malaysia.
Findings
The analysis of scores obtained from the questionnaire survey–including 41 items representing current significant issues in Sharīʿah governance–indicates that SGF-2010 has been successful in achieving its objectives and in addressing related issues. The results of the paired sample t-test show significant improvements in Sharīʿah governance practices in Malaysian Islamic banks in light of the aforementioned guideline by Bank Negara Malaysia.
Research limitations/implications
Findings of this research suggest that among the five essential pillars of Sharīʿah governance, namely, accountability and responsibility, independence, competence, confidentiality and transparency, most of the improvements and changes brought about by SGF-2010 are attributable to accountability and responsibility. However, there is still room for improvement in other components of the SGF, particularly with regard to transparency and the independence of the SC and Sharīʿah team.
Originality/value
Given the importance of Sharīʿah governance and considering recent endeavours to improve Sharīʿah-compliant culture among Islamic banks in Malaysia, this research is among the first attempts to empirically and comprehensively delve into this subject and evaluate its main issues by directly contacting key players in the Islamic banking industry and providing first-hand highlights. This research also compares the findings based on SGF-2010 with the requirements of SGF-2017 and Sharīʿah Governance Policy Document (SGPD-2019), which were released after this research was completed, where applicable.
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Mansor Isa, Siew-Peng Lee, Obiyathulla Ismath Bacha and Rubi Ahmad
The purpose of this study is to understand and evaluate the roles and functions of the Sharīʿah committee (SC) of Islamic banks (IBs) in Malaysia and to recommend a resetting of…
Abstract
Purpose
The purpose of this study is to understand and evaluate the roles and functions of the Sharīʿah committee (SC) of Islamic banks (IBs) in Malaysia and to recommend a resetting of the scope of responsibilities to enable the SC to effectively respond to current market needs.
Design/methodology/approach
A Likert-type survey questionnaire was developed and distributed to all available SC members through e-mails and online surveys as well as self-administered questionnaires. At the end of the survey, 87 useable questionnaires were collected from 161 SC members, representing a 54% response rate.
Findings
This study finds that most SC members have the necessary Sharīʿah qualification, and they are mostly academics with doctoral degrees. However, there is a noticeable lack of diversity in the composition of experts in the committees. Respondents indicate that their main functions are to ensure Sharīʿah compliance of bank operations and product offerings. This is of course consistent with their stated functions as outlined in the Bank Negara Malaysia's Sharīʿah Governance Policy Document (BNM, 2019). The study finds that SCs are not involved in product development, nor responsible for financial performance. Respondents indicate three ways to enhance the role of SCs: improving banking knowledge of the members, more engagement with the board of directors (BoDs) and broadening the functions of SCs.
Practical implications
This study highlights two policy implications. First, there is a strategic need for IBs to consider having a diversity of expertise in the SCs while maintaining the Sharīʿah experts as core members. Second, this study recommends a reset of the scope of duties of the SC to include three new areas: risk management, product development and financial performance.
Originality/value
This study evaluates the current functions of the SC of IBs in Malaysia and provides suggestions for improvement in the composition of the committee and in the scope of duties of SCs based on contemporary needs.
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Syed Alamdar Ali Shah, Raditya Sukmana and Bayu Arie Fianto
This study aims to propose a risk management framework for Islamic banks to address specific risks that are unique to Islamic bank settings.
Abstract
Purpose
This study aims to propose a risk management framework for Islamic banks to address specific risks that are unique to Islamic bank settings.
Design/methodology/approach
A unique methodology has been developed first by exploring the dynamics and behaviors of various risks unique to Islamic banks. Second, it integrates them through a series of diagrams that show how they behave, integrate and impact risk, returns and portfolios.
Findings
This study proposes a unique risk-return relationship framework encompassing specific risks faced by Islamic banks under the ambit of portfolio theory showing how Islamic banks establish a steeper risk-return path under Shariah compliance. By doing so, this study identifies a unique “Islamic risk-return” nexus in Islamic settings as an explanation for the concern of contemporary researchers that Islamic banks are more risky than conventional banks.
Originality/value
The originality of this study is that it extends the scope of risk management in Islamic banks from individual contract-based to an integrated whole, identifying a unique transmission path of how risks affect portfolio diversification in Islamic banks.
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Md. Mahmudul Alam, Muhammad Nazmul Hoque and Ruhaini Muda
The Maqāṣid (objective) hierarchy is a triple-tiered conceptualisation of individual and social needs that is grounded in the five objectives of Sharīʿah (Islamic Law)…
Abstract
Purpose
The Maqāṣid (objective) hierarchy is a triple-tiered conceptualisation of individual and social needs that is grounded in the five objectives of Sharīʿah (Islamic Law). Managerialism is the ideological representation of human interaction based on managerial doctrines and practices. This paper aims to explore the tension between the Maqāṣid hierarchy and managerialism by evaluating the Sharīʿah requirements in the Islamic Financial Services Act (IFSA) 2013 of Malaysia from the Maqāṣid al-Sharīʿah perspective.
Design/methodology/approach
This qualitative study uses an inductive approach to review the sources of Sharīʿah and classical literature of Islamic jurists to present Sharīʿah rulings on managerialism and Maqāṣid al-Sharīʿah.
Findings
The Maqāṣid hierarchy promotes a vision of human life that is the opposite of managerialism. In the case of IFSA 2013, the Maqāṣid hierarchy, which is supposed to be the bedrock for Islamic finance, is replaced by a managerial hierarchy closer to Maslow’s hierarchy than it is to Imam Shatibi’s concept of human life. A process of fitting the Maqāṣid hierarchy into a narrow managerial mould occurs in IFSA 2013, meaning that many of the unique aspects of the Maqāṣid al-Sharīʿah are lost.
Social implications
This study will assist Sharīʿah scholars, policymakers and Islamic financial institutions to develop the financial system and to implement the Maqāṣid al-Sharīʿah to improve macro policy and shaping Islamic institutions.
Originality/value
This is a pioneer study that develops a bridge between the Islamic Maqāṣid and conventional managerial hierarchies, which will encourage academics and practitioners to enrich the literature by conducting more in-depth studies on this topic.
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Wasiullah Shaik Mohammed, Mufti Abdul Kader Barkatulla, Mohammed Husain Khatkhatay and Zaffar Abbas
The purpose of this paper is to study the concept of purging and present a comparative study of the existing purging methodologies prevailing in the market with a view to evolving…
Abstract
Purpose
The purpose of this paper is to study the concept of purging and present a comparative study of the existing purging methodologies prevailing in the market with a view to evolving a more effective method of capturing the entire impure income to be purged.
Design/methodology/approach
To illustrate the present discussion, a case study of purging based on numerical examples has been included. The argument has also been supported with empirical data related to the universe of Sharīʿah-compliant stocks listed on Indian stock exchanges.
Findings
During the study, it was found that the existing purging methodologies of calculating impure income to be purged have conceptual and practical shortcomings.
Research implications/limitations
The scope of the current research is limited to calculation of impure income which accrues on account of Sharīʿah non-compliant investments directly or indirectly. It does not try to quantify the benefit which may be imputed in the form of capital gains made in trading of the investee company shares due to higher market value of the shares as a result of the impure income earned by the investee company. The paper has focused on identifying and calculating the impure income on account of interest. Impure income earned from specific Sharīʿah non-compliant products or services has not been considered directly. The reason for this is that companies dealing in such products or services are generally excluded at the business screening stage itself. In the case of those companies which derive a relatively small proportion of their total income from such activities and pass the business screening stage, the quantum of the impure income is not generally reported separately in company accounts.
Practical implications/limitation
The result of adopting the proposed methodology will lead to complete purging of impure income (to the extent that is possible under present Company Law and stock exchange reporting regulations). Implementation of the proposed method requires a proper understanding of the working of listed companies and either a sound mathematical background or access to a software application to calculate the impure income to be purged.
Originality/value
The current paper is original and based on the authors’ personal understanding and experience of providing Sharīʿah consultancy services related to Sharīʿah-compliant investments.
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Mohammad Mahbubi Ali and Rusni Hassan
Tawarruq (Islamic commodity financing) has evolved as the most ubiquitous concept in Malaysia’s Islamic banking industry. Nevertheless, the extensive use of tawarruq has invoked a…
Abstract
Purpose
Tawarruq (Islamic commodity financing) has evolved as the most ubiquitous concept in Malaysia’s Islamic banking industry. Nevertheless, the extensive use of tawarruq has invoked a number of Sharīʿah (Islamic law) concerns in its practice. This study aims to investigate the Sharīʿah non-compliant (SNC) phenomena in the practice of tawarruq financing in Malaysia.
Design/methodology/approach
This study adopts qualitative research methodology, combining both descriptive and content analysis. A self-administered questionnaire was distributed to 16 Malaysian Islamic commercial banks to unveil the Sharīʿah non-compliance issues in the application of tawarruq in Islamic banks (IBs) in Malaysia.
Findings
The study found that some practices of tawarruq in Malaysia might not comply with the Sharīʿah, mainly due to the improper sequencing of contracts. The study also discovered that IBs adopt different approaches in dealing with SNC events and the income derived therefrom. Finally, the study noted the influence of board of director/management on certain Sharīʿah decisions particularly on the treatment of non-ḥalāl (impermissible) income.
Practical implications
The findings of the study serve as a reference to industry players and regulators in formulating a Sharīʿah non-compliance risk management framework for tawarruq practices.
Originality/value
The survey on SNC issues in tawarruq practice constitutes the first of its kind in the existing literature.
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