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1 – 10 of 401Mohamad Akram Laldin and Hafas Furqani
This paper aims to observe the development of the Sharīʿah governance framework (SGF) and practice in Islamic financial institutions (IFIs) in Malaysia.
Abstract
Purpose
This paper aims to observe the development of the Sharīʿah governance framework (SGF) and practice in Islamic financial institutions (IFIs) in Malaysia.
Design/methodology/approach
The study is a qualitative-based research. It uses various documents and content analysis approach to understand and analyze the structure, process and practice of SGF in IFIs in Malaysia.
Findings
It is found that the Central Bank of Malaysia, Bank Negara Malaysia, has attempted to develop a comprehensive framework of Sharīʿah governance for IFIs in Malaysia. The framework governs the practice of the industry, covers stakeholders’ scope of duties and responsibilities and provides details on processes and procedures in the operations of IFIs to achieve the objective of Sharīʿah compliance. To maintain the relevance of the SGF to the needs of the industry, the framework has also been updated recently in 2017. The amendments aim to strengthen the effectiveness of Sharīʿah governance implementation within the Islamic finance industry.
Originality/value
This study attempts to comprehensively examine the evolution of the SGF Sharīʿah governance framework for IFIs in Malaysia. The Malaysian model of the SGF is unique and could be emulated by other countries in developing the Islamic finance industry in their respective jurisdictions.
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This study aims to measure levels of Sharīʿah-compliance in Islamic financial institutions (IFIs) financial reporting standards with the objective to investigate the application…
Abstract
Purpose
This study aims to measure levels of Sharīʿah-compliance in Islamic financial institutions (IFIs) financial reporting standards with the objective to investigate the application of Maqāsid ul-Sharīʿah as a compliance measure reflected in the reporting standards.
Design/methodology/approach
This paper adopts Maqāsid ul-Sharīʿah’s model to measure levels of Sharīʿah-compliance amongst three available financial reporting frameworks and presentation standards; international financial reporting standards (IFRS), accounting and auditing organization for Islamic financial institutions (AAOIFI), Pernyataan Standar Akuntansi Keuangan (PSAK) Syariah. NVivo 10 software is used in this paper to help measure quantitatively the compliance level of each standard.
Findings
The findings suggest that the use of Maqāsid ul-Sharīʿah leads to a more complete understanding of how the meaning of Sharīʿah and its values can be integrated into the demands of financial reporting, and hence, offering greater convergence between ethics and accounting regulations amongst IFIs.
Originality/value
It documents different context of content analysis that takes examples of Islamic financial reporting studies and uses both classical and contemporary theoretical bases. The main outputs are designed for standard setters and policymakers with expectation for Sharīʿah objectives (i.e. Maqāsid ul-Sharīʿah), to be embedded in the preparation of financial reporting standards for the IFIs. Hence, they will be able to show their full accountability then gain better trust from the stakeholders.
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Engku Rabiah Adawiah Engku Ali and Umar A. Oseni
In propelling Malaysia to become a high value-added and high-income economy by 2020, the Central Bank of Malaysia has consistently emphasized the need for a new trajectory of…
Abstract
Purpose
In propelling Malaysia to become a high value-added and high-income economy by 2020, the Central Bank of Malaysia has consistently emphasized the need for a new trajectory of transformation and growth which will leverage on a robust legal framework that for enhancing Islamic financial transactions. This paper aims to examine the latest major policy initiatives and legal reforms introduced to promote both local and cross-border transactions that seek to project Malaysia as a hub for Islamic financial transactions.
Design/methodology/approach
While adopting an analytical approach in analysing the relevant issues, the study relies on doctrinal legal method in highlighting major reforms introduced to enhance the legal and regulatory framework of Islamic finance.
Findings
The study finds that the importance of law reforms in strengthening the financial system cannot be overemphasized, particularly when it comes to the need for an end-to-end Sharīʿah compliance framework and consumer protection.
Practical implications
Other emerging jurisdictions aspiring to adopt Islamic finance products can learn from the Malaysia’s pioneering role in introducing an effective legal and regulatory framework.
Originality/value
Though there are a number of studies on Malaysia’s leading role in the law and regulation of Islamic finance, this study is one of the earliest attempts to explore the role of the Central Bank of Malaysia in enhancing the legal framework for Islamic financial transactions through the introduction of the Islamic Financial Services Act 2013 and other relevant policy regulations.
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Latifah Algabry, Syed Musa Alhabshi, Younes Soualhi and Omar Alaeddin
The main purpose of this research is to figure out the most effective determinants that play a vital role in enhancing the effectiveness of the internal Sharīʿah audit in the…
Abstract
Purpose
The main purpose of this research is to figure out the most effective determinants that play a vital role in enhancing the effectiveness of the internal Sharīʿah audit in the Islamic banking industry.
Design/methodology/approach
This paper reviews the existing literature to build comprehensive knowledge that would assist in determining the main factors that impact on the effectiveness of Sharīʿah audit in Islamic banks.
Findings
This research proposes a conceptual framework of factors that impact on Sharīʿah audit effectiveness in IBs based on previously published studies. The proposed framework includes external and internal factors as well as internal Sharīʿah audit structure, process and requirements.
Practical implications
First, the regulators need to provide a detailed framework for Sharīʿah audit which covers the main requirements for effective Sharīʿah governance. Second, Islamic financial institutions (IFIs) need to pay more attention to following the Sharīʿah audit process in order to achieve the objective of effective Sharīʿah governance. Finally, the dearth of empirical research on the role and effectiveness of Sharīʿah audit in Islamic banking highlights the need to develop an appropriate methodology to enhance the study of the effectiveness of Sharīʿah governance practices.
Originality/value
The Sharīʿah ensures compliance with its rules and regulations and enhances the soundness and credibility of the Islamic finance industry. This study identifies a number of issues that require further investigation in order to establish a better system of Sharīʿah audit and to identify the factors that affect Sharīʿah auditing practices. This paper is unique in covering the main elements that have influence on the effectiveness of Sharīʿah audit and proposes them in one framework.
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Latifah Algabry, Syed Musa Alhabshi, Younes Soualhi and Anwar Hasan Abdullah Othman
This study aims to explore and assess the key Sharīʿah governance factors that may have an influence on the internal Sharīʿah audit structure and its practices in Islamic…
Abstract
Purpose
This study aims to explore and assess the key Sharīʿah governance factors that may have an influence on the internal Sharīʿah audit structure and its practices in Islamic financial Institutions in Yemen, particularly in the Islamic banking sector.
Design/methodology/approach
To do so, the study adopts a qualitative approach employing case study analysis, and both primary and secondary data are used to formulate the appropriate interview questions and achieve the objectives of the study.
Findings
The authors observed that the key factors that help in assessing the internal Sharīʿah audit structure and its practices are Sharīʿah auditor charter, audit plan and audit manual. In addition, the authors observed that, in general, internal Sharīʿah audit tends to be subjective in Yemeni banks because they depend on the internal Sharīʿah auditor’s qualifications and experience more than formal guidelines and regulations. This is because there are no detailed internal Sharīʿah audit plans or detailed audit manual. Moreover, the internal Sharīʿah auditor charter is not comprehensive in explaining the duties required of the internal Sharīʿah auditor, and it is mixed with the Sharīʿah Supervisory Board (SSB) duties. This means the internal Sharīʿah auditor lacks the critical tools that enable him to achieve the desired audit manual objectives where the effectiveness of internal Sharīʿah audit can be measured.
Practical implications
One of the important implications of this study is providing very important guidance about enhancing the areas where shortfalls are found within the Sharīʿah governance process in the Yemeni banking system. This enhancement process of the internal factors of Sharīʿah governance can be achieved by increasing the awareness of the enhancing internal Sharīʿah audit structure as it reflects ultimately on the internal Sharīʿah auditor’s role and his practices.
Originality/value
Understanding the effectiveness of internal Sharīʿah audit structure among internal auditors will improve the Sharīʿah audit framework standards, enhance the Sharīʿah knowledge among internal auditors and provide general guidelines to design audit programmes for Sharīʿah governance auditing process.
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This study aims to develop a Sharīʿah-compliance rating mechanism for the Islamic financial services industry (IFSI), with a special focus on banking. The banking sector is taken…
Abstract
Purpose
This study aims to develop a Sharīʿah-compliance rating mechanism for the Islamic financial services industry (IFSI), with a special focus on banking. The banking sector is taken as the area of focus due to its leadership role in the volume of global Sharīʿah-compliant assets.
Design/methodology/approach
The objectives of the Islamic financial system (IFS) are selected as the basis for ratings. A range of performance indicators (leading to achievement of the objectives) is grouped into four broader categories and used in the study to allocate scores with a sum total of 100. Special considerations – including the amount of resources required in performing an activity, suitability of prevailing business conditions, the degree of compulsion/discretion in performing a task and linkage with the essence of the IFS – were taken into account in the allocation of scores.
Findings
This study groups multiple performance measures into four categories, including portfolio construction (deposits mechanism, participatory and asset-based modes of financing), access to finance (service to the less-privileged and sector screening), reputation (disclosures and stakeholders’ survey) and Sharīʿah governance (Sharīʿah supervision and controls, charitable operations, human resources, product development and organization). The Portfolio, Audit, Reputation and System (PARS) rating system is then developed.
Practical implications
A Sharīʿah-compliance rating system is helpful in measuring the progress towards goal achievement of the IFS and in gaining stakeholders’ trust. It is also important for Sharīʿah boards and regulators in policy formulation, for management in addressing weaknesses and taking corrective measures and potentially for standard-setting bodies.
Originality/value
This study presents a comprehensive quantitative Sharīʿah-compliance rating mechanism, taking into consideration the objectives of the IFS – equitable distribution of wealth and financial stability, in addition to Sharīʿah-compliance in operations. Development of Sharīʿah-compliance quality ratings for Islamic banking is essential to gain customers’ trust; the suggested methodology is thus a contribution to the literature on Islamic finance.
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Abdul Rashid and Muhammad Saarim Ghazi
The objective of this study is to present a theoretical framework, which helps ascertain the meanings of the Sharīʿah audit quality and identify the factors that affect it.
Abstract
Purpose
The objective of this study is to present a theoretical framework, which helps ascertain the meanings of the Sharīʿah audit quality and identify the factors that affect it.
Design/methodology/approach
The current literature of conventional and Islamic finance on audit quality is critically reviewed to propose the theoretical framework for the quality of Sharīʿah audit.
Findings
The paper suggests that for a better Sharīʿah compliance at Islamic banking institutions (IBIs), the role of audit practitioners is very much indispensable. The competency of the practitioner is one of the important factors that affect the quality of the Sharīʿah audit. Assessment and identification of Sharīʿah risk in different financial arrangements, contracts and transactions require a unique competency on the part of the auditor, that is, gripping Sharīʿah law besides traditional assurance skills and techniques.
Practical implications
The Sharīʿah compliance is one of the primary objectives of IBIs, which works at the conceptual level, product development and implementation level, various business models and governance level. Sharīʿah audit function, internal or external, is an important component of Sharīʿah governance framework and provides an independent assessment of IBIs’ compliance with the Sharīʿah rules and principles and helps in managing the Sharīʿah non-compliance risk and ensuring sound internal Sharīʿah control system.
Originality/value
The paper proposes a theoretical framework for defining the Sharīʿah audit quality and determining the factors that are significant in affecting the Sharīʿah audit quality in the IBIs of Pakistan.
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Abdalmuttaleb Musleh Alsartawi
This paper aims to investigate the relationship between the composition of Sharīʿah supervisory boards (independence and frequency of meetings) and the performance of Islamic…
Abstract
Purpose
This paper aims to investigate the relationship between the composition of Sharīʿah supervisory boards (independence and frequency of meetings) and the performance of Islamic banks in the Gulf Cooperation Council (GCC) countries.
Design/methodology/approach
The study developed a multiple linear regression model, and data were collected from the annual reports of 48 standalone Islamic banks listed in the GCC countries covering the period between 2013 and 2017.
Findings
The results showed a statistically significant and negative relationship between the composition of the Sharīʿah supervisory boards and the performance of Islamic banks.
Research limitations/implications
As the current study used only one indicator, that is Return on Assets to measure performance, it is recommended to expand the framework of this study, through the addition of market-based performance indicators such as Tobin’s Q.
Practical implications
This study recommends the GCC countries to follow a more proactive Sharīʿah governance model to strengthen their frameworks from both regulatory and non-regulatory aspects.
Originality/value
The study contributes to the Sharīʿah governance and Islamic banking literature relating to the GCC countries as previous studies gave no attention to the composition of Sharīʿah supervisory boards.
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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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Syarah Syahira Mohd Yusoff and Umar A. Oseni
This paper aims to provide an analytical literature survey of selective studies on legal documentation in Islamic home financing with particular reference to Malaysia.
Abstract
Purpose
This paper aims to provide an analytical literature survey of selective studies on legal documentation in Islamic home financing with particular reference to Malaysia.
Design/methodology/approach
This study adopts the legal positivist methodology, with particular reference to inclusive legal positivism which takes into consideration the possibility of moral values challenging positive law. Within the context of this study, though positive law provides for rules that govern contractual matters in Islamic home financing, standardisation is a functionality of maslahah (or public interest) which transcends the mandatory provisions of positive law but helps to protect the interest of all stakeholders. This is analysed through a systematic literature review which aims to provide practical insights into industry practices relating to Islamic home financing in Malaysia.
Findings
This paper provides information on the standard documentation used by conventional banks and existing practices of diverse models of legal documentation in the home financing sector within the Islamic financial services industry in Malaysia. It also recognises the need for standard documentation that is not only Sharīʿah-compliant but also consumer-friendly, as the terms of any standard financing agreement ought to ensure consumer protection. There is also the need for a Shari’ah-compliant Sales and Purchase Agreement, as it forms part of the complete set of legal documentation for Islamic home financing.
Research limitations/implications
It is not an exhaustive study, as it did not consider practices in other jurisdictions offering Islamic financial services and products but only focusses on Malaysia. Though one may not generalise the findings of this study, Malaysia remains a leading model and a global hub for Islamic financial services and products.
Practical implications
A very useful source of information on the current state of legal documentation in Islamic home financing in Malaysia and the prevailing practices in the industry, which may serve as a guide for policymakers such as the Association of Islamic Banks in Malaysia (AIBIM) to embark on a full scale project of standardisation of all the legal documentation used in Islamic home financing.
Originality/value
This study fulfils an identified need of standardisation of legal documentation used in Islamic home financing in Malaysia and offers practical help to policymakers and future researchers starting out on systemic reforms.
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