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Article
Publication date: 9 October 2017

Syed Nazim Ali

With the increasing instances of malfeasance and frauds coming to light in the financial services industry, trust has become a key concern for customers. Fortunately, in…

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Abstract

Purpose

With the increasing instances of malfeasance and frauds coming to light in the financial services industry, trust has become a key concern for customers. Fortunately, in the case of Islamic Finance, trust is a central tenet, and its importance can be seen through the emphasis of Amanah or trustworthiness that should be present in every financial transaction. However, it has been argued that the principle of trust has not been truly realized in Islamic Finance, or that there are still issues of distrust regarding anything which is obtrusively branded as “Islamic”. In this paper, the author will analyze the reasons for gaps between the expectations and reality of the finance industry today by looking at the main factors contributing to distrust among the different stakeholders and the perceived impact of the distrust on the industry and the general public. It then focuses on the past and ongoing efforts by academia to bridge these gaps between the different stake holder groups with the help of illustrative case studies as well as recommends future steps to be taken to ensure a stronger foundation of trust within the Islamic Finance community.

Details

Society and Business Review, vol. 12 no. 3
Type: Research Article
ISSN: 1746-5680

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Article
Publication date: 8 May 2018

Jaizah Othman, Mehmet Asutay and Norhidayah Jamilan

This paper aims to provide an empirical evidence on the fund flows-past return performance relationship by also considering the management expense ratio, the portfolio…

Abstract

Purpose

This paper aims to provide an empirical evidence on the fund flows-past return performance relationship by also considering the management expense ratio, the portfolio turnover, the fund size and the fund age of Islamic equity funds (IEF) investors in comparison with conventional equity funds (CEF) investors.

Design/methodology/approach

By using panel data, the sample of Malaysian domestic managed equity funds is considered which comprises 20 individual funds from IEF and CEF from 2011 to 2013.

Findings

The results provide evidence that IEF investors have different factors when choosing funds in comparison with CEF investors. The study finds that the key factor influencing the fund flows of IEF is the management expense ratio, compared to the CEF which is fund size. This study also shows that all the fund characteristics of IEF and CEF are positively or negatively related to the fund flows.

Research limitations/implications

The present study may be extended by considering other fund categories such as the money market fund, the balanced fund, the bond fund and the fixed income fund.

Practical implications

The empirical findings of this paper clearly call for fund managers and investors to review their investment policy. The results could also provide better information and guidance for investors as well policy makers on the factors that affect the fund flow for Malaysian Islamic funds and CEF.

Originality/value

This paper is among the earliest empirical evidence studies on the fund flows-past return performance relationship by focusing in a comparative manner on IEF investors and CEF investors in Malaysia.

Details

Journal of Islamic Accounting and Business Research, vol. 9 no. 3
Type: Research Article
ISSN: 1759-0817

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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

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Article
Publication date: 25 May 2010

Nurdianawati Irwani Abdullah

The purpose of this paper is to analyse the status and implications of promise (wa'd) in Islamic banking practices and the extent of its enforceability in the court of…

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2725

Abstract

Purpose

The purpose of this paper is to analyse the status and implications of promise (wa'd) in Islamic banking practices and the extent of its enforceability in the court of law. The analysis highlights the concept of wa'd, its application and limitation in the present practices.

Design/methodology/approach

Analysis of conceptual nature and status of promise is made in the light of classical and contemporary juristic rulings (ijtihad and ifta'). Illustrations of three main Islamic banking products structured based on wa'd principle are discussed to shed some lights in understanding the issues surrounded the practice.

Findings

This study reveals that the usage of wa'd is allowed by contemporary jurists as a necessity for the interest of the contracting parties. The paper admits the importance of wa'd which has become an innovative tool in structuring many forward contracts that require flexibility with full commitment of the parties involved without jeopardising the basic principles and maqasid Al‐Shari'ah. The paper also highlights that the right of promissee is well protected in both Shari'ah and civil law, and also enforceable in the court of law.

Research limitations/implications

The analysis of this study reveals that wa'd has direct implications in determining the Shari'ah compliancy of particular Islamic banking products in two aspects; first, promise‐ and other‐related undertakings are not integral to the main contract; second, the promise should not include a bilateral promise that is binding on both parties, unless if there is an option to cancel the promise which may be exercised by any of the parties. This research will be of interest to both incumbent and potential practitioners as well as researchers in the area of Islamic finance.

Originality/value

The paper presents an objective view on the implication of wa'd in Islamic banking practices based on facts and Shari'ah rulings. It will indeed be a material guideline to the industry player who directly adopts wa'd in many Islamic products.

Details

Humanomics, vol. 26 no. 2
Type: Research Article
ISSN: 0828-8666

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Book part
Publication date: 20 May 2019

Noor Suhaida Kasri

This chapter explores the historical development of shari’ah governance infrastructures in the Malaysian landscape, pre- and post-Islamic Financial Services Act 2013…

Abstract

This chapter explores the historical development of shari’ah governance infrastructures in the Malaysian landscape, pre- and post-Islamic Financial Services Act 2013 (IFSA) and its implications on the industry. This chapter analyzed two approaches developed in the shari’ah governance, namely, the inclusivity and uniformity approach. Inclusivity approach showed that the shari’ah compliance responsibility is shared inclusively by the shari’ah committee together with the institution’s top management. While the uniformity approach showed that the end-to-end shari’ah compliance is achieved through issuance of shari’ah standards that can be easily related by the practitioners into their banking operations and business. The coherence implementation of these approaches has enabled another important stakeholder, the judiciary to have more clarity and certainty in dealing with matters pertaining to Islamic banking and finance. Consumers’ trust and confidence in the financial sector is thereby secured and sustained, hence providing financial stability within the industry, which meets with the expectation and mandate given to IFSA.

Details

Research in Corporate and Shari’ah Governance in the Muslim World: Theory and Practice
Type: Book
ISBN: 978-1-78973-007-4

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Article
Publication date: 14 December 2020

Harun Sencal and Mehmet Asutay

As an essential component of Islamic governance for ensuring religious compliance, Shari’ah annual reports (SARs) play an important role in providing communication between…

Abstract

Purpose

As an essential component of Islamic governance for ensuring religious compliance, Shari’ah annual reports (SARs) play an important role in providing communication between Shari’ah board (SB) members and stakeholders. This paper aims to determine the ethical disclosure in SARs to identify how close the Shari’ah disclosure to the standards set by AAOIFI and also substantive morality of Islam. The research also aims to examine the factors determining disclosure performance.

Design/methodology/approach

Two disclosure indices are developed to generate data from the SARs: the AAOIFI standards for Shari’ah governance index for form related approach, an Islamic ethicality augmented index reflecting on substantive morality approach. The sample consists of 41 Islamic banks from 15 different countries for the period of 2007–2014. Sampled 305 SARs were examined through disclosure analysis in line with the two indices developed for this study. The econometric analysis was run to identify the factors determining disclosure performance.

Findings

The findings suggest that AAOIFI guidelines have an influence on the level of disclosure, even if Islamic banks have not adopted them. However, the level of disclosure for the ethically augmented index is found to be very limited with reliance on general statements in most of the cases. As part of determining factors, the popularity of Shari’ah scholars is significant for both indices, while the existence of an internal Shari’ah auditing department holds some explanatory power. The adoption of AAOIFI standards at the country level, the regulatory quality and the duration of Sharīʿah-compliance are particularly deterministic factors in terms of complying with AAOIFI standards for SARs.

Originality/value

Although SB is the most crucial division of corporate governance in Islamic banks in terms of securing the “Islamic” identity of these institutions, their most important communication instrument, namely, SAR, has not been explored sufficiently, alongside an insufficient attempt to constitute Islamic corporate governance. Initially, this study attempted to constitute an Islamic corporate governance framework as a theoretical construct, which provides context for the empirical part of the research and this should be considered a novel approach. Second, the empirical part of the research aims to fill the gap observed in the literature such as small sample size and index construction-related matters. This research is conducted with a larger sample size as compared to the available studies in the literature and it has developed two indices for disclosure analysis along with developing an Islamic morality-based index beside an index based on AAOIFI standards.

Details

Corporate Governance: The International Journal of Business in Society, vol. 21 no. 1
Type: Research Article
ISSN: 1472-0701

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Article
Publication date: 2 January 2018

Asim Ehsan Wahla, Hamid Hasan and M. Ishaq Bhatti

The main aim of this paper is to measure customers’ perception of car Ijarah financing transactions services provided by the Islamic banks and financial institutions in Pakistan.

Abstract

Purpose

The main aim of this paper is to measure customers’ perception of car Ijarah financing transactions services provided by the Islamic banks and financial institutions in Pakistan.

Design/methodology/approach

The paper uses two research methodologies: Kruskal–Wallis and Mann–Whitney test (non-parametric) and logit regression model (parametric). Both methods are then applied to a real data set of 300 respondents from various cities of Pakistan in the car Ijarah financing industry. The demographic effects are also investigated to see the perception about the degree of Shari’ah compliance and the quality of service of transaction offered by banks.

Findings

Main finds of the paper reveal that the customers who used the car Ijarah facility from Islamic banks have positive attitude toward this sort of transaction. In addition, gender, income, marital status affect the perception about the quality of Shari’ah compliance, and the quality of service of transaction issues are very important to selected clients in the industry.

Research limitations/implications

These findings are limited to the car Ijarah financing industry and may not be applicable in other banking products in Pakistan and elsewhere.

Practical implications

Based on the results of this study, potential Islamic bank customers may find it helpful choose products or make product decisions conveniently. The findings of the paper also support Islamic banks in improving the Ijarah facility to increase their customer base in the geo-political locality with similar characteristics as Pakistan.

Social implications

Shari’ah compliance in the Islamic finance industry is a sensitive issue in Pakistan, and hence, car Ijarah’s Shari’ah compliance can affect banks’ reputation and sensitivity.

Originality/value

The work reported in this paper is original, unpublished and the paper is not submitted elsewhere for publication.

Details

Journal of Islamic Accounting and Business Research, vol. 9 no. 1
Type: Research Article
ISSN: 1759-0817

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Article
Publication date: 17 August 2015

Md. Faruk Abdullah and Asmak Ab Rahman

– The study aims to consider wa’dan-based products in Islamic banks in Malaysia and discuss the validity of wa’dan in those products from the perspective of Shari’ah.

Abstract

Purpose

The study aims to consider wa’dan-based products in Islamic banks in Malaysia and discuss the validity of wa’dan in those products from the perspective of Shari’ah.

Design/methodology/approach

Case studies were conducted of three Islamic banks in Malaysia. Semi-structured interviews were carried out with bankers as well as Shari’ah scholars. The document analysis method was adopted to strengthen the findings.

Findings

The study shows that three Islamic banking products: Musyarakah Mutanaqisah (MM) home and property financing; Al-Ijarah Thumma Al-Bai’ (AITAB) vehicle financing; and Ijarah rental swap (IRS) use wa’dan in their product structures. After discussing the different views of the scholars, the study concludes that wa’dan should be allowed in the above-mentioned products because it is different from muwa’adah. In wa’dan, every single wa’d is separate from each other, as every one of them is related to different types of events. With regard to the issue of Shari’ah in MM home and property financing, it was concluded that wa’d from the customer to purchase the bank’s share is not a capital guarantee. Moreover, IRS is not a form of gambling but is in line with Maqasid al-Shari’ah.

Research limitations/implications

The study is limited to three Islamic banks in Malaysia that focus on retail and commercial banking products. Therefore, the study excludes application of wa’dan in sukuk and some other Islamic derivatives that are not the practice of these three banks.

Originality/value

This empirical study adds new knowledge by developing the concept and practice of wa’dan. Wa’dan as an innovative tool for product development to overcome Shari’ah issues in conventional banking may be of interest to practitioners all around the world.

Details

International Journal of Islamic and Middle Eastern Finance and Management, vol. 8 no. 3
Type: Research Article
ISSN: 1753-8394

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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 January 2020

Muhammad Adli Musa, Mohd Edil Abd Sukor, Mohd Nazari Ismail and Muhd Ramadhan Fitri Elias

The purpose of this paper is to empirically examine the perception of Islamic bank employees in Malaysia and selected Gulf Cooperation Council (GCC) countries, namely…

Abstract

Purpose

The purpose of this paper is to empirically examine the perception of Islamic bank employees in Malaysia and selected Gulf Cooperation Council (GCC) countries, namely, Bahrain, Oman and the UAE, on various issues related to Islamic business ethics and the practices of the Islamic banks at which they work.

Design/methodology/approach

The required data to determine Islamic bank employees’ ethical perceptions is sourced from 144 completed survey questionnaires and interviews with 12 Islamic bank senior executives. Islamic model of normative business ethics is used to measure the relationship between attitudes and behaviours of employees and the ethical practices of Islamic banks.

Findings

Results show that the Islamic bank personnel working in Malaysia and the GCC perceived that their banks conform to Islamic ethical norms in business. These banks were seen to be concerned with their impact on society, and ethics prevailed over profit-maximisation. The findings also suggest that despite being less regulated compared to Malaysia, Islamic bank personnel in GCC had a better impression of the ethical standard practised in their institutions compared to the feedback given by their Malaysian counterparts. Additionally, this research also proves that, in general, there is a positive correlation between attitudes and behaviours of employees and the ethical practices of Islamic banks.

Research limitations/implications

The main limitation of the study is that the respondents were not selected randomly but rather through a convenient sampling of personal contacts. Despite the inherent limitation of the sampling method because of the constraints of time and resources, the large number of respondents from 12 different banks are representative of the Islamic bank employees in Malaysia and the GCC.

Practical implications

The findings may serve as a useful input for Islamic financial institutions in improving their practices to conform with Islamic ethical norms.

Originality/value

The topic of Islamic business ethics and the practices of Islamic banks have not been fully understood by its stakeholders. This paper aims to give insights on how far Islamic bank business practices in Muslim majority societies fit with the prescribed business framework in Islam and its contributing value for both the organization and employees.

Details

Journal of Islamic Accounting and Business Research, vol. 11 no. 5
Type: Research Article
ISSN: 1759-0817

Keywords

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