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Article
Publication date: 10 June 2014

Hafij Ullah

– The purpose of this paper is to evaluate the Shari’ah compliance status of the Islamic banks in Bangladesh.

Abstract

Purpose

The purpose of this paper is to evaluate the Shari’ah compliance status of the Islamic banks in Bangladesh.

Design/methodology/approach

The research was based on both primary and secondary materials. The primary data were gathered through sample questionnaire survey and personal interviews by the researcher; the secondary data were obtained from Qur’an, Hadiths, different circulars/letters, manuals, research books and journals, annual reports, Web sites of the sample banks. Statistical tools and techniques like weighted average, percentage, SD, variance and correlation between Shari’ah violation score and bank-specific attributes were used applying statistical software Statistical Package for Social Science (version 17.0).

Findings

Shari’ah compliance status of the Islamic banks in Bangladesh is in a vulnerable condition, Shari’ah compliance status highly varies among the Islamic banks, and Shari’ah violation is high in investing activities because of lack of knowledge, lack of sincerity in complying Shari’ah, poor attention in Shari’ah audit and Shari’ah research and lack of strong Shari’ah supervisory board comprising full-time skillful members.

Practical implications

Among others, the major policy implications of this study are as follows: regulatory bodies and Shari’ah board members are expected to have guidelines from this study to find their limitations and to determine their future responsibilities; executives and Employees are expected to get the idea of present state of Shari’ah compliance and to identify their weaknesses in this regard; clients and other stakeholders are expected to have guidelines to choose the better Islamic banks to perform banking transactions; and the researchers in Islamic banking may usefully use the issues raised in this article for more comprehensive studies in Islamic banking and Shari’ah compliance.

Originality/value

The paper opens a new avenue in justifying the status of Shari’ah compliance with a new dataset and correlating Shari’ah violation score with bank-specific attributes.

Details

International Journal of Islamic and Middle Eastern Finance and Management, vol. 7 no. 2
Type: Research Article
ISSN: 1753-8394

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Article
Publication date: 12 March 2018

Masudul Alam Choudhury

The purpose of this study/paper is the generalized ontological law of monotheism (unity of knowledge) and its functioning in the financial world system is summarized and…

Abstract

Purpose

The purpose of this study/paper is the generalized ontological law of monotheism (unity of knowledge) and its functioning in the financial world system is summarized and contrasted with the recent conception of “shari’ah-compliance”. Thereby, some specific rulings of shari’ah-compliance in Islamic finance are critically annulled. The principal problem of the inability of shari’ah-compliance in the formalism of rate-setting and debt cancellation is pointed out in analytical ways. The alternative valuation models in the light of the Tawhidi ontological law are formalized. Many important issues are examined in analytical and Tawhidi authentic ways of Islamic law contra to shari’ah-compliance.

Design/methodology/approach

The epistemological approach commencing from the Tawhidi ontological law is used as the premise of developing analytical formalism to counter the irrelevant rulings done by the field of shari’ah compliance. Thereby, endogenous moral and ethical foundations are studied in deriving analytical finance models of asset valuation, rate-determination and debt cancellation.

Findings

Substantive analytical results are derived for intellection in the area of the primal ontological law of Tawhid that negates many of the rulings framed up in shari’ah-compliance area of Islamic law. These results can guide financial academia, practitioners and policymakers.

Research limitations/implications

The paper can be expanded subsequently to the area of analytical Islamic finance in general by further investigating the Modigliani and Miller theorem on optimal debt-equity structure of corporate finance. An introduction to this study is provided in this paper as a starting point of dealing with the debt problem of shari’ah-compliance.

Practical implications

The paper presents important guidance as input for the rulings of shari’ah-compliance idea held by shari’ah advisory boards and similar institutions presently operating at the financial level.

Social implications

The paper presents a subtle transformation of the social and financial order in the light of the Tawhidi ontological law quite differently from the way that shari’ah-compliance envisions.

Originality/value

The theoretical and projected applied perspectives in analytical finance presented in this paper provide a methodological worldview for all areas of social finance with ethical consciousness. Such analytical approach is much needed today in the reconstruction of global finance in the scale of ethics and away from the sole focus on capital market efficiency.

Details

International Journal of Law and Management, vol. 60 no. 2
Type: Research Article
ISSN: 1754-243X

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Article
Publication date: 5 March 2018

Md. Hafij Ullah and Ruma Khanam

Shari’ah is the foundation of Islamic banks. Although all the Islamic banks required complying with the Shari’ah requirements fully, the level of compliance differs among…

Abstract

Purpose

Shari’ah is the foundation of Islamic banks. Although all the Islamic banks required complying with the Shari’ah requirements fully, the level of compliance differs among the Islamic banks. At the same time, Islamic banks have been performing well, but all do not demonstrate similar financial performance. This paper aims to explore whether Shari’ah compliance efficiency makes any difference in financial performance of Islami Bank Bangladesh Limited (IBBL).

Design/methodology/approach

This study used IBBL as a case. For exploring the issue of study, this paper applied an e-mail interview approach and interviewed 24 interviewees including financial analysts, IBBL clients and executives of regulatory bodies, the IBBL and other Islamic- and interest-based traditional banks. Interview opinions are then analyzed and interpreted for a deeper understanding of the topic.

Findings

The study observed that some other factors influence the financial performance of IBBL, but Shari’ah compliance is the dominant instinct of acquiring the leading position. Superior Shari’ah compliance creates internal strengths and external opportunities that facilitate IBBL in achieving higher financial performance. Most interviewees argued that Shari’ah is the only disposition that makes IBBL unique. Moreover, the bank that considerably follows Shari’ah gets better financial outcomes.

Research limitations/implications

The study used a qualitative method using interview responses only for evaluating the relationship between Shari’ah compliance and financial performance. Further study may be conducted based on a quantitative approach.

Practical implications

This paper expects to uphold the significance of Shari’ah in improving the financial performance of IBBL and simultaneously motivating the parties associated with the Islamic banks in enhancing the level of Shari’ah compliance. Moreover, this study provides new insights into the importance Islamic banks and their performance in relation to the choice of customers.

Originality/value

This study explores the significance of Shari’ah compliance in creating avenues for greater financial performance and develops a model showing the ways how Shari’ah compliance leads Islamic banks to achieve higher financial positions.

Details

Journal of Islamic Accounting and Business Research, vol. 9 no. 2
Type: Research Article
ISSN: 1759-0817

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Article
Publication date: 5 September 2016

Lutfullah Saqib, Muhammad Aitisam Farooq and Aliya Mueen Zafar

This paper aims to analyze the impact of Sharī‘ah compliance perception on customer satisfaction in Islamic banking sector of Pakistan.

Abstract

Purpose

This paper aims to analyze the impact of Sharī‘ah compliance perception on customer satisfaction in Islamic banking sector of Pakistan.

Design/methodology/approach

Primary data were collected from 242 account holders of Islamic banks and Islamic banking branches of conventional commercial banks and analyzed by correlation and regression through self-administered questionnaires based on SERVQUAL model.

Findings

Significant moderating effects of Sharī‘ah compliance perception on the relation between service quality and customer satisfaction have been identified.

Research limitations/implications

As a cross-sectional study with convenience sampling restricts generalizability and because financial benefits offered by banks were not included as a variable, the scope of this study is limited to service quality only. Future research may focus on the moderating effect of Sharī‘ah compliance perception through longitudinal study with larger sample size in a multi-cultural environment.

Practical implications

Results of this paper recommend Islamic banks to focus on their core strength “Sharī‘ah compliance” while developing their product/service and building marketing strategies. Moreover, assurance of high-quality services will sustain such strategies against competition with conventional banks.

Social implications

Islamic banks must primarily develop their brand through extensive communication and public awareness programs regarding Sharī‘ah compliance standards in terms of products/services, policy/procedures, code of conduct and Sharī‘ah board.

Originality/value

This research examines moderating role of Sharī‘ah compliance perception between service quality and customer satisfaction in Islamic banking sector of an Islamic Republic with dual banking system. This interactive effect of Sharī‘ah compliance perception has not been found as an overriding theme in any of the main stream journals/articles. Therefore, this study fills this gap.

Details

Journal of Islamic Accounting and Business Research, vol. 7 no. 4
Type: Research Article
ISSN: 1759-0817

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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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Book part
Publication date: 20 May 2019

Ali A. Alnodel and Toseef Azid

The study explores how financial institutes in Saudi Arabia report compliance with shari'ah teachings in terms of improving its legitimacy. The study covers all banks and…

Abstract

The study explores how financial institutes in Saudi Arabia report compliance with shari'ah teachings in terms of improving its legitimacy. The study covers all banks and insurance companies listed in Saudi stock market from 2012 to 2015. Around 181 annual reports were investigated by employing content analysis approach. The results show some trends toward more compliance with shariah teachings. Nevertheless, this is still below, especially for insurance companies. Analysis of variance suggests that banks are more likely to report about their compliance with shariah teachings than insurance companies. The conclusions that can be drafted about these results are that the nature of products and social attributes might influence the attitude of financial institutes to show their compliance with shari'ah teachings, reflecting the aim of the company to present its legitimacy.

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: 28 January 2014

Karim Ginena

The purpose of this paper is to help directors, senior management, and stakeholders of Islamic banks understand sharī‘ah risk, a crucial consideration in the corporate

Abstract

Purpose

The purpose of this paper is to help directors, senior management, and stakeholders of Islamic banks understand sharī‘ah risk, a crucial consideration in the corporate governance of Islamic banks, and its impact on these banks.

Design/methodology/approach

This conceptual paper links dispersed insights drawn from the emerging body of sharī‘ah governance literature, and the guidance issued by the Basel Committee on Banking Supervision (BCBS), the Islamic Financial Services Board (IFSB), and the Accounting and Auditing Organization for Islamic Financial Institutions (AAOIFI) with new insights to clarify the sharī‘ah risk that Islamic banks face.

Findings

Sharī‘ah risk, an operational risk, poses a credible hazard to Islamic banks and their stakeholders. Possible consequences of sharī‘ah non-compliance include higher costs, financial losses, liquidity problems, bank runs, bank failure, industry smearing and financial instability. This study defines shariah risk, identifies credit, legal, compliance, market, and reputational risk that it may evoke, and categorizes its causes and events.

Research limitations/implications

Future research could empirically test the ideas posited. In this paper claims were substantiated by logic and examples.

Practical implications

The study devises an instrument for assessing sharī‘ah risk, and suggests measures for directors, senior management, and regulators to mitigate this risk.

Originality/value

This is the first study to focus on the implications of sharī‘ah risk, delineate examples of events and incorporate them within the BCBS operational risk causes, and develop a tool for measuring sharī‘ah risk.

Details

Corporate Governance, vol. 14 no. 1
Type: Research Article
ISSN: 1472-0701

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Article
Publication date: 29 July 2014

Abdelghani Echchabi and Hassanuddeen Abd. Aziz

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…

Abstract

Purpose

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.

Design/methodology/approach

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.

Findings

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

Originality/value

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.

Details

Qualitative Research in Financial Markets, vol. 6 no. 2
Type: Research Article
ISSN: 1755-4179

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Book part
Publication date: 20 May 2019

Irum Saba

The prime difference between conventional and Islamic financial institutions (IFIs)is the compliance with shari'ah. Hence, shari'ah is a very crucial pillar, rather a main…

Abstract

The prime difference between conventional and Islamic financial institutions (IFIs)is the compliance with shari'ah. Hence, shari'ah is a very crucial pillar, rather a main pillar of Islamic finance. In order to ensure shari'ah compliance by the IFIs at all levels, central banks of different countries crafted and implemented shari'ah governance framework. This chapter focusses on the cross-country comparison of shari'ah governance framework. The countries included in this chapter are Malaysia, Pakistan, the United Kingdom and Bahrain. The result shows that Malaysia and Pakistan are leading in terms of comprehensive shari'ah governance framework whereas Bahrain comes next and the United Kingdom is the last in terms of comparison.

Details

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

Keywords

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