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Article
Publication date: 5 April 2022

Mohammad Nazim Uddin

Shari’ah compliance has been a subject of debate to academics, Islamic scholars and practitioners since its inception in 1983. Besides a wide range of publications in Shari’ah

Abstract

Purpose

Shari’ah compliance has been a subject of debate to academics, Islamic scholars and practitioners since its inception in 1983. Besides a wide range of publications in Shari’ah compliance, only a few studies have examined Shari’ah-compliant risks especially among the Islamic banks. This paper aims to investigate the factors of Shari’ah-compliant risks in Shari’ah compliance under the Shirkah-ul-milk (hire purchase) in Bangladesh.

Design/methodology/approach

The investigation of Shari’ah compliant risks from both bankers and clients were gained via a structured questionnaire to acquire a better understanding of Islamic banking practices in Bangladesh. In analyzing the data, two empirical tests were used to draw inferences on Shari’ah-compliant risks–Shari’ah compliance relationship: the measurement model, a diagnostic test, was used to justify the reliability and validity of constructs, and the partial least squares structural equation modeling was applied to examine the hypotheses on the existent links between Shari’ah-compliant risks and Shari’ah compliance under Shirkahul-milk.

Findings

Unlike previous studies, the empirical evidence provides the pertinent attributes of Shari’ah-compliant risks, which are more significant in avoidance of the compliance of Shari’ah laws in banking operations. Such Shari’ah-compliant risks are significantly raised by various comprehensive, operational, environmental and distributional risks in banking that have failed to address fairness, justice and economic well-being at the transactional level.

Originality/value

A new empirical evidence focusing on the propagation of Shari’ah-compliant risks is preferred for effective Shari’ah compliance in operations as being an original structure of Islamic banks.

Details

International Journal of Islamic and Middle Eastern Finance and Management, vol. 16 no. 1
Type: Research Article
ISSN: 1753-8394

Keywords

Article
Publication date: 14 September 2018

Mohammed Abdullah Ammer and Abdulaziz Mohammed Alsahlawi

Islam stresses on the practice of transparency and sufficient disclosure particularly when it concerns the ethical identity of Islamic institutions. This is to make sure that the…

Abstract

Purpose

Islam stresses on the practice of transparency and sufficient disclosure particularly when it concerns the ethical identity of Islamic institutions. This is to make sure that the activities conducted in business adhere to Shari’ah principles. The purpose of this paper is to examine the impact of Shari’ah-compliant status on the accuracy of initial public offering (IPO) earnings forecasts and to investigate the effect of the existence of Muslim directors on IPO companies’ board of directors on the accuracy of earnings forecasts.

Design/methodology/approach

This study makes use of absolute forecast error as a proxy for earnings forecast accuracy. As obtained from the list of Shari’ah-compliant securities established by the Shari’ah Advisory Council of the Malaysian Securities Commission, the study sample comprised 190 Shari’ah-compliant and non-compliant IPOs. The collected data were analyzed through univariate analysis and ordinary least squares regression.

Findings

The initial findings show that during the study period, the earnings forecasts of Malaysian IPOs are accurate to some level, although such level is still unsatisfactory. The findings also showed that Shari’ah-compliant status and Muslim directorship do not positively affect the accuracy of IPO earnings forecasts.

Practical implications

The findings of the study provide some implications for regulators, financial analysts, investors and users of financial statements, particularly those desirous of investing in Islamic capital market.

Originality/value

The present study provides a new and far-reaching contribution into the debate about the earnings forecasts disclosure in the context of Islamic ethical perspective. In addition, this study is considered as the first study to extend IPO literature by examining the impact of Shari’ah-compliant status and Muslim directorship on the accuracy of management earnings forecasts disclosed in the IPO prospectus.

Details

International Journal of Islamic and Middle Eastern Finance and Management, vol. 12 no. 1
Type: Research Article
ISSN: 1753-8394

Keywords

Article
Publication date: 11 August 2020

Irum Saba, Mohamed Ariff and Eskandar Shah Mohd Rasid

Shari’ah provides the basic tenets of the Islamic finance industry and advocates banks to share their profits and losses with investors. But what it means for a firm to be …

Abstract

Purpose

Shari’ah provides the basic tenets of the Islamic finance industry and advocates banks to share their profits and losses with investors. But what it means for a firm to be “Shari’ah-compliant” and what form of connections it can have, even in theory, to either the firm’s value or profitability is still an untapped question. This study tries to answer this question. This study aims to find the impact of Shari’ah compliance on firm performance. The results obtained would be useful in helping investors, regulators, companies, government, academicians and practitioners in their decision-making process as to ensure better economic and business gains, both locally and globally.

Design/methodology/approach

Panel data on 634 Shari’ah-compliant firms have been used in this study for the period of 2000–2014.

Findings

The results indicate that Shari’ah compliance adds to the value of firms as firms perform transactions according to Shari’ah while avoiding non-permissible activities.

Originality/value

This study adds value to the existing literature by showing the statistical results for the impact of Shari’ah compliance on the performance of the listed firms on Bursa Malaysia.

Details

International Journal of Islamic and Middle Eastern Finance and Management, vol. 14 no. 1
Type: Research Article
ISSN: 1753-8394

Keywords

Article
Publication date: 30 October 2009

Abul Hassan

The purpose of this paper is to examine the role of Shari’ah compliant sustainable investing in the light of the credit crisis and catastrophic climate change.

1925

Abstract

Purpose

The purpose of this paper is to examine the role of Shari’ah compliant sustainable investing in the light of the credit crisis and catastrophic climate change.

Design/methodology/approach

The paper discusses that the climate change, natural resource shortages, fuel crisis and global financial crisis, etc. will not go away just because there is a recession. In this regard, Shari’ah compliant finance has a broader responsibility to consider societal goals and should be preparing for the post‐credit crunch world. The paper evaluates the performance of Shari’ah compliant sustainable funds using the traditional measures of performance in relation to risk‐adjusted benchmarks to see if there is any ethical effect.

Findings

The paper advocates that preventing future market meltdowns and avoiding catastrophic climate change requires a new era of longterism in Shari’ah compliant sustainable investing. The study assesses the performance of the Shari’ah compliant sustainable investing. The result shows that Shari’ah compliant funds outperformed the conventional benchmark and therefore, the challenge for Shari’ah compliant sustainable investing is not to become like conventional investing but, rather, to replace.

Research limitations/implications

Shari’ah compliant sustainable finance is a recent phenomena and therefore, rigorous analytical predication of Shari’ah compliant sustainable investing variables are at present not possible using evolutionary and complex system approaches; however, such system can be fruitfully studied in future through simulation methods and certain types of econometric modeling when the long‐term data will be made available.

Originality/value

As the credit crunch has evolved into a full‐blown economic crisis, many have turned to the Shari’ah compliant finance to provide a route map out of recession. With an increasing number of conventional banks and corporations struggling to find funds to support their businesses, Shari’ah compliant financial institutions represent a potential solution to bridge the liquidity gap in the global markets.

Details

Humanomics, vol. 25 no. 4
Type: Research Article
ISSN: 0828-8666

Keywords

Abstract

Details

Monetary Policy, Islamic Finance, and Islamic Corporate Governance: An International Overview
Type: Book
ISBN: 978-1-80043-786-9

Book part
Publication date: 17 July 2014

Roshima Said, Mazlifa Md. Daud, Leily Adja Radjeman and Noridah Ismail

The number of Shari’ah Compliant companies is tremendously increasing year by year in Malaysia. In an attempt to win the trust and confidence of its Muslim investors and…

Abstract

Purpose

The number of Shari’ah Compliant companies is tremendously increasing year by year in Malaysia. In an attempt to win the trust and confidence of its Muslim investors and stakeholders, the Shari’ah Compliant companies must portray their sincerity and earnestness in complying with Islamic values which may have implications on winning the trust of Muslim investors largely from oil-rich Arab Gulf Region which have flush of funds currently. Thus, the purpose of the study is to gauge the extent of the corporate ethical identity (CEI) that is being incorporated by the Shari’ah Compliant companies in Malaysia.

Design/methodology/approach

This study used the content analysis to develop CEI by adding all the items covering the four themes, which were underlying philosophy and values, interest-free and Islamically acceptable activities, developmental and social goals and environment theme. This CEI index was developed by using the dichotomous, which the score of ‘1’, if the company disclose the items and ‘0’, if it is not. The process will add all the scores and equally weighted.

Findings

The study showed that the level of communicated ethical identity disclosed in annual reports of Shari’ah Compliant companies for the year ended 2008 is relatively low with average of 23.66%. Overall, the findings of the study showed that the Shari’ah Compliant companies revealed more communicated ethical identity on Theme 1 (underlying philosophy and values) in the annual reports for the year ended 2008. In addition, in the year 2008, the findings showed that the dimension of developmental and social goals has the most influence towards the ethical identity index of Shari’ah Compliant companies.

Research limitations/implications

The source of data in this study is limited to companies’ annual report. In other words, the extent of communicated ethical identity index is constructed limited to company’s annual report. The study has shown that annual reports is not the only means or medium of disclosure. Hence, studying other forms of disclosure on communicated ethical identity could possibly complement and add value to any investigation on the nature and extent of communicated ethical identity through annual reports in the future.

Practical implications

The study is expected to alert the Securities Commission with regard to the definition of Shari’ah Compliant companies which should not just include ‘good public perception and image company’ but also the extent of the application of Islamic values in the conduct of their businesses.

Originality/value

The study provides a new benchmark of an ideal Islamic communicated CEI index based on Shari’ah principles and also past literatures. The study developed a checklist from preliminary checklist with 88 items based on Berrone, Surroca, and Tribo (2005), Haniffa and Hudaib (2007) and Roshima, Yuserrie and Hasnah (2009). In order to develop the checklist, the researchers also look on the definition of Islamic ethics defined by Khan (2009).

Details

Ethics, Governance and Corporate Crime: Challenges and Consequences
Type: Book
ISBN: 978-1-78350-674-3

Keywords

Article
Publication date: 10 August 2020

Yasushi Suzuki and Mohammad Dulal Miah

This paper aims to propose two benchmarks “Shari’ah-compliant” benchmark and “Shari’ah-based” “raf’ al-haraj” (the removal of hardship) benchmark. The former benchmark can be…

Abstract

Purpose

This paper aims to propose two benchmarks “Shari’ah-compliant” benchmark and “Shari’ah-based” “raf’ al-haraj” (the removal of hardship) benchmark. The former benchmark can be applied to ensure that a transaction brings “profits on sales” and not “profits on loan”, and the latter benchmark should be addressed to ensure that a transaction does not exploit the customers of Islamic banks.

Design/methodology/approach

The authors draw upon the theory of institutional economics, in particular, instrumental and procedural rationality, to argue that the believers can pay their best effort as an exercise of ijtihad to understand and incarnate the logic and rationales implicit in the Qur’anic text.

Findings

Currently, there is no benchmark that determines the profit ceiling on murabaha. The authors suggest two types of “gray-zones” – the “Shari’ah-compliant but less contributing to the removal of hardship” and the “controversial on compliance but contributing to the removal of hardship in borrowers” to use as a benchmark in endorsing less shariah-compliant Islamic products.

Practical implications

There is no benchmark or a clear-cut demarcation that can be used to endorse less Shari’ah-compliant Islamic finance. Thus, Shari’ah-compliant’ benchmark and “Shari’ah-based” “raf’ al- haraj” benchmarks can be used to guide whether a financial transaction is acceptable or not. This guideline can be of huge practical relevance for Islamic finance.

Originality/value

There is no sensible study that offers such guidelines that can be used to demarcate whether a particular financial transaction, which has no clear-cut fatwa, is acceptable or not. Hence, the current research is novel and contributes to the existing literature of Islamic finance.

Details

International Journal of Islamic and Middle Eastern Finance and Management, vol. 14 no. 1
Type: Research Article
ISSN: 1753-8394

Keywords

Article
Publication date: 22 March 2013

Nasiruddin Jamaluddin

Most conventional financial products currently on offer to Muslims in the Indian market are incompatible with Islamic religious principles; there is a recognized demand for…

1364

Abstract

Purpose

Most conventional financial products currently on offer to Muslims in the Indian market are incompatible with Islamic religious principles; there is a recognized demand for alternatives within this niche community. India has the third largest Muslim population in the world – 155,477,386 in 2011. The purpose of this paper is to present the status of marketing activities of Shari'ah‐based investments and a comprehensive analysis of avenues for Islamic investments in India.

Design/methodology/approach

In India, Islamic investment is gathering pace as Muslims in the country are becoming more vocal in their demands for greater self expression. Hence, there is a great potential in India itself. Even if a small percentage of this population can be pressured to invest in the Islamic investments, the amount of money that can be brought into the system could be enormous.

Findings

The findings reveal the emergence of Islamic investment opportunities on Shari'ah‐based investments in India. This paper also provides suggestions for enhancement of Islamic investment opportunities in India.

Originality/value

With a sound economic base and with hundreds of companies complying with Shari'ah norms, India offers a huge opportunity for Islamic equity investment. If performance as a parameter is considered, it is observed that Shari'ahcompliant investments, being low in debt and having sound fundamental principles, tend to perform better, hence large non‐Muslim investors should take the benefit of these socially responsible and above par performing Islamic investments.

Details

Management Research Review, vol. 36 no. 4
Type: Research Article
ISSN: 2040-8269

Keywords

Article
Publication date: 27 September 2019

Saheed Abdullahi Busari, Akhtarzaite AbdulAziz, Luqman Zakariyah and Muhammad Amanullah

This study aims to analyse the facts of the case in the judgement made by the High Court of Justice, England, UK, in the case of Dana Gas Public Joint Stock Company (PJSC) v. Dana

Abstract

Purpose

This study aims to analyse the facts of the case in the judgement made by the High Court of Justice, England, UK, in the case of Dana Gas Public Joint Stock Company (PJSC) v. Dana Gas Sukuk Limited (Ltd.) and Ors.

Design/methodology/approach

This study uses descriptive and juristic analysis to explain the factual terms in the case of Dana Gas sukuk default. It also uses juristic opinions to analyse the underpinning argument in the Dana Gas court case between the decision of Sharjah Court, UAE, and the English Court, UK.

Findings

The study concluded that despite the position of Dana Gas PJSC that specific element of the muḍārabah sukuk is non-Sharī’ah-compliant, the English court decision which established the enforceability of the purchase undertaking seems to be fair based on the Islamic maxims such as “Difficult situation cannot violate the right of other” and “The conditional matters among Muslims are binding.”

Research limitations/implications

The impact of this study is that Dana Gas sukuk default has thought stakeholders of Sukuk investment lessons on the importance of documentation and consideration of tighter clauses to ensure its bindingness in the law court. Hence, this study is expected to be a contribution towards the call for standardization of the role of Sharī’ah scholars across the globe.

Originality/value

This study illustrates the fact in the case of Dana Gas sukuk default and analyses the court’s decision from a fiqh perspective.

Details

International Journal of Islamic and Middle Eastern Finance and Management, vol. 12 no. 4
Type: Research Article
ISSN: 1753-8394

Keywords

Open Access
Article
Publication date: 2 June 2022

Ruzita Abdul-Rahim, Adilah Abd Wahab and Mohammad Hudaib

Drawing upon underinvestment theory and clientele effect hypothesis, this paper aims to examine the effects of foreign currency (forex) exposure and Shari’ah-compliant status on…

1966

Abstract

Purpose

Drawing upon underinvestment theory and clientele effect hypothesis, this paper aims to examine the effects of foreign currency (forex) exposure and Shari’ah-compliant status on firms’ financial hedging strategy.

Design/methodology/approach

Based on data of 250 nonfinancial firms listed on Bursa Malaysia from 2010 to 2018 (2,250 firm-year observations), the authors test the impact of forex exposure based on a vector of foreign-denominated cash flows (FCF) indicators and firms’ Sharīʿah-compliant status on two proxies of financial hedging decisions, namely, the ratio of the notional value of currency derivatives to total assets and a binomial measure of hedging status. The hedging decision models are estimated using panel logistic regression and system generalized method of moments.

Findings

The results indicate significant positive effects of the forex exposure indicators on firms’ propensity to hedge. However, the impact of forex exposure is most prevalent via total FCF. The results also reveal significant positive effects of Sharīʿah-compliant status on firms’ propensity to hedge but its negative impacts on the value of currency derivatives they use. The results suggest that Sharīʿah-compliant firms refrain from engaging in currency derivatives to avoid riba’ and subsequently subdue the clientele effect. However, when the forex exposure reaches higher levels, engagement in currency derivatives becomes a matter of tentative necessity (dharurat).

Research limitations/implications

This study relies exclusively on the disclosure of foreign currency risk and management data in the annual reports of listed companies. Consequently, this limits the sample size to only those nonfinancial listed companies with complete data for the study period. Also, since none of the companies reports using Sharīʿah-compliant derivatives, the authors thus assume that they use derivative instruments that tolerate “riba.”

Practical implications

Given the significance of forex exposure on hedging decisions, the accounting profession must strictly adopt FRS 7 and FRS 139 for all listed firms to avoid market scrutiny and sustain their clientele. The results also call for the Islamic market regulators to include mandatory disclosure of conventional currency derivatives in screening firms for clearly prohibited activities to help enhance the credibility of its Islamic financial market.

Originality/value

Due to difficulty accessing relevant cash flow data, the study is among the few studies that measure forex exposure using FCF and test more proxy indicators. This study is perhaps the first to examine the Shari’ah perspective on currency derivatives in corporate forex risk management.

Details

International Journal of Islamic and Middle Eastern Finance and Management, vol. 16 no. 2
Type: Research Article
ISSN: 1753-8394

Keywords

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