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Article
Publication date: 2 March 2012

Muhammad Faishal Ibrahim, Seow Eng Ong and Kola Akinsomi

The purpose of this paper is to investigate Shariah compliant real estate development financing and investment in the Gulf Cooperation Council (GCC).

Abstract

Purpose

The purpose of this paper is to investigate Shariah compliant real estate development financing and investment in the Gulf Cooperation Council (GCC).

Design/methodology/approach

In this paper, the authors employed desk research and survey to examine issues relating to Shariah compliant real estate development financing and investment. Following the desk research, 18 in‐depth interviews were conducted with senior executives of banks, real estate developers and consultants.

Findings

Equity Shariah instruments are found to be in high demand by real estate investors, however they are rarely offered by Islamic banks. In addition, the survey results confirm that Islamic financiers tend to partner real estate companies through land acquisition to post construction, contrary to how conventional financiers operate, therefore reducing moral hazard issues.

Research limitations/implications

As Shariah compliant real estate research and knowledge is limited, the authors faced a challenge in getting respondents who are familiar and willing to participate in the interview. Nevertheless, the 18 respondents gave adequate inputs to enable the authors to write the research paper.

Practical implications

The paper includes challenges and implications for the future developments of Shariah compliant real estate development financing and investment.

Originality/value

This paper provides the Shariah compliant perspective of real estate development financing and investment, where the current knowledge is very limited.

Details

Journal of Property Investment & Finance, vol. 30 no. 2
Type: Research Article
ISSN: 1463-578X

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Article
Publication date: 8 May 2018

Umayal Kasi and Junaina Muhammad

This paper aims to compare and analyse the aspects of Shariah screening methodologies within the selected Gulf Cooperation Council (GCC) countries as well as comparing the…

Abstract

Purpose

This paper aims to compare and analyse the aspects of Shariah screening methodologies within the selected Gulf Cooperation Council (GCC) countries as well as comparing the methodologies with the USA, and to examine how Shariah screening methodologies affect financing and investing activities of a firm.

Design/methodology/approach

Shariah screening methodologies within the selected GCC countries and between the GCC countries and the USA are compared on the basis of the data collected from secondary sources.

Findings

Design, qualification and Shariah governance set the Shariah screening methodologies within the GCC countries apart. Feasibility, duration, economic viability and funds required differentiate these Shariah screening methodologies between the GCC countries and the USA. Shariah screening methodologies implied in the USA is more stringent than in the GCC countries.

Research limitations/implications

The suggestions in this study include using a longer research timeline, examining many more number of countries’ Shariah screening methodologies and exploring other types of Shariah screening methodologies.

Practical implications

The possibility of generalising the implementation of strict and uniform Shariah screening methodologies across all the country-specific Shariah indices amongst Muslim nations, globally, is likely to benefit all the Muslim countries, by strengthening the understanding, interaction and economic co-operation amongst these countries.

Social implications

People’s needs can be tended to if Maqasid Al-Shariah (objectives of Shariah) is achieved through flexibility, dynamism and creativity within the social policy.

Originality/value

Aspects of Shariah screening methodologies are compared and contrasted within the selected GCC countries as well as between the GCC countries and the United States and the role of Shariah screening methodologies is examined in order to determine the extent of what is Shariah-Compliant and what is Non-Shariah Compliant for a firm.

Details

Qualitative Research in Financial Markets, vol. 10 no. 2
Type: Research Article
ISSN: 1755-4179

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Article
Publication date: 13 January 2020

Harit Satt, Fatima Zahra Bendriouch and Sarah Nechbaoui

Does Shariah finance have any impact on the cost of debt? The existing literature on Shariah finance revolves around its effect on the macroeconomic level but remains poor…

Abstract

Purpose

Does Shariah finance have any impact on the cost of debt? The existing literature on Shariah finance revolves around its effect on the macroeconomic level but remains poor when looking at its impact on the corporate level. The purpose of this paper is to strengthen the latter by examining the relationship between the Shariah compliance level and the interest rate.

Design/methodology/approach

The authors have used a sample of 600 companies, all Shariah-compliant but with different levels of compliance, from 2002 to 2015. A variable determining the level of Shariah compliance was created in accordance with the methodology by S&P 500 Shariah and its underlying index S&P 500; then, a Probit relapse study was conducted to identify the impact of Shariah level on the cost of debt.

Findings

Consistent with the theoretical predictions of the authors, the findings reveal that there is a positive relationship between the level of Shariah compliance and the cost of debt, suggesting that the higher the level of Shariah compliance of a firm, the higher the interest rate.

Research limitations/implications

One important portfolio implication of this study is that the level of Shariah compliance plays a major rule in the cost of debt determination besides the firm-specific factors. The revealed results can be of interest to actors in the fields of corporate finance, corporate governance, decision-makers and investors.

Originality/value

Islamic finance has been one of the most studied and researched topics in the finance world. However, the interest of scholars thoroughly assessed the dynamics of Islamic banking. The effect of Shariah compliance on corporate finance can still be more explored. To the best of the authors’ knowledge, this is a first attempt to capture the effect of Shariah compliance on the cost of debt through the use of a large scope to enrich the literature and at the same time analyzing the effects of Islamic characteristics on firms’ fundamentals.

Details

Journal of Islamic Accounting and Business Research, vol. 11 no. 6
Type: Research Article
ISSN: 1759-0817

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Article
Publication date: 11 May 2015

Rihab Grassa

This paper aims to discuss the different practices and regulatory frameworks of Shariah supervision in Islamic Financial Institutions (IFIs) across Organisation of Islamic…

Abstract

Purpose

This paper aims to discuss the different practices and regulatory frameworks of Shariah supervision in Islamic Financial Institutions (IFIs) across Organisation of Islamic Cooperation (OIC) member states and to identify the gaps in current Shariah supervisory practices. Parallel with the rapid growth of Islamic finance worldwide, corporate governance has received a considerable amount of attention in Islamic finance. Shariah is a unique characteristic of Islamic finance. That is why the need for a good and efficient Shariah governance system for IFIs is considered to be a crucial requirement to ensure the development and the stability of the Islamic finance industry.

Design/methodology/approach

The paper is based on critical review of current laws and regulations for IFIs; this provides a reflective synthesis on the practical work of the Shariah supervisory system across the 25 different OIC member states.

Findings

The paper reveals several findings. First, the authors observe a weak and poor Shariah supervisory system in most OIC member states. Furthermore, the authors detect various gaps in the current Shariah supervisory practices. Most of these shortfalls are linked to the current regulatory frameworks: the roles and the responsibilities of the national Shariah authority, and the institutional Shariah board’s duties and attributes.

Originality/value

This paper’s originality and value lies in its critical review of current Shariah supervisory practices across 25 OIC member states. Also, the paper puts forward various suggestions to the regulatory authorities and to the Islamic Financial Services Board to enhance the Shariah governance system and to standardize the different practices of Shariah governance worldwide.

Details

Journal of Financial Regulation and Compliance, vol. 23 no. 2
Type: Research Article
ISSN: 1358-1988

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Article
Publication date: 4 January 2020

Hanudin Amin

This study aims to examine the impacts of Shariah-compliant products, value-added benefits, mortgage repayment policy and well-versed bankers on the consumer acceptance of…

Abstract

Purpose

This study aims to examine the impacts of Shariah-compliant products, value-added benefits, mortgage repayment policy and well-versed bankers on the consumer acceptance of Islamic home financing. These variables, thereafter, are called the “critical success factors” (the CSFs) for Islamic home financing.

Design/methodology/approach

Guided by the Islamic theory of consumer behaviour (ITCB), this study intends to propose the specific CSFs that ensure consumer acceptance of Islamic home financing a success. The term success refers to consumers’ willingness to take up the facility. A questionnaire survey was conducted to elicit responses pertinent to the level of agreement/disagreement of the CSFs. A total of 460 respondents usable responses were obtained and analysed accordingly.

Findings

The results obtained indicate that Shariah-compliant products, value-added benefits, mortgage repayment policy and well-versed bankers are instrumental to influence the consumer acceptance of Islamic home financing.

Research limitations/implications

Like other works, this study has confined its context to capture only a limited geographical area, and the study’s contributions are restrained to the variables analysed to a specific context of Islamic home financing in Malaysia.

Practical implications

The results obtained can become as a yardstick to measure the consumer acceptance of Islamic home financing.

Originality/value

New proposed CSFs can help to address the new demand of Islamic home financing accordingly, where a new area of improvement is brought into play. This study also extends the applicability of the ITCB to include Islamic home financing products.

Details

Journal of Islamic Accounting and Business Research, vol. 11 no. 7
Type: Research Article
ISSN: 1759-0817

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Article
Publication date: 1 June 2015

Syed Anees Haider Zaidi, Ijaz Hussain Shah, Rana Umair Ashraf, Shahid Mohammad Khan Ghauri and Ibne Hassan

The purpose of this paper is to bring the attention of Muslim world toward uniformity of Shariah principles. The paper also presents different opinions of experts toward…

Abstract

Purpose

The purpose of this paper is to bring the attention of Muslim world toward uniformity of Shariah principles. The paper also presents different opinions of experts toward standardization. Selection criteria of four different Islamic market indices are compared. Some points like Halal business and debt ratio are common, while others are different.

Design/methodology/approach

The qualitative research method has been used in this research work and various types of documents and research articles were analyzed. The authors analyzed the data of four Islamic stock markets in the world. First, they write all the screening criteria of every Islamic stock market for selecting a company for their stock market. Afterwards, they make a table that presents the comparison of screening criteria of all Islamic market indices.

Findings

A Shariah Board of Islamic Market approves any company as being Islamic Shariah-compliant based on certain criteria. Different Islamic market indices use their own criteria for selecting the company. Every Islamic market index has its own rules and regulations of the Shariah Board. Sometimes these rules are contradictory with each other; for example, if KMI-30 Islamic index is not selecting one particular company due to higher debt ratio but Dow Jones Islamic market index selects that company because that company meets the criteria of the Dow Jones Islamic market index.

Research limitations/implications

The main limitation is that there is no approach to regulators of the different Islamic market indices around the globe.

Practical implications

If Islamic indices work on the suggestions provided in this paper, standardized criteria will be available to all indices and, consequently, confidence of the investors and operational issues will be resolved. Investment will be increased.

Social implications

The belief of non-Muslims will be strong that Islamic laws are the same any where. A shift from conventional finance to Islamic Finance will be sped up.

Originality/value

This research work is original and first attempt on the topic of standardization of screening criteria of Islamic stock markets around the globe.

Details

International Journal of Commerce and Management, vol. 25 no. 2
Type: Research Article
ISSN: 1056-9219

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Article
Publication date: 12 August 2014

Seng Kiong Kok, Gianluigi Giorgioni and Jason Laws

– The purpose of this paper is to highlight the possibility of structuring an Islamic option which includes an element of risk sharing as opposed to risk transfer.

Abstract

Purpose

The purpose of this paper is to highlight the possibility of structuring an Islamic option which includes an element of risk sharing as opposed to risk transfer.

Design/methodology/approach

The approach adopted in this research involved a combination of a wa’ad (promise) and murabaha (cost plus sale) and examining if they could form a risk-sharing Islamic option. The payoffs were assumed to be dependent on bi-period outcomes.

Findings

The paper attempted to create a hybrid risk-sharing option by combining elements of both wa’ad (promise) and murabaha (cost plus sale). The results yielded are dependent on the eventual direction of the market (in-the-money, at-the-money and out-the-money). While the results are not definitive, they do provide arguments for the adoption of a risk-sharing, as opposed to a risk-transfer, methodology when it comes to structuring risk management instruments.

Research limitations/implications

One of the major limitations of this research is the inability to assess the Shariah compliance of the proposed instrument. Shariah compliance is determined by a Shariah Supervisory Board, and every effort has been made to ensure that Shariah financial principles are adhered to in the creation of this structure.

Practical implications

The structure provides some interest arguments in the creation of risk management tools under a Shariah financial framework. The structure illustrates the benefits of having a risk-sharing mode over the conventional risk-transfer stances of most risk management tools.

Originality/value

The paper offers a new way of structuring a risk management tool in Islamic finance. It explores the highly debated area of derivatives in Islamic finance and proposes a new way of creating a risk management tool that involves some elements of risk sharing.

Details

International Journal of Islamic and Middle Eastern Finance and Management, vol. 7 no. 3
Type: Research Article
ISSN: 1753-8394

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Article
Publication date: 7 March 2016

Eddy S. Fang

This paper aims at retracing changing attitudes toward Islamic financial products in international markets over the past three decades, thereby providing an account of…

Abstract

Purpose

This paper aims at retracing changing attitudes toward Islamic financial products in international markets over the past three decades, thereby providing an account of their “unexpected” expansion outside of the Muslim world.

Design/methodology/approach

This conceptual paper builds on an archival research

969 news articles published in the UK from 1985 to 2014. Although emphasis is put on the decade of fast changing attitudes toward Islamic finance (IF) in global markets (2001-2011), the years prior to (1985-2000) and following (2012-2014) the target period are also investigated.

Findings

Starting as an obscure set of practices often associated with religious fundamentalism before the mid-1990s, IF had become a “mainstream” alternative by the turn of the century. A second interpretive break then emerged with the advent of the subprime crisis in 2007-2008, which increasingly conferred to IF an ethical component. Interestingly, both narratives still exist concurrently in the media, even in post-crisis discussions.

Social implications

The discussion in this paper allows us to explain the findings of the most recent surveys on this topic, which put forward the complex, and sometimes even contradictory, understandings of what IF stands for in global markets.

Originality/value

This is the first archival research on the topic of IF in international markets. Besides bringing to the discussion an interesting historical perspective, it also draws attention to the growing importance of Islam-based financial products in traditionally secular markets.

Details

Journal of Islamic Marketing, vol. 7 no. 1
Type: Research Article
ISSN: 1759-0833

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Article
Publication date: 27 June 2019

Taslima Julia and Salina Kassim

Environmental degradation has been identified as one of the major impediments for development in Bangladesh. The World Health Organization has ranked Bangladesh fourth…

Abstract

Purpose

Environmental degradation has been identified as one of the major impediments for development in Bangladesh. The World Health Organization has ranked Bangladesh fourth among the most polluted countries in the world. Faced with this challenge, the Government of Bangladesh introduced the Green Financing Policy and encouraged banks to participate in offering green financing as part of the efforts to promote environment-friendly economic activities for sustainable economic development. This study aims to examine the financial performance of selected commercial banks that offered green financing in Bangladesh in the period from 2012 to 2014.

Design/methodology/approach

In achieving this objective, the paper has divided the various sections of green banking policy under Maqasid Shariah framework of Imam Al-Ghazali, which is preserving faith, life, intellect, posterity and wealth. After that, green performance is compared between five conventional banks and five Islamic banks, according to the secondary data gathered from the annual reports and sustainability reports, as well as verified based on interviews. Finally, based on quantitative and qualitative thematic analysis approach, it is identified which banks meet most of the Shariah objectives along with performing sustainably.

Findings

The study finds that none of the banks fully meet the green/sustainable policy requirements; however, the Islamic banks are ahead in preserving faith, intellect and wealth circulation.

Research limitations/implications

This research is mostly based on secondary data; banks’ non-disclosure of green data was an impediment to run in-depth and fair comparisons. However, to check the reliability and validity of secondary data, two heads of sustainable banking department from conventional bank and two from Islamic bank have been interviewed.

Practical implications

Based on the findings, several recommendations are made on ways to expedite green financing, which can ultimately enhance contribution of Islamic banks toward the sustainable economic growth of the country while fulfilling Maqasid Shariah.

Social implications

Because the green banking policy aim is very much in line with Maqasid Shariah which is the aim of Islamic banks, Islamic banks can presumably contribute more to the sustainable economic growth of the country by aligning their entire operations with green policies.

Originality/value

To the best of the authors’ knowledge, this study is perhaps the earliest initiative to compare Islamic and conventional banks’ green performances in Bangladesh.

Details

Journal of Islamic Marketing, vol. 11 no. 3
Type: Research Article
ISSN: 1759-0833

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Article
Publication date: 7 May 2019

Anisza Hasmawati and Azhar Mohamad

This study aims to investigate the potential application of Istisna’ financing in Malaysia.

Abstract

Purpose

This study aims to investigate the potential application of Istisna’ financing in Malaysia.

Design/methodology/approach

Using primary data from semi-structured interviews with 17 participants, including Islamic financial institutions (IFIs), regulatory body and property development companies, the findings of the study suggest that Istisna’ is perceived as a good contract that has unique features and the potential to be implemented in Malaysia; although, it has only been implemented a little by current businesses, mainly due to its perceived high risks.

Findings

The authors find there is a gap between the theory and the actual operation of IFIs in Malaysia – some salient features of an Islamic contract are actually difficult to execute in reality as there are many factors to be considered, such as default risk in Istisna’, legal issues and accounting treatment of Istisna’ contract. This study recommends the further development of Istisna’ in Malaysia due to its huge potential in the Islamic financial market there.

Practical implications

Istisna’ is a unique type of sale contract that is used in the manufacturing sectors where the sale of a commodity is transacted before the commodity exists. In practice, data from the Central Bank of Malaysia show that Istisna’ financing is scarce.

Originality/value

The study differs from previous research studies on Istisna’ – to the best of the authors’ knowledge, this is the first study to provide evidence the real thoughts of IFIs with regard on Istisna’ specifically and IFIs’ operations in general. Previous studies related to Istisna’ have limited scopes, as they have mainly explored the theoretical nature of the contract, issues of permissibility from the Shariah perspective and its comparability with other IFIs product such as Salam. In this study, from respondents’ views, the authors notice actually there is a gap between theory and the real practice of Islamic finance. An Islamic finance instrument may be an ideal choice to customers but not very popular from IFIs’ sides. In this respect, the authors add to the growing literature of Istisna’ by asking the direct questions to IFIs and the authors get honest responses pertaining to default risk, legal issues and accounting treatment.

Details

Qualitative Research in Financial Markets, vol. 11 no. 2
Type: Research Article
ISSN: 1755-4179

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