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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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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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Book part
Publication date: 19 November 2018

Mohd Izuwan Mahyudin and Azizi Che Seman

Purpose – A study of Islamic banking products, especially bay’ al-tawarruq transactions, demonstrates that the purpose of these transactions is to provide liquidity to the…

Abstract

Purpose – A study of Islamic banking products, especially bay’ al-tawarruq transactions, demonstrates that the purpose of these transactions is to provide liquidity to the customer, such as personal financing, working capital expenditure, cash lines and credit cards. However, as the industry expands, the industry is innovating to extend products to include an investment and deposit instrument that provides a fixed return to the customer. As the second fully-fledged Islamic bank in Malaysia, Bank Muamalat Malaysia Berhad (BMMB) offers products based on the bay’ al-tawarruq concept.

Methodology/approach – This study investigates the original principles of the bay’ al-tawarruq contract and its current applications in BMMB.

Findings – The study found that the bay’ al-tawarruq contract is being adopted as an alternative to the bay’ al-‘inah contract, especially for financing-based products offered by BMMB.

Originality/value – This is an attempt to study the application of Tawarruq contract in Bank Muamalat’s product offerings based on the process and mechanism of Bursa Suq al-Sila’ (BSAS).

Details

New Developments in Islamic Economics
Type: Book
ISBN: 978-1-78756-283-7

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Article
Publication date: 8 August 2008

Mahmood Mohamed Sanusi

The purpose of this paper is to explain the theoretical framework of money laundering and expanded to study it from the Islamic perspective. As money laundering sustain…

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1824

Abstract

Purpose

The purpose of this paper is to explain the theoretical framework of money laundering and expanded to study it from the Islamic perspective. As money laundering sustain truly “global issues” and thus should be treated as such. The purpose is to examine the conception of money laundering under Islamic law in conjunction with the discussion of Islamic law of contract; the most common methods in money laundering involving numerous cash deposits at various bank branches, followed by the purchase of a secured bank instrument, such as cashiers' check; how far is Islamic law able to provide rules, norms in protecting financial institutions, customers and the public from criminal activities?

Design/methodology/approach

The paper depended on primary data. The data were procured from the Holy Quran, Prophetic Sunnah which embodied all tenets of Islamic law, and in addition, from the books of the Classical Muslim scholars.

Findings

It has been revealed that Islam has initially taken great interest in the market condition, business conduct and economic system. Generally speaking Islam law prohibits all business conducts which compromise unjustified consumption, misappropriation of one's wealth thus creating parasitical classes of people obtaining wealth and money being the root of all criminal activities; financial crimes and the concept of money laundering have been categorised as a division of Islamic criminal law which has been addressed via many provisions in the Quran and Prophet's Sunnah; the prophet and his successors have developed the Institution of Hisbah to control malpractices and criminal activities. Moreover, Islamic law prescribes a set of principles, rules and measures to deal with acts that are most likely to affect the economic scenario.

Originality/value

This invaluable paper identifies the attitude of the Islamic law in monitoring and preventing the concept of money laundering, further distinguishing between illicit gains (al‐Kasb al Haram) and lawful gains. Finally, this paper reviews the Islamic norms relating to confiscation and forfeiture of Ill‐gotten wealth and property.

Details

Journal of Money Laundering Control, vol. 11 no. 3
Type: Research Article
ISSN: 1368-5201

Keywords

Content available
Article
Publication date: 10 June 2014

M. Kabir Hassan

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179

Abstract

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: 27 September 2011

Siti Zaleha Abdul Rasid, Abdul Rahim Abdul Rahman and Wan Khairuzzaman Wan Ismail

The purpose of this paper is to explore whether there is any difference in the management accounting systems (MAS) of conventional and Islamic Financial Institutions…

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4056

Abstract

Purpose

The purpose of this paper is to explore whether there is any difference in the management accounting systems (MAS) of conventional and Islamic Financial Institutions (IFIs) in Malaysia.

Design/methodology/approach

The paper was based on a survey of 45 conventional and IFIs listed on the Malaysian Central Bank's web site. The respondents were the chief financial officers (CFO). Post‐survey semi‐structured interviews were also conducted with eight respondents to gain further insights into the survey findings.

Findings

The survey results indicate that IFIs use MAS information that is broader in scope, more timely, more integrated and more aggregated than conventional financial institutions. The post‐survey interviews provide deeper and contextualised insights into this issue. The interview findings illustrate that IFIs normally develop and adopt an integrated accounting and enterprise system. Within this comprehensive enterprise system, the management accounting function is integrated with other functions of the organization.

Research limitations/implications

Since this study was conducted in the context of Malaysian financial institutions, the results may not be generalizable to other organizations. The findings of this study highlight the importance for IFIs to have integrated enterprise systems. Besides assisting in complying with Shari'ah and regulatory requirements, the integrated systems also support better decision making.

Originality/value

The paper fills a gap in the literature, as very few studies have examined the issue of management accounting in financial institutions. The paper is also one of the limited studies that explore the issue of MAS in IFIs.

Details

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

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Article
Publication date: 7 March 2018

Ugi Suharto

The aim of this paper is to argue analytically that interest and riba are not exactly the same and not an interchangeable terminology. There are similarities and…

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2046

Abstract

Purpose

The aim of this paper is to argue analytically that interest and riba are not exactly the same and not an interchangeable terminology. There are similarities and differences between the two at the conceptual level.

Design/methodology/approach

To support the argument, the paper shows that it is possible to prove cases where the riba is involved but the interest is not. Hence, there is a situation of the presence of riba without interest. Furthermore, it is also possible to prove cases where the interest is involved but the riba is not. Hence, there is a situation of the presence of interest without riba. The notion and concept of interest in finance are analysed critically in comparison with riba in Islamic jurisprudence (fiqh Islami). So a comparative conceptual analysis is the main methodology of the paper.

Findings

The paper finally suggests that the correct expression should be that Islamic banking and finance is “a ribawi free of banking and finance” instead of “interest free of banking and finance” as it is popularised.

Research limitations/implications

The paper is conceptual in nature. No empirical analysis is pursued.

Practical implications

Islamic finance should not claim it self as interest-free finance, rather riba-free finance.

Social implications

It is more truthful to the society to say that Islamic finance is riba-free finance.

Originality/value

The paper is expected to contribute in the conceptual level of Islamic banking and finance’s understanding by clearing up the basic confusion and misconception about riba and interest. This would consequently minimise or even eliminate the taken-for-granted tendency of denoting the semantic of riba and interest as an interchangeable term, especially when writing in English and addressing the finance’s students and scholars. The semantic clarification between interest and riba hopefully becomes the main contribution of this paper.

Details

International Journal of Islamic and Middle Eastern Finance and Management, vol. 11 no. 1
Type: Research Article
ISSN: 1753-8394

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Article
Publication date: 21 October 2013

Adel Mohammed Sarea and Mustafa Mohd Hanefah

The objective of this paper is to determine the level of compliance with Accounting and Auditing Organization for Islamic Financial Institutions (AAOIFI) accounting…

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3532

Abstract

Purpose

The objective of this paper is to determine the level of compliance with Accounting and Auditing Organization for Islamic Financial Institutions (AAOIFI) accounting standards by Islamic banks of Bahrain.

Design/methodology/approach

The paper is based on diffusion of innovation theory whereby the perceived relative advantage, compatibility, complexity, trialability and observability factors are expected to influence the level of compliance with AAOIFI accounting standards.

Findings

The findings indicate that Islamic banks of Bahrain are in full convergence with AAOIFI accounting standards.

Research limitations/implications

This research, just like many other studies, faces data limitations. Sample size employed for this study contains only the accountants in Islamic banks of Bahrain.

Originality/value

The results of this paper are expected to serve as a guide to the regulatory bodies and the setter of accounting standards for Islamic financial institutions (IFIs).

Details

Journal of Financial Reporting & Accounting, vol. 11 no. 2
Type: Research Article
ISSN: 1985-2517

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Article
Publication date: 14 October 2019

Nurul Syazwani Mohd Noor, Muhammad Hakimi Mohd. Shafiai and Abdul Ghafar Ismail

This paper aims to propose a derivation of Shariah risk from both the Islamic finance theory and theory of contracts in Islamic law. Specifically, it deliberates the…

Abstract

Purpose

This paper aims to propose a derivation of Shariah risk from both the Islamic finance theory and theory of contracts in Islamic law. Specifically, it deliberates the derivation of Shariah risk following the contracts validity and apprises the readers of the Shariah risk issues currently under debate.

Design/methodology/approach

This study reviews the relevant literature and presents an analysis of contract rulings through evidence derived from the Qur’an, Hadith and other secondary sources of Islamic law. Various theories of Islamic finance and Islamic law of contracts are identified, to examine the general principles and essential elements and conditions of a valid contract.

Findings

This analysis asserts that any circumstances that may render invalidity of the contract will trigger Shariah risk. More importantly, this paper highlights the implications of invalid contracts, based on the opinion of Hanafi jurists, who concluded that Shariah risk may be derived from any void or voidable contracts due to the failure of the contractual parties to comply with Shariah contractual obligations.

Research limitations/implications

This paper emphasises the derivation of Shariah risk over theoretical approaches. It does not include an explanation in the form of any empirical model.

Originality/value

This is the first study that contributes to the field of derivation of Shariah risk, based on the theory from the Islamic law of contracts.

Details

Journal of Islamic Accounting and Business Research, vol. 10 no. 5
Type: Research Article
ISSN: 1759-0817

Keywords

Content available
Article
Publication date: 30 August 2011

M. Kabir Hassan

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591

Abstract

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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Book part
Publication date: 20 May 2019

Mohd Zakhiri Md Nor

This chapter aims to highlight the background of Islamic Financial Services Act 2013 (IFSA). It also highlights experiences of Malaysia in dealing with IFSA. The analysis…

Abstract

This chapter aims to highlight the background of Islamic Financial Services Act 2013 (IFSA). It also highlights experiences of Malaysia in dealing with IFSA. The analysis is tackled along the lines of the background and the constitutional frameworks of the country, the initiatives introduced by the government for the development of shari’ah compliance within the Islamic banking and finance fraternity as well as the relevant organs in carrying out the audit exercises over the Islamic banks and financial institutions in Malaysia. The chapter critically elucidates the implementation of the IFSA and its impact on shari’ah governance. It concludes by suggesting that the areas in the constitutional legal framework of the contemporary Islamic finance in Malaysia support the development of the Islamic banking and finance fraternity as with the shari’ah compliance of the same and it applies to all cooperative society.

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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