Search results

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.

This paper aims to review the Shari’ah investment screening methodologies of 34 prominent global Islamic finance users, including index providers, Shari’ah service providers, Islamic banks, a regulator, an association body and fund managers.

A comparative analysis is performed to highlight the variances of the Shari’ah-compliant methods and principles practiced by these renowned institutions with the latest compiled data.

The two sets of business screens and financial screens are profiled separately to clearly examine the similarities and differences between the different methodologies. Some of these practitioners are more specific in their listing of Shari’ah-impermissible activities, while some are more general in allowing more businesses to be included as permissible. The majority of these users practice a two-tier method of screening: qualitative and quantitative. Under quantitative screen, the range of allowable threshold ratios on non-permissible criteria differs slightly between them.

With the wide divergence in screening methodologies applied by practitioners, there is a general consensus in the acceptance of compliant assets from various countries and practice. Standardization is, therefore, seen as a need not only to make understanding of Shari’ah investments clear to investors but also to discourage misunderstandings between scholars and investors.

The suggestion, therefore, is to set globally acceptable universal Shari’ah standard methodologies which are applicable by the world Islamic financial market. These standards which are relevant and logical to global ethical investing would further stimulate investments in Islamic finance.

With Shari’ah-compliant asset growing exponentially relative to the world’s financial assets, it is alleged that greater harmonization of the global screening methods would prevent misunderstanding and provide a clearer insight on Shari’ah investing, which could further accelerate growth of the Islamic finance sector worldwide.

To provide a more transparent regulatory environment and build local and regional regulatory framework through establishment of standards, there should be more consistency with minimum barriers that prevent the industry from achieving its full potential. The paper also contributes to existing literature by documenting and analyzing the qualitative and quantitative screening procedures as practiced by a comprehensive set of global Islamic finance users. It is, therefore, important to share this knowledge as an effort toward greater understanding and harmonization of the practices at the global level to accelerate growth in the industry.

This paper aims to determine the role governance plays in the voluntary adoption of Accounting and Auditing Organization for Islamic Financial Institutions (AAOIFI) Disclosure Standards by Islamic insurance (takaful) operators in the Southeast Asia (SEA) and the Gulf Cooperation Council (GCC) regions.

This study uses a sample of 44 takaful operators in the SEA and the GCC regions. While corporate governance (CG) strength is measured by the use of the frequently examined variables of the board of directors and audit committee, Shari’ah governance strength is measured by the characteristics of the Shari’ah Supervisory Board (SSB). Content analysis is used to extract disclosure items from the 2014 annual reports. Agency theory, stakeholder theory and political economy theory are argued to support the hypotheses.

The results show that CG strength has a positive and significant effect on the voluntary adoption of AAOIFI Disclosure Standards by takaful operators, indicating that CG plays an important role in the disclosure of information in the annual reports of takaful operators. However, the results show a lack of association between SSB strength and voluntary adoption of AAOIFI Disclosure Standards. Our results suggest that the SSBs may not be as involved as the other CG mechanisms (such as a board of directors and audit committees) in reviewing financial reports. On another note, the level of the political right and civil liberties has a negative and significant effect on the voluntary adoption of AAOIFI Disclosure Standards, providing an indication that stakeholders in a community with greater freedom tend to be more active in pressuring takaful operators to provide more information to justify their existence in the community. Similar to SSB strength, the legal system is also found to have no significant association with the voluntary adoption of the AAOIFI disclosure standards.

This study provides stakeholders with a tool to evaluate the effectiveness of the governance role in increasing the transparency of takaful operators by examining the governance factors using a self-constructed disclosure index.

Our study is among the first to provide an in-depth analysis of voluntary adoption of AAOIFI Disclosure Standards for takaful operators in these two regions; therefore, this study has implications for regulators and standard setters. The findings of this study are expected to provide information to regulators and standard setters on the role of governance in improving the transparency of takaful operators.

The paper aims to contribute to the discussion on Shari'ah governance systems by examining the extent of disclosure on the Shari'ah Supervisory Board (SSB) as well as the content of the Board's report in the annual reports of 23 Islamic banks in Malaysia and Indonesia. The paper also investigates the disclosures about zakat (Islamic levy).

The study is a cross-sectional analysis of annual report disclosures in the year 2009. The paper uses both disclosure indices and content analysis to measure the extent of disclosures about SSB and zakat. The paper also tests hypotheses examining the relationship between SSB characteristics and the extent of the SSB-related and zakat disclosures.

The results indicate that SSB-related and zakat disclosures are still limited, with only four banks disclosing more than half of the SSB Index. What is noticeable is the low level of disclosure on sensitive matters. Among the factors associated with SSB-related disclosures are cross-membership with other SSBs and the expertise of SSB members in accounting, banking, economics or finance

Originality/value

The study is the first to provide an in-depth analysis of Shari'ah disclosures in Malaysian and Indonesian Islamic banks. As such, this study makes an important contribution to the debate on Shari'ah governance systems and has implications for regulators and standard setters. The Malaysian and Indonesian standard setters could play an important role in ascertaining appropriate disclosure requirements relating to the SSB as the study suggests that the level of disclosure is less than expected. The evidence also suggests the need for mandatory enforcement of standards on these types of disclosures.

The purpose of this paper is to examine the current legal framework for payment system in international Islamic trade finance vis‐à‐vis the new regime introduced by the Uniform Customs and Practice for Documentary Credits (UCP) 600 as well as the Sharī'ah Standard on Documentary Credits issued by the Accounting and Auditing Organization for Islamic Financial Institutions (AAOIFI) and Sharī'ah Resolutions of selected Sharī'ah Boards of Islamic financial institutions.

A partial comparison of both the UCP 600 and the Sharī'ah framework for documentary credit is given through the content analysis of relevant sources.

The AAOIFI Sharī'ah Standard on Documentary Credits, as well as other applicable Sharī'ah resolutions of Islamic financial institutions, does provide a good framework for a Sharī'ah‐compliant documentary credit system, which is unique to trade in Islamic finance products, but there is scope for further improvement, taking into consideration the two possibilities proposed in the available literature on the subject – harmonization or bifurcation of rules. The UCP 600 also allows for the exclusion or modification of the rules to suit the specific needs of the Islamic finance industry.

This study focuses only on UCP 600 and the Sharī'ah framework on Documentary Credits, though bearing mind that there are other frameworks for documentary credit systems such as the International Standby Practices (ISP98) and letters of credit issued under Article 5 of the New York Uniform Commercial Code.

Islamic financial institutions should implement the provisions of the AAOIFI Sharī'ah standard on documentary credits but may require a different framework for international trade financing involving both Islamic banks and conventional banks.

Though few studies have been conducted on Sharī'ah issues regarding the application of the documentary credits, this seems to be the first time where a more proactive step is taken to propose two different frameworks for transactions involving Sharī'ah compliant financing.

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.

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.

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.”

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.

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

This chapter aims to explore and examine the extent of Islamic corporate governance practices in 35 Islamic Financial Institutions (IFIs) in Malaysia, Gulf Cooperation Council countries and the United Kingdom, particularly in its six major areas, namely approaches to Islamic governance, regulatory framework and internal policies, roles and functions of shari’ah board, attributes of shari’ah board members on independence, competency and transparency, and confidentiality, operational procedures and perception of IFIs of the shari’ah board’s performance. A questionnaire was developed by benefiting from the Islamic corporate governance standards identified by International Financial Services Board and Accounting and Auditing Organization for IFIs, which included mainly about 50 standards with sub-sections as questions. The study demonstrates the state of Islamic corporate governance practices in these countries. The survey findings affirm that there are significant differences and diverse Islamic governance practices amongst IFIs in the case countries. The study hence provides evidence that there are shortcomings and weaknesses to the existing governance framework, which needs further enhancement and improvement.

This paper aims to determine whether the “true and fair view override” (TFVO) principle is relevant and applicable in Islamic accounting. In addition, the paper examines the roles that TFVO could play in Islamic accounting and auditing.

A qualitative research method was used based on documentary and textual analysis of the Shari’ah fundamentals (Islamic legal sources) and relevant accounting standards and regulations.

The paper found that the TFVO is relevant and applicable in Islamic accounting and auditing and not contradictory to the rules of the Shari’ah. Therefore, the concept is acceptable for use in Islamic accounting. Moreover, based on the several roles played by the TFVO, in the Islamic context, the practicality of this concept in Islamic accounting provides further justification for its continued usage.

The findings of the paper provide a basis to support the inclusion of the TFVO in Islamic accounting standards, as well as possible usage by Islamic financial institutions (IFIs). Thus, regulators of IFIs and Islamic accounting standards setting bodies can consider it in their challenging task of standardizing accounting practices due to the different interpretations of transactions from the various Madhahib and multiple accounting concepts and practices. In addition, the discussion in the paper reminds accountants and auditors of IFIs and Islamic organizations that providing a true and fair view (TFV) is paramount; thus an override of inapplicable accounting standards and regulation is allowed, but not Shari’ah. Thus, TFVO can assist accountants to record transactions that reflect the economic reality of the IFIs, especially prior to accounting regulations keeping pace with the rapid business environment.

The paper has highlighted a very important issue relating to the TFV, specifically the TFVO, from the Islamic perspective. The paper is considered as the first paper that contextually analyses this issue based on Islamic legal sources using a qualitative approach. In addition, the paper has contributed to the literature in Islamic accounting and auditing.

The purpose of this paper is to understand current Shari'ah governance practices with the purpose of promoting greater understanding of some of the crucial issues and to provide relevant information in guiding the future development of Shari'ah governance system. The paper illustrates the state of Shari'ah governance practices in Malaysia, GCC countries (Kuwait, Bahrain, United Arab Emirates, Qatar and Saudi Arabia) and the UK by highlighting five main elements of good corporate governance that consist of independence, competency, transparency, disclosure and consistency.

Since the availability of secondary data on Shari'ah governance practices is very limited, a detailed survey questionnaire is generated for sourcing primary data from Islamic Financial Institutions (IFIs). The study utilizes descriptive analysis approach in extracting and analyzing the data and factual input derived from the questionnaire feedback.

The survey findings affirm that there are significant differences and diverse Shari'ah governance practices in the case countries. This position acknowledges that there are shortcomings and weaknesses to the existing governance framework which needs further enhancement and improvement.

The paper is a very useful source of information that may provide relevant guidelines in guiding the future development of Shari'ah governance practices in IFIs.

This paper provides fresh data and recent information on the actual Shari'ah governance practices of IFIs in three jurisdictions.

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.

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.

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.

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

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

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.