Methodology of institutional analysis and its implication for contemporary framework of Islamic banks

Humanomics ◽  
2015 ◽  
Vol 31 (2) ◽  
pp. 183-200 ◽  
Author(s):  
Omar Javaid
Keyword(s):  
Islamic Law ◽  
Institutional Analysis ◽  
Institutional Framework ◽  
Methodological Error ◽  
Islamic Banks ◽  
Cultural Changes ◽  
Content Type ◽  
Distribution Of Wealth ◽  
History Of Evolution ◽  
History Of

Purpose – This paper aims to investigate the possibility of a methodological error made by the concerned scholars and academics of Islamic finance & economics to understand and study the modern framework of financial institutions, where they intend to practice Islamic law of contract. This error has led them to expect something which the institutional modern framework of banks, adopted by Islamic banks (for e.g.), wasn’t designed to accomplish, hence the disappointment. Design/methodology/approach – This study reviews the literature on history of evolution of banking industry and the corresponding ideological and cultural changes in the European society which drove this evolution; this is followed by a conceptual analysis to identify the institutional components inconsistent with ethos of Islamic norms and ethos. Findings – After review of history and evolution of modern banking framework, in the light of Hollingsworth frame of institutional analysis, it is inferred that the said framework was designed for a secular, liberal and capitalist society to efficiently and effectively enhance freedom and accumulate capital and wealth, without much regard for equitable distribution of wealth and economic justice. These goals are very much in contrast with the normative premise of Islamic Economics, which cannot be efficiently used to achieve the related objective. This indicates that framework of banking was narrowly understood by the concerned scholars and academics, without considering its history of evolution and intended objectives, before adopting for IBs. Practical implications – The disconnect between the Western institutional framework and ethos of Islam implies that the concerned need to look deeper and holistically while adapting Western institutions, so that necessary alteration is done in advance, if such an adoption is inevitable. Originality/value – This study introduces a new dimension for the concerned scholars, academics and practitioners to reanalyze the institutional framework adopted from the West, so that necessary adjustments can be worked out to make the said framework compatible with the ethos of Islamic economics.

Mobile banking adoption in Islamic banks

2019 ◽  
Vol 11 (6) ◽  
pp. 1405-1418
Author(s):  
Dwi Suhartanto ◽  
David Dean ◽  
Tuan Ahmad Tuan Ismail ◽  
Ratna Sundari
Keyword(s):  
Islamic Law ◽  
Ease Of Use ◽  
Partial Least Square ◽  
Perceived Usefulness ◽  
Mobile Banking ◽  
Islamic Banks ◽  
Perceived Ease Of Use ◽  
Banking Services ◽  
Content Type ◽  
Islamic Bank

Purpose This paper aims to examine mobile banking adoption in Islamic banks by integrating technology adoption model (TAM) and Religiosity-Behavioural Intention Model. Design/methodology/approach This study uses a sample of 300 mobile banking customers of Islamic banks from West Java Province, Indonesia. Partial least square was applied to assess the association between perceived usefulness, perceived ease-of-use, religiosity, satisfaction, and adoption. Findings The results of this study disclosed that the integration of TAM and Religiosity-Intention model provides a more complete explanation of Islamic bank consumers’ adoption of mobile banking. Besides perceived usefulness and perceived ease-of-use, the results of this study emphasise the importance of religiosity in mobile banking adoption. Practical implications This study offers an opportunity for Islamic bank managers to increase the adoption of their mobile banking services. To increase the adoption of mobile banking services, Islamic banks must not only provide an application that is useful and easy to use but also consider the customer’s religiosity. All of their mobile banking marketing strategies should focus on providing high-quality mobile service while ensuring the bank’s operations are compliant with the Islamic law. Originality/value This study is the first attempt to integrate TAM and Religiosity-Intention Model to assess mobile banking adoption.

Sharia’h practice at Islamic banks in Pakistan

2018 ◽  
Vol 9 (3) ◽  
pp. 274-289
Author(s):  
Muhammad Tariq Majeed ◽  
Abida Zainab
Keyword(s):  
Risk Sharing ◽  
Banking Sector ◽  
Islamic Law ◽  
Banking Industry ◽  
Supervisory Board ◽  
Primary Data ◽  
Equation Modeling ◽  
Islamic Banking ◽  
Islamic Banks ◽  
Content Type

PurposeIslamic banks provide an alternative financial system based on Sharia’h (Islamic law). However, critics argue that operation at Islamic banks is violating Sharia’h particularly in terms of provision of interest free services, risk sharing and legal contract. The purpose of this paper is to empirically evaluate the Sharia’h practice at Islamic banks in Pakistan by considering some basic principles of Sharia’h. Design/methodology/approachPrimary data are collected from 63 branches of Islamic banks in Pakistan. Questionnaire is used as an instrument. The study uses structural equation modeling that includes confirmatory factor analysis and regression analysis. Data are codified and analyzed using SPSS and Amos. FindingsThis study finds that Islamic banks are providing interest free services, ensuring that transactions and contracts offered by Islamic banks are legal and offering conflict-free environment to customers. In contrast, estimated results expose that Islamic banks are not sharing risk and Sharia’h supervisory board is not performing its role perfectly. Similarly, it is found that organization and distribution of zakat and qard-ul-hassan are weak at Islamic banks. Research limitations/implicationsData are collected from Islamabad federal capital of Pakistan that hold just 5 per cent share of Islamic banking industry. This small share may not provide true picture of Islamic banking sector. Practical implicationsTo ensure risk sharing, Islamic banking industry must consider the development of new modes of financing and innovation of more products based on Sharia’h. State Bank of Pakistan should ensure separate regulatory framework that enable Islamic banks to provide qard-ul-hassan, organize and allocate zakat. Originality/valueThis paper discusses the perception of bankers, who are actually the executors, about Shariah’s practices at Islamic banks in Pakistan. There are not many discussions on this topic that could be found, and hence this could be considered as a significant contribution by this paper to the existing literature of Islamic finance.

scholarly journals Millennial loyalty towards artificial intelligence-enabled mobile banking. Evidence from Indonesian Islamic banks

2021 ◽  
Vol ahead-of-print (ahead-of-print) ◽  
Author(s):  
Dwi Suhartanto ◽  
Moch Edman Syarief ◽  
Ade Chandra Nugraha ◽  
Tintin Suhaeni ◽  
Ambia Masthura ◽  
...  
Keyword(s):  
Artificial Intelligence ◽  
Service Quality ◽  
Islamic Law ◽  
Partial Least Square ◽  
Least Square ◽  
Relative Advantage ◽  
Mobile Banking ◽  
Islamic Banks ◽  
Banking Services ◽  
Content Type

Purpose This study aims to examine factors driving millennial loyalty towards artificial intelligence (AI)-enabled mobile banking services in Islamic banks. Design/methodology/approach This research collected the data from 204 millennial customers of Islamic banks in Aceh, Indonesia. Partial least square (PLS) was used to evaluate the effect of service factors (the need for service and service quality), technology-based factors (attitudes towards AI, relative advantage, security and trust) and religiosity on millennial loyalty towards AI-enabled mobile banking. Findings This inquiry reveals that service quality, attitude towards AI and trust are determinants important for millennial loyalty towards AI-enabled mobile banking. Further, this research notes the significant role of religiosity on millennial loyalty towards mobile banking services. Practical implications This study suggests Islamic banks focus on developing millennial trust and attitude towards AI to increase their loyalty towards AI-enabled mobile banking services. Further, Islamic banks operation that complies with Islamic law is strongly suggested to develop millennial loyalty. Originality/value To the best of the authors’ knowledge, this is the first study that tries to scrutinize loyalty towards AI-enabled mobile banking.

scholarly journals Survey on Sharīʿah non-compliant events in Islamic banks in the practice of tawarruq financing in Malaysia

2020 ◽  
Vol 12 (2) ◽  
pp. 151-169
Author(s):  
Mohammad Mahbubi Ali ◽  
Rusni Hassan
Keyword(s):  
Design Methodology ◽  
Islamic Law ◽  
Islamic Banks ◽  
Content Type ◽  
Management Framework ◽  
Board Of Director ◽  
Risk Management Framework ◽  
Qualitative Research Methodology ◽  
Self Administered Questionnaire ◽  
Practical Implications

Purpose Tawarruq (Islamic commodity financing) has evolved as the most ubiquitous concept in Malaysia’s Islamic banking industry. Nevertheless, the extensive use of tawarruq has invoked a number of Sharīʿah (Islamic law) concerns in its practice. This study aims to investigate the Sharīʿah non-compliant (SNC) phenomena in the practice of tawarruq financing in Malaysia. Design/methodology/approach This study adopts qualitative research methodology, combining both descriptive and content analysis. A self-administered questionnaire was distributed to 16 Malaysian Islamic commercial banks to unveil the Sharīʿah non-compliance issues in the application of tawarruq in Islamic banks (IBs) in Malaysia. Findings The study found that some practices of tawarruq in Malaysia might not comply with the Sharīʿah, mainly due to the improper sequencing of contracts. The study also discovered that IBs adopt different approaches in dealing with SNC events and the income derived therefrom. Finally, the study noted the influence of board of director/management on certain Sharīʿah decisions particularly on the treatment of non-ḥalāl (impermissible) income. Practical implications The findings of the study serve as a reference to industry players and regulators in formulating a Sharīʿah non-compliance risk management framework for tawarruq practices. Originality/value The survey on SNC issues in tawarruq practice constitutes the first of its kind in the existing literature.

Do Islamic banks need to earn extra profits?

2019 ◽  
Vol 10 (3) ◽  
pp. 369-381 ◽  
Author(s):  
Yasushi Suzuki ◽  
S.M. Sohrab Uddin ◽  
Pramono Sigit
Keyword(s):  
Banking Sector ◽  
Islamic Law ◽  
Comparative Approach ◽  
Islamic Banking ◽  
Islamic Banks ◽  
Content Type ◽  
Islamic Bank ◽  
Banking Market ◽  
Conventional Banks ◽  
Credit Portfolio

Purpose This paper aims to draw upon existing debate over “financial sector rent” (bank rent) to analyze the current pattern of financing of Bangladeshi and Indonesian Islamic banks during the period of 2011 and 2015. Design/methodology/approach The empirical evidence through a comparative approach of analyzing the performance of Islamic banks with that of conventional banks in respective countries – two of the largest countries where majority of the population are Muslims – is drawn to demonstrate the objective. Findings While Islamic banks in Bangladesh are primarily concentrating on the murabaha (mark-up contract) mode of financing, some transactions under musharaka (partnership/equity-based contract) are observed in the Indonesian Islamic banking sector. This anomaly in Indonesia can be explained by the nature of their musharaka financing which is not of the purely “participatory” financing type. As a result, we can observe the quasi-murabaha syndrome in Indonesian Islamic banking sector. The concentration of asset-based financing including consumers’ financing (hire purchase) in the credit portfolio gives Islamic banks relatively higher Islamic bank rent opportunity for protecting their “franchise value” as Sharīʿah-compliant (Islamic law-compliant) lenders. However, Indonesian Islamic banks share a still infant Islamic banking market, and enjoy less rent opportunity under a severe competition with conventional banks. Research limitations/implications The bank rent approach suggests that the syndrome observed both in Bangladesh and Indonesia can be ironically justifiable. Moreover, the mode of profit-and-loss sharing provides, in practice, an idea of the difficulty in managing the participatory financing embedded with high credit risk. Under this scenario, it is necessary for Islamic scholars and the regulatory authority to design an appropriate financial architecture, enabling Islamic banks to avail the benefit from a wider variety of Sharīʿah-based Islamic financing. Originality/value This paper expands the newly emerged concept of “Islamic bank rent” to make sense of the murabaha syndrome in Bangladesh and the quasi-murabaha syndrome in Indonesia. This approach also contributes to clarifying the unique risk and cost to be compensated with the spreads that Islamic banks are expected to earn.

Customers’ Islamic ethical behavior: the case of Malaysian Islamic banks

Humanomics ◽  
2017 ◽  
Vol 33 (3) ◽  
pp. 371-383
Author(s):  
Farah Zakiah ◽  
Al-Hasan Al-Aidaros
Keyword(s):  
Ethical Behavior ◽  
Design Methodology ◽  
Islamic Law ◽  
Empirical Method ◽  
Survey Questionnaire ◽  
Islamic Banks ◽  
Content Type ◽  
Study Population ◽  
Asian Economy ◽  
Religious Obligation

Purpose The purpose of this paper is to determine the framework of customers’ Islamic ethical behavior in Islamic banks in Malaysia. Design/methodology/approach This paper used a quantitative approach based on Maqasid Shariah (objectives of Islamic law) and by running exploratory factor analysis. A survey questionnaire was created. The data of 530 respondents were collected from the customers of Islamic banks located in Malaysia. Findings The findings revealed that the theoretical framework consists of four main constructs: Islamic ethical behavior, religious obligation, reputation and profit and investment, in which all constructs are complying with Maqasid Shariah and three (i.e. Islamic ethical behavior, religious obligation and reputation) consist of two components for each construct. Research limitations/implications There are two limitations that require further acknowledgements. First, the study population only focused on Islamic banks’ customers. Second, this research highlighted only Malaysia and Malaysian citizens. Originality/value The paper contributes to the literature on Islamic ethical behavior in Southeast Asian economy. Unlike other Islamic ethical studies where the writing is mainly theoretical in nature, this study used an empirical method to reveal what should constitute for the framework of customers’ Islamic ethical behavior which is based on Maqasid Shariah.

scholarly journals Islamic banking sustainability: theory and evidence using a novel quadruple bottom line framework

2021 ◽  
Vol ahead-of-print (ahead-of-print) ◽  
Author(s):  
M. Luthfi Hamidi ◽  
Andrew C. Worthington
Keyword(s):  
Rural Areas ◽  
Islamic Law ◽  
Principal Component ◽  
Primary Data ◽  
Small Scale ◽  
Islamic Banking ◽  
Islamic Banks ◽  
Bottom Line ◽  
Content Type ◽  
Sustainability Theory

PurposeThe study aims to extend the conventional triple bottom line (TBL) framework (prosperity, people and planet) to the quadruple bottom line (QBL) by newly adding a “prophet” dimension for Islamic banks seeking compliance with Islamic law in their pursuit of sustainability.Design/methodology/approachEmploy Chapra's corollaries of maqasid al-shari'ah (the goals of Islamic law) to develop constructs for a survey of 504 Islamic bank stakeholders from five Indonesian provinces to gather primary data to quantitatively verify the dimensions and items in the proposed QBL framework. Categorical principal component analysis (CATPCA) then identifies the sustainability of ten Islamic banks from ten countries as a trial application of the resulting QBL index.FindingsUsing the dimensions and items identified using CATPCA, the authors develop a QBL index to assess the sustainability of the ten Islamic banks. The findings suggest that half of the banks are sufficiently sustainable, with three being proactive (doing more than is required) and two being accommodative (doing all that is required). The remaining five banks are unsustainable, with two banks being defensive (doing the least that is required) and three being reactive (doing less than is required). Most of the banks perform relatively poorly according to the “planet” (38%) and “people” (41%) dimensions and perform better on the “prosperity” (53%) and “prophet” (63%) dimensions. Nonetheless, there is ample room for improvement across all dimensions of sustainability.Research limitations/implicationsThe generalizability of the findings is limited by the small-scale single-country survey used in the CATPCA part of the analysis. Only ten Islamic banks were included in the QBL scoring and ranking exercisesPractical implicationsIslamic banks can improve their sustainability by increasing green financing and reaching out to rural areas and disadvantaged populations. In countries with Islamic banking systems, regulators can support this through training, guidance and incentives.Originality/valuePioneering exploration of TBL from maqasid al-shari'ah perspective. First, we develop a QBL index to assess the sustainability of Islamic banks in line with actual stakeholder expectations.

Perception and expectation of customers in Islamic bank perspective

2019 ◽  
Vol ahead-of-print (ahead-of-print) ◽  
Author(s):  
Muhamad Nadratuzzaman Hosen ◽  
Fitriyani Lathifah ◽  
Ferry Jie
Keyword(s):  
Customer Satisfaction ◽  
Islamic Law ◽  
International Standard Organization ◽  
Basic Knowledge ◽  
Islamic Banks ◽  
It Services ◽  
Banking Services ◽  
Content Type ◽  
Islamic Bank

Purpose The purpose of this paper is as follows: to measure the levels of customer satisfaction, to analyze the gap of values between expectations and perceptions of customers for quality of services and to analyze the factors which should be priority of services in reducing the levels of customer satisfaction at branch office of Bank Muamalat Indonesia (BMI). Design/methodology/approach The study uses to quantitative and qualitative approach to analyze challenges and problems of quality in banking services at BMI based on Islamic perspective.X Findings Overall results show that the levels of customer satisfaction are satisfied. The main items of deduction for customers’ satisfaction are services of access, services of price, interruption of services, sophistication of technology and variety of products. In general findings, Sharia compliance becomes a critical point of services in Islamic banks. The study is only investigation at one Branch of BMI in Depok. Research limitations/implications The implication of this study is a basic knowledge for more details of research with more samples of banks regarding with the quality of banking services. Evaluation of the level of customer satisfaction is very important for BMI to improve services and to develop IT services as well as to certified the ISO (International Standard Organization) and to be built Sharia assurance system. Practical implications The result of this can be used to make a rank of service satisfaction for all Islamic banks in Indonesia. Originality/value This study is to apply combination of CARTER and quality of banking service methods for a Islamic bank. In addition, this study includes Sharia Compliance or Islamic law compliance as a basis for Islamic Contract in operating products of Islamic bank.

The effect of Muslims’ tendency to regret being customers of conventional banks on their intention to save money in Islamic banks

2020 ◽  
Vol ahead-of-print (ahead-of-print) ◽  
Author(s):  
Burhanudin Burhanudin
Keyword(s):  
Structural Equation ◽  
Islamic Law ◽  
Emotional Experience ◽  
Partial Least Square ◽  
Least Square ◽  
Equation Modeling ◽  
Islamic Banks ◽  
Banking Services ◽  
Content Type ◽  
Conventional Banks

Purpose There are some Muslims who only hold conventional bank accounts, regardless that some believe that such banks implement an interest charging system that contradicts Islamic law concerning the prohibition of charging interest. This study aims to investigate the consumers’ tendency to regret (CTR) related to purchasing conventional banking services (CTR-P) and the failure to purchase Islamic banking services (CTR-NP). Then, this study investigates whether CTR-P and CTR-NP translate into regret, which, in turn, leads to the intention to save money in Islamic banks. Design/methodology/approach A survey of Indonesian Muslims who only hold conventional banking accounts was conducted. There were 323 participants. This study then applied a partial least square structural equation modeling (PLS-SEM) to test the hypotheses. Findings This study found that a combination of CTR-P and CTR-NP translates into regret, which then drives the intention to save money in Islamic banks as a means of releasing such feelings of regret. The findings suggest that Muslims evaluate their banking decision on an Islamic basis and that making a decision that contradicts the prohibition of charging interest tends to cause regret. Islamic banks have opportunities to penetrate the market by focusing on Muslims who only hold accounts with conventional banks. Originality/value The findings of this study help advance understanding of Muslims’ negative emotional experience due to making a decision that they perceive contradicts Islamic law. Also, the findings help predict the strategy that Muslims use to neutralize such a negative emotional experience.

scholarly journals Harmonizing and constructing an integrated maqāṣid al-Sharīʿah index for measuring the performance of Islamic banks

2019 ◽  
Vol 11 (2) ◽  
pp. 282-302 ◽  
Author(s):  
Fahmi Ali Hudaefi ◽  
Kamaruzaman Noordin
Keyword(s):  
Islamic Law ◽  
Performance Measure ◽  
Annual Reports ◽  
Islamic Banks ◽  
Content Type ◽  
Mode Method ◽  
Conventional Banks ◽  
Fresh Insight ◽  
Practical Implications ◽  
Insight Into

Purpose This paper aims to develop a performance measure for Islamic banks (IBs) by harmonizing related studies. Furthermore, this work uses the developed yardstick to analyze the performance of a sample of 11 IBs from across different countries. Design/methodology/approach This paper uses the mix-mode method. The qualitative approach is engaged first to construct the IBs performance yardstick. Following this, the quantitative approach is applied through the use of the performance yardstick to measure the sample’s performance. Findings This study develops a maqāṣid-based performance yardstick adapted from previous works. The developed model in this study is called an integrated maqāṣid al-Sharīʿah--based performance measure (IMSPM). By using this performance measure, the present paper finds that the sample performed highest on the objective of nafs (self) over the three-year period. In addition, this study identifies the information which best indicates the sample’s performance during the analysis. Research limitations/implications This paper uses the sample’s annual reports. The analysis is thus limited to informational disclosure. Practical implications Islamic banking and financial institutions may use the IMSPM to communicate a measurable report on their promotion of the maqāṣid al-Sharīʿah (objectives of Islamic law). Social implications The evidence from 11 IBs is indicative of their efforts to realize maqāṣid al-Sharīʿah in the banking industry. This point may best challenge the practice of stigmatizing IBs for not being in line with the Sharīʿah (Islamic law) or of imitating conventional banks. Originality/value The novelty of this study lies in two points. First, this study harmonizes previous works to integrate financial and religious measures in a single yardstick. Second, by using the developed standard, this study offers a fresh insight into the global IBs’ performance, represented by 11 IBs worldwide.

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