Islamic mortgages: principles and practice

2019 ◽  
Vol 14 (5) ◽  
pp. 967-987
Author(s):  
Muhammad Hanif
Keyword(s):  
Financial Stability ◽  
Islamic Finance ◽  
Real Economy ◽  
Credit Expansion ◽  
Equitable Distribution ◽  
Market Pricing ◽  
Content Type ◽  
Distribution Of Wealth ◽  
Risk Return ◽  
Practical Implications

Purpose The purpose of this paper is to present an analysis of current practices of Islamic mortgages in the light of the principles of Islamic financial system, to document divergences – if any. A subsidiary goal is to develop an Islamic Mortgage Model (IMM) based on Musharakah principles. Design/methodology/approach The author documents theoretical underpinnings of risk-return sharing from the Shari’ah perspective. A comparative study of conventional and Islamic mortgages is completed; existing practice of Islamic mortgages analyzed in the light of Musharakah principles and divergences identified. IMM is developed after taking divergences and Musharakah principles into considerations. A housing case is used to highlight differences (in financial terms) under multiple methods and scenarios. Findings Study documents multiple divergences from Musharakah principles in the existing practice of Islamic mortgages including ignorance of market pricing in the negotiation of rentals and trading of equity units, and transfer of all ownership risks and rewards (vacancy, damage, destruction and market) to one partner (i.e. customer). Practice is divergent from principles in the area of economic substance. Modified IMM is developed by taking into account Musharakah principles; and differences highlighted by calculating financial figures – to determine financial rights and liabilities of the parties. Practical implications Divergence from the principles of risk-return sharing leads to failure in the achievement of Islamic finance objective of equitable distribution of wealth. Moreover, protection of capital for financier reduces the market abilities to achieve financial stability by matching credit expansion with the rise in the real economy. Shari’ah boards and regulators, as well as, management of Islamic banking industry are expected to incorporate proposed changes in-practice for the realization of Islamic finance objectives. Originality/value This study contributes to Islamic finance literature in the area of risk-return sharing. Based on important objectives of Islamic finance – equitable distribution of wealth and financial stability – divergences identified and a modified IMM in the light of Musharakah principles is presented. Descriptive rules are transformed into financial figures to document financial rights and liabilities of the concerned parties.

scholarly journals Cash Waqf risk management and perpetuity restriction conundrum

2021 ◽  
Vol ahead-of-print (ahead-of-print) ◽  
Author(s):  
Azniza Hartini Azrai Azaimi Ambrose ◽  
Fadhilah Abdullah Asuhaimi
Keyword(s):  
Risk Management ◽  
Design Methodology ◽  
Islamic Finance ◽  
Natural Occurrence ◽  
Journal Articles ◽  
Content Type ◽  
Risk Return ◽  
Restriction Principle ◽  
Standard Operating ◽  
Practical Implications

Purpose The purpose of this paper is to comprehensively discuss the issue of risk vis-à-vis the perpetuity restriction principle inherent in waqf (Islamic endowment). Specifically, it attempts to consolidate the axioms in both conventional and Islamic finance, such as the risk-return trade-off and al-ghunm bi al-ghurm (liability accompanies gain), with the perpetual nature of waqf. Overall, this paper attempts to find a resolution to the dilemma of perpetuity restriction inherent in cash waqf against the natural occurrence of the risk. Design/methodology/approach This paper is based on the secondary research methodology; past literature encompassing journal articles, books, relevant financial axioms, fatwas (Islamic rulings) and state enactments is critically reviewed to present its case. In regard to state enactments, only Malaysian state enactments have been used, thus restricting the study to the Malaysian case only. Findings This study contends that the dilemma of the perpetuity restriction and the natural occurrence of risk can be resolved through the integration of waqf risk management, especially concerning cash waqf, with the Islamic spiritual approach. By implementing standard operating procedures that inculcate awareness on waqf risk management and Islamic spirituality in waqf stakeholders (waqif (donor), trustee and beneficiaries), the stakeholders may accept the reality of risk that is inevitable even after all efforts have been exhausted. In other words, the violation of perpetuity is exonerated given that mental faculties aligned with revealed texts have been exhaustively used beforehand. Practical implications Findings from this study may broaden the choice of investment avenues for waqf trustees while adhering to the perpetual restriction of waqf. More importantly, waqf trustees will not be forced to invest in interest-bearing securities or be involved in any usurious transactions just to obtain guaranteed returns and preserve the corpus of waqf. Originality/value This study offers a unique perspective on cash waqf risk management by re-analyzing the axioms and concepts of finance and waqf while observing the welfare of the beneficiaries.

Value- based Islamic banking and reporting in Bahrain

2021 ◽  
Vol ahead-of-print (ahead-of-print) ◽  
Author(s):  
Akhtar Ali Saeed Mohammed ◽  
Fadillah Mansor
Keyword(s):  
Annual Reports ◽  
Islamic Finance ◽  
Islamic Banking ◽  
Islamic Banks ◽  
Reporting Standard ◽  
Content Type ◽  
Islamic Financial Institutions ◽  
Islamic Economic ◽  
Practical Implications ◽  
Specific Contribution

Purpose This paper aims to analyse whether the practices of Islamic banks in Bahrain are in line with value-based Islamic banking (VBIB) and reporting disclosure in the annual reports towards achieving their fundamental objectives of human-centred economic development and social justice. Design/methodology/approach Based on Islamic finance, Islamic economic principles and perception of Maqasid al-Shari’ah, this paper examines and assesses the current practices of Islamic financial institutions (IFIs) in Bahrain through content analysis of financial and annual reports of Islamic banks in Bahrain and interviews of Islamic banking experts. Findings The findings reveal that value-based banking (VBB) has not been translated fully into practice by the Islamic banks in Bahrain. Research limitations/implications The data analysis was restricted to Islamic banks in Bahrain. Practical implications This paper identifies the need for reporting standard development to improve the VBB practice in Bahrain in the future. Looking at the objectives of the IFIs, this paper introduces the concept of VBB in Bahrain, which includes ethical banking, responsible banking and social responsibility. The study adds value not only to the current Islamic finance literature but also helps many stakeholders, including prospective academics, who may conduct comparative studies in different jurisdictions throughout the world. Originality/value The specific contribution of this paper is the identification of the VBB practices and related disclosure in the Islamic banking industry in Bahrain. The study is useful to harmonise and standardise the practices of VBIB by the contemporary Islamic banks in Bahrain.

International equity REITs: five major future directions

2019 ◽  
Vol 38 (1) ◽  
pp. 71-81
Author(s):  
David Parker
Keyword(s):  
Quantitative Research ◽  
Design Methodology ◽  
Academic Research ◽  
Future Directions ◽  
Content Type ◽  
Risk Return ◽  
Cognitive Risk ◽  
International Equity ◽  
Equity Reits ◽  
Practical Implications

Purpose The purpose of this paper is to analyze chapters from the recently published Routledge REITs Research Handbook to identify five major future directions for international equity REITs. Design/methodology/approach Literature review and critical analysis of chapters from the recently published Routledge REITs Research Handbook. Findings The five major future directions for international equity REITs are proposed to comprise an increasing focus on people and on cash flow rather than on property (with the cognitive risk attaching thereto), the changing nature of REITs as they respond to changes in society globally, the evolution of the global flagship REIT and the emergence of global regulation of REITs (particularly in the spheres of debt and leverage). Research limitations/implications While five major future directions for international equity REITs are identified which may have an impact on the risk/return profile, further research is required to determine which directions may be significant and which trivial and which may be independent and which interactive. Practical implications Identification of five major future directions for international equity REITs provides managers and promoters with guidance concerning potential areas of focus for future product development in the REIT sector. Originality/value While quantitative research concerning international equity REITS abounds, qualitative research is limited with little academic research undertaken into possible future directions for the sector.

Shadow banking in China: expanding scale, evolving structure

2014 ◽  
Vol 6 (3) ◽  
pp. 198-211 ◽  
Author(s):  
Tong Li
Keyword(s):  
Financial Stability ◽  
Banking System ◽  
Bank Loans ◽  
Data Sources ◽  
Shadow Banking ◽  
Real Economy ◽  
Content Type ◽  
Comprehensive Picture ◽  
Shadow Banking System ◽  
Banking Credit

Purpose – This paper aims to survey available data sources and put China’s shadow banking system in perspective. Although bank loans still account for the majority of credit provided to China’s real economy, other channels of credit extension are growing rapidly. The fast expansion of shadow banking has spurred wide concerns regarding credit quality and financial stability. Design/methodology/approach – This paper explores various data sources, provides an overview of shadow banking activities in China, discusses their close ties with banks and summarizes regulatory issues. Extensive descriptive data are included to provide a comprehensive picture of the nature of shadow banking activities in China. In particular, institutions and products are discussed in great details. Findings – While China’s shadow banking system is by no means simple, it does not (yet) involve the extensive use of financial derivatives. Rather, shadow banking credit is often directly extended to the real economy. In addition, shadow banks are typically interconnected with commercial banks in various ways. The expanding scale and constantly evolving structure of the shadow banking system has posed challenges for financial regulators. Originality/value – This paper attempts to quantify the scale and scope of China’s shadow banking activities and provides a consistent framework as the basis for cross-country comparison of shadow banking systems. This is one of the first scholarly research products that discusses the origin, nature and risks of China’s shadow banking system in a regulatory context.

scholarly journals Firms’ legitimation through corporate governance and its association with risk and return in Brazil

2021 ◽  
Vol ahead-of-print (ahead-of-print) ◽  
Author(s):  
Kléber Formiga Miranda ◽  
Jefferson Ricardo do Amaral Melo ◽  
Orleans Silva Martins
Keyword(s):  
Corporate Governance ◽  
Design Methodology ◽  
Management Practices ◽  
Stock Exchange ◽  
Risk And Return ◽  
Content Type ◽  
Risk Return ◽  
Governance Practices ◽  
Practical Implications ◽  
Different Levels

Purpose This study aims to examine the listing of firms at the highest corporate governance level of the Brazilian stock exchange (B3) as a means of legitimation and its relationship with risk and return on investment. Design/methodology/approach This paper analyzes 205 companies from 2010 to 2019, in which firms listed at the Novo Mercado level were compared with groups composed of other firms traded on B3. Findings The main results demonstrate that a listing at the supposedly higher level of corporate governance in Brazil does not indicate lower risk, a higher return or even a better risk-return ratio. Research limitations/implications The findings are restricted to this sample, representing the association identified between the analyzed phenomena and not a cause-effect relationship. Practical implications The highest level of corporate governance in Brazil brings together firms that present a higher risk (at least systematic) and lower returns (at least financial) because they seek to legitimize themselves in the market as firms committed to better management practices. Social implications These findings are useful to investors, the stock exchange, regulatory agents and the companies themselves to reflect on the purpose and usefulness of different levels of corporate governance in Brazil. Originality/value This study differs from the others that relate corporate governance to risk or return because it does not deal individually with corporate governance practices, but rather the phenomenon that is listed in a special governance level, created by the stock exchange, serving as a kind of seal legitimation.

Shari’ah-compliant benchmark and Shari’ah-based “raf’ al-haraj” benchmark on prohibition of riba

2020 ◽  
Vol ahead-of-print (ahead-of-print) ◽  
Author(s):  
Yasushi Suzuki ◽  
Mohammad Dulal Miah
Keyword(s):  
Design Methodology ◽  
Institutional Economics ◽  
Islamic Finance ◽  
Practical Relevance ◽  
Islamic Banks ◽  
Procedural Rationality ◽  
Content Type ◽  
Financial Transaction ◽  
Clear Cut ◽  
Practical Implications

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.

Murabaha syndrome of Islamic banks: a paradox or product of the system?

2020 ◽  
Vol 11 (7) ◽  
pp. 1363-1378 ◽  
Author(s):  
Mohammad Dulal Miah ◽  
Yasushi Suzuki
Keyword(s):  
Additional Data ◽  
Financial Statements ◽  
Islamic Finance ◽  
Islamic Banks ◽  
Content Type ◽  
Gcc Countries ◽  
Financing Pattern ◽  
Muslim Majority ◽  
Governing Institutions ◽  
Practical Implications

Purpose This paper aims to explain the “murabaha syndrome” of Islamic banks. It further attempts to offer alternatives for the expansion of profit and loss sharing (PLS)-based financing. Design/methodology/approach Audited financial statements of 18 Islamic banks in the GCC countries are analyzed to assess the financing structures of banks. Moreover, additional data about financing pattern of Islamic banks in other Muslim majority countries are collected from the Islamic finance literature. A comparative analysis is offered to examine the financing structures of Islamic banks. Findings The paper confirms murabaha (mark-up financing) concentration of Islamic banks. About 90 per cent of the total financing are concentrated on murabaha, which is the result of existing institutional underpinnings. Islamic banks would logically be involved with PLS-based financing only limitedly unless the current governing institutions are changed. Entrepreneurs’ financing needs based on PLS contracts should be catered by venture capital, whereas micro-finance enterprises can meet the demand for funds of marginal clients. Practical implications PLS investment in the portfolio of Islamic banks would result in higher risk and uncertainty. Ambiguity, or its equivalent uncertainty, is prohibited in Islam. This is a dilemma which the existing literature does not sufficiently explain. Originality/value Ideally, Islamic banks should practice PLS-based financing; otherwise, their raison d’être would be difficult to justify. Islamic finance literature does not shed sufficient analytical lights in explaining Islamic banks’ preference of mark-up financing to PLS-based financing. Moreover, strategies to ameliorate this condition have largely remained unexplored.

The possibilities of community redevelopment with Islamic finance

2019 ◽  
Vol 10 (2) ◽  
pp. 259-273
Author(s):  
Daniel Hummel ◽  
Ayesha Tahir Hashmi
Keyword(s):  
Economic Development ◽  
Local Economic Development ◽  
The State ◽  
Islamic Finance ◽  
Future Research ◽  
Tax Increment Financing ◽  
Content Type ◽  
The Usa ◽  
Political Economic ◽  
Practical Implications

Purpose The purpose of this paper is to explore the application of a profit and loss sharing approach to tax increment financing (TIF) districts in the USA. Design/methodology/approach A survey based on this approach was distributed to representatives of community redevelopment authorities (CRAs) in the State of Florida to ascertain practitioner feedback. Findings Although a majority of the respondents did not feel it was possible for political, economic and legal reasons, some did feel that it was a practical, reasonable and sustainable approach to financing projects for economic development. Some responses were correlated, with others indicating that certain beliefs framed their answers to the questions. Research limitations/implications The surveys were only distributed to CRAs in the State of Florida. Future research will need to include other CRAs in other states to make the findings more generalizable. In addition, the results are merely descriptive and are not an assessment of a successful application. Practical implications The need for more development in blighted areas of many cities across the USA will put emphasis on innovative approaches in financing this. The growth of Islamic finance in the USA and the regulatory framework for it might open a doorway for its application in this area. Originality/value This is the first attempt to apply an Islamic financing methodology to local economic development in the USA, with practitioner feedback.

The substance and form of Islamic Finance instruments: an accounting perspective

2021 ◽  
Vol ahead-of-print (ahead-of-print) ◽  
Author(s):  
Ahmed Ebrahim ◽  
Tarek Abdelfattah
Keyword(s):  
Theoretical Analysis ◽  
Conceptual Framework ◽  
Design Methodology ◽  
Islamic Finance ◽  
Content Type ◽  
Modern Economy ◽  
Analytical Review ◽  
Comprehensive Framework ◽  
Industry Needs ◽  
Practical Implications

Purpose This study aims to critically analyze the fundamentals of the current major Islamic Finance (IF) instruments and contracts in light of both the foundations of IF and the concept of substance over form in the accounting conceptual framework. Such analysis is believed to be necessarily for the IF institutions to provide better and more genuine service to their customers. Design/methodology/approach To achieve the study purpose, the methodology is based on theoretical analysis and analytical review of the major IF contracts. Findings The IF industry needs to focus on the economic substance of the products offered to their clients. In developing and promoting their products, IF institutions need to focus on the ultimate and substantial goals of Islamic Sharia rather than re-packaging existing conventional products under different arrangements and formats to make them appear as Sharia-compliant to their clients. Both religious scholars and IF professionals need to engage in much deeper analysis and understanding of the substantial design of IF instruments and the concept of usury in modern economy. Research limitations/implications This paper does not intend to develop a comprehensive framework for the design of IF instruments to meet the economic substance and ultimate goals of IF principles or measure such economic substance. However, that is definitely a subject for further research. Originality/value By applying concepts like substance over form from other business fields such as the accounting theoretical framework to the IF instruments and contracts, we should gain better understanding and practical implications of these instruments and figure out ways to improve their design to be more consistent with and better serve the ultimate goals of the Islamic Sharia.

An analysis of the normative parameters of reward and risk in Islamic finance

2020 ◽  
Vol 12 (3) ◽  
pp. 303-323
Author(s):  
Mohamed Benaicha
Keyword(s):  
Design Methodology ◽  
Islamic Finance ◽  
Islamic Banking ◽  
Content Type ◽  
Academic Literature ◽  
Finance Industry ◽  
Risk Principle ◽  
Descriptive Approach ◽  
Practical Implications

Purpose This study aims to define the parameters of the reward-risk principle in Islamic finance as established in the literature and discuss propositions that are presented on how such a principle is to be applied to Islamic banking products. Design/methodology/approach A descriptive approach is used to explore the normative parameters and criticisms of the application of reward-risk in Islamic finance. Findings The study finds that the principle of reward-risk is embodied in the multi-component concept of ʿiwaḍ (counter value) which must be evident in market transactions that involve commercial exchanges. The components include risk, costs, effort, value-adding and capital, all of which apply uniquely to different contractual forms of financing. Research limitations/implications The study uses academic literature and industry documents along with modest contact with prominent practitioners who provided general feedback on prevalent Islamic finance industry practices. Practical implications This study exposits the variety of approaches in applying the reward-risk principle and sheds light on the primary elements of the principle which will facilitate its greater consideration by the Islamic finance industry. Originality/value This study is a meaningful attempt at conveniently summing up and applying the parameters that are considered when discussing the scope of the reward-risk principle in Islamic finance.

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