Are Islamic banks different? The application of the Radical Affinity Index

2019 ◽  
Vol 12 (1) ◽  
pp. 2-29 ◽  
Author(s):  
Leire San-Jose ◽  
Jon Cuesta
Keyword(s):  
Great Britain ◽  
Design Methodology ◽  
Islamic Banking ◽  
Ethical Dimension ◽  
Islamic Banks ◽  
Ethical Perspective ◽  
Content Type ◽  
Social Commitment ◽  
Practical Implications ◽  
Ethical View

Purpose The purpose of this paper is to extend the literature on Islamic banking by examining their ethical dimension using transparency, placement of assets, guarantees and participation from Radical Affinity Index. Design/methodology/approach To this end, a sample of 20 Islamic banks from 13 countries (Bahrain, Saudi Arabia, Malaysia, Pakistan, Kuwait, Tanzania, Great Britain, Oman, Iraq, Egypt, Bangladesh and Qatar) was used. Findings The results are robust to ethical effects. The evidence suggests that among Islamic banks, at least some of them could improve their ethical requirements of the Sharia; they obtained lower scores than ethical banks in terms of RAI variables (transparency, placement of assets, guarantees and participation). Research limitations/implications It is used a random sample rather than population with the limitations that entails. The variables in the index are based on ethical perspective; then, the index is applied in Islamic banking but with the ethical view limitation. Practical implications The Islamic banks have the option to increase their transparency including further information regarding the beneficiaries of the benevolent funds; moreover, it would offer a clearer view about their ethical and social commitment towards society. Originality/value Additionally, this paper broadens the scope of the literature by analysing the determinants of Islamic banking around ethical dimensions of financial entities.

Measuring Shariah non-compliance risk (SNCR): claw-out effect of al-bai-bithaman ajil in default

2017 ◽  
Vol 8 (3) ◽  
pp. 272-283
Author(s):  
Saiful Azhar Rosly ◽  
Muhammad Arzim Naim ◽  
Ahcene Lahsasna
Keyword(s):  
Content Analysis ◽  
Design Methodology ◽  
Islamic Banking ◽  
Legal Environment ◽  
Islamic Banks ◽  
Legal Cases ◽  
Content Type ◽  
Potential Loss ◽  
Critical Requirement ◽  
Practical Implications

Purpose The purpose of this paper is to examine the meaning, nature and measurement of Shariah non-compliant risk faced by Islamic banks. Design/methodology/approach Al-bai-bithaman ajil (BBA) contract documentation is analyzed in the light of the legal environment in Malaysia and measurement of Shariah non-compliant risk based on constructed or hypothetical cases. Findings Shariah non-compliant risk will adversely affect bank’s earnings when BBA contracts are deemed invalid in the court of law, either in a foreclosure or ruling via court declaration. Research limitations/implications The paper is written based on content analysis, Malaysian legal cases with hypothetical examples for better understanding. Practical implications Islamic banking should be able to use the findings to estimate potential loss from Shariah non-compliant risk and make the necessary provisions. Originality/value This paper provides new insights of risks faced by credit-intensive Islamic banks, that when relinquishing critical requirement of Islamic contract such as ownership risk will suffer loss.

Index for measuring convergence between objectives and practice of Islamic banking

2021 ◽  
Vol 14 (2) ◽  
pp. 205-229
Author(s):  
Zahid Siddique
Keyword(s):  
Design Methodology ◽  
Theory And Practice ◽  
Islamic Banking ◽  
Mathematical Form ◽  
Islamic Banks ◽  
Content Type ◽  
Loan System ◽  
Additive Form ◽  
Practical Implications ◽  
Over Time

Purpose Islamic banking was developed to serve two objectives: to replace interest-based loan system with profit and loss sharing investment modes and to promote equity in resource allocation. The first objective is called procedural whereas the second one is termed consequential. Scholars have been debating about the success of Islamic banking in achieving these objectives. This paper aims to develop an index for measuring the extent of convergence between theory and practice of Islamic banking. Design/methodology/approach For measuring the procedural and consequential convergence between objectives and practice of Islamic banking, the paper derives a set of indicators from the celebrated theory of Islamic banking and then develops the methodology of ranking all banks in terms of those indicators. Findings The paper provides ranking of Islamic banks in Pakistan in the light of this index. The results indicate that none of the Islamic banks in Pakistan has been doing good enough to achieve the convergence, instead they are moving in the opposite direction over time. Practical implications Using the methodology developed in this paper, universal ranking of Islamic banks may be issued every year. Originality/value Scholars have proposed some indices for measuring the performance of Islamic banking. There are two basic problems with these proposed measures: they do not directly compare the performance of Islamic banking against its stated objectives and they naively use an additive form of index without explaining the reason for this choice, i.e. as to what are the desirable characteristics which their preferred mathematical form of index serves. The index proposed in this paper attempts to overcome these shortcomings.

Just how loyal are Islamic banking customers?

2018 ◽  
Vol 36 (3) ◽  
pp. 410-422 ◽  
Author(s):  
John J. Ireland
Keyword(s):  
Conjoint Analysis ◽  
Design Methodology ◽  
Price Sensitivity ◽  
Islamic Banking ◽  
Islamic Banks ◽  
Content Type ◽  
Market Simulation ◽  
Conventional Banks ◽  
The Impact ◽  
Practical Implications

Purpose The purpose of this paper is to determine the rate difference required to persuade Islamic banking customers to switch to conventional banks. Design/methodology/approach A choice-based conjoint analysis survey was administered to 300 UAE Islamic banking customers. Customer utilities for Islamic and conventional banks, products and prices were developed to test hypotheses while a market simulation estimated the impact of rate changes on choice shares. Findings Overall, Muslim customers of Islamic banks strongly preferred Islamic banks and products. However, 43 percent were willing to switch to conventional banks to obtain better rates. Indeed, the share choosing conventional banks rose from 25 percent when rates were the same to 68 percent when conventional products offered 2 percent better rates. Research limitations/implications This research requires replication and extension in appropriate contexts such as Malaysia and Indonesia. Moreover, the existence of price sensitivity tiers implies underlying benefit segments that should be studied. Practical implications As so many Islamic banking customers would switch to conventional banks for better rates, it seems that conventional banks compete with Islamic banks for most clients. Islamic banks should price accordingly. Originality/value This is the first study to quantify the loyalty of Islamic banking customers in terms of price and, consequently, the first to demonstrate the existence of price sensitivity tiers. It is also the first in this field to apply conjoint analysis and market modeling.

Exploring the “social failures” of Islamic banks: a historical dialectics analysis

2017 ◽  
Vol 8 (3) ◽  
pp. 250-271 ◽  
Author(s):  
Zayyad Abdul-Baki ◽  
Ahmad Bukola Uthman
Keyword(s):  
Design Methodology ◽  
Banking System ◽  
Profit Maximization ◽  
Islamic Banking ◽  
Islamic Banks ◽  
Muslim Population ◽  
Content Type ◽  
The Social ◽  
Dialectical Analysis ◽  
Practical Implications

Purpose This paper aims to argue that the current environment in which the Islamic banking system is situated is not ideal for the system’s pursuance of its socioeconomic ideals, thus necessitating the system’s shift from pursuing falah to maximizing profits. Design/methodology/approach The paper theorizes and conceptualizes this shift from falah to profit maximization using two complementary theories – systems theory and institutional theory – to prove that such a shift is not unexpected. The paper further adopts a dialectical analysis that is somewhat historical to analyse the shift. Findings The measure of the Islamic banks’ performance in terms of their social ideals is misplaced, as the environment in which they currently operate does not support such goals. Thus, stemming from the theoretical base, the Islamic banks’ pursuance of profit maximization instead of falah should not be unexpected. The paper concludes that despite the unfavorable environment, the social ideals of the Islamic banking system may still be met, to an extent, through investment in microfinance and awqaf. Research limitations/implications The paper adopts document analysis for sourcing data majorly from prior studies. Hence, the authors do not conclude that the analysis herein is applicable to all Islamic banks. Secondly, as the authors could not get a complete historical account of the Islamic banking system’s development, some aspects of the dialectical analysis – contradiction and change – have been discussed in a general fashion. Practical implications The need for Islamic banks in the current environment, especially for the Muslim population, cannot be over emphasized; however, the achievement of falah given this current environment may be daunting. Originality/value The current analyses of the shift of Islamic banks from pursuing falah to pursuing profit maximization are not well-defined, as they lack a proper theorization of the challenges faced by Islamic banks. This paper fills this gap.

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.

House financing: contracts used by Islamic banks for finished properties in Malaysia

2020 ◽  
Vol 11 (1) ◽  
pp. 168-178 ◽  
Author(s):  
Aishath Muneeza ◽  
Muhammad Fahmi Fauzi ◽  
Muhammad Faisal Bin Mat Nor ◽  
Mohamed Abideen ◽  
Muhammed Maher Ajroudi
Keyword(s):  
Research Finding ◽  
Design Methodology ◽  
Banking Industry ◽  
New Products ◽  
Islamic Banking ◽  
Islamic Banks ◽  
Modus Operandi ◽  
Content Type ◽  
Secondary Sources ◽  
Insight Into

Purpose The purpose of this paper is to find out the existing practices of the Islamic banks in providing financing to the customers who have a requirement to purchase a finished property and to examine the existing products used by the Islamic banks in this regard by providing an insight into the modus operandi of these products. In doing this, attempt is made to find out the most famous product offered by the Islamic banks in this regard and to find out whether in reality, Malaysian Islamic banking industry has moved away from Bai Bithaman Ajil (BBA) or not. Design/methodology/approach This is a qualitative research, largely library-based, and it will consist of secondary sources such as books, journals, articles and other sources related to the Islamic house financing in Malaysia for finished properties. Recent information of the practises of the banks in this regard is obtained from the official websites of the banks. Findings It is found from this study that majority of Islamic Banks in Malaysia prefer to use the Commodity Murabahah facility for finished property. This finding contradicts with the observations made by some scholars who state that in Malaysia, BBA was initially used, and nowadays, the use of Musharakah Mutanaqisah is more common. The reason why Commodity Murbahah has gained popularity is because of the fact that via the Bursa Suq Al Sila platform, it is easy, swift, reliable, profitable, cheaper, convenient and has zero risk to do this type of transaction at the comfort of the office. It is recommended in this paper to use Musharakah Mutanaqisah, as this contract is an innovative contract that is classified as an equity contract under shariah where risk is shared between the parties. There is need to conduct further research to implement Musharakah Mutanaqisah in Malaysia, specifically to reduce the risk that Islamic Banks will bear by practicing this contract. Originality/value The findings of this paper might create confusion among readers, as some may perceive that the finding of the paper is not new as BBA has been dominating Islamic house financing industry from the inception of Islamic banking in the country, and BBA and Murabahah are similar in nature, and as such, commodity Murabahah is also a Murabahah transaction. The reality that needs to be understood is that the way BBA was or is practised in Malaysia in relation to Islamic house financing is that in the name of BBA, the transaction actually followed the Bai’ ‘inah contract, which is a controversial contract among the shariah scholars. Likewise, commodity Murabahah is also a different contract than Murabahah, as it actually refers to tawarruq. As such, this research finding is important to the Islamic banking industry to understand that Malaysia has moved away from the Bai’ ‘inah contract practised in the name of BBA in Islamic house financing, and there are new products introduced by the Islamic banks in Malaysia to replace this practice which were criticised by Shariah scholars.

Shari’ah issues in Islamic banking: a qualitative survey in Malaysia

2014 ◽  
Vol 6 (2) ◽  
pp. 198-210 ◽  
Author(s):  
Abdelghani Echchabi ◽  
Hassanuddeen Abd. Aziz
Keyword(s):  
Design Methodology ◽  
Structured Interview ◽  
Point Of View ◽  
Islamic Finance ◽  
Islamic Banking ◽  
Research Approach ◽  
Islamic Banks ◽  
Content Type ◽  
Qualitative Survey ◽  
Customers Perspective

Purpose – The purpose of this paper is to examine the customers’ perception regarding the current shari’ah issues of Islamic banks in Malaysia. Specifically, the study attempts to examine the awareness of the current criticisms of the main shari’ah issues in Islamic finance, and the perception of the selected customers towards these criticisms. Design/methodology/approach – The study uses a qualitative approach to understand in detail the customers’ perception and experiences about shari’ah compliance of Islamic banks. Semi-structured interview is used with ten Islamic banks’ customers in Malaysia. The study also used phenomenological techniques to analyse the data. Findings – The findings revealed that the interviewees have considerable exposure and awareness of the current criticisms of the shari’ah compliance of Islamic banks. Originality/value – This research is the first to study the shari’ah issues of Islamic banks in Malaysia from the customers’ perspective, by using a qualitative research approach. The findings of this study are of original importance, because they unveil the customers’ experience in an area that has been severely looked at from the professional and experts’ point of view only.

Sharīʿah appraisal on the issue of imposing burden of proof to the entrepreneur in trust based contracts

2016 ◽  
Vol 7 (2) ◽  
pp. 148-169
Author(s):  
Asmadi Mohamed Naim ◽  
Mohd Noor Habibi Hj Long ◽  
Mahyuddin Abu Bakar ◽  
Muhammad Nasri Md Hussain
Keyword(s):  
Qualitative Research ◽  
Comparative Analysis ◽  
Design Methodology ◽  
World Wide ◽  
Descriptive Analysis ◽  
Burden Of Proof ◽  
Islamic Banks ◽  
Content Type ◽  
Business Requirements ◽  
Practical Implications

Purpose The purpose of this paper is to examine the Shariah view on the legitimacy of requiring the entrepreneur to prove that he/she has complied with all business requirements in case the actual profit was below the expected profit in trust-based contracts such as mudarabah and musharakah. Design/methodology/approach This paper is part of the research which applies qualitative research approaches, including among others, content analysis, interviews, observations and descriptive analysis using fiqh muqaran (comparative analysis of jurists’ arguments) in few phases. Findings The study found that shifting the burden of proof to the fiduciary is the weightier view and necessary to ensure that both sides are protected. The considerations of protecting people’s wealth (ḥifẓ amwāl al-nās) and mitigating widespread greed (ṭamaʿ) are among the reasons for allowing elements such as ʿurf, tuhmah and dalālat al-ḥāl to be treated as bayyinah in trust-based contracts when the fiduciary is obliged to defend himself from litigation. Research limitations/implications The study is meant to strengthen the practices of Islamic banks world wide. Practical implications Few protections can be applied for capital provider. Social implications This study is meant to give solution in dealing with moral hazard of both parties, and to provide solution to the regulator for policy drafting and to increase confidence to the industry. Originality/value The finding is important in assisting the regulators in drafting the policy to protect both parties without neglecting the essence of trust-based contracts.

Profit-sharing investment accounts in islamic banks or mutualization, accounting perspective

2016 ◽  
Vol 14 (1) ◽  
pp. 30-48 ◽  
Author(s):  
Wasim K. AlShattarat ◽  
Muhannad A. Atmeh
Keyword(s):  
Financial Reporting ◽  
Mutual Fund ◽  
Design Methodology ◽  
Profit Sharing ◽  
Islamic Banks ◽  
Content Type ◽  
Implementation Challenges ◽  
Total Profit ◽  
Practical Implications

Purpose Islamic banks use Mudarabah contract to replace the interest-bearing deposits with profit-sharing investment accounts. The purpose of this paper is to explore the challenges and problems associated with the employment of Mudarabah contract by Islamic banks. Design/methodology/approach The study critically analyzes the Mudarabah contract used by Islamic banks. It reviews the evolution of the contract from its traditional type to more complicated types such as compound, unrestricted, commingled and continuous Mudarabah. The paper investigates the problems that have emerged from implementing such types in current business settings. Findings The paper proves that implementing the Mudarabah contract by banks imposes several problems among which are the following: difficulty in the determination of total profit resulting from Mudarabah and in allocating this profit to the multiple parties involved in Mudarabah; usage of reserves to cater against future losses may undermine the concept of Mudarabah profit-loss sharing and lead to earnings management; corporate governance is also a major problem in Mudarabah contract, as the depositors are exposed to risks but have no governance rights; and Mudarabah may also lessen the fair presentation of financial reporting. Research limitations/implications The paper examines the evolving Mudarabah contract and its implementation challenges, based on available literature (no empirical analysis was conducted). Practical implications The implications are significant for the future development of Islamic contracts and Islamic accounting treatments. Originality/value Many studies explored the Mudarabah contract from a Shariah or law perspective. However, this paper investigates the Mudarabah contract with a focus on the implication on accounting and financial reporting because of the lack of studies in this area. Furthermore, it demonstrates the persistent flaws in the Mudarabah contract, and it proposes a new model for mobilizing funds, i.e. mutual fund.

Joint stock company with variable capital (JSCVC)

2014 ◽  
Vol 56 (4) ◽  
pp. 302-310 ◽  
Author(s):  
Bijan Bidabad
Keyword(s):  
Design Methodology ◽  
Joint Stock Company ◽  
Islamic Banks ◽  
Stock Company ◽  
Investment Funds ◽  
Content Type ◽  
Legal Personality ◽  
Profit Distribution ◽  
Practical Implications ◽  
Financial Outcome

Purpose – The purpose of this paper is to propose joint stock company with variable capital (JSCVC), as financial sharing funds and banks necessitate that their capital and number of shareholders be instantaneously variable. Legal personality and accounts clearing of this type of corporations are different from conventional companies. Design/methodology/approach – JSCVC is a corporation in which capital and shares of shareholders vary by new entrance or withdrawal of shareholders at any point of time. Findings – Interest rate-based calculations were removed and Rastin Sharing Accounting was applied for JSCVS. Shareholders of JSCVC share the company’s nominal capital proportional to nominal values of their shares. Financial outcome of JSCVC is proportional to values of shares weighted by shares duration of participation. Research limitations/implications – To prevent spoiling of shareholders’ rights, legal procedure of issuing shares for JSCVC should be defined in compliance with domestic commerce laws in any country. Practical implications – JSCVC can be used by majority of investment funds, credit unions, saving and loan associations, pension and provident funds, thrift saving plans as well as Islamic banks and financial sharing activities. In JSCVC, deposit at a bank is treated as a share of the company (bank). Social implications – JSCVC has fair profit distribution and accounts clearing arrangements. Originality/value – Different variable capital companies have been defined in many countries’ laws, but essential modifications are presented in JSCVC definition to regulate financial sharing arrangements and bank’s performances.

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