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.

Independence and effectiveness of Shariah supervisory board of Islamic banks: evidence from an emerging economy

2020 ◽  
Vol ahead-of-print (ahead-of-print) ◽  
Author(s):  
Md. Kausar Alam ◽  
Muhammad Shahin Miah
Keyword(s):  
Central Bank ◽  
Banking Sector ◽  
Supervisory Board ◽  
Islamic Banking ◽  
Research Approach ◽  
Islamic Banks ◽  
Legitimacy Theory ◽  
Snowball Sampling ◽  
Content Type ◽  
Theoretical Contribution

PurposeThe main objective of the study is to ascertain the level of independence and the effectiveness of the Shariah Supervisory Board (SSB) members of Islamic banks in Bangladesh. This is because only SSB members are empowered to oversee and certify the overall business functions of Islamic banks.Design/methodology/approachThis paper implements qualitative case research approach to explore the research objective in the context of Bangladesh. We applied purposeful and snowball sampling tactics for selecting respondents. By using a semi-structured questionnaire and face-to-face interviews, we collect data from SSB members, central bank executives and experts in Islamic banking and Shariah governance.FindingsThe study finds that majority Islamic banks' SSB's positions are similar to the Board of Directors (BOD) of the banks. Next, this study finds that in recruiting/selecting SSB members, some banks do not follow the guidelines of the central bank. This study finds mixed evidence regarding the independence of the members of the SSB. Most of the respondents opined that SSBs do not have power; in some cases, members of SSB are not independent and seeming powerless as BOD selects and recruits them. In contrast, they are dependent on management in respect of strategy implementation.Research limitations/implicationsThe study significantly contributed to the national and global regulatory bodies by identifying an important governance determinant of Islamic banks that is the independence of SSB members, which is highly important for both Shariah functions, and to enhance the trust level of the stakeholders. This study makes a theoretical contribution by documenting the violation of stakeholder theory and agency theory in recruiting SSB members by BOD's choice. The lack of SSB members' independence has an impact on Shariah legitimacy of the Islamic banks which is contradictory with the notion of legitimacy theory. This study recommends the central bank to ensure the independence of the SSB and central bank should take initiatives to develop an environment for the Islamic banking sector.Originality/valueThis study extends the literature of corporate governance relating to Islamic banking and financial institutions. More specifically, this paper explores the necessity of independence of members of the monitoring body (here SSB), an important constituent of governance, to ensure high-quality governance and transparency in reporting to increase diverse stakeholders' trust/confidence. The absence of independence of SSB in performing their functions contradicts with the agency, stakeholder and legitimacy theory, which is inconsistent with global evidence, that demands further investigations.

Looking into the Islamic banking sector in Palestine: do religious values influence active social media engagement behavior?

2020 ◽  
Vol ahead-of-print (ahead-of-print) ◽  
Author(s):  
Mahmoud Yasin ◽  
Lucia Porcu ◽  
Francisco Liébana-Cabanillas
Keyword(s):  
Social Media ◽  
Online Survey ◽  
Banking Sector ◽  
Equation Modeling ◽  
Religious Values ◽  
Islamic Banking ◽  
Islamic Banks ◽  
Content Type ◽  
Engagement Behavior ◽  
Social Media Engagement

Purpose The purpose of this paper is to investigate how religious values of Islamic banking users influence their active social media engagement behavior (SMEB), when exposed to online brand related-content. Design/methodology/approach The method used for data collection was an online self-administered questionnaire. A total of 448 valid responses were obtained from Islamic banks customers, who are members of at least one online brand community (OBC) on Facebook. Responses were analyzed and processed by means of structural equation modeling. Findings The results of the online survey reveal that religious values have a positive influence on the active SMEB in terms of contributing (like and/or share) and creating (posting positive comments) of brand related-contents via Facebook OBC. Religious values play a key role in encouraging Islamic banks’ customers to share and forward posts, advertisements and/or contents. Furthermore, religious values encourage customers to forward contents that comply with their religious values and beliefs and are also compatible with the Islamic rules of Shari’ah. Originality/value The findings of this study suggest that religious values are likely to impact customer behavior when consuming, liking, sharing and commenting on the online contents generated by Islamic banks. Given the fact that Islamic religious values are universal and persistent, there is a potential for long-term benefits for those Islamic banks that identify profitable religious consumer segments within the domestic and global markets as well as to promote and enhance active SMEB in terms of number of positive comments, likes and shares of brand-related contents.

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.

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.

scholarly journals Customer Satisfactions on Islamic Banking Services in Almadinah City, Saudi Arabia

2019 ◽  
pp. 1-8 ◽  
Author(s):  
Wesal M. Aldarabseh
Keyword(s):  
Saudi Arabia ◽  
Customer Satisfaction ◽  
Banking Sector ◽  
Islamic Law ◽  
Banking Industry ◽  
Islamic Banking ◽  
Islamic Banks ◽  
Banking Services ◽  
The Past ◽  
Self Administered Questionnaire

Providing quality services is a key element to compete in the banking industry. Islamic banks showed significant expansion in the past decades worldwide.  In the current study, customer satisfaction towards services provided by Islamic banks in Almadinah city, Saudi Arabia was investigated. A total of 292 customers of full-fledged Islamic banks were recruited in the study. Customer satisfaction was measured using a self-administered questionnaire. The results showed acceptable levels of customer satisfaction toward Islamic banking services (85%). In addition, personnel, image, reliability, and compliance with Islamic law were the most important service dimensions that affect customer satisfaction. Finally, gender differences were noticed with respect to customer satisfaction with females seemed to be less satisfied than males. The present findings provide positive feedback to the Islamic banking sector in Almadinah city to improve customer satisfaction of their services.

scholarly journals Beyond the triple bottom line: Prosperity, People, Planet, and Prophet in Islamic banking

2021 ◽  
Vol ahead-of-print (ahead-of-print) ◽  
Author(s):  
M. Luthfi Hamidi ◽  
Andrew C. Worthington
Keyword(s):  
Organizational Performance ◽  
Financial Distress ◽  
Banking Sector ◽  
Islamic Law ◽  
Triple Bottom Line ◽  
Islamic Banking ◽  
Islamic Banks ◽  
Bottom Line ◽  
Content Type ◽  
Stakeholder Perspective

Purpose This paper aims to extend the existing triple bottom line framework (Prosperity, People and Planet [so-called 3Ps]) with a new dimension, namely, Prophet, to reflect Islamic values (the now 4Ps) for banks seeking compliance with Islamic religious principles. Design/methodology/approach This study conducts a survey of 504 Islamic bank stakeholders across six provinces in Indonesia and use regression analysis to test the applicability of the 4Ps. This paper further examines their application in two large Islamic banks in Indonesia and Malaysia. Findings The models are all highly significant and well reflect a broad stakeholder perspective on bank performance. Of the four elements, this study finds stakeholders rank Prosperity first, followed by Prophet and then Planet. The case studies strengthen the application of the new Prophet dimension as a way for Islamic banks to improve their financial, social and economic performance, particularly during periods of financial distress. Research limitations/implications This study only uses survey data from a single country, and this may limit the generalizability of the findings. Practical implications Practitioners will find the quadruple bottom line useful in assessing organizational performance, as will regulators seeking to improve the social and economic outcomes of the Islamic banking sector. Originality/value This paper internalises maqasid al-syari’ah (the most basic goal of Islamic law) as a simple but essential approach to organizational performance using empirical evidence from a real-world banking setting.

scholarly journals DRAMATURGY: RIBA ON HOME OWNERSHIP LOAN IN ISLAMIC BANKING (CASE STUDY ON BANK BTN SYARIAH KCPS CIPUTAT, TANGERANG SELATAN)

2021 ◽  
Vol 3 (1) ◽  
pp. 25
Author(s):  
Aulia Julian Faizatunazilla ◽  
Siti Jamilah
Keyword(s):  
Islamic Law ◽  
Home Ownership ◽  
Supervisory Board ◽  
Primary Data ◽  
Islamic Banking ◽  
Islamic Banks ◽  
The Public ◽  
Islamic Bank ◽  
Back Stage

The purpose of this study was to determine usury behavior in the Housing Loan or Credit in Islamic banks and to determine the application of the existing contract system in Housing Loans in Islamic banks using the dramaturgy method. The data used in this study is primary data, where researchers conducted interviews directly with the Bank BTN Syariah KCPS Ciputat, a member of the Sharia Supervisory Board and one of the customers who used a House Ownership Credit product at an Islamic bank. The results of this study can be concluded that the front stage that the bank shows to the public is in accordance with the back stage that the bank does not show to the public and Bank BTN Syariah KCPS Ciputat conducts its business in accordance with Islamic law and the fatwa of the National Sharia Council. So that in this study Bank BTN Syariah KCPS Ciputat does not have usury in its business.

Risk, efficiency and capital in a dual banking industry: evidence from GCC banks

2021 ◽  
Vol ahead-of-print (ahead-of-print) ◽  
Author(s):  
Mohammad Alsharif
Keyword(s):  
Cost Efficiency ◽  
Risk Sharing ◽  
Banking Industry ◽  
Banking System ◽  
Least Square ◽  
Equation Modeling ◽  
Islamic Banks ◽  
Data Set ◽  
Content Type ◽  
Conventional Banks

PurposeThis study aims to extend the literature by simultaneously investigating the relationship between risk, efficiency and capital in the Gulf Cooperation Council (GCC) dual banking system.Design/methodology/approachThe study employs the simultaneous-equation modeling technique with a three-stage least square estimator on 60 listed GCC commercial banks from 2005 through 2018.FindingsAlthough GCC Islamic banks are more capitalized and liquid, they are riskier and less efficient than GCC conventional banks. Moreover, a higher level of capital reduces the insolvency and credit risk of GCC banks for both types of banks. However, it enhances the cost efficiency of GCC conventional banks only. GCC conventional banks also exhibit skimping behavior, while for GCC Islamic banks, cost efficiency is negatively associated with bank risk. This implies that the risk-taking behavior in Islamic banks is prompted by the incentives of the shareholders following the risk-sharing nature of Islamic banking.Originality/valueThis study differs from previous studies in many aspects. First, it relies on a recent long data set that covers the implementation of the accords of Basel II (introduced in 2004) and Basel III (introduced in 2010). Second, it estimates the efficiency of GCC banks based on separate frontiers for Islamic and conventional banks, ensuring the robustness of the results. In conclusion, to the best of the author's knowledge, this is the first study to investigate the intertemporal relationship between risk, efficiency and capital in the GCC dual banking industry.

Customers’ perceptions of FinTech adaptability in the Islamic banking sector: comparative study on Malaysia and Saudi Arabia

2021 ◽  
Vol ahead-of-print (ahead-of-print) ◽  
Author(s):  
Ibrahim Abiodun Oladapo ◽  
Manal Mohammed Hamoudah ◽  
Md. Mahmudul Alam ◽  
Olawale Rafiu Olaopa ◽  
Ruhaini Muda
Keyword(s):  
Saudi Arabia ◽  
Structural Equation ◽  
Banking Sector ◽  
Banking Industry ◽  
New Technology ◽  
Primary Data ◽  
Islamic Banking ◽  
Content Type ◽  
Islamic Bank ◽  
The Impact

Purpose This paper aims to compare perceptions of Islamic bank customers concerning FinTech services in Malaysia and Saudi Arabia. It also investigates the level to which customers are willing to adapt FinTech services. Design/methodology/approach Primary data was collected from May to September 2019 using a questionnaire to survey 102 Islamic bank customers in Malaysia and 147 in Saudi Arabia. The data are analyzed based on Structural Equation Modelling using the partial least squares approach. Findings The findings show that knowledge, attitude and subjective norms are the highly significant determining factors that influence customers’ opinions on adapting to new technology, but awareness demonstrates only a moderately positive effect. Moreover, the impact of these factors on the intention to adopt FinTech services significantly differs between Malaysian and Saudi Arabian customers. Originality/value This is an original study based on primary data on customers of Islamic banking in Malaysia and Saudi Arabia. It provides some novel insights into how the banking industry can boost customers’ confidence and enhance their patronage by adopting FinTech in their business operation model. These findings should be of value to senior management, policymakers and regulators in the banking industry in both Muslim and non-Muslim countries.

Shari’ah compliance in Islamic banking

2014 ◽  
Vol 7 (2) ◽  
pp. 182-199 ◽  
Author(s):  
Hafij Ullah
Keyword(s):  
Supervisory Board ◽  
Weighted Average ◽  
Policy Implications ◽  
Annual Reports ◽  
Primary Data ◽  
Islamic Banking ◽  
Full Time ◽  
Islamic Banks ◽  
Content Type ◽  
Average Percentage

Purpose – The purpose of this paper is to evaluate the Shari’ah compliance status of the Islamic banks in Bangladesh. Design/methodology/approach – The research was based on both primary and secondary materials. The primary data were gathered through sample questionnaire survey and personal interviews by the researcher; the secondary data were obtained from Qur’an, Hadiths, different circulars/letters, manuals, research books and journals, annual reports, Web sites of the sample banks. Statistical tools and techniques like weighted average, percentage, SD, variance and correlation between Shari’ah violation score and bank-specific attributes were used applying statistical software Statistical Package for Social Science (version 17.0). Findings – Shari’ah compliance status of the Islamic banks in Bangladesh is in a vulnerable condition, Shari’ah compliance status highly varies among the Islamic banks, and Shari’ah violation is high in investing activities because of lack of knowledge, lack of sincerity in complying Shari’ah, poor attention in Shari’ah audit and Shari’ah research and lack of strong Shari’ah supervisory board comprising full-time skillful members. Practical implications – Among others, the major policy implications of this study are as follows: regulatory bodies and Shari’ah board members are expected to have guidelines from this study to find their limitations and to determine their future responsibilities; executives and Employees are expected to get the idea of present state of Shari’ah compliance and to identify their weaknesses in this regard; clients and other stakeholders are expected to have guidelines to choose the better Islamic banks to perform banking transactions; and the researchers in Islamic banking may usefully use the issues raised in this article for more comprehensive studies in Islamic banking and Shari’ah compliance. Originality/value – The paper opens a new avenue in justifying the status of Shari’ah compliance with a new dataset and correlating Shari’ah violation score with bank-specific attributes.

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