Shariah Disclosure Practices in Malaysian Islamic Banks using the Shariah Disclosure Index

Islamic banks are required to ensure their operations and activities comply with the Shariah principles. According to Islamic Financial Services Act (2013) in Malaysia, all operations and activities of Islamic financial institutions including Islamic banks have to comply with decisions made by the Shariah Advisory Council (SAC) of Bank Negara Malaysia (BNM) and the Shariah Committee (SC) of the Islamic financial institution to ensure Shariah compliance. In practice, Shariah compliance is considered a crucial factor by bank stakeholders, especially Muslim customers in their decision to use Islamic financial products. Thus, one of the ways for Islamic banks to convey their Shariah-compliance to their stakeholders is through annual reports. This study examines the level of compliance on Shariah disclosure in the annual reports of Malaysian Islamic banks. A Shariah disclosure index, comprising mandatory and voluntary items, was developed from Bank Negara Malaysia (BNM) guidelines and Accounting and Auditing Organization for Islamic Financial Institutions (AAOIFI) standards. Shariah disclosure data were collected from the annual reports for the year 2016 of the 16 Islamic banks in Malaysia. Based on Institutional Theory, this study hypothesised high compliance, however the results revealed that none of the banks had full compliance to the mandatory items. Nevertheless, some of these banks disclosed voluntary items. The findings provide useful insights to the regulators and stakeholders on Islamic banks’ compliance on Shariah disclosure. The study also reveals the importance of disclosing additional items in the annual reports of Islamic banks.

Download Full-text

Towards New Sharia Governance for Islamic Financial Institutions

Justicia Islamica ◽

10.21154/justicia.v18i1.2341 ◽

2021 ◽

Vol 18 (1) ◽

pp. 39-58

Author(s):

Abdulazeem Abozaid

Keyword(s):

Financial Institutions ◽

Financial Services ◽

Financial Institution ◽

Islamic Banking ◽

Banking And Finance ◽

Finance Industry ◽

Regulatory Authorities ◽

Governance Model ◽

Islamic Financial Institutions ◽

Shariah Governance

Since its inception a few decades ago, the industry of Islamic banking and finance has been regulating itself in terms of Sharia governance. Although some regulatory authorities from within the industry, such as Accounting and Auditing Organization for Islamic Financial Institutions (AAOIFI) and Islamic Financial Services Board (IFSB), the Islamic banking and finance industry remains to a great extent self-regulated. This is because none of the resolutions or the regulatory authorities' standards are binding on the Islamic financial institution except when the institution itself willingly chooses to bind itself by them. Few countries have enforced some Sharia-governance-related regulations on their Islamic banks. However, in most cases, these regulations do not go beyond the requirement to formulate some Sharia controlling bodies, which are practically left to the same operating banks. Furthermore, some of the few existing regulatory authorities' standards and resolutions are conflicted with other resolutions issued by Fiqh academies. The paper addresses those issues by highlighting the shortcomings and then proposing the necessary reforms to help reach effective Shariah governance that would protect the industry from within and help it achieve its goals. The paper concludes by proposing a Shariah governance model that should overcome the challenges addressed in the study.Pada awal berdiri, Lembaga Keuangan Syariah merupakan lembaga keuangan yang menerapkan Hukum Syariah secara mandiri dalam sistem operasionalnya. Ia tidak tunduk pada peraturan lembaga keuangan konvensional, sehingga dapat terus berkomiten dalam menerapkan Hukum Syariah secara benar. Selanjutnya, muncullah beberapa otoritas peraturan yang berasal dari pengembangan Lembaga Keuangan Syariah. Diantaranya adalah Islamic Financial Services Board (IFSB) dan Accounting and Auditing Organization for Islamic Financial Institutions (AAOIFI). Hal ini tidak menyimpang dari kerangka peraturan Hukum Syariah, sebab standar peraturan dan keputusan yang dikeluarkan ditujukan khusus untuk Lembaga Keuangan Syariah saja. Beberapa Negara telah menerapkan peraturan tata kelola Hukum Syariah pada Bank Syariah mereka. Namun dalam banyak kasus, peraturan yang diterapkan tidak mampu mengontrol Lembaga Keuangan Syariah tersebut secara penuh. Sehingga, secara praktis proses pengawasan diserahkan kepada lembaga keuangan yang beroperasi. Akan tetapi, beberapa standar dan keputusan yang dikeluarkan oleh sebagian pemangku kebijakan bertentangan dengan keputusan yang dikeluarkan oleh beberapa akademi Fiqh. Artikel ini ditulis untuk menyoroti permasalahan yang timbul pada tata kelola Lembaga Keuangan Syariah, khususnya kekurangan yang tampak pada sistem tata kelola. Kemudian, penulis akan mengajukan usulan tentang efektifitas tata kelola Lembaga Keuangan Syariah yang bebas dari permasalahan.

Download Full-text

Corporate governance and compliance with AAOIFI governance standards by Islamic banks

International Journal of Islamic and Middle Eastern Finance and Management ◽

10.1108/imefm-03-2019-0123 ◽

2020 ◽

Vol 13 (5) ◽

pp. 891-918

Author(s):

Yosra Mnif ◽

Marwa Tahari

Keyword(s):

Corporate Governance ◽

Financial Institutions ◽

Audit Committee ◽

Annual Reports ◽

Islamic Banks ◽

Content Type ◽

Disclosure Requirements ◽

Financial Expertise ◽

Islamic Financial Institutions ◽

Research Stage

Purpose This study aims to examine the effect of the main corporate governance characteristics on compliance with accounting and auditing organisation for Islamic financial institutions’ (AAOIFI) governance standards’ (GSs) disclosure requirements by Islamic banks (IB) that adopt AAOIFIs’ standards in Bahrain, Qatar, Jordan, Oman, Syria, Sudan, Palestine and Yemen. Design/methodology/approach The sample consists of 486 bank-year observations from 2009 to 2017. Findings The findings reveal that compliance with AAOIFIs’ GSs’ disclosure requirements is positively influenced by the audit committee (AC) independence, AC’s accounting and financial expertise and industry expertise, auditor industry specialisation, IB’s size and IB’s listing status. On the other hand, it is negatively influenced by the ownership concentration. Research limitations/implications This study has only examined compliance with AAOIFI’s GSs’ disclosure requirements and has focussed on one major sector of the Islamic financial institutions (which is IB). Practical implications The findings are useful for various groups of preparers and users of IBs’ annual reports such as academics and researchers, accountants, management of IBs and some organisations. Originality/value While the study of the AAOIFIs’ standards has grown contemporary with considerable contributions from scholars, however, the majority of these studies are descriptive in nature. Indeed, the existing literature that has explored the determinants of compliance with AAOIFI’s standards is in the early research stage. To the best of the knowledge, there is a paucity of empirical research testing this issue.

Download Full-text

A SUCCINCT ANALYSIS OF MITIGATING LIQUIDITY RISK IN ISLAMIC BANKS IN THE LIGHT OF LIQUIDITY AND RISK MANAGEMENT PRINCIPLES

International Journal of Islamic Business Ethics ◽

10.30659/ijibe.4.1.527-539 ◽

2019 ◽

Vol 4 (1) ◽

pp. 527

Author(s):

Atharyanshah Puneri ◽

Naeem Suleman Dhiraj ◽

Hafiz Benraheem

Keyword(s):

Risk Management ◽

Financial Institutions ◽

Financial Institution ◽

Real Life ◽

Liquidity Risk ◽

Islamic Banks ◽

Liquidity Management ◽

Islamic Financial Institutions ◽

The Subject ◽

Key Aspects

Liquidity management has been incessantly challenging for the financialinstitutions and especially Islamic financial institutions due to their nature of business. The�convoluted nature of liquidity management impedes the task of Islamic banks in managing�their liquidity efficiently. Given the intricacies of the subject matter, this paper delves into�elaborating the key aspects of liquidity management; subsequently, discusses the�consequences of poor liquidity management and problems inherent in managing the latter by�analyzing the real-life failure of Islamic financial institution as a result identifying the issues that could possibly jeopardize the existence of the Islamic banks. Finally, equipping the�readers with tools to mitigate the liquidity risk.

Download Full-text

Moratorium in Islamic Hire Purchase Financing: A Shariah Perspective

The Journal of Muamalat and Islamic Finance Research ◽

10.33102/jmifr.v18i2.367 ◽

2021 ◽

pp. 13-29

Author(s):

Azmuddin Razali ◽

Mohammad Amir Wan Harun

Keyword(s):

Financial Institutions ◽

Financial Services ◽

Advisory Council ◽

Policy Document ◽

Banking And Finance ◽

Finance Industry ◽

Regulatory Perspective ◽

Islamic Financial Institutions ◽

Current Outbreak ◽

The Impact

This study examined the implementation of moratorium in the Islamic hire purchase financing based on Al-Ijarah Thumma Al-Bay’ (AITAB) from the Shariah perspective. The implementation of moratorium by Bank Negara Malaysia (BNM) is a new practice in the banking and finance industry in Malaysia. Implementing the moratorium causes several changes to the AITAB contract such as the extension in contract tenure and the increase in the total payment obligation due to the profit charged on the outstanding principal. This study analysed these changes from the Shariah perspective by using the al-takyif al-fiqhi methodology. The results of the analysis confirm the practice of moratorium by IFIs is in line with the Shariah requirements as long as it is agreed by the parties to the contract - which are the bank and the customer. Needless to say, both Ijarah Policy Document and Hire Purchase Act 1967 allow any forms of amendments including profit compounding when the AITAB contract is restructured, provided that such amendments are agreed between the contracting parties. Despite this permissibility, IFIs are still required to comply with the new ruling issued by SAC BNM that prohibits the practice of profit compounding during the COVID-19 crisis. Although, in principle, the ruling is based on the concept of ihsan (beneficence) which is not compulsory (wajib) but rather recommendation (istihbab) from the Shariah perspective; however, from the regulatory perspective the ruling is compulsory for IFIs to comply pursuant to section 28(1) and 28(2) of Islamic Financial Services Act 2013 (IFSA) that stated compliance with Shariah means compliance with any ruling of the Shariah Advisory Council. The moratorium is seen as a manifestation of the concept of ihsan (beneficence) towards the customers affected financially due to the COVID-19 pandemic. This commendable effort should be encouraged and continued by the Islamic financial institutions in upholding the Shariah principle of maslahah and lifting of difficulties (raf al-haraj), particularly in the current outbreak of COVID-19 and the impact of MCO.

Download Full-text

THE INVESTMENT ACCOUNT HOLDERS DISCLOSURE LEVEL IN THE ANNUAL REPORTS OF ISLAMIC BANKS: CONSTRUCTION OF IAHS DISCLOSURE INDEX

The Singapore Economic Review ◽

10.1142/s0217590820420035 ◽

2020 ◽

pp. 1-25

Author(s):

RAOUDHA SAIDANI ◽

NEILA BOULILA TAKTAK ◽

KHALED HUSSAINEY

Keyword(s):

Content Analysis ◽

Financial Institutions ◽

Accounting Standards ◽

Annual Reports ◽

Islamic Banks ◽

Disclosure Requirements ◽

Islamic Financial Institutions

This paper aims to measure the IAHs disclosure level in the annual reports of Islamic banks. To do this, we develop a specific IAHs disclosure index based on Accounting and Auditing Organization for Islamic Financial Institutions (AAOIFI) standards. We use manual content analysis of 49 full-fledged Islamic banks’ annual reports over the period 2011–2015 across 10 countries. The findings of this study show that the overall level of IAHs disclosure is 28%. Indeed, the sampled Islamic banks provide fewer disclosures related to IAHs. This study contributes to enrich the knowledge of Islamic accounting literature by exploring directly the IAHs disclosure level in the annual reports of Islamic banks via self-constructed IAHs disclosure index based on AAOIFI accounting standards. It can help regulators in different countries to understand and strengthen the IAHs disclosure practices in Islamic banks by imposing AAOIFI disclosure requirements in terms of IAHs reporting.

Download Full-text

REPORTING DISCLOSURE LEVELS AND COMPLIANCE WITH BB, AAOIFI, B/IFRS AND SEC OF ISLAMIC FINANCIAL INSTITUTIONS IN BANGLADESH

International Journal of Economics Business and Accounting Research (IJEBAR) ◽

10.29040/ijebar.v4i02.1020 ◽

2020 ◽

Vol 4 (02) ◽

Author(s):

Md Robiul Islam ◽

Mohammad Shamsus Sadekin

Keyword(s):

Financial Institutions ◽

Financial Reporting ◽

Compliance Rate ◽

Annual Reports ◽

Islamic Banks ◽

Accounting Standard ◽

Financial Reports ◽

Reporting Practices ◽

Islamic Financial Institutions ◽

Regulatory Bodies

Compliance with financial reporting guidelines/standards promulgated by Regulatory Bodies has become a crucial issue of the day after a series of corporate debacles over a few years. Regulators, professional bodies and researchers throughout the world have expressed their concern about the need for improved accounting pronouncements and compliance for providing better information than previously required for the preparation and presentation of corporate financial reporting. The present study primarily focuses on the reporting disclosure levels and compliance with Bangladesh Bank (BB) Guidelines, Accounting and Auditing Organization for Islamic Financial Institutions (AAOIFI) Accounting Standard, Bangladesh/International Financial Reporting Standard (B/IFRS) and Securities and Exchange Commission (SEC) Rules of Islamic Financial Institutions in Bangladesh. Annual reports of (08) eight Islamic banks in Bangladesh have been examined for the year ending 2015. The results showed that the Islamic banks significantly followed the selected accounting guidelines/standards under review and did bring remarkable changes in the financial reporting practices made by the Islamic banks in Bangladesh. The study attempted to examine empirically the levels of disclosure in corporate annual reports of Islamic banks in Bangladesh. The study recommended increasing the level of compliance to make their financial reports more informative. The study also tries to ascertain the regulatory necessary requirements in preparing the financial statements of banks under Islamic shariah and tries to display the compliance status of these banks with legislations. The average compliance rate is 93.28% for BB guidelines, 46.54% for AAOIFI Accounting Standard, 48.50% for B/IFRS and 51.99% for SEC rules considering all required aspects of financial reports. Compiling all of the requirements regarding financial reports of regulatory bodies will be helpful for banks to make financial reports convenient.

Download Full-text

Quotation/Parenthesis Qur’an Verse Before Beginning Deed In The Structure Of Notary Deed In Sharia Financial Institutions’ Contract

AL-ARBAH: Journal of Islamic Finance and Banking ◽

10.21580/al-arbah.2019.1.1.4168 ◽

2019 ◽

Vol 1 (1) ◽

pp. 69-80

Author(s):

Sandi Aji Usman ◽

Rasiam Rasiam

Keyword(s):

Financial Institutions ◽

Financial Services ◽

Financial Institution ◽

Secondary Data ◽

Research Data ◽

Islamic Financial Institutions ◽

Regulatory Approach ◽

Qualitative Descriptive ◽

Standard Structure ◽

Contract Structure

Purpose - This research aims to reveal and describe the issue of Islamic financial institutions' contract structure, the practice of the Qur'an quotation/parenthesis in the notary deed structure in Sharia financial institutions ' contract.Method - The method used in this research is normative juridical, with the processing and analysis of data in a qualitative descriptive way, this research data is sourced from secondary data and supported by interviews from sources as supporting data Secondary. The approach is to study with the regulatory approach of legislation.Result - In Islamic Sharia or fatwa is not regulated about the structure of the deed on the deed authentic or under the hands, but which is governed only the principles or basic rules only. Structure of authentic deed made by notary official, especially the deed in financial institution that includes quotation of Qur'an verses using Indonesian language before deed title does not violate the provisions of UUJN.Implication - The absence of the form of the standard structure of sharia agreement both for sharia transactions and in particular sharia financial institutions should be the financial Services Authority in collaboration with the organization of Indonesian Notary Association (INI) who is already experts to Making authentic deed in the form of raw in accordance with UUNJ.Originality - The focus of this research is to reveal and describe the issue of Islamic financial institutions ' contract structure.

Download Full-text

Late Payment Penalty: Ta’widh And Gharamah Imposed To Debtor From The Shariah Perspective

Yuridika ◽

10.20473/ydk.v35i1.15620 ◽

2019 ◽

Vol 35 (1) ◽

pp. 187

Author(s):

Zuhaira Nadiah Binti Zulkipli

Keyword(s):

Financial Institutions ◽

Advisory Council ◽

Islamic Banks ◽

Applicable Law ◽

Islamic Financial Institutions ◽

Conventional Banks ◽

Debt Payment

Islamic financial institutions had face problems and barriers such as the problem of delayed financing settlement (for any reason), where it is not possible to impose any interest due to the delay or the cessation of settlement which practiced in conventional banks due to riba’ prohibited (haram) in Shariah principles. This situation is more detrimental when some customers who purposely delay payment of their debts or purposely refuse to pay due to the absence of rules concerning penalty for late payment in Islamic banks. As a result, the Islamic banks had fail to achieve their targeted profits when the problem of debt payment occurs, the Islamic banks have to bear all the losses and finally face difficulties in achieving sustainability and lose out in their efforts to compete with the conventional banks which accept time-based interest for every default late payments of debts. This study aims to discuss the permissibility of late payment charges by way of ta’widh and gharamah from the Shariah perspective and to find the applicable law in Malaysia. Besides, the implementation of ta’widh and gharamah can be described as in the resolutions of the Shariah Advisory Council of Bank Negara Malaysia (SAC). Further, it will elaborate on how related this late payment charges with the concepts of Shariah, Maqasid of Shariah and Maslahah according to judgement of the fundamentals of the Islamic Jurispendence. Lastly, it will also discuss on how the imposition of ta’widh and gharamah is different from riba for deferred debts in Islamic financial institutions.

Download Full-text

Quotation/Parenthesis Qur’an Verse Before Beginning Deed In The Structure Of Notary Deed In Sharia Financial Institutions’ Contract

AL-ARBAH: Journal of Islamic Finance and Banking ◽

10.21580/al-arbah.v1i1.4168 ◽

2019 ◽

Vol 1 (1) ◽

pp. 69

Author(s):

Sandi Aji Usman ◽

Rasiam Rasiam

Keyword(s):

Financial Institutions ◽

Financial Services ◽

Financial Institution ◽

Secondary Data ◽

Research Data ◽

Islamic Financial Institutions ◽

Regulatory Approach ◽

Qualitative Descriptive ◽

Standard Structure ◽

Contract Structure

Purpose - This research aims to reveal and describe the issue of Islamic financial institutions' contract structure, the practice of the Qur'an quotation/parenthesis in the notary deed structure in Sharia financial institutions ' contract.Method - The method used in this research is normative juridical, with the processing and analysis of data in a qualitative descriptive way, this research data is sourced from secondary data and supported by interviews from sources as supporting data Secondary. The approach is to study with the regulatory approach of legislation.Result - In Islamic Sharia or fatwa is not regulated about the structure of the deed on the deed authentic or under the hands, but which is governed only the principles or basic rules only. Structure of authentic deed made by notary official, especially the deed in financial institution that includes quotation of Qur'an verses using Indonesian language before deed title does not violate the provisions of UUJN.Implication - The absence of the form of the standard structure of sharia agreement both for sharia transactions and in particular sharia financial institutions should be the financial Services Authority in collaboration with the organization of Indonesian Notary Association (INI) who is already experts to Making authentic deed in the form of raw in accordance with UUNJ.Originality - The focus of this research is to reveal and describe the issue of Islamic financial institutions ' contract structure.

Download Full-text

Opinion on the new financial products issued by financial institutions - structured products

Proceedings of the International Conference on Business Excellence ◽

10.1515/picbe-2017-0001 ◽

2017 ◽

Vol 11 (1) ◽

pp. 1-8 ◽

Cited By ~ 1

Author(s):

Laurentiu Paul Baranga

Keyword(s):

Financial Institutions ◽

Financial Services ◽

Financial Institution ◽

Economic Effect ◽

Expected Return ◽

Risk Transfer ◽

Structured Products ◽

Financial Products ◽

International Importance ◽

Structured Financial Products

Abstract Structured products are financial instruments issued by a financial institution where the amount claimed by the investor from the issuer depends on the variation of the price of the underlying instrument based on which the certificate is issued, namely: individual shares, share costs, stock indexes, currencies, commodities or combinations of these according to the prospectus. These products appeared with the development and diversification of financial services during the recent years, as well as due to the emergence of liquidity suppliers of international importance. The liquidity providers have developed on their own platforms a new range of derivatives which are different from the classical derivatives. These new derivatives, similar to contracts for difference (CFDs), have given to other institutions the possibility of transferring their risk more easily, regardless of the nature or type of the underlying asset. Thus, the financial institutions issuing structured financial products have found in liquidity providers the possibility of developing the CFDs required for their risk transfer operations. The issuers of structured products do not accept new risky positions when they issue certificates because they neutralize them through suitable risk transfer operations. The issuing financial institutions structure certificates from a variety of financial assets and/or commodities in order to adjust them to the various risk profiles of investors both in terms of expected return and in terms of the response to risk. Thus, products are issued that quickly respond to the trends of the financial or commodity markets. Investors in structured financial products benefit from the economic effect of a derivative but are exposed to financial risks that are more complex and more difficult to understand and at the same time depend on the reliability and stability of the contractual relationships between various financial institutions.

Download Full-text