scholarly journals Sharīʿah Evaluation of Financial Derivatives and Developing Sharīʿah Compliant Hedging Instruments

2020 ◽  
Vol 7 ◽  
pp. 1-1
Author(s):  
Muhammad Daraz Khan Daraz Khan
Keyword(s):  
Financial Institutions ◽  
Financial Derivatives ◽  
Islamic Finance ◽  
Current Application ◽  
Futures Options ◽  
Derivative Instruments ◽  
Forward Contract ◽  
Islamic Financial Institutions ◽  
The One ◽  
Rate Swap

The use of financial derivatives have been controversial in Islamic Finance. However, the commonly held openion is such derivatives are not Sharīʿah compliant, so should not be used in Islamic Finance. The use of Islamic derivatives in some jurisdiction and not in others on the one hand and the lesser clarity regarding their Sharīʿah basis on the other hand have created uncertainity and thus hindrance for the Islamic financial institutions in properly managing the associated risks. This study is an effort to address the issue and analyze the forwards, futures, options and swaps contracts, from Sharīʿah perspective and to hunt Sharīʿah compliant alternatives to fill this viable gap so that Islamic financial institutions do not find themselves in an unfavorable position. The study adopts qualitative research method to clarify and understand the relevant issues. The analysis shows that, in principle, the current application of derivative instruments in Islamic finance is not Sharīʿah compliant due to a number of forbidden elements. Islamic contracts that can be used as the basis or building block for developing derivatives confirming to the Sharīʿah principles include BaiʿSalam, Murābahah, Wakalah and Wa’ad based arrangements. Based on these Sharīʿah concepts, alternative to Short Selling, FX Forward Contract, Profit Rate Swap and Cross Currency Swap have been examined which will minimize the gape and will help IFIs in development and careful implementation of these structured products as per fundamentals of Islamic Finance, otherwise, it will result a serious breakdown and all the hope of the emerging industry will be lost.    

Part II Islamic Law and Contracts in Practice, 8 Derivatives and Islamic Finance

2020 ◽  
Author(s):  
Eisenberg David M
Keyword(s):  
Risk Management ◽  
Financial Institutions ◽  
Islamic Law ◽  
Islamic Finance ◽  
Futures Options ◽  
Finance Industry ◽  
Considerable Debate ◽  
Islamic Financial Institutions ◽  
Lack Of Knowledge

This chapter studies how conventional derivatives—especially futures, options, and swaps—have been or may be based on bay’ salam, bay’ ʻurbun, and other traditional Islamic transaction structures. Bridging the gap between traditional Islamic transaction structures and conventional derivatives continues to be among the most urgent challenges facing the global Islamic finance industry, not least to provide Islamic financial institutions with a crucial tool for risk management. Salam and ʻurbun clearly illustrate the nature of the challenge to create Shari’a-compliant derivatives. Paradoxically, it is their deviation from the standard conditions for a valid sale contract that allow them to function to some extent as proxies for conventional derivatives. Among jurists, a consensus (ijma’) emerged as to the validity of salam, although special conditions were imposed not only to minimize gharar (uncertainty) and the kindred contractual defect of jahl (lack of knowledge), but also to reduce the possibility of riba (unlawful gain). There is still considerable debate among the various schools of law as to whether ʻurbun constitutes a valid sale contract under the Shari’a.

scholarly journals Duties and Decision-Making Guidelines for Sharī‘ah Committee: An Overview of BNM (Tugas-Tugas dan Garis Panduan Dalam Membuat Keputusan Bagi Jawatankuasa Shariah: Satu Gambaran Umum BNM)

2019 ◽  
Vol 16 (3) ◽  
pp. 300-318
Author(s):  
Muhammad Amanullah ◽  
Muhammad Nabil Fikri Bin Mhd Zain
Keyword(s):  
Decision Making ◽  
Financial Institutions ◽  
Basic Principle ◽  
Research Paper ◽  
Islamic Finance ◽  
Related Literature ◽  
Governance Framework ◽  
Islamic Financial Institutions ◽  
Shariah Governance ◽  
Critical Methods

Shari`ah committee of every Islamic bank or other Islamic financial institutions has some specific duties. Likewise, this committee should follow some guidelines in making its decisions. Bank Nigara Malaysia (BNM) has prescribed these duties and decision-making guidelines in its Sharī‘ah Governance Framework (SGF). Using analytical and critical methods, this research paper aims to study these duties and decision-making guidelines. The duties of the Sharī‘ah  Committee set by BNM include the basic principle of advising, endorsing, supervising, assisting, consulting and reporting on Sharī‘ah  matters. Besides that, the decision-making guidelines for Sharī‘ah  Committee by BNM are well-structured and practical. This study contributes to the related literature by showing that the country’s support towards the Islamic finance sector, through BNM’s guidelines, may help the development of IFIs in the country.  The results drawn from this study may help policymakers to develop better duties and decision-making guidelines for Sharī‘ah Committees. This study is limited to the SGF issued by BNM in 2010 only. Keywords: Sharī‘ah Committee, Duties, Decision-making, Guidelines. Abstrak Jawatankuasa Shariah bagi setiap bank Islam atau institusi kewangan Islam (IFIs) mempunyai beberapa tugas tertentu. Begitu juga, jawatankuasa ini perlu mengikuti beberapa garis panduan dalam membuat keputusannya. Bank Negara Malaysia (BNM) telah menetapkan tugas-tugas ini dan juga garis panduan membuat keputusan dalam Shariah Governance Framework (SGF). Dengan menggunakan kaedah analitikal dan kritikal, penyelidikan ini bertujuan mengkaji tugas-tugas serta garis panduan membuat keputusan tersebut. Tugas-tugas jawatankuasa Shariah yang ditetapkan oleh BNM merangkumi prinsip asas dalam menasihati, menyokong, menyelia, membantu, berunding dan melaporkan berkenaan isu-isu Shariah. Di samping itu, garis panduan membuat keputusan ke atas jawatankuasa Shariah yang ditetapkan oleh BNM adalah amat berstruktur dan praktikal. Kajian ini menunjukkan bahawa sokongan yang diberikan oleh negara terhadap sektor kewangan Islam melalui garis panduan ini boleh membantu kepesatan IFIs dalam negara Malaysia. Keputusan yang diperoleh daripada kajian ini dapat membantu penggubal dasar untuk membangun dengan lebih baik tugas-tugas serta garis panduan membuat keputusan untuk Jawatankuasa Shariah. Kajian ini terhad kepada SGF yang dikeluarkan oleh BNM pada tahun 2010 sahaja. Kata Kunci: Jawatankuasa Shariah, Tugas-Tugas, Membuat Keputusan, Garis Panduan.

What Policy for Islamic Financial Literacy?

10.26414/a148 ◽  
2021 ◽  
Author(s):  
Ahmed Tahiri Jouti
Keyword(s):  
Literature Review ◽  
Financial Institutions ◽  
Financial Literacy ◽  
Sustainable Growth ◽  
Islamic Finance ◽  
Finance Industry ◽  
Literacy Policy ◽  
Islamic Financial Institutions ◽  
Financial Behaviour

This paper addresses the concept of financial literacy in Islamic finance and suggests a methodology to elaborate an effective Islamic financial literacy policy (IFLP). Based on a literature review, the paper summarizes the conclusions of studies and surveys conducted in the field of conventional financial literacy while identifying the specificities of the Islamic finance industry. Indeed, the paper would help financial authorities and Islamic financial institutions in elaborating Islamic financial literacy policies (IFLPs) in order to contribute to the sustainable growth of the industry. It promotes the idea that qualitative aspects are worth studying when elaborating an Islamic financial literacy policy that has to take into account many factors such as the maturity of the industry, the objectives of the policy (inclusion or migration), the degree of Shari’ah awareness, the understanding of Arabic terminologies, etc. Finally, the IFLP measurement should include quantitative (Total reach and number of people reached) as well as qualitative aspects (level of financial literacy, impact on financial behaviour).

Part I Introduction, 1 Status of the Global Islamic Finance Industry

2020 ◽  
Author(s):  
Warde Ibrahim
Keyword(s):  
Financial Institutions ◽  
Significant Role ◽  
Islamic Finance ◽  
Trial And Error ◽  
Global Finance ◽  
Finance Industry ◽  
Complex Process ◽  
Islamic Financial Institutions ◽  
Political Economic

This introductory chapter provides an overview of Islamic finance. Modern Islamic finance did not come out of nowhere. It appeared as the result of specific historical circumstances in the 1970s, and later evolved through a complex process of trial-and-error. It was also shaped by broader competitive and political–economic factors. Although religion was by definition central to Islamic finance, other variables—political, economic, social, cultural, and demographic—also played a significant role. No longer confined to the outer fringes of global finance, Islamic finance has also gone mainstream. Most major financial institutions are now involved in one way or another in Islamic finance, as are global consulting, accounting, and information companies. Within the Islamic world, Islamic financial institutions have become major economic players.

Mushārakah—A Realistic Approach to the Concept in Islamic Finance and its Application to the Agricultural Sector in Pakistan

2014 ◽  
Vol 28 (1) ◽  
pp. 1-39
Author(s):  
Lutfullah Saqib ◽  
Kellie W. Roberts ◽  
Mueen A. Zafar ◽  
Khurram Khan ◽  
Aliya Zafar
Keyword(s):  
Financial Institutions ◽  
Agricultural Sector ◽  
Islamic Law ◽  
Lower Class ◽  
Islamic Finance ◽  
Financial Problems ◽  
Human Survival ◽  
Realistic Approach ◽  
Islamic Financial Institutions

Abstract Food is one of the basic necessities that is imperative for human survival. The majority of farmers related to agriculture belong to the lower class and are hence not in a position to fulfil their agricultural needs. Therefore, they must borrow from various sources, e.g., from individuals, organizations, and/or banks, using interest-based lending, which Muslims are prohibited from doing according to the Sharīʿah. Here the concept of mushārakah (participatory mode of finance) is the best option. The present work discusses the application of such transactions to overcome farmers’ financial problems. In this article, the concept of mushārakah is first elaborated in light of classical/contemporary Islamic law literature referring to its rules and regulations followed by a discussion on how mushārakah can be effectively applied to the agricultural sector. The concepts of muzāraʿah (temporary sharecropping contract), musāqah, diminishing mushārakah (al-mushārakah al-mutanāqisah), and customer agency are critically analyzed in such away to make these fit and viable for farmers and Islamic financial institutions.

scholarly journals The Regulation of Islamic Finance in the United Kingdom

2010 ◽  
Vol 13 (1) ◽  
pp. 69-77 ◽  
Author(s):  
Jonathan Ercanbrack
Keyword(s):  
United Kingdom ◽  
Financial Institutions ◽  
Islamic Finance ◽  
Islamic Banks ◽  
Financial Industry ◽  
Religious Dimension ◽  
The United Kingdom ◽  
Islamic Financial Institutions

This article examines the unique risks associated with Islamic financial institutions and the secular state's reticence to directly regulate their religious dimension. It argues that the state's method of regulating the Islamic financial industry ignores special reputational risks associated with the religious and cultural distinctiveness of Islamic banks.

scholarly journals Malaysian’s Government Linked Investment Companies: Is There a Need for Shariah Governance Framework? (Syarikat Pelaburan Berkaitan Kerajaan Malaysia: Adalah Adakah Perlu Rangka Kerja Tadbir Urus Syariah?)

2020 ◽  
Vol 17 (2) ◽  
pp. 198-222
Author(s):  
Wan Amir Shafiq Bin Ab. Nasir ◽  
Rusni Hassan ◽  
Ibrahim Musa Tijani
Keyword(s):  
Data Collection ◽  
Central Bank ◽  
Financial Institutions ◽  
Document Analysis ◽  
Islamic Finance ◽  
Governance Framework ◽  
Business Operation ◽  
Investment Companies ◽  
Islamic Financial Institutions ◽  
Shariah Governance

This paper attempts to examine the absence of a Shariah Governance Framework (SGF) in Malaysian’s Government Linked Investment Companies (GLICs). A GLIC is essential for the Malaysian economy, while SGF is practiced by the Islamic Financial Institutions (IFIs) in Malaysia to ensure end-to-end Shariah compliant process in the business operation of the banks and takaful operators. When the GLIC aims to provide Shariah compliant returns to their investors (public), the move should be supported by all stakeholders as majority of the investors of the GLICs are Muslims, and thus the demand for a Shariah compliant dividend is expected. As for the IFIs in Malaysia, the Central Bank of Malaysia requires all IFIs to establish an SGF to ensure their activities comply with Shariah principles. The question arises whether this requirement should be practiced by the GLICs too. This paper examines the importance of SGF to be established by the GLICs. Since this study is focusing on the importance of SGF in GLICs, interviews and document analysis methods are used for data collection. Keywords: Government Linked Investment Companies, Shariah Governance Framework, Shariah Compliance, Islamic Finance. Abstrak Makalah ini cuba meneliti permasalahan mengenai ketiadaan Kerangka Tadbir Urus Syariah (Shariah Governance Framework atau SGF) di Syarikat Pelaburan Berkaitan Kerajaan (Government Link Investment Companies atau GLIC) di Malaysia. Syarikat Pelaburan Berkaitan Kerajaan adalah penting untuk ekonomi Malaysia, sementara Kerangka Tadbir Urus Syariah merupakan peraturan yang  dipraktikkan oleh Institusi Kewangan Islam (IKI) di Malaysia untuk memastikan proses patuh Syariah dipatuhi secara keseluruhan dalam setiap aspek operasi bank Islam dan pengendali takaful. Apabila Syarikat Pelaburan Berkaitan Kerajaan menjalankan perniagaan bertujuan untuk memberikan pulangan patuh Syariah kepada pelabur mereka, langkah tersebut harus disokong oleh semua pihak yang berkepentingan kerana majoriti pelabur Syarikat Pelaburan Berkaitan Kerajaan  adalah beragama Islam yang mengharapkan dividen yang patuh Syariah. Di Malaysia, Bank Negara Malaysia menghendaki semua IKI mengamalkan Tadbir Urus Syariah untuk memastikan aktiviti mereka mematuhi prinsip Syariah. Persoalan yang timbul adakah syarat ini juga harus dipraktikkan oleh Syarikat Pelaburan Berkaitan Kerajaan. Makalah ini mengkaji sama ada perlunya Kerangka Tadbir Urus Syariah ditubuhkan oleh Syarikat Pelaburan Berkaitan Kerajaan ini. Kajian ini akan memfokuskan pada keperluan Kerangka Tadbir Urus Syariah dalam Syarikat Pelaburan Berkaitan Kerajaan di mana kaedah temuduga dan analisis dokumen adalah kaedah yang digunakan untuk pengumpulan data. Kata Kunci: Syarikat Pelaburan Berkaitan Kerajaan, Kerangka Tadbir Urus Syariah, pematuhan Syariah, kewangan Islam.  

scholarly journals Blockchain and Smart contract’s contributions to Zakat management system

2020 ◽  
pp. 15-24
Author(s):  
Dhiaeddine Rejeb
Keyword(s):  
Financial Institutions ◽  
Management System ◽  
Financial Sector ◽  
Distributed Database ◽  
Islamic Finance ◽  
Funding Model ◽  
Blockchain Technology ◽  
Smart Contract ◽  
Islamic Jurisprudence ◽  
Islamic Financial Institutions

Blockchain is an open distributed database that carries out transactions on an open decentralized ledger. It is a technology that will probably be the source of a huge digital change especially in the financial sector. The application of this technology has started to take its first steps recently and its importance is undeniable in an emerging and expanding field such as Islamic finance. In this context, the purpose of this article is to study the integration of the blockchain and one of its important components, namely the smart contract in the management of the compulsory Islamic charity the zakat. To do this, we have developed a funding model linking all the stakeholders in question and the diversities of blockchain technology. We were thus able to conclude huge benefits and technical contributions in this context which encourages Islamic financial institutions to develop more models likely to support this technology without ignoring  the compliance with the Islamic jurisprudence rules.

scholarly journals Islamic finance and the global financial crisis: an empirical study

2021 ◽  
Vol 3 (3) ◽  
pp. 62-69
Author(s):  
Fadwa Errami ◽  
Jamal Abnaha
Keyword(s):  
Financial Institutions ◽  
Global Economy ◽  
Islamic Law ◽  
Global Financial Crisis ◽  
The United States ◽  
Muslim World ◽  
Islamic Finance ◽  
Islamic Banks ◽  
Islamic Financial Institutions ◽  
The Global Financial Crisis

Islamic finance can no longer be dismissed as a passing fad or as an epiphenomenon of Islamic revivalism. Islamic financial institutions now operate in over 70 countries. Their assets have increased more than fortyfold since 1982 to exceed $200 billion. In 1996 and 1997, they have grown at respective annual rates of 24 and 26 per cent.1 By certain (probably overly optimistic) estimates, up to half of the savings of the Islamic world may in the near future end up being managed by Islamic financial institutions. The first Islamic banks were created in the 1970s, at the time when the aggiornamento of Islamic doctrine on banking matters was taking shape. At the time, Islamic banks were typically commercial banks operating on an interest-free basis. Today, as a consequence of broad changes in the political–economic environment, a new generation of Islamic financial institutions, more diverse and innovative, is emerging as the doctrine is undergoing a new aggiornamento. Perhaps the most important development has been the growing integration of Islamic finance into the global economy. There is now a Dow Jones Islamic Market Index, which tracks 600 companies (from inside and outside the Muslim world) whose products and services do not violate Islamic law. Foreign institutions such as Citibank have established Islamic banking subsidiaries, and many conventional banks – in the Muslim world but also in the United States and Europe – are now offering ‘Islamic products’ that are sometimes aimed at non-Muslims.

scholarly journals Comparative Analysis on Shariah Governance in Malaysia: SGF 2010, IFSA 2013 and SGPD 2019

2020 ◽  
Vol 10 (1) ◽  
pp. 110 ◽  
Author(s):  
Muhammad Iqmal Hisham Kamaruddin ◽  
Mustafa Mohd Hanefah ◽  
Zurina Shafii ◽  
Supiah Salleh ◽  
Nurazalia Zakaria
Keyword(s):  
Comparative Analysis ◽  
Financial Institutions ◽  
Financial Services ◽  
Islamic Finance ◽  
Policy Document ◽  
Finance Industry ◽  
The World ◽  
Governance Practices ◽  
Islamic Financial Institutions ◽  
Shariah Governance

The main focus of shariah governance for an organization is to ensure that it is comply with shariah laws and regulations. Under Islamic finance industry, shariah governance is being given attention due to rapid growth of this industry in the world. For Malaysia, the authority through Bank Negara Malaysia (BNM) have taken a proactive role by introducing shariah governance guidelines including the Shariah Governance Framework (SGF) 2010, the Islamic Financial Services Act (IFSA) 2013 and the latest is the Shariah Governance Policy Document (SGPD) 2019. These shariah governance guidelines are supposed to support the development of shariah governance practices especially by Islamic Financial Institutions (IFIs) in Malaysia. However, there is limited to none study conducted to compare these guidelines. These shariah governance guidelines is necessary to be compared in order to find out whether these guidelines are complemented each other and to identify any differences among these guidelines. Therefore, the aim of this study is to compare between these shariah governance guidelines. Based on the analysis, it has been found that SGPD 2019 is the most comprehensive covers on shariah governance as compared to IFSA 2013 and SGF 2010. However, these three guidelines still not become comprehensive enough, as there is still limited to none discussion on the definition and objectives of shariah governance itself.

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