Risk Measurement and Disclosure in Islamic Finance and the Implications of Profit Sharing Investment Accounts

2014 ◽  
pp. 85-120 ◽  
Keyword(s):  
Profit Sharing ◽  
Risk Measurement ◽  
Islamic Finance

scholarly journals Penerapan Model Profit-Loss Sharing untuk Investasi Modal Kecil

2020 ◽  
Vol 6 (1) ◽  
pp. 1-5
Author(s):  
Seftina Diyah Miasary
Keyword(s):  
Alternative Model ◽  
Profit Sharing ◽  
Investment Model ◽  
Islamic Finance ◽  
Traditional Markets ◽  
Sharing Scheme ◽  
Underlying Principle ◽  
Two Parameters ◽  
Small Traders ◽  
Very High

Islamic finance is a financial concept based on Islamic sharia. The underlying principle of Islamic finance is the prohibition of usury, gharar and masyir. In addition to these principles, the concept of Islamic finance which is built on the basis of justice makes many people tend to choose Islamic finance rather than conventional. In this article, we will discuss the Sharia investment model with a profit-loss sharing scheme as an alternative model to replace the practice of lending money at high interest by moneylenders in traditional markets (Rentenir scheme). Both models are applied in a lending transaction between traders and investors with a share of the results in the profit-loss sharing model of 5% and interest on loan repayments for the loan sharks of 20%. Furthermore, from each model the acquisition value is calculated in the form of the optimal portion / profit ratio for each trader and investor. The results obtained indicate that the earnings obtained by traders for the Sharia model are greater than those from the Rentenir model. Furthermore, the acquisition value of investors for the Sharia model is minus and the acquisition value of investors from the Rentenir model is 25.56%. The acquisition value of investors from the Rentenir model is very high, while in the Sharia model, investors experience losses. From these two parameters it can be concluded that the Sharia model with a profit sharing scheme is a model that benefits small traders, while the Rentenir model is a model that needs to be avoided because it is detrimental to traders and also uses the concept of usury which is forbidden in Islam.

scholarly journals SUKUK AND BONDS IN INDONESIA: AN OVERVIEW

2021 ◽  
Vol 3 (2) ◽  
pp. 101-118
Author(s):  
Doli Witro ◽  
Iwan Setiawan
Keyword(s):  
Qualitative Research ◽  
Content Analysis ◽  
20Th Century ◽  
Capital Market ◽  
Financial Crises ◽  
Profit Sharing ◽  
Islamic Finance ◽  
Late 20Th Century ◽  
Financial Products ◽  
The Difference

From the early 1920s to the late 20th century, there were at least 25 financial crises globally. In 2018, the Global Islamic Finance Report reported that Indonesia has tremendous potential to develop Islamic finance. Some of the Islamic financial products that can be developed in Indonesia are bonds and sukuk. Bonds are a product of the capital market. In its development, bonds have undergone relatively rapid innovation, which provides room for issuing Islamic bonds known as sukuk. This paper discusses the difference between sukuk and bonds. This paper aims to look at the differences between sukuk and bonds and the opportunities for issuance, application, and development of sukuk in Indonesia. This research is qualitative research that is literature. As for obtaining comprehensive results, this study uses two approaches consisting of a socio-historical approach and content analysis. The analysis results show that sukuk are in principle the same as bonds, with the main differences, among others, in the use of the concept of return and profit-sharing as a substitute for interest. Keywords: Sukuk; Bond; Sharia Bonds; Capital market; Indonesia

scholarly journals Perspective of corporate governance and ethical issues with profit sharing investment accounts in Islamic banks

2018 ◽  
Vol 26 (3) ◽  
pp. 406-424 ◽  
Author(s):  
Salah Alhammadi ◽  
Simon Archer ◽  
Carol Padgett ◽  
Rifaat Ahmed Abdel Karim
Keyword(s):  
Corporate Governance ◽  
Significant Proportion ◽  
Profit Sharing ◽  
Islamic Finance ◽  
Islamic Banks ◽  
Dividend Yield ◽  
Rates Of Return ◽  
Content Type ◽  
Risk Return ◽  
Ethical Basis

Purpose The purpose of this paper is to examine the practices of Islamic banks in managing the so-called profit sharing investment accounts (PSIA) which they offer as a Shari’ah-compliant alternative to interest-bearing deposit accounts using an unrestricted Mudarabah contract. In particular, the paper aims to examine the risk-return characteristics of such accounts and to compare these to the returns and risks of shareholders in the same banks. It is relevant that PSIA holders (unrestricted investment account holders – UIAH) are exposed to losses on the assets in which their deposits are invested, while the bank as asset manager (Mudarib) does not bear these losses and as Mudarib typically receives more than 50 per cent of the profits earned on the PSIA. The issue is whether the UIAH are being treated equitably. The influence of a set of corporate governance variables on this issue was also analyzed. Design/methodology/approach A sample of 28 Islamic banks was selected from five countries for the period 2002-2013, with data being obtained from Bankscope and Bloomberg and, where necessary, from the banks’ annual reports. First, the risk-return characteristics of the UIAHs’ rates of return and shareholders’ rates of return on equity (ROE) were compared by calculating for each bank the coefficients of variation (CV) of the two series of rates of return. Second, a panel data approach was used to evaluate the effectiveness of corporate governance by examining the extent to which the size of the difference between the rates of return for shareholders and for UIAH was associated with a set of corporate governance variables. Third, a comparison was made between the risk-return characteristics of UIAH’s rates of return and shareholders’ dividend yield rate for a sub-sample of 20 banks for which the information was available. Findings For a significant proportion of the banks (9 out of 28), the CVs of the PSIA returns were higher than those of the shareholders’ ROEs, which suggested that in these cases the PSIA holders were receiving inequitable treatment. Likewise, for 7 out of the 20 banks in the sub-sample, the CVs of the PSIA holders’ rates of return were higher than those of the shareholders’ dividend yield rate. In explaining the size of the differences between the rates of return on PSIA and the shareholders’ ROEs, the variable with the greatest explanatory power was the return on assets, implying that when this was high the bank took a maximum Mudarib share of profits. Some other corporate governance variables had the expected signs, as did a country dummy representing the maturity of the market for Islamic banking, but there was little evidence of the effectiveness of corporate governance in protecting the interests of the UIAH. Research limitations/implications A limitation of the research was that the inefficiency of the stock markets in the relevant countries and the fact that a few of the banks were not listed made it impossible to use shareholders’ stock market returns. ROE is not a very good proxy, as it is unclear how much value should be placed on retained earnings. Dividend yield rates provide a better comparison with UIAH rates of return, but the data were available for only 20 of the banks. Nevertheless, the results of the analysis strongly suggest that in a significant proportion of cases, UIAH are not being treated equitably. Practical implications The implication is that the regulation of Islamic banks needs to be improved to provide better protection to UIAH. Social implications Islamic banks operate mainly in emerging markets where the effectiveness of regulation is limited. The ethical basis of Islamic finance provides some mitigation of this problem but apparently fails to do so in a significant proportion of cases. This should be borne in mind when assertions are made about the ethical basis of Islamic finance. Originality/value There is a dearth of empirical studies of the practices of Islamic banks and in particular of their treatment of their customers. This is because of various factors: the relative novelty of Islamic finance, the paucity of data and the relatively small size of the body of researchers in the field. This paper aims to contribute to filling this gap.

scholarly journals BAGAIMANA KEUANGAN ISLAM MENGGUNAKAN FAKTOR DISKONTO DALAM CAPITAL BUDGETING DECISION?

El Dinar ◽  
2018 ◽  
Vol 6 (2) ◽  
pp. 83
Author(s):  
Elsi Mersilia Hanesti
Keyword(s):  
Interest Rate ◽  
Financial Management ◽  
Return On Investment ◽  
Capital Budgeting ◽  
Profit Sharing ◽  
Islamic Finance ◽  
Literature Study ◽  
The Interest Rate ◽  
Comparison Level ◽  
Compound Interest

<em>In the conventional financial management, the method of calculating the</em><em> capital budgeting decision using NPV and IRR, which both use the interest rate as one of its component count (as a discount factor). Then, how Islamic financial management sees this? With the research methods of literature study, this paper is about the financial outlook of Islam the methods of NPV and IRR as well as finding out what the proper method for capital budgeting decision. Results of the study were that in the process capital budgeting decision, the use of NPV and IRR methods are allowed (according Obaidullah, Prof. Shabir F.Ulgener, and Zarqa). The interest rate in the calculation only as a means of simplification and ease in the calculation. The use of a list of compound interest rate (compounded interest) is a tool to calculate the expected rate today and the future. It can be said that the Islamic finance uses a list of compound interest rate as a tool for simplify the calculation, just as a comparison level of opportunity cost in alternative investments. The level of interest in the calculation of these can be replaced with a comparator, such as: the return on the sukuk, the profit sharing ratio, and the return on investment or other real instruments in Islam.</em>

MENCIPTAKAN BANK SYARIAH YANG BERPIHAK

ALQALAM ◽  
2013 ◽  
Vol 30 (3) ◽  
pp. 473
Author(s):  
Efi Syarifudin
Keyword(s):  
Profit Sharing ◽  
Islamic Finance ◽  
Islamic Banking ◽  
Competitive Condition ◽  
Financial Access ◽  
Finance System ◽  
Islamic Bank ◽  
Legal Contract ◽  
The People ◽  
National Constitution

Islamic banking has problems in determining its identities which are perceived variedly by the people. The profit sharing system and Islamic legal contract developed in Islamic finance are no longer perceived distinctively because they have been modified adjusting to the trends in common finance system. However, aspects that should have been the spirits (ruh) of Islamic finance can be systematically ruined in the merely profit-oriented infrastructure and business vision.             Muslim societies' problems should have been solved by the presence of Islamic banking. One of which is the problem of financial access far the have-nots. This can be constructed as a farm of support which acts as identities and cores of Islamic finance. A number of strategic steps offered in this paper are: 1. The purity of akad (contract) and the creation of togetherness; 2. Making humanity problems as the ultimate orientation, not the accumulation of capital- 3. Making use social modal, creating the environment of support through the development of norms and communal awareness in distributing risk as well as conducting continuous guidance.             Through those approaches and steps, Islamic banking is expected to have different identities from those of other finance systems. Therefore, togetherness and familyness (jama'ah wal ukhuwah) can constantly become the ultimate spirits in creating nation's welfare as written in article 33 of the National Constitution (UUD 194 5), and not through the individualistic competitive condition. Keyword: Islamic Bank, Partnership, Intermediation, Empowerment

scholarly journals Critical Review on Issues and Challenges of Malaysian Islamic financial system

2021 ◽  
Vol 56 (2) ◽  
pp. 552-567
Author(s):  
Issa Khan ◽  
Abdul Muneem ◽  
Fadillah Mansor ◽  
Mohd Abd Wahab Fatoni Bin Mohd Balwi ◽  
Md. Mahfujur Rahman
Keyword(s):  
Human Capital ◽  
Data Analysis ◽  
Financial System ◽  
Profit Sharing ◽  
Qualitative Approach ◽  
Islamic Finance ◽  
Islamic Banks ◽  
Financial Industry ◽  
Thematic Approach ◽  
Online Sources

This paper seeks to analyze the issues of the Islamic financial system and its challenges in Malaysia. This research adopts a qualitative approach based on data collected from articles, books, and online sources. A thematic approach has been utilized for data analysis. This study finds that Islamic banks impose both taʿwīḍ (compensation) and gharāmah (penalty) if the customer procrastinates or delays the payment of installments to the banks. That could lead to ribā (interest) in the contract. Therefore, the study suggests that the Islamic banks need to form a tabarruʿ (donation) fund. In addition, the study reveals that the Islamic banks are trending towards debt-based financing, which contradicts the maqāṣid al-sharīʿah. To fulfill the objective of the Sharīʿah, Islamic banks should apply more profit-sharing-based financing products. Another challenge in Islamic capital markets is baiʿ al-dayn (sale of debt) in Sukuk (Islamic bond), leading to ribā. Thus, the research proposes improving the transaction with a concept that does not lead to controversy. In family takaful, there are Sharīʿah issues related to the nominee and distribution of surplus. The study suggests that the nominee should work as an executor. Moreover, takaful companies can receive a portion of surplus based only on the muḍārabah model. Finally, this research identifies challenges in Islamic finance about human capital, misconceptions of Islamic finance, standardization, and harmonization, and proposes solutions accordingly. The research will assist the Islamic financial industry in finding ways to overcome the current issues and challenges.

scholarly journals SIMULASI VARIASI JUMLAH DAN PERIODE INVESTASI DALAM MODEL PROFIT-LOSS SHARING DENGAN DANA TABARRU’

2017 ◽  
Vol 1 (1) ◽  
pp. 122
Author(s):  
Wahyuning Murniati
Keyword(s):  
Low Income ◽  
Profit Sharing ◽  
Islamic Finance ◽  
Investment Fund ◽  
Financial Condition ◽  
Sharing Scheme ◽  
Net Profit ◽  
Investment Process ◽  
Fair Sharing ◽  
Market Trader

Profit and loss sharing model is one form of investment scheme is considerated Islamic finance. The borrower of the investment fund and investors should be in a fair sharing of both profit and losses earned in the investment process. The model used in this paper is the modification of previous research in which the investor gives an investment fund to some low-income traders in tradisional market. The traders will give back the fund with some portion of profit if the financial condition is good. That is the profit sharing scheme. In order to define loss sharing explicitly, in this paper we add tabarru’ fund in the model by applying the principle of net insurance premiums. Tabarru’ fund is collection funds of the trader and when loss occurs, the trader will get the fund back as a benefit. Futhermore, this model is implemented in the daily net profit of a tradisional market trader in Bandung on variation of capital and period investment. From the result, it can be concluded that the application of tabarru’ fund provide higher profit more than previous model.

scholarly journals Profit and Loss Sharing (PLS) and Non-PLS Financing in Malaysia: Which One Should Be the One?

2020 ◽  
Author(s):  
Amirudin Mohd Nor ◽  
Shafinar Ismail
Keyword(s):  
High Risk ◽  
Future Development ◽  
Profit Sharing ◽  
Islamic Finance ◽  
Present Moment ◽  
Non Profit ◽  
Finance Industry ◽  
High Return ◽  
The One ◽  
The Ideal

The motivation in this study lies on the fact that despite the tremendous development of the Islamic finance industry, some scholars argue that the development was driven by the debt-based or non- Profit sharing and losses sharing (PLS) contract instead of the widely proposed Profit sharing and losses sharing (PLS) contracts perceived to be as the ideal mode of financing. The question that arises is why non-PLS based? Why not PLS? Which one should the concepts use in Islamic finance then? Hence, this paper tries to explore the reason behind such development, discuss the future development as well and finally answer the main issue of which one should be the one? Initially the PLS was introduced in Malaysia; however the trend moved to non-PLS as a result of the current situation. The introduction of non-PLS products has been approved by shariah scholars hence making it shariah compliant. Since ‘sin’ is not an issue anymore, the investors now look for the best instrument that can give them higher return in line with the investment concept of high risk high return. Therefore, both PLS and non-PLS can be used side by side at the present moment.   Keywords: Profit and loss sharing; Islamic finance concept; Malaysia

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