scholarly journals Do Islamic Banking Financial Instruments Achieve Equitable Income and Wealth Distribution?

2021 ◽  
Vol 1 (2) ◽  
pp. 48-81
Author(s):  
Anwar Hasan Abdullah Othman ◽  
Younes Soualhi ◽  
Salina Kassim
Keyword(s):  
Banking Sector ◽  
Banking Industry ◽  
Wealth Distribution ◽  
Economic Value ◽  
Islamic Banking ◽  
Islamic Banks ◽  
Financial Instruments ◽  
Short Run ◽  
Income And Wealth Distribution ◽  
Current Practices

The study investigates empirically whether the current practices of Sharīʿah-based financing contracts namely, Murabahah, Musharakah, Mudarabah, Istisna, Bai Bithaman Ajil, Ijarah and other contracts in the Malaysian Islamic banking industry achieved equitable income and wealth distribution. To do so, the study applied the bounds test and ARDL model to investigate the relationship between Sharīʿah-based financing contracts and Malaysian GINI coefficient index over the period from 1Q 2014 to 1Q 2019. In analyzing the long- and short-run implications, it was found that the practice of such Sharīʿah-based financing contracts in the Islamic banking industry achieved equitable income and wealth distribution in Malaysia using Murabahah, Mudarabah, Istisna, Bai Bithaman Ajil, and other (i.e., forward Ijarah) financing contracts. On the other hand, the findings indicated that Musharakah and Ijarah-based financing contract practices did not achieve equitable income and wealth distribution in Malaysia. This may be because the current practices of both contracts which seem to be handled as debts instruments and designed to the benefit of the banking sector only. To improve the Islamic banks’ financing practices in Malaysia, the outcomes of the study suggest that bank operators should strengthen the weight of Sharīʿah-based profit and loss sharing financing contracts with small and mid-size enterprises (SMEs) instead of corporations. In other words, Islamic banks are able to achieve fair income and wealth distribution and uphold the concept of justice for all by gradually increasing Musharakah-based financing for SMEs that can potentially grow and create economic value. Further, to solve the problem of Ijarah contract practices, Islamic banks must take steps to enhance the requirements of Ijarah contracts, specifically ownership transformation, maintenance responsibility, default penalty, and the issue of legal treatment as well as bear the costs, risks and rewards related to the leasing asset instead of borne by the clint. The empirical findings of the study will provide valuable input for banks policymakers, particularly central banks, and Islamic bank management to evaluate the current practice of Islamic finance and proactively correct shortcomings to achieve equitable wealth distribution. This study is a pioneering investigation that empirically evaluates whether the current practices of Islamic banking financial instruments achieve the aims of the equitable financial system, and ensure that Islamic banks, as intermediaries, address the issue of inequality and attain equitable wealth distribution worldwide.

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.

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 EMERGENCE OF FINANCIAL TECHNOLOGY IN ISLAMIC BANKING INDUSTRY AND ITS INFLUENCE ON BANK PERFORMANCE IN COVID-19 SCENARIO: A CASE OF DEVELOPING ECONOMY

2021 ◽  
Vol 37 (01) ◽  
pp. 97-109
Author(s):  
Ashfaq Ahmad ◽  
Aamir Sohail ◽  
Abid Hussain
Keyword(s):  
Cyber Security ◽  
Banking Sector ◽  
Banking Industry ◽  
Essential Element ◽  
Bank Performance ◽  
Islamic Banking ◽  
Islamic Banks ◽  
Structured Interviews ◽  
Finance Industry ◽  
Financial Technology

Technological intervention and financial innovation are an essential element for the banking sector especially in post-Covid 19 scenario. Islamic banking industry has also no exception and Islamic banks could attain institutional objectives over financial technology. The motivation behind research is to investigate emergence of financial technology in Islamic Banking Industry and its Influence on Bank Performance. The population of the study consists of Islamic banks and windows of Islamic banks operating in Pakistan. The sample size consists of four Islamic banks, five Islamic windows of conventional banks, and State bank of Pakistan. Purposive sampling technique was used by researcher. Semi-structured interviews were conducted and NVIVO software was used for data analysis. Findings indicate that technologies used by different banks to serve the customer are blockchain, mobile banking, customer relations management, cyber security, cloud banking, and fintech start-up. Reaction and response of the Islamic finance industry to the rise of financial technology and its impact on Pakistan is obvious.

scholarly journals Bankruptcy Profile of the Islamic Banking Industry: Evidence from Pakistan

2019 ◽  
Vol 10 (2) ◽  
pp. 265
Author(s):  
Ahmad Ali Jan ◽  
Muhammad Tahir ◽  
Fong-Woon Lai ◽  
Amin Jan ◽  
Mehreen Mehreen ◽  
...  
Keyword(s):  
Banking Sector ◽  
Banking Industry ◽  
Positive Impact ◽  
Evaluation Model ◽  
P Value ◽  
Islamic Banking ◽  
Islamic Banks ◽  
Z Score ◽  
Crisis Period

The purpose of this study is to examine the bankruptcy profile of the Islamic banking industry in Pakistan for the post-crisis period 2007-2008. This study used Altman’s Z-score bankruptcy evaluation model for evaluating bankruptcy rates of the sampled Islamic banks from Pakistan for the post-crisis period 2009-2015. ANOVA result shows the P-value with 0.002, which implies that the sampled Islamic banks from Pakistan do differ in their rates of bankruptcy. Regression results show that the variables liquidity and productivity ratios have a significant positive impact on the bankruptcy profile of the Islamic banking sector in Pakistan. While profitability and insolvency, ratios indicated an insignificant impact on the bankruptcy profile of the Islamic banking industry in Pakistan. The overall analysis of this study is viable to draw the attention of researchers and practitioners towards the deteriorating bankruptcy profile of the Islamic banking sector in Pakistan. The study also persuades the researchers to design a separate Shariah-based bankruptcy evaluation model for the Islamic banking industry of Pakistan.

scholarly journals The Effect of US Monetary Policy Normalization Toward The Financing Growth of Indonesian Islamic Banking Industry: Short-Term and Long-Term Approaches

2017 ◽  
Vol 1 (01) ◽  
pp. 38
Author(s):  
Ahmad Mikail ◽  
Kenny Devita Indraswari
Keyword(s):  
Monetary Policy ◽  
Real Interest Rate ◽  
Banking Industry ◽  
Composite Index ◽  
Impulse Response Function ◽  
Islamic Banking ◽  
Islamic Banks ◽  
Long Run ◽  
Short Run ◽  
Fund Rate

<p>The study identifies the effect of The Fed Fund Rate (FFR) normalization toward the financing growth of Islamic banks as well as toward the industrial credit growth in Indonesia. To acquire better understanding about the effect of the increasing FFR, Vector Error Correction Model is being utilized in order to identify short run and long run effects. The data employed are the quarterly data of total credit in banking industry, total financing in Islamic banking industry, FFR, real GDP growth, real interest rate, exchange rate and Indonesian composite index from 2003 - 2015. To forecast the dynamic effect of the rising FFR towards financing growth in the Islamic banks, Impulse Response Function is being applied. The result from the long run estimation suggests that the Fed’s monetary policy has negative effect toward the Indonesian banking credit growth as well as the Islamic financing growth. Moreover, the estimated coefficient shows that the effect is quite low in the long run for the conventional bank and relatively high for the Islamic banks. From the short run dynamic analysis, the study reveals that the Islamic banks financing growth is mostly determined by FFR where Islamic financing growth affects Indonesian composite index and real interest rate. However, the Impulse Response Function result exhibits that the Fed’s monetary policy normalization will not affect Islamic banks financing in Indonesia.</p><p><br />Keywords: Fed Fund Rate, Financing Growth, Islamic Banking, Indonesia, Monetary Policy</p>

scholarly journals Comparative analysis of Saudi sharia compliant banks: A CAMEL framework

Accounting ◽  
2021 ◽  
pp. 1119-1130 ◽  
Author(s):  
Mohammad Naushad
Keyword(s):  
Saudi Arabia ◽  
Comparative Analysis ◽  
Commercial Banks ◽  
Banking Sector ◽  
Banking Industry ◽  
Islamic Banking ◽  
Islamic Banks ◽  
Financial Health ◽  
Financial Soundness ◽  
The Stability

A vibrant banking sector remains instrumental to the stability of every economy. Islamic banks are now considered as iris spuria of the banking industry. Countries such as Saudi Arabia have been hailed as the Islamic banking basin. Nevertheless, how well is this sector growing and performing in Saudi Arabia itself? This motivates us to carry out this study. The current study's key objective was to measure Sharia-compliant banks' efficiency on the CAMEL Framework, a commonly accepted framework for banks' financial health. CAMEL is fundamentally an acronym for which the first letter from the five primary segments of a bank operation is jumbled, i.e. “|C|apital adequacy, |A|sset quality, |M|anagement quality, |E|arnings ability and |L|iquidity”. The system is popularly being used for determining the financial soundness and stability of banks. The current study employs this framework to judge the financial performance of four fully Sharia compliant banks or Islamic banks in Saudi Arabia. The publicly accessible audited data of these banks over ten years was taken for analysis. From the final results of the analysis, it is found that all the banks performed stupendously well on the CAMEL framework. AlRajhi Bank was rated number one of all four Sharia-compliant banks. However other three banks namely Alinma Bank, AlBilad Bank, and Aljazeera bank have also done well and overachieved all the criterion of CAMEL's ranking. However, the study proposes a comparison of Sharia-compliant banks with conventional commercial banks. Moreover, it recommended that more banks should engage in offerings of Sharia based products.

scholarly journals Merger and Industrial Acceleration: Study at Indonesian Islamic Banking Industry

2017 ◽  
Vol 6 (1) ◽  
pp. 29-48 ◽  
Author(s):  
Kindy Miftah ◽  
Hendro Wibowo
Keyword(s):  
Financial Performance ◽  
Banking Sector ◽  
Banking Industry ◽  
Islamic Banking ◽  
Islamic Banks ◽  
Valuation Theory ◽  
Past Performance ◽  
Using Data ◽  
Performance Results ◽  
Comparison Technique

The purpose of this research tries to feed the alternatives of merger between Islamic banks which becomes a form of recommendation to optimize the merger result, so it will contribute to the development of Indonesia’s banking sector in particular. Methodology of this study is using comparison technique utilize result of calculation valuation based on valuation theory in general with method discounted cash flaw (DCF). Valuation data processing using data past performance sharia banks is to plan future financial performance. Results of valuation will be conducted both with individual banks that will be merged and alternative merger determined. These findings implied from various possibility alternative mergers between sharia banks, there are 5 alternatives that are feasible considering the internal aspect such as tendency shareholder and condition sharia bank to be merged related to internal interest and external aspect namely scale of assets from merger banks and probability success from merger process.DOI:  10.15408/sjie.v6i1.4728

Determinants of Islamic Bank Profitability: Evidence from Indonesia

2020 ◽  
Vol 5 (1) ◽  
pp. 1-13
Author(s):  
Puji Sucia Sukmaningrum ◽  
Kashan Pirzada ◽  
Sylva Alif Rusmita ◽  
Fatin Fadhilah Hasib ◽  
Tika Widiastuti ◽  
...  
Keyword(s):  
Interest Rate ◽  
Quality Management ◽  
Banking Industry ◽  
External Factors ◽  
Islamic Banking ◽  
Islamic Banks ◽  
Return On Assets ◽  
Internal Factors ◽  
Bank Profitability ◽  
Islamic Bank

Objective – Islamic Banks have a distinct advantage that is not only conduct a commercial operation, but to also conduct social operations. Therefore, Islamic Banks plays an important role in developing the Indonesian economy. The aim of this study is to investigate the impact of internal and external factors that affect the profitability of Islamic Banks in Indonesia. Methodology/Technique – The methodology of this research is multiple regression. The object of this research is the Islamic banking industry in Indonesia. Internal factors include size, liquidity, asset quality, management, and efficiency ratio. External factors include interest rate and inflation. Return on Assets is used to measure profitability. The monthly data is collected from the financial reports of Islamic Banks between 2011 to 2016. Findings – The findings show that size, liquidity, assets quality, management ratio, interest rate and inflation lead to a greater Return on Assets (profitability) in Islamic Banks in Indonesia. Efficiency however does not have a significant effect on profitability of Islamic Banks in Indonesia. Novelty – Based on the results of this research, it can be concluded that the Islamic banking industry can use those variables to improve the profitability of Islamic banks in the future. In addition, there are two variables that affect the profitability of Islamic banking industry. For the Islamic banking industry should anticipate the movement of inflation and interest to improve the profitability of Islamic banks. Type of Paper: Empirical paper. Keywords: Islamic Banks; Profitability; Internal Factors; External Factors; Indonesia. Reference to this paper should be made as follows: Sukmaningrum, P.S; Pirzada, K; Rusmita, S.A; Hasib, F.F; Widiastuti, T; Hendratmi, A. 2020. Determinants of Islamic Bank Profitability: Evidence from Indonesia, J. Fin. Bank. Review, 5 (1): pp. 01 – 13 https://doi.org/10.35609/jfbr.2020.5.1(1) JEL Classification: G21, G24.

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.

Internal marketing, service quality and perceived customer satisfaction

2020 ◽  
Vol ahead-of-print (ahead-of-print) ◽  
Author(s):  
Leigh De Bruin ◽  
Mornay Roberts-Lombard ◽  
Christine De Meyer-Heydenrych
Keyword(s):  
Customer Satisfaction ◽  
Service Quality ◽  
Banking Industry ◽  
Marketing Mix ◽  
Internal Marketing ◽  
Islamic Banking ◽  
Islamic Banks ◽  
Content Type ◽  
Internal Process ◽  
Perceived Ability

Purpose This study aims to explore the extent to which internal marketing influences employees’ perceived ability to deliver service quality in the Islamic banking industry in Oman. Additionally, the influence of perceived service quality on perceived customer satisfaction is established. Design/methodology/approach Data was obtained from retail banking branch employees at the customer front line of Islamic banks in Oman using electronic and person-administered surveys, and 272 responses were deemed suitable for data analysis. The measurement and structural models were measured through structural equation modelling. Findings The findings show that internal promotion, internal process and internal purpose are enablers of employees’ perceived ability to deliver service quality in the Islamic banking industry of Oman. In addition, service quality was found to have a strong positive influence on perceived customer satisfaction in Islamic banks. Research limitations/implications This study demonstrates that internal product, internal price, internal promotion, internal process and internal purpose are influencers of service quality, and the latter has a direct relationship with perceived customer satisfaction in Islamic banking. Practical implications The findings can guide the Islamic banking sector in Oman on how internal marketing can foster service quality, ultimately leading to positive perceived customer satisfaction experiences. Originality/value The internal marketing mix model is predominately a Western model, which has been tested primarily in mature Western markets. This study reflects on ten internal marketing mix elements, which have been tested for the enablement of service quality and perceived customer satisfaction in Oman.

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