Does it pay to be a faithful investor? A risk-based approach performance analysis of Islamic funds vs UCITS schemes

PurposeThis paper empirically investigates the performance of Islamic funds, which have been praised for weathering the 2008 financial storm relatively well and compares it to a European product designed to protect the most vulnerable of investors, UCITS funds.Design/methodology/approachThis paper builds on 128 time-series regressions using various factor models to analyse the risk-return relationship of 242 Islamic and UCITS funds relative to a market benchmark, over a 10-year period starting January 2006, to capture severe bear and bull market conditions.FindingsIslamic funds do not face a competitive disadvantage arising from their strict compliance with Shariah principles, and their performance and investment style is relatively similar to UCITS schemes.Practical implicationsIslamic funds represent a low risk investment due to their very mild betas. Therefore, when forming part of a diversified portfolio, they can act as a hedging tool against adverse market movements.Social implicationsMuslim investors are not punished relative to conventional retail investors when following their own beliefs. Other investors can consider Islamic funds in their portfolio allocation, especially those who seek socially and ethically responsible investments.Originality/valueThis paper fills a lacuna in the existing literature, because the sample is made up of Islamic funds established worldwide and includes not only equity, but also fixed income and mixed allocation funds.

Islamic securities (Sukuk) and economic growth: New empirical investigation from Southeast Asia using non-parametric analysis of MCMC panel quantile regression

PurposeThis paper aims to investigate empirically whether Islamic securities enhance economic growth in the Southeast Asian region based on the endogenous growth theory using the non-parametric analysis.Design/methodology/approachThis paper applies panel quantile regression with Markov chain Monte Carlo optimization as an optimal non-parametric approach to investigate the effect of Islamic securities on economic growth starting from 2013Q4 to 2019Q4 in Southeast Asia. Total issued Islamic securities holdings are employed as a measure for Islamic securities, while the gross domestic product is employed as a proxy for economic growth. The sample includes all working Islamic financial foundations in the top progressive Islamic securities markets' countries of Southeast Asia (Malaysia, Indonesia and Brunei Darussalam).FindingsThe findings confirm that the increase of issuing Islamic securities in Islamic capital markets of Southeast Asia is increasing the levels of economic growth, reflecting the weighty role of the Islamic capital market development as an active contributor to economic growth.Practical implicationsThis research would fill the literature gap by exploring Islamic securities–economic growth nexus in Southeast Asia using a robust non-parametric approach based on the endogenous growth theory for better estimation results. The findings of this review serve as a roadmap for financial analysts, policymakers and decision makers to stimulate the Islamic securities markets as another source of finance which can promote the economic growth.Originality/valueThis research is the first that investigates empirically the Islamic securities–economic growth nexus in Southeast Asia using a new empirical investigation built on the non-parametric analysis and outlined within the theoretical context of the endogenous growth model to gain robust evidence about this nexus.

Shifting the paradigms in waqf economics: towards renewed focus on socioeconomic development

PurposeThis paper critically reviews and analyzes the trends in waqf studies within the Islamic economics literature. It analyzes the recent developments and debates in waqf reform and advances the argument for prioritizing research on waqf economics; the waqf dimension that is concerned with modelling how to utilize it to enhance productivity, consumption, redistribution, investment and saving, and generally contribute sustainably towards poverty reduction, economic empowerment and development.Design/methodology/approachThe paper is conceptual in nature, focusing on a systematic historical analytical review of waqf studies in Islamic economics literature.FindingsDespite the documented historic role of waqf in constructing the Muslim socio-economic architecture as the third economic sector and a mechanism for civilizational development and renewal, it received little attention in the early writings on modern Islamic economics. While the past one decade has witnessed a renewed interest in waqf research, most studies focus on its legal, juristic and administrative aspects in addition to the nostalgic reflections on its past glories. Little attention is comparatively given to the socio-economic aspect, which represents the actual raison d’être for its institutionalization.Practical implicationsAn important task ahead of the current generation of Islamic economists is to formulate waqf-based development models that are rooted in proper diagnosis and deep understanding of the current socio-economic realities of the OIC member countries for the purpose of uplifting living standards and stimulating sustainable socio-economic development.Originality/valueThe paper contributes to the debate on priorities in waqf studies and practice and can trigger further discourses and research on the future of research in waqf economics.

Proposed waqf crowdfunding models for small farmers and the required parameters for their application

PurposeSmall farmers are considered one of the most affected communities worldwide due to poverty. Hence, this paper aims to study how the proposed waqf crowdfunding models are intended to provide alternative sources of funds for the waqf institutions and farmers.Design/methodology/approachThe present study employed a qualitative method by analysing the relevant literature on crowdfunding, waqf cash, waqf and agriculture, together with the primary sources of the Ḥadīth.FindingsThis paper provides the conceptual framework of two waqf crowdfunding model (WCM) and the required parameters for their application. It is found that crowdfunding can bring immense benefits to the agriculture sector and farmers if it is integrated with waqf. This system will enable underprivileged farmers to meet their necessities and participate in their country's economic development.Research limitations/implicationsFuture research may consider a waqf crowdfunding integrated model targeting other businesses.Originality/valueThis study provides the required parameters for the application of the proposed models. Four areas were analysed and discussed: the regulatory compliance parameters, the shariah compliance parameters, the risk management parameters and, finally, waqf governance parameters. To the best of the author's knowledge, this is the first proposed waqf and crowdfunding integrated model for agricultural financing.

Responses of Islamic banking variables to monetary policy shocks in Indonesia

PurposeThis paper investigates the structural model of vector autoregression (SVAR) of the interdependent relationship of inflation, monetary policy and Islamic banking variables (RDEP, RFIN, DEP, FIN) in Indonesia. By using monthly data for the period 2001M01-2019M12, the impulse response function (IRF), forecasting error decomposition variation (FEDV) is used to track the impact of Sharīʿah variables on inflation (prices).Design/methodology/approachThis research uses quantitative approach with SVAR model to reveal the problem.FindingsThe empirical results of SVAR, the IRF show that policy shocks have a negative impact on all variables in Islamic banking except the equivalent deposit interest rate (RDEP). The impact of both conventional (7DRR) and Sharīʿah (SBIS) policies has a similar pattern. While the transmission of Sharīʿah monetary variables as a policy operational target in influencing inflation is positive. In addition, the FEDV clearly revealed that the variation in the Sharīʿah financial sector was relatively large in monetary policy shocks and their role in influencing prices.Originality/valueThe empirical results of SVAR, the IRF show that policy shocks have a negative impact on all variables in Islamic banking except the equivalent deposit interest rate ‘RDEP’. The impact of both conventional “7DRR” and Sharīʿah “SBIS” policies has a similar pattern. While the transmission of Sharīʿah monetary variables as a policy operational target in influencing inflation is positive. In addition, the FEDV clearly revealed that the variation in the Sharīʿah financial sector was relatively large in monetary policy shocks and their role in influencing prices.

Factors influencing the intention to give zakāt on employment income: evidence from the Kingdom of Saudi Arabia

PurposeThis study aims to apply the extended theory of planned behaviour (ETPB) to investigate the factors influencing the intention to give zakāt on employment income.Design/methodology/approachThis study draws the required data through a survey in three main cities Makkah, Medina and Jeddah in Kingdom of Saudi Arabia (KSA). The final data sample is consisting of 650 useable questionnaires to analyse the objective of this study.FindingsThe study finds that moral norm, injunctive norm, descriptive norm and past behaviour have a significant influence on the intention to pay zakāt on employment income. The perceived behavioural control and attitude have a negative and weak impact on the intention to give zakāt on income.Research limitations/implicationsThe findings of this study can be useful for the policymakers and regulators to enhance peoples' awareness to give zakāt to eradicate poverty and inequality in Muslim societies. zakāt is for the deprived people, so the consequences of this study might help to improve their liveability.Originality/valueThis study is unique because it identified the behavioural factors that affect the peoples' intention to give zakāt in KSA have yet to be profoundly explored in the literature. This study has gathered primary data and applied the ETPB to identify the factors influencing the zakāt compliance behaviour in KSA.

Islamic equities and COVID-19 pandemic: measuring Islamic stock indices correlation and volatility in period of crisis

PurposeThe purpose of the study is to measure cross-country stock market correlation and volatility transmission during the global coronavirus disease 2019 (COVID-19) pandemic. The paper traces trajectory of Islamic equity investments in order to get insights on the behavior of the markets during the crisis.Design/methodology/approachThe paper uses generalized method of moments (GMM), autoregressive distributed lag (ARDL) and multivariate GARCH (MGARCH) models for analysis of dynamic causality, stock market cointegration, correlation and volatility transmission between Islamic stock indices.FindingsThe result of normal correlation analysis on the share indices show the markets move together. The result of ARDL cointegration test shows the markets returns are cointegrated as a group. To further make sense of the data; the indices were grouped into four different categories, then cointegration tests were conducted. The results of the analysis show that the subgroups are cointegrated except the low COVID-19 subgroup. Based on MGARCH findings, the possibility of volatility transmission between markets during the crisis is high. The market returns indices show the usual herd mentality common during the period of crisis.Originality/valueUnlike other works in this area, this paper attempt to trace the trajectory of Islamic equity investment in order to get relevant insights and arrives at appropriate ways of responding to the crisis.

Paper money in Sheikh Ahmad Khatib Al-Minangkabawi's thought: a comparative and critical commentary

PurposeThe article examines Sheikh Ahmad Khatib Al-Minangkabauwi's initial concept of paper money, which in the early 20th century wrote Risala Raf'u Al-Iltibas.Design/methodology/approachThis paper uses a qualitative approach based on the critical extraction analysis that can reveal a set of concepts related to the thoughts of Sheikh Ahmad Khatib Al-Minangkabauwi on paper money.FindingsThrough an attentive reading of Sheikh Ahmad Khatib Al-Minangkabawi, the authors can formulate several significant results: First, Ahmad Khatib Al-Minangkabawi applies two methods in studying critically on paper money, namely, the comparative law method and qiyas. Second, Ahmad Khatib believes that paper money has similarities with dinars and dirhams, namely its nominal value function. It is just that the existence of these values is different. Briefly, there are set law consequences for those who used paper money in economic activities, i.e. payment of zakāt on paper money applies when used as business capital.Research limitations/implicationsSheikh Ahmad Khatib Al-Minangkabawi's work related to paper money is written heavily from the perspective of fiqh. Briefly, it is challenging to describe legal reasoning from work. As a result, articles are also thicker with fiqh analysis.Practical implicationsSheikh Ahmad Khatib Al-Minangkabawi's view regarding paper money becomes the foundation for the theory of the value of money in Islam. However, it is rarely disclosed. In this regard, this paper can serve as the foundation of the value for money offered by scholars from Indonesia in the early 20th century.Social implicationsMoney is not a commodity. Still, it must be positioned as capital to be productive. It finally becomes why trade is compelling and becomes the most practical reason for paying out zakāt.Originality/valueIt is not easy finding out articles that attempt to reveal the concept of classical ulemas or clerics from Indonesia relating to paper money. This article manages to identify that, and at the same time, becomes a novelty.

Non-linear relationship between foreign currency derivatives and firm value: evidence on Sharīʿah compliant firms

PurposeThis study examines the impact of hedging on firm value of Sharīʿah compliant firms (SCFs) in a non-linear framework.Design/methodology/approachThis study employs the system-GMM for dynamic panel data to examine the influence of derivatives usage on firm value (Tobin's Q, ROA and ROE). The sample comprised of 59 non-financial SCFs engaged in derivatives from 2000 to 2017 (18 years). The Sasabuchi-Lind-Mehlum (SLM) test for U-shaped is performed to confirm the existence of the non-linear relationship.FindingsThis study concludes that hedging significantly contributes to firm value of SCFs based on the non-linear framework. This study suggests that, first, the non-linear relationship occurs due to the different degree of derivatives usage and risk. Second, firms practice selective hedging to maintain the upside potential of firm value.Research limitations/implicationsThis study has important implications. First, the importance of risk management via derivatives to increase firm value, second, the evidence of selective hedging from the non-linear relationship between derivatives and firm value and third, the need for quality reporting on derivatives engagement by firms in line with the required accounting standard on derivatives.Originality/valueThis study fills the gap in the literature in relation to the risk management strategies of SCFs in three aspects. First, re-examines the relationship using recent data. Second, examines the relationship in the non-linear framework as the limited studies found in the literature on Malaysian firms are only based on linear relationship. Third, determines whether hedging undertaken by firms is optimal as this can only be addressed using the non-linear framework. This study is robust to the various definitions of firm value (Tobin's Q, ROA and ROE) and non-linear methodologies.

Human well-being, morality and the economy: an Islamic perspective

PurposeThis study argues that in order to address the problems associated with the modern market economy at their core, such as persistent poverty, growing inequality and environmental degradation, it is imperative to re-assess the well-being and moral philosophy underpinning economic thinking. The author attempts to offer a preliminary way forward with reference to the Islamic intellectual tradition.Design/methodology/approachThis study employs content analysis of classical and contemporary Islamic texts on human well-being and economic ethics to derive a conceptual well-being model. The paper is structured in four sections: section one provides an overview of relevant secondary literature on moral economic approaches; section two outlines the main well-being frameworks; section three discusses the concept of human well-being in Islam informed by the Islamic worldview of tawḥīd, the Islamic philosophy of saʿādah, and the higher objectives of Islamic Law (maqās.id al-Sharīʿah); and finally, section four discusses policy implications and next steps forward.FindingsA conceptual model of human well-being from an Islamic perspective is developed by integrating philosophical insights of happiness (saʿādah) with an objective list of five essential goods: religion (Dīn), self (Nafs), intellect ('Aql), progeny (Nasl) and wealth (Māl) that correspond to spiritual, physical and psychological, intellectual, familial and social, and material well-being, respectively.Research limitations/implicationsFurther research is needed to translate this conceptual model into a composite well-being index to inform policy and practice.Practical implicationsThis model can be used to review the performance of the Islamic finance sector, not solely in terms of growth and profitability, but in terms of realising human necessities, needs and refinements. It can also provide the basis for the Organisation of Islamic Co-operation (OIC) countries to jointly develop a well-being index to guide national and regional co-operation. More generally, this study highlights the need for research in Islamic economics to be more firmly rooted within Islamic ontology and epistemology, while simultaneously engaging in productive dialogue with other moral schools of economic thought to offer practical solutions to contemporary challenges.Originality/valueThis study offers three aspects of originality. First, by outlining well-being frameworks, it highlights key differences between the utilitarian understanding of well-being underpinning modern economic theory and virtue-based understandings, such as the Aristotelian, Christian and Islamic approaches. Second, it provides a well-being model from an Islamic perspective by integrating the Islamic worldview of tawḥīd, the Islamic philosophy of saʿādah, and the higher objectives of Islamic Law (maqāṣid al-Sharīʿah). Third, it proposes an ethical framework for informing economic policy and practice.