Factors Affecting Profit Distribution Management of Islamic Banks: Moderating Role of Corporate Governance

This study aimed to ascertain the factors that affect the Profit Distribution Management (PDM) practices employed by Islamic banks (IBs) to retain their market share. It further analysed whether the presence of Islamic corporate governance can smoothen the profit sharing mechanism followed by the IBs. The study utilized the panel data analysis technique to analyse the data collected from 40 full-fledged IBs for the period 2010-2017 from three different regions, that is, South Asia, Middle East and South East Asia. The findings of the study support the premise that third party funds, asset composition, capital adequacy and market share all have a significant and positive impact on the PDM practices of IBs. Moreover, Islamic corporate governance strengthens the relationship between market share and the PDM practices of IBs. The results of this study have policy implications for the regulators of IBs and financial institutions as they provide insight into the factors that affect the PDM practices of IBs.

Menace of Middlemanship in the Light of Islamic Teachings

Despite abundant agricultural production, the prices of fruits, vegetables, and other agricultural items remain high, keeping these products out of the a common man’s reach. Although small and poor farmers work hard throughout the year, yet they remain indebted and poor. There might be various reasons for their plight such as the extraordinarily high prices of agri-food items; however, the role of the middleman (Arhti) seems to be the most damaging in this regard. This paper analyses the role palyed by the middleman in Pakistan in the light of Islamic teachings and primary (through survey questionnaire) and secondary data. The study found that generally, the middleman is a cruel character and causes distortions in the economy, particularly in the agro-food market. He deprives poor farmers of meaningful profit, keeps them under the pressure of debt, and causes price hikes of essential items which leads to artificial inflationary pressures in the economy. Ultimately, this phenomenon exerts pressure on the government as well. The current study also found that the presence of middleman in the supply chain of agro-food items deprives poor farmers of their right of earning genuine profit.Moreover, it also increases the price of essential food items. Hence, in the light of Shariah guidelines, unnecessary brokering needs to be restricted so that farmers are able to sell their produce themselves. Furthermore, the middleman’s role needs to be curtailed for the welfare of the farmers, improvement of the agriculture sector, and the betterment of the economy. The study recommends the framing of comprehensive long-term policies for the purchase of crops, monitoring of fruit / vegetable markets, provision of interest-free loans to farmers, setting up of an efficient market mechanism, establishment of effective consumer courts, and the improvement of the transportation system.

Impact of COVID-19 on the Performance and Stability of Conventional and Islamic Banks in the GCC Region, Malaysia, and Pakistan

This study examines the impact of COVID-19 on the performance and stability of conventional and Islamic banks. The sample included all the 21 listed Islamic banks (IBs) and 44 listed conventional banks (CBs) from the GCC region, Malaysia, and Pakistan. Quarterly data of these banks covering the period January 2019 to June 2020 were obtained from their quarterly reports. Performance was measured by return on assets (ROA) and return on equity (ROE), while stability was measured by the Z-scores of these banks. Based on the previous literature, a better performance of IBs was expected because these banks are based on the participatory mode of financing instead of debt-based financing. However, the results of the current study showed a significant and negative impact of COVID-19 on the financial performance of both types of banks, suggesting that either type of banking was significantly affected during the pandemic. However, we did not find any significant evidence of the impact of COVID-19 on the stability of these banks.

Selection Criteria for Conventional and Islamic Banks: An Empirical Analysis

The current study investigates the bank selection criteria used by the customers of both the conventional and Islamic banks of Pakistan. From six different cities, a sample of 1000 customers was selected in order to find out the factors influencing their selection of a bank. The results showed that “Security of Money” was considered as the most important factor in the selection of banks, both by the customers of conventional and Islamic banks. The results also revealed that the customers of Islamic banks ranked “Competence of Staff”, “Online Banking Facility”, and “Confidentiality of Information” as the second, third and fourth most important factors in the selection of their respective banks. On the other hand, the customers of conventional banks emphasized “Availability of ATM Machines”, “Quick Service”, and “Friendly Behavior of Staff” as the second, third and fourth most important factors in bank selection. Further, the customers of Islamic banks ranked “Shari’ah Compliance” as the seventh most important factor, while the customers of conventional banks ranked it as the twentieth important factor out of the total twenty-five factors. Thus, to retain the existing customers and to attract new ones, both Islamic and conventional banks need to focus on customer preferences when offering their products.

Evaluating the influence of Different Regulatory and Supervisory Bodies on the Business of Islamic Financial Institutions in Pakistan

Islamic financial market in Pakistan comprises of Islamic banking, Takaful and Islamic capital market which has been regulated and supervised by State Bank of Pakistan and Securities and Exchange Commission of Pakistan.Despite the regulatory and supervisory mechanism crafted by these authorities, there are other institutions i.e., The Council of Islamic Ideology, Federal Shariat Court and international institutions such as AAOIFI and IFSB which intervene and influence this practice. Based on descriptive analytical approach, the study finds that there is an overlapping situation in the authority over the business of IFIs. Therefore, it suggests that the current regulatory arrangement needs a distinctive sole authority over the business of Islamic financial institutions in Pakistan supported with adequate legal foundation.

Islamic Financing Portfolio and its Comparative Growth Potential

Background – Growth has a strong association with financial sector development. As both micro and macro projects significantly count institutionalized financing contented to the access of finance and help to reduce the cost. Islamic finance development incorporates several benefits such as the transformation of the economy towards the Shari’ah compliancy, higher degree of risk-sharing, and integration of returns with the risk/performance associated with the investment venture thus ultimately leading to social prosperity. Objectives - This study envisages the exploration of the contribution of different type of Islamic banking financing which Islamic Banks are utilizing in their capital structure, on the economic growth. This assessment may help in empirically identifying the financing which has been fruitful to promote growth. This is because each of these Islamic financing products has their essence in the path of growth. Design/methodology/approach - Gross Domestic Product (GDP) is taken as the dependent variable. And the Solow model based controlling variables includes Labor Resource (L), and Physical Capital (K) while the base variable are the financing modes. The quarterly data is collected for 9 countries which are available between 2014Q1 and 2017Q4. Findings – The results indicate that other than Istisna financing, all other financings have a positive effect on economic growth, whereas Salam financing has highest growth potency. Originality/value – Previous studies lack in providing a country-level comparison of growth effect of country-level Islamic capital structure. While, considering financing as an input of economic growth within a panel data setup. This study is finding growth based weights on the popular Islamic financing options, which policymakers can use to find a particular financing which needs promoting in order to boost economic growth.

The Impact of Learning Organization Practices on Subjective Performance of Employees: The Case of Islamic Financial Institutions (IFIs) of Developing Countries

Purpose: The objective of this study is to explore the relationship between learning organization practices and subjective performance of employees moderated by employee engagement in in emerging financial markets of Malaysia, Pakistan, and Indonesia. There are identified continuous learning, collaboration and team learning, system to capture learning, empower employees, the connection to organization, strategic leadership, inquiry and dialogue as seven dimensions of learning organization practices. All of them affect more or less the subjective performance of employees in any organization. Research Design: We select the sample of 230 people working in different departments of Islamic Financial Institutions (IFIs) of developing countries; Malaysia, Pakistan, and Indonesia. Data is collected from the concerned organizations. Findings: On empirical basis, the relationship is found highly significant, learning organization is affecting subjective performance of employees with maximum coefficient of β=.681, which means an increase in learning organization practices will affect subjective performance of employees positively in emerging Islamic financial markets of Malaysia, Pakistan, and Indonesia. Practical implications: The study recommends that learning organization practices should be considered to increase the subjective performance of the employees in IFIs of developing countries. Originality/ value: An association between learning organization practices and subjective performance is explored with major concentration on conventional institutions of the developed countries, whereas this study explores the impact of learning organization practices on subjective performance of employees in the case of Islamic financial institutions (IFIs) of developing countries.

Shariah Governance Framework for IBIs: A Critical Analysis

Purpose: The purpose of the article is to critically analyse State Bank of Pakistan’s Shariah governance framework (SGF) which is indeed a backbone for the survival of Islamic banking institutions (IBIs). Shariah compliance along with other contemporary standards makes it more challenging for the staff to ensure satisfaction of all stakeholders of IBIs. Besides profitability, IBI customers need complete satisfaction that their funds have been administered according to the Shariah law and returns are from permissible business operations. Design/methodology/approach: SGF was analysed for making inferences by systematically and objectively identifying special characteristics of the framework for IBIs. Utilising interpretive and naturalistic approach including both observational and narrative based discourses associated with ground realities, the article outlines pragmatic modifications in existing framework to bridge the gap between Shariah boards and the board of directors. Findings: Over the years Shariah governance mechanisms have significantly groomed in Pakistan, however, the need and room for improvement always remains for further developments . SGF enables convenient operations of IBIs with predetermined set of instructions and objectives. Nevertheless, IBIs need continuous monitoring and handholding to implement the SGF in true spirit. This article critically analysed updated SGF (2018) through content analysis and identified a few important gaps in the existing SGF. Those gapes such as absence of It has been observed that lack of performance evaluation of Board of Directors (BoD) and Shariah Board (SB) is important impediment in the development and expansion of IBIs. Originality/Value: Current study identifies that existing SGF is devoid of determining key performance indicators (KPIs) for IBIs in terms of Shariah compliance and performance of BoDs and SBs. Therefore, this article concluded with proposed new Shariah governance framework for IBIs to ensure close liaison between BoD and SB through Board’s Committee of Shariah Governance (BCSG) with the provision of indicators for Shariah compliance ratings of IBIs.

Sharīʿah Evaluation of Financial Derivatives and Developing Sharīʿah Compliant Hedging Instruments

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.

Awareness, Understanding, and Usage of Islamic Banking Products and Services: A Case of Customers' Satisfaction Towards Islamic Banking in Pakistan

The Islamic banking sectors in Pakistan are experiencing a challenging phase of progress due to intense competition with conventional banks. The primary purpose of this study is to articulate the literature of Islamic banking in Pakistan by investigating the influence of the level of awareness, understanding and usage of Islamic banking products and services on the satisfaction level of its account holders. For achieving this objective, a sample of 400 respondents is chosen through purposive sampling technique from the target population from Islamic banks in Pakistan. The calculated results of PLS-SEM Bootstrapping and SPSS revealed a significant and positive influence of the awareness and understanding level of account holders of Islamic banks on their satisfaction levels. However, the Islamic bank usage by account holders has no impact on their satisfaction level due to the provision of less innovative products and services as compared to conventional banks. This study thus enhances the literature regarding the aforementioned aspects of customer satisfaction. It simultaneously draws an attention to the area that is suitable for the prosperity and progress of the Islamic banking system of Pakistan. The results of this study also give valuable information and helpful guidelines for Islamic banks to formulate innovative strategies of products and promotional policies to retain and attract potential customers. Though this study is broadening the scope of Islamic banking literature, it is not considering the scenario of conventional banks. Islamic banks can manage and enjoy the competitive edge if similar information about conventional banking is available for comparison purposes, which provides the scope of study in future research.