Shari'ah-Based Financial Intermediation

Financial intermediation is the core of the banking business, as its role is to mediate between the owners of surplus funds and those in need of finance, sharing the generated profit with the funds' owners. However, financial intermediation does involve some economic risks in terms of concentration of debt in financial institutions and the possibility of the inability of financed clients to repay their debts. When this happens, financial crises are inevitable, as it occurred in 2008. Islamic finance does not differ in this regard from its traditional counterparts, because the concentration of debts also holds on the concept of Islamic institutional finance, and the possibility of collective default is possible as well. The study treats the issue of financial intermediation and its risks from Maqasidi aspect using home finance as a point of comparison between conventional home finance with Islamic home finance in terms of their economic effects. The study eventually proposes a model for home financing that is free of these cautions.

Dispute Resolution in the Islamic Finance Industry

A unique and independent legal framework is important to effectively adjudicate Islamic finance disputes, Sukuk bankruptcies, and Takaful disputes. Currently, these disputes are being adjudicated in common law courts or ineffective arbitration centres where often the Islamic finance transaction is inadvertently converted into a conventional transaction due to the common law nature of the dispute adjudication. In this chapter, a framework is proposed for Islamic finance dispute resolution in the form of the Dubai World Islamic Finance Arbitration Centre (DWIFAC), DWIFAC Jurisprudence Office, the Sukuk Bankruptcy Tribunal (SBT) and the Takaful Tribunal (TT).

Sukuk as an Infrastructure-Financing Tool

Although many studies have stressed potential benefits of using Sukuk for funding large-scale infrastructure projects, several technical, legal, and political obstacles that are encountered by new sovereign and corporate issuers, investors, and Shari'ah boards remain largely unexplored. This research evaluates the opportunities, barriers, and potential risks for future Sukuk issuances that are proposed for funding large-scale infrastructure projects in developing countries. A purposive sampling method was employed to conduct in-depth interviews with several Islamic finance experts in support of the qualitative data analysis. Using the maximal variation and snowball approach, the researcher identifies the key challenges for large-scale Sukuk issuances and provides useful interpretations that can contribute to the expansion of Sukuk structures for a wider international investor base.

Economic and Social Impacts of Sovereign Sukuk

This chapter explores the economic and social impacts of sovereign Sukuk in Sudan and its unique challenges. The first of its kind, this research collected primary data from different groups of investors of Sudanese governmental Sukuk. Adopting a qualitative approach (interview questions and open and closed-ended surveys), four sets of questions were distributed to four groups (individual investors, institutional investors, government officials, and academics). The survey found that despite Sukuk's influence in activating the economy and financial markets, and encouraging savings awareness, the market in Sudan is facing many challenges. Accordingly, it is recommended that Sukuk issuances should appeal to a wider audience including retail investors. The ensuing system, which could likewise be adopted by other countries, would generate more liquidity for development projects and may prove helpful for developed Sukuk markets. Additionally, evolving capital markets would enhance the economic and social impact of governmental Sukuk.

Takaful in Malaysia

Takaful is an Islamic insurance contract introduced to substitute the conventional insurance which has been precluded by nearly all Muslim scholars as it encompasses the components of gharar (uncertainty), maysir (gambling), and riba (usury). Its feasibility is evidenced after numerous Fatwas were issued by Fiqh academies and Ulama in its support. Takaful is founded on the basis of cooperation and mutual aid as it is broadly used in the commercial sector. The Takaful business operation is regulated by the codes of Shari'ah and by other laws. Many models such as the Wakalah model, Mudharabah model, and the amalgamation of Mudharabah and Wakalah models have been applied in the Takaful corporate operation. This chapter explicates the existing implications and future prospects of the Takaful industry in Malaysia. It offers a review on Takaful industry in Malaysia and emphasizes issues and challenges, opportunities, and recommendations.

Cost-Efficiency Analysis of Mudarabah Companies

The economic system recognizes the role of the financial system as an important cog in its machinery. Several theoretical and empirical studies have evidenced its contributing role to the economy. Within the overall financial system, the Islamic financial system ensures the increase in productivity of capital as well as in the synchronization between the incomes of the rich and the poor. Mudarabah companies stay at the forefront of the Islamic financial system. Their knowledge-intensive approach helps the allocation of resources in long-term ventures and, because of their participation-based setup, they can theoretically cause a trickle-down effect via their redistribution process from the borrower to the lender. Practically, though, this requires the financial institutes such as Mudarabah to be cost-efficient. This chapter explores specifically how efficient Mudarabah companies of Pakistan are in terms of cost minimization, and investigates whether different dimensions of intellectual capital can improve cost efficiency.

Efficient Market Hypothesis for Islamic Capital Markets

This study has two important findings firstly, the theoretical results related to the efficient market hypothesis; and secondly, the results of application. The theoretical results show that if the market price of an asset includes all the information that influences its price, then that market is an efficient market. According to the efficient market hypothesis, investors cannot earn gains above the market return. Since stock share prices are unpredictable, it is assumed that when the information that the market had already been expecting is finally announced, the stock share prices will not change. That is because this announcement does not contain any information that can change the prices. The results obtained from the application show that the existence of abnormal return is valid for Islamic Stock Markets. Therefore, the findings mediate against the efficient market hypothesis. However, when the size of abnormal returns is observed, the results are almost equal to market returns. This finding supports the efficient market hypothesis. Islamic stock markets are integrated with the world at least as much as the non-Islamic global markets are. Islamic stock markets act together with the non-Islamic global markets. The risks and returns that the Islamic and non-Islamic stock markets provide to the investors are very close to each other. In conclusion, the efficient market hypothesis maintains its explanatory power for both Islamic stock markets and non-Islamic global stock markets. Islamic markets offer new investment opportunities on a global scale.

Crowdfunding Framework in Islamic Finance

Crowdfunding has been a topic in limelight for the last few years. Crowdfunding platforms are the intermediaries which connect the contributors with fundraisers. Crowdfunding has started its journey in traditional finance however; its attributes and characteristics are much alike with Islamic financing. While the same concept will be applied to Islamic finance, there must be a proper framework which will guide the Islamic crowdfunding platforms to raise funds for Shari'ah complaint projects as per Islamic laws and regulations. This chapter provides different outlooks of crowdfunding and illustrates how different Islamic finance instruments and products can be used in Crowdfunding. The chapter provides framework for process of crowdfunding campaigns which will be complaint with Shari'ah regulation under the supervision of the Shari'ah body. At the end of chapter, two crowdfunding platforms are discussed which does not claim to be Shari'ah complaint but can be roadmap for Islamic crowdfunding platforms.

Interest-Free Micro-Finance Without Any Religious Connotation

The purpose of this chapter is twofold: to investigate the relevance and the significance of interest-free formulae for conventional microfinance in non-Muslim countries, (with no religious connotation), and to lay out the foundation of a global interest-free microfinance model. The major result is that the interest-free Musharakah is just a simplified limited liability with limited duration conventional partnership. Sales-based Murabahah can also be a rewardable complement to interest. Islamic Ijarah is a leasing formulae also practiced in Europe and Africa. Salam is not far from conventional forward contact. Other finance formulae can also be used by conventional lenders to ‘complement' the interest rate. These results, contrary to the general belief, concluded that investment formulae of the two systems are not far from each other. Moreover, interest-free formulae are practiced in Africa without being related to Islam. This indicate that if we look at the interest-free formulae from the point of view of their usefulness, and not from a religious point of view, these will have universal applications without being identified as Islamic. The chapter lays out the foundation of a global interest-free microfinance model capable of serving Muslims and non-Muslims alike.

The Relevance of Maqasid al Shari'ah to Anti-Money Laundering and Terrorism Financing

The modern financial system has continuously been traumatised by money laundering and terrorism financing. This is partly because it is a concept that revolves around the complex relationship between money and crime. The challenges posed by these menaces have become a phenomenon that the world has ceaselessly looked for means to address. Yet launderers and terrorists continue to perfect methods of perpetuating their illegal activities, while the havoc created by the menace of these crimes are enormous and remains unquantifiable in term of the actual estimate. Interestingly, Maqasid al Shari'ah has caught the attention of several Muslim scholars as a useful tool that can resolve several contemporary issues. Consequently, examining the relevance of Maqasid al Shari'ah which is the basis of Islamic Finance on money laundering and terrorist financing (AML/CFT) is desirable. The focus of this chapter, therefore, is to examine the relevance of Maqasid al Shari'ah in the fight against the menace of money laundering and terrorism financing