INCEIF Knowledge Repository (INCEIF University)
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The concept of the time value of money: a Shari'ah viewpoint
No full textISRA Research Paper 38/2012The concept of the time value of money (TVM) has been well accepted and widely applied in the conventional financial system for a very long time. However, Islamic scholars hold differing views regarding its conceptual and practical foundation in the Islamic financial system. The opponents of TVM have argued that recognizing it will lead to acceptance of riba, against which Islam is at war. This may, however, be a hasty judgment. Islam does not reject any concept that aligns with its teaching, promotes justice among people and secures their interests, particularly in financial transactions. The concept of TVM establishes that time can be given a counter-value in association with real commercial activities. Therefore, Islamic acceptance of TVM should not be disregarded, particularly in financial transactions, such as deferred sales and loan contracts, in order to uphold justice. However, the concept of TVM must be applied in accord with specific Shari'ah parameters because applying it without complete adherence to its Shari'ah parameters may lead to actual riba. In contrast, if the Shari'ah parameters are completely complied with, the application of TVM may result in removal of riba and achievement of fair economic effects in financial transactions. Hence, this study aims to examine the legal status of the time value of money in Islam and then formulate the Shari'ah parameters for its application in Islamic finance. The study employed the library method to collect information, which was analysed using comparative, deductive and inductive methods. The study establishes that Islam recognizes the legitimacy of the time value of money arising from deferment (ajal), but its application must be in conformity with the Shari'ah parameters in order to avoid riba
Unsustainability of the regime of interest-based debt financing
No full textEvidence has been mounting that the interest-based debt financing regime is under increasing distress. Evidence also suggests that financial crises—despite the various labels assigned to them: exchange rate crisis or banking crisis—have been debt crises in essence. At present, data suggest that the debt-to-GDP ratio of the richest members of the G-20 is expected to reach the 120% mark by 2014. There is also evidence that, out of securities worth US$ 200 trillion in the global economy, no less than three-fourths represent interest-based debt. It is difficult to see how this massive debt volume can be validated by the underlying productive capacity of the global economy. This picture becomes more alarming considering the anemic state of global economic growth. There is great uncertainty with regard to interest rates. Although policy-driven interest rates are near zero, there is no assurance that they will not rise as the risk and inflation premiums become significant. Hence, a more serious financial crisis may be in the offing and a general collapse of asset prices may occur. This paper argues that the survival of the interest-based debt regime is becoming less tenable, as is the process of financialization that has accompanied the growth of global finance over the last four decades. It further argues that Islamic finance, with its core characteristic of risk sharing, may well be a viable alternative to the present interest-based debt financing regime
Technical efficiency of manufactured rubber product in Malaysia: stochastic frontier analysis
No full textThis paper investigates the technical efficiencies of rubber product manufacturing industry in Malaysia. We employed Stochastic Frontier Analysis (SFA). Secondary data from 313 firms that manufacture rubber product was obtained from the Annual Survey Of Manufacturing Industries 2004 by Department of Statistics Malaysia. Variables that are included in this are such as capital (RM), labor, and energy. Results clearly show that the mean technical efficiency of manufactured rubber product industry in Malaysia is 0.70328 or 70.33 percent. Majority of the firms are also fairly efficient in the use of available resources. Some technical assistance such as training programs for the proprietors of the firms and financial support such as subsidies could be offered to boost their production level as rubber is indeed an important component of the manufacturing industry in Malaysia
The Maidives edge towards a fully-fledged Islamic capital market
No full textMaldives is an essentially Muslim country, which mainly follows the Shafi'i School of Thought of Sunni Islam. With a population of just 300,000 it is the smallest country in Asia; it is also the smallest Asian country in terms of land area, consisting of more than a thousand islands, just two meters above sea level. Despite several attempts to introduce Islamic finance in the past, until 2011 Maldives had no Islamic financial institutions
Do ‘sin stocks’ deprive Islamic stock portfolios of diversification? Some insights from the use of MGARCH-DCC
No full textThere is this argument that Shari’ah compliant portfolios are at a disadvantage in terms of portfolio diversification given that the exclusion of ‘sin stocks’ shrinks the Islamic investor’s investment universe. This paper investigates first, whether there is empirical evidence to substantiate such a claim, and second, can something be done to alleviate this disadvantage. Our results show that there is statistical evidence that Islamic portfolios are deprived of some benefits of diversification, at the sector level. However, the empirical evidence does not permit us to generalise such a finding at the specific stock level. By analysing the temporal characteristics of correlations using MGARCH-DCC, we argue that Islamic portfolios can minimise loss of diversification benefit by adopting appropriate portfolio allocation strategies. In particular, market sentiment and commodity prices are two key variables that can drive portfolio allocation switching decisions. In short, while there is some evidence that investors of Shari’ah compliant portfolios are denied additional benefits of diversification, there are arguably avenues to mitigate such a disadvantage
IE 1002: Reporting of Islamic financial transactions
No full textThis study guide is to develop an understanding of the accounting issues in Islamic finance in the framework of Islamic accounting concepts. This guide covers the view od practices and issues in shariah review, and auditing in Islamic financial institutions and performance of analysis of Islamic banks
The Islamic financial system alternative
No full textIslamic finance provides financial products, which comply with Islamic law (Shariah), largerly to Muslim investors and some Islamic products have even attracted conventional investors and borrowers. Despite growing interest in Islamic finance, a full-fledged Islamic financial system has yet to be established and demonstrated as the viable financial system in even a single country ..
Islamisation of microfinance: a case study of Maldives
No full textMaldives is a hundred per cent Muslim country that lies in the heart of the Indian Ocean. It has a unique geography consisted on 1,190 islands forming 26 natural atolls spreading over 900 square kilometer. The population of the country is just around 300,000. Maldives is ranked 100 out of 178 countries on the Human Development Index, and is classified as a country with medium human development. The biggest economic challenge in Maldives is to distribute the income evenly to all parts of the nation. It is, thus, difficult to develop all the inhabited Islands scattered across the archipelago due to lack of transportation facilities. The capital of Maldives, Male is the only island that has been developed in terms of health, education and infrastructure. The rest of the nation is still developing at a slow pace. Microfinance is the only type of development tool to the Island population. The nation is alien to Islamic finance until early this year. Though Islamic banking is introduced in the country, the benefit of the bank is only enjoyed by the people in the capital. The rest of the population is left with bare minimum or without any type of modern banking facility. Hence, the only source of development capital is the capricious periodic disbursements for target areas by foreign aid agencies in collaboration with the government. The problem with the microfinance facility in Maldives is that it is based o the conventional structure. The objective of this paper is to suggest ways to Islamize microfinance in Maldives and to shed light on the benefits that the Maldivians could enjoy by using Islamic microfinance. In the course of doing this, the paper explores the potential sources to raise capital for microfinancing in Maldives. It is
anticipated that the outcome of this paper would also supplement efforts by other geographically dispersed low-lying island nations
Factors influencing unethical behavior of insurance agents
No full textThe study investigates the relationships between supervisory influence, role ambiguity and sales target on intention to perform unethical behavior. It also examines how attitudes, perceived behavioral control, subjective norm and moral obligation mediates the relationship of supervisory influence, role ambiguity and sales target on intention to perform unethical behavior. The respondents of the study comprise 246 individual insurance agents. The result of the study shows that there is a relationship between supervisory influence, role ambiguity and sales target on intention to perform unethical behavior. The study found that attitude partially mediates the relationship between supervisory influence, role ambiguity and sales target on intention to perform unethical behavior. Subjective norm and moral obligation was found to partially mediate the relationship of supervisory influence and role ambiguity on intention to perform unethical behavior. The implication from this study shows that there is a need for constant monitoring, support and encouragement and making sure clear roles are presented and sales targets sets are achievable to the insurance agents in order to minimize their unethical behavior
Case study: waqf-shares—financing through movable waqf
No full textHistorically speaking the institution of waqf, which is a non-governmental organization (NGOs), has played a significant role throughout Islamic history, from the time of the Prophet (pbuh) to the beginning of the 19th century. Although this institution existed before the coming of Islam, yet, Islam was the first religion to develop its legal framework and regulate it. Thus, it became one of the devices created by Muslims to fulfill many services that are financed by the state or the government today, such as education, healthcare, national security, transportation facilities, basic infrastructure, food, shelter, and jobs for many. It acted like a network, penetrating many service sectors whenever it found a need to promote a particular sector. We cannot deny the role of this institution in the development of Islamic civilization before its destruction towards the end of the 19th century. With the recent revival of some of the Islamic institutions in the 21st century, the waqf found its way back with a new dimension focusing mainly on the creation of movable waqf in different countries. Waqf-share is one of the movable waqf which has been practiced in many Muslim and Muslim minority countries today. With the current financial crisis and the urgent need for capital to continue providing services needed by the different societies, the introduction of waqf-shares as a fundraising effort was totally accepted. The main objective for introducing waqf-shares is not only for capital accumulation but also to facilitate the process of creating waqf by the different sects of people in any society, regardless of whether they are rich or not, with the minimum amount of money they can afford in order to participate in developing their societies. This paper will address the current practice of waqf-shares in four different countries