INCEIF Knowledge Repository (INCEIF University)
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An insight into financial benchmark reforms for Islamic finance
No full textIslamic finance ought to follow Shari'ah in all dimensions of it including regulatory, substantive and procedural matters of it. However, since the inception of the institutionalization of Islamic finance, it has been criticized for using conventional interest rates to benchmark its financial products. Irrespective of the criticisms made in this regard, from a Shari'ah perspective, this practice of Islamic finance has been defended and therefore, the practice continued until in July 2017 it was announced that there is a need to move away from LIBOR as an interest rate benchmark before the end of 2021. This announcement led to the creation of various risk-free rates and highlighted an opportunity to bring some reforms to Islamic finance by introducing financial benchmarks that could be compatible with Islamic finance principles. Therefore, the objective of this paper is to provide insight into the financial benchmark reforms required for Islamic finance by providing a review and preview of the topic using a desk review qualitative approach. The findings of this paper indicate that there could be no single benchmark that could be uniformly used for Shari'ah compliant financial products, and there is a need to introduce specific benchmarks for different types of Shari'ah contracts used in structuring Islamic finance products. It is expected that the findings of this paper would assist in understanding the theory and practice of implementing Islamic alternative benchmark to the London Inter-Bank Offered Rate (LIBOR) and would motivate regulatory authorities and standard setting bodies to consider enacting financial benchmarks that will reflect the behaviour of Islamic finance products and the underlying Shari'ah contract(s) used to structure them
Exploring digitalization of Malaysian banking and fintech companies' services from the customer's perspective
No full textThis paper aims to explore the process of digitalization of the financial services provided by Malaysian banks and FinTech companies and to address the issues and challenges they face. Both secondary and primary sources are used in this study, where the latter represented by questionnaires and in-depth interviews with the banking and FinTech practitioners. The qualitative aspects of the Analytical Network Process method are used to identify and analyze economic, regulatory, and operational issues faced by banks and FinTech institutions in the process of digitalizing financial services. The findings provide useful insights on whether the policies set by Bank Negara of Malaysia either accelerate or hinder the growth of Malaysia's digital finance sector. The challenges faced by banks and FinTech companies, while digitalizing their financial services, are quite similar. They include the concerns of cyber security, lack of customer readiness in utilizing the financial services, particularly in rural areas, and the need for financial authorities to maintain stronger consumer and investor protection due to high pace of evolution of financial technology. It was also noted that customers have evolving expectations towards digital financial services, because they want seamless digital banking solutions to meet their daily needs. Previous studies had their focus on the benefits and impact of digital finance on financial inclusion as well as financial innovation. This research takes a different approach as it reflects on the impact of digitalization of financial services provided by banks and FinTechs through the prism of customer perspective
Al-tajribat al-Maliziya fi al-ta'min al-takafuli: dirasat tahliyah
No full textAccording to the Islamic financial services industry stability report published by IFSB in 2019, the takaful contributions in Southeast Asia were estimated to have reached US 2.77 billion, which represented 70% of the total takaful contributions in Southeast Asia. In light of this, this paper examines the development of takaful industry at the global level, the emergence and development of the takaful industry in Malaysia, the contractual relationships governing the practice of takaful in Malaysia, and the main factors which make Malaysia as one of the pioneering models in takaful in Southeast Asia region. In terms of methodology, the research adopts a qualitative approach employing the inductive method to trace primary and secondary data on the topic and the descriptive method to describe the Malaysian experience in Islamic insurance. The research also adopts the analytical method to evaluate the viability of takaful in the Malaysian context. The study found that the developments of takaful in Malaysia are very promising due to the abundant encouragement provided by the regulators. The research has also concluded that the success of the Malaysian experience is due to the legal and regulatory frameworks, the infrastructure support system that facilitates and govern the work of takaful operators, and the healthy competitive environment among the takaful companies. These contributed to enhancing growth rate and making Malaysia a pioneering model in Islamic insurance in the Southeast Asia region
Burdening effect of Shariah knowledge and sales performance in Islamic financial institutions: does female salesforce perform better?
No full textThe purpose of this paper is to examine the burdening effect of Shariah knowledge on the sales performance of salesforce in Islamic financial institutions with special reference to gender heterogeneity. A total of 324 responses were collected from salesforce in Islamic financial institutions of Malaysia, and empirical assessment was conducted with the measures of model fit and bootstrapping techniques using partial least square multi-group analysis. Empirical findings indicate that burdening effect is evident among salesforce, and the intensity of burdening effect is relatively lesser in female salesforce compared to male salesforce. Empirical findings suggest that respective authorities of Islamic financial institutions to intensify capacity building for their salesforce, particularly in the area where the Shariah knowledge and nature of underlying Islamic contracts are employed in the financial products. There is a significant competitive advantage in preferring more female salesforce to improve the slow growth of the industry that results from burdening effect of Shariah knowledge. Not least of all, it is highly recommended for Islamic financial institutions to provide more training for the male salesforce to overcome the issue of information overload in sales performance. While there is ample literature documented that examines the gender effect in conventional sales and marketing discipline, little emphasis has been given to the salesforce in the Islamic finance industry. Further, the findings of this study provide vital implications for the management in formulating crucial policies with respect to the salesforce preference and capacity building in dealing with the burdening effect of peculiar features of the Shariah knowledge in the light of the ongoing slow growth of the Islamic finance industry
The transformative power of zakat (alms) in a humanitarian crisis: a case study from Kenya
No full textZakat is compulsory alms given by eligible Muslims around the world every year to legal beneficiaries derived from the Holy Book of Muslims: Quran. These legal beneficiaries include the poor and needy. The general rule followed in the distribution of zakat among Muslims is that zakat money collected is distributed within the legal recipients found in the geographical area in which it is collected or within the same country. It is hard to find instances where zakat money collected is transported to another country to transform the lives of poor and needy in those communities who require such assistance to improve their lives. The main reason for this is due to the Shariah opinions given by the scholars on the permissibility of transporting zakat money from one country to another. Despite this challenge, Majlis Agama Islam and Adat Istiadat Melayu Perlis (MAIPS), which is the state religious authority of one of the states of Malaysia gave permission to transport zakat from Malaysia to Kenya to support a humanitarian project managed by the International Federation of Red Cross and Red Crescent Societies (IFRC). This is a landmark case as MAIPS's decision to transport zakat from Malaysia to Kenya was used to help a drought assistance program in the county of Kitui, located in southern central Kenya that was identified as the worst-affected part of the country
Asnaf Care: a case study of the Malaysian-based charity crowdfunding platform to combat the impact of COVID-19
No full textEver since the success of GoFundMe, an American charity- or donation-based online crowdfunding launched in 2010, this platform has become popular among not-for-profit organizations to raise funds to support their social activities and projects. However, the use of this online platform within the Islamic social finance domain, particularly by the government bodies is very limited. Hence, this paper provides a case study of Asnaf Care, a charity crowdfunding platform that was launched by a state zakat authority in Malaysia, i.e., Lembaga Zakat Negeri Kedah (LZNK) to specifically assist eligible beneficiaries who are affected by the global pandemic of coronavirus (COVID-19). The case study aims to assess the effectiveness of this platform in raising funds to cushion the impact of COVID-19 on the affected zakat recipients. In this discourse, key features of Asnaf Care, its campaigns or projects, and the total collected funds since its launch in March 2020 until December 2020 are highlighted. The case study is hoped to pave the way for any zakat authorities in Malaysia or worldwide in exploring an alternative digital platform to raise additional funds during financial crises due to pandemics, calamities, or natural disasters
Pioneering Islamic microfinance in Uganda: a sustainable poverty alleviation approach
No full textMicrofinance has continued to receive positive consideration as a powerful and prospective tool needed in combating poverty and promoting financial inclusion among the poor and lower-income groups. It refers to the provision of financial services to poor and low-income people whose low economic standing excludes them from formal financial systems (IRTI, 2007). Microfinance institutions (MFIs) do enable the poor to gain access to financial services such as micro-credit, venture capital, micro-savings, micro-insurance, and money transfers on a micro level which enhances the involvement of those considered unbankable but with the acute need of financial assistance. Extending financial services to the poor not only enhances their household income and economic security, but also enables them to acquire assets and decrease their vulnerability thereby accelerating the demand for other goods and services in terms of health and education, thus leading to socio-economic development
Food insecurity and the gig economy: global and East African insights
No full textHumans are living in trying times, brought on mostly by their own hands. Increasing climate-related devastation, strange pandemics (e.g., Zika, Ebola, COVID-19 and Monkeypox), and wars that mostly support weapons-producing nations and the corporate/political elite have led to a widening of economic disparity and human suffering. Probably the most seriousof humanity's unbridled obsessions for more is food. The United Nations Environment Programme (UNEP) estimates that more than 30 per cent of food is wasted in the United States and Europe alone. But has production met increasing consumption patterns? Some wealthy nations like the USA and China have increased crop yields. However, medium- to long-term yields are on the decline, affecting output and food price and severely impacting food security and poverty in developing nations. A recent study by Hasegawa et al. (2021) found that Sub-Saharan Africa and South Asia are most at risk of hunger over the next 30 years, resulting from uncertainties in extreme climate impact. Nevertheless, most reports will have us believe that the percentage of poverty and hunger has decreased
Does foreign aid help or hinder the institutional quality of the recipient country? New evidence from the OIC countries
No full textThis study examines the impact of foreign aid on the institutional quality (IQ) of the OIC countries. Using the data of OIC countries for the three-year average period from 1991 to 2016, the system GMM finds that aid in general deteriorates the IQ for the aid recipient countries. However, quantile regression suggests that the negative impact of foreign aid on institutional quality (IQ) is relatively greater in the countries where the existing quality of institution is poor. The findings of the study suggest that improving the existing capacity is essential for reaping the optimum benefit of foreign aid on institutional development
The impact of the COVID-19 pandemic on Islamic finance: the lessons learned and the way forward
No full textThis chapter explores the impact of the pandemic on Islamic commercial finance and Islamic social finance in a comprehensive manner. The chapter reveals that COVID-19 has provided more opportunities to Islamic social finance than Islamic commercial finance. The beauty of Islamic finance in this regard is reflected as the perception that Islamic finance does not achieve its objective as being a social finance is proved to be false as Islamic finance not only promotes profit maximization, but it has also the potential to achieve social objectives. Islamic commercial finance developments could be slower, but it is anticipated that Islamic social modes of financing will be used widely even by multilateral agencies to assist the communities who need help in this pandemic. The most important lesson one could learn from this pandemic in relation to Islamic finance is that Islamic finance is truly different from conventional finance and as such, it needs a unique legal, regulatory and governance framework to display the true potential of it