INCEIF Knowledge Repository (INCEIF University)
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Some thoughts on resetting the roles and functions of Shari'ah committees of Islamic banks in Malaysia
No full textThe purpose of this study is to understand and evaluate the roles and functions of the Shari'ah committee (SC) of Islamic banks (IBs) in Malaysia and to recommend a resetting of the scope of responsibilities to enable the SC to effectively respond to current market needs. A Likert-type survey questionnaire was developed and distributed to all available SC members through e-mails and online surveys as well as self-administered questionnaires. At the end of the survey, 87 useable questionnaires were collected from 161 SC members, representing a 54% response rate. This study finds that most SC members have the necessary Shari'ah qualification, and they are mostly academics with doctoral degrees. However, there is a noticeable lack of diversity in the composition of experts in the committees. Respondents indicate that their main functions are to ensure Shari'ah compliance of bank operations and product offerings. This is of course consistent with their stated functions as outlined in the Bank Negara Malaysia's Shari'ah Governance Policy Document (BNM, 2019). The study finds that SCs are not involved in product development, nor responsible for financial performance. Respondents indicate three ways to enhance the role of SCs: improving banking knowledge of the members, more engagement with the board of directors (BoDs) and broadening the functions of SCs. This study highlights two policy implications. First, there is a strategic need for IBs to consider having a diversity of expertise in the SCs while maintaining the Shari?ah experts as core members. Second, this study recommends a reset of the scope of duties of the SC to include three new areas: risk management, product development and financial performance
Islamic capital market in Maldives: a reform-oriented analysis
No full textThis study analyses legal and regulatory framework of Islamic capital market (ICM) in the Maldives to find out the legal reform required to further develop ICM in the country. The regulatory authority for ICM in the Maldives is the Capital Market Development Authority which has set up an apex Shari'ah Advisory Council to seek advice on Shari'ah related matters and has enacted the regulations required for ICM. This study adopts doctrinal legal research and qualitative study using the content analysis approach. It is imperative to note that only limited research has been found on the subject and as such, it is anticipated that findings of this research will assist the policymakers to understand the legal reform required to further strengthen ICM in the Maldives. Findings of this study reveal that there is a need to amend the Securities Act (2006) to recognize Shari'ah Advisory Council for capital markets as a statutory body. The findings suggest the Shari'ah Advisory Council to make their decision binding, and the regulations enacted for ICM need to be amended considering the existing hiccups and challenges faced
The need for a comprehensive governance code to regulate Islamic social finance institutions
No full textA talk by Associate Professor Dr. Aishath Muneeza on the topic "The need for a comprehensive governance code to regulate Islamic social finance institutions"
Islamic finance and the mission to net zero
No full textThe 26th United Nations Climate Change Conference of the Parties (COP26) summit held in Glasgow in November 2021, for the first time, targeted fossil fuels as the key driver of global warming. Over 130 countries committed to a net zero impact on climate within the next 50 years, with India committing to net zero emissions by 2070. This commitment moves the world closer to the key objectives of the summit: secure global net zero by mid-century and keep the average global temperature to 1.5 degrees Celsius within reach; adapt to protect communities and natural habitats; mobilise finance to secure global net zero; and work together to deliver the implementation of the Paris climate agreement commitments (United Nations, 2021). However, to achieve the set objectives, some of the following issues prevail post summit: a systematic approach to reimburse damages from climate change; prioritising countries with high sea levels; and addressing the increasing frequency of extreme disasters. What is generally the role of the financial sector and particularly Islamic finance in facilitating the efforts towards the net zero emissions target? This article focuses on the expectations, responsibilities, achievements and challenges for Islamic finance with reference to green sukuk
Capital structure theory revisited: the impact of risk-sharing sukuk on firms in Malaysia
No full textIn the Islamic finance capital market spectrum, the potential of mudharabah and musyarakah sukuk is hampered with criticism by Shariah scholars. Among the criticisms include the presence of uncertainties surrounding sukuk returns, the risk of losses that the rabbul-mal (investors) have to bear, and the need to mitigate agency costs (for mudharabah contracts). This have made it a deterrent for both issuers and investors in seeing the instrument as a viable alternative to debt-based sukuk structures. This study proposes an improvement to musyarakah sukuk. It begins with a qualitative examination of the structure of corporate mudharabah and musyarakah sukuk issued in Malaysia. The examination finds risk-sharing sukuk structures in Malaysia contain features that supresses the risk sharing element between the sukuk investors and issuer. Findings from qualitative analysis is supported by generalized method of moments (GMM) and threshold analysis. Based on the sample of 86 corporate mudharabah and musyarakah sukuk issuances, the introduction of partnership sukuk in the firm's capital structure is found to be insignificant in affecting both firm risk and firm performance. The present partnership sukuk structure is then modified to incorporate variable returns (coupon payments) proportionate to the firm's net profits and variable principal repayment proportionate to the firm's total assets value. This study finds that when sukuk returns are made variable, sukuk investors are able to earn better/ equitable returns compared what they are earning in the current sukuk structure
Islamic finance transition from pandemic to endemic
No full text2022 was seen as a year where the economy of the Maldives is recovering from the COVID-19 pandemic effects. For Islamic finance, not much progress was seen. However, there were a few significant developments that happened which have brought some remarkable positive changes to the Islamic finance industry in the Maldives. The most notable example in this regard was the implementation of the first Shariah governance framework by the Maldives Monetary Authority (MMA). The Maldives was ranked 10th in the Islamic Finance Development Indicator published in the latest 2021 Islamic finance growth indicator report by Refinitiv. In the report, the Maldives was ranked third for Takaful, while for corporate social responsibility activities and corporate governance it was ranked fourth
Monetary policy and Islamic banking stability: is there a risk-taking channel of monetary policy for Islamic banks
No full textThe COVID-19 pandemic has exposed the fragilities in our economies. Central banks across the globe have been called on to protect and maintain global economic and financial system stability. One way they have done so is through unprecedented policy actions, including easing monetary policy across the globe by cutting policy rates to provide ample liquidity to core funding markets and maintain the flow of credit. Indeed, many advanced economies have kept rates to historic lows and half of the central banks in emerging markets and lower income countries have also cut policy rates (Adrian & Natalucci, 2020). This is reminiscent of the exceptionally loose monetary conditions maintained in various countries to stimulate economic activities following the outburst of the Global Financial Crisis (GFC). The GFC brought a surge of interest for the implications of monetary policy on financial risks (Angeloni et al., 2015). Indeed, the prevailing monetary policy during the period 2002-2005, which held interest rates too low for too long, is blamed as one of the significant factors that encouraged excessive risk-taking by financial institutions before the collapse of the American housing market (Chen et al., 2017; Farhi & Tirole, 2012; Rajan, 2010). This link between monetary policy and the perception and pricing of risk by economic agents is labelled as the risk-taking channel of monetary policy. Assessing Islamic banking under prevailing monetary conditions, this thesis investigates the relationship between monetary policy and the risk-taking of Islamic banks. This thesis evaluates the existence of the risk-taking channel for Islamic banking and provides a better understanding of the impact of monetary policy on Islamic banking stability under dual banking systems
Product market fluidity and religious constraints: evidence from the US market
No full textWe use a sample of 5,863 US firms to investigate how religious constraints affect the product market fluidity for Shariah compliant (SC) firms. The study is important as Islamic asset management is emerging as an alternative investment class. We find that SC firms are less exposed to product market threats in relation to Shariah non-compliant (SNC) firms. They are more competitive in the case of less concentrated markets, lower market share, equity multiplier, market/book assets ratio, experience lower asset growth, and spend little on research and development. Their competitive position is strengthened when their return on assets, sales and retained earnings are lower
The potential applications of artificial intelligence to impact the zakat distribution management
No full textArtificial intelligence is transforming the world in every way of life and zakat institutions must expand the operational management leveraging on advance technology development. The objective of this study is to provide potential applications of artificial intelligence in enhancing the distribution operational management of zakat institutions. The research has used Lembaga Zakat Selangor as a case study. This paper deliberates on the current technology development in zakat institution as well as the impediment towards the adoption of the advance technology and propose potential application of artificial intelligence to the zakat institutions. The results identify that Lembaga Zakat Selangor is venturing into the adoption of artificial intelligence in their operational distribution management however still at the early stages. Hence, the suggestion of the implementation of artificial intelligence from the study is aligned with Lembaga Zakat Selangor to resolve the key pain points in their Digitalization Journey and with hope this research could be benefit for the rest of the zakat institutions and solution provider to further evolve the social finance industry with advance technology development
Islamic finance and inclusive growth
No full textThe emergence of Islamic finance in the global financial scene has attracted much scholarly interest, leading to a plethora of studies examining the roles of Islamic finance in the economy. Generally, studies on Islamic finance focus on four areas - Islamic banking, Islamic capital markets, takaful and other Islamic finance. Among these, Islamic banking has received the most attention, with the primary focus on comparing Islamic with conventional banking based on performance. Studies in Islamic capital markets have centred on issues related to the performance and benefits of investment in Shari'ah-compliant shares and sukuk (Islamic bonds). Most recently, some attention has also been given to takaful and the so-called Islamic social finance, mainly zakat and awqaf