INCEIF University Journals
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Editorial
No full textEditorial In the name of Allah, most gracious, most merciful
In the early years of the Islamic finance industry, an attempt to implement the Islamic economic system via the top-down approach was made by three countries in the 1980s, notably Iran, Sudan and Pakistan. To date, Iran continues to be the top country with the highest Islamic finance assets, albeit following a different jurisprudential school than that of the Sunnis, the Jafari School. Pakistan and Sudan faced challenges in implementing a fully Islamic system and instead joined the majority of the countries that practice Islamic finance through the dual financial system where Islamic financial institutions operate side by side with their conventional peers.
Within the dual financial system, it is crucial that the government supports the development of Islamic finance for the industry to flourish. One of the ways that governments have shown their commitment is by setting out their national strategies for Islamic finance development in financial sector blueprints, roadmaps or masterplans. The masterplans of key Islamic finance countries such as Malaysia, Indonesia and Saudi Arabia, among others, are popularly examined by stakeholders to understand the strategic thrusts the regulators of the respective countries are leveraging on to drive the Islamic finance sector. In January 2022, Bank Negara Malaysia set out the development priorities of the Malaysian financial sector for the next five years in its Financial Sector Blueprint 2022–2026. It considers value-based finance, sustainable/green initiatives, social finance and digitalization as main strategies for advancing Islamic finance leadership in Malaysia.
DOI: https://doi.org/10.1108/IJIF-06-2022-25
Editorial
No full textIn the Name of Allah, Most Gracious, Most Merciful. The Islamic finance industry has to be ever ready to face any crisis impacting the world. Being part of the wider global finance market, Islamic finance is shaken every time there is any major impact on its conventional counterpart. The present coronavirus disease outbreak (COVID-19) is expected to downgrade the growth forecast of many economies for 2020 and is sparking uncertainty for businesses. Economic sectors such as tourism, trade, logistics, capital markets, aviation and the cruise industry have started feeling the brunt of the impact. S&P Global reports that the biggest loser in the S&P500 in February 2020 was Royal Caribbean Cruises, which recorded a 31.30% fall in share price. While the early start of 2020 saw a promising outlook for Islamic finance, after a few years of lack lustre growth, this disease outbreak is now raising fears because of the disastrous effect it may have on equity market performance, in particular, and the general costs it would impose on the industry.
The spread of COVID-19 in key Islamic finance jurisdictions such as Malaysia, Iran and the Gulf countries spells both opportunities and challenges for the Islamic finance industry. Islamic Finance News, in its weekly market round-up 22-28 February, reported that Iran Insurance and Saman Insurance now cover coronavirus within their range of insurance products. In Malaysia, many conventional and Islamic banks have started offering financial relief to both individual and business customers to ease their short-term financial constraints in the face of the current COVID-19 situation. The relief packages include, among others, restructuring and rescheduling of financing, allowing temporary deferment of loan repayments. On the down side, we note that many international Islamic finance conferences scheduled for the first half of the year have now been postponed. Also, just as the disease has impacted other industries, it will negatively impact the ḥalāl economy as well. The ḥalāl economy has been identified by many as the propelling axis of future growth for Islamic finance, and negative impact on it will have a negative knock-on effect on the prospects for Islamic finance growth
The impact of credit ratings on capital structure
No full textPurpose
The purpose of this paper is to empirically investigate the effect of real credit ratings change on capital structure decisions.
Design/methodology/approach
The study uses three models to examine the impact of credit rating on capital structure decisions within the framework of credit rating-capital structure hypotheses (broad rating, notch rating and investment or speculative grade). These hypotheses are tested by multiple linear regression models.
Findings
The results demonstrate that firms issue less net debt relative to equity post a change in the broad credit ratings level (e.g. a change from A- to BBB+). The findings also show that firms are less concerned by notch ratings change as long the firms remain the same broad credit rating level. Moreover, the paper indicates that firms issue less net debt relative to equity after an upgrade to investment grade.
Research limitations/implications
The study covers the periods of 2009 to 2016; therefore, the research result may be affected by the period specific events such as the European debt crisis. Moreover, studying listed non-financial firms only in the Tadawul Stock Exchange has resulted in small sample which may not be adequate enough to reach concrete generalization. Despite the close proximity between the GCC countries, there could be jurisdictional difference due to country specific regulations, policies or financial development. Therefore, it will be interesting to conduct a cross country study on the GCC to see if the conclusions can be generalized to the region.
Originality/value
The paper contributes to the literature by testing previous researches on new context (Kingdom of Saudi Arabia, KSA) which lack sophisticated comparable studies to the one conducted on other regions of the world. The results highlight the importance of credit ratings for the decision makers who are required to make essential decisions in areas such as financing, structuring or operating firms and regulating markets. To the best of the authors’ knowledge, this is the first study of its kind that has been applied on the GCC region.
DOI: https://doi.org/10.1108/IJIF-03-2018-002
Performance of Islamic banks: Do the frequency of Sharīʿah supervisory board meetings and independence matter?
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This paper aims to investigate the relationship between the composition of Sharīʿah supervisory boards (independence and frequency of meetings) and the performance of Islamic banks in the Gulf Cooperation Council (GCC) countries.
Design/methodology/approach
The study developed a multiple linear regression model, and data were collected from the annual reports of 48 standalone Islamic banks listed in the GCC countries covering the period between 2013 and 2017.
Findings
The results showed a statistically significant and negative relationship between the composition of the Sharīʿah supervisory boards and the performance of Islamic banks.
Research limitations/implications
As the current study used only one indicator, that is Return on Assets to measure performance, it is recommended to expand the framework of this study, through the addition of market-based performance indicators such as Tobin’s Q.
Practical implications
This study recommends the GCC countries to follow a more proactive Sharīʿah governance model to strengthen their frameworks from both regulatory and non-regulatory aspects.
Originality/value
The study contributes to the Sharīʿah governance and Islamic banking literature relating to the GCC countries as previous studies gave no attention to the composition of Sharīʿah supervisory boards.
DOI: https://doi.org/10.1108/IJIF-05-2018-005
Editorial
Get PDFHistorical Review of IJIF
This year we celebrate 15 years since the launch of ISRA International Journal of Islamic Finance (IJIF). IJIF started in 2009 under the ownership and management of the International Shari’ah Research Academy for Islamic Finance (ISRA) with the vision to promote further innovation in the Islamic finance industry and academia by providing a platform for publishing high quality research in the areas of Islamic banking, economics, finance, law and takāful. ISRA initially published two issues of the Journal per annum in hard copies. Three types of articles were considered: articles of academic rigour, articles by practitioners who have experience in applied Islamic finance, and the research works carried out by ISRA researchers under the heading ‘Research Notes’
Corporate demand for general takāful in Malaysia
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This study on corporate demand for general takāful (Islamic insurance) aims to identify potential growth areas and areas for improvement in takāful business practices in Malaysia.
Design/methodology/approach
A survey on corporates’ protection needs, takāful/insurance coverage obtained and awareness on takāful/insurance was conducted for this paper.
Findings
The findings from the survey are as follows: There is potential for takāful operators to further penetrate the corporate sector, as the majority of respondents indicated willingness to spend on takāful/insurance. Emphasis on takāful value propositions apart from its Sharīʿah compliance status is needed to attract corporates, as respondents were found to be indifferent on Sharīʿah compliance status of their protection. Strong market presence, expanded product offerings and efficient services were key determinants to attract takāful subscription. Respondents’ heavy reliance on intermediaries warrants strong collaboration with intermediaries to widen market outreach. The small and medium enterprises segment appeared promising, as it is found to be underserved despite having higher propensity to obtain takāful/insurance coverage compared to the overall respondents.
Research limitations/implications
This study is limited to Malaysia’s experience. The findings are indicative (though they may not be conclusive) of the target segment as well as the takāful industry as a whole.
Originality/value
The insights on respondents’ considerations when obtaining takāful/insurance coverage and the correlation of these factors with respondents’ characteristics can assist takāful/insurance providers in structuring products and business strategies to better serve this market segment. The paper may also aid discussions among researchers and regulators on areas for further development of the industry.
DOI: https://doi.org/10.1108/IJIF-08-2017-002
Sharīʿah non-compliant assets as rahn (pledge) in Islamic banking products: a fiqhī perspective
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The purpose of this study is to present a framework regarding the use of Sharīʿah non-compliant assets as rahn (pledge) and to provide the Sharīʿah analysis on the application of numerous collateral instruments, including financial assets such as shares, unit trusts, current accounts and investment accounts which are Sharīʿah non-compliant.
Design/methodology/approach
The study adopts a library-based approach to examine the concept and requirements of rahn, deliberate the classification of Sharīʿah non-compliant assets and delineate the Sharīʿah views on the use of Sharīʿah non-compliant assets as pledges. It also examines the various forms of pledge available and offered in the market using document analysis as well as through discussion with industry practitioners.
Findings
In general, the study concludes that Sharīʿah non-compliant assets, either due to their essence or due to the means of acquisition where there is no ownership from Sharīʿah perspective, cannot be used as rahn. This study also provides the Sharīʿah analysis on the use of modern instruments such as shares, unit trusts, current accounts, investment accounts and insurance policy as pledges.
Originality/value
The paper provides a reference source for regulators in formulating an appropriate policy and framework on Sharīʿah-compliant collateral; Sharīʿah committees of Islamic financial institutions in arriving at Sharīʿah decisions on collateral; and industry practitioners in establishing internal policies and procedures on collateral.
DOI: https://doi.org/10.1108/IJIF-08-2017-001
Islamic financial literacy scale: an amendment in the sphere of contemporary financial literacy
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This study aims to develop a valid and reliable Islamic financial literacy (IFL) scale that can capture all the segments of the Islamic financial sectors and which could be considered applicable for all jurisdictions across the globe.
Design/methodology/approach
To build the measure, this study followed a scale development process by collecting 698 a priori items from 81 respondents. Later, it generated an item pool through the analysis of the items with experts and gave the last form (40 items) to 287 respondents in Turkey with another IFL scale that is frequently used in the literature and a scale assessing religiosity. With explanatory factor analysis, the scale demonstrates a four-factor construct with 20 items. This construct provides good fit indexes and reliability scores.
Findings
Results of the correlation analysis and comparison of the fit indexes of alternative structures provided supportive evidence for discriminant and convergent validity of the scale and its sub-dimensions. As a result, an applicable scale is developed for countries where Islamic financial institutions are operating and where they are not.
Originality/value
One of the strengths of this study is that it represents a comprehensive scale development for the entire Islamic financial system, including banking, takāful (Islamic insurance) and fund management. In addition, the attempt to design an IFL scale applicable to any economy or individual is a pioneering attempt in the literature.
DOI: https://doi.org/10.1108/IJIF-07-2020-015
Role of Islamic microfinance in women’s empowerment: evidence from Rural Development Scheme of Islami Bank Bangladesh Limited
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The purpose of this study is to investigate the impact of Islamic microfinance services (IMFS) on women’s empowerment in rural Bangladesh.
Design/methodology/approach
The study is based on a multi-stage sampling technique. The primary data are collected through a face-to-face survey of 389 women respondents who have received IMFS from the Islami Bank Bangladesh Limited. Cronbach’s alpha test is conducted to test the reliability and internal consistency of collected data. Paired-sample tests, logit regression and proportion hypothesis tests are conducted to measure the impact of IMFS on women’s empowerment. Descriptive and inferential statistics are used to interpret the data.
Findings
The study reveals that IMFS have led to structural transformation in the occupation dynamics of the respondents’ families from agriculture to retail businesses. IMFS have had a significant positive impact on household income, savings and expenditure; have improved standard of living and human capital formation; and have enhanced all three dimensions of empowerment, namely, economic empowerment (ECEM), socio-cultural empowerment (SCEM) and familial empowerment (FLEM). Of them, ECEM and SCEM have positively contributed toward overall women’s empowerment, while FLEM has a negative but insignificant impact on overall empowerment. The respondents’ perception also supports the finding that IMFS have benefited rural women and empowered them.
Originality/value
The study is based on primary data. It leads to an inquiry as to whether women are dominant in familial affairs. If so, it may reduce the state of happiness and overall women’s empowerment. There is a clear gap in the existing literature about this inquiry.
DOI: https://doi.org/10.1108/IJIF-11-2019-017
The Right Purpose on the Right Covenant: Does the Loan Purpose Affect the Debt Covenant Through the Ṣukūk Rating?
Get PDFPurpose — This paper aims to determine the influence of the purpose for issuing ṣukūk (operations, financing, and investment/acquisition) on different types of debt covenants (balance sheet, income statement, and collateral-based covenants). It also examines the ability of the ṣukūk rating to mediate the relationship between loan purposes and debt covenants.
Design/Methodology/Approach — The research data were 236 ṣukūk that were listed on the Indonesia Stock Exchange (IDX) until December 2020. They were collected through the IDX official website. Logistic regression and the Sobel test were used to test the direct and indirect influences among the variables studied.
Findings — The results showed that loan purposes affected the types of debt covenants. Loans for operational purposes seemed to be in accordance with the debt covenant with restrictions on income statement (IS), balance sheet (BS) and collateral. Loans for investment/acquisition were more appropriate to both BS and collateral-based debt covenants, while loans for financing were better suited to BS-based debt covenants. This study also proves that the ṣukūk rating could mediate associations between loan purposes, especially for investment/acquisition, and the types of debt covenants.
Practical Implication — This research is useful for ṣukūk investors to consider the investment by looking at the purposes, ratings and ṣukūk covenants. In addition, it is helpful for ṣukūk holders, represented by trustees, in determining debt covenants in the form of ṣukūk with different purposes.
Research Implication — The results of this study described how accounting information improved contract efficiency. This research provided important evidence of the association between the structure of debt covenants and loan purposes. It provided empirical evidence of the debt covenant hypothesis in agency theory on the importance of designing debt contracts to reduce monitoring costs.
Originality/Value — This study employed the debt covenant on ṣukūk in Indonesia. The use of the ṣukūk rating as an intervening variable between loan purpose and debt covenant has not been studied previously. This study also divided debt covenant into four types by adding the collateral-based debt covenant because ṣukūk are different from other types of debt and require underlying assets in their issuance