INCEIF University Journals
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Exploration of a New Zakat Management System Empowered by Blockchain Technology in Malaysia
Get PDFPurpose — This paper aims to examine the implementation of blockchain technology in zakat management and determine how it will work in the context of Malaysia. Although zakat institutions in Malaysia use technology, confidence in the efficiency of the zakat fund is still an ongoing issue. Therefore, the potential of blockchain technology for improving the zakat management system is examined.
Design/Methodology/Approach — An exploratory study involving two informants with expertise in blockchain technology and Islamic finance was conducted to investigate how the application of blockchain in the zakat management system will accelerate the future implementation and potential of zakat management in Malaysia.
Findings — This research finds an accord between the features of blockchain technology and the objectives of zakat. The features are transparency, traceability and security, which align closely with the goals of zakat. As such, a new model has been proposed for the zakat management system, one empowered by blockchain technology that harmonises with the existing system and enhances these elements.
Originality/Value — This research can motivate zakat institutions in Malaysia to implement blockchain technology in their zakat management systems by using the proposed model. The research shows the synchronisation of blockchain principles with zakat, which would build trust and confidence.
Practical Implications — The discussion on how blockchain can be embedded in the existing zakat management system will contribute towards enhancing zakat management in Malaysia and improve the performance of zakat institutions, enabling them to better serve the community. Given the scarce literature on blockchain adoption in zakat management, this study can spur further research and discussion within this area
Investor Sentiments, the COVID-19 Pandemic and Islamic Stock Return Volatility in Indonesia
Get PDFPurpose — This study aims to investigate the effect of investor sentiments, as measured by the Consumer Confidence Index (CCI), and the impact of COVID-19 on Islamic stock return volatility proxied by the Indonesia Sharia Stock Index (ISSI).
Design/Methodology/Approach — This study employs the GARCH (1,1) model to test the impact of investor sentiments and COVID-19 on the volatility of Islamic stock returns using monthly data from July 2011 to December 2021.
Findings — The findings of this study indicate that investor sentiments negatively impact the volatility of Islamic stock returns; while COVID-19 caused a high and persistent effect on Islamic stock return volatility.
Originality/Value — Research on investor behaviour and volatility in the Islamic capital market (ICM) is limited. Investor sentiment is an essential variable in predicting the volatility level of stock returns. Investors must be aware of major events that are happening globally, such as COVID-19. This research specifically focuses on the sentiments of Islamic stock investors in Indonesia.
Research Limitations/Implications — This study uses a traditional GARCH model for variance and is limited to the Islamic stock market in Indonesia. Only a few variables were assessed, notably investor sentiments and COVID-19 on the impact of stock return volatility, using monthly data.
Practical Implications — Research on market volatility will significantly help investors, companies and regulators determine strategies to overcome risks. This research illustrates how investor behaviour can influence the movement of stock returns. A global event, notably the COVID-19 pandemic, proved to have significantly impacted the conditions of ICMs
A Theoretical Analysis in Choosing Between Profit-Loss Sharing and Interest-Based Contracts: A Simple Game Model
Get PDFPurpose — This study aims to investigate how participants decide between profit-loss sharing contracts (PLSC) and interest-based contracts (IBC) in an interactive environment. PLSC and IBC are two interesting financial arrangements. They are similar in that both transfer money from people who have excess money to those who are in need, but they are extremely different in sharing risks between participants.
Design/Methodology/Approach — The participants’ profits change based on their role (as an investor or entrepreneur) and the selected contract because the contracts are entirely different in sharing or shifting risks. Thus, in the first step, various profit functions are constructed that differ according to each party’s role and major factors relevant to each contract. Afterwards, a mathematical game model (GM) is developed to consider the parties’ interaction concurrently. A numerical example also verifies the results.
Findings — The results show that the business output level, auditing costs, collateral related costs, and market conditions or state of the economy (SoE) are major factors in deciding between IBC and PLSC.
Originality/Value — This research sets up various profit functions (based on players’ roles and contracts), enriching them by the contract-related factors and SoE and developing a GM. The existing literature focuses on the investor’s optimal contract, while concluding a contract needs the mutual consent of the involved parties, not only the investor’s inclination.
Practical Implication — This research provides a guideline for ‘parties’ share in PLSC’ and generally accepted auditing standards for auditing PLSC
Impact of COVID-19 on the Behaviour of Islamic and Conventional Investors: Evidence from the Indonesia Stock Market Crash 2020
Get PDFPurpose — The aim of this paper is to investigate the influence of the COVID-19 outbreak on Indonesia’s conventional and Islamic stock markets through the lens of behavioural finance in the digital age.
Design/Methodology/Approach — The analysis in this paper is focused on the short-run and long-run impact of variables associated with COVID-19—such as the number of COVID-19 cases and mortality, the Google Search Volume (GSV) for the search query associated with COVID-19, and the panic index related to COVID-19—on the returns of the LQ45 Conventional Index and Jakarta Islamic Index (JII), using the Autoregressive Distributed Lag (ARDL) model.
Findings — In the short run, increasing mortality and GSV significantly decreases the returns on LQ45 and JII. By contrast, the returns of LQ45 and JII are unaffected by an increase in the number of cases or the panic index. In the long run, only the panic index affects the LQ45 returns.
Originality/Value — This article makes three contributions to the literature. First, it compares the COVID-19 outbreak’s impact on conventional and Islamic stock markets. Second, it discusses the short-run dynamics and long-run impact of the COVID-19 outbreak on stock returns. Third, it provides an explanation of the empirical relationship between the COVID-19 outbreak and the stock market using a behavioural finance viewpoint.
Practical Implications — Digital behavioural science-based policies are needed to prevent or lessen financial market crashes during future crises.
ErratumArticle classification: Erratum from: ISRA International Journal of Islamic Finance Vol. 15 No. 3 (2023)Publisher: ISRA Research Management Centre, INCEIF University
Shiddiqi, F.A. & Susamto, A.A. (2023), ‘Impact of COVID-19 on the Behaviour of Islamic and Conventional Investors: Evidence from the Indonesia Stock Market Crash 2020’, ISRA International Journal of Islamic Finance, Vol. 15 No. 3, pp. 142–159. https://doi.org/10.55188/ijif.v15i3.615It has been brought to our attention that an error in the affiliation of one of the authors has been inadvertently occurred during the publication process. The affiliation of author Faris Azzam Shiddiqi on page 142 should be changed from Graduate School Yogyakarta, Universitas Gadjah Mada, Yogyakarta, Indonesia to instead read: The Graduate School, Universitas Gadjah Mada, Yogyakarta, Indonesia.
ISRA Research Management Centre, INCEIF University sincerely apologises to the authors for any inconvenience caused.This change has been effected in the online version of the paper.
Citation:(2023), ‘Erratum’, ISRA International Journal of Islamic Finance, Vol. 15 No. 3, https://doi.org/10.55188/ijif.v15i3.61
Viability of Islamic Health Protection Retirement Plan (i-HPRP) Among Malaysian Public and Private Employees
Get PDFPurpose ― The main objective of this research is to examine the viability of the proposed Islamic health protection retirement plan (i-HPRP) among public and private employees in terms of their perceived benefits, future commitment, and preferences.
Design/Methodology/Approach ― Quantitative research design is chosen to achieve the purpose of the research. A total of 498 Malaysians located in different states were surveyed, and partial least squares-structural equation modelling (PLS-SEM) analysis was conducted for data analysis.
Findings ― Results of the analysis indicate that most of the respondents believed that the suggested plan is viable in terms of the benefits it provides and in line with their future commitment. In addition, both public and private employees have high interest in the proposed plan that appears to suit their retirement plans and health protection needs during that period.
Originality/Value ― This study structured an original illustrative retirement health protection plan to test its viability among public and private employees.
Research Implications/Limitations ― Results of this research are significant in proving that the suggested model of i-HPRP is attractive and would have positive acceptance among Malaysians once offered in the takāful (Islamic insurance) market. It would motivate takāful operators to develop this model as currently there are limited annuity takāful products offered in the market
The Impact of COVID-19 on the Performance of Islamic Banks in the MENA Region
Get PDFPurpose — This research explores the impact of COVID-19 on the financial return of Islamic banks (IBs) in nine countries located in the Middle East and North Africa (MENA) region. It also examines the determinants of IBs’ profitability during stable and uncertain periods, namely before and during the development of coronavirus.
Design/Methodology/Approach — The financial data of this paper were collected from annual reports of IBs and the Orbis Bank Focus database over four years: 2018, 2019, 2020 and 2021. Descriptive statistics were used to examine the progress of IBs’ performance from 2018 to 2021. The t-test was employed in this research paper to compare the financial proxies of IBs, and the multiple regression model was used to assess the determinants of IBs’ performance before and during the development of coronavirus in MENA countries.
Findings — The empirical findings show that IBs in MENA countries were dramatically influenced by the development of COVID-19. All financial proxies of IBs like financial return and liquidity experienced a sharp drop during the lockdown period. The empirical findings also indicate that the financial situation of IBs in 2021 became close to the pre-pandemic situation but was nonetheless below the banks’ performance prior to the pandemic period (2018-2019). Finally, the results show that the determinants of IBs’ return were not the same during stable and uncertain periods. During the COVID-19 period, credit risk, managerial efficiency and oil price were the significant determinants of IBs’ profitability. Before the development of COVID-19, besides the elements of credit risk, managerial efficiency and oil price, liquidity risk and bank size were also found to have an influence on IBs’ profitability.
Originality/Value — The research offers new insights to top managers in IBs to increase the institutions’ financial return and mitigate the negative shock of crises by managing several factors such as credit risk and managerial efficiency.
ErratumArticle classification: Erratum from: ISRA International Journal of Islamic Finance Vol. 15 No. 1 (2023)Publisher: ISRA Research Management Centre, INCEIF University El-Chaarani, H. (2023), ‘The Impact of COVID-19 on the Performance of Islamic Banks in the MENA Region’, ISRA International Journal of Islamic Finance, Vol. 15 No. 1, pp. 109–129. https://doi.org/10.55188/ijif.v15i1.488. It has been brought to our attention by the author that minor mistakes have been left out in the author’s details which appear on pages 109 and 129 of the article. The author would like to make the following corrections within his affiliation:
The author’s affiliation on page 109 should instead read: ‘Beirut Arab University, Tripoli, Lebanon’.
Under ABOUT THE AUTHOR on page 129, the author’s details should instead read: He is the Director of the Faculty of Business Administrationat Beirut Arab University, Tripoli, Lebanon.
These have been corrected in the online version of the paper.Citation:(2023), ‘Erratum’, ISRA International Journal of Islamic Finance, Vol. 15 No. 1, https://doi.org/10.55188/ijif.v15i1.48
The effect of IFSA 2013 on late payment of takāful benefits
Get PDFPurpose
This paper aims to examine the implications of compensation on late payment of takāful benefit imposed in the Islamic Financial Services Act 2013 on the takāful industry in Malaysia. It also aims to identify the issues and challenges faced by takāful operators in the implementation of the compensation and propose solutions for the benefits of the takāful industry.
Design/methodology/approach
This research uses the qualitative approach to understand the practices of claims in takāful and to analyze the implication of compensation on late payment of takāful benefit to the takāful industry in Malaysia. Data are collected through survey and interview with various takāful stakeholders.
Findings
Some of the key findings in this research are that the compensation of late payment of takāful benefit has a positive impact to the takāful industry. The research also found some Sharīʿah operational issues in terms of its implementation among takāful operators.
Research limitations/implications
The research focuses on compensation on late payment of takāful benefit claim in death and personal accident only.
Practical implications
The research offers certainty to the takāful industry and an explanation to academic and legal fraternities on the implementation of compensation on late payment of takāful benefit according to Islamic Financial Services Act (IFSA) 2013.
Originality/value
The research provides a valuable contribution to the current practices of takāful operators, identifies some issues and challenges of its implementation and proposes the solution.
DOI: https://doi.org/10.1108/IJIF-08-2017-002
Viability of Cash Waqf-Linked Ṣukūk in Malaysia
Get PDFPurpose ‒ This research explores cash waqf-linked sukuk (CWLS) and ascertains its viability in Malaysia under relevant legal and regulatory framework of waqf and sukuk. This is with view to implementation of CWLS in Malaysia by Islamic social and commercial finance institutions.
Design/Methodology/Approach ‒ The research adopts a qualitative methodology and uses content analysis in synthesising relevant data to determine viability and prospect of CWLS in Malaysia. Semi-structured expert interviews were conducted, and data obtained therefrom was analysed alongside published literature on CWLS in identifying issues in applicable waqf and sukuk legal and regulatory framework that pertain to CWLS viability.
Findings ‒ The combination of cash waqf with sukuk is potentially an impactful financing mechanism for mobilising funds that links charity with productive and income generating economic activities. CWLS facilitates development of alternative social financing instrument that expedite social welfare and economic revival in the aftermath of the Covid-19 pandemic as Indonesia demonstrates. However, Malaysia’s waqf legal and regulatory framework have established a decentralised system of waqf administration that will rather downscale the structure and operations of CWLS in the country. Hence the research proposes a reform of the framework to enable establishing a more capable and viable CWLS structure for a digital, retail and institutional investors.
Originality/Value ‒ This research discovers hindrance to the prospect of CWLS in the legal, Shariah and regulatory dynamics of waqf and sukuk in Malaysia which previous studies overlooked. This research provides an in-depth understanding of challenges to CWLS’ implementation in Malaysia with invaluable insight for regulators, policy makers, practitioners and researchers, thereby contributing to practical knowledge in the area
Objective Performance Evaluation of the Islamic Banking Services Industry: Evidence from Pakistan
Get PDFPurpose — The study documents the performance of the Islamic banking services industry (IBSI) in light of the Islamic finance objectives, notably financial stability, equitable distribution of wealth, and social responsibility.
Design/Methodology/Approach — After drawing the performance evaluation framework based on the objectives, the research conducts a balance sheet analysis of the IBSI in Pakistan for 32 quarters (2013Q4–2021Q3). The analysis examines sources and uses of funds by looking at the application of financial contracts and sectoral distribution of financing. Objectively classified data trends are reported through graphs.
Findings — Findings suggest that the domestic IBSI has shown progress in achieving primary and intermediate objectives, including commercial performance, contribution to equitable wealth distribution, and financial stability. However, the industry’s in-practice business models lack any significant contribution to the social sector, which represents a more advanced objective.
Originality/Value — The contributions to the literature include development of a performance evaluation framework based on Islamic finance objectives, and documentation of findings on the IBSI’s achievements in Pakistan.
Research Implications — The study recommends that regulators develop a legal framework for business models of the IBSI. It also recommends that managers of domestic Islamic banks include the social sector as well as agricultural and rural areas in financing and investment portfolios.
Article Classification — Research pape
Investigating Equity-Based Financing and Debt-Based Financing in Islamic Banks in Indonesia
Get PDFPurpose — This study empirically examines whether equity-based financing (EBF) generates fixed income similar to debt-based financing (DBF) in the context of Islamic banks in Indonesia. It also investigates whether the Islamic bank financing return rate (IBFRR) has a relationship with the conventional bank lending interest rate (CBLIR).
Design/Methodology/Approach — This paper uses monthly data for the period 2009–2019 and produces 132 units of analysis. The object of the study is Islamic banks (IBs) and conventional banks (CBs) in Indonesia. The study uses the Vector Error Correction Model (VECM) as the tool of analysis.
Findings — This study provides evidence that, contrary to DBF products, EBF does not have fixed income. EBF in Indonesian IBs has been executed according to the requirements of Islamic law. The study also finds that CBLIR is not correlated with IBFRR.
Originality/Value — This is the first study to correlate equity-based financing return rate (EBFRR) with debt-based financing return rate (DBFRR). This paper also examines the no-causality relationship between CBLIR and IBFRR.
Research Limitations — This study uses Islamic banking data in the aggregate. Therefore, it cannot explain whether research results differ between banks.
Practical Implications — EBF in Indonesian IBs has been applied according to its epistemology. However, the significant increase in mushārakah financing noted over the study period should be followed by a careful customer business feasibility analysis