INCEIF University Journals
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Islamic finance and economic growth: the Turkish experiment
No full textPurpose – This study aims to empirically investigate the connection between Islamic finance and economic growth in Turkey using the endogenous growth model.
Design/methodology/approach – It applies quantile regression with the Markov chain marginal bootstrap resampling technique by adopting total Islamic financing as the main exogenous explanatory factor in the endogenous growth model, while the gross domestic product (GDP) is employed as a measure of economic growth. The sample consists of all full-fledged participation (Islamic) banks operating in Turkey spanning from 2013Q4 until 2019Q4. The study uses academic literature, official financial reports from the Participation Banks Association of Turkey, REDmoney Group, Islamic Financial Services Board (IFSB) and the International Monetary Fund (IMF) database.
Findings – The results show that Islamic finance is promoting economic growth in Turkey, which mirrors the success of the New Turkish Economy Program (2019–2021) which aims at boosting economic growth by enhancing the Islamic finance share in the Turkish banking sector and the global market.
Research limitations/implications – Turkey has a dual banking system (conventional and participation (Islamic)) and both can influence the country’s real economy. This study is limited to the influence of Islamic banking on Turkish economic growth. The study also restricts its size and coverage from 2013Q4 to 2019Q4, to cover the years over which data for all variables included in the research are available.
Practical implications – This paper suggests the adoption of the Turkish successful experiment as a path to reach economic growth by increasing the Islamic finance share in the banking industry for countries that seek to promote economic growth by Islamic finance, as the findings of this paper support.
Originality/value – This study is the first that examines the influence of Islamic finance on economic growth under a new theoretical framework of the endogenous growth model in Turkey using a robust non-parametric approach.
DOI: https://doi.org/10.1108/IJIF-12-2020-025
Common conceptual flaws in realizing maqāṣid al-Sharīʿah vis-à-vis Islamic finance
No full textPurpose
This paper aims to scrutinize the misconceptions about maqāṣid al-Sharīʿah (objectives of Islamic law) that complicate its actualization, particularly in Islamic finance.
Design/methodology/approach
This study adopts a qualitative inductive method to identify the flaws in understanding maqāṣid al-Sharīʿah vis-à-vis Islamic finance. It uses the views of classical and modern maqāṣid scholars to critically examine the flaws.
Findings
This study concludes that the five objectives of the Sharīʿah constitute the framework of maṣlaḥah (well-being). The levels of maṣlaḥah ― namely ḍarūriyyāt (essentials), ḥājiyyāt (needs) and taḥsīniyyāt (embellishments) ― are the categories of the means to ends. The demand for financial products falls under the ḥājiyyāt and taḥsīniyyāt categories, not ḍarūriyyāt. The maqāṣid (objectives) are derived from aḥkām (provisions) being verified by the parameters, while aḥkām are guided by maqāṣid.
Research limitations/implications
This study recommends further research to theorize the concepts of ḍarūriyyāt, ḥājiyyāt, taḥsīniyyat and mukammilāt (complements); to harmonize the maqāṣid with their essential elements and to formulate a conceptual framework for actualizing maqāṣid al-Sharīʿah in Islamic finance.
Practical implications
This paper will improve perceptions and bridge gaps between the understanding of maqāṣid theory and existing practices. It suggests that instead of ḍarūriyyāt, Islamic financial institutions (IFIs) should refer to ḥājiyyāt and taḥsīniyyāt.
Originality/value
This paper identifies and clarifies the misconceptions about maqāṣid al-Sharīʿah vis-à-vis Islamic finance in the existing literature. The findings align with the views of leading maqāṣid scholars in understanding the idea.
DOI: https://doi.org/10.1108/IJIF-12-2020-025
Validity of zakat ratios as Islamic performance indicators in Islamic banking: a congeneric model and confirmatory factor analysis
Get PDFPurpose
There is much debate in the literature about how the performance of Islamic banks (IBs) should be measured. Basically, IBs’ business models are different from that of conventional banks; thus, the performance of IBs should be measured by using a Sharīʿah-based approach. This paper considers zakat (Islamic tax) as an alternative indicator to measure the performance of IBs. This paper aims to examine whether zakat ratios can be used as Islamic performance (ISPER) indicators for IBs besides the conventional performance (COPER) indicators.
Design/methodology/approach
The investigation covered a sample of 214 yearly observations of 37 IBs located in Indonesia, Malaysia, Bahrain, Saudi Arabia and the United Arab Emirates for the period 2007–2015. This study used a single-factor congeneric model and confirmatory factor analysis, performed using the AMOS 23.0 software.
Findings
The findings assert that the discriminant validity of multi-bank performance, as measured by ISPER [zakat on assets (ZOA) and zakat on equity (ZOE)] and COPER indicators (return on assets, return on equity and operational efficiency in terms of assets), is very high. Hence, ISPER and COPER measurements are valid, either together to measure the multi-performance of IBs from both the Islamic and conventional perspectives, or independently as each measurement is valid to measure the Islamic and conventional performance if it is used separately.
Research limitations/implications
This paper does not investigate whether the findings are constant across time. This represents one of the limitations of this study.
Practical implications
It is strongly recommended that IBs calculate and disclose zakat ratios, particularly ZOA and ZOE, in their annual reports. Researchers and academicians should use these ratios for measuring the ISPER of IBs, either along with COPER or separately.
Originality/value
Empirical evidence is provided in this paper on the development and validity of zakat ratios as ISPER indicators in the Islamic banking industry. Zakat ratios are suitable indicators that can measure IBs’ performance and achieve the goals of IBs as well as those of Islamic economics. Technically, zakat has a dynamic ability to reflect the profitability of IBs. The more the IBs generate profit, the more they pay zakat. Furthermore, the greater the total assets of IBs, the higher the amount of zakat that they should pay. Thus, zakat ratios can be used as profitability measurements as in the case of tax ratios.
DOI: https://doi.org/10.1108/IJIF-08-2018-008
Sharīʿah governance and agency dynamics of Islamic banking operations in the Kingdom of Saudi Arabia
No full textPurpose
This study aims to investigate and point out the variations of agency theory in the context of Sharīʿah governance in Islamic banking operations in the Kingdom of Saudi Arabia (KSA).
Design/methodology/approach
The study followed the approach of quantitative Corporate Governance Index (CGI) by computing the Gov-index (Gompers et al., 2003) and the Gov-score (Brown and Caylor, 2004; Saffieddine, 2009) to examine corporate governance (CG) issues using primary as well as secondary data. The primary data was generated from three full-fledged Islamic banks (IBs) and nine traditional banks with Islamic banking wings, all operating in the KSA. The approach was to provide an insight into the agency structure in the context of Islamic banking, which may lead to a trade-off between the conformity of Sharīʿah (Islamic law) rules and processes followed in safeguarding the rights of investors.
Findings
The majority of the Islamic banking services that are surveyed in this study acknowledge the significance of Sharīʿah governance and have implemented the fundamental methods, in conformity with this system. Certain flaws in Sharīʿah governance principles pertaining to audit, control and transparency are reported.
Practical implications
The research outcomes will be invaluable to IBs aiming to improve existing SG practices. It also has implications for IB managers to design strategies while complying with regulations and to protect the interests of all investors without breaching the ethics of Sharīʿah.
Originality/value
This paper adds original value to the body of knowledge on agency relationship by analysing the dynamics of agency theory in the unique and complex context of Sharīʿah governance of IBs or those offering Islamic products in the KSA. The results can be used as a valuable feedback for improvement of Sharīʿah governance in the banking system in the KSA and the Gulf region at large.
DOI: https://doi.org/10.1108/IJIF-12-2020-025
Proposing an organizational framework for the Sharīʿah Secretariat of Islamic banks in Bangladesh
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Sharīʿah Secretariat plays a significant role in assisting Sharīʿah Supervisory Boards (SSBs) in their role in achieving Sharīʿah compliance in Islamic banks (IBs). The key objective of the study is to develop a organizational framework of the Sharīʿah Secretariat for the IBs in Bangladesh.
Design/methodology/approach
The study applied qualitative case study research. The data have been collected from 17 respondents through semi-structured interviews from IBs and professional experts in Bangladesh.
Findings
This study proposes a full-time Sharīʿah Secretariat and several departments for further enhancement of the Sharīʿah functions in IBs in Bangladesh. The framework proposed in this study covers the formation, functions, composition, qualification, reporting line, independence, remuneration and terms of appointment of the Sharīʿah Secretariat to set a uniform benchmark for all IBs in Bangladesh. It is anticipated that the outcomes of this research will assist to further strengthen the Sharīʿah governance of IBs in Bangladesh.
Research limitations/implications
This research contributed to the national and global regulatory authorities and IBs by proposing a Sharīʿah Secretariat framework for the smooth functioning of the IBs in Bangladesh. The framework proposed in this study covers the formation, functions, composition, qualification, reporting line, independence, remuneration and terms of appointment of Sharīʿah Secretariat.
Originality/value
This study proposed a framework which is considered the first organizational framework so far for the Sharīʿah Secretariat of IBs in Bangladesh. IBs can apply this proposed framework to form their Sharīʿah Secretariat structure.
DOI: https://doi.org/10.1108/IJIF-03-2021-004
Objectives and measures of performance of Islamic microfinance banks in Indonesia: the stakeholders' perspectives
No full textPurpose
This study investigates both internal and external stakeholders' views on the objectives and measures of performance of Indonesian Islamic microfinance banks (IMFBs).
Design/methodology/approach
This study uses a qualitative approach. In-depth interviews were conducted with a wide range of internal and external stakeholders of IMFBs in Indonesia. The primary stakeholders interviewed comprised the board of directors of IMFBs located in several provinces in Indonesia, including rural and urban areas. The external stakeholders were the regulators/supervisors, represented by the Indonesian Financial Services Authority and Sharīʿah advisors of the National Sharīʿah Board as well as Muslim scholars. The data were analysed using CAQDAS, a computer-assisted tool for qualitative analysis.
Findings
The objectives of the IMFBs are seen to represent more than profits or economic well-being. Their objectives also comprise spirituality and daʿwah (Islamic propagation). Daʿwah is conducted through the provision of funding and services that are aligned with Sharīʿah (Islamic law), the dissemination of information about Islamic financing, which is based on Islamic values and principles, and the payment of zakat (Islamic alms) and charitable contributions. The measures of performance are considered to be more holistic than those of conventional banks. Profit and growth are deemed important as the means to achieve social well-being objectives.
Research limitations/implications
Better insights into the objectives and measures of IMFBs could be achieved from interviews with other stakeholder categories, such as customers and the community. This could be the focus of future research.
Originality/value
This study added a new discussion to the limited empirical literature on IMFBs by investigating the views of stakeholders on the objectives and performance of IMFBs in Indonesia.
DOI: https://doi.org/10.1108/IJIF-11-2020-023
Cash waqf from the millennials' perspective: a case of Indonesia
No full textPurpose
The purpose of this study is to explore the awareness and willingness level of millennials in Indonesia towards cash waqf (cash endowment). Cash waqf has gained huge attention in Indonesia because of its flexibility, especially after the Majlis Ulama Indonesia (MUI) officially announcing in 2002 that cash waqf practices in the country are Sharīʿah-compliant. Millennials comprise 33.75% of the total Indonesian population. Therefore, it is vital to analyze cash waqf from an Indonesian perspective. This study provides vital information for all institutions that are concerned with the enhancement of cash waqf contributions in Indonesia.
Design/methodology/approach
Self-structured questionnaires were distributed in Java Island to collect the data. The data were examined by employing suitable statistical tools. Besides, post-interview fact-finding was conducted with cash waqf experts from different related institutions in Indonesia to reach a more in-depth understanding about cash waqf issues.
Findings
The results depict a high level of awareness about cash waqf among millennials in Indonesia. The results further reveal a lower willingness level to contribute to cash waqf of the sample population as compared to their level of awareness about cash waqf. Moreover, cash waqf promotions must focus on delivering a deeper understanding about the concept and how it differs from other types of Islamic philanthropy. The results suggest that waqf trustees in the country must be more transparent. Moreover, the Indonesian Waqf Board should implement stricter rules to monitor waqf trustees.
Research limitations/implications
This research restricts the sample population to Indonesian Muslims who were born between 1980 and 2000.
Practical implications
As a Muslim-majority country, one would expect Indonesia to make much progress in cash waqf. By providing an explanatory understanding of willingness and awareness of cash waqf among Indonesians, this research can be helpful in designing proper educative marketing campaigns for future endowers to cash waqf activities to ensure cash waqf institutions provide efficient services. It is advisable to emphasize the transparency of waqf organizations. This will add to the nāz˙irs’ (waqf trustee) reputation, thereby boosting waqf's national shares by ensuring a proper allocation of cash waqf. The regulator should be more strict in monitoring nāz˙ir practices. For instance, it could include a periodic assessment of waqf entities.
Originality/value
This study is original in nature; there is no previous study that addresses the millennial’s perspective toward cash waqf in Indonesia. Hence, this study presents precious information for policy makers, practitioners and researchers
Who is Homo Islamicus? A Qurʾānic perspective on the economic agent in Islamic economics:
No full textPurpose
This paper aims to explain the nature of the economic agent in Islamic economics. He is commonly referred to as Homo Islamicus.
Design/methodology/approach
This is done by deriving the concept from the Qurʾān as the primary epistemological source in Islamic economics. The paper, thus, attempts to explore the message of the Qurʾān and internalize its concepts and values in their totality into the conception of the economic agent from an Islamic perspective.
Findings
The paper brings an insight regarding the nature of the economic agent in Islamic perspective. The concept of the economic agent that is developed from the Qurʾānic teachings will be useful in developing assumptions and theories in Islamic economics.
Research limitations/implications
This paper explores the normative behavioral framework of man from the Qurʾānic perspective (i.e. what is expected of man) in order to serve as the basis on which assumptions, concepts and theories could be produced and applied in real life. Further studies could extend the discussion by examining the application of the concepts in practice.
Practical implications
This paper promotes a normative behavioral framework that could be the basis in developing the body of knowledge of Islamic economics.
Originality/value
This paper promotes a concept of the economic agent in Islamic perspective, termed as Homo Islamicus, who is going to portray Islamic ethical teachings in economic actions. The paper brought insights from the Qurʾānic teachings and principles in developing the concept of Homo Islamicus who will be the representative agent in theorizing Islamic economics.
DOI: https://doi.org/10.1108/IJIF-05-2021-010
Charity account in Islamic financial institutions: creating a defined Sharīʻah standard
No full textPurpose
This article seeks to propose a defined set of Sharīʿah standards and guidelines for the charity account in order to provide clear guidance to Islamic financial institutions (IFIs) and eventually create a standardised practice in the management of the charity account by IFIs worldwide.
Design/methodology/approach
This article is based on a literature review regarding the origin and concept of the charity account for IFIs. It makes reference to various primary Sharīʿah sources and contemporary Sharīʿah standards pertaining to impermissible income as it relates to the charity account. It also analyses secondary sources of reference, in particular research papers and case studies on the same subject matter.
Findings
This article proposes relevant Sharīʿah standards required for the better functioning and standardisation of the charity account application by IFIs.
Research limitations/implications
This article will help IFIs, standard-setting bodies and regulators to develop a defined charity account framework. It also addresses the gaps discussed in past research and case studies that have not been resolved to date, particularly on the determination and management of charity accounts at the level of IFIs.
Practical implications
The charity account will be better controlled and thus eliminating potential reputational issues arising from collecting and disbursing commitment to donate amounts (CDA).
Social implications
The charity account distribution will be better managed and thus of more benefit to the society and recipients.
Originality/value
This article promotes the idea of standardisation in the practices of charity accounts, especially in terms of sources and disbursement.
DOI: https://doi.org/10.1108/IJIF-01-2021-000
Corporate criminal liability in Islamic banks in Malaysia
No full textPurpose
This paper aims to highlight provisions that may attract corporate criminal liability (CCL) in legislation and regulations enacted in Malaysia. Further, this paper identifies gaps or obstacles in the implementation of CCL in Islamic banks (IBs) in Malaysia.
Design/methodology/approach
This research adopts the qualitative methodology. More specifically, it uses normative legal research by focusing on primary and secondary data obtained from legislation, regulations, decided case laws, guidelines, law textbooks and bank annual reports in relation to CCL provisions. It also conducts semi-structured interviews with different categories of experts, including legal practitioners (lawyers), regulators from Bank Negara Malaysia (BNM) and Securities Commission Malaysia, officers of the Attorney General's Chambers and officers from legal departments in IBs.
Findings
The results conclude that IBs should implement the law on CCL because they are considered corporations. It is also found that not all IBs complied with CCL provisions brought corporate offenders before the court.
Research limitations/implications
This research is restricted by its specialisation in CCL in IBs in Malaysia.
Practical implications
The CCL provision has to be implemented effectively by IBs to achieve the benefit. However, not all IBs implement CCL provision properly. The understanding created by the interview data illuminates the challenges in implementing CCL provisions. Thus, this paper seeks to change the approach in the implementation of CCL provisions by IBs in Malaysia.
Originality/value
The paper touches upon a new area, notably CCL in IBs, which is not well researched in past literature. Although there is a vast research on CCL, corporate crime in IBs in Malaysia is still an unexplored area. This study gives light on the implementation of CCL provisions in IBs.
DOI : https://doi.org/10.1108/IJIF-04-2021-006