INCEIF University Journals
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Islamic venture capital – issues in practice
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This paper aims to explore the structure and underlying contracts of Islamic venture capital (IVC) and to evaluate its prospects. VC can be perceived as an investment vehicle possessing most of the desirable attributes of a Sharīʿah-compliant investment vehicle. There are certain issues involved in the formation, operations and exit strategies of these investments that are discussed in detail in this paper.
Design/methodology/approach
A detailed review of relevant literature is performed to identify how IVC investments can be made and how related issues may be resolved.
Findings
IVC investment has potential of incorporating Sharīʿah-compliant investment modes. Additionally, it may offer higher than average returns. These attributes can be desirable for Islamic finance industry that is currently in need of equity-based financing products. The major causes of lesser growth of IVC investments are lack of awareness among the investors and the absence of viable investment opportunities for small- and medium-scale investors. IVC may attract general public if established after extensive research aimed at introducing innovative products.
Originality/value
This paper provides an overview of a truly Sharīʿah-compliant investment vehicle, furnishes a synthesis of various suggestions made by industry and academia and suggests viable solutions for valuation, risk management and exit strategies.
DOI: https://doi.org/10.1108/IJIF-06-2018-006
Editorial
Get PDFIn the Name of Allah, Most Gracious, Most Merciful. Worldwide, conferences on Islamic finance keep growing to tackle the many faces, opportunities and challenges of Islamic finance. International fora such as the World Islamic Banking Conference (WIBC) (Bahrain), ISRA’s International Shari’ah Scholars Forum (ISSF) (Kuala Lumpur) and the IFN Forums (held in different parts of the world) have over the years successfully engaged international players with local industry stalwarts in constructive discussions. Many academic international conferences also take place that provide an avenue to students, academics and researchers to share research findings and deliberate on topical Islamic finance issues. Themes which seem to be all the rage in the Islamic finance space these days appear to be in the “finance for good” arena – that is, all that is about green/sustainable/ethical finance, financial inclusion, and Islamic social finance. Another area is Islamic fintech, with buzzwords such as blockchain, smart contracts, cryptocurrency, robo-advisors, crowdfunding, digitalisation and others. The recent Islamic Fintech Dialogue (IFD 2019) organised by ISRA early in the year even included an “Islamic Fintech Pitch Competition” which provided a platform to universities, researchers, students and industry experts to share progressive ideas and innovative solutions in the field of Islamic fintech. Such positive ideas lay fertile grounds for encouraging research and innovation in Islamic finance.
From the host of submissions received, this June 2019 issue of the ISRA International Journal of Islamic Finance features ten articles covering differing areas of Islamic finance. The articles comprise topics of both academic nature and practice-related issues. Recently, there has also been an increase in submissions related to quantitative studies. This issue publishes a few of such studies. The Journal also allows researchers to publish both full-length and shorter articles to showcase the latest ideas, concepts, case studies and Sharīʿah and contemporary issues
Contemporary issues of form and substance: an Islamic law perspective
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This paper aims to analyse the concept of form over substance and introduces the term substance gap to the literature. The substance gap is defined as the difference between the way a concept is expressed and its intended result. Besides, the study investigates the issue from both classical and contemporary viewpoints.
Design/methodology/approach
The methodology adopted in this paper is descriptive research.
Findings
This paper has depicted the substance gap in contemporary contracts and found that form is equally important as substance in Islamic finance contracts. This paper offers a fresh outlook on form and substance to highlight the importance of the issue and its significance. The findings of the study will help researchers address the issue at its roots and help them to bridge the gap between the form and substance of Islamic finance contracts.
Originality/value
This paper investigates the substance gap in contemporary contracts that exists between the fiqh rules and conditions of an Islamic contract, and their development and construction. Further, the gap could also be attributed to the pressure to cope with a complicated modern finance environment.
DOI: https://doi.org/10.1108/IJIF-01-2018-000
Determinants of the decision to adopt Islamic finance: evidence from Oman
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Small and medium enterprises’ (SMEs) capital structure and financial policies are important areas of policy concern. Only a limited number of studies on capital structure have, however, been conducted on SMEs, and this deficiency is particularly evident when investigating what influences funding decisions around Islamic finance. This paper accordingly aims to investigate whether Omani SME owner-managers’ intention to adopt Islamic finance is influenced by their knowledge of Islamic finance, their own characteristics and/or their firms’ characteristics.
Design/methodology/approach
The authors administered a questionnaire survey via face-to-face interviews to 385 SME owner-managers operating in Muscat, Oman’s capital city. The Kruskal–Wallis one-way analysis of variance (ANOVA) non-parametric test was used to analyse the questionnaire survey data.
Findings
The findings indicate that while SME owner-managers’ Islamic financial knowledge and personal characteristics do influence their intention to adopt Islamic finance, their firms’ characteristics have no significant influence on SME owner-managers’ decisions to accede to Islamic financing.
Research limitations/implications
The research’s first limitation is that it gathered data from SME owner-managers in Muscat only. Future studies could survey a wider sample of Omani SME owner-managers. Second, the study’s findings cannot be generalised to large and public firms, as the sample includes owner-managers of SMEs only. Finally, there is a need to investigate other factors such as nonfinancial and behavioural factors, which were not explored in the present study, but which may influence SME owner-managers’ Islamic financial decisions.
Originality/value
Theoretical and empirical studies on capital structure have focused primarily on large listed firms. Only a few studies have paid attention to the capital structure of SMEs, particularly in the context of an emerging market such as Oman. This gap in the literature is mostly evident when investigating the factors that influence the funding decision towards Islamic financing in a country, such as Oman, where Islamic finance represents a new banking sector offering.
DOI: https://doi.org/10.1108/IJIF-02-2018-002
The principle of maṣlaḥah and its application in Islamic banking operations in Malaysia
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This paper aims to investigate the extent to which maṣlaḥah (public interest) is taken into consideration in Islamic banking operations in Malaysia, particularly in bayʿ al-ʿīnah (sale and buyback), taʿwiḍ (compensation) and ibrāʾ (rebate).
Design/methodology/approach
This study applies deductive and inductive methods to analyze the application of maṣlaḥah in Islamic financial transactions. Three issues in Malaysia are selected as a case study, allowing bayʿ al-ʿīnah, standardizing the rate of taʿwiḍ and stipulating the ibrāʾ clause in financial agreements. As this study is qualitative in nature, all data are analyzed based on the content analysis method.
Findings
Both the maṣlaḥah of Islamic banks and their customers were found to be considered by the Central Bank of Malaysia in the implementation of contracts and principles of Islamic banking. The first maṣlaḥah represents the viability of Islamic banks, while the second maṣlaḥah promotes fairness and transparency between Islamic banks and their customers.
Research limitations/implications
This study only focuses on the contracts and principles of Islamic banking operations in Malaysia with regard to three selected issues.
Practical implications
This paper clarifies the practical application of maṣlaḥah in the Islamic banking industry, particularly with regard to implementing its contracts and principles.
Originality/value
This paper analyzes the argument of maṣlaḥah on the issues of bayʿ al-ʿīnah , taʿwiḍ and ibrāʾ in Malaysia, which are considered among scholars to be debatable issues. While many discussions focus on the legal aspect of Sharīʿah on those issues, this study emphasizes how the application of maṣlaḥah aims to solve the current problems and harmonize between Sharīʿah and reality.
DOI:
Ishak, M.S.I. (2019), "The principle of maṣlaḥah and its application in Islamic banking operations in Malaysia", ISRA International Journal of Islamic Finance, Vol. 11 No. 1, pp. 137-146. https://doi.org/10.1108/IJIF-01-2018-001
Financing agricultural activities in Afghanistan: a proposed salam-based crowdfunding structure
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This study aims to explore the potentials of adopting salam-based crowdfunding for financing the agricultural sector in Afghanistan.
Design/methodology/approach
It adopts a triangulation approach, consisting of a number of methods used in gathering relevant information about Afghanistan’s agricultural sector, the concept of crowdfunding and salam (forward sale) contract. These methods include library research, reviewing documents provided by Afghanistan’s banks and semi-structured interviews with Islamic finance experts.
Findings
This study finds that salam-based crowdfunding is a viable Sharīʿah-compliant investment platform, which may offer some advantages for both potential investors and farmers or entrepreneurs.
Originality/value
The novelty of this paper lies in the proposed structure of salam-based crowdfunding.
DOI: https://doi.org/10.1108/IJIF-09-2017-002
A proposal designed for calibrating the liquidity coverage ratio for Islamic banks
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This paper aims to critically investigate the liquidity risk management of Islamic banks and develop an alternative regulatory framework appropriate for liquidity management of these banks.
Design/methodology/approach
The specific risk profile of an Islamic bank requires developing a new and more efficient regulatory framework, which relies on risk- sharing and symmetric information among parties. The paper makes a differentiation between small local banks and internationally active Islamic banks and proposes to apply liquidity requirements only for internationally active Islamic banks.
Findings
A new proposal for the liquidity coverage ratio (LCR) of Islamic banks is developed in this paper towards mitigating risks and concurrently protecting the interests of investment account holders. Minimum and maximum thresholds are proposed for each liquid asset in this new LCR framework. An alternative liquidity approach is discussed to complement the proposal and several policy options are suggested.
Originality/value
As participation banks are exposed to market liquidity and market risks, more high-quality liquid instruments within a risk-sharing regulatory framework may provide the inner adjustment process through which any mismatch regarding maturity, risk, value or linkage with the real economy is corrected systematically. It offers policy implications for regulators, supervisors and international organizations.
DOI: https://doi.org/10.1108/IJIF-03-2018-003
Interest-free monetary policy and its impact on inflation and unemployment rates
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This paper aims to examine the effects of interest-free and interest-based monetary policy on inflation and unemployment rates for two groups of countries where in one group, interest-free monetary policy (IFMP) was pursued, while in the other group, interest-based monetary policy (IBMP) was followed.
Design/methodology/approach
This study involves a sample of 23 developed countries divided into two groups. The authors measure economic performance by misery index (MI), and MI is calculated as unemployment rate plus inflation rate. A group of countries, where MI is lower, performs better compared to the other group where MI is relatively higher.
Findings
The results reveal that in group of 12 countries where IFMP is adopted, the MI is lower and thus performs better compared to a group of countries where IBMP is pursued.
Research limitations/implications
The findings of this study have profound implications for the policymakers and government leaders who look for a solution to maintain both low inflation and unemployment rates. The findings in this study clearly portray that such ideal situations can only be achieved by pursuing IFMP. No wonder the countries which have been historically pursuing IFMP such as Japan, Switzerland, Sweden, the Netherlands and Denmark have been able to contain both inflation and unemployment rates compared to their counterparts among the English-speaking countries.
Originality/value
This is one of the most recent tests on the differences in economic performance between IFMP and IBMP. These results have significant value for policymakers and central bankers who have been struggling to maintain lower MI for decades.
DOI: https://doi.org/10.1108/IJIF-06-2018-006
A proposed human resource management model for zakat institutions in Malaysia
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The purpose of this study is to propose a contemporary human resource management (HRM) framework by zakat institutions, which collect and manage religious alms, both obligatory (zakat) and voluntary (ṣadaqah), in Malaysia.
Design/methodology/approach
In doing so, discussions pertaining to the key elements of zakat institutions’ HRM including recruitment, selection, performance appraisal, training and development and compensation are gathered from the existing literature and other sources of information such as zakat institutions’ websites and publications. In addition, zakat officers’ insight on how HRM is practiced at their institutions is gathered through a series of semi-structured interviews and incorporated in the findings of this study.
Findings
The paper finds that the state government, by virtue of the State Islamic Religious Council (SIRC), which is the sole trustee of all waqf properties in Malaysia, may have significant influence in formulating the human resource strategies and policies in zakat institutions.
Research limitations/implications
The proposed HRM model can be a useful reference for SIRC in enhancing the current human resource practice in its respective zakat institutions.
Originality/value
The novelty of this study lies in the proposed HRM model applicable to zakat institutions. The model emphasizes the alignment between the zakat institutions’ HRM practice and their zakat collection and distribution goals, as well as zakat management objectives in general.
DOI: https://doi.org/10.1108/IJIF-10-2017-003
Rent-seeking behaviour and ẓulm (injustice/exploitation) beyond ribā-interest equation
No full textPurpose
The purpose of this paper is to explore the concept of rent-seeking behaviour and rentier state in the context of ẓulm (injustice and exploitation), which is one of the key concerns in Islam in general and Islamic economics and finance in particular.
Design/methodology/approach
As a conceptual paper, it draws on the literature of rent-seeking as part of public choice theory and examines the potential vulnerabilities as well as existence of rent-seeking in Muslim-majority countries, where Islamic finance industry primarily operates.
Findings
The paper identifies several areas where both actual and potential rent-seeking exists.
Research limitations/implications
The paper is conceptual. Based on the analysis presented here further studies can be undertaken to determine the scope of rent-seeking and their impact in Muslim-majority societies.
Practical implications
Incorporating rent-seeking in the theoretical and conceptual framework of Islamic economics and finance can enhance understanding about ẓulm and its ubiquitous presence, as Islam has a firm stance to aspire to have a ẓulm-free society.
Social implications
Understanding rent-seeking behaviour can help appreciate why corruption, inequality and poverty are so entrenched, and why limiting the discourse to ribā (interest) ignores the broader scope of injustice and exploitation.
Originality/value
This might be the first focused paper that conceptually deals with rent-seeking behaviour, connecting the discourse about ribā-interest equation.
DOI: https://doi.org/10.1108/IJIF-07-2018-007