INCEIF University Journals
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Proposed models for unit trust waqf and the parameters for their application
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This paper aims to present the viability of unit trust waqf (Islamic endowment) as an alternative asset class for waqf creation.
Design/methodology/approach
This paper starts with the conceptual exploration of the literature in the areas of waqf. The sources of the literature cover authentic sources of the Qurʾān and ḥadīth, as well as secondary sources such as books, journal articles and online resources.
Findings
This paper provides the conceptual framework of five models of unit trust waqf and their investment management parameters.
Originality/value
The novelty of this paper lies in its attempt to highlight the importance of waqf investment strategy in ensuring sustainable returns for waqf. It does so by introducing the conceptual models of unit trust waqf as viable mechanisms to pool more cash waqf from individual investors. The sustainability of the capital waqf assets in the form of unit trusts is maintained through the parameters for its application proposed towards the end of the paper.
DOI: https://doi.org/10.1108/IJIF-02-2018-001
Can UGITs promote liquidity management and sustainable development?
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This paper aims to propose a liquidity management solution for Islamic financial institutions (IFIs) that concurs with sustainable development and financial stability.
Design/methodology/approach
The study is a qualitative research. It uses the exploratory research methodology, specifically the content analysis approach, to gather primary data and identify and interpret relevant secondary data and Sharīʿah concepts. The purpose is to develop a liquidity management solution for IFIs. The proposal is based on the Unleveraged Green Investment Trust (UGIT) model, which is consistent with Basel III regulatory requirements. In developing the UGIT model, the exploratory research was complemented by a case study to examine the UGIT solution for the particular case of renewable energy.
Findings
The model demonstrates how financial innovation can meet both financial stability and sustainable development objectives, thereby achieving the spirit of Islamic finance. The structure further highlights the importance of regulatory and fiscal frameworks to enhance liquidity management and investor appeal for green financial instruments.
Originality/value
This study suggests a structure of UGIT to enable IFIs to meet their liquidity management needs while promoting sustainable development.
DOI: https://doi.org/10.1108/IJIF-12-2017-005
Tawhidi Islamic economics in reference to the methodology arising from the Qurʾān and the Sunnah
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The purpose of this paper is to lay down the methodological structure of the epistemology of tawhid (Oneness of Allah). In this paper, the meaning of tawhid also refers to the monotheistic unity of knowledge (consilience) in the cast of its organic pairing by circular causation relations between the moral and material possibilities. The paper thereby raises the critique of mainstream economic reasoning and its imitation by existing Islamic economics. Consequently, by the ontological, epistemological and phenomenological foundation of tawhidi methodological worldview, an altogether new socio-scientific reasoning in generality and economic reasoning in particular is introduced.
Design/methodology/approach
The socio-scientific methodological reasoning of unity of knowledge according to the tawhidi methodological worldview is introduced contrary to the inept rational choice postulates of mainstream economic reasoning and its imitation by existing notions of Islamic economics. The method of instructing students in the light of this approach according to Tawhidi Islamic Economics (TIE) is introduced from the existing literature.
Findings
The existing nature of mainstream economics and its imitation by Islamic economics is critically deconstructed and replaced by the true epistemological, ontological and phenomenological perspectives of TIE in the world of learning. Some inner properties of such a methodological study of TIE are laid bare for further investigation.
Originality/value
This is the first paper of its kind in this journal to expound the original and most creative methodological worldview that Islamic economics must bear. This is the foundation of the development of the true stance of Islamic economics and finance.
DOI: https://doi.org/10.1108/IJIF-02-2018-002
Understanding the mushārakah mutanāqiṣah of Koperasi Pembiayaan Syariah Angkasa (KOPSYA)
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In Malaysia, both Islamic financial institutions (IFIs) and Islamic co-operatives (ICs) provide mushārakah mutanāqiṣah (diminishing partnership) (MM) financing. It was initially a preferred contract as it is deemed to be more Sharīʿah-compliant and free from the element of ribā (interest) in comparison to other Sharīʿah-compliant sale contracts. Nevertheless, MM is now considered less appealing to IFIs due to its existing challenges. This paper aims to emphasise on MM as practiced by ICs which will highlight approaches to default, pricing of rental rates, profit sharing method and early settlement which differ to the practice of MM by IFIs.
Design/methodology/approach
This study focuses on Koperasi Pembiayaan Syariah Angkasa (KOPSYA), an IC based in Malaysia, which the authors concurred as being an ideal organisation to study on the matter due to its strong stance in promoting Sharīʿah-compliant financing products.
Findings
The research highlights the flexibility of MM implementation in KOPSYA to provide some insights on the rationale behind MM operations in KOPSYA.
Originality/value
The authors are hopeful that this paper will aspire further interest by giving the readers better understanding on the implementation of MM in KOPSYA and how it will benefit the customers.
DOI: https://doi.org/10.1108/IJIF-07-2017-001
Analysing ar-rahnu in the context of informal credit market theory: Evidence from women micro-entrepreneurs in Malaysia
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This study aims to offer a new area of discourse by investigating the factors determining the usage of the Islamic non-bank financing product ar-rahnu (Islamic pawnbroking) among women micro-entrepreneurs in Malaysia within the framework of the informal credit market theory.
Design/methodology/approach
The study is based on primary data obtained by using self-administered questionnaires distributed in three states in Malaysia: Kedah, Kelantan and Terengganu. The questionnaires were distributed to a total of 750 participants, with each state contributing 250 respondents. Total number of respondents valid for data analysis was however 600.
Findings
Based on descriptive and inferential statistics by using the IBM statistical package for the social sciences and structural equation modelling analysis of moment structures, the results show that the main factor influencing women micro-entrepreneurs to use ar-rahnu is the service charge.
Research limitations/implications
This study only covers three states in Malaysia and is limited to examining the use of ar-rahnu by women micro-entrepreneurs in those states.
Practical implications
As micro-entrepreneur s often face constraints to obtaining financial access in the formal credit market, ar-rahnu provides an alternative mode of obtaining business financing to female micro-entrepreneurs, so they can sustain their operations and even expand their businesses. The significance of such factors like service fee, as revealed in this study, indicates that managers should focus on this element when offering Islamic financial products, especially to women micro-entrepreneurs.
Originality/value
The informal credit market theory is frequently used in conventional studies. This paper adds Sharīʿah compliance in the context of this theory as a new area to be considered when discussing Islamic financial products.
DOI: https://doi.org/10.1108/IJIF-09-2017-003
Sale with the temporary exclusion of usufruct: A critical examination of its use in financing home purchases
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This paper aims to investigate sale with the temporary exclusion of usufruct, a format debated in classical Islamic jurisprudence. More specifically, it examines the application of this sale format in the diminishing partnership arrangement used by American Finance House LARIBA to finance house purchases. It analyzes the Sharīʿah issues and assesses the risks involved.
Design/methodology/approach
The research is qualitative, surveying and critically analyzing classical fiqh literature and contemporary juristic resolutions, as well as LARIBA’s financing documents. Finally, it systematically surveys the associated risk factors, first qualitatively, and then by quantifying them.
Findings
The research concludes that sale with the temporary exclusion of usufruct is a valid contract in Islamic law. When the usufruct is priced at market rate, the financing arrangement is genuinely Islamic and brings added value. Moreover, it is very effective in addressing risks for Islamic banks, particularly in countries with legal systems not designed to accommodate Islamic finance.
Originality/value
This study systematically examines all aspects of a contract that has not received sufficient academic attention, that has been underutilized by the Islamic finance industry and that is more fitting for implementation than many of the contracts currently being used.
DOI: https://doi.org/10.1108/IJIF-12-2017-005
Editorial
Get PDFIn the Name of Allah, Most Gracious, Most Merciful. The tendency in the early stages of the Islamic finance industry was to replicate successful products from the conventional finance industry after adjusting them to conform to Sharīʿah principles. This strategy has been highly effective in placing Islamic finance on the global map. Both Muslims and non- Muslims have been attracted to products such as those structured using debt-based Sharīʿah contracts. Newer generations, from both the conventional and Islamic milieu, have raised their expectations of finance to be more responsive to their desire for social and environmental impact. As a result, bankers and finance practitioners are having to look for innovative and more socially responsible strategies to bring greater added value to the practice. Within the area of Islamic finance, “sustainability” and other themes such as “value-based intermediation” and “Islamic social finance” have thus gained significant attention. They are being promoted to advance the ethical values underlying Islamic finance. The objective is also to encourage the development of an improved suite of products and services that would facilitate community empowerment, sustainable environment and economic growth. The objective is, however, to achieve these socially laudable goals without compromising the elements of profit and shareholder returns. The challenge therefore is about dispelling the “replication” habit and getting into the latest “value-addition” mode to pursue the higher objective of sustainability with/beyond profits. Disruptive tools such as fintech and blockchain technology are accordingly being looked into to advance this latest narrative of Islamic finance
Sharīʿah-compliance ratings of the Islamic financial services industry: a quantitative approach
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This study aims to develop a Sharīʿah-compliance rating mechanism for the Islamic financial services industry (IFSI), with a special focus on banking. The banking sector is taken as the area of focus due to its leadership role in the volume of global Sharīʿah-compliant assets.
Design/methodology/approach
The objectives of the Islamic financial system (IFS) are selected as the basis for ratings. A range of performance indicators (leading to achievement of the objectives) is grouped into four broader categories and used in the study to allocate scores with a sum total of 100. Special considerations – including the amount of resources required in performing an activity, suitability of prevailing business conditions, the degree of compulsion/discretion in performing a task and linkage with the essence of the IFS – were taken into account in the allocation of scores.
Findings
This study groups multiple performance measures into four categories, including portfolio construction (deposits mechanism, participatory and asset-based modes of financing), access to finance (service to the less-privileged and sector screening), reputation (disclosures and stakeholders’ survey) and Sharīʿah governance (Sharīʿah supervision and controls, charitable operations, human resources, product development and organization). The Portfolio, Audit, Reputation and System (PARS) rating system is then developed.
Practical implications
A Sharīʿah-compliance rating system is helpful in measuring the progress towards goal achievement of the IFS and in gaining stakeholders’ trust. It is also important for Sharīʿah boards and regulators in policy formulation, for management in addressing weaknesses and taking corrective measures and potentially for standard-setting bodies.
Originality/value
This study presents a comprehensive quantitative Sharīʿah-compliance rating mechanism, taking into consideration the objectives of the IFS – equitable distribution of wealth and financial stability, in addition to Sharīʿah-compliance in operations. Development of Sharīʿah-compliance quality ratings for Islamic banking is essential to gain customers’ trust; the suggested methodology is thus a contribution to the literature on Islamic finance.
DOI: https://doi.org/10.1108/IJIF-10-2017-003
Credit risk management: A comparative study of Islamic banks and conventional banks in Pakistan
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This study aims to examine and compare the credit risk management (CRM) scenario of Islamic banks (IBs) and conventional banks (CBs) in Pakistan, keeping in view the phenomenal growth of Islamic banking and its future implications.
Design/methodology/approach
A sample of five CBs and four IBs was chosen out of the whole banking industry for the study. Secondary data obtained from the banks’ annual financial reports for 13 years, starting from 2004 to 2016, were analyzed. Multiple regression, correlation and descriptive analysis were used in the examination of the data.
Findings
The results show that loan quality (LQ) has a positive and significant impact on CRM for both IBs and CBs. Asset quality (AQ), on the other hand, has a negative impact on CRM in the case of IBs, but has a significantly positive relation with CRM in the case of CBs. The impact of 16 ratios measuring LQ and AQ have also been individually checked on CRM, by making use of a regression model using a dummy variable of financial crises for robust comparison among CBs and IBs. The model proved significant, and CRM performance of IBs was observed to be better than that of CBs. Moreover, the mean average value of financial ratios used as a measuring tool for these variables shows that the CRM performance of IBs operating in Pakistan was better than that of CBs over the period of the study.
Practical implications
The research findings are expected to facilitate bankers, investors, academics and policy makers to build a better understanding of CRM practices as adopted by CBs and IBs. The findings would be useful in formulating policy measures for the progress of the banking industry in Pakistan.
Originality/value
This research is unique in terms of its approach toward analyzing and comparing CRM performance of CBs and IBs. Such work has not been carried out before in the Pakistani banking industry.
DOI: https://doi.org/10.1108/IJIF-09-2017-003
Qualitative validation of a financially affordable Islamic home financing model
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This study aims to validate a potential synergistic venture between cash waqf (Islamic endowment) institutions (CWIs) and financial cooperatives (FCs) in the provision of affordable Islamic home financing (IHF) in Malaysia.
Design/methodology/approach
The study adopted semi-structured interviews with ten experts to validate the cash waqf-financial-cooperative-mushārakah mutanāqiṣah (CWFCMM) model. Thematic analysis technique was used to analyse the verbatim texts.
Findings
The findings show that the majority of the informants have positive perceptions of the potential of the CWFCMM model to provide financially affordable IHF products in Malaysia. Nevertheless, this study sheds light on the varying degrees of latent issues and challenges that might arise in the implementation of this model. For example, FCs need to practice the correct business model, implement good governance structures and employ the right people. Meanwhile, CWIs need to work on their accountability issues by publishing their audited accounts in mainstream newspapers, much like what is being done by non-governmental organisations such as the widely recognised Malaysian Medical Relief Society (MERCY Malaysia).
Research limitations/implications
This study interviewed a small, industry-specific number of informants in generating its findings. Time and budget constraints are some of the limiting factors in carrying out the study. Because of these factors, the generalisation of the study’s findings will be limited.
Practical implications
First, the CWFCMM model offers an alternative, financially affordable IHF instrument to low- and middle-income households in Malaysia. Second, the involvement of third-sector institutions such as FCs and CWIs in the provision of IHF will reduce the burden of the government in its spending on home financing solutions for civil servants. Third, this model will harness the potential of waqf-based financing beyond the contemporary limited applications to mosques, graveyards and taḥfīẓ (Qurʾan memorization) schools.
Originality/value
This study presents an alternative IHF model that transcends the current institutional framework that is heavily dominated by Islamic commercial banks and government-owned home financing institutions. The study does not focus on a single third-sector institution but on an integration of at least two of them, CWIs and FCs, in implementing the IHF model.
DOI: https://doi.org/10.1108/IJIF-08-2017-002