INCEIF University Journals
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An Analysis of Sharīʿah Non-Compliant Events in Islamic Banks: Evidence From Malaysia
No full textIslamic banks (IBs) operate based on various Sharīʿah contracts, translated mostly into deposit and financing products. The validity of contracts, therefore, plays a central role in determining the Sharīʿah status of Islamic banking products and services. Failure to satisfy the contractual mechanical requirements will render the underlying transactions null and void, and any income derived therefrom cannot be recognized as profits
Application of Tanāzul in Ṣukūk and Preference Shares: A Critical Analysis from the Sharīʿah Perspective
No full textTanāzul (waiver) is a concept that is frequently applied in various Islamic financial products. Despite the growing usage of this concept, some contemporary practices in the industry remain debatable among some Sharīʿah scholars as a result of the arising Sharīʿah issues. This paper accordingly attempts to analyse some Sharīʿah issues in the application of tanāzul in the Islamic finance industry, especially with reference to subordinated ṣukūk and preference shares. Two aspects are particularly emphasised
Sustainable Conventional and Islamic Microfinance Models for Micro Enterprises
No full textThe role of micro enterprises (MEs) in Indonesia after the 1998 Asian crisis, especially in rural areas, was considered a safety valve in the process of national economic recovery, both in enhancing economic growth and reducing the unemployment rate. MEs have always faced difficulties in accessing loans or financing from the banking industry (conventional as well as Islamic) for a number of reasons. This study aims at evaluating several existing models of conventional and Islamic microfinance for MEs in Indonesia to find the best existing microfinance model to support sustainable rural development. The results show that the best conventional Grameen model is Koperasi Mitra Dhuafa; the best Islamic Grameen model is KUBE Sejahtera No. 21; the best conventional rural bank model is BKK Purwodadi; the best Islamic rural bank model is Amanah Ummah; the best conventional micro-banking unit model is BRI Unit; and the best Islamic micro-banking unit model is BSM Warung Mikro. The overall best micro finance institutions (MFIs) are Koperasi Mitra Dhuafa (cGrameen), BRI Unit (cMBU) and UGT (BMT). Moreover, the best financing program is offered by KUBE (iGrameen), the best social-development program is provided by KUBE (iGrameen), the best MFI performance is by Amanah Ummah (Islamic Rural Bank) and the best outreach is carried out by BRI Unit (cMBU). The most important sustainability criteria are: (1) Aid Independence (MFI Performance); (2) Coverage (Outreach); (3) Savings Program (Social Development Program); (4) Profitability (MFI Performance); (5) Risk Mitigation (Financing Program); (6) Social Services (Social Development Program); (7) Pick-Up Service (Financing Program); and (8) Average Financing (Outreach). Finally, the Cooperative- BMT model, which is operated more as a social business institution, is the most balanced sustainable model. 
Should Malaysian States Have a Fresh Approach to Waqfs? A Proposal for a Model Waqf Enactment
No full textThroughout history, waqfs were the most important instruments for redistribution and management of wealth in the Islamic world. They were at the same time the most important providers of education, health and a myriad of other essential services. Moreover, they did this not by coercion but by voluntary donations of Muslims. The achievements of this institution are visible throughout the Islamic world in the form of magnificent architectural monuments admired by all nations
Actual Costs in Fees and Charges in Islamic Banking
No full textA bank is a financial intermediary that generates income from its fund-based and fee-based products and services. As for the former, the bank has to share the profits with parties from whom it sources funds such as depositors and shareholders to provide financing facilities for its customers. Unlike its fund-based products and services, the bank can recognise any profit generated from its fee-based products and services solely as its own income without having to share it with other parties as it does not utilise others’ money in offering such products and services. Hence, it is argued that the bank would always prefer to opt for fee-based products and services since it does not have to incur cost of funds. In other words, the bank does not have to share the profit with other parties as in fund-based products and services
A Few Methods in Charging Fees for Kaf lah Bank Guarantee-I among Islamic Banks In Malaysia
No full textKafālah (guarantee) is generally considered as a tabarruʿ (gratuitous gift) act, and the majority of past Muslim jurists held the opinion that imposing ujrah (fee) on kafālah is not allowed; however some contemporary jurists have allowed it. Islamic banks in Malaysia offer Bank Guarantee-i (BG-i) which uses the contract of kafālah as the main contract, and they charge a fee for it. The objective of this paper is to determine the practice of Islamic banks in charging a fee for Kafālah BG-i and to get clarification from Islamic banks on the basis for their practices. The qualitative method is adopted as the main research methodology; the information on the practice of 12 Islamic banks in Malaysia is gained from semi-structured interviews conducted with bankers directly involved with Kafālah BG-i. This paper discovered that Islamic banks in Malaysia use three methods to determine the fee for Kaf lah BG-i: using the percentage issued by the Association of Bankers Malaysia; calculating the actual cost incurred by the bank in issuing the BG-i; and using the bank’s own calculation or formula based on a percentage in determining the fee. There are two reasons for this variation. First, the Sharīʿah Committees of Islamic banks have different interpretations of the nature of kafālah: whether it is a tabarruʿ contract or ʿaqd muʿāwaḍah (contract of commercial exchange). Second, Bank Negara Malaysia (BNM) has not yet imposed any standard method upon Islamic banks for determining fees in Kafālah BG-i. BNM’s role is very important in recommending the best practice of charging fees among Islamic banks in order to avoid confusion among the bankers and the customers of Islamic banks regarding the most appropriate practice according to Sharīʿah requirements
The Issue of Principal-Agent in Sale-Based Transactions from the Sharīʿah Perspective
No full textProper operational execution of underlying Sharīʿah principles applied in Islamic banking products is essential to ensure their validity and compliance with the Sharīʿah. However, more often than not, the customers of Islamic banks expect more simplified processes when it comes to execution of a contract. Among the solutions introduced by Islamic banks is the adoption of wakālah (agency) in the execution of the contract whereby the bank, as the seller in a sale-based transaction, concurrently acts as the buyer on behalf of the customers. This exercise may lead to criticism as the bank assumes two roles at the same time—that of principal (muwakkil) as well as agent (wakīl) on behalf of the customers. This brief paper aims at discussing the potential Sharīʿah issue which may arise from such a practice—particularly, the issue of conflict of interest when the bank acts both as principal and agent to the transaction. The paper begins by first examining the concept and requirements of the wakālah contract; thereafter it delineates the jurists’ opinions on the principal-agent acting as both principal and agent to a transaction; and it finally provides an analysis of the issue in the context of the contemporary Islamic banking practice. In particular, the paper is of the view that in Islamic banking practice the issues of conflict of interest, moral hazard or potential manipulation of the price, whereby the Islamic bank can favour itself, are eliminated by the strict supervision and regulation set by the authorities that require, among others, independent Sharīʿah control such as Sharīʿah audit. The measures adopted by Islamic banks in eliminating the issue of jahālah (unknown element) in the contract execution also provide sufficient ground for rendering this practice permissible in Islamic banking transactions
A Critical Analysis of Sharīʿah Issues in Intangible Assets
No full textIntangible assets are becoming evident in a number of Islamic financial products. Their presence in the Islamic financial market is due to their ability to address and accommodate the pressing need to diversify the asset pool in the industry. Despite their increasing presence in a number of Islamic financial products, their nature and characteristics have not been the subject of the research they deserve. Hence this research is undertaken to examine the definition, concept and legality of this class of asset: intangible assets
The Basel Accords, Financial Turmoil and Islamic Banks
No full textThe primary cause of the worldwide colossal failures of financial institutions—banks in particular—in the wake of the 2007–2008 turmoil was the heightened lure of leverage gains that led them to expand credit beyond what the volume and quality of their capital assets warranted. The devastation led to a major policy shift in finance at the national and international levels, with a focus on capital adequacy that financial institutions must observe for their own safety as well as the wider social interest. It was felt that a stringent and regular watch was needed to make adequacy norms work. The Basel Committee on Banking Supervision (BCBS) developed what are known as Accords (agreements) defining capital and its adequacy for banks to limit the risks they can take within reasonable confines. Incidentally, it is worth noting that Malaysia was in a sense preemptive in revamping its own regulatory framework. Also, the Islamic Financial Services Board (IFSB) was alert in announcing some new standards. This paper briefly takes stock of these developments with a view to seeing how far the Accords are needed for Islamic banks in view of the arrangements that are already in place
A Gold Standard International Payments System Anchored in Islamic Finance
No full textHistorically, gold was the natural money chosen by markets for domestic and international payments. Conventional banking and financial crises led to the abandonment of gold. The post-Bretton- Woods inconvertible paper system was quickly marked by inflation and economic disorders. The 2007-2008 financial crisis, its bailout cost, and ensuing economic stagnation have demonstrated the unsustainability of the current financial system. This paper explores a restoration of a gold standard based on premises of Islamic finance and a subdivision of banking into two subsystems: (i) 100-percent depository banking; and (ii) equity-based, risk-sharing investment banking. These same conditions have been deemed by many writers as necessary for the stability of the gold system