INCEIF University Journals
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Comparison of Quantitative Shari'ah-Compliant Screening Methods
No full textDifferent screening methodologies have been developed in the market to screen for Shari'ah-compliant investments. The Shar ah screening processes are deemed important for investors to avoid prohibited activities and to select investments in permissible businesses in accordance with Islamic principles. This paper reviews the Shari'ah investment screening methodologies of twenty-one worldwide prominent Islamic finance users, including index providers, Shari'ah service providers, fund managers and a regulator. A comparative analysis is performed to highlight the differences and similarities of the Shari'ah-compliant methods and principles used by these renowned institutions. The results reveal that different users have different objectives and functions, reflected in their different screening methods applied. It is believed that greater harmonisation of the worldwide screening methods would assist in further accelerating growth of the Islamic investment sector. This paper thus provides some suggestions on achieving a common and unified screening rule
Value Co-Creation in Shari'ah-Compliant Banking: A Saudi Arabian Case Study
No full textThis paper argues that Shari'ah-compliant Islamic banking is essentially a value co-creation business model that illustrates attributes associated with the emerging service-dominant logic paradigm. The underpinning Shari'ah philosophy of minimising ‘usage’ of one party by another results in the sharing of profit, losses, risk and the promotion of interest-free principles. Islamic banks that follow Shar ah traditions endeavour to co-create value with their business and corporate customers in a manner that would resonate with the proponents of service-dominant logic. The authors argue that Shari'ah-compliant business models may be more appropriate for today’s volatile and socio-economic climate, evidencing their potential via business case examples. Shari'ah-compliant Islamic financing, such as sukuk (Islamic bonds), istisna' (construction finance), murabahah (commodity trade finance), mudarabah (finance trusteeship), musharakah (joint venture) and ijarah (Islamic leasing), is generally based on a business relationship and partnership approach. Such approaches are now gaining popularity and offer those engaged in service exchange the opportunity to co-create value or at least mutual benefit
An Analysis of the Courts’ Decisions on Islamic Finance Disputes
No full textMost Islamic financial institutions operate in an environment where the legislative framework consists of mixed legal systems where the Shari'ah (Islamic law) co-exists with common law and civil law legal systems. As such, every transaction, product, document and operation must comply with the Shari'ah principles as well as relevant laws, rules and regulations. In the case where Islamic law is the ultimate legal authority, such as in Iran and Saudi Arabia, any issue in Islamic banking cases may not pose a big problem; whilst in the countries of mixed legal systems as in the case of Malaysia or in a non-Islamic legal environment such as in the UK, the issue is very significant. This inherent issue will be more complicated if Islamic finance disputes involve parties from different jurisdictions in cross-border transactions. This leads to the question of how Shari'ah principles apply together with the laws of the jurisdiction and how a case will be adjudicated in a court. In view of this unresolved issue, this paper attempts to critically review and analyse the courts’ decisions on Islamic finance disputes in four different jurisdictions, namely Malaysia, the United Kingdom, India and the United States. With the emergence of Islamic finance litigation, this paper strongly advocates that a proper legal framework and infrastructure as well as the substantial support of the legal fraternity are the prerequisites for the advancement and significant growth of the Islamic finance industry
The Obligation of Zakah upon a Legal Entity
No full textZakah is classified by jurists as a type of worship, the ‘sister’ of salah and the third pillar of Islam, rather than a subcategory of transactions (mu'amalat). There are many juristic differences of opinion about zakah, but these differences are related to legal details associated with implementation, not to the legal principles of the madhhabs
Enhancing the Integrity of Islamic Financial Institutions in Malaysia: The Case for the Shari'ah Audit Framework
No full textEnhancing integrity is of prime importance for any business and it is especially more pressing in the case of Islamic Financial Institutions (IFIs). IFIs claim to practice ethical finance and thus must be in compliance with the Shari'ah in all their business activities and operations. Their stability, financial performance and ability to provide intermediate resources will depend on stakeholders’ confidence in the integrity of the IFIs. A particular feature of confidence and integrity in respect of Islamic financial services is the requirement of conveying to stakeholders that their financial business is conducted in conformity with their religious beliefs (Grais and Pallegrini, 2006)
The Islamic Gold Dinar – Myths and Reality
No full textRecently, there have been an increasing number of publications and conferences on the re-introduction of the Islamic gold dinar, a coin with pure gold content. The phenomenon could even be construed as a campaign. The proponents of this idea, who are known as denarists and are particularly active in Malaysia, advocate that this country, as well as the whole Islamic world, “urgently” return to the Islamic gold dinar. Their call has gained considerable urgency in view of the latest crisis in the West. But what the denarists are doing is proposing an essentially historical system (coinage was the norm throughout history) without having studied how the system they are proposing actually functioned in history. The main purpose of this article is to fill this vacuum
The Case for the Islamic Gold Dinar
No full textThis article is written in response to the article by Murat Cizakca (2011), “The Islamic Gold Dinar – Myths and Reality”, which appeared in the ISRA International Journal of Islamic Finance, Volume 3(1), 2011, pp. 49-63. Cizakca basically provided a case against the gold dinar. However, it was obvious that the paper misunderstood what the denarists’ actual ideas and propositions are; thus, its refutations are mostly off target. This article explains the actual proposition of the denarists while simultaneously providing a review of Cizakca (2011)
Revisiting the Fiqh Characterisations of The Rahn-Based Islamic Microcredit Product
No full textThe rahn-based Islamic microcredit product is an increasingly popular financing option among small entrepreneurs, lower income groups and gold traders. However, its Shar ah structure has been sharply criticised by some Islamic scholars despite its success for those who offer it such as Islamic banks and Islamic pawnshops. Hence, it is undeniable that there are some debatable Shari'ah issues that need further examination and immediate solution. This situation is most likely a result of using the contract of rahn (pledge) in an income-generating product, which obviously contravenes the fundamental purpose of rahn
Maqasid al-Shari'ah and Islamic Financial Products: A Framework for Assessment
No full textThe overall aim of Islamic law is to promote welfare or benefit (maslahah) of mankind and prevent harm (mafsadah). According to al-Shatibi, maslahah is achieved by promoting the necessities/ essentials (daruriyat), the complementary requirements (hajjiyat) and the beautifications or embellishments (tahsiniyyat) (Hallaq, 2004)
Why Does Categorisation of Sukuk Structures Matter?
No full textThe Islamic finance market has developed and expanded with the increased global demand for ethical investment products and the introduction of a variety of financial instruments. Within the Islamic finance market, sukuk has proven to be an important financial instrument. In the literature sukuk has been categorised into four major types: asset-backed, asset-based, debt-based and projectbased. There is a need to understand the differences between these categories in order to ensure their Shari'ah-compliance. The research question dealt with in this paper is: Why does the categorisation of sukuk structures matter and what are the differences between the various categories of sukuk? This paper describes such differences through an analytical case study of the General Electric Capital Sukuk Ltd. (GE Capital Sukuk) which issued sukuk in November 2009. The AAOIFI Resolution (2008) is taken as the starting point of discussion on the mechanisms used in practice in sukuk structures. By pointing out the differences between asset-based and project-based sukuk and by defining the structural features of the GE Capital Sukuk, this paper illustrates that depending on the category in which sukuk is categorised, Islamic finance practitioners may have to consider different structural and legal mechanisms when issuing sukuk. By categorising sukuk the industry is not merely giving the structures a name. Rather, the sukuk categories carry background information on the structures; the distinctions also clarify what legal and structural features are permissible for each structure