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A New Crowdfunding Model for Financial Inclusion Based on Donations and Interest-Free Debt: A Fuzzy Agent-Based Simulation Approach
Full text linkPurpose — Although microfinance was initially heralded as a promising methodology for reducing poverty, it has become increasingly criticised. Hence, calls for innovative models that promote financial inclusion have intensified. This research aims to fill in this gap by developing a new model that combines donation-based crowdfunding with interest-free lending, and subsequently evaluating its performance using appropriate decision-making tools.
Design/Methodology/Approach — The study adopts an agent-based perspective whereby the idea is to encode the behaviour and decisions of the model’s entities in straightforward rules and subsequently analyse the outcomes of their interactions through agent-based simulation (ABS). To address the uncertainty inherent in human agents’ judgements, a fuzzy logic inference system has been incorporated as well.
Findings — Findings show that the proposed model has (i) a better success rate in funding new entrepreneurs, (ii) higher collection of management fees, and (iii) a reduced number of failed projects. This model incorporates monitoring to reduce moral hazard risks and provides health and life insurance for entrepreneurs, ensuring both project efficiency and the well-being of the entrepreneurs.
Originality/Value — This study contributes to the Islamic crowdfunding (ICF) literature by introducing a new hybrid model that integrates donations with interest-free loans. It explores the impact of this design on crowdfunding platform success and the well-being of micro-entrepreneurs, using an agent-based perspective.
Research Limitations/Implications — Despite its merits, the proposed model has certain limitations. Like many crowdfunding models, entrepreneurs who fail to secure financing may be susceptible to the risk of idea theft. Concerning model validation, although a significant portion of the model’s data is calibrated using real data, the conception and simulation introduce certain free parameters (such as the learning factor and monitoring efficiency), which renders the validation process somewhat challenging.
Practical Implications — This innovative solution can help crowdfunding platforms refine their policies and interventions to enhance project funding success and contribute significantly to broader financial inclusion efforts
Enhancing Taxpayer Compliance Through Fiscal Transparency, Participation and Accountability: Insights from Key Figures of Islamic Boarding Schools in Depok City
Full text linkPurpose — This study explores the perspectives of key figures from Islamic boarding schools (Kiai Pesantren) in Depok City, Indonesia, regarding the efforts to promote fiscal transparency, participation and accountability (FTPA) by the government for enhancing taxpayer compliance.
Design/Methodology/Approach — This study is based on the interpretivist paradigm. Keywords related to Muslims’ obligations, zakat and taxes were sourced to find relevant literature. A thematic analysis was conducted of in-depth interview data from Kiai Pesantren regarding their perspectives on state fund management.
Findings — The results show the importance of FTPA in state fund management, especially when aligned with Islamic principles. Fiscal transparency involves directing tax funds towards poverty alleviation alongside infrastructure development. The involvement of religious organisations can be aimed at fostering moral responsibility among officials, while citizen participation can be facilitated through open data for budget planning. The accountability of public officials must be accompanied by efforts to minimise corruption and enforce strict punishments for corrupt activities. Moreover, fully crediting zakat payments for Muslim taxpayers could improve tax compliance, but this requires assurance through future policy reforms.
Originality/Value — This study contributes to the literature by integrating Islamic principles into the framework of FTPA.
Research Limitations/Implications — Broader insights into tax compliance management and support for Sharīʿah-based taxation could be addressed by involving Islamic scholars across countries
An Islamic Crowdfunding Model for the Agricultural Sector: A Proposal Based on Salam and Muzāraʿah-Waqf Scheme
Full text linkPurpose — This study aims to discuss several examples of temporary Islamic endowments (waqfs) in the modern period, arguing that jurists and Muslim endowment managers should utilise them more widely to adjust to current societal circumstances and open the door for new ways of caring for those in need.
Design/Methodology/Approach — It employed textual analysis of legal opinions related to temporary waqfs, outlining the positions of scholars on both sides of the issue, including a presentation and analysis of their evidence.
Findings — The research findings show that temporary waqfs are an essential means of renewable and sustainable economic support, where wealthy people endow their money for religious gain and to help others in need.
Originality/Value — Unlike some previous studies, this article specifically examines modern and contemporary forms of temporary endowments and demonstrates some of their effects in supporting the economy and the needy in society.
Practical Implications — Following this paper’s recommendations, those with funds and everyone who can create an endowment should support endowment institutions in modern ways and in different areas of temporary endowments, which would be very beneficial in eliminating poverty and supporting the economy.
Research Limitations/Implications — Due to the limited scope of the study, its findings are limited to contemporary jurisprudential issues related to temporary endowments. Hence, it is related to the Islamic economy and steps for strengthening it in Muslim societies
Ṣukūk al-Muḍārabah as a Financing and Liquidity Management Tool for Islamic Banks in Morocco: Exploratory Analysis of Expectations and Obstacles
Full text linkPurpose — The use of ṣukūk al-muḍārabah by Islamic banks (IBs), including in Morocco, is rare, and research on the subject is limited. This study seeks to fill in this gap by examining the perceptions of Moroccan professionals. Its aim is to highlight the challenges and opportunities associated with the use of ṣukūk al-muḍārabah by Moroccan IBs. By enlightening both professionals and academics on the potential of these Sharīʿah-compliant financial instruments, the study aims to highlight their ability to solve liquidity and funding problems.
Design/Methodology/Approach — This study employs a qualitative methodology, using interviews with branch managers of IBs in Morocco. Textual and thematic analyses were used to identify expectations, perceptions and challenges related to the adoption of ṣukūk al-muḍārabah for financing and liquidity management. Analysis tools used included content analysis, factorial correspondence analysis, and similarity analysis.
Findings — The findings reveal a diverse range of viewpoints among professionals, ranging from cautious optimism to reservations regarding the effectiveness and acceptability of ṣukūk al-muḍārabah in Morocco. Ṣukūk al-muḍārabah are viewed as a potential instrument for managing liquidity and financing, but they pose a significant risk for holders. Most of the professionals interviewed consider ṣukūk al-muḍārabah to be the most suitable tool for meeting these requirements, although some emphasise the need for an efficient regulatory system.
Originality/Value — The study highlights the potential of ṣukūk al-muḍārabah as a financing and liquidity management alternative for Moroccan IBs. It emphasises the significance of financial innovation in accordance with the principles of Islamic finance.
Practical Implications — For ṣukūk al-muḍārabah to realise their full potential, Moroccan IBs should adopt international best practices, enhance the sector’s familiarity with these products, and effectively navigate the regulatory and tax challenges
Contribution of Islamic Finance to Inclusive Growth: A Comparative Study of the West African Economic and Monetary Union (WAEMU) and North African Countries
Full text linkABSTRACT
Purpose — In recent years, economic growth in the West African Economic and Monetary Union (WAEMU) has been positive, but the precariousness of the population has remained virtually unchanged. Thus, the search for inclusive growth should be considered, and that is the subject of this comparative study to determine the contribution of Islamic finance to inclusive growth.
Design/Methodology/Approach — First, this paper sets up an inclusive growth index to undertake a comparative study between WAEMU countries and North African countries before and after the integration of Islamic finance in order to examine the impact of Islamic finance in these countries. The paper then compares these two areas, WAEMU countries and North African countries, variable-by-variable, using a Student’s t-test over the period 2010–2023. The group of North African countries included in this study is found to have a high Islamic finance development indicator compared to the WAEMU zone.
Findings — The results show that growth is more inclusive in North African countries. However, the lack of data on Islamic financial institutions operating in the countries examined makes it impossible to determine the extent of their contribution to the economies of these countries.
Originality/Value — The studies that have dealt with this topic have been limited to the relationship between finance and the components of inclusive growth. Others have chosen the quality of economic growth as the variable for inclusive growth. However, this study goes beyond that by showing the influence of Islamic finance on an index of inclusive growth that takes into account eight components. This adds value to the existing literature
Creating Sustainability in Islamic Microfinance Institutions Based on a Networking Approach
Full text linkPurpose — This study aims to find a sustainable development model for Islamic microfinance institutions (Islamic MFIs) based on Islamic networking and the critical factors that support their sustainability.
Design/Methodology/Approach — This study uses a qualitative approach by conducting a literature review to find research directions and undertaking focus group discussions (FGD) with a network provider and Baitul Maal wat Tamwil (BMT) managers in Central Java. The FGD involved five stages. The first stage was carried out with a network provider (the Association of Baitul Maal wat Tamwil (or PBMTI)), and the second to fifth stages were carried out with BMT members of PBMTI as Islamic MFIs, whose implementation sequence was based on accreditation ranking (A, B, C, and D categories). The purpose of this grouping was to find the views of different stakeholders on the role of networks.
Findings — This study found that Islamic networks have an important role in building the sustainability of Islamic MFIs. This important role is based on Islamic values (i.e., faith, morals, daʿwah (preaching), and social care) and the facilities provided in the network.
Originality/Value — This study is unique as it explores the role of networks that develop Islamic values and provide various facilities to develop Islamic MFIs so that they can serve the community better and in a more sustainable way.
Research Limitations/Implications — The FGD was conducted with representatives of BMT members of PBMTI whose number and opportunities for communication are limited. Therefore, more intensive studies are needed to determine the impact of the network on the members based on the programmes or facilities offered
Islamic Banks’ Profit and Violations in Murābaḥah Financing
Full text linkPurpose — This paper investigates the relationship between murābaḥah contracts and the profitability of Islamic banks, explicitly examining how potential Sharīʿah non-compliance issues related to murābaḥah contracts might impact the banks’ profitability.
Design/Methodology/Approach — Employing the Generalised Method of Moments (GMM) estimation for fixed effects dynamic panels, this study analyses quarterly data from 2013Q4 to 2023Q1 of the four largest Islamic banks in Saudi Arabia.
Findings — The results reveal a positive correlation between the increase in the value of murābaḥah contracts and Islamic earnings. While domestic macroeconomic conditions influence this relationship, international conditions have minimal impact. This investigation meticulously identifies instances of Sharīʿah violations within Islamic banks as they pursue a ‘search for yield’.
Originality/Value — Prior studies have fallen short in establishing a definitive association between the profits of Islamic banks and the value of murābaḥah contracts. This research bridges this gap and introduces a novel dimension to the existing literature by illuminating the potential compromises in Sharīʿah compliance when employing murābaḥah contracts. The dual focus on both financial implications and ethical considerations makes this study unique, representing a significant contribution to the ongoing discourse in Islamic finance literature.
Research Limitations/Implications — The availability of data on murābaḥah contracts may pose constraints to this study.
Practical Implications — The analysis sheds light on various scenarios where Islamic banks may compromise their adherence to Sharīʿah principles in pursuit of higher profits, offering valuable solutions to address and rectify such violations
Editorial
Full text linkبسم الله الرحمن الرحيم
In the Name of Allah, Most Gracious, Most Merciful
Waqf: A Key Islamic Social Finance Instrument
Waqf is a key tool of Islamic social finance that has been practised since Islam’s inception as part of Muslims’ religious obligations and benevolence to assist the needy and gain the pleasure of Allah (SWT). In the early years, Islamic social finance was not formally institutionalised within the Islamic economic system, except to a limited extent in a few Muslim-majority countries, which for instance, managed some Islamic social finance tools such as zakat and waqf at the state level. In the early 2000s, there were increasing discussions about the social responsibility of Islamic finance, questioning whether profit should be the sole business objective of Islamic financial institutions or whether they should also be attributed social roles in view of the Islamic philosophical foundations that underpin their establishments. As businesses’ corporate social responsibility (CSR) grew in importance in mainstream discussions, many Islamic financial institutions engaged in CSR-based activities on an ad-hoc basis, as a philanthropic exercise, as they became more profitable, viable and sustainable. This started the trend of mixing the practice of Islamic commercial finance with Islamic social finance.
As Islamic finance evolved further, there was an increased realisation that the effectiveness and applications of Islam’s social and philanthropic instruments could be further strengthened by integrating Islamic social finance within mainstream Islamic commercial finance. Thus, there were unified efforts to establish cooperation between charitable instruments and the different sectors of the Islamic finance industry. The commercialisation objective of Islamic social finance instruments has been particularly visible in the waqf sector. Waqf has historically been limited to pursuing only the social interests of the donor, who sought reward in both this world and the afterlife by helping the poor and the needy. In the modern practice of waqf, the social objective is integrated with the profit motive so that the initial waqf capital generates more returns for the beneficiaries. Prominent developments in the modern practice of waqf include the following:
· The modern concept of waqf is not limited to immovable assets (e.g., land, orchards, wells) and movable assets (e.g., jewellery, Qur’an, books, equipment) which are donated for charitable purposes. Innovative strategies are adopted today to develop waqf as an alternative asset class by using contemporary forms of wealth such as cash and financial securities. Latest waqf instruments include cash waqf, temporary cash waqf, waqf-banks, waqf-shares, waqf-unit trusts, waqf-venture capital funds, waqf-ṣukūk, and waqf-Islamic real estate investment trusts.
Modern structures of waqf introduced professional management of waqf funds that ensures the sustainability of waqf assets and generates better returns to beneficiaries.
Innovative and effective channels of investments through Islamic banks, the Islamic capital market and the takāful sector have been used to develop dynamic and progressive waqf projects. An example is the case of myWakaf in Malaysia which leverages on the synergy between the State Islamic Religious Councils (SIRCs) and a consortium of Malaysian Islamic banks to manage waqf investments and channel the investment returns into waqf projects.
Utilisation of waqf proceeds are extended beyond the traditional sectors (e.g., mosques, cemeteries, Islamic schools) to provide a wider range of welfare services relevant to current societal needs (e.g., waqf qurban, waqf for funding impactful SMEs, reviving dormant or abandoned waqf assets into productive properties).
Modern waqf management introduces good governance that increases transparency and accountability of waqf institutions.
Application of technology in the management of waqf has widened the base of waqf donors/investors, thus expanding public participation and increasing the supply of waqf funding.  
Blended Islamic Social Finance-Microtakāful Model
Full text linkPurpose — This research intends to explore and develop a blended Islamic social finance-microtakāful business model by integrating Islamic social finance (ISF) instruments into the microtakāful framework to enhance its effectiveness and reach. The main objective of integrating these elements is to recommend a sustainable and inclusive financial solution that is in line with the principles of Islamic finance and will address the needs of unserved and underserved segments of the population.
Design/Methodology/Approach — This study employed desk research to develop a blended ISF-microtakāful model. It involved reviewing literature to assess existing models and best practices, benchmarking their effectiveness, and analysing successful implementation approaches. Insights were used to create a framework integrating Islamic finance tools with microtakāful, followed by recommendations for a sustainable and inclusive financial solution.
Findings — The study portrays a conceptualised blended ISF-microtakāful business model which incorporates ISF instruments into the microtakāful model with an illustration of the business case in the context of the pandemic.
Originality/Value — Though microtakāful has been accepted as a mode for providing takāful services to low-income individuals, limited research is available on how it can be blended with traditional ISF instruments such as zakat (obligatory alms), ṣadaqah (voluntary charity), and waqf (Islamic endowment). This makes the model proposed in the research novel. The originality of this research lies in its pioneering exploration of the synergies between ISF and microtakāful, opening up new avenues for research and practical implementation in the field of microtakāful
The Impact of Customer Perception and Religiosity on Satisfaction with Car Ijārah Financing in Pakistan: The Mediating Effect of Clarity and Accuracy
Full text linkPurpose — This research aims to assess the impact of customer perception and religiosity on satisfaction with the car ijārah financing product which is offered in the Islamic banking market in Pakistan. The study also highlights the importance of clarity and accuracy that boost customer confidence in the car ijārah purchasing process.
Design/Methodology/Approach — The study applied the Partial Least Squares-Structural Equation Modelling (PLS-SEM) technique to explore the complex relationship among the latent variables and their constructs. The primary data were collected from existing Islamic banking car ijārah customers who have already availed of the product from Islamic banks in Pakistan. A total of 268 respondents were finalised after scrutiny.
Findings — The findings endorsed the proposed hypothesis of the study and demonstrated a strong and positive correlation between customer perception, religiosity, and customer satisfaction. Similarly, clarity and accuracy also act as a mediating variable (partially mediate the variables), and have a substantial effect on customer satisfaction.
Originality/Value — This study extends the existing literature by incorporating religiosity into the customer satisfaction model for car ijārah financing. It provides a unique theoretical perspective, highlighting how religious beliefs impact customer behaviour and perceptions regarding Islamic financial products such as car ijārah. The study therefore fills a gap in the literature by addressing how religious values affect customer perception of Islamic financial products, offering insights that could help Islamic banks tailor their services to better align with religious beliefs.
Research Limitations — The study is limited by its focus on existing customers from the Islamic banking sector in Pakistan that availed of car ijārah financing. Additionally, future research could explore other regions to enhance the generalizability of the results.
Theoretical Implications — The study underscores customer perception and religiosity as crucial factors that influence customer satisfaction. Similarly, by improving clarity and accuracy about car ijārah products, Islamic banks can enhance customer satisfaction and increase market share.
Practical Implications — The study provides valuable insights to Islamic banking practitioners to enhance and reinforce the car ijārah product structure in Pakistan by taking into account the need to address religious customers’ preferences. Islamic banks also need to focus on the clarity and accuracy aspects of Islamic financial products in their marketing and awareness campaigns to attract more religious customers