Journal of Islamic Finance (JIF)
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Islamic Financial Engineering at the Crossroads: Between the Need for Hedging and the Compliance Requirements
Full text linkFinancial engineering is a vital need for the prosperity of Islamic finance. It offers solutions to create new opportunities, expand the existing market and create market niches for Islamic financial institutions. Despite its importance, the literature on Islamic financial engineering is scarce, and almost nothing exists from a practice perspective as this aspect is very secretive within Islamic financial institutions. The present paper is a theory-based-research attempting to gather, analyze in depth and present the thematic of Islamic financial engineering and related issues to its application, especially for market risk hedging. We first start with the theoretical background of Islamic financial engineering to identify its principles and understand the challenges it faces. As a case study, we delimit our research to Islamic explicit derivatives, which are designed instruments to hedge market risk. The analysis of those instruments shows that the current path of Islamic financial engineering is towards imitation and replication of conventional products rather than designing genuine conceptual alternatives. Finally, we argue that the imitation strategy is not inevitable; it is possible to do without within the mutuality framework
The Role of Islamic Fintech P2PL in Increasing Inclusion and Financial Literacy of MSMEs
Full text linkThis study aims to analyze the role of Islamic financial technology (fintech) peer-to-peer lending (P2PL) in increasing the inclusion and financial literacy of Micro, Small, and Medium Enterprises (MSMEs). The presence of fintech in Indonesia provides various benefits, especially when the unbankable is still widely spread in various regions. No exception for MSME players, P2PL fintech services provides an easier option for them to get access to funding. The research sample is on three P2PL-based fintech that uses Shariah principles in Indonesia. Data were obtained through interviews and relevant literature sources. The analytical method used is descriptive qualitative. The results of the study show that there are at least four roles that Shariah P2PL fintech can do to increase MSMEs financial inclusion, such as: providing digital-based financial services, facilitating financing application requirements, collaborating with various businesses groups, and collaborating with digital ecosystems. Meanwhile, to improve literacy, P2PL fintech socializes to regions, holds seminars and webinars, uses digital media to optimize fintech, and plays an active role in financial inclusion activities organized by various parties
The Nature of the Administrative Relationship between the Shariah Board and the Stakeholders in the Kingdom of Bahrain
Full text linkCorporate governance involves a set of relationships between a company’s management, its board, its shareholders, and other stakeholders. With regards to Islamic corporate governance (ICG), the institution of the Shariah board comes into the picture and plays a crucial role in ensuring that all corporation activities are in line with the Shariah principles. In addition, shareholders also play a big role as active participants and conscious stakeholders in the process of decision-making and policy framework to promote the interest of the stakeholders. The other stakeholders including the community should also play their roles in stimulating the social well-being of the community. This paper attempts to define the administrative relationship between the Shariah board and other stakeholders by looking at their duties and roles in the Kingdom of Bahrain. For this purpose, it relies on doctrinal and Islamic worldview methodologies and uses both content and legal analysis methods. After the discussion, it is concluded that the administrative relationships between the Shariah board and other stakeholders may take the form of wilāyah, imāmah, or proactive and reactive istishārah (consultation), depending on the type of stakeholders
Measuring Financial Knowledge Among Muslim Women: The Case of Indonesia and Malaysia
Full text linkFinancial literacy is taking an important role in supporting the development of women's empowerment. To determine the action for financial education for women, the level of financial literacy among women is needed to be observed. This study aims to measure the level of financial knowledge among Muslim women in Indonesia and Malaysia. A quantitative method of study is employed by distributing 411 questionnaires that consists of Islamic financial knowledge and general financial knowledge questions. As the sample of this study focuses on women in Indonesia and Malaysia, the findings of this study could not be generalized to other Muslim women in other countries. The research found that Muslim women in Indonesia and Malaysia have a moderate Islamic and general financial knowledge level. Several areas of weaknesses found in this study are; the understanding of the role of parties in mudharabah contract, knowledge on zakat, and the simple time value of money calculation. These three areas of weaknesses could be emphasized in the financial education program
Muslims’ Perception of Islamic Insurance (Takaful) in Malaysia
Full text linkConventional insurance does not comply with the teachings of Islam. Experts of Islamic finance recommend takaful as an alternative to conventional insurance. Malaysia is on track to becoming a global center for Islamic finance; the Malaysian market harbors fifteen takaful companies. The takaful industry, compared to other Islamic financial areas, is relatively new, and the infiltration rate remains low. This study aims to compare products offered by Islamic insurance, conventional insurance, and products in general to analyze the strengths and weaknesses of Islamic insurance. A questionnaire was distributed to insurance policyholders following any religion residing in Malaysia. The snowball sampling method was used, and 500 responses were obtained, from which respondents (Muslim) (N=322) was analyzed. This study revealed that 1)there is room for improving the clearness of takaful when explaining its features to Muslim, and 2) takaful is lag theprogress in many advertising methods such as websites, cinemas, and televisions
An Innovative AI Blockchain Framework for Islamic Microfinancing
Full text linkThe digital economy has undergone significant transformations with blockchain becoming a household name in the fintech environment. Besides powering cryptocurrencies, blockchain technology enables power transactions in a variety of forms and enables decentralization which may reduce transaction costs. Islamic microfinance has become important with many new institutions arising in order to satisfy the demand for microfinance services while ensuring that these services comply with the Shariah Law. Cost of transactions and low degree of digitalization are the major obstacles with current solutions. We present an innovative blockchain artificial intelligence framework for the optimization of Islamic microfinance service provisioning as well as providing financial and transaction services in order to ease transactions and make them more secure and readily available. The framework was evaluated on a large dataset from the Central African Republic, and we could demonstrate strong performance of the AI-blockchain framework. The framework provides a viable solution for Islamic microfinancing to enhance transactions services and overcome some of the existing challenges with Islamic finance
The Role of Istihsan in Applying Maslahah in Islamic Finance
Full text linkThis paper identifies the role of istihsan in Islamic finance that should be emphasized to strengthen the element of Shariah compliance. Over the period, it is argued that applying Shariah rulings in Islamic finance has witnessed several challenges and difficulties resulting in some aspects may need toleration for the sake of maslahah. The data of this study is based on library research, by referring to classical and contemporary books of usul fiqh, academic and non-academic works and related resolutions from the BNM and SCM. The findings reveal that the role of istihsan can be manifested through providing an exceptional ruling from general rulings, considering modern norms of business practices before applying rulings, harmonizing between Shariah and civil laws, and adapting Islamic finance within the change of circumstance. While this study utilizes limited secondary data as well as it focuses on Malaysia, it engages with the real Islamic finance issues in this country. Thus, this study is hoped to benefit many parties who involve directly and indirectly in this industry, particularly to deeply understand the application of Shariah principles in Islamic finance
Evaluating Sukuk Default Factors: A Case Study on Dana Gas Sukuk in the UAE
Full text linkIn the last couple of years, the Islamic finance industry was rocked by several sukuk defaults, the most prominent among them being Dana Gas Sukuk. These defaults led to hordes of questions related to Shariah governance, unstandardized legal documentation, Shariah non-compliant structure, lack of intent and transparency, incongruence in governing laws, and a lack of regulatory support. This paper assesses Dana Gas Sukuk by conducting a qualitative analysis to determine the circumstances that led to the failures of this sukuk. Using secondary sources this paper employs a content analysis method and scrutinizes the sukuk understudy with a special focus on its structure, governance mechanism, and legal jurisdiction. Thus, the study suggests standardizing the legal documentation and Shariah interpretation of the Islamic capital market, as it would reduce the risk of Shariah non-compliance and remove all the uncertainty and ambiguities and would help to avoid such sukuk default. Finally, it can be asserted that an attempt is made to offer some recommendations that hopefully will avert similar defaults in the future and help the Islamic finance industry to achieve greater standardization and clarity
A Distributionally AI Robust Islamic Portfolio Approach- A Case Study of The Impact of Sanctions on The Incorporation of Chinese Stocks into Islamic ETF
Full text linkSanctions have long been utilized as a form of forcing the sanctioned countries and entities to change their course and conform to the objectives of the sanction imposing country or entity. Sanctions have been primarily used for trade embargoes and restrictions on the types of goods and services that can be exported from a specific country. Financial sanctions have been instituted primarily in the last century, given the growing importance of the international financial system and interconnection between countries. Furthermore, the role of the US Dollar as the international reserve currency, combined with its extraterritorial legal aspect and the prevalence of US institutions to facilitate cross-border transfers, has made financial sanctions an attractive tool of international coercive action. While the effectiveness of financial sanctions is debatable, they have still been attractive for many nations to be employed. The United States and China have experienced considerable disagreements with respect to their view on trade terms and the exchange of information. This has led to the sanctioning of several businesses by the United States and even forced some corporations to delist from US exchanges. For investors, this poses a significant risk as corporations may be required to delist, which will lead to significant losses. We present a distributionally robust optimization framework for the optimal Islamic portfolio when taking into account the risk of sanctions. The key feature of the framework is that it both integrates Islamic values in addition to ensuring robustness against the impact of possible sanctions. The results demonstrated that the investments are within a limited number of enterprises in order to avoid potential significant downside risks related to sanctions. The framework and study represent an important step towards greater risk assessment of sanctions-related effects on Shariah-compliant portfolios and safeguarding the returns of Islamic ETF investors. This contributes significantly to maintaining Shariah principles that focus on value investment and reduce the risk of fund managers engaging in gambling risks to drive returns
Statistical Behaviours and Forecast of Cash Waqf Collection
Full text linkThe main purpose of this research is to elucidate the efficacy of statistical measurements on cash waqf collection. To demonstrate this, the sub-objectives of this study are (1) to examine the statistical behaviours of cash waqf and (2) to ascertain future cash waqf collection trend. Numerical measures were used to describe statistical behaviours of cash waqf while Box-Jenkins methodology was employed for forecasting. Cash waqf data of State Islamic Religious Council (SIRC) of Pulau Pinang and Perbadanan Wakaf Selangor (PWS) had been collected to address these sub-objectives. During the period of study, it was found that cash waqf collected by SIRC of Pulau Pinang was more predictable than PWS even though PWS collected higher value on average. As such, the statistical measurements had identified different cash waqf management strengths. This is hoped to encourage cross-sharing exercises between SIRCs so cash waqf management can continuously be improved. Furthermore, the tentative sum of cash waqf collection forecasted using time series forecasting shows that cash waqf managers can make informed decision for the beneficiaries’ best interest. The usefulness of statistical measurements elucidated above is hoped to convince cash waqf managers to make cash waqf data readily accessible. This paper fills the gap in the literature of cash waqf collection statistics which is extremely limited. This paper is expected to be an impetus for future studies on advanced cash waqf statistics that could add relevance of waqf to the modern economy