Journal of Islamic Finance (JIF)
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Business Process Improvement of Funding: A Proposition to Increase the Performance of Indonesian Islamic Banking
Get PDFThe aims of this research paper are to analyze the problems related to some aspects of the Indonesia Islamic Banking such as the implementation of Shari’ah principles and its value chain on the Funding of Islamic Banking, and to formulate an improvement proposal to improve the business process of third party mobilization in order to increase the performance of Islamic Banking in Indonesia. This is a combined qualitative and quantitative research. Value Stream Mapping, Business Process Re-engineering (BPR) and Analytic Network Process were used in a qualitative approach. Likert scale questionnaire was used in a quantitative approach. The results of this research involve a proposition to change the business process of funding, which was actually an outcome of business process reengineering with enablers of information technology development and adjustment of policies related with the enhancement of Islamic principles implementation and business strategy formulation. Design of BPR was able to reduce the waiting time (queue) as a waste or non value added sub process (NVA) and re-layout several necessary but non value-added sub process (NNVA). The business process changes will be effective with the two groups of enabler. The first enabler is information technology development, such as online regristation, and instalation of self service banking machine (SSBM) and/or Cash Deposit Machine (CDM). The second enabler is the policies adjustment that included the recommendations to increase Shari’ah values implementation, as well as the adjustment of strategies combined with a sequential priority of resources empowerment, product development, institutional strengthening, and increase in marketing
Zakah, Poverty Alleviation, and Inclusive Growth in Nigeria
Get PDFMacroeconomic literature is replete with discussions on fiscal policy in both developed and developing economies but not much research has been done on zakah, a compulsory tax on Muslims, especially its role in alleviating poverty and generating inclusive growth. Zakah primarily aims at taking surplus money or wealth from the comparatively well-to-do members of the Muslim society and give it to the destitute, the needy and the wayfarer, among others, to improve their purchasing power and economic prosperity. Thus, there is a need to investigate the impact of zakah on poverty alleviation and inclusive growth by assessing the nature of the nexus between zakah and poverty alleviation as well as how and the extent to which those assisted with zakah funds move out of poverty and contribute to inclusive growth. The paper uses descriptive statistics and ordinary least square regression and found that zakah can contribute to the empowerment of the recipients and can additionally alleviate the poverty of the poor who use the unconditional transfer for shelter, debt repayment, medical support, among others
Currency Exchange, Its Illah and Implications
Get PDFForeign exchange is among the most important transactions in any economy. It can affect positively or negatively the relative price of domestic and foreign goods, which in turn has an effect on the country’s economic growth, employment rate, inflation and balance of payments, among others. Yet, foreign exchange has remained a contentious issue among Muslim jurists and scholars. There are those who approve spot transactions but regard forward transactions as unlawful. Conversely, some scholars and jurists do not see any problem with the forward transactions if they are used for hedging purposes. In the context of the contemporary business environment, this contention requires pertinent research in need of revisiting the illah (effective cause/reason) for determining whether a given foreign exchange transaction is Shari’ah compliant. The present study has critically reviewed the major literature and fatwas issued in relation to foreign exchange. It has adopted content analysis to categorize these various views on the subject and preponderated the major ones relevant to modern business. The authors have concluded that the only possible illah to be considered for modern paper money is a thummuniyah (means of payment). The study concludes with recommendations and suggestions for future research
Interest Rates and Financial Instability
Get PDFSeveral financial crises, which have occurred in different geographical areas over the past 100 years have reinforced the notion that crises and market imbalances are inherent characteristics of capitalism. By surveying the transitions of financial markets, especially during the last three decades, it has been clarified that the existence of interest rates can be considered as a fault line in the economic system and will disrupt the harmony between the real and financial sectors. Based on quarterly information in the real and financial markets of the United States during 1993-2014, and econometric analysis of Granger causality, the result of this study shows that the presence of usury and its growth in the conventional economic system will expand the debt markets, which cause the separation between nominal values in the financial markets and their intrinsic values in the real sector of the economy. With the emergence and increase of this separation, asset price bubbles are created. The greed of economic agents to take advantage of profitable opportunities, which occur due to price bubbles, increases borrowing and, therefore, expands the debt markets. Moreover, during this process, speculation activities will inflate asset prices excessively, causing more separation between the real sector and the financial sector. Consequently, the amount of monetary resources for the real sector will be decreased and, therefore, economic growth and employment will decline. Although some macro-prudential policies have been implemented to mitigate systemic risks and reduce the incidence of financial crises, they will not remedy the inherent instabilities of financial contracts. Islamic financial rules provide the economic system with mechanisms, which bring robustness and resilience to the financial system
Regulation of Virtual Currencies: Mitigating the Risks and Challenges Involved
Get PDFThe many types of virtual currencies that have been developed recently are due to the assessment of their users and proponents that financial systems require reform based on their mistrust in governments and financial institutions. To the users of virtual currency, its use in trade and commercial transactions suggests an attempt towards empowerment of consumers by by-passing the regulated currency regimes and intuitional regulations to create an open payments network – an Internet for money. This article makes an attempt to create awareness on what virtual currency is, in highlighting the differences between virtual currency and the national currency in circulation. This would include discussion on the interaction of virtual currency with the real economy and its risk to the real economy. Further, the article draws attention to consumer protection issues and the significant consumer risks associated with the use and ownership of virtual currency. An Islamic finance perspective on virtual currency is included, given Malaysia’s dual financial system which support both conventional and Islamic finance.  Finally, this article also draws attention to some of the possible regulatory challenges that virtual currency may create
The Role of Islamic Micro-finance in Enhancing Human Development in Muslim Countries
Get PDFHuman development and human welfare are important ends in Islamic economic development, and hence the need to focus on a broader approach, in evaluating the condition of people in society. In Muslim societies, poverty is still pervasive partly due to the poor have been excluded from the financial system. The main objective of this study is to explore the conceptual framework on the role of Islamic micro-finance in improving human development. The methodology of this study is based on analysis of relevant documents. The findings of the study indicate that Islamic micro-finance is a growing market niche with a comprehensive approach towards human empowerment, increased income and well-being. The income generated by the clients is utilized to improve health conditions and the educational level of children. Zakat and Awqaf institutions are regaining their momentum towards socio-economic relevance. These institutions are requisite for generating community assets, productive capacity building, wealth creation and knowledge and skills that will enhance the technical standing of entrepreneurs. This approach towards financial inclusion could bring improvements in human capital development, education and skills development, better provision of physical capital and wider access to micro-credit for the productive poor
Financing Sovereign Developmental Activities Through Non-Interest Bearing Instruments
Get PDFIt is well established that countries require investments in infrastructure, education, healthcare and institutional development for long term growth in income levels. However, due to the positive externalities associated with these sectors and issues such as non-excludability and non-rivalry, participation from private sector in these areas is generally inadequate and it becomes necessary for the state to intervene for optimal capital allocation. Generally, the quantum of funds required for nationwide developmental programs exceeds the resources that states can generate through one-time taxation and shortfalls are usually sourced from debt markets. Sovereign borrowing has recently attracted attention given the deteriorating credit quality of some nations resulting from heightened borrowing during the financial crisis. From an Islamic perspective, interest based borrowing is classified as a transaction based on riba, and therefore forbidden, by an overwhelming majority of scholars. This paper attempts to understand developmental activities pursued by governments and to explore alternative approaches to finance such activities without resorting to interest bearing instruments. Such alternatives include public-private partnerships, tax incentives, developing Corporate Social Responsibility (CSR) programs, auctioning scarce resources, and sovereign divestments
Analysis of Loan Loss Provisions: Malaysia and Gulf Corporation Countries (GCC) Islamic Banks
Get PDFThis paper examines the relationship between loan loss provisions (LLP) in connection with bank profitability, bank liquidity and bank capital. We investigate loan loss provisions (LLP) of Islamic banks in Malaysia and the Gulf Cooperation Council (GCC). This paper seeks to analyze a full-fledged Islamic banking system operating on a parallel basis with a full-fledged conventional system. The sample micro balance panel data analysis comprises a total of 196 Islamic banks covers the period 2006-2012. Analysis was carried out via Generalized Methods of Moments (GMM) model. The authors estimate Generalized Methods of Moments (GMM) models perfectly to overcome endogeneity problems. The evidence remains valid for all instrument used in this study, including loan loss provisions, total deposit ratio, equity loan ratio, and return on average equity and gross domestic products. The empirical result shows loan loss provisions (LLP) is found to be statistically significant for our full samples and GCC Islamic banks but not in the case of Malaysian Islamic banks
The Disclosure Evaluation of Islamic Banking Reports: Evidences From Middle East and Other Regions in Asia
Get PDFIslamic banking is the most attractive sector in Islamic financial system. The institution encourages not only economic aspects but also social aspects in accordance with Shariah principles in operation. Thus, the managements are required to be accountable to their stakeholders at large and not limited only to the shareholders. One of the accountability's forms is the presentation and disclosure in their annual reports. It is the way to disclose financial and non-financial performance of Islamic banks. This paper aims to elaborate the sources of development of Islamic banking reporting based on the AAOIFI standards, the harmonization of Islamic accounting standards with IFRS, the alternative components of Islamic banking reports, and the accounting policies for Islamic banks in some countries. Secondly, this paper attempts to evaluate the existing Islamic banking reporting components in order to scrutinize its development. This paper selects and evaluates 5 Islamic banks in Middle East region and 4 Islamic banks in other regions in Asia, which have significant contribution in the development of Islamic banking and finance. This study found that Islamic banks did not have similarity in the disclosure components. However, these diversities could be complementary to each other toward the ideal Islamic banking reporting