Journal of Islamic Finance (JIF)
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Temporary Waqf Model for Islamic Private Retirement Scheme in Malaysia - A Proposal
Full text linkWaqf is one of the important instrument in Muslim’s economic development. Waqf properties which are properly managed will generate positive returns to the beneficiary. However, majority of the assets are still immovable and tangible in nature. This sparks off a liquidity problem in developing and maintaining those assets which leads to number of lands being neglected. This article aims to solve this issue by applying the concept of temporary Waqf to Islamic Private Retirement Scheme (PRS) in Malaysia. This article suggests three mechanisms to adopt this concept in PRS namely waqf by member in the form of units or in the form of value of the units or having PRS Provider to dedicate specific numbers of units for Waqf purpose
Islamic Business Ethics Disclosure and Earnings Management – Evidence from Islamic Banks in Indonesia
Full text linkThis research is conducted to prove empirically the influence of Islamic business ethics disclosure, corporate governance, debt ratio, syirkah fund ratio and the profile of the Shariah Supervisory Board (SSB) towards earnings management. The samples are collected from Islamic commercial banks in Indonesia. Multiple regression analyses are employed in analyzing the data. From this research, it is found that (i) corporate governance, (ii) temporary syirkah funds, (iii) the size and educational level of the SSB, (iv) the syirkah fund ratio, and (v) the Islamic Ethics Disclosure Index or IEDI have negative impacts towards earnings management. The debt ratio, educational background of the members of SSB, and double membership of SSB do not have an impact on earnings management. Thus, the SSB should oversee the implementation of Islamic business ethics and avoid earnings management. Earnings management creates a false view of the performance of the Islamic bank, with respect to its profit and loss sharing system
Analysis of Sukuk Cross-Default Clause: A Fiqh Perspective
Full text linkIn recent time, there have been incessant Sukuk default cases which are posing a severe challenge to the growth of the nascent Islamic finance Industry. Institutions and principal officers in the industry are often concern about appropriate mechanisms that can protect the right and interest of the Sukuk-holders without violating Shari’ah-compliant risk. It is significant to note that there is a difference between Sukuk default and default event. Sukuk defaults happen when the obligor fails in fulfilling their financial obligations as indicated in the contractual agreement. Default event is various circumstances that can trigger Sukuk default. Default event can be in the form of credit risk and moral risk. Cross-default is an example of a default event that has attracted the attention of legal and Shari’ah scholars. Scholars and experts are considering the juristic status of cross-default mechanism that can be used to protect the right and interest of creditors by juxtaposing it with the principles of justice and equity in Islamic law. This paper aims to explore the legality and fairness of cross-default in Islamic jurisprudence. This study explains the concept of cross-default, how it works, review of what constitutes legality and morality of cross-default in Islamic legal theory. The study also employs the juristic analysis method to examine the opinions of contemporary scholars and expert of Islamic finance on the fairness of Sukuk cross-default
The Mediating Effect of Customer Satisfaction on Customer Loyalty: A Study of Islamic Banks in Indonesia
Full text linkThis study aims at analyzing the influence of customer perceived value (CPV), Islamic bank service quality (IBSQ) on customer satisfaction and customer loyalty with the mediation of customer satisfaction as intervening variable and without the mediation of customer satisfaction as intervening variable. The population in this study is the customers of islamic banks in Jambi province. The design of this research is quantitative. Survey was conducted to 280 customers of islamic bank in Jambi. The sampling method applied non-probability method with purposive sampling technique. This study used SEM analysis method with Amos 21 and Sobel test. The findings in this study show that CPV and IBSQ influence customer satisfaction and CPV also influences customer loyalty. In the other hand, IBSQ and customer satisfaction do not influence customer loyalty. With intervening variable, CPV and IBSQ do not influence customer loyalty at Islamic Banks. This research suggests that the management team of Islamic Banks in Jambi province should improve the service quality in responding to customer demand, customer needs and customer value in order to provide customer satisfaction which in the end affect the customer loyalty to Islamic bank in Jambi
Transparency Problems in Cash Flow Transformation and Reserves Management in Islamic Investment Accounts
Full text linkIslamic banks must comply with the interest rate prohibition to maintain Shari’ah compliance. This means that depositors cannot be offered fixed guaranteed returns on their investments. As an alternative, Islamic banks offer profit sharing investment accounts that depend on underlying investments to generate their cash flows. These cash flows are then transformed by the management before they are finally paid out to the investment account holders. The objective of these cash flow transformations is to transform the stochastic returns of the underlying investment to more stable (to an extent non-stochastic) returns for investment account holders. This is required or recommended by regulatory authorities and aims to mitigate system-wide mass withdrawals by investors (Withdrawal Risk). However, managing such reserves comes at a price, and this is the focus of this paper. These reserves create a veil of intransparent practices while hiding the actual performance of the investment accounts. Furthermore, they may end up defrauding some depositors from their deserved profits (inter-generational reserves ownership problem). Finally, mitigating withdrawal risk by matching the returns of competing riskless deposits while ignores the risks of Islamic investment accounts that associated with investing in the real economy. Some of these issues have gone relatively unnoticed in the literature or at least not combined in a structured manner. Therefore, it is highlighted in this paper the problematic nature from an ethical and Shari’ah compliance perspective and if not from a pure financial regulatory one
Portfolio and Default Risk of Islamic Microfinance Institutions
Full text linkIslamic microfinance is a growing sector that is expected to provide a long-term solution to poverty in the Muslim world. The role of microfinance institutions in poverty alleviation is still debatable, however established literature provides assurance that microfinance does contribute to the development of financial sector and reduction of poverty in developing countries. The rise of competition in the microfinance sector has forced many microfinance institutions to resort to commercial funding and lending activities, which according to some studies has led microfinance institutions to become riskier. The paper explores portfolio and default risk of Islamic Microfinance Institutions (IMFIs) and find that they are facing relatively lower risks than conventional MFIs. Using Ordinary Least Squares regression to analyse portfolio risk of IMFIs, the research finds unexpected result. Since IMFIs are facing challenging working environment and are operating in some of the poorest countries in the world with frequent natural disasters or armed conflicts, we predicted that they will be riskier. We also find that IMFIs are also less vulnerable despite their clients are from the poorest segment in the society, often with lower educational level, and the nature of Islamic financial products are relatively unknown to most clients. Many of the IMFIs and their clients live in countries considered to be high risk or have histories of instability, either politically or economically
Interest-Free Banking and Finance in Brunei Darussalam: Present Realities and Future Prospects
Full text linkBrunei is vigorously pursuing interest-free banking as a governmental project. This study examines the development of this institution in the country highlighting the present experiences, future prospects, and imminent expectations. Islamic banking and finance has superintended a new economic order in Brunei. Although the system is still at its primary stages, it has been successful and holds good prospects due to political cooperation. Political-will is basic to the fruitful implementation of a new economic order and the efficient Islamization process in Brunei facilitated the establishment of sound socio-cultural and economic foundations. This has vigorously promoted the essential values of Islam. Nonetheless, the ‘call’ for economic diversification has some implications for this institution in the country because diversification invariably exposes an economy to international interest and, more importantly, empowers the private sector. These come with the likelihood for promoting interest-based banking and financial practices. This study, therefore, concludes that Islamic banking has been very successful in Brunei but it still remains vulnerable to non-political future challenges subject mainly to the economic fortunes of the petro-dollar
Macroeconomic Impacts on Sukuk Performance in Indonesia: Co-integration and Vector Error Correction Model Approach
Full text linkThe performance of Islamic bonds or sukuk can be influenced by many factors, internal and external. This study aims to analyze the long and short-term effects of macroeconomic variables such as BI rate (benchmark interest rate), inflation, exchange rate, changes in world gold prices and world oil prices on the performance of sukuk in Indonesia for the period from 2014 to 2017. This study employed the co-integration test to examine the long-term relationship among variables. The Vector Error Correction Model (VECM) model was used in the analysis because the results of the stationary test obtained stationary data at first difference and have long-term co-integration. The results show that the long-term change in sukuk return in Indonesia is influenced by changes in exchange rates, inflation and changes in world gold prices. While in the short term, performance of sukuk is influenced by the previous performance (one and two months), BI rate, exchange rates and world gold prices. Crude oil prices has no significant effect on sukuk performance both in the long and short term
Short-run and Long-run Relationship between Economic Growth, Foreign Direct Investment, Trade Liberalization and Education on Income Inequality: Evidence from Indonesia
Full text linkThe aim of this study is to examine the relationship between economic growth (GDP), Foreign Direct Investment (FDI), trade liberalization and education on income inequality in short-run and long-run for Indonesia over the period 1981-2015. Using the Vector Error Correction Model (VECM), this study found that in the long-run, GDP has a positive and significant effect on income inequality. The higher GDP in Indonesia will cause a higher income inequality. In contrast, GDP has a negative effect on income inequality in the short-run. The long-run result supports the Kuznets hypothesis that increasing in income inequality is caused by the initial increase in GDP per capita. Both trade and education have negative and significant effect in the long-run. Meanwhile, in short-run, both have different results. Increasing trade will escalate income inequality significantly, while increasing education will decrease income inequality