Journal of Islamic Finance (JIF)
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Gala (Ar-Rahnu) as Micro Financing Instruments in Islamic Financial Institution in Aceh
Full text linkGala is a traditional financing model that practiced among Aceh society starting from the 18th century until now. The presence of Gala as an alternative solution to poverty alleviation through Islamic microfinance products should be accommodated by the government either at the provincial or district/municipal. The involvement of local Islamic financial institutions that operate in the region is necessary in order to make Gala as one of recognised Islamic financing instruments. By doing so, the lower and middle-income groups of Aceh society can have an easy access to Gala. They can also conduct business transactions by using Gala as an Islamic financing product at each of Islamic financial institutions. In this research, the researchers made a direct observation in Manggeng and Kuala Batee sub-districts of Aceh Barat Daya district, Indonesia, by adopting the field research approach. Significantly, this research motivates to place traditional Gala as an instrument which is based on Shari’ah as one of Islamic financing products and to bring local wisdom or value to Aceh’s Lembaga Keuangan Syariah or LKS by recognising Gala.
Gala, Financing, Islamic microfinance, Islamic Financial Institution
Factors Influencing Issuers' Sukuk Structure Preference: The Case Study of KSA Banks
Full text linkThe purpose of this research paper is to examine the factors that influence the issuers’ sukuk structures and the impact of sukuk on the performance of the Kingdom of Saudi Arabia (KSA) sukuk issuing listed banks using the pooled OLS regression and the random effects panel models. The findings of this study show that while both bank size and the issued amount of sukuk positively affect the performance of the sukuk issuing listed banks of the KSA, a negative effect of the leverage ratio on performance was noted. Meanwhile, the sukuk dummy is reported to be statistically insignificant though it has a positive and negative magnitude in both models. Nevertheless, given the insignificance of the dummy variable, we can conclude that the factors that affect the issuers’ sukuk structure in the case of the sukuk issuing listed banks of the KSA is profit maximization rather than Shari’ah compliance. Thus, this study may offer some policy insights for policymakers in KSA especially because sukuk issuance boost banks performance
A New Approach in Education for Islamic Finance Awareness in Russia
Full text linkAt present, Russia has a unique situation with regard to Islamic finance. On the one hand, there is a huge interest and demand for educational programs in this specialty, not only among Muslims but others as well. On the other hand, presently there are not many job opportunities available in this area. This reflects the lack of solvency of demand for Islamic educational products in educational sphere, and interestingly, each group of citizens has its own motives. Most ordinary citizens who have a sincere interest in Islamic finance have naïve understanding about finance in general. Professionals in finance also show great interest in Islamic finance, but the lack of employment prospects for this specialty does not allow them to acquire appropriate educational services. Otherwise, it will be an investment with zero returns. Finally, many high-rank officials - especially after imposition of financial sanctions against Russia – demonstrate a careful demand for Islamic finance sector. They do expect that Islamic finance will solve many of the financial problems of the country and yet they face lack of proper understanding of the specifics of Islamic finance. In general, there is a huge demand for educational products in the sphere of Islamic finance in Russia. However, there is a need for a new approach in education. Therefore, this paper will focus on the followings three focus groups: a) various educational courses to increase public awareness on finance in general and on Islamic finance in particular; b) training for regional leadership and top officials on Islamic finance; c) special programs and training for experts in finance
Gap Analysis Between the Rahn Exposure Draft by Bank Negara Malaysia and Rahn Practice in Islamic Pawn Broking Institutions
Full text linkThis paper aims to analyse the existing structure of rahn-based Islamic microcredit lending facilities by Bank Kerjasama Rakyat and Pos Malaysia, the two institution with the largest number of Rahn branches in Malaysia, in comparison with the Exposure Draft on Shari’ah Requirements and Optional Practices of Rahn issued by Bank Negara Malaysia (BNM). The Exposure Draft delineates the Shari’ah requirements and Optional Practices pertaining to Rahn such that the regulatory body seeks feedbacks and alternative proposals from stakeholders to enhance the current practise of rahn. The main purpose of this paper is to investigate whether the practices of Bank Kerjasama Rakyat and Pos Malaysia comply with the proposed policy document by BNM with regard to the Shari’ah aspects. This paper employs a qualitative research method based on the data gatherred from secondary sources from the literature and other academic materials including the Rahn exposure draft, in order to evaluate the theoretical and practical aspects of rahn in Islamic microcredit financing. The findings show that in general, the current rahn practices by Bank Kerjasama Rakyat and Pos Malaysia are in accordance with the Shari’ah requirement in the Rahn Exposure Draft issued by BNM, based on available information. However, there are a some concerns regarding the current rahn practices related to the precautious measure before accepting the marhun (pledged item) to ensure the marhun is recognized by Shari’ah and the basis of the imposition of safekeeping fee to customers. As such, these issues call for a further examination and appropriate remedy
The Impact of Corporate Governance on the Financial, Governance and Social Disclosures at Islamic Banks in Malaysia
Full text linkThe study examines the impact of board and audit committee on the disclosure of Islamic financial and social reporting (IFSR) among Islamic banks in Malaysia. Drawing on surveys this study seeks the views of accountants working in Islamic banks regarding the importance of items in the IFSR index developed by Marsidi et al. (2016). The annual reports are thereafter used to examine the score of the IFSR for the Islamic banks as well as to collect the data for the related variables. The multivariate regression findings suggest that board size is a significant factor in explaining the IFSR at Islamic banks in Malaysia. Such finding indicates that the size of board, which is represented by the number of directors who sit on the board of directors, is a crucial governance mechanism in achieving the aims of Islamic banks. The result also meets the role of corporate governance from the perspective of Islamic agency theory. The results of the study should not be generalised to year’s prior, or after, the years of examination. The finding is perceived as contributing towards the suitable formation of board of directors specifically in terms of the total number of directors with respect to the financial, governance and social disclosures at Islamic banks. The study uses the Islamic agency theory to explain the governance practices and IFSR disclosures within the context of Malaysian Islamic banks. As such, the paper contributes towards the development and sustainability of Islamic banks both in Malaysia and throughout the globe
Viability of Trade Credit as an Underlying Asset in a Shari'ah Compliant Alternative Credit System
Full text linkTrade credit is a form of short term financing that is commonly utilised by firms, especially small and medium enterprises (SMEs) for working capital management purposes. As trade credit is unstructured and is variable and dependent upon each transaction, it makes it a highly illiquid asset/liability. This paper adopts a review of literature in order to identify if trade credit can be monetised and used as a medium of exchange. The advantages that such a system can bring are is manifold, mainly through providing an alternate source of liquidity for cash-strapped firms, boosting employment of resources, and a multiplier effect in terms of income and production. Upon initial analysis into the nature of trade credit, its modus operandi and the Shari’ah principles of bay al-Dayn, this conceptual paper posits that monetization of trade credits into an alternative currency, in accordance to the terms of the trade credit, is indeed possible and viable
The State of Liquidity Risk Management of Islamic Banks in Bangladesh: A Comparative Study with Conventional Banks
Full text linkThis paper aims to analyze the current state of liquidity and liquidity risk management of Islamic banks, the historical trend of the liquidity position, and provides a comparison with the liquidity position of conventional banks in Bangladesh. The paper utilizes liquidity ratio, deployment ratio, profit sharing investment account (PSIA) to total deposits ratio, liquidity gap over a specific time period, net stable funding ratio (NSFR), and liquidity coverage ratio (LCR), to discuss the state of liquidity and the trend of liquidity of Islamic banks. Five Islamic banks and five private commercial conventional banks, which do not have any Islamic banking branches, or windows, are chosen as samples. The data is collected from the annual reports published by selected commercial banks. Simple descriptive statistics such as mean and standard deviations are used to analyze the data. This study finds that the liquidity ratio and deployment ratios for Islamic banks are in a downward trend, although by a small percentage. Islamic banks have a negative short-term liquidity gap, although by a small percentage and the variations of liquidity gap are much higher, and the gap is in a declining trend towards being positive. Conventional banks have a positive short-term liquidity gap. Profit sharing investment accounts are experiencing an increasing trend and occupy the major portion of deposits. Liquidity ratio and deployment ratio remain higher for Islamic banks than conventional banks. For the past two years, both types of banks have maintained an adequate ratio as required in Basel III
A Life Cycle Approach to Islamic Wealth Management and Risk Tolerance
Full text linkThis paper examines a holistic, life cycle approach to Islamic wealth planning and management in relation to risk tolerance. In determining asset allocation, Islamic wealth planning must consider more than the risk-return trade-off of financial assets and take into account life cycle financial advice. This paper adapts a life balance sheet accounting approach that reflects both explicit and implicit Shari’ah compliant items in determining core capital, non-discretionary and discretionary wealth. The significance is that a Muslim wealth manager can objectively determine risk tolerance from implied leverage within the discretionary wealth framework of life cycle financial advice that better reflects the private client’s emotional goals and provides more flexibility in asset allocation. This contrasts with traditional net worth analysis of product-orientated personal financial planning that includes a subjective risk tolerance function derived from a questionnaire in determining asset allocation. This paper proposes a more holistic, sophisticated, goal-orientated approach, thereby enhancing the delivery of Shari’ah compliant Islamic wealth management services
The Significance of Corporate Social Responsibility Disclosure to Islamic Banks in Malaysia: An Islamic View
Full text linkCorporate social responsibility disclosure (CSRD) is imperative for an institution as it assists decision makers in making economic decisions. However, for Islamic institutions like Islamic banks, these objectives are secondary. For Islamic banks, to show their compliance with Shari’ah is the main objective of their CSRD that overrules other objectives. Nevertheless, there is no special framework on corporate social responsibility (CSR) for Islamic financial institutions in Malaysia especially Islamic banks thus far to guide them on what should be disclosed in their annual reports although Malaysia is one of the leading global hub for Islamic finance. Hence, the purpose of this study is to determine the significance of CSRD to Islamic banks in Malaysia from an Islamic view. This study is based on primary Shari’ah sources i.e. al-Qur’an and al-Sunnah, and secondary Shari’ah sources. It was found that, it is obligatory for all Islamic banks in Malaysia to disclose their CSR activities and initiatives through a right and common platform, which is CSRD. Therefore, a special CSR framework is required to guide Islamic banks in Malaysia disclose their CSR activities or initiatives systematically and perfectl
Good Governance and Sustainability in Islamic Microfinance Institutions
Full text linkIn the context of microfinance institutions (MFIs), good governance is highly critical in ensuring that the interests of the diverse stakeholders are being protected, while simultaneously safeguarding the viability and financial sustainability of the institution. As the microfinance industry scales up and expands globally, the decision making and operational processes of the MFIs are becoming increasingly complex, hence the need for stronger governance. This paper explores the relationship between good governance and sustainability particularly in the context of the Islamic MFIs. It also examines the mechanisms of governance in Islamic MFIs by critically evaluating the best practices of governance in the microfinance industry