Risk-Taking in Public versus Private Banks: Evidence from Islamic Banking

This study examines risk-taking by publicly traded and privately owned banks in an Islamic banking sector employing a diversified international sample of 133 IBs across 35 countries. Unlike the vast majority of previous research, this study uses ordinary least squares (OLS) and Heckman's two-step models to analyse a comprehensive risk-taking by two proxies. It investigates the risk and stability features using the credit risk and Z-score as the insolvency proxy. The study finds that publicly traded banks engage in more risky activities than their privately owned peers. The study further analyses the link between ownership structure and risk in Islamic banks, finding that state ownership shows that it is not a determinant in taking risk differences. On the other hand, institutional investors are more likely to engage in risky activities when they hold higher stakes. Despite this, the results provide some advice to the financial actors in their attempts to deliver information to the risk-taking practices in concert with regulators and international policymakers

Hybrid Sukuk in Light of the Recent Implementation of AAOIFI Shariah Standard no. 59 Related to the Sale of Debt

Sukuk is among the primary fund-raising method for the sovereigns and corporates in a Shariah-compliant manner. Besides the Islamic investors, sukuk has been well received by conventional investors as an instrument that can provide similar risk and reward equal to the bond. However, as there are various sukuk structures in the market, hybrid sukuk is among the popular structure preferred by the issuers. One of the reasons is it requires a lower physical or tangible asset requirement i.e., 30% out of the total sukuk issuance amount ("tangibility ratio"). However, this changes with the implementation ofShariah Standard no. 59 on the Sale of Debt by Accounting and Auditing Organisation for Islamic Financial Institutions(“Standard 59”) (“AAOIFI”). It mandates a higher tangibility ratio requirement and an additional requirement ofmaintaining the tangible asset value. Thus, via document analysis methodology, this paper aims to explore further theimplication of these requirements toward the underlying asset condition and tradability of hybrid sukuk, as well as otherpotential impacts

Muslims’ Perception of Islamic Insurance (Takaful) in Malaysia

Conventional 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

Islamic Financial Engineering at the Crossroads: Between the Need for Hedging and the Compliance Requirements

Financial 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

Statistical Behaviours and Forecast of Cash Waqf Collection

The 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

The Role of Istihsan in Applying Maslahah in Islamic Finance

This 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

COVID-19 on Performance of Islamic Banks in Fintech and Digitalization Era

This study attempts to provide insight on risk and opportunities for Islamic banks arising from COVID-19 pandemic by using document analysis approach. The COVID-19 pandemic has increased banking risk. The paper emphasizes the impact of the crisis on credit risk as historically thought as the most significant risk driver. Increased credit risk in Islamic financial institutions (IFIs) is due to broad-based deterioration of economic conditions affecting multiple sectors, resulting in a general increase of non-performing financing (NPF) balances and charge-offs. Further, it was found that banks have suffered more not only relative to other sectors, but also in comparison with previous crises. In addition, some authors observe that banks that had entered the crisis with the highest level of credit risk, measured in terms of credit default swap (CDS) spreads rise, were most hit. On the other hand, the pandemic has proved beyond doubt the value of digital services that minimize or eliminate direct human contact. The power of digitalization can facilitate outreach to even the most vulnerable population. Islamic financial institutions may seize this opportunity to expedite the digitalization of their operations either using their own resource or by joint venturing with technology companies

Climate-Related Disclosure in Malaysian Wakalah Sukuk

It is evident that climate change, especially those related to Covid-19 has opened many new avenues of research and policy making initiatives. Climate-related disclosure is among them. While a number of policies have been drafted and finalized in both local and international markets, the practices to conform to the policies are only at the infant phase. Considering the initiatives taken by global policy makers and local regulators in relation to climate change, it is imperative to provide some insights on the responses of various financial players. For a beginning, this study has considered a number of sukuk issuers and their climate-related disclosures. Since these issuers’ principal activities involve various business activities, diversity of climate change and climate-related disclosures are anticipated. Using a document analysis on 13 selected Wakalah sukuk documents, it was found that there are four types of climate-related risk disclosure with six types of disclosure practices. Further analysis is based on the provisions of Climate Change and Principle based Taxonomy (CCPT) (2021) and recommendations of Task Force Climate related Financial Disclosure (TCFD), the climate-related disclosure was found to be minimal and inadequate. However, the findings of this study are only limited to small sample size. Nonetheless, the findings may provide some insights for the financial players in their efforts to provide a quality climate-related disclosure and practices in tandem with the initiatives of the local regulators and international policy makers

The Nature of the Administrative Relationship between the Shariah Board and the Stakeholders in the Kingdom of Bahrain

Corporate 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

The Role of Islamic Fintech P2PL in Increasing Inclusion and Financial Literacy of MSMEs

This 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