The role of Islamic finance in enhancing financial inclusion in organization of Islamic cooperation (OIC) countries

The core principles of Islam lay great emphasis on social justice, inclusion, and sharing of resources between the haves and the have nots. Islamic finance addresses the issue of"financial inclusion"or"access to finance"from two directions -- one through promoting risk-sharing contracts that provide a viable alternative to conventional debt-based financing, and the other through specific instruments of redistribution of the wealth among the society. Use of risk-sharing financing instruments can offer Shariah-compliant microfinance, financing for small and medium enterprises, and micro-insurance to enhance access to finance. And redistributive instruments such as Zakah, Sadaqat, Waqf, and Qard-al-hassan complement risk-sharing instruments to target the poor sector of society to offer a comprehensive approach to eradicating poverty and to build a healthy and vibrant economy. Instruments offered by Islam have strong historical roots and have been applied throughout history in various Muslim communities. The paper identifies gaps currently existing in Organisation of Islamic Cooperation (OIC) countries on each front, that is, Shariah-compliant micro-finance and financing for small and medium enterprises and the state of traditional redistributive instruments. The paper concludes that Islam offers a rich set of instruments and unconventional approaches, which, if implemented in true spirit, can lead to reduced poverty and inequality in Muslim countries plagued by massive poverty. Therefore, policy makers in Muslim countries who are serious about enhancing access to finance or"financial inclusion"should exploit the potential of Islamic instruments to achieve this goal and focus on improving the regulatory and financial infrastructure to promote an enabling environment.Access to Finance,Debt Markets,Banks&Banking Reform,Emerging Markets,Islamic Finance

The issues of second layer charging fee in Wakalah Takaful model practices

This paper aims to examine the issues of second layer of charging fee in the wakalah takaful models practices in Malaysia.Hence, to make sure all the objectives are answered progressively, qualitative research methodology is advocated.The main data were collected from the interview session among scholars and expertise in takaful field. Then, the data has been analysed based on certain coding and themes.In overcame the second layer of charging fee issue, Takaful Operator (TO) should provide a clear contract that been used in their operations.Besides, another approach is by providing concrete decision from the authority body such as from Shariah Advisory Council (SAC). The issue also can be mitigate through a good Shariah framework from takaful operator itself. This study can be expanded by focusing on the issue of customers’ preferences in the selection of takaful products.Besides, the future research can also examine whether these issues attributed to its low market penetration in Malaysia

The insurance sector in the Middle East and North Africa : challenges and development agenda

This paper studies the causes of the low development of the insurance sector in the Middle East and North African (MENA) region, particularly for long term insurance. The paper shows that life and non-life premiums, as well as assets, are very low relative to expected levels given per capita income and demographic characteristics, and examines the causes of such poor performance. There is a wide range of factors constraining the development of the industry, including the absence of mandatory insurance in key areas, the predominant presence of the state in some countries, gaps in regulation and supervision, unsupportive tax regimes, fragmented market structures, a chronic lack of suitably skilled people, as well as the absence of products that conform with cultural/religious preferences, especially in the case of life insurance. The lack of development of the insurance sector is a matter of concern, as research shows that the sector can contribute to both financial and economic development. Key recommendations to accelerate the development of the sector include wider introduction of mandatory insurance lines that have clear positive externalities, continuing the privatization process for government owned insurers, employing non capital techniques to force rationalization of insurance sectors with too many small and inefficient players, removing tax distortions, taking steps to stabilize motor third party liability markets (typically the largest line of business), strengthening reporting and disclosure, regulating banc-assurance, improving consumer protection, further developing Takaful long term insurance ('Family Insurance'), and establishing regional centers of excellence for skills development.Insurance Law,Insurance&Risk Mitigation,Debt Markets,Climate Change Economics,Emerging Markets

Corporate governance and stakeholders'financial interests in institutions offering Islamic financial services

This paper focuses on the corporate governance arrangements of institutions offering Islamic financial services (IIFS) aimed at protecting stakeholders'financial interests. Many IIFS corporate governance issues are common with those of their conventional counterparts. Others are distinctive. In particular they offer unrestricted investment accounts that share risks with shareholders but without a voting right. This paper first reviews internal and external arrangements put in place by IIFS to protect stakeholders'financial interests. It discusses shortcomings notably in terms of potential conflict of interest between shareholders and holders of unrestricted investment accounts. It then suggests a corporate governance framework that combines internal and external arrangements to provide safeguards to unrestricted investment account holders without overburdening IIFS'financial performance. The paper uses a review of 13 IIFS and regulatory information from countries where IIFS have developed the most.Banks&Banking Reform,Financial Intermediation,Corporate Law,Non Bank Financial Institutions,Investment and Investment Climate

The Urgency of the Regulation of Certification as an Attempt to Optimize the Human Resources in Developing Indonesia's Sharia Insurance

Objectives - The development of Islamic insurance in Indonesia contributed to economic growth in 2014. The principle of mutual cooperation and tabarru contract is a characteristic of Islamic insurance. The Opportunity to increase the role of Islamic insurance as an economic entity is done by utilizing various aspects of human resource readiness. Human Resource are required to have a comprehensive understanding of Islamic insurance in order to create compliance with Islamic principles for product and services offered.It can provide legal protection against the Takaful participants. Issues to be examined is how the readiness of the relevant regulatory certification and how Regulatory model certification appropriate human resources in order to develop Islamic insurance in Indonesia. Methods -The method used is a normative juridical that through the efforts of an inventory of rules and descriptive analytical. To obtain the appropriate regulatory models, a legal comparison method is employed.Results - Based on the research results, the regulation of certification is required and should include the human resources, starting from a selling agent to the management as a decision maker. This regulation will push the entire human resources involved in the Islamic insurance industry to has the capacity and capability in providing services to the public, and to ensure and guarantee that the services offered comply with Islamic principles. Association of Islamic Insurance Indonesia was initiated concerning certification provisions, but has not been followed by a strong regulations readiness as a legal basis.Conclusion -Therefore we need a comprehensive regulation and it must be issued by Indonesian Financial Services Authority

The Significant Contribution Of Islamic Relationship Marketing Practice In Malaysian Takaful Industry Towards Determining Customer Gratitude, Trust, And Commitment

Parallel to the achievement of the Takaful industry, agency system becomes the main medium utilised by the industry to educate the public and assist them about future fnancial preparation. As a mirror to an Islamic type of insurance, Takaful agents play signifcant role not only to sell the Takaful products, but also to behave according to the Islamic norms in front of their customers. Thus, this research is conducted to introduce new concept of Islamic relationship marketing (IRM) and investigates its signifcance towards customer gratitude, trust, and commitment in the industry. A total of 741 of Family Takaful customers in Klang Valley area have participated in the survey conducted in this study. Few statistical analyses were performed to confrm the proposed measures of IRM including descriptive, exploratory factor analysis (EFA), measurement model, and structural equation modelling (SEM) analysis. Through EFA and measurement model, four variables were confrmed to measure the IRM which are Islamic ethical behaviour, social, structural, and fnancial bonds. Furthermore, these measures of IRM have signifcantly affected customer gratitude, trust, and commitment via SEM analysis. This study serves as a starting point to promote new approach of marketing in the Takaful industry based on the Islamic norms. It basically aims to tackle the needs of Takaful participants which should be taken care by the Takaful agents as to ensure both of these parties receive benefts in the Takaful contract

Islamic finance in Europe

Islamic finance is based on ethical principles in line with Islamic religious law. Despite its low share of the global financial market, Islamic finance has been one of this sector’s fastest growing components over the last decades and has gained further momentum in the wake of the financial crisis. The paper examines the development of and possible prospects for Islamic finance, with a special focus on Europe. It compares Islamic and conventional finance, particularly as concerns risks associated with the operations of respective institutions, as well as corporate governance. The paper also analyses empirical evidence comparing Islamic and conventional financial institutions with regard to their: (i) efficiency and profitability; and (ii) stability and resilience. Finally, the paper considers the conduct of monetary policy in an Islamic banking context. This is not uncomplicated given the fact that interest rates – normally a cornerstone of monetary policy – are prohibited under Islamic finance. Liquidity management issues are thus discussed here, with particular reference to the euro area

Macroeconomic Determinants of Islamic Banking Financing

The purpose of this study is to analyze the relationship between Islamic banking financing and macroeconomic variables as well as its response to key economic variables including real output, price level, interest rate and trade for the case of Indonesia. This research uses time series econometric analysis such as Granger Causality and Vector Error Correction Model (VECM). Time series data used are total Islamic banking financing, industrial production index (IPI), customer price index (CPI), Certificate Bank Indonesia (SBI) rate and International trade. The results show that there is bi-directional relationship between Islamic banking financing and price level as well as Islamic banking financing and interest rate. Meanwhile, the uni directional causality occurs between Islamic banking financing and real output as well as Islamic banking financing and trade. In this case, Islamic banking financing is affected by IPI. Islamic banking financing is not affected by trade but trade is significantly affected by Islamic banking financing. In addition, Islamic banking financing is relatively sensitive to the shock of price level, real output and interest rate

Effect of Takaful Models on Performance of Takaful Operators

Purpose of this study is to analyze the performance in terms of profit of different takaful models being used in different countries in the world. It is both quantitative and qualitative research. In qualitative research, literatures is reviewed by using content analysis technique. Many takaful models are being used by many takaful operators i.e. Wakala, Wakal-Waqf, Mudharabah, Mudharabah-Wakla. For examining performance of different takaful models of five takaful operators, Secondary data on profit earning from 2008 to year 2017 is taken. Results and graphs represent the higher performance of Abu Dhabi National Takaful working on Mudharabah and Wakala Model which showed higher profit as compared to all takaful operators. The finding of this study is essential for Accounting and Auditing Organization for Islamic Financial Institutions (AAOIFI) for ensuring the standardization of the services and structures that could be given within the frame of mutual help. Takaful operators who can also use the above model i.e. Mudharabah and Wakala Model for enhancing their performance in financial market of insurance. Governments should enact a law for operations and rulings of standardized takaful models adopted by takaful operators and liberalize the takaful market via removal of tariff