Monitoring non-compliance risks in Islamic venture capital

Islamic venture capital firms are not in a position to pay high interest rates as in bank loans. They participate in the risk as well as the profit (the profit and loss sharing arrangements) of the new businesses they fund. The establishment of Islamic venture capital firms is based on the objective to comply with shariah principles in all aspect of business activities. A common feature of IVC firms is their unique structure of assets and liabilities and this exposed to additional types of risk, known as shariah noncompliance risk. This shariah non-compliance risk must be prudently managed to ensure the survival of these firms. Thus, good shariah governance mechanism is very important in ensuring their activities are in compliant to shariah. The paper suggests that the roles of shariah committee and shariah audit are important to observe the Islamic venture capitalists’ involvement is shariah compliant in every aspect of business transaction. The shariah committee is responsible to advise the IVCs on shariah aspect while, Shariah audit acts as a monitoring mechanism to validate the compliance with shariah. Thus, shariah committee and shariah audit are assumed to play significant roles to ensure the shariah-compliant agenda is achieved which is the backbone of the establishment of Islamic organizations be it venture capital firms or Islamic financial institutions

The influence of the concept of ‘taklif’ to accountants in preventing fraudulent financial reporting and auditing / Nawal Kasim and Nurul Khairiyah Khalid.

The current role of accountants is limited to compliance with rules and procedures and completeness of paperwork. It is easy to show that an organisation can comply with all rules and regulations without realizing that the financial reporting and auditing are fraudulent. Therefore, the function is inadequate for an Islamic society with a very heavy social and ethical agenda. The current paper argues that Islam has indirectly laid down a key concept in accounting i.e. “taklif” or “accountability” in one of its surah in the al-Quran i.e. Al-Baqarah, verse 282 (2:282). The objective of this paper is to examine the values embedded behind this surah that would set a conceptual framework for future research investigating how accountability in Islam is realised into actual practice

Shariah auditing in Islamic financial institutions: exploring the gap between the "desirable" and the "actual"

Persistently high expectations from the operations of Islamic financial institutions (IFIs) appears to give way for a gap to exist between “what ought to be” shariah auditing and the current practice of shariah audit in IFIs in Malaysia. Sulaiman (2005) mentioned that “what ought to be desired (the desirable)” may not coincide with “what is actually desired (the desired)” and in consequent “what is actually desired” may not be the same as “the actual” practice. This paper aims to explore empirically the gap between “the desired” and “the actual” practice of shariah auditing in IFIs in Malaysia. It is found that there exists a gap between the two concepts in terms of certain issues discussed in this study. Even though this paper cannot hope to bridge the gap that exists, it nevertheless shows that shariah audit function has not seriously taken an impact in IFIs in Malaysia despite its potential as a monitoring tool for shariah complianc

Sustainability and accountability of social enterprise / Nur Hayati Ab Samad ... [et al.]

Sustainability and accountability are pervasive issues for social entrepreneurial non-profit organisations (NPOs), which are also known as social enterprises as they seek to balance their social mission with financial responsibility. With the increased in the scope and size of the social enterprise, there is also increased need for accountability and organisational sustainability. Thus, in order to successfully fulfil these needs, social enterprises need to identify the relevant factors of sustainability that relates closely with accountability and organisational performance. This study aims to examine the extent social enterprise’s sustainability based on the factors identified using self-constructed sustainability index. The four main factors are leadership capacity, adaptive capacity, management and technical capacity and financial viability. Content analysis was used to measure the sustainability index from the information disclosed in the annual reports by 210 organisations registered under the Registry of Societies (ROS) in Malaysia for the year 2010. Findings from the study indicates that most of the social enterprises are aware that effective leadership is vital for organisational sustainability. However, management and technical aspects tend to be neglected possibly due to lack of adequate resources and facilities to adapt to current changes. Overall, this study highlights that in order to survive in the future, the social enterprise need to appropriately address relevant factors that influence financial accountability and organisational sustainability especially on management and technical aspect in order to survive in the future

The scope of Shariah audit in Islamic financial institutions (IFIs): A comparative study of Malaysia and Indonesia / Nawal Kasim … [et al.]

Drastic development of Islamic financial institutions globally may lead to new expectations of and requirements for accountability, which in turn lead to new demands on the audit function of the institutions. The prohibition of interest and the aspiration of Muslims to make this prohibition a practical reality in their economies, has led to the establishment of a number of Islamic financial institutions around the world. Religious or Shariah audit evolved in parallel to the development of these institutions The study examines the scope of the current practice of auditing in Islamic financial institutions using questionnaires survey in Indonesia and Malaysia. It further examines if IFIs manage to strengthen their social accountability dimension towards their social objectives via their auditing function. This is imperative as the IFIs are expected not only to avoid transactions on the basis of interest but also to participate actively in achieving the goals and objectives of an Islamic economy. The research reports findings on the need to extend the scope of Shariah audit to a broader sense to be in line with the socio-economic objectives of the Islamic law. It is also found that IFIs are facing with serious challenges from the well-established conventional financial system whereby Shariah auditors may face with immense challenges from the policy makers and top management who are progressive thinkers of diverse faiths and practices. Above all, lacking in a comprehensive Shariah audit framework and expertise add to the problem of implementation of Shariah audit in IFIs, Finally, it offers recommendations to bridge the gap between the theory and practice

Disputes and resemblance: comparative analysis of shariah advisory committee methodology and International indices / Wan Arliza Wan Zainal … [et al.]

In line with Malaysian Capital Market Masterplan 2 to expand the Islamic capital, Malaysian Shariah Advisory Council (SAC) has revised the Shariah screening process for listed companies in late 2013. The screening methodology was revised by adopting a two-tier approach to the quantitative assessment which applies business activity benchmarks and newlyintroduced financial ratio benchmarks while maintaining the qualitative assessment at the same time. This revision is parallel with the international screening providers (such as Dow-Jones Islamic World Market, Morgan-Stanly Compliance Islamic Index, London Stock Exchange (FTSE) Shariah Index, and Standard and Poor Shariah Index) methodology to identify Shariah-compliant investment for Muslims investors. Despite the similarity between the latest SAC 2013 Shariah screening methodology and the International Indices, various discussions on these screening methodology implications and detail filters are still being debated. The questions on which indices best follow the Shariah rules and are too liberal have yet to be discovered. Thus, there could be a need to provide clearer understanding with a more uniform Shariah investment screening methodology to convince investors with international portfolios. Any disputes or resemblance among these international indices and SAC are highlighted in this paper

Familial hypercholesterolaemia in children and adolescents from 48 countries: a cross-sectional study

Background: Approximately 450 000 children are born with familial hypercholesterolaemia worldwide every year, yet only 2·1% of adults with familial hypercholesterolaemia were diagnosed before age 18 years via current diagnostic approaches, which are derived from observations in adults. We aimed to characterise children and adolescents with heterozygous familial hypercholesterolaemia (HeFH) and understand current approaches to the identification and management of familial hypercholesterolaemia to inform future public health strategies. Methods: For this cross-sectional study, we assessed children and adolescents younger than 18 years with a clinical or genetic diagnosis of HeFH at the time of entry into the Familial Hypercholesterolaemia Studies Collaboration (FHSC) registry between Oct 1, 2015, and Jan 31, 2021. Data in the registry were collected from 55 regional or national registries in 48 countries. Diagnoses relying on self-reported history of familial hypercholesterolaemia and suspected secondary hypercholesterolaemia were excluded from the registry; people with untreated LDL cholesterol (LDL-C) of at least 13·0 mmol/L were excluded from this study. Data were assessed overall and by WHO region, World Bank country income status, age, diagnostic criteria, and index-case status. The main outcome of this study was to assess current identification and management of children and adolescents with familial hypercholesterolaemia. Findings: Of 63 093 individuals in the FHSC registry, 11 848 (18·8%) were children or adolescents younger than 18 years with HeFH and were included in this study; 5756 (50·2%) of 11 476 included individuals were female and 5720 (49·8%) were male. Sex data were missing for 372 (3·1%) of 11 848 individuals. Median age at registry entry was 9·6 years (IQR 5·8-13·2). 10 099 (89·9%) of 11 235 included individuals had a final genetically confirmed diagnosis of familial hypercholesterolaemia and 1136 (10·1%) had a clinical diagnosis. Genetically confirmed diagnosis data or clinical diagnosis data were missing for 613 (5·2%) of 11 848 individuals. Genetic diagnosis was more common in children and adolescents from high-income countries (9427 [92·4%] of 10 202) than in children and adolescents from non-high-income countries (199 [48·0%] of 415). 3414 (31·6%) of 10 804 children or adolescents were index cases. Familial-hypercholesterolaemia-related physical signs, cardiovascular risk factors, and cardiovascular disease were uncommon, but were more common in non-high-income countries. 7557 (72·4%) of 10 428 included children or adolescents were not taking lipid-lowering medication (LLM) and had a median LDL-C of 5·00 mmol/L (IQR 4·05-6·08). Compared with genetic diagnosis, the use of unadapted clinical criteria intended for use in adults and reliant on more extreme phenotypes could result in 50-75% of children and adolescents with familial hypercholesterolaemia not being identified. Interpretation: Clinical characteristics observed in adults with familial hypercholesterolaemia are uncommon in children and adolescents with familial hypercholesterolaemia, hence detection in this age group relies on measurement of LDL-C and genetic confirmation. Where genetic testing is unavailable, increased availability and use of LDL-C measurements in the first few years of life could help reduce the current gap between prevalence and detection, enabling increased use of combination LLM to reach recommended LDL-C targets early in life

Managing and Reporting of Shari’ah Non-Compliant Income in Malaysian Islamic Banks: A Methodology Perspectives

Shari’ah Compliance and Governance Framework is essential to guide the banks on the regulatory requirement as it supports the growth and development of the Islamic finance industry. Section 28(1) and Section 28(3) of the Islamic Financial Services Act (IFSA) 2013, states that IFI needs to comply with the Shari’ah principles in all of their activities religiously. Managing and reporting Shari’ah Non-Compliance (SNC) for instance, are crucial operational matters to the banks. In most cases, Islamic banks could be exposed to SNC incidents due to Shari’ah non-compliance events (SNCE) or Shari’ah Non-Compliant Income (SNCI). This study will be focusing on SNCI, unblessed income that should be de-recognized from the bank’s income. To investigate the end-to-end process of managing and reporting SNCI in Malaysian Islamic banks, the insight of the key functions, and the Shari’ah scholars were obtained. Besides in-depth interviews, documentation review of relevant policy documents, and content analysis on the annual reports of ten Islamic banks were also performed to fulfill the delineated research objectives. Besides data source and methods triangulation, ‘The Six Phases of Reflexive Thematic Analysis’ was also applied to explore and develop an understanding of patterned meaning across the datasets, eased by Atlas.ti. Finally, a guideline of best practices in managing and reporting the SNCI is proposed to Malaysian Islamic banks.    Keywords: Non-complaint income; financial reporting; disclosure; Islamic banks; triangulation &nbsp

Proposed approach for best practices of Shari'ah corporate governance in the Malaysian Islamic capital market

With the rapid growth of Islamic finance industry, the countries offering Islamic products should be preparing standards and guidelines to cater for current market needs to ensure that the industry is operating in a conducive environment. Since Malaysia strives to position itself as a hub for Islamic finance, it must ensure that it proactively works towards moulding the industry. With the needs of the industry, the Central Bank of Malaysia has issued the Shari'ah Governance Framework for Islamic banks and Takaful. This was necessary in view of the lack of guidelines best practices in Shari'ah corporate governance in the Malaysian Islamic capital market. To this end, this study seeks to determine the approach best suited to establish a framework of Shari'ah corporate governance for listed companies in Malaysia. The interview results show that the hybrid approach is best suited to provide the general guidelines as a reference while accommodating the flexibility of Islamic law. © Maxwell Scientific Organization, 2014