Takaful industry: a Malaysian experience / Nooraslinda Abdul Aris and Pm Dr Rohana Othman

Insurance has become a necessity for all individuals and businesses. Islam supports the concept of insurance, provided it does not contradict the tenets of Shari'ah. The Al-Qur'an has invoked Muslims to prepare for any misfortune. Islamic insurance or Takaful is based on mutual assistance, sharing of risk and cooperation among participants. This research focuses on Takaful operators in Malaysia, looking specifically at their business models and modus operandi. The research also looks into the Takaful operators' financial performance and growth over the last three years, i.e. from year 2007 to 2009. The findings of the study shows that the industry is still a green field or new growth area that requires widespread public awareness and education. The study also found regulations and standards in practice to ensure the growth of the Takaful industry are at par with world economics principles and perhaps can be built up as a mechanism to protect public interest and welfare in accordance to the Shari'ah

Pyramid of Maslahah for Social and Economic Welfare:The Case of Bank Islam Malaysia Berhad

Islamic financial system is no longer a new phenomenon. The existence of Islamic banking over the past fifty years has proven that Islamic financial system has a stand and desirable by society. Maqasid shari’ah or the higher objective of shari’ah is viewed by the contemporary Muslim bankers and academicians as an alternative tool to emphasize on issues relating to social and economic ends of financial transactions. Instead of over emphasizing on profit maximization in conventional banking, the Maqasid shari’ah mechanism contributes to the reorientation of Islamic finance and banking. This is seen in the social welfare institution process of innovation as promoted by Islamic moral economy. Islamic economy suggested the establishment of Islamic social banking in order to fulfil the social and economic needs of the Muslim. Thus, Islamic financial institutions (IFIs) focus is mainly on the social and economic welfare, benefits, and needs. Moral values is the major mutual concern of the system, neither profit maximization nor competitiveness as practiced by existing finance and banking system. This paper shed light on the prospects of pyramid of maslahah in social and economic welfare area of IFIs such as the practice of charity, waqf, zakat and Takaful. Bank Islam being the pioneer Islamic bank in Malaysia is chosen in assessing their role on promoting social and economic welfare as outlined by maqasid shari’ah. Keywords: Islamic financial system, social and economic welfare, maqasid shari’ah, social bankin

Assessing Financial Vulnerability of Cooperative

Financial ratios and prediction models have been used since the 1960s to evaluate financial health in profit-oriented organization. However, very few studies were devoted to cooperatives, which is looked upon like an enigma for regulators, business managers and academicians alike. With 1 billion cooperative members worldwide and counting, serious attention should be given to finding and developing tools to help the stakeholders maneuver cooperatives towards. This article explores the utilization of Tuckman-Chang Model to predict financial vulnerability in cooperative settings. This model was originally intended for charitable organizations (NPO) without profit-distributing characteristics. However, our finding implies that the utilization of such model in profit-distributing organizations such as cooperatives is applicable.Keyword: Financial Vulnerability, Financial Distress Prediction, Financial Oversight, Cooperativ

Islamic Banking: The Firewall Against The Global Financial Crisis

The global financial crisis that devastated many of the world’s financial systems in a manner never seen before exposed the glaring weakness in risk management and interest-driven policies. The crisis brought the collapse of several iconic financial institutions once perceived to be too strong to capitulate. The crisis engulfed one economy after another from corporations to eventually bring about the collapse of governments of countries reeling from the impact of the crisis. Asset values plummeted and the crisis clearly demonstrated the fragility of the western capitalist system and the free market economy. The Islamic economic and financial system is anchored on universal honorable values, ideals and morals - honesty, credibility, transparency, co-operation and solidarity. These fundamental values uphold stability, security and safety in any financial transactions. Of paramount consideration is that the Shari’ah prohibits any economic and financial transactions that involve usury, lying, gambling, cheating, unsubstantiated risk or uncertainty (gharar), monopoly, exploitation, greed, unfairness and taking other people’s money unjustly. Another key aspect to the philosophy behind the Islamic financial system is money issued must be fully asset backed. It is impermissible to allow money to be traded for money except at par. Islam is not just the prohibition of riba and zakah (alms); it is a comprehensive system to fulfill society’s basic necessities (food, clothing and shelter). History has demonstrated that Islam has the capacity to deliver and has succeeded in providing a viable economic system

Human-Capital based Governance Structure, Success Factors and Barriers to Effective Governance: Co-operatives in Malaysia

Co-operatives comprise the crucial third engine of growth for the Malaysian economy after the public and private sectors.  This study investigates the human capital based governance structure, success factors and barriers to effective governance of co-operatives in Malaysia. Questionnaires were distributed to the top 100 co-operatives listed in the Malaysian Co-operative Societies Commission website. Analysis of the responses to the questionnaires showed that human capital based co-operatives governance comprise members’ participation, independence of the board, depth of expertise and competencies of directors and other characteristics of the board. This study also identified branding as the most important success factor ahead of competitiveness and proximity.  Malaysia’s economy is projected to continue relying significantly on the performance of co-operatives.  Thus, it is incumbent for greater attention to be given towards an effective governance that results in successful co-operatives.© 2016. The Authors. Published for AMER ABRA by e-International Publishing House, Ltd., UK. Peer–review under responsibility of AMER (Association of Malaysian Environment-Behaviour Researchers), ABRA (Association of Behavioural Researchers on Asians) and cE-Bs (Centre for Environment-Behaviour Studies, Faculty of Architecture, Planning & Surveying, Universiti Teknologi MARA, Malaysia.Keywords: Governance; branding; proximity; competitivenes

Creating a Culture of Sustainability using Mission Statements of Cooperative Organizations

Mission statements are recognized as effective strategic management tools that influence firms’ performance. The evolution of a culture of sustainability begins with a mission statement that strikes a balance between financial performance and social commitments. The clear articulation of sustainability as part of the firm’s mission, values, goals, and strategy are key factors in fostering sustainability focused culture. This study illustrates the fundamental tenets of the culture of organizational sustainability model proposed by Galpin, Whitttington, and Bell (2015) using selected cooperatives in Malaysia. The contents of the mission statements were then analyze using the nine elements model by Pearce and David (1987) in findings its relations to and the existence of sustainability culture within the cooperatives. Findings from the study confirm building an organizational infrastructure that fosters a culture of sustainability results in positive employee and organizational-level sustainability performance. A reference was made to Bank Rakyat, one of the leading cooperative-based banking in the country for its outstanding performance.© 2016. The Authors. Published for AMER ABRA by e-International Publishing House, Ltd., UK. Peer–review under responsibility of AMER (Association of Malaysian Environment-Behaviour Researchers), ABRA (Association of Behavioural Researchers on Asians) and cE-Bs (Centre for Environment-Behaviour Studies, Faculty of Architecture, Planning & Surveying, Universiti Teknologi MARA, Malaysia.Keywords: Mission statement; sustainability; culture; cooperativ

Fraudulent Financial Statement Detection Using Statistical Techniques: The Case of Small Medium Automotive Enterprise

Fraudulent financial statements (FFS) are now placed under greater public scrutiny following an increase in the number of collapses among companies due to management fraud with loses on average at 5% of revenue (ACFE, 2014). There is consensus that management fraud is an on-going reality and no single organization is immune from the damage caused by the fraudsters (KPMG Malaysia, 2009). Small and medium sized businesses are also threatened by fraudulent activities and statistics showed organizations with fewer than 100 employees experienced more fraud cases than larger corporations (ACFE, 2008). Most of the companies in the automotive industry in Malaysia are small and medium scaled, hence these companies bear a greater burden and face higher risks of fraud. Precautionary measures in preventing fraud are crucial; however, with limited resources, effective detection may be severely curtailed. This paper assesses the possibility of FFS in a small medium automotive company in Malaysia using three statistical analyses namely the Beneish model, Altman Z-Score and Financial Ratio. The findings show that there are riskier zones that need to be further investigated by the management. It is suggested for the company to establish an internal audit unit to provide assurance on the company’s operations, financial reporting accuracy and adherence to the regulations

Islamic Banking Products: Regulations, Issues and Challenges

The Islamic world is in its evolutionary phase. Islamic finance whichcomprises the banking system, takaful (Islamic insurance) and capital market productsand services offer an alternative to society. The development is said to bephenomenal with a double-digit annual growth rate since its inception. McKinsey & Company (2007) in his study stated thatthe value of Islamic banking assets and assets under Islamic management isexpected to reach USD1 trillion by 2010, with Islamic banks growing morerapidly than the average banking sector in most countries. As of 2009,worldwide assets under shari’ah compliance grew four times from 0.5% to 2% ofthe world economy and reached MYR3.5 trillion (PEMANDU,2010). With the increasing trends of Islamic finance, Islamic financialinstitutions (IFIs) around the world are encouraged to develop and innovate newproducts in order to meet the ever-changing demand from its customers andpotential customers. The introduction of new Islamic products does impose somechallenges, not only to the practitioners and Shari’ah council members, butalso to society at large, as they are the ultimate users of the product. Thispaper aims to look at the development and regulations of new Islamic banking productswith focus given more on Islamic house financing. Such developments bring aboutvariation in the products introduced to the public as different contracts are adopted.The focus will be mainly on IFIs operating and regulated in Malaysia withspecific enforcement by the country’s regulators

Implementation Of Maqasid Shariah In Islamic House Financing: A Study Of The Rights And Responsibilities Of Contracting Parties In Bai Bithaman Ajil And Musharakah Mutanaqisah

The Maqasid-oriented approach in Islam demonstrates the Muslims commitment to uphold the authenticity of Islam as a religion and a complete way of life (ad-din). Maqasid Shariah is a transparent tool to outline and clarify the effective extent of the rights and responsibilities of the Mukallaf (servant of Allah) towards each other. Ignorance on Maqasid Shariah in Islamic business transactions, particularly for Islamic house financing led to misinterpretation, disruption, chaos, and trivial conflicts among the contracting parties. This paper discusses the implementation of Bai Bithaman Ajil (BBA) and Musharakah Mutanaqisah (MM) Home Financing instruments as practiced in Malaysia using the method of Imam al Shatibi. This paper concluded that a sound understanding of the knowledge, goals, and objectives of the Shariah at every level of a contract involving parties to a sale and purchase in Islamic Home Financing would enable improvement in practice through ijtihad (collective decision or general consensus). The Maqasid Shariah (the objective of Islamic Jurispudence) is adequate to provide the appropriate vehicle and procedure for the fulfillment of rights and responsibilities of contracting parties, thereby eliminating all sorts of financial criminology in trading and business (Kamali, 2002)

Risk management, Shari'ah compliance and performance of takaful operators in Malaysia / Roszana Tapsir, Nooraslinda Abdul Aris and Mohamad Kamil Abu Talib

Islamic finance has unique characteristics that give rise to a set of risk management challenges namely credit risk; liquidity risk; legal and fiduciary risk; financial supervision and transparency; and shari'ah supervision risk (Morisano, 2009). Due to the rapid growth in Islamic finance, a major issue arises in terms of shortages of qualified and knowledgeable risk management professionals. Therefore, there is a need for a unique risk framework for Islamic institutions covering risk categorisation and documents roles, responsibilities and authorities that support the approach and processes. The structures and processes established within an Islamic Financial Institution (IFI) for monitoring and evaluating shari'ah compliance rely essentially on the arrangements internal to the firm. By being incorporated in the institutional structure, a Shari'ah Supervisory Board (SSB) has the advantage of being close to the market. Competent, independent, and empowered to approve new Shari’ah-conforming products and/or services, the SSB can enable innovation likely to emerge within the institution. Grais and Pellegrini (2006) reviewed the issues and options facing current arrangements for ensuring shari'ah compliance and suggested a framework that draws on internal and external arrangements to the firm and emphasizes market discipline. This could ensure adequate consistency of interpretation and enhance the enforceability of contracts and lead to more effective options available to stakeholders for further improve Islamic finance