The Awareness and Attitude towards Islamic Banking: A Study in Malaysia

The purpose of this study is to establish the level of awareness that Malaysians have in relation to the culture of Islamic banking, the attitude of Malaysians towards Islamic banking and a ranking of the bank selection criteria of Malaysians – and for each part of the study, to see if Muslim responses are different from non-Muslim responses. A sample of 150 Muslim and non-Muslim customers in Klang Valley was surveyed utilizing a questionnaire containing specific questions relating to the awareness and attitudes of Islamic banking to their ranking of the services required. It is found that the Muslims are more aware toward the culture of Islamic banking, and as consequences, be more aware of the meaning of fundamental terms used in Islamic banking and finance.In the case of the attitudes towards Islamic banks, there were many differences in attitudes between Muslims and non-Muslims in country with majority of Muslims. In the context of bank selection criteria, there are four significant differences among Muslims and non-Muslims such as, mass media advertising, credit on favorable terms, financial counseling and location near my place of work, while the others 18 criteria shows no significant difference. The findings can be utilize by banks to measure the level of attitudes and acceptance towards Islamic Banking among Muslims and non-Muslim and for those who is considering setting up an Islamic banking operations in the country with majority of Muslims

Musharakah Tijarah cross-border financing: concept, structure and salient features

Musharakah Tijarah Cross-Border Financing (“Product”) is the product to enable the Bank to undertake project and contract cross-border financing activities or other identified business ventures on “pure” Joint Venture basis,using the underlying Islamic financing contract of Musharakah. Musharakah concept has a low market share of less than 2.5% in the overall existing Islamic financing products in Malaysia. This product encourages mobilization of idle capital / cash entities and thus provides a basis for economic cooperation between these organizations in the society. The product also is expected to inject greater prosper to the Bank’s overall performance and ultimately able to assist small time landowners in a big way through business risk sharing. Musharakah provides an alternative investment, which will cater for Islamic investors and partners, especially from GCC, who may have been reluctant to invest in conventional or current debt-based financing scheme. With Musharakah concept, the most preferred and globally accepted Islamic financing, this can attract these investors to participate on similar risk-sharing arrangements through the creation of Specific Investment Account (SIA) or Islamic Syndication to back financing made into the Joint Venture

An analysis of financial speculation: from the Maqasid Al-Shari'ah perspective

Purpose: This paper aims to discuss the topic of financial speculation with special reference to forex and offers an analysis from the Maqasid Al-Shari’ah perspective, whereby authors propose to limit the outreach of speculative instruments in the financial markets. Design/methodology/approach: The authors will make use of a simple textual analysis of existing materials and documents. To come up with conclusions, relevant to this study and to make them credible enough, the authors will undertake to review the existing literature in the next part of the paper and will later present his analysis of findings in light of financial crises and the objectives of Shari’ah. Findings: The Maqasid Al-Shari’ah approach used in the analysis suggests that speculative financial instruments do not constitute a necessity, and their harmful practice must be limited to protect the religion, life, lineage, intellect and property. Originality/value: Financial speculation in general and foreign exchange in particular must be regulated. Their current practices of financial system pose significant challenges for entire economies as well as individuals. Muslims should also avoid speculative financial instruments, such as forex, because they are a clear threat to individual and state wealth and prosperity. In addition, they threaten traditional businesses and social norms in Muslim societies

The Co-movement of Selective Conventional and Islamic Stock Markets in East Asia: Is there any Impact on Shariah Compliant Equity Investment in China?

This paper investigates the dynamic causal linkages in the daily returns among seven major conventional and Islamic stock indices in East Asia through the application of the time series techniques. We analyse seven conventional and Shariah -compliant stock indices (such as, FTSE Shariah China Index, Asia Shariah index, Malaysia EMAS Shariah Index, China SSE Composite Index, Hang Seng Index, Nikkei 225 and KOSPI) covering the period from 26 October 2007 to 1 March 2011. Essentially, the purpose of this research is to identify the extent of influence of conventional and Islamic, regional and international equity markets on Shariah-compliant equity investment in China. Our study is focused on investigating the following empirical questions: (i) which indices do the Shariah China Index commove with? (ii) which indices is the Shariah China Index Granger-causally related with ? and (iii) which major stock market was driving the selective conventional and Islamic markets? Our findings tend to suggest: (i) the Sharia China Index appears to have a theoretical and long-run comovement with all the select conventional and Islamic markets (as evidenced in the Cointegration and LRSM tests) (ii) the Shariah China Index is Granger-caused by all the conventional and Islamic markets (as evidenced in the VECM tests) (iii) Finally, what stands out is the leadership of the China conventional SSE market followed by the Malaysia Shariah market in driving all indices including the Sharia China index (as evidenced in the VDCs tests)

The Co-movement of Selective Conventional and Islamic Stock Indices: Is there any Impact on Shariah Compliant Equity Investment in China?

This paper investigates the dynamic causal linkages in the daily returns among four conventional and three Shariah-compliant indices (such as, FTSE Shariah China Index, Asia Shariah  index, Malaysia EMAS Shariah Index, China SSE Composite Index, Hang Seng Index, Nikkei 225 and KOSPI) in Asia region through the application of the standard time series techniques. Essentially, the purpose of this research is to identify the extent of influence of conventional and Islamic, regional and international equity markets on Shariah-compliant equity investment in China. Our study is focused on investigating the following empirical questions: (i) which indices do the Shariah China Index commove with? (ii) which indices is the Shariah China Index Granger-causally related with? and (iii) which major stock index was driving the selective conventional and Shariah-compliant stock indices? Our findings tend to suggest: (i) the Shariah China Index appears to have a theoretical and long-run comovement with all the select conventional and Shariah-compliant stock indices (as evidenced in the Cointegration and LRSM tests) (ii) the Shariah China Index is Granger-caused by all the conventional and Shariah-compliant stock indices (as evidenced in the VECM tests) (iii) Finally, what stands out is the leadership of the China conventional SSE market followed by the Malaysia Shariah market in driving all indices including the Shariah China index (as evidenced in the VDCs tests). Keywords: Islamic Finance, Shariah Compliant Equity Investment, Time series analysis JEL Classifications: C22, F21, F36, G1

Estimation of dynamic conditional correlations of Shariah-compliant stock indices through the application of multivariate GARCH approach

A major issue in both Islamic finance and conventional finance is whether the shocks to the volatilities in the asset returns are substitutes or complements in terms of taking risk. An understanding of how volatilities of and correlations between asset returns change over time including their directions (positive or negative) and size (stronger or weaker) is of crucial importance for both the domestic and international investors with a view to diversifying their portfolios for hedging against inforeseen risks. This study is the first attempt to advance the frontier of knowledge particularly in the fast growing field of Islamic Finance through the application of the recently –developed Dynamic Multivariate GARCH pproach. We analyze the daily returns of five Shariah-compliant stock indices (such as, FTSE Shariah China Index, FTSE Shariah India Index, FTSE Sharia USA index, FTSE Malaysia EMAS Shariah Index and Dow Jones Shariah Index) covering the period from 26 October 2007 to 9 March 2011. Our study is focused on investigating the following empirical questions: (i) Are the time-varying volatility parameters of these five Shariah-compliant stock indices significant and decaying? (ii) Are these dynamic parameters mean -reverting? (iii) Are these dynamic conditional volatilities of Shariah indices and dynamic conditional correlations between Shariah indices changing? Our findings based on the maximum likelihood estimates of dynamic cond itional volatilities and dynamic conditional correlations tend to suggest: (i) the time-varying conditional volatility parameters of all these Shariah-compliant stock indices are highly significant with most of their estimates very close to unity implying a gradual decay in volatility (assuming both the Gaussian and ‘t’distributions). Of the two distributions, however, the t-distribution appears to be more appropriate in capturing the fat-tailed nature of the distributions of asset returns (ii) a test of ‘no mean -reversion of volatility parameters’ of all these Shariah indices is rejected in all cases with the results showing a slow but significant mean reverting volatility of all Shariah indices excepting FTSE Shariah China index which decays faster than others after any shock to its volatility and finally (iii) dynamic conditional volatilities and conditional correlations of all these Shariah indices are not constant but are changing and time-varying. There is relatively low and evenat times negative dynamic conditional correlation between FTSE Shariah China index and FTSE Shariah USA index with strong policy implications for the domestic and international investors in their portfolio diversification for hedging against unforeseen risk

Prohibited elements in Islamic financial transactions: a comprehensive review

This paper analyzes prohibited elements in transactions from a shari’ah perspective, since it is obligatory on the individual (fardhu ‘ayn) to understand the Islamic law of transactions (fiqh mu’amalat). Islam is not only a religion, but also a complete way of life. Islam has clearly forbidden all business transactions that lead to exploitation and injustice in any form to any of the parties of a contract. Islam requires that all financial and business transactions be based on transparency, accuracy, and disclosure of all material information so that no one party takes advantage of other parties. There is wisdom (hikmah) behind every prohibited transaction and in order to practice business and banking activities that are genuinely shari’ahcompliant, it is important to understand the prohibited elements in Islamic law. Accordingly, prohibited elements such as riba, gharar, qimar, maysir, fraud and coercion are discussed, as well as, the importance of the legality of the subject matter. Sahih, fasid, batil contracts and extrinsic conditions are covered in respect to different schools of though

The co-movement of selective conventional and Islamic stock indices: is there any impact on shariah compliant equity investment in China?

This paper investigates the dynamic causal linkages in the daily returns among four conventional and three Shariah compliant indices (such as, Financial Times Stock Exchange Shariah China Index, Asia Shariah Index, Malaysia EMAS Shariah Index, China Shanghai Stock Exchange [SSE] Composite Index, Hang Seng Index, Nikkei 225 and KOSPI) in Asia region through the application of the standard time series techniques. Essentially, the purpose of this research is to identify the extent of infl uence of conventional and Islamic, regional and international equity markets on Shariah compliant equity investment in China. Our study is focused on investigating the following empirical questions: (i) Which indices do the Shariah China Index commove with? (ii) Which indices is the Shariah China Index Granger-causally related with? and (iii) Which major stock index was driving the selective conventional and Shariah compliant stock indices? Our fi ndings tend to suggest: (i) The Shariah China Index appears to have a theoretical and long-run comovement with all the select conventional and Shariah compliant stock indices (as evidenced in the Cointegration and LRSM tests) (ii) The Shariah China Index is Granger-caused by all the conventional and Shariah compliant stock indices (as evidenced in the vector error correction modelling tests) (iii) Finally, what stands out is the leadership of the China conventional SSE market followed by the Malaysia Shariah market in driving all indices including the Shariah China Index (as evidenced in the VDCs tests)