Search Results (10)

The “Dana Gas” case is considered one of the pivotal cases in the development of the Islamic financial industry. The case raised concerns about the limits of legal certainty, particularly the judiciary’s right to exercise “ijtihad” (juristic interpretation). This study highlights the extent to which Islamic financial institutions adhere to their contractual obligations in good faith based on Shariah compliance. It also outlines how the judiciary preserves its inherent right to exercise due diligence in relation to protecting the public economic order and applying its authority in evaluating the practical application of Islamic finance contracts and instruments. Based on the dialectical approach, this article analyzes the case by presenting the background of the dispute and its legal dimensions, emphasizing the necessity of achieving legal certainty in the Islamic financial industry. This study also advocates for applying judicial jurisprudence in resolving disputes related to sukuk. Finally, it unfolds the legal lessons learned from this case. This study concludes that more effort should be made to localize judicial jurisdiction in resolving disputes related to sukuk, regulating the process of selecting the applicable law, and to develop the legal infrastructure in systems participating in Islamic finance. Accordingly, this study highlights the significant role that Shariah standards could play in this field in the future. Full article

This study examines the relationship between Environmental, Social, and Governance (ESG) disclosures and perceived financial performance within the context of Islamic finance, with a focus on Maqasid al-Shariah—the overarching goals of Islamic law. Using a quantitative approach, the study surveyed 350 stakeholders in Saudi Arabia’s Islamic finance sector, including corporate managers, investment professionals, and financial analysts, over a six-month period (May to October 2024). The findings indicate that stakeholders perceive a positive relationship between ESG disclosures and financial performance, particularly when companies align their ESG practices with Islamic finance principles. However, the study does not measure actual financial performance; rather, it assesses stakeholders’ perceptions of ESG’s influence on corporate governance, risk management, and investment attractiveness. Results suggest that companies integrating ESG principles with Maqasid al-Shariah foster greater stakeholder trust, enhance corporate responsibility, and promote long-term sustainability. However, variations in trust and investment decisions exist based on industry type, ESG disclosure levels, and demographic factors such as experience and familiarity with ESG practices. The study provides novel insights into how Islamic finance principles shape ESG disclosure practices, offering practical recommendations for improving corporate governance and sustainability. By emphasizing transparency, ethical investment, and regulatory alignment, these findings contribute to ongoing discussions on sustainable finance and the role of ESG in shaping Islamic financial institutions. Full article

This paper aims to explore the practices of Ijarah financing by Islamic banks in Pakistan pertaining to compliance with the AAOIFI Shariah Standard (9) on Ijarah financing. Primary data were gathered from the respondents of the five (5) full-fledged Islamic banks in Pakistan by administering semi-structured face-to-face interviews along with secondary data obtained from the contractual agreements on Ijarah financing. Qualitative content analysis was undertaken by employing NVivo software. The findings reveal discrepancies in the practices of Ijarah financing pertaining to two clauses of the AAOIFI Shariah Standard and emerging major challenges and/or problems facing the Islamic banking industry, including (1) a lack of standardization, (2) an insufficient regulatory and supervisory framework, and (3) a dearth of awareness of the Islamic banking products and/or takaful operations (especially among corporate customers). The study accrues both academic and practical implications. It not only adds value to the existing literature on Islamic finance but also serves as a guide for the Islamic banking industry in Pakistan. The study is useful to harmonize and standardize the practices of Ijarah financing by the contemporary Islamic banks in Pakistan as the Islamic Banking Division (IBD) of the State Bank of Pakistan (SBP) made it compulsory for Islamic banks to adopt AAOIFI Shariah Standard No. (9) on Ijarah financing. Full article

This paper discussed the prevailing issues currently faced by Islamic banks on the offering of Letter of Credit (LC), originally brought forward by the International Chamber of Commerce, using Shariah contracts and puts forth recommendations on practical solutions to solve the issues. The study adopted a qualitative method where the information on the issues of Islamic LCs was gathered throughout interviews with different bankers closely involved in LC issuance from 12 Islamic banks in Malaysia. The results indicate that there are three vital issues related to LCs offered by Islamic banks which lead to Shariah non-compliance issues. The issues revolve around the conversion of LC Wakalah (agency) to LC Murabahah (cost-plus), the existence of a sale contract between the customer and exporter and lastly the title of goods stated in the bill of lading. The findings recommend several solutions in relation to LCs within the underlying Shariah contracts to ensure that their operation complies with the Shariah requirements and Malaysian laws, standards and regulations. This paper highlights the issues of Islamic LC yet to be discussed thoroughly based on the views of a panel of experts and Islamic bankers. Full article

This study aimed to investigate the association between corporate governance characteristics, shariah governance characteristics, and the credit rating of Asian Islamic banks. To do so, we collected data from 22 banks during the 2006–2018 period. In total, we observed 286 data points. Credit rating was measured through an adaption of the credit rating scale that measured the long term credit of Islamic banks on an ordinal scale. From these data, 19 scores (Aaa) were considered high credit ratings and 1 score (C) was considered a low credit rating. Descriptive statistics, correlations, and the ordered logit regression model were applied in a panel setting. We found that the board interlock, board independence, CEO duality, and board foreign directorship negatively affected credit ratings. We also found that the board size, board accounting, finance knowledge, presence of women on the board, shariah board size, presence of supervisory shariah board, the shariah board interlock, and presence of female shariah scholars all were positively associated with credit ratings. This study suggests that Islamic banks can access more funds with higher shariah compliance. As such, we concluded that evaluating organizations’ credit ratings must consider shariah governance attributes as determinants of the credit rating of Islamic banks. Full article

Considering the effective growth in challenges and an urge in establishment for sustainable business, companies trading globally are inclined towards the implementation of highly efficient cross-border reallocations of revolving capital. The prominent objective of this research paper is therefore the clear identification of the active key attributes and specifications of all strategic measures for efficient sustainable cross-border mergers and acquisitions (M&As) of the Islamic companies in the Gulf region that are keen to engage with the non-Islamic companies across the globe. This paper also explores the paradigm of culture, in its different manifestations, it was and still is a primary factor of creativity. This study also focuses on building some better understanding of the role of "Culture for Open Innovation Dynamics." Initially, since the need to interpret community, that can also influence the dynamics of open innovation, has sharply increased, the research addresses open innovation dynamics and its significant concerns related to cross border mergers and cross culture ventures of firms and organizations. The researcher purposively selected 15 financial institutions from the selected Gulf Cooperation Council (GCC) countries. Semi-structured interviews were conducted with 40 key individuals including Board of Directors (BOD) members, lawyers and the Shariah scholars involved with three Islamic banks and two Islamic insurance companies in GCC. The findings indicate a consensus among the respondents regarding how the Shariah corporate governance principles can present barriers for cross-border M&As. Key obstacles to the success of cross-border M&As between the Islamic and the non-Islamic companies include the Shariah compliance, weak systems of disclosure, dependency, corruption in compliance, having family members on the Board, weakened communication with external auditors, different interpretations of Shariah by different scholars and a lack of alternative Islamic financial instruments. The comprehensive research in this paper fills the research gap by specifying the key attributes of considering the future implementation and management of M&As in broader scopes. Full article

A body of work has emerged that examines human capital from the perspective of skills to better understand the types of expertise that influence innovation. The relationship between skill and financial innovation, however, is poorly understood in the context of Islamic financial institutions (IFIs). IFIs are distinct from their conventional counterparts by their compliance with Shariah law. Based on a survey of IFIs in Bahrain and Malaysia, this paper examines the effect of different skills on IFI innovation. The findings indicate that while skill in Islamic finance positively influences innovation, skill in Shariah law does not. Cognitive-technical skill is also highly significant, but marketing skill has a negative effect. The results suggest that Islamic financial innovation relies on continuous improvement that sustains markets, product and service innovation. Sustaining innovation lends itself to abilities that are oriented towards problem solving and computation of Shariah and business risks. This favors skills of programming and expertise in Islamic finance over marketing and Shariah legal proficiency. Full article

Bridging global economic inequalities calls for effective financial alternatives such as awqāf banks to better attend to the needs of the poor and underprivileged. This is expected to address the root causes of poverty and ensuing economic gaps, improving much of the living standards whether pertaining to education, health, shelter, employment or basic social services while reducing the state’s economic and financial burden. We envision awqāf banks as institutions which are established through cash awqāf and which operate multiple awqāf funds alongside an assortment of financial instruments. The main use of their awqāf funds are the issue of low-cost credit to the poor, economically disadvantaged and underprivileged, instead of focusing solely on generating and maximizing shareholder profits. This is to support the economy through of steady and sustainable growth, effectively raising the lower bar on per capita income and lifting multitudes out of poverty and need. This paper explores how low-cost credit can be provided to the poor or lower income demographics through awqāf banks, while addressing relevant issues such as Shari’ah compliance, services rendering, investment and awqāf distribution. This paper also examines current studies on awqāf in relation to finance and banking, the basic functions, and characteristics of the Shari’ah-compliant awqāf bank, as well as evaluations of awqāf banks. Current studies show that there is a legitimate need for Shari’ah-compliant awqāf banks which not only providing services for its beneficiaries but also manage investments and awqāf funds that contribute to overall national development and economic growth. This study would be of high relevance to experts, practitioners, financial managers, regulators, and policy makers in the fields of awqāf, banking and finance. Full article

This paper aims to explore whether the practices of Ijarah financing by Islamic banks in Malaysia are in line with the Accounting and Auditing Organization for Islamic Financial Institutions (AAOIFI) Shariah Standard No: (9) on Ijarah financing. Semi- structured interviews based on open-ended questionnaires were conducted, recorded verbatim, and transcribed for content analysis. Our study revealed flaws in the contemporary practice of Ijarah financing and indicated that it was slightly out of line with the AAOIFI Shariah standard. The study will not only help the Islamic banking industry of Malaysia to reduce, if not eliminate the gap between the practices of Bank Negara Malaysia (BNM) and AAOIFI Shariah standards pertaining to Ijarah financing but also create novel literature due to the fact that, no study has been undertaken to date, which analyzes the practices of Ijarah financing by Malaysian Islamic banks in the light of the AAOIFI Shariah standards. Full article

This article discusses Shariah non-compliance risk as a form of operational risk intending to ensure that operations in the Islamic and banking finance industry comply with Shariah procedures. In the field of Islamic finance, Shariah non-compliance risk refers to the possibility that Islamic finance transactions may be challenged based on Shariah non-compliance. This article uses a comparative and normative approach as well as a legal analysis of the case of Beximco. The article proposes the management of Shariah non-compliance risk by augmenting the effectiveness of Shariah governance systems with Islamic banking and finance arbitration; arbitration should be an enforced part of Islamic finance institutional arrangements—as it always has been classically—to provide flexibility for dispute resolution. To this end, the article examines contemporary implementations of Shariah arbitration rules to assess how Shariah non-compliance risk can be better managed via Islamic dispute resolution procedures. Full article