Challenges Faced in Adopting Standard Methodologies for Research in Islamic Finance and the Way Out

Abstract

This study explores the challenges facing the adoption of standard methodologies for research in Islamic finance and the way out. This study broadly classified major challenges faced by Islamic finance research methodology standardization into four different categories, namely: difference due to Islamic scholars’ knowledge, researchers in Islamic finance, industrial and individual users of Islamic finance research outcome, and international accounting standard in use. This study identifies that Islamic scholars have contextual understanding of Islamic finance from the two holy books of Islam and other Islamic texts – Islamic jurisprudence. The second category of people identified in Islamic finance research are researchers with understanding of research methodologies, and they are mostly academics. The third category identified are the industry and individuals who are in need of Islamic finance research outcomes to make sound investment decisions. The fourth category is difference in adaptation or adoption of international accounting standards across different countries that are practicing Islamic finance. Unfortunately, the first three categories identified above are not integrated, thereby making most of the research’s outcome in Islamic finance redundant and methodology standardization difficult. The authors suggest that for Islamic finance research to be more useful to appropriate users such as individuals and industry, there may be the need for Islamic finance researchers to relax their focus on the econometric modeling aspect to focus more on interpretation of findings in a way that ordinary people could understand. In addition, researchers in Islamic finance, especially those who use accounting ratios in their study, need to take note of the policy of International Financial Reporting Standards (IFRS) used in a particular country of study, as it may affect the treatment of their accounting ratios, especially for cross-country studies. Finally, this study suggests integration of those Islamic finance research methodology categories for the future betterment of Islamic finance research. Furthermore, standardization of Islamic finance research may not be visible on an international level but may be visible at a local level due to unique requirement of some Shari’ah-compliant instruments.