Sustainable Housing Finance Through Islamic Contracts: A Comparative Study of Murabaha Vs. Diminishing Musharakah Models

A Framework for Islamic Social Banking

Purpose This paper aims to propose a new housing finance mechanism through gold price as an alternative to interest rate in Islamic home financing, especially on Bai’Bithaman Ajil (BBA) contract. Design/methodology/approach This study using simulation approach to calculate the monthly installments for home financing using gold price references. In simple terms, propose a financing formula in the BBA contract by converting the selling price of the house to the gold price, and then the monthly installments also follow the actual gold price. The authors provide an example by simulating this formula using historical data and cases of housing financing at Indonesian Islamic banks. The authors compare housing financing models based on gold prices and interest rates. Finally, The authors can compare the two housing financing models that are affordable for low-income people. Findings The results show that in the initial period, monthly installments of BBA based on gold price were lower than home financing based on interest rate. This result makes it possible for low-income people who cannot access financing based on interest rates to access financing based on gold price. However, the total installments of financing based on gold prices are higher than the financing model based on interest rates. Research limitations/implications The paper confines one contract, namely, BBA, as it is claimed to be more Shariah-compliant than others. Practical implications These findings suggest an alternative model for Islamic banks and regulatory authorities in Indonesia to replace the interest rate reference with the gold price in BBA contract housing financing. This model can offer competitive advantages for Islamic banks, including lower initial installments and inflation-protected profits, serving as a means of differentiating them from conventional banks. Social implications Gold price-based housing financing model in Islamic banks will increase the affordability of housing financing for low-income people. Originality/value This paper tries to solve two problems, namely, first, the problem of assuming that Islamic and conventional banks are the same, and second, the problem of housing finance affordability. This study needs to be explored.

PurposeThe primary objective of this article is to empirically examine the impact of bank-specific and macroeconomic factors, particularly environmental, social, governance (ESG) and financial technolgy (fintech) factors, on the financial sustainability of Islamic banks (IBs) and conventional banks (CBs).Design/methodology/approachPanel data are used on QISMUT plus three countries: Qatar, Indonesia, Saudi Arabia, Malaysia, United Arab Emirates, Turkey, Bahrain, Kuwait and Pakistan for the period from 2005 to 2022. A two-step system using the generalized method of moments (GMM) and panel-corrected standard error (PCSE) methods was employed.FindingsThe findings reveal that CBs exhibit greater financial sustainability persistence, while IBs demonstrate superior management efficiency, liquidity and stability. This distinction is attributed to IB’s Shariah-compliant structures, which foster stability through profit-loss sharing accounts and equity-based risk-sharing mechanisms. The study also finds that IBs achieve financial resilience more rapidly as they grow, supported by higher capital adequacy and liquidity coefficients. Furthermore, ESG adherence plays a more significant role in IBs, reflecting their alignment with socially responsible initiatives.Practical implicationsThese findings have substantial implications for practitioners, policymakers, managers and academics, where they can capitalize on IB dominance by promoting and developing innovative Shariah-compliant financial products for both IBs and CBs. CBs should compete by providing Shariah-compliant financial products and opening Islamic Window-Financing. IBs’ risk management efficiency can help conventional bank managers incorporate equity financing and profit-loss sharing into their strategy.Originality/valueWe believe this is the first empirical study of Islamic and conventional banks on the financial self-sufficiency (FSS) indicator proxied as financial sustainability.

Purpose — The Islamic banking sector in Indonesia has recovered from the COVID-19 pandemic. Despite the sector’s resilience to the crisis, Islamic banks have lower levels of profitability than their conventional counterparts. They therefore need to optimise profitability as well as implement sustainability practices due to their high reliance on income from intermediary functions and their core principle of protecting life and preventing harm. This study aims to optimise the post-pandemic profitability of Indonesian Islamic banks while seeking to align profitability with sustainable development goals (SDGs). Design/Methodology/Approach — The model is developed based on the combination of linear programming and financial analysis, with constraints considering banking regulations and practices. The model highlights financing product types, financing fields of business, and types of deposit products that contribute to higher profits and support sustainability practices. Findings — The recommended financing product types, financing fields of business, and deposit product types lead to profitability growth of up to 85 per cent, even better than the pre-pandemic performance of Islamic banking and the overall Indonesian banking industry. This research also finds that Islamic banks’ strategy for profit optimisation is consistent with the increasing support for SDGs. Originality/Value — There is a lack of literature discussing the alignment of Islamic banks’ profit optimisation with the SDGs. This study contributes to the literature by aligning the Islamic banks’ profitability strategy with sustainable financing. Research Limitations/Implications — The study is expected to promote the implementation of sustainability practices as well as increase the profitability of Islamic banks, drawing from evidence in Indonesia.

Zakat plays an important role as part of the Islamic socio-economic system. Zakat is said to be one of the financial tools to alleviate poverty apart from micro financing and micro credit. However, it is found that most of the benefits are only offered to the citizens of Malaysia and not the other untapped communities from other countries especially the refugees that seeks our government's protection. Hence, if the existing zakat recipients who are the citizens still unable to avoid from the unruly poverty, let alone the untapped group, especially the refugees. With the majority of refugees hailing from Muslim countries, Muslims around the world fulfilling zakat, a major pillar of their faith, can play an important role in alleviating their suffering and restoring their dignity as human beings. The realization of the incredible philanthropic Islamic social finance such as zakat, which can potentially exceed $300 billion a year, has driven United Nations High Commissioner for Refugees (UNHCR) to launch a Zakat Program in late 2016, namely Refugee Zakat Fund. Currently, the approach by zakat institution to help refugees are less proactive, given that most of the approach are made by the non-government organization (NGO) such as UNHCR Malaysia and local non-government organizations. The issues are very important to be solved as Islamic social finance has a huge potential mechanism to reduce poverty. Hence, the objectives of this study are (1) to explain the role of zakat in eradicating poverty among refugees for improving their socio-economic well-being, (2) to explore the issues and challenges of zakat administration in Malaysia especially in helping refugees, and (3) to explore the issues and challenges of UNHCR in managing refugees' zakat funds. This study adopted qualitative approach by conducting interview with five experts in relation to Islamic social finance especially on the issues of zakat management. These experts have vast experience in Islamic finance and in Shariah. In general, the findings suggest that (1) zakat can play a crucial role in providing assistance to those in need without exception to fulfil both Maqasid Shariah and Sustainable Development Goals (SDGs); (2) one of the challenges facing the zakat institution is their managements are inefficient and a lack of transparency in terms of how the funds are collected, managed, and distributed, and hence, the adoption of technology is important for effective and efficient zakat system; (3) UNHCR must take important care on governance aspects in order to manage and administer zakat funds for refugees to improve the trust of zakat payers and recipients. This study may contribute to the enhancement policies in relation to both zakat and refugees made by both federal and state government by harmonizing the policies to solve the issues on poverty of the refugees, especially in Malaysia.

IntroductionResearch on Islamic banking in Indonesia has extensively addressed its performance and stability. However, studies on stability from the perspective of Natural Certainty Contract and Natural Uncertainty Contract financing have been relatively scarce.ObjectivesThis study measures how profitability mediates the impact of Natural Certainty Contract (NCC) financing and Natural Uncertainty Contract (NUC) financing on financial sustainability.MethodThe research utilizes secondary data obtained from quarterly reports for the periods I-IV of 2018-2022 on the official website of Sharia commercial banks. All Sharia commercial banks in Indonesia listed in the OJK for the period 2018-2022 constitute the population for this study, while the sample consists of Sharia commercial banks in Indonesia that meet the criteria. The sampling method employed is purposive sampling, resulting in eight Sharia commercial banks in Indonesia as the sample based on predetermined criteria.ResultsThe findings of this study indicate that NCC financing negatively influences profitability, NUC financing has no impact on profitability, NCC financing positively influences financial sustainability, NUC financing negatively influences financial sustainability, profitability (ROA) positively influences financial sustainability, NCC financing indirectly negatively affects financial sustainability through profitability, and NUC financing indirectly has no impact on financial sustainability through profitability.ImplicationsIslamic commercial banks should be more selective in financing allocation, focusing on options with lower risks. Furthermore, Islamic commercial banks should also manage financing effectively to minimize existing risks, thereby enhancing profitability.Originality/NoveltyThis study contributes to enrich studies in the field of Islamic finance with emphasize on Islamic commercial banks profitability and financial sustainability.

This paper identifies the distinctive features of Islamic financial institutions and traditional secular banks based on loan interest. The relevance of this study is caused by the need to assess the integration of the Islamic financial model into the financial system of national economies with the non-Muslim population. In recent years, Western European countries have taken an active interest in increasing cooperation with Islamic banks from the Persian Gulf countries thus expanding their activities and transforming their financial relations. Such cooperation is based on the complementarity of two financial models of banking. This issue is particularly acute given the increase in sanctions pressure and the ban on Russia’s largest banks to attract funding from many Western countries for more than 30 days. But in order to achieve effective synergy between the two models it is important to make a comparative analysis thus providing theoretical and methodological integration. The paper presents a brief description of the development of the Islamic financial activity model. The concept of activities of Islamic financial institutions in the classification of transactions carried out by Islamic banks and other organizations engaged in insurance, trade and settlement activities is considered. The approaches of the scientific community to assessing the efficiency of Islamic financial institutions are reviewed. The main differences between Islamic financial institutions and secular commercial banks are systematized and grouped by classification criterion with identification of their peculiarities. The main structural, standard, regulatory, and infrastructure problems in the development of the Islamic financial model are defined.

Purposes: In terms of asset share and market share, Islamic banks in Indonesia continue to perform worse than conventional banks. This contrasts with the majority Muslim population in Indonesia. Considering, this research is aimed at investigating the influence of innovation management and business strategy on the performance of Islamic banks in Indonesia. Theoritical Framework: This study employs a causal research approach. With a quantitative methodology and cross-sectional data collection, explanatory research was conducted. Exogenous variable in this research is innovation management and business strategy. The endogenous variabel in this reasearch is Sustainable Islamic Bank Performance. Design/Methodology/Approach: This study's unit of analysis is the Islamic banking service industry. The survey includes a sample of 197 Islamic banks., including Islamic Commercial Banks, Islamic Business Units, and Islamic People Financing Banks, according to data from the Financial Services Authority (OJK). The unit of observation or respondent is the management/top management of each of these banks. The number of samples taken was 75. The measurement scale employed an ordinal scale based on the Likert technique. For data analysis, the SEM (Structural Equation Modeling) technique was utilized. Result: Business strategy and innovation management have a significant impact on the sustainable performance of Islamic banks in Indonesia, according to the results of a test of hypotheses. Innovation management has a greater impact on the performance of Islamic banks than business strategy. Research, Practical and Social Implications: The managerial ramifications of this study's findings are that the management of Islamic banks must reconsider and reformulate their business strategies to be more in line with current conditions, as well as develop innovative management in line with the ever-changing technological trends. Originality/Value: The novelty of this study is that innovation and strategy in Islamic Banks are important aspects that empirically influence the sustainability performance of Islamic Banks. Aspects of innovation and strategy are important when managing Islamic Banks so that they can grow and obtain positive profits.

Nigeria’s pursuit of economic growth and Sustainable Development Goals (SDGs) faces persistent challenges, including inadequate financing mechanisms and underdeveloped real estate infrastructure. Despite efforts to promote sustainable urban development, the integration of green financing into the real estate sector remains limited. This gap hinders progress towards key SDGs, such as sustainable cities (SDG 11) and economic resilience. Addressing this issue is critical, as sustainable real estate financing can serve as a catalyst for economic development while advancing environmental and social goals. This study aims to evaluate the role of sustainable real estate financing in mediating the relationship between economic growth and SDG achievements in Nigeria from 2000 to 2024. By employing advanced panel data techniques, the research provides empirical evidence on how green bonds, mortgage rates, and real estate investments influence economic indicators and SDG progress. Secondary data were sourced from the National Bureau of Statistics (NBS), the United Nations, and global financial databases. The analysis utilized Python, with Pandas for data preparation, Statsmodels for Ordinary Least Squares (OLS) regression, and Matplotlib for visualization. Mediation analysis assessed the indirect effect of economic growth on SDG outcomes through real estate financing, with the Sobel test confirming mediation significance. Results revealed a significant direct effect of economic development on SDGs (β = 0.74, p < 0.001) and a notable indirect effect mediated by sustainable real estate financing (β = 0.21, p = 0.002). Green mortgage disbursements (β = 0.63, p < 0.001) and green building certifications (β = 0.58, p = 0.004) emerged as key drivers of urban sustainability. The model explained 87% of the variance in SDG achievements (R² = 0.87). The study concludes that expanding sustainable real estate financing can significantly amplify Nigeria’s progress towards SDGs. Policy recommendations include increasing green mortgage incentives and embedding sustainable financing into national development strategies to foster long-term economic growth and environmental sustainability.

Sustainable finance has become a global concern as the need for a more inclusive and socially and environmentally responsible economic system increases. In the context of Islamic finance, the principles of maqashid syariah provide a strong normative foundation for developing sustainable finance concepts based on ethics, justice, and balance. This study aims to analyze how maqashid syariah can serve as a foundation for implementing sustainable finance by examining Islamic financial instruments such as green sukuk, productive waqf, as well as mudharabah and musyarakah schemes. The method used in this research is library research with a qualitative approach, where data is collected from various academic sources such as books, journals, and research reports related to Islamic finance and sustainability. The study’s findings indicate that the principles of maqashid syariah align with the objectives of sustainable finance, particularly in economic justice, equitable wealth distribution, and socially and environmentally responsible investments. The implementation of Islamic financial instruments supporting sustainable development has been observed in several countries, such as Malaysia and the United Arab Emirates, which have adopted Environmental, Social, and Governance (ESG)-based regulations. However, challenges such as a lack of Islamic financial literacy, regulatory limitations, and insufficient innovation in financial instruments remain major obstacles to implementing sustainable Islamic finance. Therefore, this study recommends strengthening policies, improving Islamic financial literacy, and fostering innovation in syariah-compliant financial instruments to enhance the integration of maqashid syariah into the sustainable finance system. Keywords: sustainable finance, perspective, maqashid syariah

Most boom-bust cycles witnessed across the world in recent decades have exposed several underlying factors that highlight the vulnerability of conventional banking, namely, high leveraging, wholesale financing, and utilization of complex instruments. Islamic financial institutions largely escaped the direct impact of the global financial crisis. In theory, Islamic banks are more resilient to shocks than conventional banks because ‘gharar’ considerations prohibit them from investing in excessively risky assets, as well as zero-sum betting on derivatives. Moreover, by promoting risk-sharing (as opposed to risk transfer) and endorsing investment in wealth-creating activities, the asset-based nature of Islamic financing naturally curbs excessive leverage. This paper investigates Does the Financing Model of Islamic Banks make them More Stable. For this, we proposed that the risk of fluctuation of the interest-based instrument (risk to banking sector stability) is counterbalanced by non-banking type movements through inventory changes thus making Islamic banking more stable. Specifically, we focused on three factors for comparison between Islamic and conventional banking systems, First factor was returns represented by ROA, ad ROE. The second was the stability, measured by volatility of returns. And the third factor was market risk represented by Beta. We hypothesized that the risk of the banking system is mainly due to interest rate movements. A sharp increase in interest rates would adversely affect the returns not only due to maturity mismatch problem but also due to increased loan loss provisions, taken because of higher chances to default. This makes the banking system more volatile and exposes it to systematic risk. Islamic banks on the other hand have mandatory involvement of underlying products in the lending transactions. This makes banks not only take exposure of those products on their balance sheet in form of inventory but also absorb their fluctuations in returns through mark to market adjustments. As these adjustments would no be highly correlating with interest-based earnings, as well as systematic risk, this would not only make total returns of Islamic banks more stable but also have less exposure to market risk. Since Islamic banks have a diverse earning base, the pure effect of inventory fluctuation was captured by Return of Financing product Inventory of Islamic Banks. Also, we explored the effect of different bank-specific factors on Returns (ROA, and ROE), stability (volatility of ROA, and ROE), and market risk (BETA), and how these factors affect conventional and Islamic banks differently. These included Loan ratio (LR), Asset growth (AG ), the logarithm of total assets (LogTA), the ratio of loan loss provision over assets (LLP), the ratio of equity to assets (EQA), Return of Financing product Inventory (FPI ), and FOCUS measures the degree of specialization/ diversification in a bank's earnings. Dataset of a total of 13 banks (9 Conventional and 4 Islamic banks) operating in Pakistan was collected, for the period from 2009 to 2018. Results were according to expectations. All three factors (returns, stability, and market risk) seem to have a significant difference in their means. Where Islamic banks seem to have higher and more stable returns (high ROA, with lower volatility of ROA and ROE). Pure inventory returns seem to have even lower volatility than both Islamic and conventional banks, supporting the claim that the effect of inventory portion in Islamic banks’ balance sheet makes them more stable. Islamic Banks also seem to have lower market risk (low Beta) as compared to conventional banks, presumably because of countercyclical inventory movements. The results of the regression suggested that size has a significant negative effect on ROE of both conventional and Islamic banks, size also seems to decrease the volatility of ROE in both types. Size also seems to decrease systematic risk in an Islamic bank. loan loss provision also seems to inversely affect ROE and its volatility, but interestingly, does not seem to affect Islamic banks. Capital adequacy also seems to affect the ROE of both Islamic and conventional banks but seems to provide stability in returns for Islamic banks as it has a negative effect on the volatility of both ROE and ROA. Asset growth also seems to be inversely affecting the volatility of ROA for the overall sample. Results also suggested that Diversification in a bank's earnings seems to improve ROA of conventional banks, whereas Financing product Inventory returns seem to be positively affecting the beta.

Islamic banking has made tremendous growth in the last few years all over the world. However, people are not satisfied with the performance of Islamic banks with respect to their contribution to alleviating poverty and equitable distribution of wealth, achievement of socio-economic welfare, and human well-being. Therefore there is a need to critically review the current practices of Islamic banks and assess the need to develop a model of Islamic banking in the light of Maqasid al Shariah which can contribute to socio-economic welfare and human well-being of people by eradicating poverty and concentration of wealth. For this purpose, this study employs exploratory, qualitative research in which semi-structured face-to-face interviews are conducted with renowned Shariah scholars, Shariah Supervisory Board (SBB) members of Islamic banks, and renowned academicians. The grounded theory research approach is used in this study using NVIVO data analysis software. The results of this study show there is a dire need to develop a model of Islamic banking in the light of Maqasid al Shariah for the socio-economic welfare of the people. Both Islamic and conventional banks are in a capitalistic paradigm. Hurdles created due to a capitalistic mindset should be removed. Islamic banks could not bring a visible change in society with respect to the alleviation of poverty and the social well-being of the people. A new model focusing on achieving Maqasid al Shariah for the welfare of not only Muslims but all human beings on earth is the need of the hour in which socio-economic welfare should be given the primary role in the current practices of Islamic banks.

Purpose – This paper aims to investigate the relationship between capital risk and efficiency of Islamic and conventional banks operating in Bangladesh. In this pursuit, the research attempts to answer these questions: do inefficient banks assume more risk? Is there any major difference between Islamic and conventional banks in terms of efficiency and risk taking behavior? Design/methodology/approach – The study collects various bank-level data from the audited financial statements of Islamic and conventional banks for the period of 2001 to 2011. Collected data are analyzed using Stochastic Frontier Analysis for efficiency estimation and Seemingly Unrelated Regression (SUR) approach for assessing the relationship between capital, risk, and efficiency. Findings – Analysis of data shows that conventional banks are more efficient in managing cost than Islamic banks. Moreover, the SUR results show that the relation between capital and efficiency are bidirectional and negative, whereas the relation between capital and risk is also bidirectional but positive for Islamic banks. On the other hand, risk and efficiency are positively related, and the result is bidirectional for conventional banks. Research limitations/implications – The research concentrates on private-commercial banks as proxy for conventional banks. State-owned banks including specialized banks and foreign commercial banks are excluded from the sample due to various anomalies in reporting of financial data. Practical implications – There is a lot of room for Islamic banks to increase productive efficiency because cost efficiency of Islamic banks is less than that of the conventional banks. This can be attributed to the relative small size of Islamic banks in Bangladesh. Because there exists a positive relationship between size and efficiency for Islamic banks, they can concentrate on increasing their size to capitalize on economies of scale. Moreover, the analysis shows that inefficient conventional banks assume higher risk which conforms to moral hazard hypothesis. Therefore, regulatory authorities should discourage banks from exercising such practice for the greater stability of the overall banking system in Bangladesh. Originality/value – A good number of studies is available in the existing literature that compares the performance of Islamic and conventional banks in the case of Bangladesh. However, very few studies are found that examine the relationship between capital, risk and efficiency. Therefore, the research is new for the selected area. As a result, the research is expected to contribute to the existing literature by providing new information.

This study aims to analyze the effect of independent commissioners, and the sharia supervisory board on the implementation of Sustainable Finance at Islamic commercial banks in Indonesia. This study uses secondary data taken from annual reports and sustainability reports of Islamic commercial banks in Indonesia during a certain period. The data analysis technique used is multiple linear regression with classical assumption test to ensure the validity of the model. The results showed that of the two variables tested, only the independent commissioner had a significant influence on the implementation of Sustainable Finance. The sharia supervisory board variable did not show a significant influence on Sustainable Finance. This finding suggests that the presence of independent commissioners in the board structure of Islamic banks plays an important role in encouraging the implementation of Sustainable Finance. The implications of this study provide input for regulators and Islamic banks to increase the role of independent commissioners as a strategic step in strengthening their commitment to Sustainable Finance.

The challenges posed by environmental degradation and abandoning of social rights to secure business interests have highlighted the importance of focusing on sustainable development within the global financial system, especially among citizens and policymakers. The timely declaration of the Sustainable Development Goals (SDGs) by the United Nations is appropriate in addressing environmental degradation. In fact, the SDGs have become part of the fundamental agenda and essential requirements of every business, including Islamic financial institutions. In particular, the concept of sustainable development is parallel with Islamic teachings, which promote welfare, security, and rights for the sake of the current and future generations. Furthermore, Islamic finance and the SDGs are closely associated, as the former is capable of serving a meaningful function in sustainable development to achieve the goals of implementing fair and equitable tools, promoting resource mobilization, and enabling social benefit tools. Therefore, this study highlights an important case for Islamic financial institutions by expounding on the best indicators for sustainable Islamic finance.