Compliance Of Banks Research Articles

The Significance of the Islamic Law (Shari'a) Supervision of the Islamic Banks

The financial transactions are among the major dealings introduced by the Islamic law or (shari’a), presented with strong rules and laws and deeply rooted principles to establish justice, bringing forth prosperity and righteousness for all human being. Therefore, Islamic shari’a compliant financing banks have been established in Muslim countries, committing themselves to avoid usury and other similar prohibited financing services. There are nearly 390 Islamic banks in 48 countries throughout the world. This study examines the significance of the concept of the Islamic law, or Shania’s supervision of the Islamic banking. It shows the areas of the Islamic sharia’s supervision of financing services. The study also addresses the extent of Jordan Islamic bank (JIB) compliance with the Islamic law principles pertaining to finance services extended to customers, individuals or organizations in all its branches in the Hashemite kingdom of Jordan.

Creating religiously compliant milk banks in the Muslim world: a commentary

Human milk banks are vital for providing donor milk to infants for whom there are maternal or postnatal barriers to the mother’s own milk. Although more than 35 countries have active milk banks, not one of those is a Muslim country.1 Despite widespread support for breastfeeding across the Muslim world, religious constraints surrounding milk-sharing have created challenging barriers to the creation of milk banks. The religious objection centres around the Islamic tenet that consuming human milk builds a kinship bond between individuals who have consumed the same woman’s milk which prohibits future marriage between the ‘milk-brothers and sisters.’ While a small-scale, experimental ‘milk exchange’ programme has been attempted in two Muslim countries (Kuwait and Malaysia), the only proposed milk bank in the Muslim world was a pilot programme in Turkey that was halted because of religious concerns. The problem with milk banking is the step in the process during which the milk from individual donors is pooled and de-identified, making it impossible to trace its origins and acknowledge the newly formed kinship relationship. To meet the need for Muslim children to be able to access human milk while remaining compliant with the prevalent understanding of Islamic doctrine on milk-sharing, we propose a new approach to milk banking that we term the Conditional Identified Milk Banking System (CIMBS). In this new system, both the donor’s and recipient’s identities are accessible to all parties through a voluntary registry, and the milk-pooling is limited to three milk donors. Based on recent survey data, we believe that there would be receptivity among practicing Muslims and religious leaders to this alternative approach.

Sovereign Collateral as a Trojan Horse: Why Do We Need an LCR

Sovereign bonds are crucial for both sovereign funding and bank funding. Banks borrow in repo transactions against sovereign creditworthiness rather than their own creditworthiness. However, Basel III's current LCR does not protect banks against sovereign bond distress. Accordingly, currently compliant banks can be exposed to a neglected liquidity risk stemming from distressed sovereign debt moving through the collateral channel. This unaccounted risk can translate into a system wide liquidity shock. To gauge the potential damage caused by such a shock, we have developed a model in which sovereign distress triggers bank distress. Our model shows how deteriorating sovereign collateral can lead to an overall liquidity squeeze and non compliance with Basel III's liquidity standards. Since this risk is highly material, we conclude that LCR should address this event, and we call for an altered version - LCR. LCR is the current LCR adjusted for the liquidity impact of sovereign distress. As envisioned, LCR could have better protected banks against the non-acceptance of Greek and Irish collateral by requiring them to maintain an additional reserve against such an event.

Consumer trust and confidence in the compliance of Islamic banks

Islamic banks compete with traditional (non-Islamic) banks for customers. This article aims to provide insight into why some Muslims choose to bank with Islamic banks in Pakistan, while others do not. Specifically, it addresses the questions: to what extent are trust and confidence active influencers in the decision-making process, are they differentiated or are they one of the same? Also how does the Pakistani collective cultural context further complicate the application of these concepts? For the purposes of this article trust refers to people and their interpersonal or social relations whereas confidence concerns institutions such as banks. Drawing on interviews with Muslim consumers in Pakistan, this study provides further insight into consumer behaviour within financial services and specifically Islamic banking and contributes to our theoretical understanding of the concepts of trust and confidence.

Determinants of Know Your Customer (KYC) Compliance among Commercial Banks in Kenya

KYC conformity entails the creation of auditable evidence of due diligence activities, in addition to the need for customer identification. There is necessity for financial institutions to validate that their customers are not or have not been involved in illegal activities such as fraud, money laundering or organized crime in order to meet KYC conformity requirements. This study examines factors that determine the level of compliance with KYC requirements by commercial banks in Kenya. Specifically, this study investigates the effect of customer characteristics, staff competency, information communications technology infrastructure and bank size on the level of KYC compliance requirements. The study used descriptive research design. The target population of this study was the top and middle level officers who are directly involved in the day-today operations of the commercial banks. For purposes of this study a descriptive survey design was employed. The target population was 43 commercial banks and 1 mortgage finance firms operating in Kenya. Target respondents comprised of top and middle level involved in the day-to-day institution’s operations. Questionnaire was used as the main data collection instrument. To address the objectives of the study, descriptive and inferential analysis techniques were utilized. Regression analysis was employed to ascertain the relationships between KYC compliance and the four variables of interest in this study. Computations of coefficient of determination indicates that four independent variables that were studied, explain 78.3 percent of the commercial banks compliance level with KYC requirements in Kenya, implying that 21.7 percent could be explained by other factors not examined in this study. Study findings reveal that customer characteristics are a key determinant of KYC compliance, small banks are not capable of meeting KYC compliance cost and that staff attitudes and physical facilities affect customer service and effective KYC procedures compliance. Regression analysis further reveals that there is a significant relationship between the four variables and KYC compliance level. Finally the study recommends that ICT is a useful tool that could be used to enhance compliance with KYC requirements.

Islamic Finance Development and Economic Growth Nexus: The Case of the United Arab Emirates (UAE)

Islamic Banking presently knows a great success and new Islamic banks are opening every day all over the world. This Shari’ah (It is the bod of Islamic law, it literally means “way” or “path”) compliant banking is expected to withstand the financial crises and to enhance economic growth. In this paper, the purpose is to analyse the relationship between Islamic banking development and economic growth in the UAE from Q1: 2004 to Q4: 2011 using co-integration and Granger causality tests. This study reveals that no relationship does exist between Islamic banking development and economic growth in the UAE. Such a result can be attributed to the small component of Islamic banking in the global banking sector and to its declining profitability in the period of study. The study enriches the literature on Islamic finance development and economic growth, which is still an under-researched area, especially in the MENA region.

A Law and Economics Analysis of the Incentives Driving Malaysian Banks’ Compliance with the Malaysian Competition Act

Judging by only economic incentives, Malaysian financial institutions (particularly banks) should carefully consider the incentives driving the Competition Act. The data show that Malaysian banks remain vulnerable to incentives leading to anticompetitive behaviour. The Malaysian Competition Commission will likely lack the resources to investigate and sanction anticompetitive behaviour in Malaysia's banking industry. Maximum fines of MYR 10 million and revenue-tied penalties of only 10% of worldwide revenue mean that banks still have strong incentives to engage in anticompetitive behaviour and to pay any low fine that might be levied. By staying the course, Malaysian banks can continue to earn about MYR 15 billion (approximately USD 4.6 billion in anticompetitive rents).

Business dynamics, efficiency, asset quality and stability: The case of financial intermediaries in Pakistan

This research is aimed at assessing the possible differences in business dynamics, cost efficiency, asset quality and financial stability of conventional, Shariah compliant banks and non-banking financial institutions (NBFIs) in Pakistan, using an unbalanced panel between 2005 and 2013. Theoretically, these three financial intermediaries should demonstrate differences in various business attributes. However, we observe fewer than expected differences between conventional and Islamic banks. We report that Islamic banks have superior asset quality and financial stability than conventional banks. However, certain similarities are present in their respective business models. On the contrary, NBFIs demonstrate differences in business dynamics, with high fee based income and non-deposit funding, as compared to conventional banks. Due to higher business risk and variance in profitability, we find that NBFIs are financially more fragile, irrespective of their stronger capitalization, as compared to commercial banks.

Capital Structure and Regulatory Capital of French Banks

Abstract Our paper consists mainly to shed light into the field of bank capital structure and regulatory capital. We use the panel data set of bank leverage and tier 1 capital ratio. Our dataset comprises the 172 French banks; commercial banks, cooperative banks, investment banks and saving banks covering the period of 2002 to 2012. We estimate models with generalized method of moments (GMM). Our results support both the theory of corporate finance and the buffer view, where a tendency towards the latter seems to be evident for banks. This is consistent with an effect of capital regulation on bank capital structure. We introduce also Tier 1 capital ratio as an explanatory variable to analyse the effect of capital regulation. However, Tier 1 capital total for banks seems to be increased. This implies that Risk-Weighted Assets increased, which may stem from internal model improvements. Furthermore, we show that the number of unprofitable, dividend-paying banks decreased. Our result indicates that this type of risk-shifting, where equity holders are favored over debt holders. The issuance of equity seems to be applied as a last remedy used when earnings are declining. All these findings are confirmed after taking into account an alternative measure the regulatory capital ratio in order to examine the capital regulation compliance of banks. Our finding contributes to the lack of the literature by investigating in this field of research.

Why This Bank ? : Understanding Customers' Preference for an Islamic Bank in a Competitive Market

This study aims to understand customer preferences in selecting a bank in a competitive market of Islamic banks. Primary data collected from the customers of an outstanding Islamic bank (Bank Rakyat) was analysed using exploratory factor analysis. It is found that customers are attracted to Bank Rakyat because of its quality of service, its returns and its physical image. Analysis of Variance (ANOVA) reveals that Muslim and non-Muslim customers are equally influenced by these factors. The results suggest that when there are many Sharia compliant banks in the market customers are assured of the religious factor and hence look for other criteria in the bank of their choice. The relevant marketing strategies from this study are improvement of customer service satisfaction, attractive cost benefit and provision of good bank ambience.

EUROPE 2020 PROJECT BONDS INITIATIVE PILOT PHASE

Private sector financing of transport infrastructure in Europe still falls behind pre-crisis levels. Budgetary constraints in the public sector for infrastructure financing together with banks unable to deliver the volume of debt needed for infrastructure financing create need for alternative sources of funding from capital markets. Infrastructure financing is mostly debt financing. Use of high leverage (project financing) explains the investment characteristics of the infrastructure. The aim of the European Commission’s 2020 Project Bond Initiative (PBI) is to encourage investments in infrastructure projects by institutional investors. Bond financings for public private partnership (PPP) projects and other project financings for infrastructure in Europe effectively ended with the demise of several monolines in the early stages of the credit crunch. The PBI is designed to facilitate institutional investor appetite for projects by offering credit enhancement from the EIB, and with the EIB acting as controlling creditor. The initiative proposes two forms of credit enhancement: a fully-funded subordinate tranche equal to up to 20% of the senior debt and a guarantee of senior debt of up to 20%. Subordinated debt tranche by the European Investment Bank (EIB) provides cushion for senior debt service. PBI helps support standardization and widening of investor market. In addition to competitive pricing, EIB also adds value given its reputation and track record in screening, mitigating and monitoring project risk. As Basel III bites – the first wave of bank compliance is set for 2015, with fullcompliance due in 2018 – the cost of long-term bank debt should make bond solutions comparatively affordable. As project infrastructure is a specialized asset class and new to many investors, PBI has a vital role to play in supporting institutional investment. The A11 motorway project in Belgium, Spain’s Castor energy storage plant and the UK’s Greater Gabbard offshore transmission link are three projects to receive credit enhancement under the pilot phase of the EIB’s 2020 scheme.

An Examination of the Relationship between Service Quality Perception and Customer Satisfaction

Purpose - To examines the relationship between services quality perception and customers’ satisfaction in Malaysian Islamic banking. Design/methodology/approach - A questionnaire derived from previous study. The multi regression analyzes access the impact of customer satisfaction of six key construct of relationship Islamic banking (tangible, reliability, responsive, assurances, empathy and compliance). Finding - The six variables have significant effect and predict a good proportion of the variance on customer satisfaction. Research limitation - The limitation of this study was the difficulty in approaching the respondents for the dual-window banking. This is due to their office hours. The borders between the Islamic bank and conventional bank customers exist. Practical implications - It can be conclude, the evidence that customer satisfaction can be created and reinforce by builds the tangible convenience, reliability in problem and responsive and assurance to customer. Originality/value - This research is important in line with the obvious cross-cultural and religious differences between these two key customer segments; Muslims and non-Muslims. In the Malaysian context, there is a strategic dimension that needs to be understood.

An Evaluation of the Effectiveness of Anti‐money Laundering and Anti‐terrorism Financing Legislation: Perceptions of Bank Compliance Officers in Malaysia

The present study sought to ascertain the perceptions of anti‐money laundering and counter‐financing of terrorism (AML/CFT) compliance officers of banks in Malaysia in order to develop an understanding of how well they understand the risks and how well they have implemented the obligations imposed by the regime. We examine these issues for the first time in the literature via the theory of crying wolf. A structured questionnaire survey of compliance officers of banks in Malaysia was followed by focus group discussions held at the Malaysian Institute of Bankers. We expect that the industry would consider suitable steps to improve the compliance culture, particularly in Islamic banks, and the regulators would watch such banks more diligently. Banks considered avoiding penalties, improving brand image and improving customer perceptions to be the rationale for implementing the AML/CFT legislation. Most conventional bank officers considered their organisations’ compliance culture to be high or very high, while this was not found to be the case in Islamic banks.

The Performance of Islamic Banks During the 2008 Global Financial Crisis: Evidence from Gulf Cooperation Council Countries

The purpose of this study is to analyse the performance of Islamic banks in terms of profitability of GCC region during 2008 global financial crisis. Bank specific data are taken from the Bank Scope database and macroeconomic data are collected from International Financial Statistics. Using a panel data series of 30 banks for the period of 2005 to 2011, the study shows the availability of structural break for the crisis year as well as the factors that impact the profitability of Islamic banks. The performance of GCC Islamic banks was significantly influenced during the crisis period by capital adequacy, credit risk, financial risk, operational efficiency, liquidity, bank size, gross domestic product, growth rate of money supply, bank sector development and inflation rate. The study also found that there was structural change before and after the global financial crisis. The study concludes that the Sharia compliant banks performed better during the crisis and were not affected based on their internal performance records; rather, they were affected indirectly from the macro shock due to the economic crisis.

Shari’ah issues in Islamic banking: a qualitative survey in Malaysia

Purpose – The purpose of this paper is to examine the customers’ perception regarding the current shari’ah issues of Islamic banks in Malaysia. Specifically, the study attempts to examine the awareness of the current criticisms of the main shari’ah issues in Islamic finance, and the perception of the selected customers towards these criticisms. Design/methodology/approach – The study uses a qualitative approach to understand in detail the customers’ perception and experiences about shari’ah compliance of Islamic banks. Semi-structured interview is used with ten Islamic banks’ customers in Malaysia. The study also used phenomenological techniques to analyse the data. Findings – The findings revealed that the interviewees have considerable exposure and awareness of the current criticisms of the shari’ah compliance of Islamic banks. Originality/value – This research is the first to study the shari’ah issues of Islamic banks in Malaysia from the customers’ perspective, by using a qualitative research approach. The findings of this study are of original importance, because they unveil the customers’ experience in an area that has been severely looked at from the professional and experts’ point of view only.

Banking compliance and dependence corruption: towards an attachment perspective

Why did banking compliance fail so badly in the recent financial crisis and why, according to many, does it continue to do so? Rather than point to the lack of oversight of individuals in bank compliance roles, as many commentators do, in this paper I examine in depth the organizational context that surrounded people in such roles. I focus on those compliance personnel who did speak out about risky practices in their banks, who were forced to escalate the problem and ‘whistle-blow’ to external parties, and who were punished for doing so. Drawing on recent empirical data from a wider study, I argue that the concept of dependence corruption is useful in this setting, and that it can be extended to encompass interpersonal attachments. This, in turn, problematises the concept of dependence corruption because interpersonal attachments in organisational settings are inevitable. The paper engages with recent debates on whether institutional corruption is an appropriate lens for studying private-sector organisations by arguing for a focus on roles, rather than remaining at the level of institutional fields or individual organisations. Finally, the paper contributes to studies on banking compliance in the context of the recent crisis; without a deeper understanding of those who were forced to extremes to simply do their jobs, reform of the banking sector will prove difficult.

Shari’ah compliance in Islamic banking

Purpose – The purpose of this paper is to evaluate the Shari’ah compliance status of the Islamic banks in Bangladesh. Design/methodology/approach – The research was based on both primary and secondary materials. The primary data were gathered through sample questionnaire survey and personal interviews by the researcher; the secondary data were obtained from Qur’an, Hadiths, different circulars/letters, manuals, research books and journals, annual reports, Web sites of the sample banks. Statistical tools and techniques like weighted average, percentage, SD, variance and correlation between Shari’ah violation score and bank-specific attributes were used applying statistical software Statistical Package for Social Science (version 17.0). Findings – Shari’ah compliance status of the Islamic banks in Bangladesh is in a vulnerable condition, Shari’ah compliance status highly varies among the Islamic banks, and Shari’ah violation is high in investing activities because of lack of knowledge, lack of sincerity in complying Shari’ah, poor attention in Shari’ah audit and Shari’ah research and lack of strong Shari’ah supervisory board comprising full-time skillful members. Practical implications – Among others, the major policy implications of this study are as follows: regulatory bodies and Shari’ah board members are expected to have guidelines from this study to find their limitations and to determine their future responsibilities; executives and Employees are expected to get the idea of present state of Shari’ah compliance and to identify their weaknesses in this regard; clients and other stakeholders are expected to have guidelines to choose the better Islamic banks to perform banking transactions; and the researchers in Islamic banking may usefully use the issues raised in this article for more comprehensive studies in Islamic banking and Shari’ah compliance. Originality/value – The paper opens a new avenue in justifying the status of Shari’ah compliance with a new dataset and correlating Shari’ah violation score with bank-specific attributes.

A Compliance of Islamic Banks with the Principles of Islamic Finance (Shariah): An Empirical Survey of the Jordanian Business Firms

This paper examines the degree of Jordanian Islamic banks' compliance with the principle of Islamic finance which is consistent with Sharia (Islamic Law), sourced from the Quran and the Sunnah. The study has been conducted by distributing questionnaires to corporate customer dealing with various Jordanian Islamic banks; the sample has been selected by simple random sampling approach with sample size of 30 firms. A total of 150 questionnaires were distributed and only 124 have been analyzed. The study used descriptive statistics, and one-sample t-Test to answer the questions of the study. The most important Findings in this study were: Jordanian Islamic banks compliance with the principle of Islamic finance which is consistent with Sharia (Islamic Law), funded businesses consistent with dealing with usury transactions that not dealing with Riba in the financing business. Compliance to avoidance of gambling and speculation (maysir) in any party, the highest arithmetic mean depending in the Likert scale was finance projects that deal with activities, goods and services and industries is not forbidden (haram). The lowest arithmetic mean that is significantly less than the test value in the Likert scale which is (3) related with risk-sharing, which means that Jordanian Islamic Bank has not been a sufficient part to share the risk and sought to transfer the most part of the risk to the financier party by obtaining adequate guarantees which ensure recover his capital. At the last point to be recommended to the Jordanian Islamic banks were emphasized their attentions towards determining the exact mechanism by which profit and loss should be determined. This is one area where more work needs to be done.

Re-Analyzing the Inherent Complexities in the Principal/Agent Relationship of Two-Tier Mudarabah

The principal/agent relationship is at the forefront of the most frequently cited problems of mudarabah. This article seeks to analyse the principal/agent relationship and its impact on the profitability of two-tier mudarabah.In the context of Islamic banking and finance, theoretically, mudarabah has long been touted as one of the ideal instruments of the Shari’ah-compliant banking system by its advocates and proponents. The structure of mudarabah is based on a limited-liability, joint-venture-undertaking in which the provider of capital and the entrepreneur agree on common terms of business.

Banking Compliance and Dependence Corruption: Towards an Attachment Perspective

Why did banking compliance fail so badly in the recent financial crisis and why, according to many, does it continue to do so? Rather than point to the lack of oversight of individuals in bank compliance roles, as many commentators do, in this paper I examine in depth the organizational context that surrounded people in such roles. I focus on those compliance personnel who did speak out about risky practices in their banks, who were forced to escalate the problem and “whistle-blow” to external parties, and who were punished for doing so. Drawing on recent empirical data from a wider study, I argue that the concept of dependence corruption is useful in this setting, and that it can be extended to encompass interpersonal attachments. This, in turn, problematizes the concept of dependence corruption because interpersonal attachments in organizational settings are inevitable. The paper engages with recent debates on whether institutional corruption is an appropriate lens for studying private sector organizations by arguing for a focus on roles, rather than remaining at the level of institutional fields or individual organizations. Finally, the paper contributes to studies on banking compliance in the context of the recent crisis; without a deeper understanding of those who were forced to extremes to simply do their jobs, reform of the banking sector will prove difficult.