Conventional Financial System Research Articles

Impact of Financial Technology Firms on Banking Performance: Insights from Indonesia

The presence of fintech companies in the banking sector of Indonesia plays a crucial role in enhancing the conventional financial system. This study examines the influence of financial technology (Fintech) firms on the performance of banks by utilizing data from the Indonesian banking sector between 2018 and 2022. This study employs a regression analysis using a data panel fixed effect model. This study quantifies the impact of different financial variables, including Capital Adequacy Ratio (CAR), Gross Non-Performing Loans (NPL), Net Interest Margin (NIM), Return On Assets (ROA), Return On Equity (ROE), Operating Expense to Operating Income (BOPO), and Loans. Control factors in the context of Fintech include the deposit ratio (LDR), gross domestic product (GDP), and inflation. The results indicate that the financial indicators, including CAR, NPLgross, ROA, ROE, and NIM, do not have a statistically significant influence on Fintech. Additionally, Fintech is significantly influenced by other indicators such as BOPO (Balance of Payments) and LDR (Loan-to-Deposit Ratio), as well as control variables, including GDP (Gross Domestic Product) and inflation. This demonstrates that Indonesian banks can reap advantages by engaging in partnerships with fintech startups to enhance the financial system and optimize corporate profitability resulting from this collaboration.

Digital Financial Inclusion and Financial Vulnerability Analysis of the Household Economy - Empirical Evidence Based on CFPS

Abstract The global landscape of digital financial inclusion aims to extend broader, more accessible, and cost-efficient financial services via digital channels to those marginalized by conventional financial systems. Particularly in developing countries, household economic and financial fragility remains a pressing concern. Economic vulnerability denotes the incapacity of households to withstand unforeseen difficulties in the wake of economic downturns, precipitating a significant deterioration in living standards. This research investigates the role of digital financial inclusion in diminishing household economic vulnerability and enhancing the efficacy of financial services to address this challenge. Employing a fuzzy rough set algorithm to examine the China Family Panel Studies (CFPS) dataset, our analysis identifies critical factors of household economic vulnerability and their interaction with digital financial inclusion services. Findings demonstrate that digital financial services markedly reduce household economic vulnerability, evidenced by a 12% improvement in household solvency and a 20% uplift in financial resilience. Rural and lower-income families derive the most significant benefits from digital financial inclusion. Furthermore, the study underscores the importance of advancing financial literacy and refining financial product design as pivotal strategies in mitigating household economic vulnerability. This research offers valuable insights for policymakers and financial service providers on leveraging digital technology to bolster household economic stability.

INSTRUMEN LINDUNG NILAI MENURUT PERSPEKTIF ISLAM: ANALISIS PELAKSANAANNYA DALAM SEKTOR KEWANGAN DI MALAYSIA

The concept of hedging that is understood in the conventional financial system and the Islamic financial system has the same purpose, which is to manage risk. Islamic scholars agree that the law of hedging is a must in the syariah because it brings maslahah and fulfills the objective principles of the syariah. Even so, this concept that leads to the protection of property is accepted by Sharia scholars in accordance with the general principles in Islam that celebrate the welfare of the community. However, the application of the concept of hedging in the Islamic financial system needs to be different from the conventional financial system so that it does not conflict with the guidance contained in the Qur'an and the Sunnah which reject harm. Therefore, this writing aims to evaluate the actual position of the hedging concept according to the Sharia and then propose hedging parameters that are in line with the principles of the Sharia. The results of the study found that Islam recognizes the concept of hedging as one of the risk management methods, but its acceptance is bound by the condition of compliance with the guidelines that have been set. This study is expected to provide useful input especially to the Islamic finance industry in an effort to create more Sharia-compliant hedging instruments.

Unveiling the Power of Burhâni Epistemology in Reshaping Islamic Economic Law for a Fair Financial Landscape

This study aims to explain the concept of burhâni epistemology and its implementation in the development of Islamic economic law formulation. The method used in the research is a literature review (library research) with qualitative descriptive analysis based on empirical normative data to ensure the consistency of the research data. The result of this research is that burhâni epistemology as a logical method or argumentative rationale can be applied to the reality or context analysis of interest-based finance. The practice of imposing interest in the conventional financial system indicates an addition (ziayadah) that can harm one of the parties to the contract (bathil). In addition, the implementation of the burhani method must include the bayani method in the formulation of Islamic economic law because the reasoning process of the concept of interest must be linked to the concept of usury in the text (nash), which must be read and understood textually and contextually. The application of these findings is to review the reality of interest practices in the banking system as a home base in the formulation of Islamic economic laws by eliminating aspects of usury and interest in the financial system. The Burhani method is used to explain banking interest and contractual agreements that incorporate falsehoods like gharar (uncertainty) and injustice (mistreatment) against the parties.

ISLAMIC ECONOMIC TRANSFORMATION IN THE DIGITAL ERA: A REVIEW OF THE ROLE OF FINTECH

This research examines the transformation of the sharia economy in the digital era with a focus on the role of Financial Technology (Fintech). Advances in information and communication technology have had a significant impact on the structure of the global economy, including Islamic financial practices. Fintech as a digital financial innovation has the potential to accelerate the growth of the sharia financial sector. This research uses a qualitative approach to analyze Fintech developments in the context of Islamic economics. Data collection was carried out through literature studies and interviews with financial practitioners and Islamic economics experts. It is hoped that the results of this research will provide an in-depth understanding of the impact of Fintech on the sharia financial ecosystem and how this innovation can strengthen sharia economic principles. In the digital era, the transformation of the sharia economy through fintech has brought significant changes, opening up financial access for Muslim communities who were previously marginalized in the conventional financial system.

THE TRANSFORMATION OF SHARIA ACCOUNTING IN PROMOTING SUSTAINABILITY ECONOMIC GROWTH

This research aims to analyze the transformation of Islamic accounting and its impact on strengthening the sustainable economy and gain a deeper understanding of innovative Islamic accounting practices, the role of technology in driving efficiency, and their contribution to overall Islamic economic growth. In recent years, the Islamic economy has experienced significant growth in various countries. Islamic economic principles based on Islamic moral and ethical principles offer an attractive alternative to the conventional financial system. Islamic accounting has a key role in ensuring transparency, sharia compliance, and sustainable growth in the Islamic economy. This research will discuss the importance of transformation in sharia accounting practices to achieve the goal of strengthening the broader sharia economy. Sharia accounting, as one of the important elements in the Islamic economy, plays a crucial role in ensuring transparency, sharia compliance and sustainable growth. However, further research is needed to understand how transformation in sharia accounting practices can encourage the strengthening of a sustainable economy. This research is qualitative research. The data collection technique used in this research was literature review from secondary data sources in the form of books, journals, scientific articles, official invitational websites that have information relevant to research topics such as sharia accounting and economics. The data analysis technique used in this research is content analysis technique. The results of this research are expected to provide a deeper understanding of the role and contribution of sharia accounting transformation to strengthening a sustainable economy as well as contribute to science, provide practical guidance, and raise awareness about sustainability and sharia accounting among the public.

Islamic Financial Surplus for Energy and Gas Investment: Towards Financial Inclusion for Improving Living Condition of Needy and Poor in Nigeria

Undoubtedly, Nigeria is the topmost producer of energy and gas in the entire African continent. However, there is an abject poverty in the country and the global financial crisis and weaknesses of conventional financial system in predominant Muslim countries including Nigeria have not made the experts to critically explore Islamic financial surplus for energy and gas investment in order to solve the problems of needy and poor in the country. There is need to bridge the gap of financial inclusion with specific attention on energy and gas investment with specific attention on Islamic financial surplus in order to improve the living conditions of the needy and poor in the country. It is essential to utilize financial surplus derivable from energy and gas investment for sustainable financial inclusion for enhancing living condition of the needy and poor people in the society. Shari’ah compliant investment is emphatically stressed as a central climax of this study. Qualitative research design was employed in this paper using content analysis and systematic literature review. The results of the study demonstrated that Islamic financial surplus can be instrumentally related to energy and gas investment where the surplus can be adequately used for empowerment of the needy and poor people in the society. By emphasizing on Islamic financial surplus especially in connection with energy and gas investment, it will expand the understanding about Islamic economy system for financial inclusion beyond banking sector. Thus, adequate use of Islamic financial surplus in energy and gas sector will practically reduce high rate of abject poverty among the needy and the poor in the Nigerian society by attaining economic growth. Most studies on Islamic financial surplus are emphatically on banking sector. This study expands the understanding of the Islamic financial surplus by importantly relating it to energy and gas sector.

Shadow banking and micro-, small and medium scale enterprises: A municipal assessment in Nigeria

Shadow banking is usually considered as offering financial and financial-related support outside of the mainstream conventional financial system. The biggest issue facing micro-, small, and medium-sized businesses (MSMEs) in Nigeria is the inconveniences and challenges associated with obtaining funds or credit from conventional banks, which encourages remote business operations and small-scale expansion. Thus, shadow banking activity is still widespread among MSMEs in Nigeria. This study used MSMEs operating in the Marian and Watt markets to analyze the impact of shadow bank interest income, savings products, and loans on the performance of MSMEs. A systematic Likert scale questionnaire was given to a group of 160 people, with 157 questionnaires duly returned. The survey research design was adopted, while the SPSS software was used to analyze the data acquired. As such, shadow banking interest income has a non-significant positive impact (0.022%) on the performance of MSMEs in Calabar metropolis; shadow banking savings products have a negative but significant impact (–0.160%) on MSME performance in Calabar metropolis, while shadow banking loans have a positive and significant effect (0.194%) on micro-, small, and medium-scale firm performance in Calabar metropolis. The study concluded that shadow bank operators should ensure that their service costs are standardized and supplied at affordable rates to attract MSMEs to patronize them for more successful business operations.

The water and carbon footprint of cryptocurrencies and conventional currencies

When compared to traditional fiat currencies, cryptocurrencies represent a small, but growing, fraction of financial transactions. The rapid growth of cryptocurrencies has raised concerns regarding the environmental impact of this energy-intensive type of currency. In this study, water and carbon footprints associated with cryptocurrencies are assessed. These environmental footprints are then compared to the water and carbon footprints associated with conventional currencies, which is a novelty of this study. A spatially refined, bottom-up analysis of the most energy-intensive aspects of each financial system is used in the comparison of these systems. Specifically, the energy use for printing money, bank branches, automated teller machines (ATM), and cashless transactions is evaluated at the country level and compared to the energy use of crypto mining around the world. Cryptocurrencies’ electricity use of 236 × 106 megawatt hours (MWh) in 2021 surpassed that of the conventional transaction system, despite cryptocurrencies representing less than 0.5% of global cashless financial transactions. In terms of its water footprint, cryptocurrencies have an annual water consumption of 3670 × 106 cubic meters (m3). Cryptocurrencies' water footprint is more than double that of conventional currencies because crypto mining takes place in countries with higher water intensities for electricity. Crypto mining activities are also estimated to result in almost 139 × 106 tonnes carbon dioxide equivalent (CO2-eq) of global greenhouse gas emissions. While cryptocurrencies represent a small percentage of financial transactions, their environmental impact is much larger than the conventional financial transaction system. This study shows how regulatory changes, such as the 2021 crypto mining ban in China, and crypto mining location can have implications on the environmental footprint associated with cryptocurrency.

Islamic Finance-Based Financing Mechanism Proposals to Support Local Economic Development

In most countries, the main financing source for local governments for infrastructure projects comes from the central government’s budget. However, considering the growing urban population, this source will be insufficient to meet the likely increasing infrastructure expenditures in the future as it is now. Local governments must explore alternative financing methods, including accession to capital markets. Nevertheless, most local governments, especially the small and medium-sized ones, do not have access to capital markets, due to their low creditworthiness and insufficient technical and administrative capacity. For this reason, some supportive mechanisms to increase the creditworthiness of local governments within the scope of the conventional financial system have been developed in many countries. Aspired by the well-proven methods of the conventional financial system, this paper proposes some supportive financing mechanisms for local governments based on Islamic financial principles. These mechanisms could help local governments to access capital with higher creditworthiness and contribute to the development of Islamic capital markets. In order to lower the borrowing costs for local governments by giving them direct or indirect access to capital markets, this study suggests five possible Islamic financing methods. However, because to the novelty of the subject, it attempts to lay the groundwork for future research that will yield fresh perspectives on this issue.

Risk tolerance as mediating factor in individual financial investment decisions: a developing-country study

The key objective of this research paper is to estimate the impact of financial literacy, investor’s personality and overconfidence bias on investment decisions by using risk tolerance as a mediator variable. Inclusive finance makes numerous financial products and services accessible and affordable to the micro-finance community, remarkably those absent from the conventional financial system. Financial literacy is a leading factor affecting an individual’s ability to access financial services. This study employed Structural Equation Modelling to investigate whether financial literacy and other personality traits affect investment decisions. The Regression results showed that financial literacy, investors’ personality, and overconfidence bias are significantly relevant to risk tolerance and investment decisions (β = 0.128***, S.D = 0.047, t = 2.746; p < 1%; β 0.378***, S.D = 0.051, t = 7.414, p < 1%; β 0.269***, S.D = 0.052, t = 5.155, p < 1%; β 0.195***, S.D = 0.054, t = 3.619, p < 1%; β 0.371***, S.D = 0.055, t = 6.706, p < 1%; β0.195***, S.D = 0.061, t = 3.190, p < 1%). As mediation results showed, risk tolerance plays a significant role in financial literacy, investors’ personality, overconfidence bias, and investment decisions (β = 0.024**, S.D = 0.011, t = 2.15, p < 5%; β = 0.024**, S.D = 0.011, t = 2.17, p < 5%; β = 0.047**, S.D = 0.018, t = 2.55, p < 5%). The implications of this study also provide valued recommendations for regulatory institutions to improve financial inclusion in the emerging market context.

ISLAMIC FINANCE AND ECONOMIC GROWTH IN THE MENA REGION: WHAT CONTRIBUTIONS FROM THE QUALITY OF INSTITUTIONS?

Since the financial crisis of 2009, debates are still open on the flaws of the conventional financial system as it is developed and applied internationally. Indeed, several works have revealed the importance of developing a so-called "ethical" finance such as Islamic finance in view of its supposedly "positive" impacts on the socio-economic development of countries. It is in this context that the present work examines the causality between Islamic finance, economic growth and institutional quality in a sample of MENA countries over a time series from 2000 to 2014. It finds that even after controlling for the effects of the determinants of economic growth and mainly those of institutional quality, Islamic financial development is found to be negatively correlated with economic growth.

Financing Start-ups, the Need, Relevance, Facets and Constraints in Kenya Start-ups Ecosystem

On daily basis a number of startups are founded all over the world, including in Kenya. However, a few live to celebrate their first birthday. Therefore, this article delves into the financing need, relevance, facets and the constraints facing startups in Kenya. There is evidence that the global financial situation has adversely affected not only the establishment and continuation of enterprises but also innovative incapability to access finance from conventional financial systems. This study was based on desktop review where secondary data was analyzed to ascertain the misapprehension surrounding financing start-ups in Kenya. The findings indicated that there is need for various stakeholders in the startup space to come up with relevance innovative startup financing options to overcome the constraints they experience from the funds provided for the MSMEs and from other conventual financing systems in the country. With proper financing the government can tap on the start uniqueness and ability to scale within a short time and provide solution to the larger unemployment rate in the county.

Legal regulation of the international financial architecture in the context of digital transformation . The experience of the European Union and the Republic of Poland

The digital transformation of public relations has become possible with the introduction of artificial intelligence, the Internet of Things, cloud computing, immersive technologies, and data analytics. These technologies make it possible to create a metaverse where communication, knowledge acquisition, work, business, investment, creativity, and much more are available to everyone. The article offers an in-depth analysis of the institutional legal framework governing the international financial architecture within the realm of digital transformation. It explores regulatory mechanisms and developmental trends within the legal and financial systems of both the European Union and the Republic of Poland. The study delves into instances of commercial fraud involving digital assets, thoroughly examining their implications on the traditional financial system. In the virtual world, the capital market has no borders and jurisdictions. False and unreliable information has become an instrument of manipulation by society and is actively used by market participants. The conventional financial system experiences a loss of control over its functions, particularly in the process of converting fiat funds into digital assets. Decentralized finance regulated by cryptocurrency can replace the Bretton – Woods system. Blockchain is “a technology of utmost honesty” in data transmission. The task of society is to be guided by ethical, social, moral, and environmental aspects in the initial placement of information. The effectiveness of legal regulation of the digital environment is possible only with the adoption of regulations, rules, and recommendations of international organizations in the legislation of each country. A single principle of legal regulation will allow us to build a more just world and its sustainable development.

A REVIEW OF MONETARY DETERMINANTS OF CRYPTOCURRENCY ADOPTION IN ISLAMIC FINANCIAL SYSTEM

This paper discusses the money and financial system from both the conventional and Islamic points of view. To further elucidate this topic, some aspects of the conventional financial system are discussed on the applicability from an Islamic perspective. Firstly, the advancements of technology that had led to the invention of cryptocurrency and how the Islamic financial system can evaluate the determinants of the adoption of such cryptocurrencies were reviewed. Secondly, the use of digital wallet and how it is encouraged by the government to increase transparency in the financial system and finally, the applicability of a dual-currency model, which covers the idea of revitalizing the dinar and the dirham as well as the implementation of a dual-currency regime in a nation and how it benefits the economy and prevents the failures of the financial system are discussed along the way. The paper reviews scholarly work conducted by both contemporary conventional and Islamic economic scholars. In addition to that, this paper incorporates the views from the classical Islamic scholars such as al-Ghazali, as well as reviewing the money, banking, and financial systems that were conducted during the early Islamic reign, which would be deemed helpful in formulating an Islamic monetary system that could be pre-eminent in today’s world.

Sistem Keuangan Islam dan Konvensional: Sebuah Studi Literatur

The Islamic Financial System is an implementation of the teachings of Islamic economics. So, the values contained in Islamic teachings must be realized in the Islamic financial system. But in reality, many criticisms are related to the Islamic financial system. This paper is a literature review that aims to determine the Islamic and conventional financial systems. This research uses an approach using Publish and Perish software to collect journal articles that are relevant to the purpose of this research. The contents of the collected articles were analyzed to get a conclusion. The main findings of this study indicate that the orientation of the Islamic financial system is profit and falah oriented while the conventional financial system is only profit-oriented, the conventional financial system must pay attention to the principle of justice in its operations so as not to harm the community.

The Role of Islamic Law in Convergence to Western Corporate Governance Features in Pakistan

This article examines the role of Islamic Law in convergence to western corporate governance features in Pakistan. The recent financial crisis in the world highlighted the importance of good corporate governance features. This phenomenon highlighted the possibility of adopting an alternative to conventional financial system in Pakistan. Islamic finance has shown its presence in the wake of financial crisis in the world. Therefore, this articles analyses, in comparative perspective, the Islamic financial system viz a viz conventional financial system. It further analyses the possibility of convergence of corporate governance mechanism, which is key for good governance in any financial system, in Pakistan. It concludes that Islamic Financial System may be adopted as alternative financial system as well as corporate governance mechanism may be converged to western corporate governance features in Pakistan. However, while doing so Islamic norms may act as a litmus test which may not be as problematic as it appears at first sight.

Islamic financial services industry: Aspirations and achievements

AbstractIslamic Financial Services Industry (IFSI) crosses the age of 40 years, and sufficient empirical evidence exists to evaluate in light of the distinctive aspirations. This study fills the gap in the literature by evaluating the performance of IFSI in light of Islamic finance objectives—financial stability, equitable distribution of wealth and social responsibility; Shari’ah principles, and professional practices. Our investigation documents the achievements based on real accounting data from 23 countries, and the suitability of tools in practice to achieve the stated objectives by promotors of IFSI. Findings suggest that the objectives of IFSI have been achieved to an extent. However, visible contribution to the achievement of socio‐economic justice is yet to emerge. Practical application of tools shows divergence (in spirit) from the original design, primarily to achieve integration and coherence with the prevailing conventional financial system. IFSI needs collaborative efforts to overcome the challenges at hand.

Is Islamic Banking in Turkey really interest-free?

Abstract Islamic Finance receives more attention due to the growing need for financial services in countries with a Muslim population. However, the rules of Islam and its applications in daily life cause conflicts in today's conventional financial system. Since interest gains are prohibited in Islam according to the Quran, Islamic banks develop and use interest-free methods, unlike the conventional banking system. Islamic Finance introduced profit-sharing ratios to replace interest rates and to increase the participation of religious investors in the financial system. In this research, we compare interest rates with profit-sharing ratios in the Turkish banking market. We use wavelet and historical correlation analysis as a new methodology in evaluating the association between these two factors. Although it is presumed that Islamic banks operate as interest-free banks, our analysis confirms former studies and finds that profit-sharing ratios are highly correlated and coherent with interest rates in Turkey. We also find small differences among Islamic banks on how quickly profit-sharing ratios follow the market interest rate changes.

MENINGKATKAN KESADARAN MASYARAKAT DALAM MENGHINDARI RIBA DI DESA CIBUNIAN, KECAMATAN PAMIJAHAN, KABUPATEN BOGOR

Abstract&#x0D; Nowadays, there are lots of people and housewives doing both debt and sale and purchase transactions without regard to usury. This was experienced by residents of West RW 03 Bogor, especially housewives in the transaction. Through community service, student of Institute Agama Islam Sahi Bogor (INAIS) made observations, interviews and socialization regarding usury and bank interest as well as solutions to avoid usury in the People’s Cibuninian, Pamijahan, Kabupaten Bogor. Indonesian people need to know the Islamic banking system where usury can be avoided there. The purpose of this community service was trying to educate the community especially people in the religious community such as People’s RW 03 Cibunian so that they can avoid usury, with a direct material exposure approach to the public. Hopefully, they could understand about usury on conventional bank interest and switch to the Islamic prescribed system. Results of this community service indicated that people in the People’s cibunian became more aware of usury and its types, and began to switch from the conventional financial system which is vulnerable to usury to the Islamic financial system, through opening an account at an Islamic bank as one of one solution to avoid usury.&#x0D; Keywords: Public Awareness, Riba, Sharia Banking Socialization