Interest-free System Research Articles

Dispute Resolution in Islamic Banking Industry Under The Iraqi Judiciary System

Islamic banking transaction is based on an interest-free system that is prohibited to deal with riba. Several Islamic banks in Iraq are governed by the Central Bank of Iraq. Due to the lack of Islamic financial courts and lack of professional judges in the Islamic financial field, Islamic banking cases are handled by civil courts in Iraq. However, Islamic finance disputes should be considered by special courts with qualified judges in the field. The Judicial Authority in Iraq is not based on the Sharia system and the Sharia court specialised in Islamic finance in Iraq does not exist. As stated in Article 89 of the Iraqi Constitution of 2005 that the federal juridical power is comprised of the Higher Juridical Council, the Federal Supreme Court, the Federal Court of Cassation, the Public Prosecution Department, the Judiciary Oversight Commission, and other federal courts that are regulated under the law. Thus, Islamic banking disputes fall under the civil courts and the Courts of First Instance are responsible to handle cases of debt, and contracts. Furthermore, these courts are not specialists in Islamic banking and finance transactions. Therefore, a particular court, i.e. the Islamic financial court, should be among these courts in Iraq for resolving Islamic banking disputes. In addition, the special court has to include qualified judges who are familiar with Islamic finance.

A Macroeconomic Model of an Interest-free System

A number of economic models have been designed to evaluate and analyse the Islamic banking system. However, less attention has been paid to macro model-building in an Islamic framework even though most of the Keynesian, Classical, and Neo-classical economic systems are compatible with the tenets of Islamic economics. In this paper an interest-free economic system is formulated in terms of the familiar Neo-classical macroeconomics models. Even though the rules of conduct for Muslims in an Islamic economic system are different from those in the non-Islamic economic systems, it is shown that the Islamic economic system does exhibit properties that are consistent, reasonable, and familiar. For example, under some reasonable simplifying assumptions, the model shows that savings and investment do not necessarily have to fall because of the institution of an Islamic economic system, as some economists suggest. These depend on the rate of returu on mudarabah investment, just as they depend on the rate of return on investment (profits) in a credit-based economic system. These could be higher, lower, or remain the same relative to their levels in a credit-based economy under different conditions. The model also shows the impact of fiscal and monetary policies on the rate of inflation, the rate of return on mudarabah, and therefore on the investment demand. The model shows that, in general, an economic system based on Islamic principles is viable; it also provides unique solutions for income, employment, and prices.

PERSEPSI MASYARAKAT TERHADAP PERBANKAN SYARIAH DI KABUPATEN SUMENEP

Research on Community Perceptions of Sharia Banking in Sumenep Regency. Islamic banking implements an interest-free system that aims to create justice, social and economic well-being and protect people's property rights. The purpose of this study is to determine public perceptions of Islamic banking in Sumenep district, with qualitative research methods by describing systematically, factually and accurately about people's perceptions of Islamic banking, by observing, interviewing directly and in depth and documenting it. Whereas the key informants of religious leaders / community leaders who will be interviewed in this study use the method of purposive selection. Sharia Banking in Sumenep Regency is a bank that operates not relying on interest but on the basis of profit sharing in accordance with Islamic Sharia. Sharia Bank is a form of market demand that requires a financial institution with a halal banking system and complies with sharia principles even though it has not been said to be 100% sharia or kaffa.

Informal shariah pawnshop in the traditional markets of Surakarta

PurposeThis study aims to explore how informal pawnbrokers and informal pawners interpret the existence of the informal pawnshop in the traditional market in Surakarta, Indonesia, with the main focus to determine the applicability of informal pawnshop development model.Design/methodology/approachThe research used the qualitative method with the phenomenological approach using interview method to fully comprehend the informants’ views regarding the informal pawnshop existence in traditional markets in Surakarta, Indonesia. The applicability of informal pawnshop development model is required for Muslim market vendors. Charitable institutions shall participate in the development of the model by empowering (zakat, infaq, shadaqah and waqf) funds to help Muslims vendors in the traditional markets for additional capital in accordance with Islamic laws for a pawnshop.FindingsThe result of the research shows that the existence of informal pawning in the traditional markets is difficult to avoid as both informal pawnbrokers and informal pawners need one another. Most vendors in the traditional markets are Muslims. Islam teaches that loan interest is categorized as forbidden riba. Meanwhile, in the informal pawning practices, the informal pawnbrokers charge loan interest to the informal pawners.Originality/valueThe objective of this study is to investigate to what extent the Islamic pawn shops motivated the people through interest-free system. However, in past, tradition markets facilitate the people, but they charged a huge against it with interest (riba).

Islamic Bank Service Quality and Its Impact on Indonesian Customers’ Satisfaction and Loyalty

Islamic bank provides products that conform to sharia. When world financial crisis happened, it did not constrain Islamic banking due to its interest free system. However, in Indonesia, the growth of Islamic bank assets is still in the tenth rank with less than five percent of market share. Customers are still in doubt of its professionalism. Superiority in products and service quality remains in sufficient for customer satisfaction and loyalty. The data sets in this research were analyzed by using path analysis for testing the direct impact and sobel test for indirect impact. The result shows that Islamic bank service quality in Indonesia impacts customer satisfaction and loyalty. However, customer satisfaction does not impact customer loyalty, both directly and indirectly. It means that customers are still dissatisfied with the services provided by Islamic banks. This research recommends strategies for improving service quality and consumer confidence on the distinction of Islamic banking system. DOI: 10.15408/aiq.v10i2.7135

An investigation of techniques for testing structural stability in banks: A comparative study

There has been a revival of fundamental Islamic values in several countries throughout the world. The basic characteristic of an Islamic banking system is the prohibition of the payment or receipt of a predetermined interest rate which is considered usury. The Islamic system substitutes predetermined interest rate with the principle of profit-loss sharing, which transforms banks into equity-based firms. The principle of profit-loss sharing seems to be the cure for instability. The traditional banking practice of paying depositors a fixed (predetermined) interest, regardless of whether or not the bank is doing well, prevents banks from instantaneously adjusting to potential asset shocks. Such rigidity can lead to possible financial instability. The Islamic interest-free banking system can provide immunity against bank failure and financial instability, because this system redistributes the consequences of uncertainty over all parties to a business. By spreading the same risk over more heads, the Islamic interest-free system would promote stability. Key words: Islamic banking system, traditional banking, financial instability, business,profit-loss sharing, depositors.

Sistem Perbankan Islam di Indonesia: Sejarah dan Prospek Pengembangan

Islamic banking or sharia banking is a new phenomenon in the modern worldeconomy, its emergence as the intense efforts made by Islamic scholars in the development of Islamic economics in which it will be able to replace theconventional economic system based on the interest to the interest-freesystem. That’s why sharia banking system apply an interest-free system inoperation. Therefore, the closest term to define sharia banking is a bank that operates based on Islamic sharia principles, by reference to the Al-Quran and Sunnah as the basis or the legal and operational basis. Islamic banks were originally developed from the response of some economists and practitioners of Islamic banking that seek to accommodate pressure from various parties who want to make available services of the financial transactions carried out in line with moral values and principles of Islamic sharia. On his journey, sharia-based banking system is increasingly popular not only in Islamic countries but also western countries, characterized by increasingly the number of banks that implement this concept

Impediments to the Growth of Islamic Banking and Financial Systems

Interest-free banking system is as old as the recorded history of mankind. It is, therefore, of utmost importance that we explore the reasons as to why the Islamic financial system had to wait for almost fourteen centuries to take shape. The long-term success of this fastest growing financial segment depends on the potential of this system to emerge from the status of a “segment” to become holistic, capable of serving all the perceivable needs of people and nations. The success of the very concept of interest-free system poses a threat of creative destruction to a huge market. This paper attempts to investigate whether the Islamic Financial System has the potential to replace the conventional systems. We restrict our study to bringing to light the impediments that restrict the growth of this system, taming of which would be essential for this system to pose any real challenge to its deeply entrenched conventional counterpart. The study supports its analysis by comparing the status of Islamic countries vis-a-vis some of the developed nations. We begin with providing a short insight into the Islamic Financial System highlighting briefly the major differences between the two concepts before initiating the main analysis. In conclusion, we provide some recommendations for dealing with the factors that threaten to impede the growth of the system and how it can take its conventional counterpart head-on, if at all they pose a competition.