Management Of Islamic Banks Research Articles

Determinants of customer relationship marketing success in Islamic retail banking

Muslims and non-Muslims alike are increasingly turning to Islamic banks as alternative to interest-centric conventional banks. Islamic banks exist and operate in accordance with Shariah principles enshrined in the Holy Quran. For Islamic retail banking to thrive and survive in today’s competitive banking and financial services industry occasioned by a number of conventional banks opening up Islamic windows, Islamic bank managers must aggressively adopt good customer relationship marketing. Given that the recent global financial crisis had little or no impact on Islamic banks throughout the world, Muslims and non-Muslims demand for Islamic banks’ products and services are on the rise. This acknowledged evidence presents a significant opportunity for Islamic banks to compete and remain successful. To do just that mandates Islamic banks to focus on utilising effective customer relationship marketing strategies to acquire and retain customers. Using a decision support model, this paper seeks to quantify the d...

AKUNTABILITAS DAN KAPABILITAS BANK SYARIAH (STUDI PADA BANK SYARIAH “X” CABANG MALANG)

<p>The dynamics of development of Islamic banking in the working area KBI Malang is encouraging its development in which the Islamic banks NPL rate tends to increase significantly. In this institution within a period of nearly two years alone have been able to make an investment of about 13 M. with clients (depositors) of about 1300 people and 250 customers (users). This is the kind of qualitative research that uses a case study, the approach aims to maintain the integrity of the object and also with verifikatif approach. Verifikatif approach is intended to minimize the possibility of low reliability is often the case in case study research, in order to explain: first: accountability factors in the management of Islamic banks and funds processing, collection and utilization of capital funds, second: factors capabilities of Islamic banks in improving the quality and quantity of social and economic life of society. The results showed that: Factors that support the assessment of accountability in the management of Islamic banks and funds processing, collection and utilization of capital funds is reviewed from the aspect of increased cash liquidity ratio of 15.06% in 2005 rose to 18.12% in 2006 so it has good title, while LDR 44.12%, still well in the predicate. ROA profitability aspects seem to have decreased between 2005 to 2006, where in 2005 while the ROA of 1.99% in 2006 to 0.77%, to BOPO increase from the year 2005 amounted to 84.75% in 2006 amounting to 95.01%, for capital aspects of healthy and performing said, because the CAR above 10% which in 2005 grew 16.94% to 19.07%. Factors that support the capability of Islamic banks in improving the quality and quantity of social and economic life of society is: cooperation financing, business development and service cooperation, and cooperation through SME business support reached 42% this year.</p> <p> </p> <p> </p>

Do Islamic Banks Employ Less Earnings Management?

AbstractIn this article, we examine whether Islamic banks are less likely to manage their earnings than non‐Islamic banks and how Islamic banks’ unique corporate governance system, especially Shari'ah Supervisory Boards, impacts earnings management behaviors within Islamic banks. Using a sample of Islamic banks and their matched non‐Islamic banks in 15 countries, we find that, first, Islamic banks are less likely to conduct earnings management as measured by both earnings loss avoidance and abnormal loan loss provisions. Second, there are no significantly different earnings management behaviors between Islamic banks with and without Shari'ah Supervisory Boards. Third, several Shari'ah Supervisory Board characteristics, such as size and the presence of members from Auditing Organization for Islamic Financial Institutions, are important determinants of the earnings management of Islamic banks who have Shari'ah Supervisory Boards.

"Competitive Study of Service Quality Based on the Perception of Customers and Management of Islamic Banks in Pakistan"

Service quality has become a highly debatable issue in banking industry all over the world. Several researches are there which indicate that high service quality is pivotal to achieve organizational profitability. Therefore, banks are trying to achieve high service quality by understanding customers' perception towards their products and services and to satisfy and retain the customers accordingly.This study is conducted to measure the level of service quality of Islamic banks in Pakistan by following the Compliance, Assurance, Reliability, Tangibility, Empathy and Responsiveness (CARTER) model approach. In Islamic banking it is called Islamic SERVQUAL. The difference in the perception of customers and employees regarding service quality is also included in this study. This is a primary research based on the data directly collected from the customers and employees of Islamic banks, operating in the city of Lahore. The study contains discussion on general idea of Islamic bankingand service quality. Descriptive related to Compliance, Assurance, Reliability, Tangibility, Empathy and responsiveness are calculated and described. Individual and overall significance is examined by using t-Stats for each element of the model and as a whole. The results indicate that there is significant difference between the perception of customers and management regarding the service quality of Islamic banks.

Risk‐taking behaviour of Islamic banks: application of prospect theory

PurposeThe paper aims to gain an insight into behavioural characteristics of Islamic banks and how they influence the risk‐taking decisions of Islamic banks in financial markets within the prospect theory context.Design/methodology/approachThe study employs review and application of prospect theory in Islamic banking industry across the globe, making use of 99 Islamic banks across 14 countries.FindingsEmpirical evidence shows that Islamic banks located above target risk level tend to show risk‐adverse behaviour, while banks below target risk level inclined towards risk‐seeking attitude. Results also highlighted that banks which have higher loans to total asset ratio tend to take on lower risk.Practical implicationsIslamic bank regulators will be better prepared to monitor the Islamic banking system if they understand risk‐taking behaviour of Islamic bank managers. The findings will provide more effective bank regulatory oversight, thus preventing Islamic bank failures in future.Originality/valueSince there are relatively few studies conducted in risk‐taking behaviour of Islamic banks, specifically global Islamic banking, this study will broaden the scope of the literature by providing novel empirical evidence on risk‐taking practice of Islamic banks worldwide.

Ijarah contract: a practical dilemma

PurposeThis purpose of this paper is to highlight the weakness in vehicle Ijarah contract.Design/methodology/approachA real life example of a vehicle Ijarah contract was studied in which a customer gets a car from an Islamic bank and then misuses the system.FindingsThe case study provides a path for more research on Ijarah contract for vehicle leasing. Islamic bankers should take into account the amount of down payment requested besides the fulfilment of other criteria. Vehicle Ijarah contract is only appropriate when the amount of deposit or down payment requested is below 40 per cent threshold, otherwise a diminishing Musharakah contract should be preferred.Research limitations/implicationsThe research is only on one case reported in one of the Islamic banks in Pakistan. The solution is also by only one Shariah scholar. The future research should be on similar contract at entire Islamic Banking Industry. Views of all top Shariah scholars should be taken to mitigate such kind of risks for Islamic banks.Practical implicationsThis paper would trigger management of all Islamic banks to alter the structure of their vehicle Ijarah contracts.Social implicationsIslamic bankers would be warned against making a vehicle Ijarah contract with individuals wanting to contribute more than a down payment, just for the sake of cheating the system.Originality/valueThis paper is of great importance to the management of Islamic banks as this would raise flag against any future losses due to loopholes in the structuring of contracts.

Barriers to adoption of Islamic banking in Pakistan

PurposeThe purpose of this paper is to report the findings of a pilot study conducted in Pakistan, about the barriers perceived by users and non‐users of Islamic banking when selecting Islamic banks.Design/methodology/approachThis study was conducted to include two types of banking customers, users (customers of Islamic banks only and, Islamic and conventional banks both) and non‐users (customers of conventional banks only). The qualitative research included in‐depth interviews with managers of Islamic banks and two focus groups with users and non‐users, respectively. The survey questionnaire that was subsequently designed received 109 responses. The analysis includes hypothesis testing, factor analysis, and cluster analysis.FindingsA narrow branch network, inconvenient branch locations and perception that “Islamic banks do not completely follow Islamic principles” acted as barriers for non‐users when selecting Islamic banks. Further, “a religious ruling against Islamic banks” was not considered an important barrier when selecting Islamic banks.Originality/valueThis research outlines an alternative methodology of looking at bank selection criteria, by measuring the other side of the coin, i.e. the barriers perceived by users and non‐users of Islamic banking when selecting Islamic banks. Compared to the prevailing literature on the subject, such an approach is enlightening and can have enormous potential as it directly measures the perceived barriers towards Islamic banking. Furthermore, this pilot study is also an important contribution to the limited literature on consumer attitudes towards Islamic banking in Pakistan, where the operations of Islamic banks are still in their formative stage.

Selection criteria for Islamic home financing: a case study of Pakistan

PurposeThe aim of this research is to examine the selection criteria of customers for Islamic home financing in the context of Pakistan and to examine these factors with respect to gender, age, income, and occupation.Design/methodology/approachThis study uses a quantitative approach to investigate the choice criteria for Islamic home financing. All 18 independent variables are taken from previous research; for their analysis, descriptive statistics, independent sample t‐tests and ANOVA was used. Data were gathered from the customers of Islamic banking who use the services of Islamic home financing. The sample consists of 200 respondents. For the collection of data, a survey questionnaire with closed‐ended questions and a five‐point Likert scale was employed. The questionnaire was designed into two sections, one consisting of demographic information and the second relating to the selection criteria of Islamic home financing.FindingsThe results indicate that the shariah principle, fast and efficient services, price, bank reputation, and terms and conditions of product flexibility are the five most important factors considered by customers in choosing Islamic mortgages.Research limitations/implicationsThe limitations relate to the sample area for the study, which is confined to Lahore, and due to the limited sample size, the findings cannot be generalized. Second, only four banks are considered.Practical implicationsThis study is beneficial for practitioners in Pakistan by offering insight into choice criteria for Islamic home financing. The results should also be useful for Islamic bank managers who are also policy makers, as they can study and plan for attractive schemes and policies for customers through which they can fulfill their needs and expectations. For the researcher, this study will also add to the existing body of knowledge by providing novel evidence on the selection criteria used for Islamic home financing.Originality/valueThis topic has never been examined in the context of Pakistan, so this study initiates the choice criteria for Islamic home financing among Pakistani banks' customers. The paper provides potentially useful information for both customers (in selecting Islamic banks) and bank managers to identify the factors needed to attract customers.

Determinants of customers' intention to use Islamic personal financing

PurposeIslamic banking and finance is an emerging global industry founded on Islamic ethical precepts. Just as in the case of conventional banks, Islamic banks are expected to offer products that consider the needs of their customers. The present study investigates the effects of the following factors: attitude; social influence; religious obligation; government support; and pricing, on the intention to use Islamic personal financing.Design/methodology/approachThe sample comprised of 150 customers of two fully fledged Islamic banks in Malaysia: Bank Islam Malaysia Berhad and Bank Muamalat Malaysia Berhad. Data were obtained through a face‐to‐face survey using semi‐structured questionnaire. Out of a total of 150 responses, only 136 responses were usable for further analysis. The study used factor analysis, correlation and regression to analyse the data.FindingsThe study found three determinants to be significant in influencing the intention to use Islamic personal financing, namely, attitude, social influence and pricing of Islamic personal financing. Religious obligation and government support were found to be insignificant predictors.Research limitations/implicationsThe first limitation of the study is the narrow focus of the survey on the customers of two fully fledged Islamic banks. The second limitation of this work concerns the measurement employed to gauge bank customers' acceptance of Islamic personal financing. Despite these limitations, the findings of this study provide invaluable insights into factors affecting the bank customers' intention to use Islamic personal financing, especially in the case of Malaysian Islamic banks.Originality/valueThis empirical study on the determinants of Islamic financing using the survey method contributes towards a better understanding of the customers' expectations for Islamic financial products. Managers of Islamic banks can now comprehend better the factors that influence bank customers' decision in patronizing Islamic personal financing. Hence, more effective strategies can be recommended to attract bank customers to use Islamic personal financing. Not to mention, the findings of this study should be of value to Islamic banks in terms of expanding their customer base.

Bank margin determination: a comparison between Islamic and conventional banks in Indonesia

PurposeThe purpose of this paper is to examine the relationship between Islamic bank margin (BM) and its determinants. It also compares the BM behavior of Islamic and conventional banks in the Indonesian dual banking system.Design/methodology/approachThe paper employs a time series approach under the dealership framework of Ho and Saunders. The autoregressive distributed lag model is used to inspect cointegration between BM and its determinants for the period of January 1996 to February 2006 of five sample banks (two Islamic banks and three conventional banks).FindingsThe result confirms that there exists a long‐running relationship between the Islamic BM and its determinants. In particular, as interest rate volatility increases, Islamic BM responds negatively while that of conventional banks responds positively. The findings differ from most of the other studies as they found a positive relationship between BM and interest rate volatility. This paper also shows that the margin behavior changes as the basis of bank operations changes from conventional to Islamic principles.Research limitations/implicationsThe paper uses a relatively small sample of three (out of 150) conventional banks as a comparison to two sample Islamic banks. However, as they come from the same peer with the Islamic banks, it is believed that the finding is valid. Islamic banks in Indonesia are not remote from the interest rate volatility in their presence under a dual banking system. It is the displaced commercial risk that threatens Islamic banking profitability in a changing market interest rate situation.Practical implicationsUnder a dual banking system, the stability of interest rates and the financial system is of great importance for the policy maker in developing the Islamic banking industry in Indonesia. As long as the BM is still a major source of income to the Islamic banks, it is necessary for Islamic banks to have prudent risk management to mitigate the negative effect of displaced commercial risk and maintain its profitability. Implementation of profit equalization reserves concept is a possible measure for Islamic banks to shield their operation.Originality/valueThis paper is believed to be the first study on Islamic BM behavior in Indonesia. It is expected to provide useful information for policy makers and Islamic bank management to develop a sound and profitable Islamic banking industry in Indonesia.

Bank Margin Determination: A Comparison Between Islamic and Conventional Banks in Indonesia

Purpose – The purpose of this paper is to examine the relationship between Islamic bank margin (BM) and its determinants. It also compares the BM behavior of Islamic and conventional banks in the Indonesian dual banking system. Design/methodology/approach – The paper employs a time series approach under the dealership framework of Ho and Saunders. The autoregressive distributed lag model is used to inspect cointegration between BM and its determinants for the period of January 1996 to February 2006 of five sample banks (two Islamic banks and three conventional banks). Findings – The result confirms that there exists a long-running relationship between the Islamic BM and its determinants. In particular, as interest rate volatility increases, Islamic BM responds negatively while that of conventional banks responds positively. The findings differ from most of the other studies as they found a positive relationship between BM and interest rate volatility. This paper also shows that the margin behavior changes as the basis of bank operations changes from conventional to Islamic principles. Research limitations/implications – The paper uses a relatively small sample of three (out of 150) conventional banks as a comparison to two sample Islamic banks. However, as they come from the same peer with the Islamic banks, it is believed that the finding is valid. Islamic banks in Indonesia are not remote from the interest rate volatility in their presence under a dual banking system. It is the displaced commercial risk that threatens Islamic banking profitability in a changing market interest rate situation. Practical implications – Under a dual banking system, the stability of interest rates and the financial system is of great importance for the policy maker in developing the Islamic banking industry in Indonesia. As long as the BM is still a major source of income to the Islamic banks, it is necessary for Islamic banks to have prudent risk management to mitigate the negative effect of displaced commercial risk and maintain its profitability. Implementation of profit equalization reserves concept is a possible measure for Islamic banks to shield their operation. Originality/value – This paper is believed to be the first study on Islamic BM behavior in Indonesia. It is expected to provide useful information for policy makers and Islamic bank management to develop a sound and profitable Islamic banking industry in Indonesia.

Choice criteria for Islamic home financing

PurposeThe purpose of this paper is to investigate the choice criteria for Islamic home financing in Malaysian Islamic banks. Most importantly, this study considers establishing a specific rank of choice criteria for Islamic home financing. Moreover, these choice criteria will also be ranked according to the selected demographic elements such as gender, marital status and age range.Design/methodology/approachThis study uses a quantitative study similar to what was employed by previous researchers. The study presents primary data collected by self‐administered questionnaires involving a sample of 150 Malaysian bank customers in Labuan, Malaysia. Of these, 141 questionnaires were returned with a response rate equivalent to 94 per cent. The Islamic home financing choice criteria as perceived by the Malaysian bank customers are analysed using frequencies, independent samples t‐test and ANOVA.FindingsThe results suggest that “Shariah principle”, “lower monthly payment”, “transparency practice”, “interest‐free practice” and “100 per cent financing” are the first five decision criteria considered as being very important. The least preferred criteria, among others, are “recommendation”, “longer financing period”, “product range” and “branch location”. Results also suggested that a small number of significant differences are apparent in the importance of choice criteria with respect to gender, marital status and age range.Research limitations/implicationsThe study contains three limitations. The first limitation was based on the sample area for the study which is confined to Labuan, Malaysia. Second, this study restricted the use of factor analysis since the data did not allow for aggregation. Third, this study was also unable to perform ANOVA for religion differences as the sample consisted largely of Muslims.Practical implicationsThe results are primarily beneficial to academics and practitioners in Malaysia by offering an insight into choice criteria for Islamic home financing. This study provides new results about different kinds of customer types and their preferences with regards to Islamic home financing selection. As such, Islamic bank managers can learn and plan to offer attractive schemes for the Islamic home financing market that meet Malaysian bank customers' needs. For the researcher, this study contributes to existing body of knowledge by providing an investigation of choice criteria in the Islamic home financing. Indeed, this study is considered an “eye‐opener” for Islamic home financing choice criteria which has limited previous studies. Originality/value –This study introduces the choice criteria for Islamic financing among Malaysian bank customers. The study offers an insight into Islamic home financing choice criteria in Malaysia which has limited previously been investigated.

MENCARI SOLUSI RENDAHNYA PEMBIAYAAN BAGI HASIL DI PERBANKAN SYARIAH INDONESIA

The lack of the profit and loss sharing (PLS) financing or the domination of the Non-PLS financing, especially murabahah, is a global phenomenon in Islamic banks everywhere. This paper analyses the problem in Indonesia using Analytic Network Process (ANP) methodology, preceeded with a focus group discussion (FGD) and an indepth interview with scholars and practitioners of Islamic banking to fully understand the problem and to develop an appropriate ANP network.The cause of this problem can be grouped into four aspects, namely 1) internal of the Islamic bank; 2) customer; 3) regulation; and 4) government and other institutions. This research finds that the cause of the lack of PLS financing of Islamic banks in Indonesia can be summed up into two main causes from internal and regulation aspects, namely the lack of understanding and quality of human resource (Islamic bankers) and the lack of supportive regulations. The suggested solution is to increase the understanding and the quality of human resource by setting the minimum budget for training and education, implementing the insentive or subsidy system, setting the minimum standard for managers of Islamic banks through periodical fit and proper test, conducting training for short term needs, and encouraging the establishment of Islamic economic and banking education institutions for long term needs. Other suggested solution is to give support through regulation by reviewing the non supporting regulation, such as the collectibility classification of PLS financing, and developing incentive system to increase PLS financing. Moreover, the most effective policy strategy to overcome the problems of Islamic banks is by implementing directed market driven strategy, where policies are intended to direct the development of Islamic banks to stay on its syariahtracks towards the desired development goals.JEL: C49, E58, G21, L22Keywords: ANP, Bank Syariah, Islamic Bank, Bagi Hasil, Profit and Loss Sharing

Portfolio management of islamic banks: ‘Certainty model’

The Islamic banking and finance system is recent in origin. Its special features preclude the application of modern finance theories. The system is briefly described in this paper as part of an initial attempt to develop a simple model for the portfolio management of an Islamic bank. The model is built on the assumption of certainty for one period. A numerical example based on actual data of Faisal Islamic Bank of Sudan is given to illustrate the model and reveal its relevance.