Islamic Banking Industry Research Articles

Exploring encounters and prodigies of Islamic banks in non-Muslim states: towards enhancing regulatory frameworks of Islamic banking system

Purpose The primary aim of this study is to explore challenges and prospects of Islamic banking system in non-Muslim states to foster regulatory frameworks of the system. Design/methodology/approach Content analysis as an integral part of qualitative research was used. Secondary data through the exploration of cursory literature was taken into consideration. Findings The findings identified three prime challenges, namely, regulatory, operational and institutional, which are impeding the smooth activities and performances of Islamic banks in using innovative Islamic products and services that can favourably compete with products and services of conventional banking system in non-Muslim states. In addition, strengthening the adoption and performance of Islamic banking in non-Muslim states can efficiently and effectively address the identified and multifarious regulatory, operational and institutional challenges to achieve financial inclusion and overall economic growth. Research limitations/implications Challenges encountered and prodigies or potentials of operating Islamic banking system by most of non-Muslim countries remains a pivotal aspect that needs research attention in the recent. Practical implications Nonetheless, the limitation of this study is that the study relies on the use of secondary data. However, it has provided a substantial direction for future studies in empirically exploring the variables of this study. Social implications Indeed, 19th century was a remarkable turning point in the development and expansion of Islamic banking system in the Muslim world. Many predominant Muslim countries such as Malaysia, Indonesia, Saudi Arabia, Bangladesh, Pakistan, among others have been efficiently and effectively operating Islamic banking system within the framework of Islamic legal provisions. Many non-Muslim countries such as Australia, the UK, USA, etc., have also adopted Islamic banking system. Originality/value It is noted that policy directions of the study among others should address the regulatory frameworks that is Shari’ah-compliant in the operation of Islamic banking system in non-Muslim states. It is therefore suggested that the policymakers, Islamic financial experts and regulators should use the innovation that could bring competitiveness into the operation of Islamic banking system in non-Muslim states.

Pengaruh Literasi Keuangan Syariah, Islamic Branding Terhadap Minat Menjadi Nasabah Bank

The banking sector currently dominates the economic growth of many countries, both developed and developing. Increased industrial growth has also occurred in the Indonesian Islamic banking industry. This study aimed to examine the effect of Islamic financial literacy and Islamic branding on the interest in becoming a customer of Bank Mega Syariah KC Mataram. This research applied a quantitative method with regression analysis. The sampling technique used was purposive sampling, with 55 respondents who were registered customers at Bank Syariah Indonesia. Data were analyzed using multiple linear regression with the SPSS 25 program. The analysis results showed that Islamic financial literacy and Islamic branding partially influenced the interest in becoming a customer at Bank Mega Syariah KC Mataram. The study found an R² value of 0.876 (87.6%), indicating that the interest in becoming a customer is influenced by Islamic financial literacy and Islamic branding by 87.6%, with the remaining 12.4% influenced by other factors outside this study.

Analysis of Opportunities and Challenges of Blockchain Technology in the Islamic Banking Industry (Case Study on the Use of Smart Contracts)

Purpose: This research concludes that, with a strategic and collaborative approach, blockchain technology can be an effective tool for transforming the Islamic banking industry. Methodology: This study uses qualitative methods with literature analysis from 19 journals, one book, and three websites to explore how this technology can be applied in risk management, asset tracking, and interbank transactions. Results: The research results reveal that this technology can reduce fraud, manipulation, and cyberattacks, as well as increase customer and sharia authority trust through transaction transparency. However, there are major challenges to overcome, such as immature regulatory aspects, the need for a strong infrastructure, and a lack of understanding of this technology among customers. This study also emphasizes the importance of collaboration between Islamic banking, regulators, and other stakeholders to maximize the potential of blockchain technology. Limitations: Case studies on the use of smart contracts in the Sharia banking industry show that this technology can increase efficiency and Sharia compliance, reduce administration costs, and simplify transactions. Contribution: This study describes the role of blockchain in the sukuk issuance process. Blockchain technology, which is known for its decentralization, transparency, and security characteristics, has great potential to increase efficiency and transparency in Sharia banking operations.

Digitalization of Islamic Banking in Indonesia: Justification and Compliance to Sharia Principles

Technological sophistication is observed to be increasing the necessity for digitalization of Islamic banks in Indonesia to avoid being abandoned by their customers, as conventional banks rapidly advance their digital offerings and set higher expectations for financial services. However, these banks are required to comply with Sharia principles for their products and services. This study was conducted to analyze the justification of digitalization of Islamic banking system and compliance of the digital services implemented to Sharia principles. It employed doctrinal legal study methods. Data were retrieved from literature references and were analysed qualitatively using a conceptual and statutory approach. The results showed several reasons to justify digitalization of Islamic banking system and these include the current demand for digital products and services, the prevalence of the millennial generation, and the legal backing provided for the advancement in Indonesia. These principles mandate that Islamic banks must avoid practices involving maisir (gambling), gharar (obscurity), haram (prohibited activities), riba (usury), and zalim (injustice). This study is novel in its comprehensive analysis of how digitalization can be harmonized with Sharia principles in the Indonesian context, providing a unique legal and practical framework for Islamic banks aiming to modernize their services while maintaining religious compliance.

Factors affecting SMEs’ choice of banks in Oman: an emphasis on Islamic banks

Purpose Commercial banks are the catalysts for meeting the financing needs of small and medium enterprises (SMEs). However, not all commercial banks are equally attractive to SMEs because of differences in banking services’ key attributes. Moreover, customers’ preferences vary between Islamic and conventional banks. This paper aims to identify factors motivating SMEs to establish business ties with banks in Oman. Design/methodology/approach The authors collected data from 217 SMEs through a questionnaire survey. The data were analyzed using a t-test and structural equation modeling (SEM). In addition, the research applies the theory of planned behavior as a theoretical framework. Findings The t-test results show that SMEs place greater emphasis on electronic banking, convenient locations, religious beliefs and favorable terms and conditions. The results from the SEM analysis show that the SMEs in Oman consider attractive packages, including favorable rates, transaction processing time, fees and the availability of technology-enabled services, when choosing a bank. Moreover, customers who are aware of Islamic banking products are optimistic about the future of Shariah-based banking. Originality/value As a Muslim-majority country, Oman lags behind its Gulf Cooperative Council peers in terms of the development of the Islamic banking system. For the success of this mode of financing, it is essential to know which factors SMEs prioritize to establish ties with Islamic banks. Hence, the research is expected to provide new information for bank management to devise financial products attractive to investors.

Profit-loss sharing principle in the Islamic finance industry: Current pattern and future direction

The Islamic banking and finance industry is founded on Islamic principles, with one of its main concepts being Profit-Loss Sharing (PLS). The rapid growth of the industry has led to extensive research on PLS. This study aims to capture the dynamic research landscape on PLS by examining the intellectual network, including the most influential scholars, countries, articles, publishing journals, and frequently discussed topics, as well as suggesting future research directions. We use bibliometric analysis to explore this topic, drawing data from the Scopus database. A total of 421 documents from 1992-2022 were analyzed. The study finds that Malaysia is the most productive country, Kabir Hassan is the most influential scholar, and the Journal of Islamic Accounting is the leading journal in the field. Four main topics are identified: the general theme of PLS, the implementation of PLS in different countries, PLS products, and governance and risk related to PLS. Future research is recommended based on these four topics.

Analysis of Factors Influencing Customers' Decision to Choose Wadiah Savings Products

This study aims to analyze product knowledge, benefit perception, promotion, and motivation factors as factors in customers' decision to choose wadiah savings products at Sharia Banks. The background of this research is the growth of the Islamic banking industry in Indonesia, which is predicted to be higher than conventional banks, driven by product and service innovation in accordance with Islamic law. This study uses a quantitative approach with confirmatory factor analysis (CFA) techniques. Research data was collected through a questionnaire with a probability sampling method using a simple random sampling technique. The results of the study show that promotional factors, product knowledge, and benefit perception are factors in customer decisions in choosing wadiah savings products. The motivation factor is not a factor in the customer's decision to choose a wadiah savings product. This research provides insight into the importance of proper promotion, in-depth product knowledge, and clear benefit perception in attracting customers to choose wadiah savings products at Sharia Banks

Perceptions of politics and knowledge sharing: Moderating role of Islamic work ethic in the Islamic banking industry of Pakistan

Knowledge is the most critical source for sustainable competitive advantage in an organization. Organizations must therefore focus on creating a culture for Knowledge Sharing. However, politics or political work environment is an inevitable outcome where people interact and communicate on a daily basis. Politics discourage Knowledge Sharing and its related efforts in the organization. However, Islamic Work Ethic can remove negativity and strengthen Knowledge Sharing behaviors in the organization. This research focused on the moderating role of Islamic Work Ethic between Perceptions of Politics and Knowledge Sharing behaviors.The data was gathered using a structured questionnaire from the Banking Industry in Karachi, Pakistan using unrestricted non-probability convenience sampling technique. Hypotheses was tested using Structural Equation Modelling in SMART-PLS software. It was found that Perceptions of Politics reduces Knowledge Sharing Behaviors while Islamic Work Ethic Increase Knowledge Sharing Behaviors. Islamic Work Ethic moderates the relationship between Perceptions of Politics and Knowledge Sharing Behaviors. Employees religious orientations affect their work-related outcomes and behaviors. Islamic Banks have been mostly neglected as they have recently emerged as an important part of the economy therefore this study contributes to the literature by collaborating Islamic Work Ethic, Perceptions of Politics and Knowledge Sharing.

A study of Islamic banking and finance for interest-free investors: A bibliometric analysis

Islamic banking is one of the fastest-growing sectors of the financial industry. Several works have been written in this field, but none attempt to learn the entire Islamic banking and financial system. Furthermore, the study could not locate any publications investigating the conceptual and intellectual foundations of this emerging field of inquiry. The current study uses bibliometric methodologies to assess the current state of Islamic banking, financial research, and the upcoming trends. For the people who choose interest-free investments, the current research examines a conceptual research context on Islamic banking and finance at various planning and decision-making stages. One thousand research studies appearing in scholarly journals between 2005 and 2023 were reviewed for the purpose. In order to examine the works on Islamic banking and finance, bibliometric techniques were used, including analysis of citation network, content, co-citation, keyword, and publishing trends. By suggesting thirteen clusters, to enhance research on Islamic banking and finance to help interest-free investors learn more, the goal of the research is to promote the body of knowledge. The field of Islamic banking and finance has grown from a young lot to a prominent teaching and research tool. Investigating and identifying current research trends in this area is crucial. As institutions and society are placing more emphasis on Islamic banking to raise individual citizens’ responsibilities in developing interest-free investing strategies, the findings are crucial to the community of interest-free financiers. Further research urges with the studies not restricted to a thousand researches only.

Analysis of Legal Aspects of The Murabahah Agreement In Islamic Banking

Islamic Banking According to Law Number 21 of 2008 concerning Islamic Banking, specifically Article 1 number 7, Islamic Banks are banks that carry out their business activities based on Islamic principles and by their nature, consisting of Islamic Commercial Banks and Islamic Commercial Banks. Islamic People's Financing. In general, Islamic banks are banks whose operational activities are based on Islamic law, or banks that base their operational activities on interpreting the Qur'an and Hadith as the basis for Islamic law. It is stated that according to Law Number 21 of 2008 concerning Islamic Banking, in Article 1 number 12, the basis of Islamic faith for bank operations is a fatwa issued by an institution authorized to issue fatwas in the field of Islamic banking. The National Sharia Council confirms that murabahah sales and purchase transactions, whether in cash or installments, with the terms and conditions being met, are financed under a murabahah contract at a Sharia bank in terms of determining profits by Sharia principles. In the Islamic banking system, there is always a need for collateral or a loan prepared with the understanding that every debtor must adhere to Islamic law, as previously explained to parents. Islamic banking allows customers to be more cooperative when purchasing goods on credit or cash.

The failure mode and effect analysis of Islamic banking product marketing in Indonesia

Purpose This study aims to use a risk management approach to analyze the factors influencing the marketing failure of Islamic banking products in Indonesia. Design/methodology/approach Data were collected from respondents to be involved in the risk assessment of failure based on the criteria of severity score, likelihood of occurrence and detection ability of employees. The dominant factors were grouped into the number of new customers and transaction value categories. The failure mode and effect analysis (FMEA) method was used to identify the highest risk dominant factors. Findings The study results show critical factors and prioritized for immediate improvement. The number of new customers can be identified based on the following factors: occupation of prospective customers; income level of prospective customers; the lifestyle of the prospective customer. Transaction value can be identified based on the following factors: total balance; the level of convenience in transactions; turnover of funds; profitability; and risk management. Practical implications The Islamic banking industry in Indonesia needs to consider the importance of suitability: target market with the products offered, considering the income level of customers with suitable products, the level of profit sharing expected by consumers, improving customer education about Islamic banking products, the capabilities of financing staff and staff capabilities on risk management in Islamic banking products and services. Originality/value To the best of the author’s knowledge, this research is the first to apply FMEA in analysing marketing failures of Islamic banking products and services.

Interconnectedness between Islamic and conventional banks: a multilayer network view

PurposeThis study aims to examine information (stock return, volatility and extreme risk) spillovers and interconnectedness within dual-banking systems.Design/methodology/approachUsing multilayer information spillover networks, this paper conduct a deep analysis of contagion dynamics among 24 Islamic and 46 conventional banks from 2006 to 2022.FindingsThe findings show the network’s rapid response to financial shocks. Through cross-sector analysis, this paper identify information spillovers between and within Islamic and conventional banking systems. Furthermore, this research illustrates distinct roles played by Islamic and conventional banks within the multilayer network structure, contingent upon the nature of the financial shock.Practical implicationsUnderstanding the differential roles of Islamic and conventional banks in information transmission can aid policymakers and financial institutions in devising more effective risk management strategies, thereby enhancing financial stability within dual-banking systems.Originality/valueThis study contributes to the literature by emphasizing the necessity of examining contagion mechanisms beyond traditional single-layer network structures, shedding light on the shadow dynamics of information transmission in dual-banking systems.

Sustainability of Islamic Banking in the Midst of Global Economy: Case Study in Indonesia

Sharia banking is a bank whose activities refer to Islamic law and in its activities neither charges interest nor pays interest to customers. Sharia bank rewards received or paid to customers depend on the contracts and agreements entered into by the customer and the bank. Agreements (contracts) contained in sharia banking must comply with the terms and pillars of the contract as regulated in Islamic sharia. Over the last decade, the Islamic banking industry has developed very rapidly, not only the number of Sharia Commercial Banks (BUS) but also their assets have increased several times to hundreds of trillions. Seeing the current phenomenon of sharia banking is the author's interest in carrying out research. This research approach uses a descriptive approach, namely by obtaining data collection and data analysis aimed at creating systematic, current and accurate descriptions, depictions of the facts, as well as the relationships between the phenomena being investigated. The types and sources of data are quantitative data and secondary data taken from company reports. The results obtained are that Bank Syariah Indonesia is included in the very rapid development category. This is proven every year that he is able to achieve good goals and development. This shows that the public's response to trusting Indonesian Sharia banks is very good. And able to balance the challenges and opportunities in this current of globalization.

Examining the Integration of Legal and Shariah Principles In the London Metal Exchange

Purpose: The Islamic banking system is recognized for its role in promoting the equal distribution of resources and its emphasis on risk management. This research paper explores the rulings of the London Metal Exchange (LME) within the framework of Islamic law. The main objective is to investigate the involvement and impact of Islamic banking in LME contracts. Methods: The study utilizes both primary data, obtained through interviews with Islamic banks and LME management, and secondary data from previous research. Results: The findings highlight the significant role of Islamic banks in facilitating LME contracts, with Murabaha, Tawarruq, Istisna, Salam, and Kafala identified as the most commonly used instruments in the GCC regions. However, Islamic banks also face challenges, including criticism from Muslim scholars regarding certain practices. Conclusion: Despite these challenges, there are several opportunities for Islamic banks to contribute to the further development of the Islamic financial system. By addressing concerns, increasing awareness, and adhering to Islamic principles, Islamic banks can play a pivotal role in shaping the future of the financial industry.

Regulation and Practice of Salam and Istishna Contracts in The Islamic Banking System in Indonesia

This study analyzes the regulation and practice of akad salam and istishna in the Sharia banking system in Indonesia. By paying attention to the existing regulatory framework, this article examines the practical implementation of akad salam and istishna by Sharia banks in Indonesia as well as the challenges faced in the application of the contract. The results of the analysis highlight the importance of a deep understanding of sharia principles in the development of appropriate sharia banking products and services. Keywords: Akad Salam, Istishna, Sharia Banking, Regulation, Practice.

Corruption, Funding Structure and Bank Lending of Dual Banking System

The main objective of this paper is to examine the interaction effect of political turmoil on the relationship between funding structure and bank lending behaviour of Islamic (IBs) and Conventional banks (CBs). Political turmoil is measured by corruption (CPI) and election year (ELY) while the funding structure is measured by Total Customer Deposits (TCD) and Total Bank Deposits (TBD). We conducted a panel analysis of Islamic and conventional banks to ascertain whether the funding structure of Islamic banks can sustain financing supply and whether its growth is higher than conventional bank lending growth in times of political turmoil. Using the matched-pair technique, this study utilizes a panel sample of 58 Islamic banks and 58 conventional banks from 18 dual-banking countries from 2006 to 2017. The generalised Method of Moments (GMM) is used to deal with the endogeneity and heterogeneity issues. We observed that corruption and elections affect the amount of lending/financing given to IBs and CBs. The study found that TCD hinders the growth of credit supply for both IBs and CBs during elections. Nevertheless, TBD did not have any influence on bank lending. The study on interaction reveals that political turmoil has affected the relationship between funding structure and bank lending for Islamic and conventional banks. These findings contribute to supporting the Islamic banking system's involvement in financial and economic stability. This suggests that corruption is influencing the funding structure within the banking system, which in turn affects the availability of credit from banks. Future research could investigate whether the governance by the bank’s management leads to credit supply efficiency.

Impacts of climate for change, process of change and openness towards change on employees’ readiness to transform conventional banking into Islamic banking system in Libya

Purpose This study aims to investigate the determinants of employees’ readiness to adapt to the change from the conventional banking system to the Islamic banking system in Libya. The determinants identified by this research include supervisors’ support, trust in leadership, participatory management, employees’ involvement in the change, the attitude of top management towards the change, openness towards the change and nature of change. Design/methodology/approach The study adopted a quantitative approach by using a self-administered questionnaire survey where a total of 482 sets of questionnaires were distributed manually of which 316 completed questionnaires were found to be usable. The structural equation modelling techniques were used to test and validate the proposed model. Findings Statistically, the study found that supervisor support, employees’ involvement in the change process and openness towards change showed significant relationships on employees’ readiness to perform their jobs in Libyan banks where the conventional financial system had been changed to the Islamic banking system. However, on the contrary, trust in leadership, participatory management and the attitude of top management towards the change process were found to have no significant relationship towards employees’ readiness. In addition, a significant moderation effect of the nature of change has been found on the relationship between openness to change and employees’ readiness for change. Practical implications Determinants of employees’ readiness for the transformation process identified in the present study can be used in assessing the employees’ readiness before implementing any change. In fact, openness and willingness towards change were found to be significant factors in employees’ readiness in the transformation process. Therefore, banks can use this information as one of the important criteria in recruiting employees. Open-minded and receptive attitudes towards change could be the quality of employees that banks should look for. Originality/value Overall, this study can be considered as novel because its findings will prompt other researchers to conduct and expand similar research in this field. Specifically, the findings of this research could facilitate the Central Bank of Libya in identifying their readiness gaps and organisational obstacles that stalled the move of conventional banks in Libya to migrate into the Islamic banking system.

Market Dominance in Indonesia’s Islamic Banking: Critical Analysis From an Industrial Organisation Perspective

The merger of Bank Syariah Indonesia (BSI) has resulted in the formation of a substantial Islamic bank capable of effectively competing with large conventional banks. Despite this, concerns have been raised that BSI might eliminate smaller Islamic banks. This study aims to critically analyze the characteristics of market dominance in Indonesia's Islamic banking industry before and after the merger of BSI from an industrial organization perspective. We utilized several indicators, including the Concentration Ratio (CR), Herfindahl–Hirschman Index (HHI), and Melnik ratio. The findings strongly indicate market dominance in the Islamic banking industry following the BSI merger. However, we argue that the market dominance achieved by BSI fosters a positive environment by reducing fragmentation within the industry. This merger has also prompted other conventional banks to optimize their support for Islamic banks. Additionally, BSI has the potential to drive the Islamic banking industry forward. Therefore, the BSI merger represents a viable option for the government to support the development of the Islamic banking sector, while competition within the industry remains dynamic. Based on our findings, we recommend that State-Owned Banks provide further support for the development of BSI, and that other conventional banks optimize their support for Islamic banks.

Growth Acceleration Strategy Sharia Regional Development Banks (BPD) In Indonesia

This study aims to formulate the core problem by choosing what is the best strategic alternative that can be taken by Islamic business units to accelerate the growth of the Islamic banking industry. By exploring aspects of internal and external problems. Then the solution from internal and external of various acceleration strategies based on expert opinion related to the phenomenon of the researcher's problem. This research methodology is descriptive qualitative with a quantitative approach and research using ANP (Analytic Network Process) analysis tools. In this study using experts totaling 5 people consisting of academics, practitioners and regulatory experts. The results of this study indicate that: 1). There are two main problems, namely external and internal problems. The most prioritized problem in determining the acceleration strategy is the external problem with an average combined value of 53%, while for the W (Rater Agreement) value of all respondents is 0.36. The most prioritized external problem is the problem of local government support with an average value of 35% with a Rater Agreement of all respondents of 0.64, while the priority problem in internal problems is the problem of capital. 2) for the most prioritized solution, namely the external solution with a combined average value of 54%, while for the W (Rater Agreement) value of all respondents is 1. In the most prioritized external solution, namely local government support, the W (Rater Agreement) value is 0.84. With an average value of 35%. 3. The most prioritized strategy is conversion with an average value of 26%, while for the marger, spin off and acquisition strategies it is around 25%, with a W (Rater Agreement) value of 0.46, meaning that the answers of the respondents have moderate agreement.

Utilization of Islamic Financial Instruments for Poverty Reduction and Sustainable Households in Nigeria

Predominant poverty has affected many households in Nigeria and little focus of attention is given to the utilization of Islamic financial instruments in addressing the challenges of poverty and sustainable household in the country. The study attempts to fill the gap in the existing literature concerning the utilization of Islamic financial instruments for poverty reduction and sustainable households in the country. Qualitative research method with an emphasis on critical content analysis was utilized. Materials or different sources were used whereby journals, online peer review, and library sources were considered for in-depth analysis of Islamic financial instruments for poverty reduction and sustainable households in attaining vision 2030 in the country. Adequate implementations of various Islamic financial instruments that would create room for inclusion through which low-income families or families in poverty would experience sustainable standard of living through an efficient Islamic financial instrument for their empowerment. Hence, it will expand the scope and understanding of Islamic financial instruments in the context of Nigeria. In so doing, there would be basis for restructuring the economic conditions of households experiencing an abject poverty by ensuring that their living conditions are improved for better. An emphasis on the judicious utilization of Islamic financial instruments especially towards sustainable households in the country is an integral part of expanding the understanding about the efficiency of Islamic financial instruments in the society. Central bank of Nigeria has issued a drafted framework for application of Islamic financial instruments and operation of Islamic banking system and less attention is given to the application of Islamic financial instruments in the country. This paper therefore has tried to provide explanation for the application of utilizing Islamic financial instruments for poverty reduction and sustainable households in the country.