Islamic Banks In Malaysia Research Articles

A Comparative Analysis on Islamic Bank Performance and Efficiency Risk: Pre and Post IFSA 2013

It is recognized that performance of the banking industry has an impact to the economic growth of a developed economies. The performance of the bank may impact the growth of the economy, as profits may shape the customers’ decision on investments and savings. Regulation affecting the design of banking governance structure; hence, it plays a vital role in determination of banking industry performance. IFSA 2013 was established to promote financial stability and compliance to Shariah and further strengthen the regulation of Islamic financial institutions. This paper aims to examine whether IFSA 2013, bank’s risk-taking behavior and efficiency will enhance or impede performance of Islamic banks in Malaysia.

A Cross-Country Analysis of Islamic Bank’s Performance in Malaysia and Indonesia

This study aims to examine the financial performance of Islamic banks in Indonesia and Malaysia, with a specific focus on optimizing shareholder value. The assessment includes efficiency, market share, interest rates, inflation and economic growth as crucial criteria in comprehending the success of Islamic banks in each country. The secondary data is derived from the annual reports of 25 Islamic banks in Indonesia and Malaysia, with a focus on characteristics pertaining to operational efficiency and market share. Furthermore, data is obtained from Bank Indonesia (BI) to gather statistics regarding inflation, interest rates, and GDP growth from the years 2018 to 2021. The study used panel data regression with a random effects model as the most accurate estimator. The results of the panel data regression analysis suggest that inflation has a favorable effect on return on equity (ROE), while GDP growth has a beneficial impact on return on assets (ROA). This research highlights the importance of enhancing inflation risk management and making strategic adaptations to the business plans of Islamic banks in Malaysia and Indonesia. This research enhances the scholarly comprehension of the variables affecting the efficiency of Islamic banks in diverse economic conditions.

THE APPLICATION OF PROMISE (WA‘D) IN ISLAMIC BANKING CONTRACTS IN MALAYSIA: A MASLAHAH PERSPECTIVE

The concept of promise in Islamic banking contracts is a novel tool that has been introduced as a result of recent advancements. Wa’d has grown in popularity in recent years because it provides great flexibility. It was primarily developed by Malaysia’s Islamic banks for product structuring. However, there are issues arising from this principle, which is considered to be against Shariah and merely intended to preserve the bank’s interests, which is of course, contrary to Maqasid al-Shariah. The purpose of this study is to look into the significance of the promise concept in Islamic banking contracts, taking into account the maslahah and mafsadah principles recommended in Maqasid al- Shariah. The study uses a qualitative approach as it allows a more in-depth understanding of the subject matter. Data were gathered using published literature and information from the official website of Bank Negara Malaysia (BNM). A semi-structured interview was conducted with three Shariah experts from the Shariah Advisory Council of Bank Negara Malaysia (SACBNM) and two industry practitioners from Bank Islam Malaysia Berhad (BIMB) and Maybank Islamic Berhad (MIB). The data obtained was analysed using the content analysis approach. In sum, the examination of Islamic law sources and discussions with Islamic scholars revealed that the use of the principle of promise in Islamic banking transactions can benefit the micro and macro economy. The concept of promise in Islamic banking contracts can benefit both customers and Islamic banks, particularly in terms ofmeeting consumer needs, generating profit for Islamic banks, as well as contributing to the country’s development (maqasid kulliyah).

Push – pull – mooring determinants of non-Muslims’ withdrawal from Islamic banking: evidence from Malaysia

PurposeThis study aims to attempt to investigate the factors that influence non-Muslims’ withdrawal behavioural intention from Islamic banking in Malaysia.Design/methodology/approachThe push–pull–mooring approach is used to examine the determinants of withdrawal intention by non-Muslims from Islamic banking in Malaysia. Variables used in this study include religiosity (RELG) under push, deposit guarantee (DG), rate of return (RR), Islamic banks’ specific factors (IBSF) under pull and mooring factors as social influence (SI) and voluntary switching (VS) as the determinants of withdrawal intention from Islamic banking. In this study, the SPSS Statistics Version 22 and smart partial least squares were used to measure the withdrawal level.FindingsThree variables, namely, SI, RR and IBSF are found to significantly influence the withdrawal behaviour intention. Meanwhile, three other variables, namely, RELG, DG and VS are not significant.Practical implicationsThis study provides valuable insights pertaining to non-Muslim consumer withdrawal behaviour from Islamic banks. Bank managers, marketers and regulators could use these findings in developing effective strategies to increase and retain customer withdrawal.Originality/valueThis study expands the understanding of key determinants of the non-Muslim withdrawal behaviour from Islamic banks in Malaysia. To the best of the authors’ knowledge, this research is among the pioneer empirical study to assess the issue.

The connection between robust legal instruments and the exceptional performance of the Islamic banking industry

This study investigates the pivotal role of robust legal instruments in driving the outstanding performance of Malaysia’s Islamic banking industry. Our primary objective is to discern the correlation between the regulatory framework’s legal strength and the industry’s achievements. To achieve this, we embark on a comprehensive exploration of the historical progression of Islamic banking in Malaysia. We scrutinize the dynamics and milestones that have shaped the industry, with particular emphasis on its impressive growth. We then delve into the development of the regulatory frameworks, analyzing how the availability of strong legal instruments has contributed to the sector’s triumph. This study finding the presence of robust legal instruments has been a catalyst for the ascension of Malaysia’s Islamic banking industry. Coupled with accommodating regulations and responsive regulatory institutions, these legal foundations have underpinned the sector’s remarkable success. This study underscores the critical importance of having sufficient legal instruments to nurture the Islamic banking industry. We recommend that governments aspiring to bolster Islamic banking’s performance consider the provision of such legal frameworks. Consequently, this research carries significant implications for policymakers and industry stakeholders alike, offering insights into the essential ingredients for fostering a thriving Islamic banking sector.

Debt-based financing: a case study of Malaysian Islamic banks

Debt-based financing: a case study of Malaysian Islamic banks

Sustainability Assessment of Malaysian Islamic Banks An Application of Content Analysis and TOPSIS

The awareness and demand for sustainable development are getting more assertive and measuring sustainability is a complex undertaking. The study has examined the current state of sustainability practices in Malaysian Islamic Banks (IBs). The study has employed a combination of three methods for sustainability measurement, including Content analysis, Simos, and TOPSIS. The sustainability assessment of Malaysian IBs over the ten years (2010-2019) revealed an increased reporting trend on the sustainability dimensions. Malaysian IBs report almost equally on all sustainability dimensions and have comprehensively documented environmental and social dimensions. Islamic banking sustainability studies are mostly conceptual and without empirical analysis. The study has measured the sustainability practices of IBs. and developed a ranking using TOPSIS identifying the benchmarks within the industry.

The Shariah Committee’s Perspective on the Disclosure of Islamic Financial transaction in Malaysian Islamic Banks’ Financial Statements

The Shariah Committee’s Perspective on the Disclosure of Islamic Financial transaction in Malaysian Islamic Banks’ Financial Statements

Sustainable Finance: A study On Malaysia’s Regulatory Framework On Sustainable Banking And Its Implementation By Selected Islamic Banks In Malaysia In Support Of Sustainable Development Goals.

In 2018, Bank Negara Malaysia (BNM), the central bank of Malaysia issued the Strategy Paper on Value-based Intermediation (VBI). VBI aims to deliver the intended outcomes of Shariah through practices, conduct and offerings by Islamic financial institutions (IFI)s that generate positive and sustainable impact to the economy, community, and environment. To assist IFIs to translate VBI into real banking practices and offerings BNM also issued guidance documents, one of which is the guidance document on Value-based Intermediation Financing and Investment Impact Assessment Framework (VBIAF). BNM has also issued the Climate Change and Principle-based Taxonomy (CCPT) which specifically addresses climate change. This article examines the VBI, VBIAF and the CCPT and investigates the adoption of the VBI, VBIAF and CCPT by three Islamic banks (IB)s in Malaysia. It aims to provide an understanding of the regulatory frameworks and how the adoption of the frameworks has influenced the offerings, practices, and operations of these banks towards the triple bottom line approach in support of sustainable development goals. From the study it is found that the IBs have initiated the implementation of an impact-based risk assessment and management consistent with the VBIAF and assessment of climate risk based on the CCPT, however these are still at the preliminary stages for the IBs. Nonetheless, what is encouraging is that all the three IBs have implemented various VBI-related initiatives in line with the underpinning thrusts of VBI. This paper illustrates how these various VBI-related initiatives by the IBs have assisted the banks in supporting sustainable development.

IS ISLAMIC BANKING PERFORMANCE IN MALAYSIA TRULY BETTER THAN INDONESIA?

This article analyzes the performance of Islamic banking in Malaysia and Indonesia using a comprehensive evaluation framework. Malaysia is known for its leading role in Islamic finance, while Indonesia has faced criticism for slower growth. The study argues that assessing Islamic banking performance solely based on financial metrics is insufficient and proposes a broader framework based on the Maqasid Shariah (objectives of Islamic law) for a more objective standard. Using data from 2010 to 2019, the study constructs a Maqasid Shariah Index of Islamic Bank (MSI-iB) and adopts a T-test as well as a panel data model to evaluate their performance. The index includes five sub-indices representing different aspects of the Maqasid Shariah framework. Results show varied scores among Islamic banks in both countries with no statistical difference between the two countries, but with Indonesia leading in religiosity and intellectuality dimensions and Malaysia leading in the posterity dimension. These results challenge the perception that Malaysia's Islamic banking performance is inherently superior to Indonesia's based solely on financial metrics. Considering the Maqasid Shariah framework is crucial to evaluating Islamic banking performance, highlighting the significance of non-financial indicators. The study concludes that a comprehensive perspective is necessary, incorporating both financial and non-financial factors, to assess overall performance.

Do Indonesia Islamic Banks Perform Better Than Malaysia? A Malmquist Index Approach

This study aims to measure the productivity of Islamic banks in Indonesia and Malaysia using the Malmquist Productivity Index (MPI) method with the research period 2010-2019. The research objects used are 23 Islamic banks in Indonesia and Malaysia. The data of this study comes from the annual financial statements of each bank from the period 2010-2019. The input variables in this study are employee costs, administrative costs and third-party funds. And for the output variable is financing and operating income. The results of this study explain that during the period 2010-2019, the productivity level of Islamic banks in Indonesia and Malaysia has a fluctuating trend from year to year. Based on the average TFPCH score, it is concluded that the productivity of Islamic banks shows no increase in productivity or constant and technological change has not contributed optimally to the increase in productivity of Islamic banks in Indonesia and Malaysia. Furthermore, analyzing individually on Islamic Banks in Indonesia and Malaysia, it is found that there are 8 Islamic Banks with increased productivity, one Islamic bank in Malaysia and seven Islamic banks in Indonesia. The results also highlighted that the productivity level of Islamic banks in Indonesia is relatively better than Islamic banks in Malaysia. Then, the Malmquist Index quadrant analysis found that Islamic Banks in Indonesia and Malaysia dominate in quadrant 3 with a total of 12 Islamic Banks, followed by quadrant 4 with a total of 7 Islamic banks, and quadrant 1 with a total of 4 Islamic banks.

Sharia boards, managerial strategies and governance practices in Islamic banks: a Goffmanesque discourse

PurposeThe study applies Erving Goffman's (1974) “frame analysis” principles to examine how Sharia governance is practiced in Islamic banks and explores the interaction and strategies adopted by bank managers to influence the decisions of Sharia scholars. The study also aims to identify inherent flaws in the Sharia compliance review system.Design/methodology/approachThe study employs the principles of Goffman as a lens to critically analyse a rich dataset obtained through interviews undertaken with 46 key players operating in the governance framework of the Malaysian Islamic banking industry due to its progressive Islamic governance framework.FindingsThe study demonstrates that managers of Islamic banks may engage in “passing” and “covering” strategies while interacting within the governance structure. Concurrently, Sharia boards (SBs) implement “protective practices” during their interactions, adding complexity to their responsibilities within the banks. Consequently, SBs cannot merely be viewed as instruments for legitimising banking operations. This raises questions about the “impression management,” “concealment” and “competence” strategies employed by managers and SB members, as suggested by Goffman's framework. These findings indicate that there is room for further enhancement in the governance practices of Islamic banks.Research limitations/implicationsFuture research could explore aspects related to the governance of Islamic banks, such as investigating the independence and effectiveness of internal Sharia officers. Examining the strategies employed during their interactions with external Sharia boards and other stakeholders could provide further valuable insights.Practical implicationsBy highlighting shortcomings in the governance and compliance review process, the findings could serve as a valuable resource for policymakers. The insights derived could inform the development of regulations aimed at reducing opportunistic behaviour and promoting accountability in the Islamic banking sector.Originality/valueThis study uniquely employs Goffman's concepts of “frontstage” and “backstage” strategies to offer insights into the interactions between Islamic bank managers and SBs and the impact of these interactions on Sharia compliance. The study contributes to the understanding of the dynamics between key players in the governance of Islamic banks and the factors influencing their adherence to Sharia principles.

Social Reporting of Islamic Banks in Malaysia: 3 Stages Approach.

This study examines the social disclosure by Islamic banks in Malaysia. The study explores the commitment of Islamic banks towards wider stakeholders in 7 dimensions (Shariah/Social Internal/Social External/ Environmental/Shariah Governance/Governance/Ethic) SEGE. The approach taken uses an in-depth 3-Stages content analysis (3-level Score disclosure) of 18 Malaysian Islamic banks’ annual reports for a period of 5 years (2010-2014). This ‘triple method’ was made possible using a special design manual sheet (Quality Score & Volume). The top 5 performing Islamic banks in disclosure quality were dominated by Malaysian Islamic banks. Furthermore, the top 10 performing Islamic banks ranking in disclosure movement from ordinary (index) to quality (3-level score) were much steadier in Malaysia. In addition, religiosity and regulatory quality seem to have influenced SEGE disclosure. In short, the Islamic banks that operate in environments with supportive governing bodies, collaborative institutions, sustainable talent management systems and moderate values tend to perform comparatively better in their SEGE disclosure. This research may draw attention to regulators and non-governmental organisations to produce a set of SEGE disclosure standards for Islamic financial institutions. Furthermore, this research might help managers, Board of Directors, and Shariah Supervisory Boards to have a greater view on the role of Islamic banks in social reporting initiatives. The study fills gaps in Islamic accounting literature by having an in-depth examination of the Malaysian model of Islamic banking.

The influence of shariah committee mechanisms on audit report delay: Before and during the COVID-19 crisis

This paper examines the relationship between Shariah committee mechanisms and audit report lag. Specifically, this study examines the relationship between the Shariah committee size, independence, frequency of meetings, and expertise. Furthermore, this study investigates the severe impacts of the COVID-19 crisis on the audit report lag. The panel data analysis analyses the relationship between Shariah committee mechanisms and the audit report lag of Malaysian Islamic banks from 2011 to 2021. The present study discovered that a majority of Islamic banks in Malaysia require a duration of 74 days to complete the issuance of independent auditor reports. The findings of the analysis suggest that there exists a negative correlation between the size of the Shariah committee, the frequency of meetings, and the level of knowledge, and the audit report lag. Furthermore, the investigation has also determined that the COVID-19 situation has had a significant impact on the postponement of audit reports. This study helps guide the policymakers in overseeing violation of the submission guidelines. It also presents the literature on audit report delay and Shariah mechanisms. The efficiency of the Shariah committee mechanisms is examined in this research as an extension of the use of agency theory. It helps to comprehend concerns with the Shariah committee mechanism in Malaysian Islamic banks. Then, this study provides evidence during the COVID-19 crisis and how to deal with a similar situation in the future. Additionally, it helps auditors and top management to better understand the good Shariah committee mechanism and audit report lag in planning audit engagements.

THE DISCLOSURE PRACTICES ON MAQASID SHARIAH OBJECTIVES AMONG MALAYSIAN ISLAMIC BANKS USING FUZZY TOPSIS ASSESSMENT

Background and Purpose: Maqasid Shariah ratio is operationalized based on Maqasid Shariah objectives. Shariah fraternity, such as scholars, investors, and customers, is still assessing how the business, specifically the financial institutions, delivers Maqasid Shariah's objectives according to their business goals. Thus, this becomes a genuine concern for society, especially the users of the financial information and shariah financing or investing customers, depositors, or borrowers. Therefore, this study intends to examine the application level of Maqasid Shariah objectives by Islamic banks using their financial reporting data.
 
 Methodology: The Maqasid Shariah ratio is measured based on the two objectives of Maqasid Shariah, namely Justice (Al-Adl) and Welfare (Al-Maslahah). The determinants of the Maqasid Shariah ratio as a performance score for the Shariah scale of Islamic banks are assessed using the sophisticated Fuzzy TOPSIS technique.
 
 Findings: Surprisingly, Malaysian Islamic banks' achievement is based on the Shariah objectives, specifically on Justice (Al-Adl) at 84.51% and Welfare (Al-Maslahah) at 67.53%. However, the top score for Malaysian Islamic banks could achieve an above-average level of 44.1% out of 70% on the overall average score on Maqasid Shariah's objectives application in their reporting practice.
 
 Contributions: The results help improve and understand the application levels on Maqasid Shariah objectives and the disclosure practice on Maqasid Shariah's financial reporting for Islamic banks in Malaysia. Hence, Islamic banks need full disclosure and specific standard or provision on reporting the Maqasid Shariah elements. This needs to assist the users and provide insights into making the right decision, especially in Shariah-compliant investment products, financing alternatives, or services.
 
 Keywords: Maqasid Shariah, Islamic banks, disclosure, maslahah, fuzzy TOPSIS.
 
 Cite as: Abdul Rahman, R., Kee, D. K. H. A., Bujang, I., & Jidwin, A. P. (2023). The disclosure practices on Maqasid Shariah objectives among Malaysian Islamic banks using fuzzy Topsis assessment. Journal of Nusantara Studies, 8(TI), 109-133. http://dx.doi.org/10.24200/jonus.vol8issTIpp109-133

Measuring Islamic Banking Performance Using Maqashid Shariah Index and RGEC: The Malaysian and Indonesian Islamic Banking

Islamic banking in Malaysia and Indonesia ranks first (Malaysia) and third (Indonesia) based on the top Islamic financial development indicator (IFDI) countries. However, this great potential has not been matched by a comprehensive performance measurement covering social and sharia aspects as well as the health of Islamic banks. Therefore, this study aims to measure the performance of Islamic banks through the Maqashid Syariah Index and RGEC approaches using quantitative methods. The results showed that through the MSI approach, Malaysian Islamic banking is superior to Indonesian Islamic banking in the aspects of justice and benefit. Through the RGEC approach, the NPF, ROA, FDR, and CAR ratios show that Malaysian Islamic banking is superior. The implications of this research can be useful for Islamic banking in developing the right strategy in order to improve sharia and social performance and bank health.

The COVID-19 Pandemic and Its Implications for the Performance of the Maqashid Syariah Index of Sharia Banks

The purpose of this study was to test the comparative financial performance of Islamic Commercial Banks in Indonesia and Malaysia before and during the Covid-19 pandemic when viewed from all indicators of the maqashid syariah index. The sample in this study used a purposive sampling method obtained by 7 Indonesian Islamic Banks and 8 Malaysian Islamic Banks. The data analysis technique uses the performance measurement of Maqashid Syariah. The results of the study show that when viewed from all indicators of the maqashid syariah index, there are differences in the financial performance of Islamic Commercial Banks in Indonesia and Malaysia before and during the Covid-19 pandemic.

ASSESSMENT OF VALUE-BASED PRINCIPLES ON ISLAMIC BANKING PRACTICES IN MALAYSIA: AN EXPLORATIVE STUDY USING BANK’S DISCLOSURE

Background and Purpose: This study aimed to understand banking practices to legitimise their role in society and meet stakeholder needs in terms of their products and services. This study narrowed its scope to use the underpinning thrust of value-based intermediation (VBI) as it is a primary pillar of the VBI framework. Towards these same ends, the study also sought to gauge how banks integrated their products and services with the framework.
 
 Methodology: This study employed the triangulation approach, which comprised of a content analysis of annual reports of the bank and trend analysis of court cases. This study used Bank Islam Malaysia Berhad (BIMB) as an explorative study.
 
 Findings: The findings indicated a decrease of total occurrences over the years on litigation cases involving BIMB, related to know-your-customers compliance. Meanwhile, the analysis of annual reports of the bank indicated that shariah non-compliance incidents are due to operational failures and lack of shariah knowledge among the staff. This study highlighted the need for the banks to strengthen the know-your-customer compliance, besides enhancing and promoting Islamic financial literacy and ethics to their stakeholders.
 
 Contributions: This study contributes a novelty in this area of study by using data triangulation on court cases and annual reports to provide a more comprehensive perspective on the issue. This study also added to the current literature on VBI, especially within Malaysian context.
 
 Keywords: Corporate responsibility, due diligence, know-your-customer, Islamic ethics, financial literacy.
 
 Cite as: Talib, S. A., Mohd Iskandar, T., & Muda, R. (2023). Assessment of value-based principles on Islamic banking practices in Malaysia: An explorative study using bank’s disclosure. Journal of Nusantara Studies, 8(TI), 429-452. http://dx.doi.org/10.24200/jonus.vol8issTIpp429-452

Managing and Reporting of Shari’ah Non-Compliant Income in Malaysian Islamic Banks: A Methodology Perspectives

Shari’ah Compliance and Governance Framework is essential to guide the banks on the regulatory requirement as it supports the growth and development of the Islamic finance industry. Section 28(1) and Section 28(3) of the Islamic Financial Services Act (IFSA) 2013, states that IFI needs to comply with the Shari’ah principles in all of their activities religiously. Managing and reporting Shari’ah Non-Compliance (SNC) for instance, are crucial operational matters to the banks. In most cases, Islamic banks could be exposed to SNC incidents due to Shari’ah non-compliance events (SNCE) or Shari’ah Non-Compliant Income (SNCI). This study will be focusing on SNCI, unblessed income that should be de-recognized from the bank’s income. To investigate the end-to-end process of managing and reporting SNCI in Malaysian Islamic banks, the insight of the key functions, and the Shari’ah scholars were obtained. Besides in-depth interviews, documentation review of relevant policy documents, and content analysis on the annual reports of ten Islamic banks were also performed to fulfill the delineated research objectives. Besides data source and methods triangulation, ‘The Six Phases of Reflexive Thematic Analysis’ was also applied to explore and develop an understanding of patterned meaning across the datasets, eased by Atlas.ti. Finally, a guideline of best practices in managing and reporting the SNCI is proposed to Malaysian Islamic banks. 
 
 Keywords: Non-complaint income; financial reporting; disclosure; Islamic banks; triangulation

STABILITY OF ISLAMIC BANK EFFICIENCY IN INDONESIA AND MALAYSIA: HAS COVID-19 MADE ANY DIFFERENCE?

This study examines whether COVID-19 has affected the stability of Islamic banking efficiency in Indonesia and Malaysia using the Data Envelopment Window Analysis (DEWA) using data from 2017 to 2022. The findings indicate that Islamic banks in Malaysia exhibit a higher level of efficiency and stability as compared to their counterparts in Indonesia across all three efficiency measures, namely Technical Efficiency (TE), Pure Technical Efficiency (PTE), and Scale Efficiency (SE). In addition, the findings show that Islamic banks in both countries have stable efficiency performance over the period under investigation and hence the Covid-19 pandemic has not affected their efficiency levels. From the analysis, we further note that financing and labor costs are the main sources of inefficiency in Malaysian Islamic banks while fixed assets and operating revenue contribute the most to Indonesian Islamic banks’ inefficiency.