Islamic Financial Services Board Research Articles

Evaluation of management soundness of Takaful industry in selected countries

PurposeManagement soundness is essential for the effectiveness of any industry, most especially in any Islamic financial sector, whereby fairness and justice are the key factors to be observed. This paper aims to examine the management soundness of the takaful industry regarding their asset quality, re-takaful and actuarial and earning and profitability.Design/methodology/approachThis study obtained quarterly data from 2019Q1 to 2021Q4 from the Islamic Financial Services Board across Malaysia, Brunei, Saudi Arabia, Jordan and the United Arab Emirates. The panel data modelling with random-effect and fixed-effect estimators were used for the analysis.FindingsThe finding revealed a strong relationship between re-takaful and earnings with management soundness and a weak relationship between asset quality and management soundness. In addition, the result established a significant and strong association between management soundness and earnings and profitability. Therefore, re-takaful and profitability contributed more to the management soundness of the takaful industry than asset quality during the study. An increase in earnings and profitability to enable the takaful industry to pay the claims, especially in calamity, and more focus on the quality of the asset they invested in could enable the smooth running of their day-to-day business affairs.Practical implicationsMore attention is required on the quality of assets in their portfolio for the sustainability of the takaful industry to fulfil their underlying objectives. Management soundness in the takaful industry should address the challenges of managerial lathery, which some studies linked with operational inefficiency because of unskilled personnel in the takaful industry. This could benefit takaful clients, irrespective of religion, to attain their associated share of benefits from the Islamic insurance industry.Originality/valueTo the best of the authors’ knowledge, this is the first empirical study that examined the effectiveness of takaful management across Malaysia, Brunei, Saudi Arabia, Jordan, and the United Arab Emirates.

Capital requirements – risk taking/stability nexus during the global financial crisis and COVID-19: international evidence of Islamic banks

Purpose This study aims to determine how Basel III capital requirements affect the stability of Islamic banks globally during the global financial crisis and the COVID-19 pandemic. Design/methodology/approach The secondary data for all Islamic banks worldwide from 2004 to 2021 is obtained from the FitchConnect database. The main technique was a two-step generalized method of moment (GMM) system, and the data were tested using pooled ordinary least squares, fixed effects and difference GMM models for robustness checks. Findings Regression results support the moral hazard hypothesis based on evidence that both the total capital ratio and the Tier 1 capital ratio have a statistically significant positive impact on the stability of Islamic banks globally. Furthermore, neither the global financial crisis of 2008–2009 nor COVID-19 (2020–2021) significantly impacted the stability of Islamic banks worldwide. The results are robust across alternative measures of stability, capital buffers, dummy variables and estimation techniques. According to the descriptive statistics, the number of Islamic banks that disclose their regulatory capital ratios to the public has increased over the study period, and the mean of total capital and Tier 1 ratios are considerably greater than what is required by Basel II and Basel III. Research limitations/implications Bankers, regulators and policymakers should benefit from the evidence on capital and risk management in Islamic banking according to Basel Committee on Banking Supervision (BCBS) and Islamic financial services board (IFSB) international standards in various jurisdictions. Originality/value This research builds on earlier studies that were both beneficial and instructive by exploring the relationship between BCBS and IFSB capital guidelines and the trustworthiness of Islamic banks in greater depth. This study uses numerous capital ratios, buffers and stability measures to provide an international context for research on Islamic banking. In addition, the database is up-to-date to include information about the COVID-19 pandemic aftereffects in the year 2021. This study also introduces the Basel membership of Islamic banks to provide context for countries still at the Basel II stage or are yet to begin implementing the Basel III international standard.

The Basel 2.5 capital regulatory framework and the COVID-19 crisis: evidence from the ethical investment market

PurposeThis research aims to evaluate the accuracy of several Value-at-Risk (VaR) approaches for determining the Minimum Capital Requirement (MCR) for Islamic stock markets during the pandemic health crisis.Design/methodology/approachThis research evaluates the performance of numerous VaR models for computing the MCR for market risk in compliance with the Basel II and Basel II.5 guidelines for ten Islamic indices. Five models were applied—namely the RiskMetrics, Generalized Autoregressive Conditional Heteroskedasticity, denoted (GARCH), fractional integrated GARCH, denoted (FIGARCH), and SPLINE-GARCH approaches—under three innovations (normal (N), Student (St) and skewed-Student (Sk-t) and the extreme value theory (EVT).FindingsThe main findings of this empirical study reveal that (1) extreme value theory performs better for most indices during the market crisis and (2) VaR models under a normal distribution provide quite poor performance than models with fat-tailed innovations in terms of risk estimation.Research limitations/implicationsSince the world is now undergoing the third wave of the COVID-19 pandemic, this study will not be able to assess performance of VaR models during the fourth wave of COVID-19.Practical implicationsThe results suggest that the Islamic Financial Services Board (IFSB) should enhance market discipline mechanisms, while central banks and national authorities should harmonize their regulatory frameworks in line with Basel/IFSB reform agenda.Originality/valuePrevious studies focused on evaluating market risk models using non-Islamic indexes. However, this research uses the Islamic indexes to analyze the VaR forecasting models. Besides, they tested the accuracy of VaR models based on traditional GARCH models, whereas the authors introduce the Spline GARCH developed by Engle and Rangel (2008). Finally, most studies have focus on the period of 2007–2008 financial crisis, while the authors investigate the issue of market risk quantification for several Islamic market equity during the sanitary crisis of COVID-19.

VIABILITY OF EXTERNAL SHARIAH AUDIT PRACTICE:

The current trend in Shariah governance and assurance has now gone beyond internal Shariah audit to external Shariah audit (ESA). At the international level, the move towards enhancing Shariah governance in Islamic financial institutions (IFIs) were made by mandating ESA function by the Accounting and Auditing Organisation for Islamic Financial Institutions (AAOIFI) in its auditing standards in year 2019. Then, in year 2023 Islamic Financial Services Board (IFSB) jointly collaborate with AAOIFI on issuing an exposure draft on Shariah governance framework which suggested as best practice for ESA to be conducted not just for IFIs but also for Islamic capital market. As there is increasing number of institutions offering Shariah compliant products and services, there is also the need for ESA to provide assurance in sectors beyond IFIs. Besides big audit firms, the supply of ESA can be offered by small and medium audit practitioners (SMPs) as well. A focus group discussion was held to study this issue with 17 SMPs on the viability to venture into the Shariah audit industry. The findings indicate challenges to SMPs as there is no regulatory requirement for the conduct of ESA in Malaysia; there is debate on the audit scope and a need for human capital development to develop required skillset for external Shariah auditors that includes knowledge in Shariah principles, Shariah compliant contracts, Shariah risk management and Islamic capital market related products and services.

Ensuring The Compliance of Islamic Finance Applications with Shariah Principles in Ethiopia: The Way Forward

The notion behind Islamic finance is providing alternative Shariah-compliant financial services and products for those who do not willing to access conventional finance as it contravenes Shariah principles. Currently, Islamic finance is expanding throughout Muslim and non-Muslim countries. One of the most critical challenges of the Islamic financial sector is the extent of the compliance of Islamic finance practices with Shariah principles. Therefore, there should be a control mechanism for ensuring the compliance of the products and services provided by Islamic financial institutions with Shariah principles. Scholars argue that a Shariah governance framework should be applied by institutions engaged in Islamic finance in countries where Islamic finance is being practiced. Shariah governance framework is mainly categorized into two approaches centralized and decentralized Shariah governance framework. The availability of a centralized Shariah governance framework is essential in ensuring the application of Islamic finance in accordance with Shariah principles. Ethiopia is one of the countries that accommodated the application of Islamic finance through exclusively interest-free banking windows by conventional banks in 2011 and fully-fledged interest-free banks in late 2019. However, the National Bank of Ethiopia (NBE) did not specify any Shariah governance framework in any of its legislations. The unavailability of an established Shariah governance framework may expose the sector to Shariah non-compliance risk. This study investigates how to ensure Ethiopia's Islamic finance applications' compliance with the Shariah principles. Semi-structured interviews and document studies were conducted with 15 respondents, including experts in Islamic finance, Shariah scholars, and Islamic finance practitioners, to collect the needed data for this endeavor. The findings indicate that interest-free banks, especially interest-free banking windows, do not give the necessary attention to the issue of the Shariah governance framework. The presumed manifestations of Shariah compliance in Ethiopia are having Shariah advisory committee, using Arabic words and names for their products and services, declaring they are following the Accounting and Auditing Organization for Islamic Financial Institutions (AAOIFI), Islamic Financial Services Board (IFSB) standards, and participating in corporate social activities. However, these claims are insufficient to argue that their products and services are Shariah-compliant, as long as an external authorized body should oversight and control their application. In addition, the results indicate that adapting the AAOIFI standards to the extent of industry development is recommended to ensure Shariah compliance in Ethiopia. Besides, considering responsible stakeholders in ensuring Shariah compliance, government/NBE and financial institutions engaged in Islamic finance are identified as primary stakeholders. On the other hand, the Ethiopian Islamic Affairs Supreme Council (EIASC), religious scholars and institutional Shariah advisors, interest-free professional associations, academicians in Islamic economics and finance, and educational institutions are considered secondary stakeholders. In addition, the findings also indicate that the policymakers' approaches of Türkiye, Malaysia, Kenya, and South Africa to the Islamic finance industry could be the best model for policymakers in Ethiopia. Establishing a centralized Shariah advisory committee under the NBE is recommended to ensure the compliance of interest-free finance applications with Shariah principles in Ethiopia. To this endeavor, all stakeholders such as government/NBE, financial institutions engaged in the Islamic finance industry, EIASC, religious scholars and institutional Shariah advisors, interest-free professional associations, academicians in Islamic economics and finance, and educational institutions should play a significant role by fulfilling their respective responsibilities.

Financing and returns of Shari’ah-compliant contracts and sustainable investing in the Islamic banking of Oman

The present study used quarterly data from 2014 to 2020 to analyse the financing and returns of Shari’ah-compliant contracts in Oman based on murābahah, ijārah muntahia bittamlīk and wakālah Islamic banking tools and their relationship to sustainable investing, which was measured using three pillars of governance: capital adequacy, asset quality, and risk sensitivity. The autoregressive distributed lag (ARDL) model results revealed significant negative short- and long-run relationships between the financing and returns of Shari’ah-compliant contracts and sustainable investing in Islamic banking in Oman, which was measured by asset quality, capital adequacy, and risk sensitivity except there was a significant positive long-run relationship between the financing of Shari’ah-compliant contracts and capital adequacy in the short run. Additionally, insignificant long-run relationships existed between the financing of Shari’ah-compliant contracts and capital adequacy. The study’s main conclusion is that Shari’ah governance practices in Oman may ensure and support asset quality and the capital adequacy ratio. Furthermore, the findings indicated that the capital-to-risk weighted assets ratio protects depositors and promotes financial comprehensive systems’ stability, credibility, and efficiency. The study’s main recommendation is that Oman should increase Islamic banking assets and enhance the legal and regulatory system to promote the development of Islamic banking services that are compliant with the standards of the Islamic Financial Services Board and the Accounting and Auditing Organization for Islamic Financial Institutions.

Development and validation of a performance measurement system based on Islamic principles

The infamous malfeasance of corporate giants and the collapse of a financial system with global reverberations have further pressured the need for greater ethical discipline and consideration in business and finance. This study explored the motivations within firms as driven by their performance measurement systems (P.M.). Then, the study developed a newly proposed P.M.S. with greater ethical emphasis based on Islamic principles to be a foundation for augmented Sharia-compliant screening criteria for Islamic equities. Discourse analysis of the Islamic religious texts was used, followed by validation through interviews with scholars and practitioners. Results indicate that improving the current Sharia screening criteria is possible by expanding the qualitative and quantitative assessments to include indicators that consider shareholders, the board of directors and top management, business dealings and products, employee relations, community issues and environmental protection. This study has implications for regulators such as Accounting and Auditing Organization for Islamic Financial Institutions (AAOIFI), Islamic Financial Services Board (IFSB) and Sharia-compliant screening criteria users such as the Dow Jones Islamic Market (DJIM), Financial Times Stock Exchange (FTSE) and Standard and Poor's (S&P) that may consider expanding their current equity screening criteria which mainly depends on the issuer's business activity and narrow quantitative measures. This version: June 28, 2022.

Takaful Reporting on IFSB Requirements in Malaysia: Users and Preparers Perspective

Bank Negara Malaysia (2014) mentioned the importance of having meaningful disclosure to protect participants. However, it did not provide details of the elements of meaningful disclosure. There is no specific guidelines or standards of what should be reported and how detailed the items should be reported. Takaful operators have more knowledge in the operational aspect of takaful, compared to the participants. Authorities try to harmonise all the possible variations and gaps between takaful operators (preparers) and participants (users) for the benefit of the industry. Any gap between what is expected to be reported (desirable) and what is actually reported needs to be analysed in order to provide more information relevant to the users and to standardise the disclosure level. By adopting Sulaiman’s (2005) framework, the study determines what users and preparers perceive as meaningful disclosure on the Islamic Financial Services Board (IFSB) standards. The first two objectives of the study are to determine the disclosure perspectives of the two parties while the third objective is to examine if gaps exist between the two stakeholders. Questionnaire was distributed to takaful agents to examine their perception while content analysis was employed to evaluate the actual level of disclosure in takaful operators' websites. The gap analysis was conducted between the desired and actual level of disclosure and found significant differences among all the gaps. Additionally, the average level of disclosure is 44%. It is hoped that the findings will assist authorities in formulating guideline in takaful industry in Malaysia.

Исламские рынки капитала: пример сукук

The sukuk market is a large and fast-growing segment of Islamic capital markets. But the challenges that post-Soviet countries, authorities and firms face in the adoption of sukuk strategies are mainly due to the scarce awareness of Islamic finance principles and practices, and to some suspicion of Islamic instruments that does not yet seem well-known and accepted on the global financial markets. In this regard, the current study attempts to describe the history and current state of the global sukuk market based on the evidence obtained from the secondary sources. Data were gathered using the qualitative method of systematic literature review technique. The main empirical corpus was formed from Islamic Financial Services Board and International Islamic Financial Market reports from 2010 to 2022. The initial corpus was then significantly expanded by means of content analysis of open media source. Thus this study synthesizes existing literature on the sukuk market published in the past decade. This study illustrates: (i) the history of the sukuk market starting from 1990s and the evolution of sukuk from the instrument of corporate funding to the instrument of sovereign financing; (ii) dynamics and structure of the global sukuk market, purposes and the currencies of the sukuk issuances; (iii) regional distribution and the key markets for sukuk issuances; (iv) statistics of defaults, pricing policy and yields of sukuk; (v) demand for sukuk and investors’ distribution by types and regions. In conclusion, this study offers new insights into the prospects and challenges of the application of sukuk as an alternative financing instrument in the CIS countries.

Istisna` risk Management in Islamic Banks

This study aimed to identify the policies and procedures applied in Islamic banks to manage the risks of the Istisna` model. To achieve this objective, a descriptive and a case study approach were applied to identify the risks that can arise from implementing this model, and the adequate plans to face them.
 The study found that the Islamic bank faces many risks, when applying the Istisna` model, and by studying the case of Malaysia, it became clear that the country relies on several policies and procedures, such as using takaful insurance, guarantees, and adhering to the decisions and guidelines of the Basel Committee (BCBS) and Islamic Financial Services Board (IFSB).
 
 

BASEL III CAPITAL REGULATION FRAMEWORK AND ISLAMIC BANK’S RISK

Basel III modified the requirements for approving new regulatory capital norms to improve capital quality. Because bank liquidity problems were a defining feature of the crisis, Basel III established new requirement ratios while also tightened capital requirements. The Liquidity Coverage Ratio (LCR) was developed to safeguard banks' short-term liquidity, whereas the Net Stable Funding Ratio (NSFR) is being proposed to strengthen banks' medium- and long-term liquidity shock resilience. As a necessary consequence, Islamic financial institutions (IFIs) must issue instruments that satisfy both Basel III and Shari’ah requirements. This study aims to identify the regulatory requirements for Basel III and the Islamic Financial Services Board (IFSB)'s new capital and liquidity rules, as well as the implications for Islamic banks (IB). This study employs a mixed research methodologies approach which includes document analysis of primary and secondary sources, as well as the relevant regulations published by BCBS and IFSB. This study relies on the identification of Standards for each criterion before conducting a systematic review of the 23 publications that meet the study's requirements published between 2013 and 2022. There is a scarcity of Shari’ah-compliant research on capital buffers, tier 1 capital, and common equity tier 1 capital, according to certain findings. Furthermore, the empirical literature suggests that Basel III has a significant impact on the financial risk of the IB sector in the samples collected. However, there is still a significant gap in studies investigating the influence of Basel III/IFSB capital and liquidity regulations on Islamic bank risk, or more precisely, supportive data from empirical investigations. The wealth of research will provide new insights to standard-setters (BCBS and IFSB), regulators, researchers, and academicians.

IFSB Standards Adoption and Its Impact on Islamic Banking Practices

The adoption of the Islamic Financial Services Board (IFSB) criteria for Islamic banks is more challenging for a bigger number of supervisory and regulatory authorities than for conventional banks.

Prospects of Sharia Governance in Islamic Finance Industry: Jurisdictions, Standards, and Implications

The paper aims to explore the establishment, organizational setup, and relevance of the international regulatory/standard setting institutions as Sharī‘ah governance platforms primarily AAOIFI (Accounting and Auditing Organization for Islamic Finance Institutions) and IFSB (Islamic Financial Services Board). The role of IIFA (International Islamic Fiqh Academy Jeddah) IFC (Islamic Fiqh Council of Muslim World League MWL) and ISRA (International Sharī‘ah Research Academy for Islamic Finance) and supportive Shari ‘ah compliance platforms for Islamic Finance Industry (IFI) in the corporate and academic dimensions. The study is qualitative analysis of related Guiding Principles, which enshrine the Sharī‘ah governance framework (SGF) in IFI. The discussion highlights that the (SGF) is the particular aspect in the Islamic Finance Industry (IFI), which embodies the legitimacy of instruments, and generates the trust of stakeholders and shareholders in Islamic finance. The paper shows that analysis will support the understanding of Sharī‘ah governance and jurisdiction of the Islamic finance industry in the contemporary Banking and finance sector. The outcome of the predicted hypothesis will enable to suggest and modify the ongoing banking practices in Islamic corporate with strict adherence to the sharīa standards.

The impact of Tier 1 sukuk (Islamic bonds) on the profitability of UAE Islamic banks

PurposeThe choice between different financing sources is governed by a number of finance theories, particularly, trade-off theory and pecking order theory. However, the special characteristics of Islamic finance, which forces the exclusion of conventional bonds, leave Islamic banks with limited number of alternatives. Tier 1 sukuk are distinguished type of sukuk that combines the features of conventional bonds and stocks. This paper aims to answer the following question: Does the issuance of Tier 1 sukuk positively affect Islamic banks’ profitability or is their impact concentrated on enhancing Islamic banks’ capital adequacy ratios?Design/methodology/approachThe data set used in this study consists of all United Arab Emirates (UAE) Islamic banks that issued Tier 1 sukuk over the period 2010–2020. Pooled and fixed effects panel regressions of Tier 1 sukuk and other control variables on three proxies of Islamic banks’ profitability were run. The selection of fixed-effect model is based on Hausman test, redundant fixed effects and likelihood ratio test.FindingsThis study reveals novel findings. Tier 1 sukuk increases both earnings per share (EPS) and capital adequacy ratios. That is, this study finds that there is a positive significant impact of Tier 1 sukuk on EPS, which indicates that issuing more Tier 1 sukuk will generate more return to shareholders in terms of higher EPS because of the lower cost of Tier 1 sukuk compared to equity. However, this study finds that there is an insignificant impact of Tier on sukuk on both return on assets and return on equity. Hence, it is concluded that Tier 1 sukuk does not increase the risk appetite of UAE Islamic banks.Research limitations/implicationsTier 1 sukuk is a niche instrument that has been recently used by Islamic banks. Hence, there are a limited number of Islamic banks that have issued this type of sukuk and consequently limited number of observations. Therefore, with the increased use of this instrument, a larger set of data will be available for examination. In addition, future research could examine the relationship between issuing Tier 1 sukuk and profitability in other countries where such sukuk have loss absorption feature. The impact of other types of sukuk, such as liability sukuk, on Islamic banks’ profitability could also be an interesting field of study.Practical implicationsThis study recommends Islamic banks to issue more Tier 1 sukuk to enhance their profitability indicators while meeting Basel III accord. This study also recommends investors to purchase the stocks of Islamic banks that issue Tier 1 sukuk because they are able to offer them higher EPS. The authors advise the UAE regulators to allow Islamic banks to issue Tier 1 sukuk with loss absorption feature to enable Islamic banks engage in more risky activities that usually provide larger profits. This study also suggests that the Islamic Financial Services Board (IFSB) reclassifies Tier 1 sukuk, with loss absorption feature, within the highest quality of capital, common equity Tier 1, to encourage Islamic banks to issue this type of sukuk, especially Basel III accord and IFSB 15 require higher ratios of common equity Tier 1 to risk-weighted assets.Originality/valueThis research contributes to the existing literature in two ways. First, it adds to the existing literature on the impact of sukuk on Islamic banks profitability. That is, contrary to prior studies that merely investigate the impact of issuing ordinary sukuk on profitability, this study explores a distinguished type of sukuk, that is Tier 1 sukuk, that has been surprisingly ignored so far. Second, this study shows that it is not only capital adequacy ratios that have improved as a result of issuing Tier 1 sukuk but also Tier 1 sukuk reduce the cost of capital of UAE Islamic banks which has been reflected in a higher profitability proxied by EPS. Hence, these sukuk serve a dual function for Islamic banks by improving both capital adequacy and profitability ratios.

Does risk governance mediate the impact of governance and risk management on banks’ performance? Evidence from a selected sample of Islamic banks

PurposeRelying on the agency theory and the financial intermediation theory, the purpose of this paper is to examine to what extent risk governance would improve corporate governance and risk management effectiveness. The paper especially investigates the mediating role that would have the risk governance mechanisms in explaining both of the following relationships: the corporate governance–the banks’ performance, and the risk management–the banks’ performance.Design/methodology/approachThis research uses the Baron and Kenny’s (1986) approach to investigate the mediating effect of risk governance; besides, the study refers to structural equation modeling in carrying out the appropriate panel regressions. The data collection was based largely on Bank scope Database, but some missing qualitative data were gathered manually from the banks’ annual reports available on the banks’ websites.FindingsThe study findings illustrate the significant role of risk governance mechanisms in improving both corporate governance and risk management’s effectiveness. Especially, this paper finds that risk governance is fully explaining the corporate governance–bank performance relationship, but risk governance would explain partially the risk management–bank performance relationship. Further, findings suggest that the internal corporate governance mechanisms seem to be more relevant than the external ones in improving the sample bank performance, and that risk management mechanisms seem to impede rather the sample bank performance.Practical implicationsThe findings would make an important contribution to the current debate on the need to reinvent the optimal organization of the bank’s board and directorates and would allow readers to develop more cost-effective governance and risk-management thinking. Besides, the findings may help bank deciders and boards to rationalize costs and to focus only on the relevant corporate governance and risk management mechanisms. Finally, findings might illustrate to regulatory instance the importance of recommending risk governance in their coming corporate governance guidance.Social implicationsThe global credit crisis of 2008 caused significant difficulties to financial institutions, so it would be worth enlightening practitioners and policymakers, even regulators, on the importance of considering the level of potential risk and risk monitoring as a key component in the decision-making process, to strengthen the stability and resilience of banks in an increasingly uncertain environment.Originality/valueThe issues raised in the paper are important in that Islamic banking is an integral part of the global banking and finance industry. This paper extends the knowledge of the potential importance of the new concept of risk governance with specific reference to Islamic banking industry peculiarities. It also provides a telling illustration of the need for the enhancements of the Basel Committee’s prudential requirements as well as the accounting and auditing organization for Islamic financial institutions and Islamic Financial Services Board set out especially regarding the consideration of risk in the strategic decision process.

Thematic analysis of the responsibilities of the board of directors in OECD, BCBS, and IFSB principles

At the center of this ongoing debate is the board of directors’ responsibilities, nevertheless, there are differences and similarities among the principles and guidelines of corporate governance worldwide when it comes to responsibilities of the board of directors. The interest in corporate governance and, specifically, the focus on bank governance have received increased attention from academics and policymakers after the global financial crisis of 2007–2009 (Pathan & Faff, 2013). Given the gap in the literature investigating these differences and similarities, this theoretical article aims to conduct a thematic analysis of the principles and guidelines of the Organisation for Economic Co-operation and Development (OECD), Basel Committee on Banking Supervision (BCBS), and Islamic Financial Services Board (IFSB), on board of directors’ responsibilities. This article provides a reference thematic analysis for policymakers, regulators, and researchers in developing national corporate governance principles and guidelines. The article highlights the shares themes between the principles of OECD, BCBS, and IFSB, and concludes with recommendations for future research in the area of the board of directors’ responsibilities.

Islamic finance and economic growth: the Turkish experiment

PurposeThis study aims to empirically investigate the connection between Islamic finance and economic growth in Turkey using the endogenous growth model.Design/methodology/approachIt applies quantile regression with the Markov chain marginal bootstrap resampling technique by adopting total Islamic financing as the main exogenous explanatory factor in the endogenous growth model, while the gross domestic product (GDP) is employed as a measure of economic growth. The sample consists of all full-fledged participation (Islamic) banks operating in Turkey spanning from 2013Q4 until 2019Q4. The study uses academic literature, official financial reports from the Participation Banks Association of Turkey, REDmoney Group, Islamic Financial Services Board (IFSB) and the International Monetary Fund (IMF) database.FindingsThe results show that Islamic finance is promoting economic growth in Turkey, which mirrors the success of the New Turkish Economy Program (2019–2021) which aims at boosting economic growth by enhancing the Islamic finance share in the Turkish banking sector and the global market.Research limitations/implicationsTurkey has a dual banking system (conventional and participation (Islamic)) and both can influence the country's real economy. This study is limited to the influence of Islamic banking on Turkish economic growth. The study also restricts its size and coverage from 2013Q4 to 2019Q4, to cover the years over which data for all variables included in the research are available.Practical implicationsThis paper suggests the adoption of the Turkish successful experiment as a path to reach economic growth by increasing the Islamic finance share in the banking industry for countries that seek to promote economic growth by Islamic finance, as the findings of this paper support.Originality/valueThis study is the first that examines the influence of Islamic finance on economic growth under a new theoretical framework of the endogenous growth model in Turkey using a robust non-parametric approach.

An Analytical Review of the Influence of Regulatory and Supervisory Bodies on the Business of the Islamic Financial Institutions (IFIs) in Pakistan

Islamic financial market in Pakistan comprises Islamic banking, Takaful and Islamic capital market. It is regulated and supervised by the State Bank of Pakistan (SBP) and the Securities and Exchange Commission of Pakistan (SECP). Despite the regulatory and supervisory mechanism crafted by these authorities, there are other institutions such as the Council of Islamic Ideology (CII), Federal Shariat Court (FSC) and international institutions such as the Accounting and Auditing Organization for Islamic Financial Institutions (AAOIFI) and Islamic Financial Services Board (IFSB) which intervene and influence the Islamic banking practices. Based on an analytical approach, the current study found an overlapping situation in the authority exercised by these bodies over the business of the IFIs in Pakistan. Hence, a distinctive regulatory authority based on an adequate legal foundation should be created to watch over the business of the IFIs in Pakistan. The supreme authority can be conferred to the Shariah Advisory Committee (SAC) of the SBP or to a separate body in the current judicial infrastructure of the country in order to overview, harmonize and resolve the issues related to the business of the IFIs.

Corporate governance and IFSB standard-4: evidence from Islamic banks in Bangladesh

PurposeThis paper aims to examine the compliance status of Islamic banks in Bangladesh with Shari’ah-based accounting standards named Islamic Financial Services Board (IFSB) standard-4 and its association with corporate governance.Design/methodology/approachThe six years of secondary data, including the annual reports of 2013–2018, were collected from the websites of all the seven listed Islamic banks, i.e. 100% of the population available during the period of study. The study used a content analysis approach for systematically categorizing and analysing the contents disclosed in the annual report. A total compliance score based on 133 reporting items of IFSB standard-4 were considered for content analysis. Furthermore, this study applied the ordinary least square to investigate the impact of corporate governance on IFSB standard-4.FindingsThis study found that the level of compliance with the IFSB standard by the Islamic banks in Bangladesh is poor, as the overall compliance status is 44.83%. Further, this study observed a significant and positive influence of the Shari’ah supervisory committee, the board size, accounting experts on the board, foreign ownership and institutional ownership on the level of compliance with IFSB standard-4. On the other hand, this study found a negative effect of directors’ ownership on the level of compliance with IFSB standard-4.Practical implicationsThis study provides the management of Islamic banks an insight into developing their governance characteristics to comply with Islamic accounting and reporting standards. Moreover, this study expects to facilitate the management of Islamic banks in designing their accounting and reporting outlines to enhance the level of compliance with the IFSB standards.Originality/valueThis pioneering study on IFSB standards opens an avenue to the researchers exploring the accounting and reporting status of Islamic banks considering the requirements of the IFSB standards.

The practices of Shariah governance systems of Islamic banks in Bangladesh

PurposeThe purpose of this study is to explore the practices of Shariah governance (SG) systems in terms of their guidelines, current operational procedures, internbal policies and structures and regulatory framework of Islamic banks in Bangladesh from the viewpoints of Shariah, Tawhidic approach/ontological approach and Shuratic process of Islamic corporate governance and institutional theory.Design/methodology/approachA semi-structured interview tactic has been applied to attain the objective. Overall, data has been collected from the regulators, Shariah supervisory board members, Shariah department executives and experts from the central bank and Islamic banks of Bangladesh.FindingsThe study finds that Islamic banks do not follow complete Shariah principles in all aspects of SG nor violate them fully in their overall functions due to less accountability, which contradicts the concept of the Tawhidi epistemological process of Islamic corporate governance. Islamic banks announce that they are following Accounting and Auditing Organization for Islamic Financial Institutions (AAOIFI) guidelines, but in practice, they do not follow the instructions accurately because all of the standards and policies of AAOIFI and the Islamic Financial Services Board are not applicable in Bangladesh due to its cultural, legal and regulatory structures. It is found that Islamic banks in Bangladesh have a lower practice of maqasid as-Shariah and Tawhidic approach and Shuratic process.Research limitations/implicationsThe study significantly contributed to the central bank of Bangladesh and Islamic banks by exploring the SG systems for their further enhancement. The research provides some suggestions for improving existing SG systems and enhancing more application of SG guidelines and Shariah principles in the overall operations of the Islamic banks in Bangladesh.Originality/valueThis research extends the literature regarding the Islamic banks’ SG practices in Bangladesh. The study also contributes to Shariah, Tawhidic approach/ontological approach and Shuratic process of Islamic corporate governance and institutional theory by exploring the Islamic banks’ existing SG practices in Bangladesh.