Islamic Financial Services Industry Research Articles

Basel III's New Precautionary Measures are Adapted to the Regulatory and Regulatory Requirements of Islamic Banks and Banks to Reduce Risk

The Islamic financial services industry has grown significantly over the last two decades to the point that it is today an important player in the international financial system. The absence of regulation, regulation and control of these financial services, especially after the shocks caused by the recent financial crises, has become a great risk, and this is because of the nature of deposits in the Islamic financial system and ways of financing. For this reason, it became imperative to know whether traditional standards or so-called protective precautionary regimes could protect and ensure the stability of international financial systems. As Islamic banks have become the largest share of the Islamic financial industry, it is necessary to study how Islamic banks operate to what extent they can apply new prudential standards. The main objective of this research study falls within one of the most important steps to develop and modernize the Islamic banking system to become more competitive in an environment that requires transparency and requires integration and integration with international financial markets. In order to raise the level of its activities and away from investment risks or reduce them .. Which requires to achieve this goal to study the effects and the possibility of applying new standards of precautionary Islamic banks, in particular: "the impact of Basel III."

Islamic finance professional programme structure: development and prospects

PurposeThis paper aims to describe the development and prospects of an Islamic finance professional programme structure (IFPPS).Design/methodology/approachThis paper is conceptual in nature. It begins with a review of issues leading to the development of IFPPS by the Finance Accreditation Agency (FAA). The process of developing the IFPPS is then delineated, followed by discussions on its intended benefits, the challenges encountered, as well as ways the issues and challenges can be addressed.FindingsThe benefits of IFPPS to different stakeholders are highlighted, with consideration given to its strategic roles in addressing the issues and challenges put forth.Research limitations/implicationsBecause this paper focuses on the conceptual development of IFPPS, its actual application will further reinforce its value. The outcomes will be presented in the form of case studies in a subsequent publication to contribute to theory and practice.Practical implicationsHaving a knowledgeable and skilled workforce through continuous learning and development is key to sustaining the growth of the Islamic financial services industry (IFSI). One possible way is through the adoption of a unified structure, such as the IFPPS which links quality learning to competencies of IFSI practitioners. In addition, the IFPPS possess characteristics which could potentially serve to facilitate the development of sectorial-based national qualifications framework for Islamic finance, making harmonisation in terms of the design, development, delivery and assessment of different learning programmes and qualifications possible.Originality/valueA uniformed structure that guides learning and development of practitioner-based Islamic finance programmes is long overdue. With the rapid growth of the IFSI, coupled with the concomitant need for a competent workforce to meet business requirements, the time has come for the development of the IFPPS for the IFSI. The development of IFPPS represents the first of its kind for the IFSI. Once the professional qualifications standards are fully developed and implemented, it is expected to bring enormous benefits to different stakeholders involved in Islamic finance learning and practice.

Finance and Development in Muslim Economies

The recent trend in the Muslim world towards reinforcing their cultural (i.e., religious) values on their economic policies and institutions has resulted in a roughly $2 trillion Islamic financial services industry. This industry is quite resilient and growing at a large rate even at a time when conventional banks were failing in the recent financial crisis. Financial systems play a vital role in advancing intermediation by mitigating market frictions, facilitating efficient investment decisions, allocating scarce capital and conveying financial transactions. This, in turn, stimulates capital accumulation decisions and technological innovation that are crucial in delineating a nation’s long-term economic path. A conference was held in Bangor University, Gwynedd, North Wales on September 15, 2014, to critically examine the Islamic financial services industry under the aegis of Bangor University and the Islamic Research and Training Institute (IRTI) of the Islamic Development Bank. The four high-quality papers presented at the conference are featured in this Special Issue of the Journal of Financial Services Research (JFSR). They are categorized into two groups. The first group comprises of a paper studying moral obligations and a firm’s engagement in ethical activities. The remaining three papers study the risk of Islamic banks vis-a-vis conventional banks. These are described below.

The effects of monetary policy on the Islamic financial services industry

PurposeThe purpose of this paper is to investigate the effects of monetary policy on the Islamic financial service industry by studying the findings of the existed literature.Design/methodology/approachBecause of the unavailability of the empirical models in the existing study, the authors used past studies review and proposed a new theoretical model.FindingsMajority of these studies have documented the negative effects with the exception of a few. The transmission of the monetary policy has been taken place through interest rate risk, asset-liability mismatch, as well as deposit and financing instability. Furthermore, the examined studies have confirmed the viability of the Islamic monetary policy.Originality/valueThe proposed model may offer some insights to policy makers if it is examined empirically.

Human Capital Investment And Training In Islamic Banking Industry In Jordan Jordan Islamic Bank for Finance and Investment

The purpose of this study is to measure the impact of investment in human resources activities on the effectiveness of investment in human capital and investigated the relationship between human capital Investmenttraining and its effectiveness in Islamic banks in Jordan. The fascinating development and point of discussion in recent years is the rapid growth and expansion of the Islamic financial services industry. It is no longer rhetoric as Islamic finance has been accepted as viable and competitive mode of financial intermediation that offers wide range of financial products and services to meet the highly differentiated demands of the new economy; not only in Muslim countries but also beyond the Muslim world. Against these rapid revolution of Islamic financial industry globally and in Jordan particularly, human capital has become the defining factor in sustaining the performance and competitiveness of Islamic financial industry. Thus it is crucial to place strong focus on human capital development in embarking Islamic financial services encompassing the basic foundation namely; education. A prerequisite requirement for highly talented and skilled labor force is essential to maximize the opportunities presented by the evolving economic environment in the future. The objective of this study is to determine the issues faced by practitioners that initiate the need to undertake training and development courses as well as to identify the type of training required by current practitioners that affect performance. The main findings of the study can be more comprehensive and representative if more respondents from several banks that practices Islamic finance can be involved in validating the issue that is realizable for future study.

Financial Inclusion, Governance and Institution: Evidence from Developing Economies

This paper argues that strong economic governance and institution are important elements in improving financial inclusion especially in developing countries with relatively large segment of poor population because markets, and economic activity and transactions more generally, cannot function well in its absence. Financial inclusion has become an important global agenda and emerging priority for policymakers and regulators in financial sector development in ensuring sustainable long-term economic growth. Many factors hinder the access and use of financial services among the population in many part of the world. The main obstacles can broadly be characterised as follows: i) social, macroeconomic, and infrastructure features; ii) institutional weakness; iii) obstacles arising from banking activities; and iv) regulatory distortion. Governments are not solely responsible for designing an appropriate policy framework that encourages access to financial services, but financial institutions offering these services must also play a decisive role. The literature on financial inclusion has identified two major factors that drive financial inclusion across countries: i) structural factors, which primarily determine the costs of providing financial services to the population; and ii) policy-related factors have also been found to be relevant in creating an enabling environment for financial inclusion (Love and Martinez Peria 2012). However, research addresses on the latter is limited particularly pertaining to developing countries. Without deeper understanding on these issues can creates the condition for ill-informed policy designs. Hence, this paper contribute to literature by examining the interlinkage between financial inclusion, institutions, governance and Islamic financial services industry using panel data analysis. The research will provide understanding of the impact surrounding governance and institutional factors in improving financial inclusion. This paper utilizes the data on individuals’ characteristics in the Global Findex database of the World Bank across 69 developing and emerging economies to examine how different countries’ characteristics are associated with financial inclusion. Then, this paper uses data from Worldwide Governance Indicators and The Heritage Foundation to proxy for governance and institutional characteristics. We use principle component analysis, perform baseline model using probit estimations to explain measures of financial inclusion, and then augmented the model with governance and institutional variables. The result is expected to provide the answer to what degree do financial inclusion patterns vary across different countries and individual-level characteristics. In addition, the result is expected to draw conclusions on the importance of governance and institutional factors, and to what extent institutions matters in improving financial inclusion.

Islamic Financial Products and Services Patronizing Behavior in Tatarstan:The Role of Perceived Values and Awareness

Despite the tremendous growth shown by global Islamic financial services industry, there are Muslim minority countries that have not embraced Islamic finance yet and the Russian Federation is one of them. This research is conducted in the Republic of Tatarstan, a federal subject (part) of the Russian Federation, which has huge potential and promising future for the development of Islamic finance. The current study examines the role of perceived values and awareness among people of Tatarstan in patronizing Islamic financial products and services. The study has adopted the Theory of Reasoned Action (TRA) to examine the factors affecting Tatarstan citizens’ behavioral intention to patronize Islamic financial products and services. The sample of 517 questionnaires was available for analysis. The data was analyzed using ‘IBM SPSS Statistics’ and ‘IBM SPSS AMOS’ computer software. ‘IBM SPSS Statistics’ was used at the initial stage to perform descriptive analysis. ‘IBM SPSS AMOS’ was employed to run Confirmatory Factor Analysis (CFA) and Structural Equation Modeling (SEM). The findings of the research show that awareness has a positive effect on attitude, and subjective norms have positive effect on intention to patronize Islamic financial products and services in Tatarstan.

Explicating consumer segmentation and brand positioning in the Islamic financial services industry

Purpose– The purpose of this paper is to discuss how the current research on the Islamic financial services industry attempts to classify its consumers and provide a fresh and critical insight into the retail Islamic banking market segmentation to harness and enhance understanding, as well as provide a guideline for a better segmentation to bank marketers.Design/methodology/approach– This study is conceptual in nature. Based on Qur’anic verses and previous literature, the authors aim to propose an applicable model of market segmentation for the retail Islamic banking market in Malaysia. Consumer segmentation in the conventional financial service industry is analysed, and prior studies on the selection criteria of Islamic banks are evaluated.Findings– In moving forward, taking cue from the classification of people in classical doctrinal and historical literature and the initial exploratory study conducted from the managerial perspective, the authors propose five cluster groups of consumers for the retail Islamic banking market in Malaysia, namely, religious conviction, religious and economic rationality, economic rationality, ethical observant and economic rationality and ethical observant. A discussion linking consumer segmentation to the branding in the retail Islamic banking market is discussed.Research limitations/implications– The five cluster groups of consumers for the retail Islamic banking market in Malaysia proposed in this study pave the way for embarking on promising and relevant future research, which is needed to substantiate and enrich the academic understanding and managerial practice of linking market segmentation and brand positioning for Islamic banking market in Malaysia. Future research should focus on verifying the five proposed segments by conducting empirical studies on a larger scale among the retail banking consumers in Malaysia and globally.Practical implications– The study provides an initial bases or dimensions of consumers of the retail Islamic banking market in Malaysia. The proposed consumers segments are useful in guiding the management of Islamic bank in Malaysia in making decisions relating to the promotion strategy as well as product and brand positioning strategy.Originality/value– For both academia and the Islamic banking industry, this study provides useful knowledge in strategically using market segmentation to position Islamic banking products and services in Malaysia and the global market.

The Application of Third Party Guarantee in Structuring Ṣukūk in the Islamic Capital Market: A Preliminary Literature Survey

In the Islamic capital market, the ṣukūk (Islamic investment certificates) segment is considered by key stakeholders in the Islamic financial services industry as the most vibrant segment in the global Islamic financial system. This paper provides a preliminary literature survey on the application of third party guarantee in Islamic capital market with specific reference to ṣukūk transactions. The methodology adopted in this study leverages on the dynamics of comparative jurisprudential analysis of the different schools of thought in Islamic law from the classical to the modern jurists. Though this aspect of Islamic capital market is relatively in its infancy stage of development, the Islamic financial services industry is fraught with diverse practices where a perceptible disconnect is noticed between juristic ideals and practical application of third party guarantee in ṣukūk structuring. Therefore, the paper finds that though the use of third party guarantee is permissible in Islamic capital market, there is however a proviso which must be adhered to – the voluntary nature of the guarantee. The guarantee should be provided without charging any fee, and this is applicable in commonly used sukuk products such as ṣukūk al-ijārah, ṣukūk al-muḍārabah, and ṣukūk al-istiṣnā‘. It is however permissible to impose a compensatory fee in ṣukūk al-istiṣnā‘ in the case of failure to deliver the subject matter of the contract on the due date and the contractee has suffered a damage. DOI: 10.5901/mjss.2015.v6n5p130

Corporate Governance and Ethics of Islamic Finance Institutions

Islamic finance has grown impressively since its modest beginnings with the establishment of Egypt’s Mitt Ghamar Saving Bank in 1963. By the end of 2011, the global Islamic financial services industry was valued at $1.357 trillion, a 150 percent increase in the past five years. Yet despite this growth, in nearly five decades of its existence, Islamic finance has gained only one percent of the global market share for finance. While some of this can be chalked up to the relative newness of the industry, some of its problems stem from ambiguous corporate governance model and less than stellar commitment to ethics. Islamic Shariah provides guidelines that can help this industry mitigate agency problems resulting from the duality of its objectives – improving financial efficiency and adhering to the rules of Shariah. In addition, a stronger commitment to the higher objectives of Shariah may allow the industry to escape the controversy that Islamic finance is different in form but essentially the same in substance to conventional finance. Corporate Governance and Ethics of Islamic Finance Institutions

The Risk in Islamic Finance Instrument and its Impact on Capital Adequacy

Islamic finance is evolving as a rapidly growing part of the financial sector in the Islamic world. Its current asset base of one trillion USD is experiencing annual growth of 15 – 20 percent. It is categorized by being interest free and depends largely on the principles of Islamic Law (Shari’ah). Now, Islamic finance is not restricted to Islamic countries, but is spreading wherever there is a sizable Muslim community. The Islamic financial services industry, containing Islamic banking, Islamic insurance and the Islamic capital market, is an area that has grown to become an increasingly substantial segment within the global financial market and has gained considerable interest as a viable and efficient alternative model of financial intermediation. This paper examines contemporary Islamic Financial Instruments and the risk of Islamic financial instruments. This paper analyses forwards, futures and options, examines the evolution of these instruments, their unique benefits and why they are needed

Book Reviews

Book Reviews

Operational Risk Management, Risk Management Approaches, and Risk Mitigation Techniques: Challenges Faced By Islamic Financial Services

The present study discussed and analyzed a number of issues concerning the operational risk faced by Islamic Financial Services, for example concepts of operational risks, risk management approaches and risk mitigation techniques and standards as these exist in the financial industry, unique operational risks of the Islamic Financial Services industry and the perceptions of Islamic Financial Services about these risks, regulatory concerns with respect to operational risks and their management, and Shari'ah related challenges concerning risk management has been identified and discussed. This study is an exploratory study therefore, based on the literature review relating to operational risk, risk management approaches and risk mitigation techniques. Guidelines on Stress Testing, issued by State Bank of Pakistan including sensitivity analysis and scenario analysis were also studied. The major part of the data consisting of secondary source was collected through research journals, internet and relevant books. Citation and literature discussion have been the major approach of this study. Banks should aim to develop a framework for operational risk management particularly for collecting operational loss data. In respect of designing operational risk stress tests, key indicators, like human errors, frauds, or failure to perform in timely manner, breaching limits, failure of information technology systems or events such as major fires or other disasters may be identified against the business lines. Shocks may be given to these risk events, their frequency and severity of losses. Once the operational loss events are identified, the level of shocks may be designed by looking into both the historical as well as hypothetical level of losses under those risk events.

Segmentation and brand positioning for Islamic financial services

PurposeThe purpose of this paper is to explore the different segments of consumers in the Islamic financial services industry (IFSI) and their relationship with product/brand positioning for Islamic financial services (IFS).Design/methodology/approachIn‐depth interviews were conducted with individuals in managerial positions among the key market players in the IFSI to explore the segmentation of consumers and their buying motives.FindingsFour segments of IFS consumers emerged, namely, Religious conviction group; Religious conviction and economic rationality group; Ethical observant group; and Economic rationality group. These segmentation groups were appropriately categorized through a psychographic (value)‐based approach.Research limitations/implicationsThe empirical findings of this study pave the way for embarking on promising and relevant future research, which is needed to substantiate and enrich the academic understanding and managerial practice of linking market segmentation and brand positioning for IFS in the global market. Future research should focus on analysing these issues from the perspective of consumers of IFS to identify the purchase trend.Practical implicationsThe study provides empirical evidence of the bases or initial dimensions of consumer segmentation for IFS. The findings are useful in guiding the management of institutions offering IFS in making decisions relating to the marketing communication and promotion strategy as well as product and brand positioning strategy.Originality/valueFor both academia and the IFSI, this study provides useful knowledge in strategically using market segmentation to position IFS in the global market.

The global financial crisis and Islamic finance

AbstractThe conventional view holds that the current global financial crisis was caused by extraordinarily high liquidity, reckless lending practices, and the rapid pace of financial engineering, which created complex and opaque financial instruments used for risk transfer. There was a breakdown of the lender‐borrower relationship and informational problems caused by a lack of transparency in asset market prices, particularly in the market for structured credit instruments. There was outdated, lax, or absent regulatory‐supervisory oversight; faulty risk management and accounting models; and the emergence of an incentive structure that not only encouraged excessive risk taking but also created a complicit coalition of financial institutions, real estate developers and appraisers, insurance companies, and credit rating agencies whose actions led to a deliberate underpricing of risk. Such a crisis would not have occurred under an Islamic financial system—due to the fact that most, if not all, of the factors that have caused or contributed to the development and spread of the crisis are not allowed under the rules and guidance of Shariah. The current global financial crisis is largely seen as a real test of the resilience of the Islamic financial services industry and its ability to present itself as a more reliable alternative to the conventional financial system. © 2011 Wiley Periodicals, Inc.

Financial crimes

PurposeThe purpose of this paper is to establish that financial crimes are unlawful (haram) in Islam and accordingly, the responsibilities of theSharia'sSupervisory Boards of Islamic financial institutions include the prevention and control of financial crimes.Design/methodology/approachThe paper presents an analogy (qiyas) of the injunctions in theQur'anandSunna.FindingsFinancial crimes are prohibited in Islam as much as, if not more than, their prohibition by temporal laws.Practical implicationsThe responsibilities of theShari'aSupervisory Boards in ensuring “Shari'a‐compliance” on the part of the Islamic financial institutions include a wider ambit. It includes the prevention and control of financial crimes.Originality/valueThe paper provides additional dimension toSharia'sgovernance framework for the Islamic financial services industry.