Islamic Financial System Research Articles

IMPLIKASI INSTRUMEN NON ZAKAT DALAM PEREKONOMIAN

This study analyzes the implications of non-zakat instruments such as infaq, sadaqah, and waqf on Indonesia’s economy. These three instruments are regarded as alternatives to address economic issues such as poverty and social inequality, as well as to support community welfare. Employing a qualitative method with a descriptive approach, the research data were collected through literature review and documentation of relevant regulations and practices of Islamic philanthropy. The findings indicate that infaq, sadaqah, and waqf can contribute to state revenue and investment if managed professionally and transparently. Moreover, the optimization of waqf has the potential to become a productive funding source capable of supporting development and improving the quality of life for the community. However, challenges related to policy implementation, management issues, and low public awareness remain significant obstacles. This study recommends enhancing the role of the government and philanthropic institutions in managing infaq, sadaqah, and waqf funds more effectively, integrating them with the Islamic financial system. Collaboration between institutions and consistent regulatory enforcement are essential to maximizing the potential of Islamic philanthropy as a sustainable economic instrument.

EXCHANGE RATES AND STOCK MARKET DYNAMICS: ISLAMIC VERSUS CONVENTIONAL FINANCIAL SYSTEMS

This study investigates the changes and persistence in dynamic connectedness between stock market performance and exchange rate fluctuations, comparing conventional and Islamic financial systems. With an eye on a global financial landscape characterized by the integration of capital markets and the adoption of floating exchange rate regimes, it examines the effects of exchange rate variations on the dynamics of the stock market in nine different countries - the United Kingdom, Australia, Japan, Singapore, Canada, China, India, Korea, and South Africa. The study employs daily data spanning from November 2015 to July 2023 and uses a comprehensive analysis of three-step methodology, including nonparametric causality-in-quantiles tests, asymmetric slope Conditional Autoregressive Valueat-Risk (CAViaR), and Time-Varying Parameter Vector Autoregressive (TVP-VAR) Connectedness measure. Our results underline the asymmetric impact of exchange rate fluctuations on stock markets and highlights the distinctive characteristics of Islamic financial markets. Comparing Islamic and conventional stock markets in the context of exchange rate fluctuations, this study not only serves to fill a gap in the existing literature but also emphasizes the significance of currency exchange rate swings for global investors, policymakers, and practitioners trying to understand the intricacies of global financial markets.

The Visionary Philosophy of Shariah Governance in Islamic Financial System: Pioneering Green Finance for a Sustainable Future

The Visionary Philosophy of Shariah Governance in Islamic Financial System: Pioneering Green Finance for a Sustainable Future

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

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

Arbitrage outcome between conventional and Islamic finance of yield and forward rates in bond market

Purpose In this research, arbitrage opportunity is tested between the yield rates computed by the NSS model, and the computed forward rates between conventional and Islamic finance to see any arbitrage opportunity. The research questions are the conventional and Islamic finance yields at the same level and equal to each other to avoid arbitrage? Whether conventional and Islamic forward rates differ significantly and thus create any arbitrage opportunity. This study aims to find the presence or absence of arbitrage between conventional and Islamic finance yield rates. Design/methodology/approach The NSS model is the latest model in calculating yield and forward rates. In the method the error level is minimized so expected yield rate and given yield rate both converged (Vahidin and Anastasios, 2020). When they converged it gives the researchers all six months’ yield rates. For the Nelson Siegal method, all the six months’ yield rates are available and these yield rates can be used to compute the forward rates. Findings The authors concluded there is a significant difference between the conventional yield rate and the Islamic yield rate. It suggests that because there are significant differences, its suggest arbitrage is possible. So anyone interested in making a guaranteed profit. The conventional yield rates are lower; hence, anyone can borrow from the conventional finance system and invest the money in the Islamic financial system because investments are getting higher rates of income in the form of yield rate in Islamic Finance. So, one can make money because of this difference. Statistically, it is possible to make money, but practically, the authors observed the difference, however it is very meager. The arbitrage opportunity between Islamic finance and conventional finance will not affect the economy because the significant difference is too small. The disturbance in the arbitrage opportunity due to the values is very meager and insignificant. Research limitations/implications This research does not address the derivative contracts’ role in risk management; future researchers could take up this as another research. Practical implications This research will be beneficial for financial institutions, especially institutional investors. Besides, this research will help the regulators and investment bankers in assisting where and future losses especially bond portfolios in conventional finance and Islamic finance. This study will also contribute and help the asset manager of mutual funds in the mutual fund industries. Social implications In effect, this research will strengthen the financial system, capital market and bond market, derivative contracts such as options contracts, futures contracts, swap contracts and forward contracts will use computed forward rates for assessing future losses (value at risk [VaR]) and to hedge them (Balakrishnan, 2020). Originality/value As this topic is rarely studied it will increase the literature present in this domain.

Analisis Pengaruh Literasi Keuangan Islam terhadap Inklusi Keuangan Syariah pada Generasi Milenial

Currently, there are still heated discussions regarding the low level of sharia financial literacy and inclusion, which causes a lack of competitiveness. At the same time, Indonesia is entering an era of demographic bonus, which can be seen from the large number of millennial generations and a Muslim population of 237.56 million people (86.7% of the total population). This research uses a quantitative approach with survey methods to collect data from a sample of the millennial generation in Indonesia. The research instrument is a questionnaire designed to measure the level of Islamic financial literacy and use of Islamic financial products and services. Data analysis was carried out using the SmartPLS tool to test the relationship between Islamic financial literacy and Islamic financial inclusion. The validity and reliability of the instrument were tested before data collection to ensure the accuracy of the research results. The research results show that there is a positive and significant relationship between Islamic financial literacy and Islamic financial inclusion. Millennials with a high level of Islamic financial literacy tend to be more active in using sharia financial products and services. This research has important implications for stakeholders, including governments, financial institutions, and educational organizations, to strengthen Islamic financial literacy programs to encourage wider participation in the Islamic financial system.

Transformative Trends: Exploring the Nexus of Innovation, Technology, Blockchain, and Islamic Social Finance for Global Sustainability

Global sustainability is a growing concern, with the Islamic finance system playing a pivotal role in this process. The integration of blockchain technology, a technology that enhances transparency, efficiency, and security, is being explored in the context of Islamic social finance. The study, which combines literature review, case study, and industry expert interviews, highlights the potential of blockchain to revolutionize zakat management, waqf, and sadaqa processes, contributing to global sustainability by promoting fair transactions, wealth distribution, and socioeconomic empowerment. The case study of iBantu's collaboration with the Hidayatullah organization in Indonesia exemplifies the practical application of blockchain in digital philanthropy. The study emphasizes the importance of user-friendly, scalable, and interoperable blockchain solutions for widespread adoption and sustainability. The findings offer valuable insights for policymakers, businesses, and practitioners, suggesting strategic interventions to foster sustainable innovation. By integrating blockchain technology into regulatory frameworks and operations, Islamic social finance institutions can significantly contribute to achieving the Sustainable Development Goals while promoting environmental responsibility and socioeconomic development.

The Use of Retrocession by Retakaful operators: An Analysis from Shariah Perspective

In Malaysia, the insurance and takaful sector is under the purview of the Central Bank of Malaysia, and the same goes for reinsurance and retakaful operations. However, due to the country's dual financial system i.e. the conventional and Islamic financial system, conventional reinsurance and retakaful, fall under different laws. The conventional reinsurance is regulated under the Financial Services Act (2013) while the takaful and retakaful by the Islamic Financial Services Act (2013). Undoubtedly, the takaful industry is expanding in the Malaysian market today by leaps and bounds. Retakaful acts in the same way as takaful, providing (re)takaful arrangement for their policyholders. The survival of the takaful operator is heavily influenced by the retakaful operators. The takaful operator will distribute some portion of their risks that they cannot bear to a retakaful operators. However, the retakaful operators are currently unable to cover the entire risk that were ceded by the takaful operators due to lack of retakaful operators in the market, as well as very limited capital, inadequate accumulated funds, and regulatory solvency issues. At the same time, retakaful operators also face challenges in meeting their commercial goals. They, in turn, use tools such as retrocession to overcome their impending challenges. This paper aims to analyse the importance of retrocession to the retakaful company from a Shariah perspective. The research is timely as not much research has been carried out on Retakaful operations in Malaysia. There is also limited discussion related to the business models of retakaful, as well as no specific guidelines focusing on retakaful itself. Therefore, a qualitative approach is suitable for the purpose of exploring such new areas. Besides, Retakaful industry is considered relatively new compared to reinsurance.

Bursa Suq Al Sila Framework Analysis

In Malaysia, Tawarruq was introduced in Islamic financial system to replace the bai ai-inah concept. Hence, Tawarruq is the most popular product in Islamic Banking and finance sector. The ideas of Tawarruq came from the classical perspectives of jurists that want to assist the development of Islamic economic, banking and finance and replacing the old concept which is clearly prohibited in Islam. Therefore, to overcome this issues and facilitate the implementation of Tawarruq, Suq al-Sila’ (BSAS) was introduce in Islamic financial system. However, many scholars has discussed from a difference views about the implementation of Tawarruq and BSAS. This study refer to BSAS as a case study to complete this research. The objectives of this study is to understand the framework of BSAS, explain the types of commodities and specification of commodity authorizing by Bursa Malaysia Islamic Services (BMIS), participants in the BSAS platform and analyze issues that exist on the BSAS platform. Meanwhile, this research use the secondary data such as collect data from the sources from library and data from internet and primary data by interviewing Vice President, Bank Shariah Officer and Shariah Officer Hong Leong Islamic Bank to obtain primary data. This paper will explain in more detail the BSAS transaction flow and present the Shariah issues involved. The results of this study found that there are several aspects of the implementation of the BSAS platform that raise some Shariah issues. Therefore, this paper is expected to improve BSAS platform and Tawarruq principles.

Perekonomian Indonesia ditinjau dari financial technology menurut perspektif Islam

Economic development in Indonesia with technological advances has a significant impact. Innovation and new technological breakthroughs today in the financial sector using Fintech or financial technology. Fintech initially only existed in the conventional financial system, but along with the times, fintech has now entered the Islamic financial system. The purpose of this study is to analyze fintech in the economy in Indonesia through an Islamic perspective. The type of research used is to use literature studies obtained from various sources. This research is descriptive and qualitative. The data used is secondary data. The data collection technique is to use literature review to examine the theoretical basis related to fintech concepts and mechanisms that are currently developing rapidly in accordance with the principles of Islamic law. As well as knowledge of the development of sharia fintech as the main basis for building correlations between practice and theory based on Islamic perspectives. This research produces Fintech in an Islamic perspective, offering alternative choices to people who use financial technology services, especially for people who want to avoid the trap of usury, because the fact that occurs almost entirely contains elements of usury. However, muamalah is not only important in terms of economic value but must also be of worship value so that muamalah activities become a blessing of participation.

Theoretical Analysis of the Effectiveness of the Sharia Financial System in Facing the Global Economic Crisis

This research theoretically examines the effectiveness of the Islamic financial system in dealing with the global economic crisis. This study discusses economic theory, principles, characteristics, influence, comparison, experience, innovation and challenges in the Islamic financial system. Through a qualitative approach by conducting theoretical analysis of literature related to the Islamic financial system and the global economic crisis. The results of this research show that the Islamic financial system has great potential to become an attractive option in facing global economic challenges. By strengthening the foundation of sharia principles, developing appropriate innovations, and overcoming existing challenges, the sharia financial system can continue to develop and make a significant contribution to global financial stability and inclusion. This research confirms that the Islamic financial system, with its basic principles such as the prohibition against usury and excessive speculation, as well as the emphasis on real asset-based transactions, offers a more stable and fair alternative compared to the conventional financial system. The profit sharing principle shows the ability to reduce systemic risk by distributing risk more fairly among the parties involved in financial transactions.

The Application of Value-Based Intermediation Through Waqf in Islamic Banking

The Islamic financial industry has experienced an exponential transformation that has contributed greatly to the national economic growth. Malaysian Islamic finance is considered one of the most comprehensive Islamic financial systems in the world. Bank Negara Malaysia (BNM) has introduced a new concept of Value-Based Intermediation (VBI). This banking practice focuses on profit and supports social values for a sustainable economy, community, and environment. This study discusses the involvement of Bank Muamalat Malaysia Berhad in waqf development, focusing on business activities in line with VBI. This qualitative study applied document analysis and semi-structured interviews and found that Bank Muamalat Malaysia Berhad is an Islamic banking institution that bases its existence on commercial profits and is able to implement activities related to waqf development, such as cash waqf collection and waqf project financing consistent with VBI.

Analysis of Islamic finance, Islamic accounting and standards research

Purpose The Islamic financial system is a sector with a high potential for development, and the agenda has been set with theoretical studies before practical studies in this field have begun. The increase in theoretical studies on the establishment of the Islamic financial system has led to the issue being placed on the agenda of the Islamic world. Following the theoretical studies, the sector gained popularity with applications. The aim of this study is to systematically review the literature on the subject, which has been theoretically agenda-setting and functionalised with applications. Design/methodology/approach In this context, the place of the concepts of “Islamic Finance or Islamic Accounting and AAOIFI or IFRS” in the international literature and their coverage were examined; a bibliometric analysis of the articles written in this field between 2001 and 2023 and scanned in the Scopus database was carried out. The R bibliometrics software was used to analyse the data, and the results were evaluated by carrying out performance and scientific mapping analyses of the publications. Findings Based on the results of the bibliometric analysis, a total of 969 publications in the form of articles, books, book chapters and proceedings were identified in the Scopus database. It is evident that there has been a steady increase in the number of articles pertaining to the research topic over the years, and the years with the highest volume of publications are 2020 and 2022. The Journal of Islamic Accounting and Business Research is the most frequently published journal in this field, with the most commonly published authors being K. Hussainey and M.K. Alam. Originality/value A bibliometric analysis of the literature pertaining to the subject has been conducted to examine primarily theoretical shortcomings and translate them into practical improvements. This pioneering study of theoretical investigations on the subject is aimed at eradicating practical deficiencies.

Analysis of Islamic financial literacy and demographics on saving decisions in Islamic banks

When the level of Islamic financial literacy in society is high, it will lead to the growth of development financing, this is based on public awareness to save and invest in Islamic financial institutions. Apart from the Islamic financial literacy factor, demographic factors include age, gender, income, and education level. This research uses a mixed-method approach: quantitative methods in bibliometric studies and qualitative methods in literature review studies. The object of research is Islamic financial literacy and demographics. The type of data used is secondary data. The scope of the data used is research journal articles on Islamic Financial Literacy and Demographics on Saving Decisions in Islamic Banks. In 2023, Islamic financial literacy showed significant progress, the highest level in the last five years. Wibowo (2023) reported that of 1800 respondents, 65% had sufficient knowledge of Islamic financial products. Financial literacy programs supported by the government, an increase in the number of Islamic financial institutions, and the development of Islamic financial technology are the main drivers of this progress. The increase in Islamic financial literacy from 2019 to 2023 shows a positive development in public acceptance and understanding of the Islamic financial system. This directly impacts the increase in saving decisions in Islamic banks. The research results from 2019 to 2023 show that demographic factors such as age, gender, education level, income, and marital status significantly influence the decision to save in Islamic banks.

Does technology improve customer satisfaction and loyalty? A comparative study of Islamic and conventional banks

This study aimed to determine the impact of technology based service qualities! Toward customer loyalty mediated by customer satisfaction and further to compare this phenomenon between Islamic and conventional banks. The data was collected via adapted questionnaire and two hundred (200) questionnaires were distributed among customers. The statistical packages of social science (SPSS) is used for data analysis. The independent T test revealed that Islamic banks are significantly healthier to provide convenient and troubleshooting aspects of technology based services. Customer satisfaction plays a partial mediatory role between the technology service quality and customer loyalty. The comparison of positive mean value results show that Islamic banks employees have sufficient knowledge in order to guide their customers according to their desires on! However, this factor explores the importance of Islamic financial system in current market demand. The overall results show that all variables are statistical significant excluding one variable as convenient technology. This study is first ever attempt to use Technology as main policy variable in order to examine the real effects of customer satisfaction and loyalty in Pakistan.

Boom and Bust Cycles of the World's Financial System and Islamic Modes of Finance as a Sustainable Alternative

The conventional financial system is based on credit financing. Banks advance loans to borrowers, charging interest thereupon and passing a portion to depositors/investors. Over the centuries, the world has been experiencing financial up and down cycles after every few decades. Global Financial Crisis of 2008 was the latest among all. The common thing in all these crises was the massive capital infusion of public into irrational speculative investments. On the contrary, Islamic financial system functions wholly on equity-based financing. Instead of offering credit, they offer to invest in assets either together with clients or exclusively. In former, both become partners whereas in the latter, bank becomes buyer by advancing finance and client becomes a seller. In this article an attempt would be made to analyse key actors of the financial crises and their aftermath on the World’s financial system and to explore Islamic modes of financing as a sustainable alternative.

Financial inclusion through Islamic financial instruments: A catalyst for small and medium enterprises (SMEs)

The term Islamic finance is used to refer to financial activities conforming to Islamic Law (Sharia). One of the main principles of the Islamic finance system is the prohibition of the payment and the receipt of riba (interest) in a financial transaction. The term riba covers all forms of interest and is not limited to usury or excessive interest only. The most critical and significant implication of banning interest is the indirect prohibition of a “pure” debt security. The key point to bear in mind is that Islamic law does not recognize money and money instruments as a commodity but merely as a medium of exchange. Hence any return must be tied to an asset, or participation and risk-taking in a joint enterprise (such as partnerships). A pure debt security is replaced with an “asset-linked” security, direct financing of a real asset, and different forms of partnerships of which equity financing is the most desirable. In addition to prohibition of riba, there are several other important provisions which may affect financial transactions. These include the prohibition of ‘gharar’ (uncertainty or asymmetrical information), ‘maysir’ (gambling, speculation), hoarding, as well as trading in prohibited commodities (for example, pork and alcohol).

Does Intellectual Capital Efficiency Translate in the Post-pandemic Era for Islamic Banks in Indonesia?

PURPOSE: This study aims to identify the key determinants of financial performance in Islamic banks, specifically focusing on the Financing to Deposit Ratio (FDR) and Capital Adequacy Ratio (CAR). Additionally, it explores the applicability of these determinants in a post-pandemic environment. DESIGN/METHODOLOGY/APPROACH: The research utilizes data from two prominent Indonesian Islamic banks, Bank Syariah Indonesia (BSI) and Bank Muamalah Indonesia (BMI), for the pre-pandemic period (2016-2020). Ordinary Least Squares (OLS) regression analysis is employed to investigate the influence of Human Capital Efficiency (HCE), Structural Capital Efficiency (SCE), and Capital Employed Efficiency (CEE) on both FDR and CAR. FINDINGS: The model analyzing determinants of FDR explains a significant portion (48.99%) of the variance. Interestingly, only Capital Employed Efficiency (CEE) exhibits a statistically significant negative relationship with FDR. Conversely, the model for CAR lacks a statistically significant fit. ORIGINALITY: This research contributes by examining the impact of intellectual capital components (HCE, SCE, CEE) on financial performance ratios (FDR, CAR) within the Indonesian Islamic banking context. RESEARCH LIMITATIONS: The study is limited to data from two Indonesian banks during a specific timeframe. Further research with a broader sample size and encompassing the post-pandemic era would enhance generalizability. PRACTICAL IMPLICATIONS: The findings offer valuable insights for stakeholders in Indonesian Islamic banking, particularly regarding the importance of efficient capital utilization for managing financing activities and maintaining healthy FDR levels. SOCIAL IMPLICATIONS: By enhancing the financial performance of Islamic banks, this research indirectly contributes to the development of a more robust Islamic financial system that caters to the ethical and social banking needs of the community.

PEMAHAMAN KONSEPTUAL DAN IMPLIKASI RIBA DARI PERSPEKTIF EKONOMI SYARIAH

Conceptual understanding of riba and its influence in Islamic economics is an important subject in the context of Islamic finance. This research highlights the conceptual understanding of riba and its implications from the perspective of Islamic economics. Through a literature review approach, this article explores various views and arguments related to riba in Islam and Islamic economics. The analysis in this article underscores the need for a deep understanding of riba in the context of Islamic economics. Through this approach, policies can be formulated to promote principles of justice, equality, and sustainability in the Islamic financial system. Practical implications include profit-sharing systems such as mudharabah and musyarakah being used to replace riba practices, ensuring fairness and equality among parties involved in transactions. Additionally, a deeper understanding of Sharia economics and strict supervision of riba practices in the financial sector are crucial to assist individuals and institutions in managing finances in accordance with Islamic law. In conclusion, the conceptual understanding of riba and its influence from the perspective of Islamic economics is an important aspect in building a financial system that aligns with Islamic principles. By understanding the implications of riba, society can take more sustainable and equitable steps in developing Sharia-based economies.

Tokenization of Dinar and Dirham: Potential and Implications in the Islamic Digital Financial System

In the era of digitalization, the Islamic community faces challenges in integrating modern technology with Shariah principles in financial transactions. This study explores the potential and implications of tokenizing Dinar and Dirham within the Islamic digital financial system. Dinar and Dirham, currencies made of precious metals, can be tokenized using blockchain technology, enabling faster, more secure, and transparent transactions. Tokenization offers benefits such as transparency, security, efficiency, and financial inclusion, which are crucial in Islamic financial principles. However, the main challenges include regulation, Shariah compliance, technological infrastructure, and public awareness and education. Case studies from Dubai and Saudi Arabia demonstrate efforts and successes in asset tokenization. This study concludes that tokenization of Dinar and Dirham has significant potential to address the challenges of digitalization in Islamic finance, but requires collaboration among governments, financial institutions, and communities. Further research is needed to understand the long-term impact and practical application of tokenization in the Islamic financial system.