Islamic Financial System Research Articles

The genesis of Islamic finance system: Exploring the mainsprings and emerging markets

Abstract: Purpose: The present paper aims in-depth analysis of the Islamic Banking and Finance Industry (IBFI) in relation to its emergence, consolidation, and impact on the geo-economic scenario. With this, the Emerging Markets of Islamic Finance in several jurisdictions are highlighted to indicate the global influence of IBFI in the contemporary economic scenario. Research Methodology: The methodology in the research will be altogether qualitative, involving descriptive and analytical methods. Results: The analysis finds that unprecedented developments engulfing the Middle East post-1970s like, the pan-Islamism oil embargo of 1973-1974, played a pivotal role in materializing the emergence of Islamic Banking and Finance theory into a ‘viable corporate system. Limitations: The paper as such is not the statistical overview of IBFI in its sectors of intermediation like Islamic Banking. Islamic Insurance (Takaful), Islamic Capital Market, etc. The paper also doesn’t evaluate the internationalization and standardization aspects of IBFI. Contribution: The discussion in the manuscript will develop a coherent understanding of the emergence, growth, and development of IBFI in the contemporary geo-economic scenario. Moreover, the analysis in the paper establishes the emergence of IBFI as a global phenomenon, and thus explores the possibilities of further research in several aspects/sectors of IBFI Islamic Banking. Islamic Insurance (Takaful), Islamic Capital Market. Keywords: 1. Financial intermediation 2. PLS Scheme 3. Riba 4. Sharī‘ah 5. Standardization

Profit- and loss-sharing partnership: the case of the two-tier mudharaba in Islamic banking

PurposeThe purpose of this study is to understand the profit-sharing structure at equilibrium of the two-tier mudharaba contract in a pure Islamic banking system and then in a dual banking system.Design/methodology/approachThis paper aims to better understand the profit-sharing structure at the equilibrium of the two-tier mudharaba. It first assumes a purely Islamic banking system and then introduces a risk-free asset to simulate trade-off opportunities in a dual banking system.FindingsFirst, by using a model inspired from a neoclassical framework and assuming that the Islamic banks are the only channel for financing the economy, the results suggest that the profit-sharing structure built up by the three parties, the bank, the depositor and the entrepreneur, at the time of signing the Mudharaba contract has to be drawn up in the way that, at the ex post, the remuneration of each necessary production factor, capital and labor, should equal its marginal productivity. Second, the authors relax the hypothesis of a purely Islamic financial system and introduced a risk-free asset in favor of the depositor. Thereby, the authors are able to apprehend the financial balance of the two-tier mudharaba contract by simulating the trade-offs that can occur in a dual banking system. The findings suggest that the profit-sharing structure is not the same whether we are at the level of bank assets (bank–entrepreneur relationship) or liabilities (bank–depositor relationship). For the asset side, an increase (respectively decrease) in the expected profit of the mudharaba implies a decrease (respectively increase) in the share of the bank, whereas an increase (respectively decrease) in the return of the risk-free asset and/or the risk underlying the project implies an increase (respectively decrease) of the bank’s share in the expected profit.Originality/valueTheoretical work that has studied the determinants of the ratio of profit sharing between capitalists and entrepreneurs in the context of mudharaba has omitted that this contract should be assessed at both asset and liability sides of the bank. To overcome this theoretical gap, this paper aims to better understand the structure of profit sharing at the equilibrium of the two-tier mudharaba, while taking into account the contractual specificities between the different stakeholders.

A REVIEW OF MONETARY DETERMINANTS OF CRYPTOCURRENCY ADOPTION IN ISLAMIC FINANCIAL SYSTEM

This paper discusses the money and financial system from both the conventional and Islamic points of view. To further elucidate this topic, some aspects of the conventional financial system are discussed on the applicability from an Islamic perspective. Firstly, the advancements of technology that had led to the invention of cryptocurrency and how the Islamic financial system can evaluate the determinants of the adoption of such cryptocurrencies were reviewed. Secondly, the use of digital wallet and how it is encouraged by the government to increase transparency in the financial system and finally, the applicability of a dual-currency model, which covers the idea of revitalizing the dinar and the dirham as well as the implementation of a dual-currency regime in a nation and how it benefits the economy and prevents the failures of the financial system are discussed along the way. The paper reviews scholarly work conducted by both contemporary conventional and Islamic economic scholars. In addition to that, this paper incorporates the views from the classical Islamic scholars such as al-Ghazali, as well as reviewing the money, banking, and financial systems that were conducted during the early Islamic reign, which would be deemed helpful in formulating an Islamic monetary system that could be pre-eminent in today’s world.

CRYPTOCURRENCY AS MONEY: Islamic Monetary System Perspective

The existence of cryptocurrencies that have emerged and developed since the last decade is still a debate, both in terms of function, regulation and compliance with Islamic economic principles. Different countries give different attitudes towards cryptocurrencies. Some countries accept its existence, while some other countries reject it. This is inseparable from the question that arises whether cryptocurrencies function as money or commodities. In addition, the absence of an official institution that is responsible for and regulates the circulation of cryptocurrencies and no underlying assets is also another problem. This article aims to see how cryptocurrencies are positioned based on their nature, characteristics and functions using an Islamic finance point of view. The results of the study indicate that cryptocurrencies currently carry out more functions as a store of value that are not in accordance with the Islamic financial system. In addition, the use of cryptocurrencies as money and means of payment carries a fairly large risk. This violates the principle of property protection in the maqasid al-shari'ah view.

VIEWING THE ISLAMIC FINANCIAL SYSTEM, ISLAMIC VIEWS AND ANSWERS ABOUT CRYPTOCURRENCY

Cryptocurrency is a digital or virtual currency that created due to technological advances. Its purchase transactions take advantage of technological developments that can be done online without going through a bank intermediary, enhanced with the advantages of Blockchain technology. However, cryptocurrency investments have a high risk on their profit and loss value. It isn’t enough to get there, cryptocurrencies also still don’t get the legality in Indonesia. This discussion aims to get clarity on cryptocurrency investments and transactions, also get answers to cryptocurrency law according to Islamic sharia. Based on qualitative descriptions and review of literature studies. The result of this study is that the Islamic financial system provides a view on cryptocurrency investments and transactions with a clear and sourced law from the Qur'an, As-Sunnah, and the results of the cleric' ijtihad. Based on Islamic sharia, investments and transactions used by cryptocurrencies contain elements of maysir (betting) and gharar (uncertainty) because they risk investment goods with unclear value of assets and their real form. The conclusion of this study is that users of cryptocurrencies are justified haram lighairihi as well as syubhat for those who still have doubts. Keywords : Cryptocurrency, Islamic sharia.

The regulators’ dilemma and the global banking regulation: the case of the dual financial systems

This paper aims to contribute to the literature debate on the regulators’ dilemma affecting international financial regulations focusing on the banking regulation of dual financial systems. In this regard, the paper provides a new taxonomy of Islamic Financial Systems considering the banking regulation as a driver for the classification and a more detailed definition of dual financial systems. The literature review reveals the existence of different financial system structures affected by socio-cultural biases due to different characteristics of various countries and financial systems globally. The risk of regulatory arbitrage or over-regulation phenomena is high, stifling the growth and the level playing field for both some systemically financial systems.

How does financial risk affect sukuk market development? Empirical evidence from ARDL approach

Despite the great attention that sukuk received from Islamic financial systems, the academic literature on the determinants of sukuk market development (SMD) is both new and very limited. To our knowledge, this study is the first to empirically investigate the challenges to SMD in Saudi Arabia. The data were collected from in-depth Saudi Central Bank and ICRG databases over the period 2012Q1-2021Q1. Using ARDL approach, we analyse how the financial risk components affect the development of Saudi sukuk market. Our findings indicate that exchange rate stability, foreign debt stability and debt service stability seem to be the main drivers of the development of SMD in Saudi Arabia, while international liquidity stability and current account stability do not appear to play a major role. As policy implications, Saudi policymakers should strengthen financial stability to ensure a well-developed sukuk market.

The Consequences of Improper Sequence (Tartib) In Tawarruq Financing Contract

The application of sequencing (tartib) in validating Islamic financing contracts is becoming extremely prevalent, particularly among Islamic financial institutions. According to the majority of Shariah experts, a contract can only be performed with a sequence which after the seller has possession of the agreed commodity by the client, based on the pillar of contract in Islam, which is offer and acceptance. Previous survey conducted by other researcher shows the most Shariah non-compliance event occur in Tawarruq contract was an improper sequence in a contract execution. Therefore, the aim of this study is to explore the consequences of improper sequence (tartib) in Tawarruq financing contract. This research adopted primary, and secondary data through library research. The study has found the application of sequencing in validating the Islamic financing contracts especially in the Tawarruq contract is beneficial as it ensures the success of Islamic Banking institutions as there are consequences due to improper sequence of the Tawarruq Financing contract. The findings are expected to serve as a reference point for other researchers, academics, students, and especially to Islamic Banking Industries. In order to carry out the roles and responsibilities effectively, the players and the regulators of Islamic Banks were encouraged to refine the local Islamic financing system into a better platform in the future as an outcome of this research.

SISTEM KEUANGAN SYARIAH PADA UMKM DI DESA JATIURIP KECAMATAN KREJENGAN PROBOLINGGO

Introduction: A good Islamic financial management system is very meaningful for UMKM in carrying out their business so that industrial values ​​and profits can be optimized, prosperity is formed, industrial image is created, and industrial responsibilities are carried out
 Methods: The research method used is qualitative metode using primary data sources through interviews about data and information related to research. System of Islamic financing for UMKM in Jatiurip Krejengan Probolinggo Regarding the method of implementation, interviews are divided into 3 types, namely: freelance interviews, guided interviews, free guided interviews, interviews as a means of data collection, and at the same time collecting data.
 Results: The results of this research activity indicate that the reporting of sharia-based financial systems for MSMEs is not optimal and financial reports are very important in order to understand the role and benefits of implementing Islamic financial management for MSME business implementation.
 Conclusion and suggestion: It is hoped that UMKM will be able to make financial reports with national accounting standards so they can analyze profit and loss and manage Islamic finance.
 Keywords: UMKM, Islamic Financial Management, Implementation

ISLAMIC BANKING RODUCTS AWARENESS AMONG ISLAMIC BANKS’ CUSTOMERS IN NORTHEN NIGERIA

This paper analysed the level of customers’ awareness about unique Islamic banking products in Nigeria. The data used for the study was obtained through the distribution of well-structured questionnaires among the Islamic banking customers in which out of 400 sampled respondents, 370 questionnaires were properly filled and returned (that is, a 92.5% response rate) for further analysis. Also, to ensure proper data triangulation in this research, a semi-structured interview was conducted among the Jaiz Bank officials. Using descriptive statistics, the result indicated more than 50% of the customers were not aware of such unique products, though the level of this awareness differs from one product to another as some customers have had practical experience with some of these products like in case of murabahah and ijara. Therefore, the study recommends that, improving information dissemination about Islamic banking products will go a long way in enhancing the consumers’ perception and adoption of this unique system of banking, which will eventually make more individuals to be financially included due to the spiritual, economic and ethical considerations of Islamic financial system.

Does the Sukuk Issuance Boost Economic Growth? Evidence from Selected Islamic Economies

This article is determined to check the effects of sukuk issuance on the economic growth of the Islamic countries (Bahrain, Indonesia, Malaysia, Pakistan, Saudi Arabia and United Arab Emirates). The current research has employed a dynamic panel cointegration model pooled mean group/autoregressive distributed lag (PMG/ARDL) and panel causality test to analyse the causal relationship among the study variables. The quarter data have been collected for the period of 2005–2000. The result supports the ‘Schumpeter’s supply leading hypothesis’ that enforces sukuks, leading to economic growth in the Islamic countries in the long run. The findings of this study would facilitate the policymakers in formulating the Islamic financial reforms, which would further make the Islamic financial systems more efficient in stimulating investments/financing that ultimately would enhance economic growth in the long run.

The Impact of Islamic Capital Market Literacy, Financial Behavior, and Income on the Interest to Invest in Islamic Capital Markets among Generation Z

This study aims to determine the effect of Islamic capital market literacy, financial behavior, and income on the interest in investing in the Islamic capital market among generation Z. The research type and method used is quantitative research. The data used is primary data collected using an online questionnaire containing questions related to the variables, spread among Gunadarma University students as respondents. This study uses multiple linear regression analysis with a non-probability sampling technique assisted by statistical tools SPSS version 25. The results of this study indicate that partially Islamic capital market literacy variables (X1) and financial behavior (X2) have a significant effect on interest in investing in Islamic capital market. However, income (X3) has no partial effect on interest in investing. Meanwhile, simultaneously, the variables of Islamic capital market literacy, financial behavior, and income have an influence on interest in investing in the Islamic capital market. The results of this study emphasize the importance of increasing financial literacy to increase the involvement of Generation Z in the Islamic financial system, by intensifying socialization and education programs, in this case on the Islamic capital market.

Aspiring Maqāsid-e-Shariah and Socio-Economic Well-Being in Islamic Finance

The philosophy of Islamic finance aspires to an economic system based on risk-sharing, exchanges of assets, and avoidance of Ribā (interest). The framework of the Islamic financial system (IFS) is laid on shariah injunctions, drawn on the Quran and Sunnah. The contemporary institutionalization of an IFS is based on secondary sources such as Ijtihād (scholarly research), Ijmā (consensus), Istihsān (public good), and Qiyas (analogical reasoning). The goal of IFS is to furnish an equitable and just financial system that adheres to Maqasid-e-Shariah and enacts social well-being and welfare (Falāh). The challenge of rising above commercial goals and prioritizing Shariah objectives as a means of socio-economic welfare is yet to be mastered by the Islamic finance industry, both nationally and globally. Real success can only be achieved if shariah adherence vis-a-vis socioeconomic well-being becomes the primary concern of Islamic financial institutions. This article reviews the origins and the progress of IFS during the past five decades. We also articulate the interwoven implications of Islamic financial institutions’ observance of Maqāsid-e-Shariah and socio-economic well-being barriers as the principal objective. Our findings point, towards the strong convergence of shariah and well-being which fundamentally revolve around the prohibition of Ribā not only in Islam but in all three Abrahamic religions i.e. Judaism, Christianity and Islam.

The Importance of Applying Maqashid al-Sharia in The Islamic Financial System

Maqashid al-sharia is a relevant approach as the basis for developing Islamic financial systems, operations, and products. The maqashid al-sharia holistic order is a light for the development of the Islamic financial system, especially in answering the dynamics of questions based on benefit. The Islamic financial system is part of the prerequisites that must be developed, not only at the conceptual level but also practically. Islam has provided comprehensive textual sources in providing human-first boundaries. But that alone is not enough, if it is not balanced with social inference. Maqashid al-sharia theory in the study of the Islamic financial system is a step forward in developing the most ideal Islamic economic model. This is because maqashid al-sharia can be used as a tool to help solve Islamic economic problems, especially in establishing rules or laws.

Analisis Perbandingan Kinerja Keuangan Bank dalam Masa Pandemi Covid 19

During the pandemic period, the banking industry is expected to have an impact on the economic waves that occurred in Indonesia. The Indonesian financial system can be distinguished from conventional and Islamic financial systems. This study aims to determine the differences in the ratios of Islamic Commercial Banks (BUS) and Conventional Commercial Banks, including Capital Adequacy Ratio (CAR), Non Performing Loans (NPL), Return ON Assets (ROA), Operating Expenses and Operating Income (BOPO) and Loans. to Deposit Ratio (LDR) for the last 4 years. Comparison of the performance of financial ratios at Islamic Commercial Banks and Conventional Commercial Banks as measured by the ratio of Capital Adequay Ratio (CAR), Non Performing Loan (NPL), Return On Assets (ROA), Return On Assets (ROA), Operating Expenses, Operating Income ( BOPO) are the same in the sense that there is no difference between the ratios. For the Loan to Deposit Ratio (LDR) there are differences in the financial performance of Islamic Commercial Banks and Conventional Commercial Banks.

Studi Literature Solusi Keuangan Islam Mencegah Krisis Masa Depan


 The financial crisis is a problem that continues to occur, but the right solution has not been agreed upon to prevent it. Interest-based debt and its derivation is believed to be one of the causes of the emergence of the crisis. Interest-based financing causes the cost of obtaining capital to be higher. This triggers a bubble in the economy, where there is a gap between the real sector and the financial sector. This study offers a preventive solution to this crisis problem through a literature study approach. The findings of this study are that there is data that shows the Islamic financial system with its characteristics is able to withstand the crisis. In addition, the Islamic financial system based on profit sharing and risk balances the economy and is believed to be able to prevent a crisis from occurring. 
 Keywords: Islamic Finance, Crisis, Solution

Sistem Keuangan Islam dan Konvensional: Sebuah Studi Literatur

The Islamic Financial System is an implementation of the teachings of Islamic economics. So, the values contained in Islamic teachings must be realized in the Islamic financial system. But in reality, many criticisms are related to the Islamic financial system. This paper is a literature review that aims to determine the Islamic and conventional financial systems. This research uses an approach using Publish and Perish software to collect journal articles that are relevant to the purpose of this research. The contents of the collected articles were analyzed to get a conclusion. The main findings of this study indicate that the orientation of the Islamic financial system is profit and falah oriented while the conventional financial system is only profit-oriented, the conventional financial system must pay attention to the principle of justice in its operations so as not to harm the community.

Identifying the Demand-Based Financial Issues in the Agriculture Sector of Pakistan: A Qualitative Thematic Analysis

Pakistan is an agrarian economy with a booming Islamic financial system, but the low share of Salam financing does not do justice to the agricultural financing needs. This forces poor farmers to resort to usurious and non-institutional financing leading to a poverty trap. Literature has explored different dimensions of lack of financing facilities. The primary objective of this study is to categorize different dimensions pertaining to the under fulfilled financing needs of farmers to derive restructuring suggestions for Salam applicability in Pakistan. The variables are drawn using thematic analysis of studies published between 2008 to 2020, which conducted exploratory surveys of financial issues from farmers in agriculture sector of Pakistan. The studies are selected from databases including Google Scholar, EBSCO and Web of Science. The derived variables are validated using an independent rater using the interclass correlation coefficient. Rater validated all generated variables via thematic analysis. Most studies pointed to issues of finance accessibility and resource availability. The closest study pointed out the financing of agricultural machinery is the most discussed issue.

Bagaimana Utang Mendorong Terjadinya Krisis? Solusi dari Sistem Keuangan Islam


 
 
 Interest-based debt is prohibited in Islam because of its exploitative nature. The main purpose of implementing Islamic sharia in financial activities is to eliminate injustice and inequalities in financial transactions. The main characteristic of Islamic finance is the prohibition of charging interest, also known as usury. The findings in this study that debt that was continuously extended during the crisis did not have the effect of restoring the economy to normal conditions, instead providing an impetus for a continuous crisis. Interest-based debt is a dangerous weapon to exploit and extort poor people who need venture capital. Furthermore, the high interest in using interest-based debt is exploited by the surplus capital to increase their wealth. Interest-based debt with high costs weakens the economy, although from a capital turnover perspective it looks bigger. The solution of the Islamic financial system with an interest-free loan scheme (Qardhul Hasan) is an alternative that has been proven to provide an incentive to increase welfare. Qardhul Hasan with a low cost becomes effective in increasing output, absorbing employment, and maintaining a low inflation rate without creating negative side effects in the economy.
 Keywords: debt, interest, crisis, qardhul hasan

Waqf Bank Discussion Series: An Operational Structure Development for Economic Growth in Malaysia

Waqf is an Islamic financial mechanism that can improve the quality of the Islamic financial system. The Islamic banking system's operation using waqf practices such as creating waqf banks (WB) can contribute to the development of the Islamic financial and economic system. However, until now, Malaysia still does not have a WB. In line with this, the main objective of this study is to propose a model that focuses on how to develop the new WB Operational Structural model, which has to be in line with shariah law. This study is a qualitative study using an exploratory design. This study involved the collection of primary and secondary data. Primary data were obtained through face-to-face interviews using semi-structured questions on waqf institutions executives, Islamic bank managers, and Muslim scholars to indicate WB operational structure development. Secondary data involves document sources such as books, magazines, journals, and others. The data were then analyzed by qualitative content analysis. The study results found that the bank endowment structure model should consist of the consumer banking department (CnBD), corporate banking department (CBD), and the bancassurance department. It is hoped that this bank wakaf model can be used as a guide for banks and national leaders in their efforts to develop a wakaf bank in Malaysia.