Operations Of Islamic Financial Institutions Research Articles

Legal Challenges Hindering the Development of Islamic Finance in Uzbekistan

Background: Recently, the Uzbek government expressed interest in introducing Islamic financial services. Nevertheless, the creation of the legal framework for the smooth operation of Islamic financial institutions is dragging. This work attempts to identify legal hurdles preventing thepenetration of the Islamic finance industry in Uzbekistan, and formulates vital policy recommendations to lead the development of a regulatory framework for the industry. Methods: A library research method and legal analysis is employed by going through diverse legal matters. For that purpose, we studied a range of legal documents varying from banking and capital market legislation to some newly introduced laws. Additionally, issues of Islamic finance in the tax law and the civil code of the nation are scrutinized. Results and Conclusions: The finding of the paper shows that some legal barriers exist that hinder the complete implementation of the Islamic finance industry in the country. They are not only in one area of national legislation but also exist in various parts of the legal system. Accordingly, it is recommended that the Uzbek government develop a sound legal and regulatory framework to provide a favourable environment for the activities of Islamic finance institutions. The general conclusion of the research resolves that, even if the process of developing an Islamic finance legal framework may start gradually, it should be holistic to be fully effective.

ANALISIS KEPERCAYAAN GENERASI MILENIAL TERHADAP LEMBAGA KEUANGAN SYARIAH

The purpose of this study is to analyze the trust of the millennial generation in Islamic financial institutions. The trust of the millennial generation refers to the principles of Good Corporate Governance (GCG) which consists of transparancy, accountability, responsibility, independence, fairness and sharia compliance. The data collection method used was the sample survey. The number of samples in this study was 150 samples. The sampling technique used in this study was accidental sampling. The analytical tool used is descriptive statistics.
 The results of this study indicate that the millennial generation's trust in Islamic financial institutions is high. This proves that the millennial generation in West Nusa Tenggara Province basically already has good trust in the operation of Islamic financial institutions.

EFEKTIVITAS AUDIT SYARIAH DI INDONESIA DAN PERSPEKTIF MENURUTAL-QUR’AN DAN HADIS

The purpose of this paper is to determine the development of Islamic banks in Indonesia and the concept of Islamic auditing. Sharia auditing is one of the commands of Allah SWT because it carries out sharia-based activities which of course can be known through the views and perspectives of al-quran and hadith as guidelines for Muslims. The existence of a Sharia audit for Islamic financial institutions, provides assurance and independent accountability for stakeholders Shareholders handle matters related to the operations of Islamic financial institutions in accordance with Sharia principles. In this case, sharia auditors have a vital role, not only ensuring that Islamic financial institutions are responsible for their financial reporting, but also must ensure that all aspects of sharia are perfectly fulfilled.Keywords: syariah audit, al-quran, hadis

KARAKTERISTIK DAN HAKEKAT PERATURAN PERUNDANG-UNDANGAN HUKUM EKONOMI SYARIAH

The birth and formation of laws and regulations related to sharia economic law are based on the growing development of sharia financial institutions (LKS). The operation of Islamic financial institutions must, of course, be following Islamic principles, namely those based on the Qur'an and hadith. Then the formation of laws and regulations of sharia economic law is rooted in fiqh muamalah. The research method used in this study is library research using library data from books, scientific articles, and others. Data analysis techniques are condensation, data presentation, and concluding. The study results show that the legislation related to Islamic economics, especially in Islamic banking, is widely absorbed from the fatwa of the Indonesian Ulema Council (MUI). Almost all MUI fatwas were absorbed as the basis for forming the Sharia Banking Law. There are several characteristics of the Act, namely universal, maslahah, varied, fairness in transactions, and transparency.

Hubungan Hukum dan Pertanggungjawaban DSN dengan MUI dalam Operasional Lembaga Keuangan Syariah

The rapid development of Islamic economic institutions in Indonesia cannot be separated from DSN and MUI's participation in their operations. This research will specifically discuss the legal relationship and responsibility of DSN with MUI in the process of Islamic Financial Institutions in Indonesia. This research is a normative juridical study using secondary legal data in the form of primary legal materials and secondary legal materials on Islamic financial institutions. Based on the research results, it is known that the legal relationship between DSN and MUI in the operation of Islamic financial institutions, MUI which is the responsible institution for matters related to sharia, places the position of DSN as an extension of the MUI's arm which has a very strategic and central location in terms of the development of the Islamic economy in Indonesia. DSN is responsible for providing supervision and for establishing relationships with DPS and Islamic financial institutions.

Rectification of Uqud Al-Fasidah (Void Contracts) in Islamic Financial Institutions

Shariah compliance is the most critical element in the operations of Islamic financial institutions. In order to ensure the Shariah compliance, some samples of IFIs’ products are reviewed and audited. The audit practices has led to growing findings which reveal cases of uqud al-fasidah (void contracts) in IFIs. Thus, the articles discusses the issue by recommending several actions for IFIs in dealing with void contracts. The article highlights seven common causes of void contract related with bay’ al-tawarruq transaction. Some of the void instances can be rectifiable and some are non-rectifiable. As Shariah Non-Compliance (SNC) is treated seroiusly by IFIs and the regulators, the dicussion will provide insights on how to reduce the SNC incidences and to minimse their financial impatcs to relevant parties

LEGALITAS DAN OTORITAS FATWA DEWAN SYARIAH NASIONAL MAJELIS ULAMA INDONESIA DALAM OPERASIONAL LEMBAGA KEUANGAN SYARIAH

Islamic financial institutions in their operations require legislation. In addition, practitioners of sharia economics also need a fatwa from the National Sharia Council-Indonesian Ulema Council (DSN-MUI) to guarantee the implementation of Sharia principles in sharia financial institutions. Although the fatwa is basically an advice that can be carried out or ignored, but the DSN-MUI Fatwa if it is related to positive law, the position is the same as the doctrine that is as an amplifier in the legal ruling of a qadhi in a case. The DSN-MUI fatwa also has authority and an important role in making legislation binding, and is used as a positive law in enhancing the development of sharia economics in Indonesia. The legal aspects contained in the DSN-MUI fatwa, can be seen from the absorption of the DSN-MUI fatwa in various regulations relating to the operations of Islamic financial institutions, and have been transformed into the form of laws. Thus, the legal strength of the DSN-MUI fatwa becomes binding in the operations of Islamic financial institutions

Fungsi Dan Tanggungjawab Kakitangan Bukan Syariah Dalam Pengurusan Risiko Syariah: Kajian Terhadap Praktis Syarikat Takaful di Malaysia (Functions And Responsibilities of Non-Shariah Staff In Shariah Risk Management: A Study of Malaysian Takaful Companies)

Basically, shariah risk management in the takaful industry is responsible to those specialize in shariah studies (fiqh and usul, fiqh muamalat) namely Shariah Committee (SC) of Takaful Operator and Internal Shariah Department of Takaful Operator. Nonetheless, non-shariah staff, other than SC and Internal Shariah Department of Takaful Operators, also play an important role in managing shariah risk exposures in the operations of Takaful Operator. According to section 29 (3) Islamic Financial Services Act 2013 (IFSA 2013) which states that the Chief Executive Officer and Officer including any of the staff of the Takaful Operator are responsible for ensuring shariah compliance in the operation of Islamic financial institutions. Therefore, this study will analyze a using qualitative approach by interviewing respondents who are involved with the operations of takaful companies in Malaysia. Primary data from the takaful industry is analyzed using coding, memo, inductive and deductive processes using the Computer Assisted Qualitative Data Analysis Atlas.ti 7. The purpose of this research is to identify the roles and responsibilities of non-shariah staff in managing the shariah risk exposures of the Takaful Company in Malaysia. The secondary objective is to analyse and suggest an improvement for competency non-shariah staff in strengthening the shariah risk management of the Takaful Operator. This study found that non-shariah staff, especially front-line staff who are the first party to identify when there are shariah risk exposures in the operations of Takaful Operators. Subsequently, the underwriting staff is the second party to identify if there is any shariah risk exposures in the application of a new takaful contract. Then, the roles and responsibilities of investment-linked personnel staff, risk management staff and also Chief Executive Officer (CEO) of the Takaful Operator who are the non-shariah staff that involved in shariah risk management.

Enhancing Shariah Audit Practices in Islamic Financial Institutions in Malaysia

It is undeniable that Islamic financial institutions (IFIs) in Malaysia are growing with a positive impact on the national economic growth. In order to sustain and maintain Shariah compliance in Islamic financial industry, adequate Shariah audit practices are necessary to ensure that the operation of IFIs should be in parallel with Shariah guidelines and policies set by the authority. In order to equip Islamic industry practitioners with adequate Shariah audit practices, Faculty of Economics and Muamalat (FEM), Universiti Sains Islam Malaysia (USIM) has introduced a professional Shariah Audit Training (SAT) program for IFIs staffs. SAT is a program that covers various aspects on Shariah audit practices starting from Shariah principles, Shariah governance, Shariah audit program, Shariah audit process, Shariah audit fieldwork, Shariah risk management and Shariah audit communications. Modules used in SAT have been developed based on collaboration between academic institutions and industry players in order to ensure that the knowledge and practice in the industry are harmonized and relevant. The series of trainings conducted in the program are believed to achieve the programme’s ultimate objective which is to produce Shariah auditors who are qualified and trained to fill the gap for Islamic finance industry. The objective is to produce talents with adequate Shariah audit knowledge. This study provides the result of the SAT program toward IFIs practitioners’ skills and knowledge on Shariah audit practices.

The Way Forward for Islamic Banking System: A Comparative Study between Malaysia and Nigeria

This study sheds light on the way forward for the development and growth of the Islamic banking system. The study employs qualitative approach making use of the indepth field interview with regulatory officers, practitioners, academicians, who are directly involved into the operations of Islamic financial institutions in two countries namely Nigeria and Malaysia. This study has policy implications for the Central Bank of Nigeria (CBN) and other stakeholders in the area of Islamic banking system. The findings of this study will be a source of reference for Nigeria and other countries in formulating a similar concept of Islamic banking system because it identifies the gap which needs to be filled in order to make the system a success. However, this research also affects the policy implications for international societies and also championing the course of financial inclusion.

The Shariah Advisory Council in the Malaysian Islamic financial institutions: features and legal issues

The Malaysian Shariah Advisory Council ('SAC'), established under the Central Bank of Malaysia Act 2009 (Act 701), acts as an authority for the ascertainment of Islamic law in the operation of Islamic Financial Institutions ('IFIs'). Its decision is binding on all IFIs, the Bank Negara Malaysia, the Shariah Committee, the court of law and the arbitrators in Malaysia. Nonetheless, this power may be abused by the SAC to the detriment of the customer stakeholders as the SAC is immune from any legal action. This paper aims to examine the features and legal issues of the SAC. The examination uses legal research methodology. This paper finds that the immunity conferred on the SAC should be abolished and be subject to the judicial scrutiny for the benefits of the IFIs' development in Malaysia. At the ending part of this paper, the authors provide certain recommendations in regard to the issues discussed.

Islamic environmental ethics

Purpose – This paper aims to elaborate and discuss key Islamic principles of relevance to environmental ethics and sustainability agendas and reflect on implications for the operations of Islamic financial institutions (IFIs). Design/methodology/approach – An exploration of the tenets of environmental sustainability enshrined in Islamic Shariah through a review of key Islamic texts and relevant prior literature. Findings – The Islamic approach to the environment is holistic and unequivocal. Qur’anic verses describing nature and natural phenomena outnumber verses dealing with commandments and sacraments. Centrality of the environment in the Shari’ah and the Islamic injunction to command right and forbid wrong are suggestive of an affirmative sustainability agenda for IFIs. Practical implications – Implications and opportunities for corporate managers, environmental movements and policy makers. Originality/value – By encouraging Muslim engagement in Ijtihad, this work contributes to conceptual development within Islam. It will also be of value to accountability and ecology researchers seeking a better understanding of ecological practices and the internal histories of religions.

Scrutinizing the Malaysian Regulatory Framework on Shari’ah Advisors for Islamic Financial Institutions

Islamic banking, takaful and Islamic Capital Market are the main component of Islamic financial system in Malaysia. Shari’ah compliance is one of the attributes to distinguish Islamic Financial Institutions (IFIs) from its counterpart. Adherence to Shari’ah principles is fundamental to the operations of IFIs and such adherence is a continuing process as long as such institutions operate. The Shari’ah Advisors appointed by the IFIs are responsible in ensuring the Shari’ah compliance of IFIs in carrying out its Islamic financial business. The requirement for the appointment of Shari’ah Advisors in IFIs has been included in the statutes governing IFIs as well as guidelines and circulars issued by authoritative bodies related to Islamic banking, takaful and Islamic Capital Market. This indicates that, the appointment of Shari’ah Advisors in IFIs is a vital to the industry. A specific regulatory framework on Shari’ah Advisors is essential in regulating their duties and responsibilities as may be in ensuring that the operations of IFIs conform to Shari’ah principles. Furthermore, a strong regulatory framework on Shari’ah Advisors is one of the factors in ensuring the resilience development of Islamic finance industry. Henceforth, this study seeks to analyze the Malaysian regulatory framework on Shari’ah advisors as their significant roles and responsibilities in ensuring Shari’ah compliance of IFIs.

Analysing the Role of Shariah Supervisory Boards in Islamic Financial Institutions

SSB (or in some Islamic financial institutions known as shariah committee), is one of the most important governance mechanism of an IFI to ensure compliance with shariah. Compliance with shariah is the distinctive characteristic of an IFI as compared to conventional financial institutions. Acknowledging this importance, the Accounting and Auditing Organization for Islamic Financial Institution (AAOIFI) has provided standards on SSB, shariah review and internal shariah review under its governance standards (AAIOIFI, 1999). At present in line with shariah principles several Islamic financial institutions are engaged in product development activities globally to cater the needs of a wide range of parties. However, considering the essentiality for these institutions to innovate and operate within the ambits of shariah, need of the shariah supervision cannot be over stated. The safeguard to make Islamic financial institutions perform their dealings according to the Islamic laws comes when there is a legitimate control body in the institution. Hence, it is vital for such institutions to form a shariah supervisory board (SSB) comprising on fiqh al-muamalat experts to guide their transactions in accordance with the principles of shariah. Malaysia and several other countries have passed laws to govern the formation and functions of SSB. In fact, SSB undoubtedly forms the most important and influential entity in any Islamic financial institution.The paper in hand attempts to discuss these functions in detail and tries to shed a little light on established laws in Malaysia regarding regulations of SSB and operations of Islamic financial institutions.

Islamic finance: An Attractive New Way of Financial Intermediation

Financial intermediation is a value-enhancing service. Banks are among the most important financial institutions in a modern economy for that service. Conventional banks use rates of interest (charged to clients and paid to depositors) on both the assets and the liabilities sides. Since interest is prohibited in Islam, Islamic financial experts have developed a number of financial instruments that avoid any involvement in interest. They take the form of either risk-and-reward sharing or trading in commodities/assets to price assets. In this paper we describe the basic features of the most important among these financial instruments. Even though Islamic banks emerged in response to market needs of Muslim clients, they are not religious institutions. Like other banks, these are profit seeking institutions, simply following a different model of financial intermediation. While it is the preferred way of banking for one fifth of humanity, it offers a wider choice of financial products to all by generating a number of benefits for the society. The successful operation of Islamic financial institutions has proven that this new model of financial intermediation is not only viable, but in many aspects, it is rather superior to the conventional model. The appealing features of the Islamic model have attracted world-wide attention. Islamic financial industry which started as a niche market in early 1970s in the Middle East has made a place for it in more than fifty countries around the globe and has grown into a multi-trillion dollars industry. This paper attempts to explain the basic features of this fascinating model.

Theory and Practice of Islamic Banking: Financial Reporting Perspective

Islamic banking was started in last quarter of 20th century to cater the needs of Muslims around the world. It has shown marvelous growth and expansion worldwide.This book is the result of five years teaching of Islamic finance course to MBA Finance students. This book is written with a clear focus on learning of Islamic banking & finance by accounting, banking, business and finance students/professionals. Resources available, so for, on the subject have focused on the legal side and very negligible work is available on the financial front for a common user. This book is written in financial perspective, and the author has focused upon financial impacts, generated by application of Islamic financial laws. However, a summary of Islamic commercial laws of each chapter has been provided. Author has adopted balance sheet method to inculcate the knowledge; hence, understanding of elementary balance sheet is recommended to get maximum out of this book. This book is divided into five parts. Part-1 presents an update on Islamic finance, why and how Islamic banking started; What is current status; Meaning and prohibition of Riba (Interest & Usury) as reported in revealed books (Bible and Qur'an).Part two is about asset-backed financing provided by IFIs. It includes trading (selling) modes of financing including Murabaha, Salam, and Istisna'a; it also includes Ijarah financing. At the start of part two, a summary of Shari’a rulings about sales is reported. Chapter two is about the Murabaha (cost plus profit) the most widely used financing tool by Islamic Financial Institutions (IFIs) world over and Muajjal (deferred sale). The average share of Murabaha is above 40% in portfolios of IFIs. Murabaha is a very useful tool to replace overdraft and short to medium term financing. Chapter two discusses the basic rules of Murabaha, necessary steps involved and comparative study with conventional short-term loans including bank overdraft facility. Chapter three is about Bai-Salam; a form of sale contract whereby IFIs purchase goods for spot payment with deferred delivery. Practically it is used in the financing of agricultural needs of farmers. Chapter four is about Istisna'a. This mode of financing is designed to transact business through an order to manufacture and/or supply. It is a sales contract except the existence of subject matter. This tool of financing is useful for infrastructure projects. Chapter five is about Ijarah; a rental contract whereby IFIs lease an asset for a specific rent and period to the client. Ijarah is very useful in replacement of leasing. The average share of Ijarah is 18% in portfolios of IFIs.Part three of the book deals with profit and loss sharing modes of financing including Musharaka, diminishing Musharaka and Mudaraba. A special section is devoted to discussing the causes of lesser application of Musharaka in operations of IFIs, in addition to Shari’a rulings and financial impact. Chapter seven is about Diminishing Musharaka; a form of gradually declining partnership between an IFI and clients; generally used to finance real estates. Under diminishing Musharaka, I have discussed the basic Shari’a rulings, Islamic house financing, comparative study of conventional and Islamic mortgages and installment calculation under different assumptions for house financing. Chapter eight is about Mudaraba. Under this scheme of financing, IFIs provide capital to financially weak but skillful people to do the business and share the outcome with IFIs.Part four is about deposits management. Chapter nine presents various types of deposits collected by IFIs and profit sharing mechanism. Concepts of daily product and weight-age based profit systems are elaborated.Part five of the book presents special topics in Islamic Finance. In this part areas of liquidity management and Islamic insurance are discussed. Under Islamic capital market two dedicated chapters have been included; each for equities and Sukuk. Shari’a compliance of equity securities, trading rules, and valuation mechanism discussed under equity chapter. Chapter-11 on Sukuk includes origin, development, types and Sukuk process along with Shari’a rulings. Chapter 12 offers solutions for cash finance provision to customers by IFIs. The last chapter has focused on Islamic insurance.