Sharia Compliance Research Articles

The Impact of Strategic Performance Index and Intellectual Capital on Sharia Commercial Banks in Indonesia

The purpose of this study is to determine how the Islamic Performance Index and Intellectual Capital affect Indonesia's Sharia Commercial Banks' financial performance from 2013 to 2023. Every year, the banking industry grows, making sharia banking necessary to rival traditional banking. Sharia banks must be able to increase their profitability by focusing on added value via intelligence and sharia compliance because conventional banking still commands a larger portion of the market and more consumers than sharia banks. In this investigation, panel data regression is used in conjunction with the WarpPLS 8.0 program to create the Structural Equation Model Partial Least Square (SEM-PLS). The results of this study show that the VAIC has a fairly favorable impact on the performance of the VAIC Sharia Commercial Bank. ROA is unaffected by VAHU or VACA, however there is a significant positive benefit from the three markers used to measure IC VACA. ZPR has no influence on ROA, but PSR and IsIN have an impact on ROA for IPI.

PROFITABILITY DETERMINANTS OF INDONESIAN ISLAMIC BANKS: FINANCING TO DEPOSIT RATIO AND GOVERNANCE

This study examines the impact of the FDR on the profitability of Islamic commercial banks in Indonesia, GCG as an intervening variable. The analysis utilizes financial data from 2015 to 2019, collected from annual reports and financial statements of selected banks. The study employs regression and mediation analyses to test the hypotheses. The results indicate that FDR does not significantly affect profitability, measured by ROA. Furthermore, GCG does not mediate the relationship between FDR and ROA. These findings suggest that other factors may play a more critical role in determining the profitability of Islamic banks. The study underscores the importance of adopting conservative financing strategies and enhancing corporate governance frameworks tailored to Sharia compliance. These insights provide valuable recommendations for bank managers and policymakers to improve financial performance and ensure sustainable growth in the Islamic banking sector.

FinTech Implementation Challenges in the Palestinian Banking Sector

This study addresses FinTech implementation challenges in the banking industry in Palestine. This was accomplished by adopting qualitative research methods. Semi-structured interviews were conducted with interviewees from the Palestinian Monetary Authority, banks, and FinTech companies. Thematic analysis was conducted using NVivo 12 software to identify themes in the interview scripts. Research outcomes suggest that FinTech development in Palestine encounters a range of multifaceted challenges, which can be categorised using the TOE (technological, organisational, environmental) framework. On the technological front, issues such as underdeveloped IT and telecommunications infrastructure, restricted mobile frequencies due to Israeli occupation, limited IT expertise, cyber risks, low digital literacy, and minimal FinTech awareness hinder progress. Organizationally, resistance to change, inadequate agility, limited digital skills, and slow Sharia compliance updates in Islamic banking impede innovation. Environmentally, the absence of a dedicated FinTech framework, unclear regulatory guidance, limited market size, and strict AML/CFT regulations create uncertainties for non-bank entities and restrict investment opportunities. Addressing these interconnected barriers requires coordinated efforts across legal, financial, and technological sectors to foster FinTech integration and growth in Palestine.

DIGITAL WALLET TRANSACTIONS: INSIGHT FROM ISLAMIC ECONOMIC AND LEGAL PERSPECTIVE

Introduction: This paper aims to analyze the contemporary problems surrounding digital wallet transactions from the perspective of Islamic economic law and discuss sharia compliance in the issuance and use of digital wallets, the validity of top-up transactions, and the permissibility of benefits such as cashback within the framework of Islamic jurisprudence. Methods: This paper uses library research methods to collect, explain and analyze data related to digital wallet transactions in the context of Islamic economic law. This has been done using a normative approach and Islamic economic law, supported by descriptive analysis of the previous research, fatwas from the Indonesian Ulema Council (DSN-MUI), and related regulations from Bank Indonesia. Results: The result of this discussion is that Islamic principles allow financial transactions as long as they do not involve prohibited elements such as usury, uncertainty (gharar), maysir, and israf. Digital wallets can fulfill Islamic principles if they comply with the regulations set by Islamic law. Conclusion and suggestion: The DSN-MUI fatwa provides guidance on the use of electronic money in accordance with sharia, ensuring that digital wallet transactions are in line with Islamic legal and ethical standards. Digital wallet transactions can use various contracts, such as wadiah and qardh contracts, although there are differences of opinion among scholars regarding their validity. The compliance of digital wallets with sharia must differentiate between conventional electronic wallets and electronic wallets that comply with Sharia.

Revealing the secrets of working capital: A comparison between sharia-compliant and conventional firms

This research compares the performance of sharia-compliant (SC) and non–shariah-compliant (non-SC) firms by examining the impact of working capital on the return on assets, the return on equity, and the net profit margin. The dataset, based on the Dow Jones Islamic Market Index (DJIMI) standards, is divided by the leverage ratio and includes PSX-500 firms listed in the Pakistan Stock Exchange from 1996 to 2020. Our findings reveal that working capital has a significant and positive effect on all firm proxies, among which non-SC firms outperform SC firms because of their access to funds for business operations. SC firms face restrictions in obtaining funds from conventional banks. Our study has many implications. As liquidity injection is crucial for growth, policy makers should focus on developing novel credit instruments that are SC to address financing needs and boost business operations.

Pengaruh Kualitas Layanan Akuntansi Syariah Terhadap Kepercayaan Nasabah Bank Syariah

This study aims to examine the effect of Islamic accounting service quality on customer trust in the context of Islamic banking. This literature study identifies key factors in enhancing customer trust, including transparency of financial statements, compliance with sharia principles, and overall service quality. Using the literature research method, it was found that consistent and shariah-compliant implementation of Islamic accounting plays an important role in enhancing customer trust. Service quality that includes accuracy, transparency, and sharia compliance has a significant impact on customer trust, which in turn affects customer loyalty and the growth of Islamic banks. This research provides insights for Islamic bank management to improve service quality to build customer trust.

INTEREST RATES AND INVESTOR RETURNS: A STUDY OF DYNAMICS IN ISLAMIC BANKING

This study aims to evaluate the effect of interest rates on stock returns for investors in Islamic banking in Indonesia. The study employs a descriptive quantitative method and utilizes simple regression analysis to evaluate the impact of interest rates on investor stock returns. The findings indicate that fluctuations in interest rates do not affect the stock returns of investors in Islamic banking in Indonesia. This can be attributed to the fact that Islamic banks operate under a profit-sharing system rather than an interest-based system. Furthermore, Indonesia's predominantly Muslim population places significant importance on Sharia compliance, which serves as a primary consideration for investors in Islamic banking. This indicates that interest rates do not influence investors interest in investing in Islamic banks.

Do markets react to dividend announcements and sharia compliance? Evidence from organisation of Islamic cooperation countries

Purpose This study aims to investigate the market reaction to dividend announcements and sharia compliance based on the Islamic stock indexes of Indonesia, Malaysia and Pakistan by scrutinising investors’ interpretations, behaviour (traditional, rational, religious or ethical) and preferences. Design/methodology/approach Event study methodology (ESM) was used to analyse 31 days around the event date. The research period spanned 2011–2018, during which 282 observed dividend announcements were tested using a t-test, and there were 4,960 cases of sharia compliance in the data panel. Findings Indonesian investors react to earnings surprises as bad news while bypassing dividend announcements, thus classifying their behaviour as rational. Meanwhile, investors in Malaysia and Pakistan respond to dividend announcements as bad news while bypassing earnings surprises, thus classifying their behaviour as traditional. Surprisingly, sharia compliance does not affect abnormal returns. These results imply that investors prefer a profit motive rather than sharia compliance. Practical implications To perpetrate positive reactions, companies need to increase earnings (Indonesia), nominal dividends (Malaysia) and delay dividend announcements (Pakistan). Also, tax regulators need to evaluate dividend tax and capital gains tax. Social implications Investors cannot solely rely on Islamic stock lists, while regulators and firms must be transparent and accountable regarding sharia compliance ratio. Originality/value There is a dearth of research on market reaction in Islamic stock indexes. This study adheres to critical assumptions of ESM: controlling the confounding effects and ensuring market efficiency. These assumptions lead to the proposal of mandatory and advisory sharia compliance, evaluation of ratios using a staple scale and examination of differences in dividend tax rates. An extended tax preference theory is also proposed to contribute to the body of knowledge.

Investigating the impact of digital business ecosystem in enhancing Islamic mobile banking adoption through the TOE framework

This research investigates how the dimensions of the Technology, Organization, and Environment (TOE) framework influence the digital business ecosystem (DBE) and, in turn, how this ecosystem impacts the adoption of Islamic Mobile Banking (IMB). It addresses a gap in existing literature by adopting a customer-centric perspective, highlighting how DBE affects IMB adoption, a departure from previous studies that primarily focused on internal organizational factors. To achieve its objectives, the study employs a quantitative approach using Partial Least Squares Structural Equation Modeling (PLS-SEM) to analyze data from 985 IMB users in Indonesia. The findings reveal that DBE significantly influences IMB adoption, particularly when moderated by customer behavior as an environmental factor. Factors such as perceived usefulness and ease of use within the technological domain, firm reputation and innovation within the organizational domain, and perceived risk and sharia compliance as environmental factors all positively and significantly impact DBE. Additionally, perceived security has a significant effect on DBE, especially when mediated by perceived ease of use. Furthermore, DBE serves as a crucial mediator between all dimensions of the TOE framework and IMB adoption. This research offers a theoretical contribution by examining the TOE framework dimensions from a customer's perspective, revealing their impact on DBE and IMB adoption. From a managerial perspective, the study provides valuable insights for banks on how to effectively manage technological, environmental, and organizational dimensions to strengthen DBE and promote IMB adoption.

Board characteristics and profitability in sharia-compliant and non-sharia-compliant firms: beyond mere ceremony?

PurposeThis study compares the profitability of sharia-compliant firms (SCFs) and non-sharia-compliant firms (NSCFs) and explores the causal links among board of directors (BODs) characteristics (size, gender, meeting frequency, tenure, turnover and compensation), sharia compliance, capital structure and profitability. Specifically, sharia compliance and capital structure serve as moderators.Design/methodology/approachA total of 72 SCFs and 65 NSCFs were investigated during 2011–2019, resulting in 1,644 data. A t-test was used to compare profitability, and causal relationships were explored through panel data regression.FindingsSCFs outperform NSCFs in profitability in 24 of 36 t-tests. Surprisingly, 87 out of 864 instances of sharia violations were found in SCFs. Despite purifying sharia-compliant stocks from violations, the board negatively affected sharia compliance. Furthermore, sharia compliance contradicts the board’s tendency to increase profitability, implying a ceremonial screening, which reveals the board’s reluctance to incorporate sharia compliance into their management style. In contrast, boards in NSCFs rely more on their internal strengths and capacities to influence profitability, as they understand the adverse impact of debt.Practical implicationsThe findings of this study are beneficial for evaluating Islamic loopholes for both boards that are apathetic to sharia compliance and regulators who are not transparent in Islamic financial screening.Originality/valueAcademic literature concentrates on comparing Islamic banks with conventional banks, while the comparison of corporate governance and management styles in SCF vs. NSCF is minimal. Additionally, a novel measurement, the Stapel scale, is proposed for finding the purity of Islamic stocks, which is most suitable when regulators and firms conduct Islamic loopholes.

The role of Sharia compliance in moderating the indirect influence of board diversity on roe mediated by Zakat disclosure

This study aims to examine the moderating role of Sharia compliance on the relationship between the diversity of the Board of Directors, Board of Commissioners, and Sharia Supervisory Board and Return on Equity (ROE), with Zakat Disclosure as a mediating factor. The research is grounded in agency theory, stakeholder theory, and legitimacy theory, focusing on how board diversity and Sharia compliance influence corporate governance and financial performance, specifically in the context of Islamic banking. The study utilizes a sample of Islamic commercial banks listed with Bank Indonesia. Data from the banks' annual reports and financial statements between 2013 and 2023 are analyzed using a panel data regression model. Multi-Group Analysis (MGA) is employed to test the moderating effects of Sharia compliance on the indirect relationships between board diversity and ROE, mediated by zakat disclosure. The results show that Sharia compliance moderates the relationship between the diversity of the Board of Directors and ROE, with zakat disclosure acting as a mediator. However, Sharia compliance does not moderate the relationship between the diversity of the Board of Commissioners and Sharia Supervisory Board with ROE, as mediated by zakat disclosure. The research provides insights for Islamic banks, highlighting the importance of Sharia compliance and board diversity in enhancing financial performance through zakat disclosure. The findings can inform regulators and practitioners in improving corporate governance practices within Islamic financial institutions. This study contributes to the literature by offering new evidence on the role of Sharia compliance in the governance-performance relationship, particularly the indirect effects through zakat disclosure, and how this dynamic operates within the unique framework of Islamic banking.

MANAGING COMPETITIVENESS AND RISK: THE EFFECT OF SHARIAH COMPLIANCE AND THE CENTRAL ROLE OF REPUTATION AND INVESTMENT EFFICIENCY

Business practices, especially in Muslim-majority countries, are more influenced by religious values. Therefore, CSR is less relevant or relatively limited to be implemented as an accountability mechanism, so it is advisable to consider religious values as an alternative approach to business ethics. In this context, adopting Sharia Compliance (SC) is seen as one of the dimensions of accountability, a form of business ethics implementation, and a manifestation or proxy of business ethics other than CSR. Therefore, based on the theory of business ethics, this study develops and tests a trivariate relationship model to explain how reputation and investment efficiency play a role in the relationship between SC and competitiveness and risk as proxied by the cost of equity capital. Using 825 observations, the estimation results indicate a partial mediation effect of reputation in the relationship between SC and risk (cost of equity capital). However, there is no mediation effect in the relationship between SC and competitiveness. Other estimation results indicate a partial mediation effect of investment efficiency in the relationship between SC and the cost of equity capital and competitiveness. This indicates that investment efficiency can provide additional totals in the relationship between SC and the cost of equity capital and competitiveness. However, the mediation effect of investment efficiency in the relationship between SC and SC competitiveness produces a total negative effect. Therefore, it can be said that the mediation of investment efficiency in the relationship between SC and competitiveness is an inconsistent or competitive mediation model. Overall, the partial mediation effect of reputation and investment efficiency indicates (1) there are other mediators (hidden mediators) in the relationship between SC and equity capital costs and competitiveness, (2) SC in reducing equity capital costs and producing competitiveness, among others, by building a good reputation and utilizing positive NPV investment opportunities.

Analisis Penerapan Prinsip Syariah pada Produk Hasanah Card di Bank Syariah Indonesia KCP Cemara Asri

This study aims to investigate the application of sharia principles in Hasanah Card products at Bank Syariah Indonesia KCP Cemara Asri. The background of the study includes the increasing market demand for banking products that comply with sharia principles. The research questions focus on the extent to which Bank Syariah Indonesia implements sharia principles in Hasanah Card products and how the market responds to its implementation. The research method uses a qualitative approach with interviews and document analysis. The provisional hypothesis shows that the implementation of sharia principles in Hasanah Card includes aspects of transparency, fairness, and sharia compliance. However, the adoption of this product still faces some challenges in terms of public understanding and acceptance of sharia features. The author concludes that while Bank Syariah Indonesia has taken sharia principles into account in the development of the Hasanah Card product, further efforts are needed to improve public understanding and acceptance and strengthen overall sharia compliance.

Strategi Pengembangan Pelancongan Islamik di Nusantara Melalui Model Homestay Patuh Syariah (MHPS) di Sabah / Strategies for the Development of Islamic Tourism in the Archipelago Through the Shariah Compliant Homestay Model (SCHM) in Sabah

The strategy of developing Islamic tourism in the archipelagos through the Shariah-Compliant Homestay Model in Sabah (MHPS) requires a holistic, structured approach. Key strategies include improving homestay infrastructure, providing courses for homestay owners on Sharia compliance, effective digital marketing, local community collaboration, religiously oriented tourism packages, and active involvement of religious institutions. The use of technology, efficient management, periodic evaluation, and developing local skills are crucial aspects of this Sharia-compliant homestay model. This approach aims to create a tourism experience that aligns with Sharia principles, positioning MHPS in Sabah as an attractive destination for Islamic tourists within the archipelago and globally. The success of this model depends on stakeholder cooperation and commitment to the continuity of Islamic tourism. The research method employed includes in-depth interviews with 30 homestay operators in Sabah, literature review, and field observation. The study shows that while Islamic tourism potential in Sabah and the archipelago is high, Sharia-compliant accommodation remains limited. Therefore, a comprehensive development strategy is essential to promote MHPS as a viable accommodation option for Muslim tourists. This strategy should involve government, entrepreneurs, and local communities, ensuring elements like cleanliness, gender separation, and halal food standards. Moreover, a strong marketing strategy emphasizing Islamic values and natural beauty preservation is necessary. The findings of this study are intended to guide relevant parties in maximizing Islamic tourism potential in Sabah and the archipelago, particularly in Malaysia, Indonesia, Brunei Darussalam, and other Asian countries. MHPS development is anticipated to increase the influx of Muslim tourists from Asia and beyond, generating economic benefits for local communities.

The Effect of Sharia Compliance, Attitudes, Satisfaction and Perceived Usefulness on Continued Intention to Use Sharia Digital Banking: A Study of Muslim Customer Behavior

In activities related to financial services, a Muslim has a tendency to choose Shariah-compliant services. The presence of digital banking services will certainly not escape this tendency but in a rational view, this tendency is often challenged. For this reason, research is needed that relates the behavior of a Muslim in choosing digital banking services that not only comply with sharia provisions but also provide benefits that can be felt directly. This study integrates the factors recognized in technology continuance theory with the prevailing values in Muslim behavior to provide results that match the digital characteristics of Islamic banking. Data were collected from 183 Muslim users of Islamic digital banking services in Java, Indonesia and then tested with structural equation modeling (SEM). The research findings show that sharia compliance and perceived usefulness directly have no effect on continuance intention to use Islamic digital banking services, but indirectly through attitude mediation, these two factors have a significant effect. In the direct effect, satisfaction is the most determinant factor in influencing continuance intention to use, while perceived usefulness is the most determinant factor in influencing attitude. Then in the indirect effect, attitude has a full mediation role on the effect of perceived usefulness on continuance intention to use, and partial mediation of the effect of sharia compliance on continuance intention to use

Sharia Compliance And Intellectual Capital Toward Protability Of Islamic Commercial Banks In Indonesia

This study aims to analyze the effect of sharia compliance (SC) proxied by profit sharing ratio (PSR), zakat performance ratio (ZPR), Islamic income ratio (IsIR), directors-employees welfare ratio (DEWR), and intellectual capital (IC) on profitability (return on assets-ROA) of Islamic commercial banks (ICB) in Indonesia. The population of this study was 13 Islamic commercial banks in Indonesia registered with the Financial Services Authority (FSA). The sample was selected using purposive sampling, so 8 ICB were obtained for the study. The data source used is secondary data from each ICB in Indonesia's annual report for 2019-2023. Data analysis uses panel data regression with an analysis tool in the form of Eviews Version 12.0. The results of the study show that PSR positively affects ROA. ZPR and DEWR negatively affect ROA. However, IsIR and IC do not affect ROA. The implications of this study can complement existing theories and be a reference for further research. In practice, this research can be used as reference material for Islamic banking in optimizing performance, evaluating banking to create competitive advantage values, and identifying assessments in decision-making for the community.

Analysis of the Decision of Micro and Small Entrepreneurs to Become Customers of Sharia Financial Institutions

ABSTRACT Research Aims: This study aims to analyze the influence of religiosity, Sharia compliance, pricing, promotion, and process, on the decision of micro and small rulers to become customers of the Islamic finance industry. Design/methodology/approach: This study uses a quantitative method, the number of samples in this study is 137 respondents. The sampling method uses Purposive sampling, with the criteria of 1. Micro and Small Entrepreneurs in Temanggung Regency; 2. As a customer of the Islamic finance industry. Data analysis was carried out using the Partial Least Square (PLS) method using smart-pls 3. Research Findings: religiosity and process variables have a significant positive effect on the decision of micro and small rulers to become customers of the Islamic financial industry, while sharia compliance, price, and promotion do not affect the decision of micro and small rulers to become customers of the Islamic financial industry. Theoretical Contribution/Originality: A person's religiosity is embedded in a person, a person's religiosity affects what a person does. The transaction process in the financial industry is very important to pay attention to and can be an element in the field of marketing that influences someone to become a customer. Keywords: religiosity, sharia compliance, price, process and promotion

Analysis of Opportunities and Challenges of Blockchain Technology in the Islamic Banking Industry (Case Study on the Use of Smart Contracts)

Purpose: This research concludes that, with a strategic and collaborative approach, blockchain technology can be an effective tool for transforming the Islamic banking industry. Methodology: This study uses qualitative methods with literature analysis from 19 journals, one book, and three websites to explore how this technology can be applied in risk management, asset tracking, and interbank transactions. Results: The research results reveal that this technology can reduce fraud, manipulation, and cyberattacks, as well as increase customer and sharia authority trust through transaction transparency. However, there are major challenges to overcome, such as immature regulatory aspects, the need for a strong infrastructure, and a lack of understanding of this technology among customers. This study also emphasizes the importance of collaboration between Islamic banking, regulators, and other stakeholders to maximize the potential of blockchain technology. Limitations: Case studies on the use of smart contracts in the Sharia banking industry show that this technology can increase efficiency and Sharia compliance, reduce administration costs, and simplify transactions. Contribution: This study describes the role of blockchain in the sukuk issuance process. Blockchain technology, which is known for its decentralization, transparency, and security characteristics, has great potential to increase efficiency and transparency in Sharia banking operations.

A Review on Digital Zakat Management Research

Digital zakat management refers to the use of technology to facilitate the collection, distribution, and management of zakat, an Islamic tax on wealth. Digitalization can enhance zakat management by increasing efficiency, transparency, and convenience. However, digital zakat management also poses some challenges, such as the risk of zakat fund transfer failure, sharia compliance risk, and technological information risk. These risks can be addressed through global cybersecurity and fintech advancements. The main objective of this research is to review and analyze the use of digital zakat management research. It found that there are initial research had been done in emerging countries on digital zakat management, as well as authors from respective institutions. It is expected to have a clear view of the impact and benefit of using digital zakat management which then can be tested in empirical studies. An optimal collection of zakat funds is the aim as a result of an effective zakat management system.

Kingdom of Fintech: crowdfunding shaping the future in the kingdom of Saudi Arabia

Purpose This study aims to assess that whether Islamic real estate crowdfunding (RECF) can offer a compelling alternative investment that can attract substantial funds from traditional securities and other conventional methods or otherwise. Design/methodology/approach The current study draws on secondary data that was published on legitimate website, Twitter and official documents. Document analysis is conducted using the statements of privacy policy, Sharia compliance, terms and conditions disclosers and the established facts. Second, to achieve in-depth knowledge, a qualitative analysis was conducted for the published interviews and presentations with Aseel CEO Majed Abalkhail on YouTube. Thematic analysis is adapted; it is among the most popular types of analyzing qualitative data. Findings The findings show that the Aseel platform has been successful in providing simple access to investment opportunities by minimizing the obstacles, reducing entry and exit costs, streamlining the process and widening the investor’s base. Originality/value This paper seeks to contribute to the literature on crowdfunding, Islamic crowdfunding and RECF. Its objectives include exploring the concept of crowdfunding, its growth and various types. Furthermore, the paper aims to examine the expansion of the Islamic crowdfunding system, its current market position and a focus on the Saudi Arabian market. Lastly, the paper investigates the first RECF in Saudi Arabia, Aseel Company, which has achieved remarkable success with seven investment funds completed within its first year of establishment.