Shariah Compliance Research Articles

Shariah Compliance in Fintech App Solutions: An Islamic Legal Perspective

Shariah Compliance in Fintech App Solutions: An Islamic Legal Perspective

Memperluas Pelaksanaan Wakaf Pendidikan di Malaysia

Providing a conducive and contemporary educational infrastructure requires a large-scale budget. Plus, learning ecosystem should be developed in line with current technologies. It is inefficient to depend on government allocation for education in the long run. Constructive engagement dan active contribution from all parties are strongly needed. Hence, stern actions to come out with comprehensive, concrete and resilient solutions are essential. This vacuum can be filled with education waqf as an alternative shariah compliance financial mechanism which characterise a complementative and sustainable fund. This article aims to review the feasibility of education waqf for the school level in the Malaysian status quo and education system. Qualitative approach with content analysis is used. The data collection method is the analysis of secondary source documents and being analysed descriptively as well as inductively. The results show that there are several constraints to implement educational waqf broadly such as legal factors. However, there are still spaces that can be utilised to implement educational waqf comprehensively through collaborative cooperation with stakeholders. All stakeholders in education must manipulate all capabilities and resources towards realising this aspiration, especially in an era of increasingly complex education with the COVID-19 pandemic threat and global economic uncertainty.

Discovering Islamic marketing potential in shaping blockchain-­based halal logistic services: a bibliometric analysis

Purpose This paper aims to examine the Islamic marketing literature to uncover potential customer adoption behaviours and enhance the effectiveness of blockchain-based halal logistics services in catering to customer demands. The findings of this paper provide substantial contributions to the realms of both halal logistics services and Islamic marketing literature, delineating future paths for research. By delving into halal logistics practices, integration procedures and service provider performance, this paper assists stakeholders in enhancing halal logistics services to meet the changing demands of customers effectively. Design/methodology/approach This paper uses a systematic review incorporating bibliometric analysis to examine past and contemporary research topics, selecting and appraising contributions while analysing and consolidating data. A methodical approach has been used to identify, assess and incorporate pertinent studies on Islamic characteristics, traceability technology, blockchain integration and halal logistics practices. Findings After screening and analysing 139 selected documents with the VOS viewer, it is evident that among a 1,000 keywords, 15 stand out in terms of frequency and link strength. The research highlights the considerable academic interest in themes such as “blockchain”, “halal logistics” and “supply chain”, underscoring their importance. The findings of this paper help bridge the gap in Islamic marketing by linking technology with religious values. It suggests that the integration of blockchain technology in halal logistics enhances operational efficiency while aligning with both operational and Islamic marketing principles, promoting ethical conduct and transparency as key enablers. Practical implications The theoretical significance of this paper lies in establishing a correlation among three key research domains: technology, symbolised by blockchain; customer-centric operations, incorporating the halal supply chain and logistics within Islamic marketing. The outcomes reflect consumer behaviour and Shariah compliance. This integration has the potential to introduce innovative theoretical frameworks that encompass religious ethics in marketing, logistics and technological advancements. Originality/value This paper comprehensively analyses the intersection between blockchain technology, halal logistics, supply chain management and Islamic marketing. The paper has comprehensively analysed previous studies and outlined the future research path for blockchain technology in halal logistics and its application in Islamic marketing literature.

Unpacking Capital Structure Decisions: Analyzing Short-Term Debt to Equity Dynamics in Shariah Compliant Financially Distressed Firms

Unpacking Capital Structure Decisions: Analyzing Short-Term Debt to Equity Dynamics in Shariah Compliant Financially Distressed Firms

Non-Shariah Compliance Risks (NCR) and the Danger of Potential Fraud in the Islamic Financial Institutions: A Conceptual Framework

This research paper is a conceptual study that aims to examine financial fraud and its relation to non-compliance to Shariah for the Islamic financial institution in Malaysia. The study is unique because it seeks to understand how deviations from Shariah guidelines could contribute to financial misconduct, examining the specific non-Shariah compliance risks that arise when the deviation of internal control fails to align with Islamic law. Utilizing quantitative methodology, this study adopts and adapts from an existing structured questionnaire survey to collect data. This study also employs Structural Equation Modelling (SEM) in its analysis of the data. The implication of this study for policymakers includes the development of an effective strategy for mitigating financial fraud and ensuring Shariah compliance, thus ensuring the integrity and reputation of the Islamic financial sectors. This will undoubtedly contribute to the stability of the economy.

CRITICAL FACTORS AFFECTING THE SUCCESS OF SHARI‘AH GOVERNANCE: INSIGHTS FROM ISLAMIC FINANCIAL INSTITUTIONS

This study examines the critical role of Shariah governance, particularly the impact of Shariah supervisory boards (SBBs) within the corporate governance framework of Islamic financial institutions (IFIs). SSBs, as critical components of Shariah governance mechanisms, significantly influence Shariah compliance processes within IFIs. This study explores the unique systemic risks inherent in the Islamic financial environment, focusing on the complexities and elements defining SSB legitimacy. The IFSB recommends four essential components for Shariah governance systems, emphasizing the importance of SSBs. However, SSBs face challenges balancing SharÊ‘ah adherence and market dynamics, highlighting a conflict between business objectives and Shariah rules. This study acknowledges the limited strength of Shariah governance, advocating for universally adopted standards to address issues such as conflicts of interest within SSBs and the need for diversified skill sets. This paper assesses the effectiveness of Shariah governance and SSBs in IFIs. For this purpose, a survey was conducted among middle and senior-level managers and employees employed in IFIs or associated regulatory entities across diverse nations. The results highlight the critical role of SSB members, specific standards for board nominations, and the moderate influence of stakeholders' interests on Shariah governance success. Shareholders’ and customers’ interests show no significant correlation with Shariah governance success.

Golden Horizons: Investigating Shariah-Compliant Gold Investment Awareness Among Youth

Gold has long been regarded as a reliable medium of exchange and a store of value, owing to its inherent traits and functions associated with money. In the context of Malaysia, gold investment emerges as a lucrative and secure asset category for investors. They have the option to either physically possess and safeguard gold or opt for a more modern approach by establishing a gold investment account. Over recent years, there has been a noticeable growth in awareness among the public and seasoned gold investors in Malaysia. However, this upward trend has not been as pronounced among the younger demographic. This research aims to investigate the extent of awareness regarding Shariah-compliant gold investment among the young Muslim population in Terengganu, Malaysia. Utilizing a quantitative research methodology, data was collected through a survey administered by researchers via a Google Form, disseminated across various social media platforms. The study successfully obtained data from a sample of 120 respondents. The findings of this study reveal that, on the whole, the young Muslim generation in Terengganu exhibits a high level of awareness regarding Shariah-compliant gold investment. The significance of this research lies in shedding light on the dynamics of gold investment awareness, particularly within the context of Shariah compliance, among the youth in a specific region of Malaysia. The results provide valuable insights for financial institutions, policymakers, and educators seeking to tailor their strategies to enhance financial literacy and promote Shariah-compliant investment practices among the younger population. As Malaysia continues to evolve as a financial hub, understanding and addressing the investment preferences and awareness levels of its diverse demographic groups become crucial for fostering a robust and inclusive financial landscape. Since this study was conducted with small sample size and focusing in Terengganu only, it is strongly recommended to expand the research to other states in Malaysia.

An empirical analysis of stock market participation: from an Islamic perspective

Purpose In the verge of assessing Muslims’ participation in stock market, present study delved into evaluating the influence of Islamic religiosity (IR) on Muslim investor’s financial engagement factors with respect to stock market (i.e. financial literacy [FL], Islamic financial literacy [IFL], behavioural factors [BF], Shariah compliance [SC], technology adoption [TA] and institutional support [IS]), stock market participation (SMP) and financial well-being (FWB). Further, this study aims to examine the mediating role of IFL, TA and SMP and moderating role of IS. Design/methodology/approach Using a mixed-methods approach, a structured survey questionnaire was administered and responses have been collected from 319 Muslim investors from South India using stratified random sampling. Further, data was analysed using SPSS 20.0 and AMOS 20.0 by implementing one-way ANOVA, measurement model and structural equation model to assess the differences, mediating and moderating roles. Findings In this study, it is discovered that IR significantly impacts Muslim investor’s financial engagement factors, SMP and FWB. Further, it is explored that IFL accelerates the impact of FL and SC on SMP. The results also demonstrated the intervening role of TA in enhancing SMP through BF and the mediating role of SMP among Muslim investors with strong IR to attain and enjoy FWB. Interestingly, our study also argued that when the IS is more, the effect of IR on SMP is high. Research limitations/implications Geographical boundaries are restricted to India, where the study proposes future studies in Islamic countries to better understand the religious belief system of the investors, as SC may vary in different countries. Practical implications In accordance with the results, it is recommended that the regulatory bodies and institutions intervene, support and incorporate IFL and also provide user-friendly Tec platforms to monitor and filter stocks and financial products for SC. Social implications The present study intends to tackle the misconception of Islamic values with respect to participating in the stock market and recommends to undertake policy and regulatory framework to ensure the inclusive development of this community. Originality/value To the best of the authors’ knowledge, no studies so far have pondered on the mediating role of SMP in enhancing the effectiveness of IR on their FWB. Further, this study collectively examines the influence of IR on various financial engagement factors affecting SMP leading to FWB.

Evaluating the Factors Affecting the Involvement of Shariah Committees in Risk Management Practices in Islamic Banks: Qualitative Research in the Kingdom of Saudi Arabia

Purpose: This study aims to add to the existing literature on Islamic finance by explaining the ways in which Shariah committees can improve and strengthen their influence over Islamic banks’ risk management practises. This research attempts to break down the complexities of Saudi Arabia’s risk management and identify the crucial role that Shariah committees play in ensuring compliance with Shariah law. Design of study: A qualitative research method was adopted conducting semi-structured interviews. Purposive sampling was used to choose 34 individuals. The data were analyzed using thematic analysis, with the use of NVivo software, which made it easier to identify patterns in the Arabic answers. Following the ethical norms established by RMIT University, obtaining participants’ explicit consent, and guaranteeing anonymity are all of the top priority. Findings: Several factors determine Saudi Islamic Bank Shariah Committee risk management. An effective regulatory framework, Shariah committee-bank leadership communication, and learning of Islamic financial ideas can aid in Shariah compliance. However, interpreting complex financial services within Shariah, inconsistencies between Islamic principles and standard risk management methodologies, and a shortage of competent Shariah scholars with banking and risk management knowledge may slow development. Research is needed to understand Saudi procedures. Originality: The current research comprehensively documented potential factors that facilitate or resist the involvement of Shariah Committees in practices of risk management in Saudi Arabia’s Islamic banks.

Internal Shariah audit change: an identification of specific Islamic legal maxim in Islamic banking institution

Purpose This paper aims to provide insight on internal Shariah audit change process in Islamic banking institution using sociology of translationin and the identification of specific Islamic legal maxim (ILM). Design/methodology/approach This paper gathered findings using qualitative approach where a single case study was selected. The study began with a preliminary study to assist the selection of the case study and later two phases of interviews done at the institution selected as the case study. Findings This paper has provided insights into the internal Shariah audit practices change using sociology of translation that incorporated ILM as the basis to strengthen the Islamic banking operations by achieving maqasid al-Shariah (MS). The findings of this paper provide distinguished insight on internal Shariah audit change process and ILM. The significance of this study is that a new contribution through exploring the viewpoints of the perception that satisfying the minimum legal requirements of Shariah compliance may not be sufficient for proper Shariah audit in IBIs. Therefore, the existence of ILM within a change process serves as a basis for best practices to be able to achieve MS through the means (wasa’il) used in realising IBIs’ objectives. Originality/value The application of ILM to internal Shariah audit change process that would guide Muslim auditors to be in line with Islamic principles. This paper focuses on the application of ILM to the Shariah audit practices changes as ILM embodied ethical value to the general concept of maslahah (well-being) under MS in the period of post-COVID-19.

Shariah Contracts in Private Equity and Its Prospect for Small and Medium Enterprises (SME)

This study explores the significance of contracts in private equity applications, particularly in addressing Shariah compliance concerns inherent in traditional private equity structures. Private equity plays a crucial role in funding and nurturing SMEs, aligning with equity-based activities that are conducive to Islamic finance principles. Using a qualitative Grounded Theory approach, the study involves interviews with various stakeholders in the financial industry. Grounded theory is an iterative and inductive method that systematically analyses data to uncover patterns and themes, generating hypotheses or theories derived directly from the data. The study identifies murabahah, ijarah, mudarabah, and musharakah as suitable contracts for private equity applications. These findings illuminate opportunities for financial industry participants, particularly SMEs, to innovate and access funding through private equity avenues.

Factors Affecting Purchase Intention Towards Shariah Compliant Hotels

Malaysia has been successful in its efforts to entice Muslim tourists worldwide to visit the country and get something unique from their experience. Therefore, the possibility has arisen for local hotels to offer a selection of amenities and activities that are in accordance with the values represented by Islam. As the population of Muslim travellers has increased dramatically, Shariah-compliant hotels have become a pressing issue. Shariah compliance is a crucial factor that influences Muslim travelers' hotel selection during their travels. This study aims to discuss the main factors influencing purchase intentions towards Shariah-compliant hotels. The study reviewed halal awareness, service quality, and religiosity. A conceptual framework is being constructed based on past literature that illustrates the effect of the purchase intention on shariah-compliant hotels. Data is collected by reviewing several previous journals, articles, and research studies through argumentative methods. The findings indicate that two variables, halal awareness and religiosity, significantly influence the purchase intention towards shariah-compliant hotels. This study's significance is to address the stated variables that could potentially impact hotel owners. Additionally, this study is also in line with the current tourism plan of Malaysia, which emphasises shariah compliance as one of the techniques to entice travellers from Muslim nations to visit Malaysia.

Religious Investor Sentiment, Shariah Compliance Impact, and Theological Risk: Evidence from Bursa Malaysia

This study examines the financial implications of religious restrictions by analyzing how changes in the Shariah compliance status of stocks affect their price and trading volume. Employing the market model in an event study approach and using data from Malaysian firms between 2000 and 2016, the study focuses on 30 announcements from the Security Commission Malaysia’s List of Shariah Compliant Securities (LSCS), resulting in 370 additions and 284 deletions from the compliance list. The findings indicate that the inclusion of stocks in the compliance list generates longterm demand driven by Islamic institutional and Muslim retail investors, leading to a permanent increase in abnormal returns and trading volume. Conversely, the removal of stocks from the compliance list induces short-term negative abnormal returns and increased trading volume, reflecting selling pressure. These results contribute to understanding the financial consequences of religious restrictions, highlighting the influence of Shariah compliance on stock market performance and investor behaviour.

Unveiling the terrain of non-bank Islamic personal financing: current practices, challenges, and future prospects

Purpose This study aims to investigate the current practices among selected non-bank financial institutions (NBFIs) in Malaysia in offering Islamic personal financing and the multiple challenges faced by them. Design/methodology/approach The qualitative research methodology was used, and primary data was collected using semi-structured interviews with 10 respondents consisting of NBFIs’ representatives and Shariah advisors. Findings Most Islamic personal financing practice is based on tawarruq. Among the major challenges faced by NBFIs are the absence of a comprehensive legal framework, Shariah non-compliance risks, cost, human resources and risk management. Recommendations include establishing a proper legal framework and Shariah governance. The study also recommends centralising at the regulatory level aspects such as training, commodity murabahah system and the department performing the Shariah advisory and control functions. Research limitations/implications Online interviews were conducted during the early wave of the COVID-19 pandemic in 2020 with a limited number of respondents due to people’s hesitancy to participate during the pandemic. Practical implications The findings will guide regulators and industry players concerning the challenges that must be addressed and the recommendations that can be considered in ensuring complete adherence to Shariah principles for the offering of personal financing. Eventually, Muslim society in need of cash will benefit from the broader choice of Shariah-compliant personal financing. Social implications The research highlights the weaknesses of self-regulation in guaranteeing Shariah compliance and the need for regulatory intervention. Originality/value This is a pioneering empirical study that investigated the offering of Islamic personal financing among NBFIs in Malaysia, the challenges and the way forward.

Shariah compliance fatigue and earnings quality: evidence from MENA

PurposeThis research aims to examine the relations between Shariah compliance and earnings quality.Design/methodology/approachThe authors study three Shariah features: Shariah compliance status, level of Shariah compliance (H-Score) and Shariah compliance persistence. The sample consists of 463 firms from the Middle East and North Africa from 2011 to 2018. A variable determining the level of Shariah compliance was created in accordance with the methodology of S&P 500 Shariah and its underlying index, S&P 500. Then, a probate relapse study was created to identify the link between Shariah compliance and earnings quality.FindingsResults show that Shariah-compliant firms engage in lower earnings management compared to their Shariah-non-compliant counterparts. This paper reveals that Shariah compliance status and high level of Shariah compliance have significant positive association with earnings quality. The authors also find novel evidence that persistence of the Shariah-compliant status has a significant negative association with earnings quality.Practical implicationsThis study only examines firms listed on MENA stock markets. It is recommended to further study different markets in addition to the emerging Arab markets in order to compare and contrast the results. Further, larger sample observations from a greater date range can be used.Originality/valueFew studies have examined the earnings management behavior of Shariah-compliant firms vs Shariah-non-compliant ones in emerging markets; however, no study has focused on Shariah-compliant firms and their level of Shariah compliance. To the best of our knowledge, this is the first study which uses all four proxies for earnings quality in association with Shariah compliance and used new Shariah variables such as Level of Shariah Compliance and Persistent Shariah Compliance status.

M Score Performance Measure for Islamic Banks in Malaysia and Indonesia

Performance measurement is vital to examine the performance of any institution. Due to the different nature of business operations, processes, and activities in Islamic banks, they have to be measured by a more focused instrument to reflect the Shariah compliance parts and their business nature compared to the conventional banks. Hence, M Score which has been developed by Abdul Rahim, Abdul Rahman and Syed AlHabshi (2016) has been adopted in this study. The findings from the computation will indicate which country gains the higher M Score in performance, and this can be used as a benchmarking exercise. This research aims to analyse and compare the M Score performance of Islamic banks in Malaysia and Indonesia. The content analysis via Annual Reports of Islamic banks has been used for this study. The sampling technique used is purposive sampling. The research was conducted on Islamic banks in Malaysia and Indonesia over a period of two years, from 2020-2021. This comparative research is expected to be an evaluation tool for Malaysian Islamic banks, helping them improve their performance to catch up with their counterparts in Indonesia. Thus, the purpose of this research proposal is to analyse and compare the effect of the soundness of Islamic banks based on the M Score performance of Islamic banks in Malaysia and Indonesia. The results of this study indicate that Islamic banks in Indonesia have a higher M Score ranking than those in Malaysia. There are significant differences in the performance of Islamic banks based on the Need Fulfilment and Equitable Distribution (NFED), Economic Growth (EG), and Economic Stability (ES) in Malaysia and Indonesia.

Analyzing Financial Synergy Through Leland's (2007) Framework and Ensuring Shariah Compliance in Sukuk Issuance

The objective of this study is to determine whether issuing sukuk as part of separate financing of a project would increase the value of business. This study adopts Leland Framework (2007) to measure the impact of several variables in separate financing to the value of the firm. The findings revealed that changes in maturity period, tax rate, interest rate and standard deviation can bring similar or different effects depending on each variable. It can be concluded that the separate financing using hypothetical sukuk issuance has a positive effect on the firm. This is visible from the value of the change in optimally levered firm as well as firm value in this paper which both are positive. This shows that the variables above have an impact on the optimal capital structure as well as the results of structured financing. This study further proposes to modify Leland’s model (2007) by using a stochastic model rather than a static one, considering that some sukuk use a profit-sharing contract.

Intellectual capital and firm performance of Jordanian financial institutions

This study aims to explore the financial implications of intellectual capital in the Jordanian financial sector during the period 2009–2018. It uses Pulic’s (2004) value-added intellectual capital model, particularly capital employed efficiency, structural capital efficiency, and human capital efficiency, and tests its potential effect on firm financial performance measures, including return on assets, return on equity, asset utilization ratio, and Tobin’s Q. The study’s findings demonstrate that value-added intellectual capital positively influences the financial performance of Jordanian financial companies. Value-added intellectual capital is not found to have a significant impact on productivity, but it is strongly and positively related to firm profitability and market value. As for the main components of value-added intellectual capital, human capital efficiency has a significantly positive impact on a company’s performance, but regarding structural capital efficiency, the outcomes vary depending on the measure of firm performance. Notably, when firms are categorized into sub-industries (banks, insurance companies, and financial service companies), it is found that the profitability of insurance companies is more affected by intellectual capital than that of banks or financial services. The results also show that investors place great importance on the efficiency of intellectual capital, particularly within the banking industry. Furthermore, implementing Shariah compliance standards boosts the positive effect of structural capital efficiency on corporate market value and reinforces the positive influence of human capital efficiency on productivity.

The dynamic interplay of Shariah compliance rank and financial performance: nonfinancial listed firms in Saudi Arabia as a testing ground

Purpose This paper aims to assess the rank of Shariah compliance (SC) and its impact on the financial performance of non-financial companies listed on the Saudi Stock Exchange. It seeks to understand the relationship between adherence to Shariah principles and the financial success of these companies, providing insights into the importance of SC in the Saudi Arabian context. Design/methodology/approach The study adopts a quantitative research approach, using financial and SC data from non-financial companies listed on the Saudi Stock Exchange. SC is measured using the Accounting and Auditing Organization for Islamic Financial Institutions standards. Financial performance is evaluated using various financial indicators, including return on assets (ROA), return on equity (ROE) and return on investments (ROI). Statistical analysis, including regression analysis, is conducted to examine the relationship between SC and financial performance. Findings The findings indicate a positive association between SC and financial performance in non-financial companies listed on the Saudi Stock Exchange. Companies with higher ranks of SC demonstrate superior financial performance, as evidenced by higher ROA, ROE and ROI. This suggests that adhering to Shariah principles can contribute to improved financial outcomes for companies operating in the Saudi Arabian market. Practical implications The study highlights the practical implications of maintaining SC for non-financial companies in Saudi Arabia. It emphasizes the importance of aligning business practices with Shariah principles to enhance financial performance. The findings suggest that companies can benefit from implementing Shariah-compliant strategies and practices, potentially attracting investors and improving their overall competitiveness in the market. Social implications The social implications of SC in the Saudi Arabian context are significant. Adhering to Shariah principles not only ensures compliance with religious and cultural norms but also promotes ethical and responsible business behaviour. Companies that prioritize SC contribute to the development of a socially responsible and sustainable business environment. Originality/value To the best of the authors’ knowledge, this study represents the first investigation into the impact of SC rank on financial performance. By examining non-financial companies listed on the Saudi market, it contributes significantly to existing literature by providing empirical evidence supporting a positive correlation between SC rank and financial outcomes. The findings offer valuable insights for companies, investors and policymakers in Saudi Arabia, enhancing their understanding of the unique dynamics between SC rank and financial performance. This research enriches the body of knowledge in Islamic finance and business, making a notable contribution to the field and opening avenues for further exploration.

Shariah Compliance, Customer Relationship Marketing, and Loyalty in Islamic Banking: The Role of Customer Satisfaction

This research examines and determines the Influence of Shariah Compliance and Customer Relationship Marketing on Customer Loyalty in Islamic Banks, with Customer Satisfaction as a Moderating Variable. The research population consists of BSI Palu customers. Using a quantitative approach. Research data was collected through questionnaires and analyzed using SmartPLS Version 4. The sampling method was purposive sampling, with 100 selected respondents. The research findings indicate that Shariah Compliance has a significant positive relationship with Customer Loyalty, Customer Relationship Marketing has a significant positive relationship with Customer Loyalty, and Customer Satisfaction has a significant positive relationship with Customer Loyalty. However, Customer Satisfaction does not moderate the relationship between Shariah Compliance and customer loyalty, and Customer Satisfaction significantly weakens the relationship between Customer Relationship Marketing and customer loyalty.