Shariah Index Research Articles

Maqashid Sharia Implementation in Indonesia and Bahrain

This study aims to analyze the performance of Islamic banking in Indonesia and Bahrain from the perspective of the maqashid shariah index. Performance is the success of an organization in implementing its strategy so that its achievement on the targets set. Maqashid shariah is a measurement of Islamic banking performance following the objectives and characteristics of Islamic banking. The research method used is descriptive and comparative methods, while the data analysis technique used is the independent t-test. The results of this study are that there is no significant difference between the application of Islamic maqashid in Indonesia and the implementation of Islamic maqashid in Bahrain. Thus, the application of Islamic values and the application of sharia maqashid has been integrated with Islamic bank business activities so that different government policies or regulations because each country has a specific constitution, then the impact is not significant or does not affect the implementation of sharia maqashid on operational and business activities in Islamic banks.JEL Classification: M41, M48, Z12 How to Cite:Nugraha, E., Nugroho, L., Lindra, C. N., & Sukiati, W. (2020). Maqashid Sharia Implementation in Indonesia and Bahrain. Etikonomi: Jurnal Ekonomi, 19(1), 155 – 168. https://doi.org/10.15408/etk.v19i1.14655.

Simple Additive Weighting Method for The Assessment of Sharia Banking Performance

The interest in Sharia-based financial industry products has increased rapidly, as evidenced by a large number of conventional Bank customers migrating to Islamic Commercial Banks (BUS). With this phenomenon, it is necessary to measure BUS financial performance in Indonesia by using the analysis of the Shariah Maqashid Index (SMI) concept as control and reference for the public to choose and utilize Islamic financial products in Indonesia with an empirical study approach. The object of this study is Islamic banks in Indonesia using purposive sampling techniques with the condition that only the category of Islamic Commercial Banks. The results of this study are indicators of all mashed shariah index variables with measurements using the SAW (Simple Additive Weighting) method as decision support. Eight BUS in Indonesia have different calculation results; each Islamic bank has advantages in SMI elements. That Bank Mualamah Syariah has the highest IK1 (Performance Indicator) for two years in a row. Bank Panin Syariah has the highest IK2 in 5 consecutive years. BCAS and Bank Syariah Bukopin have the highest IK3. In general, all BUS that has implemented maqashid syariah with the category 'good' because they have an average value of 3.00.

Challenging the Current Shariah Screening Methodology Assessments in Kuala Lumpur Shariah Index (KLSI)

The purpose of this study is to explain the justification behind the current Shariah screening methodology assessments used by KLSI, which differs from other major Shariah screening methodology around the world. Besides, this study is also attempts to investigate on the intention to entitle Shariah-compliant status by Public Listed Companies (PLCs) in Malaysia. This study employed a series of interviews with five individuals who are involves with KLSI Shariah screening methodology as data collection procedure. Thus, this study found a number of justifications on the reasons behind the current Shariah screening methodology assessments used by KLSI. This includes reasons on the adoption of additional 20% tolerable percentage, additional criteria on corporate image and maslaha (public benefits) and also views on the leniency of current KLSI Shariah screening methodology assessments. Besides, this study also identified several measures to identify the intention to entitle Shariah-compliant status by PLCs. This includes voluntary application, effort of de-listed PLCs to be listed as Shariah-compliant for the following year, impact of Shariah-compliant status especially on the share prices and potential investors, good corporate image on maintaining Shariah-compliant status and the core value of the business. Then, this study also provide several recommendations to be considered for future improvement especially on Shariah screening methodology assessment.

Do Google Trends and Shariah Compliant Stocks Co-Integrated? An Evidence from India

The objective of the study is to understand the dynamic relationship between Shariah-compliant stocks and the Google search value index (GSVI). The search strength is identified by the search volume of Shariah-compliant stocks on Google. The sample for the study consists of Shariah-compliant stocks commonly available in all the three Shariah indices in India, sample stock data has been extracted on a weekly basis from Sept 2014 to Sept 2019. The results of the study are based on the diagnostic analysis suggests that there is no serial correlation as demonstrated by LM residual test, CUSUM test shows stability in data, coefficient Wald test is showing there is no short-run causality running between selected Shariah-compliant stocks and GSVI. The outcome suggests that there is a long-run equilibrium relationship existing between Shariah-compliant stocks and the Google search value index. Trace statistics has five co-integration equations and Max-Eigen statistics has one co-integration. The vector error correction model (VECM) suggests the acceptability of the model. There are many potential investment opportunities for investors in the Islamic stock market of India. The motive of Shariah is to provide an avenue for ethical and viable investment to the investors. This study will not only be advantageous for the Muslim investors but also the other investors, industrialist, Shariah-compliant advisor as well.

The conceptual framework of sustainable Islamic finance with special reference to Shariah index in India

This study attempts to explore the conceptual framework of Islamic finance emphasising on Shariah index in India. To bring forth the conceptual framework of Islamic finance huge body of literature has been reviewed concerning the Shariah Islamiiah (Islamic teachings), historical background of Islamic finance, Shariah law, different components of Islamic finance, introduction to Islamic capital market and discussed the screening practices followed by the companies under different Industries. It is observed that there is a need to bring in certain amendments in the rules and regulations by the Indian government to pave the way for introducing various forms of Islamic finance as it may gain by the way of investments, financial inclusion of Muslims, upliftment of Muslims, agricultural development and so on. It is recommended to make diversification concerning to the avenue of investment by introducing more Shariah funds and ETF. Further, it is revealed that there is a difference in screening practices of different countries. Therefore, it is suggested to have uniform screening practices to hold the faith of investors on Islamic finance.

The conceptual framework of sustainable Islamic finance with special reference to Shariah index in India

This study attempts to explore the conceptual framework of Islamic finance emphasising on Shariah index in India. To bring forth the conceptual framework of Islamic finance huge body of literature has been reviewed concerning the Shariah Islamiiah (Islamic teachings), historical background of Islamic finance, Shariah law, different components of Islamic finance, introduction to Islamic capital market and discussed the screening practices followed by the companies under different Industries. It is observed that there is a need to bring in certain amendments in the rules and regulations by the Indian government to pave the way for introducing various forms of Islamic finance as it may gain by the way of investments, financial inclusion of Muslims, upliftment of Muslims, agricultural development and so on. It is recommended to make diversification concerning to the avenue of investment by introducing more Shariah funds and ETF. Further, it is revealed that there is a difference in screening practices of different countries. Therefore, it is suggested to have uniform screening practices to hold the faith of investors on Islamic finance.

Shariah Screening Methodology: Does It ‘Really’ Shariah Compliance?

<em>The Shariah financial screening indices is to exclude companies with unacceptable levels of conventional debt, liquidity, interest-based investment and/or impure income. Ideally, companies must not borrow on the basis of interest rate, nor invest in debt-bearing instruments, as well as not generating income through any other Shariah-impermissible activities. However, such restrictions would screen out the vast majority - if not all - of the stocks that are available on the market, even those listed in Islamic countries. Based on this condition, Shariah scholars tried to come out with a set of Shariah indices to be tested on existing companies in order to classify them as Shariah-compliant companies. Thus, the aim of this paper is to explore and critically analyse comparison of Shariah screening methodology amongst major Shariah indices in the world. By applying the reviewing for all related literature and contents of Shariah screening’s laws and regulations. It can be stated that several group of Shariah indices can be categorized. Firstly, under qualitative measures (business activities), there are two groups which are: (i) financial activities orientation; and (ii) indic with non-financial activities orientation. Meanwhile, under quantitative measures (financial ratios), another several groups can be categorized based on different adoption in the nominator, denominator and tolerate percentage used. It is hoped that this work would inspire more research on Shariah screening using different research methods and compare between the indices according to segments this research argued. Besides, the policy makers should give more attention to ensure the Shariah screening practices and the enhancement Shariah screening standardizing among the major Shariah indices. Last but not least, investors and stakeholders whom concern of Shariah screening could also benefited of the findings of this study by having better understanding of Shariah screening practices and compare between existed indices.</em>

PENGARUH THIN CAPITALIZATION TERHADAP PENGHINDARAN PAJAK PERUSAHAAN INDEX SAHAM SYARIAH INDONESIA

The purpose of this study was to examine the effect of thin capitalization with to cash effective tax rates as the proxy for tax avoidance. Control Variable used in this research is key management compensation, firms size, and profitability.The method used in this research is an analytical descriptive. The sample used in this research consist of 20 companies from manufacturing sector listed in Indonesian Stock Shariah Index (ISSI) in 2011– 2016. Sample selection methods used in this research is purposive sampling. The analysis methods used in this research is multiple regression analysis.The results show that the thin capitalization has a significant influence on cash effective tax rates as the proxy for tax avoidance. Key management compensation as control variable has not been able to prove the effect on tax avoidance and firms size profitability have a significant effect on cash effective tax rates as the proxy for tax avoidance.

Can Inclusion in Religious Index Membership Mitigate Earnings Management?

This paper investigates whether religious-based index membership is important in mitigating earnings management. Using a large sample of firms domiciled across 12 European countries, our empirical results show that firms included in the Shariah-compliant index, as a proxy for religious index, are more likely to engage in accruals manipulation vis-a-vis non-Shariah-compliant firms. Our results are robust using the Heckman two-stage treatment effect model, weighted least squares model, alternative earnings quality metrics and after controlling for the potential effects of home-country characteristics. Furthermore, our empirical results indicate that corporate governance of Shariah-compliant firms does not constrain managerial opportunistic behaviour in misreporting earnings, and firms that with low scores of board functions, shareholder rights and vision and strategy are more likely to engage in earnings management. Further, Shariah-compliant firms domiciled in Coordinated Market Economies are more likely to manipulate earnings than those in Liberal Market Economies. Taken together, our findings suggest that the Shariah index membership does not indicate good corporate governance that can mitigate earnings management, and it may serve as a legitimacy mechanism to conform to stakeholders’ expectations. Our findings support arguments that the religious-based index membership is plausibly used as a ‘label’ and an impression management tool to attract investment.

Does Ramadan influence the returns and volatility? Evidence from Shariah index in India

PurposeMuslim’s hope that the holy month of Ramadan will create something more valuable for them. Through fasting and good actions, they can get rewarded twice than they normally can achieve. With this motivation, the purpose of this paper is to investigate the holy month of Ramadan effect on the returns and volatility of the Shariah index in India.Design/methodology/approachUsing the ordinary least square methods, this paper examines the impact of Ramadan effect on the returns of the Shariah index in India. This paper further investigates the impact of the holy month of Ramadan effect on the volatility of the Shariah index by applying GARCH-modified models. This paper categorizes the Ramadan days into three parts, namely God’s Mercy, God’s Forgiveness and Emancipation from hellfire to examine the relationship between the Ramadan effect and the returns and volatility of the Shariah index in India.FindingsThe results show that the returns during the month of Ramadan as a whole are statistically significant. The results further motivate that its last ten days have high influences than other days over the period. Finally, the study examines the Ramadan effect on volatility by applying GARCH modified models and finds an evidence of Ramadan effect during the first ten days of Ramadan month.Originality/valueThe positive impact of Ramadan increases on the days associated with higher worship intensity. The study provides an important information to the ethical investors to invest in the Shariah stocks during Ramadan days. This information is very useful for the investors to get an abnormal return during the Ramadan days.

Revised Malaysian Shariah Screening: Its Impact on Islamic Capital Market

Shariah Advisory Council (SAC) of Securities Commission (SC) formulated a new revised Shariah screening methodology of two-tier quantitative assessment for activity-based screening benchmarks and the newly- formulated financial ratio benchmarks, while the qualitative assessment remains the same. The revised methodology is an effort to expand the Islamic capital market’s (ICM) international reach which is in line with the SC objectives. The objective of this paper is to examine the impact of the recent announcement of new changes in the Shariah screening methodology by the Malaysian Securities Commission on the share prices of the affected companies and Islamic capital market. We use an event study method to see if the changes have a significant reaction from the market, specifically, from investors and fund managers. On the announcement date, that is, on 29 November 2013, 158 non-Shariah compliant stocks were removed from the previous list of Shariah compliant stock that was issued in May 2013 and 16 stocks were added to the approved list. Out of 158 non-Shariah compliant stocks, only 137 stocks are available for the analysis. For the new Shariah compliant stocks, only 16 stocks are included in the sample. We find an immediate but short lived negative impact on the stock returns towards the deletion, but none towards the addition of new stocks to the Shariah index. However, the announcement has no significant impact on the overall return of the FBM Emas Shariah index.

Corporate Attributes Influencing the Compliance of Islamic Finance: Evidence from Listed Companies under Shariah Index in India

The aim of this paper is to provide empirical evidence relating to the factors influencing the compliance of Islamic finance by Indian corporate sector. The sample comprised of the whole population of Shariah companies numbered as 190 consisted in the 500 Shariah and Nifty Shariah indices during the period of 2009 till 2014. However, after making the necessary filtration due to unavailability of data, the actual size of the sample came out to be 136 companies. The relationship between factors and the extent of compliance were analysed using Panel data regression model. The results evident that companies of larger size and higher growth rate have significant mandatory compliance. Whereas, firm size examined with net sales and board independence has withstood with compliance of voluntary and overall measures. The significant implication of our results is that it provided information on firm specific characteristics for the investors who are looking for investment in Shariah compliant companies. In this way investor would be able to keep an eye on their investment. These results may also be advantageous to the regulators in making decisions. Distinct from previous empirical research concerning to Islamic social reporting in Muslim and non-Muslim countries, this study examines the factors affecting the extent of Shariah compliance by the companies listed under Shariah Index in Indian stock exchange.

Does Shariah Indices Converge Evidence from Gulf Cooperation Council (GCC) Countries

S&P Dow Jones Indices are celebrating the 10th anniversary in Dubai with the expansion of single and multi factor index series in Gulf Cooperation Council (GCC) region. This current set of indices covers low volatility, momentum, enhance value, and equality factors. The objective of the study is to understand the dynamic relationship between domestic Shariah Indices of GCC nations which is important for investors to mitigate their risk and for governments to take precautionary action to avoid the possible financial downturn in their respective countries. The study has uni-directional Granger causality between Bahrain to Qatar, Oman, Saudi Arabia and UAE and bi-directional Granger causality between Saudi Arabia to Kuwait and Oman. This study will not only be advantageous for the Muslim investors, but also the other investors too. This important information enables the investors to adjust their financial portfolio, and also helps the respective market regulator.

Dependence Measure of Daily versus Weekly Returns

The copula method has been popular among researchers, especially in measuring the overall dependence and extreme dependence of multivariate data. Many copula studies have been focusing on examining the correlation of bivariate daily, monthly or weekly returns to explain the co-movement between financial markets and possible financial implications on portfolio management. Differently from past studies, this paper investigates whether different frequency of bivariate data (daily and weekly returns) possesses different dependence structures. The data from Kuala Lumpur Composite Index (KLCI) and Bursa Malaysia Hijrah Shariah Index (FBMHS) for the sample period of 2008 Q1 to 2017 Q1 are used for studying the dependency. The findings from this study reveal that both daily and weekly bivariate returns have the same dependence structure but different degree of dependence. Bivariate weekly returns showed stronger dependence compared to bivariate daily returns. This paper also highlights the statistical properties of weekly and daily data. The evidence from this research draws inferences for further study that lower frequency data such as monthly or quarterly returns data may have higher degree of dependence while higher frequency data may have lower degree of dependence and different copula structure.

Islamic calendar and stock market behaviour in India

PurposeThe purpose of this paper is to examine the behavior of the stock market returns in the different days of the week and different months of the year in accordance with the Islamic calendar. Further, the study estimates the risk-adjusted returns to test the performance of the indices during the Ramadan and non-Ramadan days. Finally, the study investigates the impact of Ramadan on the returns and the volatility of the stock market indices in India.Design/methodology/approachInitially, the study applies the Ordinary Least Square method to test the day-of-the-week and the month-of-the-year effect of the common and Shariah indices. Next, the study employs the risk-adjusted measurement to examine the underperformance and over-performance of the indices for both the periods. Finally, the study estimates the GARCH (1,1) and GJR-GARCH (1,1) models to observe the impact of Ramadan on the returns and the volatility of the Shariah indices in India.FindingsThe study finds that an average return of the indices during the Ramadan days are higher than non-Ramadan days. Further, the average returns of the Shariah indices are significantly higher on Wednesday than other days of the week. In addition, the highest and significant mean returns and mean risk-adjusted returns of the indices during the Ramadan days are observed. Finally, the study finds an evidence of the Ramadan effect on the returns and volatility of the indices in India.Originality/valueThe study observes evidence that the Ramadan effect influences the Shariah indices, but not the common indices in the stock market of the non-Muslim countries. It indicates that the Ramadan creates the positive mood and emotions in the investors buying and selling activities. The study suggests that investors can buy the shares before Ramadan period and sell them during the Ramadan days to get an abnormal return in the emerging markets.

Islamic Corporate Governance and Islamic Social Responsibility Towards Maqashid Shariah

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Do Islamic Stock Returns Hedge Against Inflation? A Wavelet Approach

ABSTRACTThis article makes an initial attempt to study the hedging effectiveness of Islamic stock returns against inflation for different investment horizons. We applied the wavelet analysis to measure the cross-correlations between the time series as a function of time-scales using data ranging from 2007 to early 2015. The main results tend to indicate the following: First, that for investment horizons not exceeding 3 years, the FTSE Bursa Malaysia Emas Shariah Index constituent returns may potentially hedge against inflation. Additionally, the hedging ability of stock returns was absent from 2008 to 2009 following the global financial crisis. Finally, a buy-and-hold strategy exceeding 3 years may erode investments. The results are plausible and have strong policy implications.

THE RELATIONSHIP BETWEEN EXCHANGE RATES AND ISLAMIC INDICES IN INDONESIA AND MALAYSIA

This study is aimed to analyze the causal relationship between the exchange rates and Islamic indices in Indonesia and Malaysia, and the long-term relationship of the two variables. Indonesia is represented by the value of the rupiah to US dollar and the Jakarta Islamic Index while Malaysia is represented by the exchange rate of the ringgit to US dollar and the FTSE Bursa Malaysia Hijrah Shariah Index. By using the Vector Autoregression (VAR) model, it can be concluded that the relationship between Jakarta Islamic index is a unidirectional relationship, where the Jakarta Islamic Index affects the exchange rate. The relationship between Malaysia Islamic index has a bidirectional relationship, where the exchange rate affects the FTSE Bursa Malaysia ringgit Hijrah Shariah Index and FTSE Bursa Malaysia Hijrah Shariah Index affects the ringgit exchange rate. Through the study is also concluded that the exchange rate with Islamic indices in Indonesia and Malaysia has a long-term relationship. Keywords : Rupiah, Ringgit, Jakarta Islamic Index, the FTSE Bursa Malaysia Hijrah Shariah Index, VECM

Does Shariah index hedge against sentiment risk? Evidence from Indian stock market using time–frequency domain approach

This article examines the relationship of Shariah index returns with sentiments, risk and macroeconomic factors in the Indian stock market. The wavelet method has been used to decompose stock returns, sentiment and macro variables into different time series frequencies. Along with linear causal relationship, the present study also attempts to uncover the effect of non-linearity on causal relationships based on Péguin-Feissolle and Teräsvirta (1999). The results indicate that risk-based explanation is more relevant for Sharia index return behavior in the emerging Indian stock market. This study reports significant relationship between macro variables and Sharia index returns. For Shariah indices, investor sentiments are more likely to affect short-term returns, i.e., high frequent timescales. However, we do not find significant sentiment pricing after controlling the effect of systematic risk factors in an asset-pricing framework. Thus, Shariah-compliance stocks might hedge against waves of investor sentiment during unprecedented market movements.

Influence of economic factors on disaggregated Islamic banking deposits: Evidence with structural breaks in Malaysia

This paper contributes to the existing empirical literature on savings and Islamic banking systems by comprehensively examining the determinants of Islamic banking deposits in Malaysia. Initially, we examine the factors affecting the deposits in Islamic banking by types, which include investment deposits, demand deposits, savings deposits, ringgit Tawarruq deposits, dollar Tawarruq deposits and negotiable instrument deposits. Additionally, we investigate the determinants of deposits in Islamic banking by holders including household deposits, business deposits, financial institution deposits, federal government deposits, state government deposits and statutory agency deposits. We also examine the factors affecting the total deposits in the Islamic banking system. After confirming that the variables are stationary in the first difference through the use of the residual augmented least squares (RALS) procedure of Meng et al. (2014), we use the break-augmented cointegration methods of Johansen et al. (2000) and Giles and Godwin (2012) to check the cointegrating relationships and generate the long run coefficients of the variables. The results show that industrial production index, real interest rates on fixed and savings deposits have positive impacts on several components of Islamic banking deposits and the total deposits of Islamic banks, while real interest rates on deposits in commercial banks have a negative impact. However, the roles of both the Shariah index and the real exchange rate are mixed.