On the Ethicality of Islamic Banks’ Business Model

Jatmiko, Wahyu; Iqbal, Abdullah; Ebrahim, M. Shahid

doi:10.1111/1467-8551.12703

Cited by 11 publications

(14 citation statements)

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“…According to the theory of Maqasid al-Shariah , Islamic social financing tools are essential for the promotion of social harmony and societal well-being (Mergaliyev et al. , 2021; Hamidi and Worthington, 2023; Jatmiko et al ., 2023). As explained by Mohammed et al.…”

Section: Literature Review and Hypothesesmentioning

confidence: 99%

“…According to the theory of Maqasid al-Shariah, Islamic social financing tools are essential for the promotion of social harmony and societal well-being (Mergaliyev et al, 2021;Hamidi and Worthington, 2023;Jatmiko et al, 2023). As explained by , the Maqasid al-Shariah framework of Abu Zahrah (1997) has three broad objectives: establishing justice (iqamah al-adl), educating individuals (tahdhib al-fard) and promoting public interest (jalb al-maslahah) (Amin, 2022a).…”

Section: Literature Review and Hypothesesmentioning

confidence: 99%

Section: Introductionmentioning

confidence: 99%

“…Despite the endorsement of Shariah compliance by religious scholars, the products, processes and practices of Islamic banks (henceforth IBs) have often been the subject of scrutiny, especially concerning the extent to which it helps the fulfillment of the objectives of Shariah or Maqasid al-Shariah (Hudaefi and Noordin, 2019;Jatmiko et al, 2023). The theory of Maqasid al-Shariah posits that the objectives of Islamic law include the promotion of human well-being through the acquisition of full benefits that would support human endeavors in line with Shariah .…”

Section: Introductionmentioning

confidence: 99%

“…

Purpose -Islamic banks, despite being Shariah-compliant, have long been criticized for mimicking conventional banks in terms of their products and processes (Khan, 2010;Kuran, 1996). However, several Islamic banks do engage in philanthropy (zakat and charity) and risk-sharing financing (mudarabah and musharakah) instruments that better meet their raison d'etre, the fulfillment of Maqasid al-Shariah (Jatmiko et al, 2023). These contracts, however, are more susceptible to moral hazard and adverse selection problems than traditional debt-based finance (Azmat et al, 2015) and may impair Islamic bank stability.

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confidence: 99%

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Social finance, institutional quality and stability of Islamic banks: evidence from four countries

Danlami

Abduh

Razak

2023

IJSE

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PurposeIslamic banks, despite being Shariah-compliant, have long been criticized for mimicking conventional banks in terms of their products and processes (Khan, 2010; Kuran, 1996). However, several Islamic banks do engage in philanthropy (zakat and charity) and risk-sharing financing (mudarabah and musharakah) instruments that better meet their raison d'etre, the fulfillment of Maqasid al-Shariah (Jatmiko et al., 2023). These contracts, however, are more susceptible to moral hazard and adverse selection problems than traditional debt-based finance (Azmat et al., 2015) and may impair Islamic bank stability. This paper explores the relationship between social finance and the stability of Islamic banks, and whether institutional quality moderates this relationship.Design/methodology/approachUsing hand-collected annual data on social finance from 12 Islamic banks in four countries: Bangladesh, Bahrain, Indonesia and Malaysia, between 2006 and 2019, the authors employ the feasible generalized least squares and the panel-corrected standard errors methods for the analysis. The Stata version 16 software was used to analyze the data for the study.FindingsThe results indicate that mudarabah and musharakah financing raises the stability of Islamic banks. The authors also found that mudarabah and musharakah expose Islamic banks to more risk-taking behavior amidst the conditioning effect of institutional quality. On the other hand, charity induces the stability of Islamic banks, while zakat increases the risk-taking behavior of the banks. Further, when the quality of institutions was used as a moderator, both zakat and charity induced the stability of Islamic banks. The results were robust when liquidity risk was used and partially robust when portfolio risks were employed as measures of stability.Research limitations/implicationsOne concern regarding the application of Islamic social finance is that it might be a risky strategy for Islamic banks. In terms of research implications, the available evidence suggests that the use of Islamic social finance instruments is not detrimental to the stability of Islamic banks. Hence, regulators and policymakers should not penalize Islamic banks for using Islamic social finance instruments that help provide financial solutions to the underserved and unserved. In terms of research limitations, the study could not include other relevant Islamic social finance instruments such as waqf and qard al-hassan. Furthermore, data availability restricts the analysis to only 12 Islamic banks in fourcountries. As more Islamic banks in different countries venture into Islamic social finance, and the quantity and quality of information improve, future studies could explore the issue further.Social implicationsThe available evidence suggests that the use of Islamic social finance instruments does not worsen the stability of Islamic banks. Given the dominance of sale- and lease-based contracts in Islamic financing (Aggarwal and Yousef, 2000; Šeho et al., 2020), these findings should encourage other Islamic banks to provide financial solutions using other Shariah-compliant contracts including those based on risk-sharing and philanthropy. This would be a better reflection of the Islamic banks’ value proposition as it helps boost social activities that have a high impact on the activities of small businesses, contributing to the real economy and promoting well-being in society.Originality/valuePrevious studies mainly relied on mudarabah, mushakarah and zakat separately as they relate to the performance of Islamic banks. This study explores the impact of social finance which includes charity and zakat to examine their impact on Islamic banks’ stability. Further, the authors use institutional quality as a moderating variable in the relationship between Islamic social finance instruments and the stability of Islamic banks.Peer reviewThe peer review history for this article is available at: https://publons.com/publon/10.1108/IJSE-06-2022-0441

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Section: Literature Review and Hypothesesmentioning

confidence: 99%

Section: Literature Review and Hypothesesmentioning

confidence: 99%

Section: Introductionmentioning

confidence: 99%

Section: Introductionmentioning

confidence: 99%

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mentioning

confidence: 99%

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Social finance, institutional quality and stability of Islamic banks: evidence from four countries

Danlami

Abduh

Razak

2023

IJSE

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Sukūk development and income inequality

Jatmiko,

Ebrahim,

Smaoui

2023

Journal of International Financial Markets, Institutions and Mo

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Assessing the awareness and perception of waqf among business owners in Gombe State, Nigeria

Abdu,

Lamido,

Jibir

2023

IES

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PurposeThe literature about the dynamics of Muslims' awareness and perception of waqf has been generally scarce,especially in Nigeria. As renewed efforts are emerging to develop a new waqf regime in the country, this study examines this aspect in Gombe metropolis, Nigeria, with a view to identifying the key factors shaping people's perception and awareness towards waqf.Design/methodology/approachTo achieve the objective of this study, primary data were collected through a survey among 494 business owners in the Gombe metropolis. The data were then analysed using probit and Tobit regression models.FindingsThe study found that altruistic behaviour, religiosity level, educational level and young age are among the factors that determine people's perception and awareness towards donating to waqf among business owners in Gombe. Altruism and young age embolden businesspersons to recognise the effectiveness of waqf institutions in solving socioeconomic challenges.Practical implicationsThe findings of this study imply that waqf has huge potential in the study area and that with well-structured, organized waqf education programmes within the business community using diverse avenues, a robust waqf sector can be developed.Originality/valueAs far as the study area and the entire Nigerian Islamic economics and finance landscape is concerned, the study has explored a novel research area. Given the infant stage of empirical studies on waqf in Nigeria, there are virtually no previous attempts to examine the awareness and perception of businesspersons towards waqf; variables that are key to the development of an effective sector.

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On the Ethicality of Islamic Banks’ Business Model

Cited by 11 publications

References 79 publications

Social finance, institutional quality and stability of Islamic banks: evidence from four countries

Social finance, institutional quality and stability of Islamic banks: evidence from four countries

Sukūk development and income inequality

Assessing the awareness and perception of waqf among business owners in Gombe State, Nigeria

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