We document the contribution of Islamic finance
development to economic growth by studying a glob... more We document the contribution of Islamic finance development to economic growth by studying a global sample of countries engaged in providing Islamic financial services. Fifteen countries are included in the sample based on significant Islamic banking share in total domestic banking assets. Results are documented through the application of the Panel regression (EGLS) method for the period 2001–2020. Findings suggest a positive contribution of the Islamic Financial Services Industry (IFSI) to economic growth in sample countries in multiple regression settings. Additionally, a range of control variables, including domestic credit to the private sector, inflation, and trade openness, contribute significantly to economic growth. We recommend the creation of a conducive environment for the promotion of IFSI on account of the built‐in stability feature and positive contribution to economic growth. We also recommend overall development in the financial sector of selected economies, including credit availability to the private sector and trade openness. Our study helps in understanding the dynamics of economic growth in economies with a dual banking system (conventional & Islamic). This article contributes to the literature by studying a larger sample of countries engaged in the practice of Islamic finance and considering the significance of the market share of assets under IFSI.
ISRA International Journal of Islamic Finance, 2023
Purpose-The study documents the performance of the Islamic banking services industry (IBSI) in li... more Purpose-The study documents the performance of the Islamic banking services industry (IBSI) in light of the Islamic finance objectives, notably financial stability, equitable distribution of wealth, and social responsibility. Design/Methodology/Approach-After drawing the performance evaluation framework based on the objectives, the research conducts a balance sheet analysis of the IBSI in Pakistan for 32 quarters (2013Q4-2021Q3). The analysis examines sources and uses of funds by looking at the application of financial contracts and sectoral distribution of financing. Objectively classified data trends are reported through graphs. Findings-Findings suggest that the domestic IBSI has shown progress in achieving primary and intermediate objectives, including commercial performance, contribution to equitable wealth distribution, and financial stability. However, the industry's in-practice business models lack any significant contribution to the social sector, which represents a more advanced objective. Originality/Value-The contributions to the literature include development of a performance evaluation framework based on Islamic finance objectives, and documentation of findings on the IBSI's achievements in Pakistan. Research Implications-The study recommends that regulators develop a legal framework for business models of the IBSI. It also recommends that managers of domestic Islamic banks include the social sector as well as agricultural and rural areas in financing and investment portfolios.
Business Ethics, the Environment and Responsibility, 2022
Islamic Financial Services Industry (IFSI) crosses the age of 40 years, and sufficient empirical ... more Islamic Financial Services Industry (IFSI) crosses the age of 40 years, and sufficient empirical evidence exists to evaluate in light of the distinctive aspirations. This study fills the gap in the literature by evaluating the performance of IFSI in light of Islamic finance objectives—financial stability, equitable distribution of wealth and social responsibility; Shari’ah principles, and professional practices. Our investigation documents the achievements based on real accounting data from 23 countries, and suitability of tools in practice to achieve the stated objectives by promotors of IFSI. Findings suggest that the objectives of IFSI have been achieved to an extent. However, visible contribution to the achievement of socio-economic justice is yet to emerge. Practical application of tools shows divergence (in spirit) from the original design, primarily to achieve integration and coherence with the prevailing conventional financial system. IFSI needs collaborative efforts to overcome the challenges at hand.
International Journal of Trade and Global Markets, 2021
Abstract: This study analyses the international trade in the Organization of
Islamic Cooperation ... more Abstract: This study analyses the international trade in the Organization of Islamic Cooperation (OIC) region, covering exports, imports, and balance of trade (BoT) from 2007 to 2016. The analysis is conducted by various lenses, including whole OIC as a unit, objectively classified economic zones, and economic cooperation unions. Findings suggest that OIC-region’s contribution to global GDP and international trade is significantly lesser than the size of the community. Performance in international trade and BoT is good in the initial years of analyses; however, declines in the final years of the review period. Performance of two economic zones (South & Southeast Asia, and Africa) of OIC-region is quite unsatisfactory, based on the size of the communities. Middle Eastern zone performs well, relatively, within the OIC region. Intra- OIC trade is significantly lesser than the potential. OIC-region needs to capitalise on abundant Human and natural resources to achieve higher economic growth and exports. Keywords: international trade; exports; imports; OIC; Organisation of Islamic Cooperation; Middle East; South & Southeast Asia; Central Asia; Africa.
Purpose: This study analyses the international trade among members of the Organisation of Islamic... more Purpose: This study analyses the international trade among members of the Organisation of Islamic Cooperation (OIC) and documents the significant contributing factors. Methodology: Our sample includes 49 OIC-members (located from Southeast Asia to South America). The extended gravity model of international trade is applied to identify the determinants of intra-OIC region trade on the recent five years data (2014-18), at the time research conducted. Exports are used as proxy for the international trade between a pair of trading partners. Findings: Evidence supports the application of the basic gravity model in explaining trade variations within the OIC region. GDP contributes positively while distancing negatively. Common language contributes positively to trade flows. Shared borders and Inflation (importer and exporter) turned insignificant. Trade volume among OIC member countries is less than potential. Recommendations: OIC economies need to focus on growth through the production of value-added commodities-leading to an increase in international trade. Furthermore, surplus capital within the region may be shifted to economies with scarce capital. Significance: To the best of author's knowledge, this is the only effort to present a comprehensive analysis of international trade within the OICregion through the application of the gravity model in recent years.
Journal of King Abdulaziz University: Islamic Economics, 2020
ABSTRACT. This study documents the literary developments and classifies the literature in the are... more ABSTRACT. This study documents the literary developments and classifies the literature in the area of Islamic Financial Services Industry (IFSI). Our findings are based on articles published in selected Islamic finance specialized journals for six years (2012-2017). Classification is based on multiple factors including subject/specialization areas, country of origin and publications, research methodology, and yearly progress in investigations. Findings suggest that the majority of publications are in the area of general Islamic finance and follow qualitative research methodology. Malaysia and Pakistan were found to be the most significant contributors to the literature. Although the results of empirical studies are mixed, however, the majority favor resilience of IFSI to the global financial crisis (GFC). The potential role of IFSI in poverty alleviation and corporate social responsibility (CSR) has also been highlighted. Demand for IFSI with quality services exists. The literature highlights the lack of Islamic financial literacy and skepticism about Sharīʿah compliance in practice. Need for regulatory framework and application of Islamic accounting is documented. Future research needs to focus on an objective assessment of IFSI in the light of Islamic finance objectives. Also, further investigations are needed to highlight the social role of IFSI – with a focus on CSR, zakāh, waqf and microfinance. Additionally, certain specialized areas including accounting, management, and corporate governance need more attention in future researches.
KEYWORDS: Participative financing, Sharīʿah compliance, Islamic finance, Profit sharing, Angel investors, Silent partnership.
Research Question: This study is conducted to organize the literature on long-run equilibrium of ... more Research Question: This study is conducted to organize the literature on long-run equilibrium of stock markets during the post-financial crisis era (2010-17), to document the latest developments. Motivation: Integration-status of markets contribute significantly to the decision of investment-diversification by a portfolio manager. Studies on the topic exist for pre-financial crisis period (e.g. Sharma and Seth (2012); however, we intend to organizes literature on the subject in post-financial crisis era. Financial crisis is a significant event of 21st century and knowing about developments in the area of market-integration is expected to enhance portfolio decision making. Idea: A collection and organisation of the published literature for review period to present a broader picture as opposed to empirical results of few selected markets. Data: Multiple studies have been published, however, we include 76 research articles [published in indexed Journals] in the area of market integrations during the period under review (2010-17). Method/Tools: We classified the publications based on country of origin; sample countries studied, sample periods, data frequency & econometric techniques used, and yearly publication trends, during the period under review. A selected review of findings is incorporated. Findings: Our findings suggest that developed and developing, larger GDP as well as Smaller GDP, countries have been researched during the period under review. Certain economic regions—Central Asia, East Europe, Africa (North, South, and Central), South America—have got less focus in research during the period under review, and offer potential research avenue. A period ranging from 9-17 years is the most widely used study period during the review period. Most widely used techniques to study market equilibrium are Correlation cointegration, regression and Granger causality. On the issue of integration, results indicate increase in integration of markets in various regions. Contributions: Our findings serve as a reference point for future researches in the area of portfolio diversification, potentially. To the best of our knowledge, no study has been conducted to organize the literature on market integration, covering post-financial crisis era.
ISRA International Journal of Islamic Finance, 2020
Purpose – This study aims to evaluate the role of the prevailing currency systems in achieving (o... more Purpose – This study aims to evaluate the role of the prevailing currency systems in achieving (or departing from) the socio-economic objectives of a progressive and just society; i.e. featuring stability and equitable distribution of wealth.
Design/methodology/approach – After documenting historical developments in currency systems, the study reviews the Islamic perspective on the matter. Features of an ideal currency system are listed and then a critical evaluation of existing currency systems – fiat, banking and cryptocurrency – is undertaken.
Findings – It is found that existing currency systems – fiat, banking and cryptocurrency – are not compatible with the socio-economic objectives of a forward-looking, progressive society, which upholds transparency and justice as its core values. The study documents that Sharīʿah norms have no preference or dislike for any of the existing currency systems. Any prudent currency system compatible with the objectives of the Islamic financial system (i.e. stability and equitable distribution of wealth) is acceptable. A single international reserve currency (with country-specific legal tendering) is subject to the risk of destabilisation across global markets.
Practical implications – This paper recommends autonomy of central banking, the spending of seigniorage for the welfare of community members, development of asset-backed currencies (following sukūk structures), as well as multiple international reserve currencies and joining of hands by professionals and Sharīʿah scholars to design a currency system compatible with the Islamic financial system. This paper’s
recommendation is against the adoption of cryptocurrency that lacks the backing of real assets.
Originality/value – The study contributes to the literature by evaluating the compatibility of existing currency systems in the achievement of socio-economic objectives of a welfare state which seeks to uphold justice and equitable resource distribution as core values in the financial system.
Keywords Cryptocurrency, Fiat currency, International currency, Islamic currency
Journal of Islamic Accounting and Business Research, 2020
Purpose
Islamic capital markets, i.e. ICMs, featured as socially responsible investments, less l... more Purpose
Islamic capital markets, i.e. ICMs, featured as socially responsible investments, less levered and more reflective of the real sector, are a recent development in financial markets showing an impressive growth and offering the potential for portfolio diversification benefits. The purpose of this study is to understand the long-run integration of ICMs in the Asia/Pacific region.
Design/methodology/approach
This sample includes ICMs of Asia/Pacific region (such as Pakistan, India, China, Japan, Thailand, Malaysia and Indonesia) for 280 weeks between 2011 and 2016. Selected indexes are FTSE Islamic except for Pakistan and Indonesia. Evidence was obtained through the application of correlation, unit root, Johansen cointegration and Granger causality tests.
Findings
This study documents the results of the integration of ICMs based on developmental stage, geographic location, economic cooperation and shared religious beliefs/civilization. Partial support was observed for all hypotheses: integration of markets based on economic grouping, location, economic treaties and shared civilization. The Japanese market was the most integrated, while the Indian and Malaysian markets are the least. Evidence supports the shift of leadership role from advanced markets to emerging markets.
Practical implications
Selected diversification opportunities are available for global Islamic as well as conventional investors. This study recommends closer cooperation among Muslim majority countries of the region, as well as the effective use of economic cooperation treaties for joint economic growth and prosperity.
Originality/value
This study contributes to the literature by providing evidence on the integration of ICMs in an economically important region (Asia/Pacific) that is witnessing an increasing role in the global gross domestic product and international trade.
International Journal of Energy Economics & Policy, 2020
This study documents the impact of price variations in global markets, specifically oil, on stock... more This study documents the impact of price variations in global markets, specifically oil, on stock returns at Pakistan stock exchange (PSX). We select three global markets (oil, gold and currency exchange) and two PSX indices (conventional and Islamic) for a period 2009-2020 to provide evidence. Monthly data for the selected time series is used for analysis. Analysis techniques include descriptive statistics, stationarity testing, Johansen cointegration, correlation and regression analysis. Findings suggest joint long-run co-movements of selected markets. Regression results indicate the significance of oil prices at 1% level, with positive signs, in the stock return generation process at PSX (for both indices conventional and Islamic). Other selected markets (gold and currency exchange) are although significant but at a higher degree, with negative signs. For the oil market, results confirm the demand-pull inflation hypothesis in Pakistani market. Results also confirm shifting to gold market by investors in the period of reductions in stock returns. Finally, depreciation of domestic currency discourages investors in buying stocks. We recommend investors to have an eye on oil, gold and currency markets while making investment decisions at PSX. We also recommend to policymakers to take timely actions for exchange rate stability, to avoid the outflow of capital. To the best of our knowledge, this is the only study documenting the influence of global markets on stock returns at PSX in recent years.
Journal of King Abdulaziz University:Islamic Economics, 2019
ABSTRACT. This study highlights the issues in the screening process of Sharīʿahcompliant
stock un... more ABSTRACT. This study highlights the issues in the screening process of Sharīʿahcompliant stock universe from Sharīʿah and professional perspectives. We have critically analyzed Sharīʿah-compliance methodologies of selected (eight) institutions in the light of Islamic principles of business. The findings suggest multiple weaknesses in the process, including variations in tolerance limits (for ḥarāmelements), variations in the use of calculation methods (total assets and market capitalization), insufficient income purification mechanism, and confusions about the application of bayʿ al-ṣarf and bayʿ al-dayn regulations. In addition, we find lack of revisions in the tolerance limits, corresponding to the expansion of the Islamic finance market. We also find that certain important areas, such as questionable marketing and sales practices and environmental damages, are ignored in filtration. This study proposes a Sharīʿah-compliance rankings mechanism for Islamic stock markets, within agreed upon framework, based on the degree of violations. Keywords: Islamic capital market, Sharīʿah Screening, Islamic finance, Islamic Indices, Islamic Business, Islamic stock Portfolio, Income purification. JEL Classification: G10 KAUJIE Classification: L41, L43, O0
Journal of Islamic Accounting and Business Research, 2019
Purpose This study aims to understand and document the impact of market-based – market returns an... more Purpose This study aims to understand and document the impact of market-based – market returns and momentum – as well as firm-specific – size, book-to-market (B/M) ratio, price-to-earnings ratio (PER) and cash flow (CF) – factors on pricing of Shari’ah-compliant securities as explanation of variations in stock returns in an emerging market – Pakistan’s Karachi Stock Exchange. Design/methodology/approach Initially, the authors test Fama and French (FF) three-factor model – market risk premium, size and B/M – followed by modified FF model by including additional risk factors (PER, CF and momentum) over a 10-year period (2001-2010). Findings Our results support superiority of FF three-factor model over single-factor capital asset pricing model. However, addition of further risk factors – including PER, CF and momentum – improves explanatory power of the model, as well as refines the selection of risk factors. In this study, CF, B/M and momentum factors remain insignificant. Traditional...
Abstract
Purpose – The purpose of this paper is to present an analysis of current practices of Is... more Abstract Purpose – The purpose of this paper is to present an analysis of current practices of Islamic mortgages in the light of the principles of Islamic financial system, to document divergences – if any. A subsidiary goal is to develop an Islamic Mortgage Model (IMM) based on Musharakah principles. Design/methodology/approach – The author documents theoretical underpinnings of risk-return sharing from the Shari’ah perspective. A comparative study of conventional and Islamic mortgages is completed; existing practice of Islamic mortgages analyzed in the light of Musharakah principles and divergences identified. IMM is developed after taking divergences and Musharakah principles into considerations. A housing case is used to highlight differences (in financial terms) under multiple methods and scenarios. Findings – Study documents multiple divergences from Musharakah principles in the existing practice of Islamic mortgages including ignorance of market pricing in the negotiation of rentals and trading of equity units, and transfer of all ownership risks and rewards (vacancy, damage, destruction and market) to one partner (i.e. customer). Practice is divergent from principles in the area of economic substance. Modified IMM is developed by taking into account Musharakah principles; and differences highlighted by calculating financial figures – to determine financial rights and liabilities of the parties. Practical implications – Divergence from the principles of risk-return sharing leads to failure in the achievement of Islamic finance objective of equitable distribution of wealth. Moreover, protection of capital for financier reduces the market abilities to achieve financial stability by matching credit expansion with the rise in the real economy. Shari’ah boards and regulators, as well as, management of Islamic banking industry are expected to incorporate proposed changes in-practice for the realization of Islamic finance objectives. Originality/value – This study contributes to Islamic finance literature in the area of risk-return sharing. Based on important objectives of Islamic finance – equitable distribution of wealth and financial stability – divergences identified and a modified IMM in the light of Musharakah principles is presented. Descriptive rules are transformed into financial figures to document financial rights and liabilities of the concerned parties.
ISRA International Journal of Islamic Finance, 2018
Purpose This study aims to develop a Sharīʿah-compliance rating mechanism for the Islamic financi... more Purpose This study aims to develop a Sharīʿah-compliance rating mechanism for the Islamic financial services industry (IFSI), with a special focus on banking. The banking sector is taken as the area of focus due to its leadership role in the volume of global Sharīʿah-compliant assets. Design/methodology/approach The objectives of the Islamic financial system (IFS) are selected as the basis for ratings. A range of performance indicators (leading to achievement of the objectives) is grouped into four broader categories and used in the study to allocate scores with a sum total of 100. Special considerations – including the amount of resources required in performing an activity, suitability of prevailing business conditions, the degree of compulsion/discretion in performing a task and linkage with the essence of the IFS – were taken into account in the allocation of scores. Findings This study groups multiple performance measures into four categories, including portfolio construction (d...
Journal of Islamic Economics, Banking and Finance, 2017
Islamic finance being a relatively new business segment, however, have shown
promising results s... more Islamic finance being a relatively new business segment, however, have shown
promising results so far. In addition to banking services, Islamic finance has
started penetrating in other sectors including capital markets and insurance.
This study aims to evaluate the newly emerging Takaful sector in Pakistani
market. The study covers an overview of insurance sector including Takaful;
comparative financial analysis of Takaful industry with conventional
insurance; an insight into the accounting and legal framework for Takaful;
a customer survey to document the perception about Takaful business;
and an insight and documentation of challenges to Takaful operations.
Findings suggest Takaful business has low market share, although growing
at a faster pace. The past financial performance appears to be poor, though
with singnificant potential depicted by healthy growth. A reasonably good
regulatory framework is also in place. Overall, market sentiments are very
positive about Takaful insurance in Pakistan.
Key Words: Takaful, Pakistan, market perception, regulatory framework, financial
analysis
Journal of Islamic Economics, Banking and Finance, 2016
Financial reporting is very important aspect of any business as it determines
financial rights a... more Financial reporting is very important aspect of any business as it determines
financial rights and liabilities of the parties involved. With the advent of
Islamic finance the issue of financial reporting as per Islamic law was raised,
which was then addressed by the Accounting and Auditing Organization of
Islamic Financial Institutions [AAOIFI]. There exist differences as well as
similarities under both regimes of accounting [conventional and Islamic].
As in many countries, relevant changes in laws for application of Islamic
accounting are yet to be made, hence Islamic Financial Institutions [IFIs]
in those countries are bound to follow conventional accounting standards.
This study is intended to highlight the financial issues emerging due to
application of conventional accounting standard in Ijarah accounting by IFIs.
Comparison of two accounting standards IAS-17 and FAS-8 as well as their
implications is discussed.We found in the process that although an informed
effort is being made by experts in Islamic finance to match, revenue as well
as cost to customers, with conventional financial industry, however contract
of leasing and Ijarah carries more financial, legal and accounting differences
than similarities, hence application of conventional lease accounting is not
appropriate for an IFI.
Key Words: IAS 17, FAS 8, IFRS, IFAC, AAOIFI, Lease accounting, Ijarah accounting
International Journal of Islamic and Middle Eastern Finance and Management, 2016
Purpose – Islamic financing is based on the ideology of Islam, proposing a different economic sys... more Purpose – Islamic financing is based on the ideology of Islam, proposing a different economic system than capitalism. The essence of Islamic financing lies in trading of goods, provision of services and/or investment under profit and loss sharing. This study aims to examine legal forms and economic substance of the contracts used by the Islamic financial industry.
Design/methodology/approach – To conclude on the objectives of the study, five most widely used contracts (modes/products), including Murabaha, Ijarah, Diminishing Musharaka, Sukuk and Mudaraba (deposits), were selected to test against the theory of the Islamic financial system.
Findings – It is found in the process that legally (legal form) contracts/products are in line with theory; however, economic substance is not very different from conventional counter parts.
Practical implications – Through application of alternative calculation measures/methods and proper training of human resources, Islamic financial institutions can shift economic substance of contracts in line with the theory of Islamic finance.
Originality/value – Islamic finance is an emerging area, and reasonably good amount of literature is available; however, perhaps, this is the only piece of work focusing on calculation methods, contributing in economic substance of contracts, being used in modern Islamic finance in addition to legal form as per essence of Islamic financial system.
Keywords Sukuk, Diminishing Musharaka, Ijarah, Market-based, Murabaha
This article covers Development of Islamic finance as a distinct financial stream. It includes re... more This article covers Development of Islamic finance as a distinct financial stream. It includes religious foundations [Objectives of Shari'a and Injunctions on Riba/interest & usury], Historical developments [timeline], Principles [Riba prohibition, Gharar, Myser and PLS] and Operational modes [trading, rental, Musharaka, Mudaraba, Equity, Sukuk and Takaful] of Islamic finance.
A recent development in financial markets is the creation of
Shar¯ ı‘ah compliant stock universes... more A recent development in financial markets is the creation of Shar¯ ı‘ah compliant stock universes. Shar¯ ı‘ah compliant stock universe is featured as socially responsible investments, less levered, and more reflective of the real sector. This study is conducted to understand and document the short-run equilibrium among important macroeconomic indicators and Equity indexesIslamic and conventionalin the post-Shar¯ ı‘ah-screening era in Pakistan. Comparative study of linkages among stock indexes and macroeconomic variables is of great interest to i) identify the important macroeconomic factors; and ii) document whether Shar¯ ı‘ah screening of stocks has created any difference (in macro risk factors). We have included eight macroeconomic variables to study integration with stocks for 64 Months’ period (07/2011-10/2016). Evidence has been obtained by application of correlation, unit root, OLS-regression and Granger causality tests. Findings suggest that both markets Islamic & conventional are integrated with selected macroeconomic indicators. However, evidence lacks the integration of markets themselves. We identify a set of two variables from real economy exports and workers’ remittances-linked with both markets, while the third variable is different for Islamic (industrial production) and conventional (Money Supply (MS)) markets. Important monetary variables interest rate and inflation have shown an insignificant association. Movements of Islamic index are in-line with the theory i.e., disassociation from interest and reflection of the real economy. Movements of conventional index cover both real and monetary sectors.
We document the contribution of Islamic finance
development to economic growth by studying a glob... more We document the contribution of Islamic finance development to economic growth by studying a global sample of countries engaged in providing Islamic financial services. Fifteen countries are included in the sample based on significant Islamic banking share in total domestic banking assets. Results are documented through the application of the Panel regression (EGLS) method for the period 2001–2020. Findings suggest a positive contribution of the Islamic Financial Services Industry (IFSI) to economic growth in sample countries in multiple regression settings. Additionally, a range of control variables, including domestic credit to the private sector, inflation, and trade openness, contribute significantly to economic growth. We recommend the creation of a conducive environment for the promotion of IFSI on account of the built‐in stability feature and positive contribution to economic growth. We also recommend overall development in the financial sector of selected economies, including credit availability to the private sector and trade openness. Our study helps in understanding the dynamics of economic growth in economies with a dual banking system (conventional & Islamic). This article contributes to the literature by studying a larger sample of countries engaged in the practice of Islamic finance and considering the significance of the market share of assets under IFSI.
ISRA International Journal of Islamic Finance, 2023
Purpose-The study documents the performance of the Islamic banking services industry (IBSI) in li... more Purpose-The study documents the performance of the Islamic banking services industry (IBSI) in light of the Islamic finance objectives, notably financial stability, equitable distribution of wealth, and social responsibility. Design/Methodology/Approach-After drawing the performance evaluation framework based on the objectives, the research conducts a balance sheet analysis of the IBSI in Pakistan for 32 quarters (2013Q4-2021Q3). The analysis examines sources and uses of funds by looking at the application of financial contracts and sectoral distribution of financing. Objectively classified data trends are reported through graphs. Findings-Findings suggest that the domestic IBSI has shown progress in achieving primary and intermediate objectives, including commercial performance, contribution to equitable wealth distribution, and financial stability. However, the industry's in-practice business models lack any significant contribution to the social sector, which represents a more advanced objective. Originality/Value-The contributions to the literature include development of a performance evaluation framework based on Islamic finance objectives, and documentation of findings on the IBSI's achievements in Pakistan. Research Implications-The study recommends that regulators develop a legal framework for business models of the IBSI. It also recommends that managers of domestic Islamic banks include the social sector as well as agricultural and rural areas in financing and investment portfolios.
Business Ethics, the Environment and Responsibility, 2022
Islamic Financial Services Industry (IFSI) crosses the age of 40 years, and sufficient empirical ... more Islamic Financial Services Industry (IFSI) crosses the age of 40 years, and sufficient empirical evidence exists to evaluate in light of the distinctive aspirations. This study fills the gap in the literature by evaluating the performance of IFSI in light of Islamic finance objectives—financial stability, equitable distribution of wealth and social responsibility; Shari’ah principles, and professional practices. Our investigation documents the achievements based on real accounting data from 23 countries, and suitability of tools in practice to achieve the stated objectives by promotors of IFSI. Findings suggest that the objectives of IFSI have been achieved to an extent. However, visible contribution to the achievement of socio-economic justice is yet to emerge. Practical application of tools shows divergence (in spirit) from the original design, primarily to achieve integration and coherence with the prevailing conventional financial system. IFSI needs collaborative efforts to overcome the challenges at hand.
International Journal of Trade and Global Markets, 2021
Abstract: This study analyses the international trade in the Organization of
Islamic Cooperation ... more Abstract: This study analyses the international trade in the Organization of Islamic Cooperation (OIC) region, covering exports, imports, and balance of trade (BoT) from 2007 to 2016. The analysis is conducted by various lenses, including whole OIC as a unit, objectively classified economic zones, and economic cooperation unions. Findings suggest that OIC-region’s contribution to global GDP and international trade is significantly lesser than the size of the community. Performance in international trade and BoT is good in the initial years of analyses; however, declines in the final years of the review period. Performance of two economic zones (South & Southeast Asia, and Africa) of OIC-region is quite unsatisfactory, based on the size of the communities. Middle Eastern zone performs well, relatively, within the OIC region. Intra- OIC trade is significantly lesser than the potential. OIC-region needs to capitalise on abundant Human and natural resources to achieve higher economic growth and exports. Keywords: international trade; exports; imports; OIC; Organisation of Islamic Cooperation; Middle East; South & Southeast Asia; Central Asia; Africa.
Purpose: This study analyses the international trade among members of the Organisation of Islamic... more Purpose: This study analyses the international trade among members of the Organisation of Islamic Cooperation (OIC) and documents the significant contributing factors. Methodology: Our sample includes 49 OIC-members (located from Southeast Asia to South America). The extended gravity model of international trade is applied to identify the determinants of intra-OIC region trade on the recent five years data (2014-18), at the time research conducted. Exports are used as proxy for the international trade between a pair of trading partners. Findings: Evidence supports the application of the basic gravity model in explaining trade variations within the OIC region. GDP contributes positively while distancing negatively. Common language contributes positively to trade flows. Shared borders and Inflation (importer and exporter) turned insignificant. Trade volume among OIC member countries is less than potential. Recommendations: OIC economies need to focus on growth through the production of value-added commodities-leading to an increase in international trade. Furthermore, surplus capital within the region may be shifted to economies with scarce capital. Significance: To the best of author's knowledge, this is the only effort to present a comprehensive analysis of international trade within the OICregion through the application of the gravity model in recent years.
Journal of King Abdulaziz University: Islamic Economics, 2020
ABSTRACT. This study documents the literary developments and classifies the literature in the are... more ABSTRACT. This study documents the literary developments and classifies the literature in the area of Islamic Financial Services Industry (IFSI). Our findings are based on articles published in selected Islamic finance specialized journals for six years (2012-2017). Classification is based on multiple factors including subject/specialization areas, country of origin and publications, research methodology, and yearly progress in investigations. Findings suggest that the majority of publications are in the area of general Islamic finance and follow qualitative research methodology. Malaysia and Pakistan were found to be the most significant contributors to the literature. Although the results of empirical studies are mixed, however, the majority favor resilience of IFSI to the global financial crisis (GFC). The potential role of IFSI in poverty alleviation and corporate social responsibility (CSR) has also been highlighted. Demand for IFSI with quality services exists. The literature highlights the lack of Islamic financial literacy and skepticism about Sharīʿah compliance in practice. Need for regulatory framework and application of Islamic accounting is documented. Future research needs to focus on an objective assessment of IFSI in the light of Islamic finance objectives. Also, further investigations are needed to highlight the social role of IFSI – with a focus on CSR, zakāh, waqf and microfinance. Additionally, certain specialized areas including accounting, management, and corporate governance need more attention in future researches.
KEYWORDS: Participative financing, Sharīʿah compliance, Islamic finance, Profit sharing, Angel investors, Silent partnership.
Research Question: This study is conducted to organize the literature on long-run equilibrium of ... more Research Question: This study is conducted to organize the literature on long-run equilibrium of stock markets during the post-financial crisis era (2010-17), to document the latest developments. Motivation: Integration-status of markets contribute significantly to the decision of investment-diversification by a portfolio manager. Studies on the topic exist for pre-financial crisis period (e.g. Sharma and Seth (2012); however, we intend to organizes literature on the subject in post-financial crisis era. Financial crisis is a significant event of 21st century and knowing about developments in the area of market-integration is expected to enhance portfolio decision making. Idea: A collection and organisation of the published literature for review period to present a broader picture as opposed to empirical results of few selected markets. Data: Multiple studies have been published, however, we include 76 research articles [published in indexed Journals] in the area of market integrations during the period under review (2010-17). Method/Tools: We classified the publications based on country of origin; sample countries studied, sample periods, data frequency & econometric techniques used, and yearly publication trends, during the period under review. A selected review of findings is incorporated. Findings: Our findings suggest that developed and developing, larger GDP as well as Smaller GDP, countries have been researched during the period under review. Certain economic regions—Central Asia, East Europe, Africa (North, South, and Central), South America—have got less focus in research during the period under review, and offer potential research avenue. A period ranging from 9-17 years is the most widely used study period during the review period. Most widely used techniques to study market equilibrium are Correlation cointegration, regression and Granger causality. On the issue of integration, results indicate increase in integration of markets in various regions. Contributions: Our findings serve as a reference point for future researches in the area of portfolio diversification, potentially. To the best of our knowledge, no study has been conducted to organize the literature on market integration, covering post-financial crisis era.
ISRA International Journal of Islamic Finance, 2020
Purpose – This study aims to evaluate the role of the prevailing currency systems in achieving (o... more Purpose – This study aims to evaluate the role of the prevailing currency systems in achieving (or departing from) the socio-economic objectives of a progressive and just society; i.e. featuring stability and equitable distribution of wealth.
Design/methodology/approach – After documenting historical developments in currency systems, the study reviews the Islamic perspective on the matter. Features of an ideal currency system are listed and then a critical evaluation of existing currency systems – fiat, banking and cryptocurrency – is undertaken.
Findings – It is found that existing currency systems – fiat, banking and cryptocurrency – are not compatible with the socio-economic objectives of a forward-looking, progressive society, which upholds transparency and justice as its core values. The study documents that Sharīʿah norms have no preference or dislike for any of the existing currency systems. Any prudent currency system compatible with the objectives of the Islamic financial system (i.e. stability and equitable distribution of wealth) is acceptable. A single international reserve currency (with country-specific legal tendering) is subject to the risk of destabilisation across global markets.
Practical implications – This paper recommends autonomy of central banking, the spending of seigniorage for the welfare of community members, development of asset-backed currencies (following sukūk structures), as well as multiple international reserve currencies and joining of hands by professionals and Sharīʿah scholars to design a currency system compatible with the Islamic financial system. This paper’s
recommendation is against the adoption of cryptocurrency that lacks the backing of real assets.
Originality/value – The study contributes to the literature by evaluating the compatibility of existing currency systems in the achievement of socio-economic objectives of a welfare state which seeks to uphold justice and equitable resource distribution as core values in the financial system.
Keywords Cryptocurrency, Fiat currency, International currency, Islamic currency
Journal of Islamic Accounting and Business Research, 2020
Purpose
Islamic capital markets, i.e. ICMs, featured as socially responsible investments, less l... more Purpose
Islamic capital markets, i.e. ICMs, featured as socially responsible investments, less levered and more reflective of the real sector, are a recent development in financial markets showing an impressive growth and offering the potential for portfolio diversification benefits. The purpose of this study is to understand the long-run integration of ICMs in the Asia/Pacific region.
Design/methodology/approach
This sample includes ICMs of Asia/Pacific region (such as Pakistan, India, China, Japan, Thailand, Malaysia and Indonesia) for 280 weeks between 2011 and 2016. Selected indexes are FTSE Islamic except for Pakistan and Indonesia. Evidence was obtained through the application of correlation, unit root, Johansen cointegration and Granger causality tests.
Findings
This study documents the results of the integration of ICMs based on developmental stage, geographic location, economic cooperation and shared religious beliefs/civilization. Partial support was observed for all hypotheses: integration of markets based on economic grouping, location, economic treaties and shared civilization. The Japanese market was the most integrated, while the Indian and Malaysian markets are the least. Evidence supports the shift of leadership role from advanced markets to emerging markets.
Practical implications
Selected diversification opportunities are available for global Islamic as well as conventional investors. This study recommends closer cooperation among Muslim majority countries of the region, as well as the effective use of economic cooperation treaties for joint economic growth and prosperity.
Originality/value
This study contributes to the literature by providing evidence on the integration of ICMs in an economically important region (Asia/Pacific) that is witnessing an increasing role in the global gross domestic product and international trade.
International Journal of Energy Economics & Policy, 2020
This study documents the impact of price variations in global markets, specifically oil, on stock... more This study documents the impact of price variations in global markets, specifically oil, on stock returns at Pakistan stock exchange (PSX). We select three global markets (oil, gold and currency exchange) and two PSX indices (conventional and Islamic) for a period 2009-2020 to provide evidence. Monthly data for the selected time series is used for analysis. Analysis techniques include descriptive statistics, stationarity testing, Johansen cointegration, correlation and regression analysis. Findings suggest joint long-run co-movements of selected markets. Regression results indicate the significance of oil prices at 1% level, with positive signs, in the stock return generation process at PSX (for both indices conventional and Islamic). Other selected markets (gold and currency exchange) are although significant but at a higher degree, with negative signs. For the oil market, results confirm the demand-pull inflation hypothesis in Pakistani market. Results also confirm shifting to gold market by investors in the period of reductions in stock returns. Finally, depreciation of domestic currency discourages investors in buying stocks. We recommend investors to have an eye on oil, gold and currency markets while making investment decisions at PSX. We also recommend to policymakers to take timely actions for exchange rate stability, to avoid the outflow of capital. To the best of our knowledge, this is the only study documenting the influence of global markets on stock returns at PSX in recent years.
Journal of King Abdulaziz University:Islamic Economics, 2019
ABSTRACT. This study highlights the issues in the screening process of Sharīʿahcompliant
stock un... more ABSTRACT. This study highlights the issues in the screening process of Sharīʿahcompliant stock universe from Sharīʿah and professional perspectives. We have critically analyzed Sharīʿah-compliance methodologies of selected (eight) institutions in the light of Islamic principles of business. The findings suggest multiple weaknesses in the process, including variations in tolerance limits (for ḥarāmelements), variations in the use of calculation methods (total assets and market capitalization), insufficient income purification mechanism, and confusions about the application of bayʿ al-ṣarf and bayʿ al-dayn regulations. In addition, we find lack of revisions in the tolerance limits, corresponding to the expansion of the Islamic finance market. We also find that certain important areas, such as questionable marketing and sales practices and environmental damages, are ignored in filtration. This study proposes a Sharīʿah-compliance rankings mechanism for Islamic stock markets, within agreed upon framework, based on the degree of violations. Keywords: Islamic capital market, Sharīʿah Screening, Islamic finance, Islamic Indices, Islamic Business, Islamic stock Portfolio, Income purification. JEL Classification: G10 KAUJIE Classification: L41, L43, O0
Journal of Islamic Accounting and Business Research, 2019
Purpose This study aims to understand and document the impact of market-based – market returns an... more Purpose This study aims to understand and document the impact of market-based – market returns and momentum – as well as firm-specific – size, book-to-market (B/M) ratio, price-to-earnings ratio (PER) and cash flow (CF) – factors on pricing of Shari’ah-compliant securities as explanation of variations in stock returns in an emerging market – Pakistan’s Karachi Stock Exchange. Design/methodology/approach Initially, the authors test Fama and French (FF) three-factor model – market risk premium, size and B/M – followed by modified FF model by including additional risk factors (PER, CF and momentum) over a 10-year period (2001-2010). Findings Our results support superiority of FF three-factor model over single-factor capital asset pricing model. However, addition of further risk factors – including PER, CF and momentum – improves explanatory power of the model, as well as refines the selection of risk factors. In this study, CF, B/M and momentum factors remain insignificant. Traditional...
Abstract
Purpose – The purpose of this paper is to present an analysis of current practices of Is... more Abstract Purpose – The purpose of this paper is to present an analysis of current practices of Islamic mortgages in the light of the principles of Islamic financial system, to document divergences – if any. A subsidiary goal is to develop an Islamic Mortgage Model (IMM) based on Musharakah principles. Design/methodology/approach – The author documents theoretical underpinnings of risk-return sharing from the Shari’ah perspective. A comparative study of conventional and Islamic mortgages is completed; existing practice of Islamic mortgages analyzed in the light of Musharakah principles and divergences identified. IMM is developed after taking divergences and Musharakah principles into considerations. A housing case is used to highlight differences (in financial terms) under multiple methods and scenarios. Findings – Study documents multiple divergences from Musharakah principles in the existing practice of Islamic mortgages including ignorance of market pricing in the negotiation of rentals and trading of equity units, and transfer of all ownership risks and rewards (vacancy, damage, destruction and market) to one partner (i.e. customer). Practice is divergent from principles in the area of economic substance. Modified IMM is developed by taking into account Musharakah principles; and differences highlighted by calculating financial figures – to determine financial rights and liabilities of the parties. Practical implications – Divergence from the principles of risk-return sharing leads to failure in the achievement of Islamic finance objective of equitable distribution of wealth. Moreover, protection of capital for financier reduces the market abilities to achieve financial stability by matching credit expansion with the rise in the real economy. Shari’ah boards and regulators, as well as, management of Islamic banking industry are expected to incorporate proposed changes in-practice for the realization of Islamic finance objectives. Originality/value – This study contributes to Islamic finance literature in the area of risk-return sharing. Based on important objectives of Islamic finance – equitable distribution of wealth and financial stability – divergences identified and a modified IMM in the light of Musharakah principles is presented. Descriptive rules are transformed into financial figures to document financial rights and liabilities of the concerned parties.
ISRA International Journal of Islamic Finance, 2018
Purpose This study aims to develop a Sharīʿah-compliance rating mechanism for the Islamic financi... more Purpose This study aims to develop a Sharīʿah-compliance rating mechanism for the Islamic financial services industry (IFSI), with a special focus on banking. The banking sector is taken as the area of focus due to its leadership role in the volume of global Sharīʿah-compliant assets. Design/methodology/approach The objectives of the Islamic financial system (IFS) are selected as the basis for ratings. A range of performance indicators (leading to achievement of the objectives) is grouped into four broader categories and used in the study to allocate scores with a sum total of 100. Special considerations – including the amount of resources required in performing an activity, suitability of prevailing business conditions, the degree of compulsion/discretion in performing a task and linkage with the essence of the IFS – were taken into account in the allocation of scores. Findings This study groups multiple performance measures into four categories, including portfolio construction (d...
Journal of Islamic Economics, Banking and Finance, 2017
Islamic finance being a relatively new business segment, however, have shown
promising results s... more Islamic finance being a relatively new business segment, however, have shown
promising results so far. In addition to banking services, Islamic finance has
started penetrating in other sectors including capital markets and insurance.
This study aims to evaluate the newly emerging Takaful sector in Pakistani
market. The study covers an overview of insurance sector including Takaful;
comparative financial analysis of Takaful industry with conventional
insurance; an insight into the accounting and legal framework for Takaful;
a customer survey to document the perception about Takaful business;
and an insight and documentation of challenges to Takaful operations.
Findings suggest Takaful business has low market share, although growing
at a faster pace. The past financial performance appears to be poor, though
with singnificant potential depicted by healthy growth. A reasonably good
regulatory framework is also in place. Overall, market sentiments are very
positive about Takaful insurance in Pakistan.
Key Words: Takaful, Pakistan, market perception, regulatory framework, financial
analysis
Journal of Islamic Economics, Banking and Finance, 2016
Financial reporting is very important aspect of any business as it determines
financial rights a... more Financial reporting is very important aspect of any business as it determines
financial rights and liabilities of the parties involved. With the advent of
Islamic finance the issue of financial reporting as per Islamic law was raised,
which was then addressed by the Accounting and Auditing Organization of
Islamic Financial Institutions [AAOIFI]. There exist differences as well as
similarities under both regimes of accounting [conventional and Islamic].
As in many countries, relevant changes in laws for application of Islamic
accounting are yet to be made, hence Islamic Financial Institutions [IFIs]
in those countries are bound to follow conventional accounting standards.
This study is intended to highlight the financial issues emerging due to
application of conventional accounting standard in Ijarah accounting by IFIs.
Comparison of two accounting standards IAS-17 and FAS-8 as well as their
implications is discussed.We found in the process that although an informed
effort is being made by experts in Islamic finance to match, revenue as well
as cost to customers, with conventional financial industry, however contract
of leasing and Ijarah carries more financial, legal and accounting differences
than similarities, hence application of conventional lease accounting is not
appropriate for an IFI.
Key Words: IAS 17, FAS 8, IFRS, IFAC, AAOIFI, Lease accounting, Ijarah accounting
International Journal of Islamic and Middle Eastern Finance and Management, 2016
Purpose – Islamic financing is based on the ideology of Islam, proposing a different economic sys... more Purpose – Islamic financing is based on the ideology of Islam, proposing a different economic system than capitalism. The essence of Islamic financing lies in trading of goods, provision of services and/or investment under profit and loss sharing. This study aims to examine legal forms and economic substance of the contracts used by the Islamic financial industry.
Design/methodology/approach – To conclude on the objectives of the study, five most widely used contracts (modes/products), including Murabaha, Ijarah, Diminishing Musharaka, Sukuk and Mudaraba (deposits), were selected to test against the theory of the Islamic financial system.
Findings – It is found in the process that legally (legal form) contracts/products are in line with theory; however, economic substance is not very different from conventional counter parts.
Practical implications – Through application of alternative calculation measures/methods and proper training of human resources, Islamic financial institutions can shift economic substance of contracts in line with the theory of Islamic finance.
Originality/value – Islamic finance is an emerging area, and reasonably good amount of literature is available; however, perhaps, this is the only piece of work focusing on calculation methods, contributing in economic substance of contracts, being used in modern Islamic finance in addition to legal form as per essence of Islamic financial system.
Keywords Sukuk, Diminishing Musharaka, Ijarah, Market-based, Murabaha
This article covers Development of Islamic finance as a distinct financial stream. It includes re... more This article covers Development of Islamic finance as a distinct financial stream. It includes religious foundations [Objectives of Shari'a and Injunctions on Riba/interest & usury], Historical developments [timeline], Principles [Riba prohibition, Gharar, Myser and PLS] and Operational modes [trading, rental, Musharaka, Mudaraba, Equity, Sukuk and Takaful] of Islamic finance.
A recent development in financial markets is the creation of
Shar¯ ı‘ah compliant stock universes... more A recent development in financial markets is the creation of Shar¯ ı‘ah compliant stock universes. Shar¯ ı‘ah compliant stock universe is featured as socially responsible investments, less levered, and more reflective of the real sector. This study is conducted to understand and document the short-run equilibrium among important macroeconomic indicators and Equity indexesIslamic and conventionalin the post-Shar¯ ı‘ah-screening era in Pakistan. Comparative study of linkages among stock indexes and macroeconomic variables is of great interest to i) identify the important macroeconomic factors; and ii) document whether Shar¯ ı‘ah screening of stocks has created any difference (in macro risk factors). We have included eight macroeconomic variables to study integration with stocks for 64 Months’ period (07/2011-10/2016). Evidence has been obtained by application of correlation, unit root, OLS-regression and Granger causality tests. Findings suggest that both markets Islamic & conventional are integrated with selected macroeconomic indicators. However, evidence lacks the integration of markets themselves. We identify a set of two variables from real economy exports and workers’ remittances-linked with both markets, while the third variable is different for Islamic (industrial production) and conventional (Money Supply (MS)) markets. Important monetary variables interest rate and inflation have shown an insignificant association. Movements of Islamic index are in-line with the theory i.e., disassociation from interest and reflection of the real economy. Movements of conventional index cover both real and monetary sectors.
This book is the result of a decade teaching of Islamic finance course to business graduates (Bac... more This book is the result of a decade teaching of Islamic finance course to business graduates (Bachelor and Master classes). This book is written with a clear focus on learning of Islamic banking & finance by accounting, banking, business and finance students/professionals. This book is divided into five parts. Part-1 presents an update on Islamic finance, why and how Islamic banking started; What is current status; Meaning and prohibition of Riba (Interest & Usury) as reported in revealed books (Bible and Qur'an); business models under Islamic financial services industry; principles of Islamic financial system, similarities and differences with conventional finance industry, and challenges being faced by the nascent industry.Part two is about asset-backed financing provided by IFIs. It includes trading (selling) modes of financing including Murabaha (ch.2), Salam, and Istisna'a; it also includes rental-based financing product—Ijarah financing. Chapter 2,3,4,5 include sales and rental-based financing. Part three of the book deals with profit and loss sharing modes of financing including Musharakah, diminishing Musharakah and Mudarabah. A special section is devoted to discussing the causes of lesser application of Musharakah in operations of IFIs, in addition to Shari’ah rulings and financial impact. Chapter seven is about Diminishing Musharakah; a form of gradually declining partnership between an IFI and clients; generally used to finance real estates. Under diminishing Musharakah, the basic Shari’ah rulings, Islamic house financing, comparative study of conventional and Islamic mortgages and installment calculation under different assumptions for house financing are presented. Chapter eight is about Mudarabah. Chapter nine presents various types of deposits collected by IFIs and profit-sharing mechanism. Concepts of daily product and weight-age based profit systems are elaborated.Part four of the book presents special topics in Islamic Finance. In this part areas of liquidity management, Islamic insurance, currency system, substance & form, and challenges to Islamic finance industry are elaborated. Under Islamic capital market (liquidity management) two dedicated chapters have been included; each for equities and sukuk. Chapter 12 elaborates briefly the concept of Islamic insurance covering multiple areas including Shari’ah guidelines, takaful (insurance) models, and role of insurance company, in addition to illustrative financial calculations. Chapter-13 addresses the issue of preference for ‘legal form over economic substance’ by critically evaluating the selected Islamic finance contracts Last chapter identifies the challenges [potentially hurdles in sustainability, growth and expansion of the industry]. The fifth edition is the outcome of encouraging response by the academic community to earlier editions. In this edition, due attention has been given to present material in a reader-friendly mode in addition to a thorough review of content, exercises and figures. Title of the book changed by adding prefix of ‘fundamentals’ to reflect the nature of work (as text book). In this edition, the chapter on Islamic finance: an update is revised thoroughly; and by insertion of specific contents including principles and business models of Islamic financial system, in addition to brief presentation of challenges. Besides, Islamic capital market is re-written by including an evaluation of methodologies used in creation of Shari’ah universes of stocks. Also, a new chapter included to present the application of ‘form over substance’ principle to industry practices. Updated figures on the global volume of assets, application of financial products; regional shares, etc. are also part of this edition. Also, more examples included in the text to make the concept clear. An increased number of multiple-choice questions and mini cases are also forming part ofthe updated edition. I welcome readers' Feedback.
ISBN-13: 978-1530674688
This book is the result of five years teaching of Islamic finance course ... more ISBN-13: 978-1530674688 This book is the result of five years teaching of Islamic finance course to MBA Finance students. This book is written with a clear focus on learning of Islamic banking & finance by accounting, banking, business and finance students/professionals. Resources available, so for, on the subject have focused on the legal side and very negligible work is available on the financial front for a common user. This book is written in financial perspective and the author has focused upon financial impacts, generated by application of Islamic financial laws. However, a summary of Islamic commercial laws of each chapter has been provided. Author has adopted balance sheet method to inculcate the knowledge; hence, understanding of elementary balance sheet is recommended to get maximum out of this book. This book is divided into five parts. Part-1 presents an update on Islamic finance. Part two is about asset-backed financing provided by IFIs. It includes trading (selling) modes of financing including Murabaha, Salam and Istisna'a; it also includes Ijarah financing. At the start of part two, a summary of Shari’a rulings about sales is reported. Part three of the book deals with profit and loss sharing modes of financing including Musharaka, diminishing Musharaka and Mudaraba. A special section is devoted to discussing the causes of lesser application of Musharaka in operations of IFIs, in addition to Shari’a rulings and financial impact. Chapter seven is about Diminishing Musharaka; a form of gradually declining partnership between an IFI and clients; generally used to finance real estates. Under diminishing Musharaka, I have discussed the basic Shari’a rulings, Islamic house financing, comparative study of conventional and Islamic mortgages and installment calculation under different assumptions for house financing. Chapter eight is about Mudaraba. Under this scheme of financing, IFIs provide capital to financially weak but skilful people to do the business and share the outcome with IFIs. Part four is about deposits management. Part five of the book presents special topics in Islamic Finance. In this part areas of liquidity management and Islamic insurance are discussed. Under Islamic capital market two dedicated chapters have been included; each for equities and Sukuk. Chapter 12 is dedicated for Islamic insurance. The last chapter has focused on challenges to Islamic finance industry. The third edition is definitely the outcome of very encouraging response by the academic community to earlier editions. In this edition due attention has been given to present material in a reader-friendly mode in addition to a thorough review of content, exercises and figures. In this edition Islamic capital market is re-written by including separate chapters on equities and Sukuk. Also, a special chapter is devoted to Islamic insurance. Updated figures on the global volume of assets, regional shares, equity funds and Sukuk are also part of this edition. Also, more examples included in the text to make the concept clear. In appendix guidance for the establishment of Islamic bank and appointment of Shari’a advisor as provided by the local central bank is included. An increased number of true/false, multiple choice questions and mini cases are also forming part of updated edition. This book is useful for MBA/BBA students as a three credit hour course as well as for banking/finance students and practitioners of Islamic banking & finance. It is also useful for accounting & finance professionals, trainers in Islamic banking, regulators, investors, corporate managers and the general public, interested in understanding Islamic finance. I hope this book will serve its purpose through imparting knowledge of Islamic banking & finance among accounting, business and finance graduates as well as practitioners of Islamic financial system, investors and the general public. Muhammad Hanif 2014
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Papers by Muhammad Hanif
development to economic growth by studying a global
sample of countries engaged in providing Islamic
financial services. Fifteen countries are included in
the sample based on significant Islamic banking share
in total domestic banking assets. Results are documented
through the application of the Panel regression
(EGLS) method for the period 2001–2020. Findings
suggest a positive contribution of the Islamic Financial
Services Industry (IFSI) to economic growth in sample
countries in multiple regression settings. Additionally,
a range of control variables, including domestic credit
to the private sector, inflation, and trade openness,
contribute significantly to economic growth. We
recommend the creation of a conducive environment
for the promotion of IFSI on account of the built‐in
stability feature and positive contribution to economic
growth. We also recommend overall development in
the financial sector of selected economies, including
credit availability to the private sector and trade
openness. Our study helps in understanding the
dynamics of economic growth in economies with a
dual banking system (conventional & Islamic). This
article contributes to the literature by studying a larger
sample of countries engaged in the practice of Islamic
finance and considering the significance of the market
share of assets under IFSI.
Islamic Cooperation (OIC) region, covering exports, imports, and balance of
trade (BoT) from 2007 to 2016. The analysis is conducted by various lenses,
including whole OIC as a unit, objectively classified economic zones, and
economic cooperation unions. Findings suggest that OIC-region’s contribution
to global GDP and international trade is significantly lesser than the size of the
community. Performance in international trade and BoT is good in the initial
years of analyses; however, declines in the final years of the review period.
Performance of two economic zones (South & Southeast Asia, and Africa) of
OIC-region is quite unsatisfactory, based on the size of the communities.
Middle Eastern zone performs well, relatively, within the OIC region. Intra-
OIC trade is significantly lesser than the potential. OIC-region needs to
capitalise on abundant Human and natural resources to achieve higher
economic growth and exports.
Keywords: international trade; exports; imports; OIC; Organisation of Islamic Cooperation; Middle East; South & Southeast Asia; Central Asia; Africa.
KEYWORDS: Participative financing, Sharīʿah compliance, Islamic finance, Profit sharing, Angel investors, Silent partnership.
Design/methodology/approach – After documenting historical developments in currency systems, the study reviews the Islamic perspective on the matter. Features of an ideal currency system are listed and then a critical evaluation of existing currency systems – fiat, banking and cryptocurrency – is undertaken.
Findings – It is found that existing currency systems – fiat, banking and cryptocurrency – are not compatible with the socio-economic objectives of a forward-looking, progressive society, which upholds transparency and justice as its core values. The study documents that Sharīʿah norms have no preference or dislike for any of the existing currency systems. Any prudent currency system compatible with the objectives of the Islamic financial system (i.e. stability and equitable distribution of wealth) is acceptable. A single international reserve currency (with country-specific legal tendering) is subject to the risk of destabilisation across global markets.
Practical implications – This paper recommends autonomy of central banking, the spending of seigniorage for the welfare of community members, development of asset-backed currencies (following sukūk structures), as well as multiple international reserve currencies and joining of hands by professionals and Sharīʿah scholars to design a currency system compatible with the Islamic financial system. This paper’s
recommendation is against the adoption of cryptocurrency that lacks the backing of real assets.
Originality/value – The study contributes to the literature by evaluating the compatibility of existing currency systems in the achievement of socio-economic objectives of a welfare state which seeks to uphold justice and equitable resource distribution as core values in the financial system.
Keywords Cryptocurrency, Fiat currency, International currency, Islamic currency
Islamic capital markets, i.e. ICMs, featured as socially responsible investments, less levered and more reflective of the real sector, are a recent development in financial markets showing an impressive growth and offering the potential for portfolio diversification benefits. The purpose of this study is to understand the long-run integration of ICMs in the Asia/Pacific region.
Design/methodology/approach
This sample includes ICMs of Asia/Pacific region (such as Pakistan, India, China, Japan, Thailand, Malaysia and Indonesia) for 280 weeks between 2011 and 2016. Selected indexes are FTSE Islamic except for Pakistan and Indonesia. Evidence was obtained through the application of correlation, unit root, Johansen cointegration and Granger causality tests.
Findings
This study documents the results of the integration of ICMs based on developmental stage, geographic location, economic cooperation and shared religious beliefs/civilization. Partial support was observed for all hypotheses: integration of markets based on economic grouping, location, economic treaties and shared civilization. The Japanese market was the most integrated, while the Indian and Malaysian markets are the least. Evidence supports the shift of leadership role from advanced markets to emerging markets.
Practical implications
Selected diversification opportunities are available for global Islamic as well as conventional investors. This study recommends closer cooperation among Muslim majority countries of the region, as well as the effective use of economic cooperation treaties for joint economic growth and prosperity.
Originality/value
This study contributes to the literature by providing evidence on the integration of ICMs in an economically important region (Asia/Pacific) that is witnessing an increasing role in the global gross domestic product and international trade.
Keywords
stock universe from Sharīʿah and professional perspectives. We have
critically analyzed Sharīʿah-compliance methodologies of selected (eight) institutions
in the light of Islamic principles of business. The findings suggest multiple
weaknesses in the process, including variations in tolerance limits (for ḥarāmelements),
variations in the use of calculation methods (total assets and market
capitalization), insufficient income purification mechanism, and confusions about the
application of bayʿ al-ṣarf and bayʿ al-dayn regulations. In addition, we find lack of
revisions in the tolerance limits, corresponding to the expansion of the Islamic
finance market. We also find that certain important areas, such as questionable
marketing and sales practices and environmental damages, are ignored in filtration.
This study proposes a Sharīʿah-compliance rankings mechanism for Islamic stock
markets, within agreed upon framework, based on the degree of violations.
Keywords: Islamic capital market, Sharīʿah Screening, Islamic finance, Islamic
Indices, Islamic Business, Islamic stock Portfolio, Income purification.
JEL Classification: G10
KAUJIE Classification: L41, L43, O0
Purpose – The purpose of this paper is to present an analysis of current practices of Islamic mortgages in the
light of the principles of Islamic financial system, to document divergences – if any. A subsidiary goal is to
develop an Islamic Mortgage Model (IMM) based on Musharakah principles.
Design/methodology/approach – The author documents theoretical underpinnings of risk-return sharing
from the Shari’ah perspective. A comparative study of conventional and Islamic mortgages is completed;
existing practice of Islamic mortgages analyzed in the light of Musharakah principles and divergences
identified. IMM is developed after taking divergences and Musharakah principles into considerations. A
housing case is used to highlight differences (in financial terms) under multiple methods and scenarios.
Findings – Study documents multiple divergences from Musharakah principles in the existing practice of
Islamic mortgages including ignorance of market pricing in the negotiation of rentals and trading of equity
units, and transfer of all ownership risks and rewards (vacancy, damage, destruction and market) to one
partner (i.e. customer). Practice is divergent from principles in the area of economic substance. Modified IMM
is developed by taking into account Musharakah principles; and differences highlighted by calculating
financial figures – to determine financial rights and liabilities of the parties.
Practical implications – Divergence from the principles of risk-return sharing leads to failure in the
achievement of Islamic finance objective of equitable distribution of wealth. Moreover, protection of capital
for financier reduces the market abilities to achieve financial stability by matching credit expansion with the
rise in the real economy. Shari’ah boards and regulators, as well as, management of Islamic banking industry
are expected to incorporate proposed changes in-practice for the realization of Islamic finance objectives.
Originality/value – This study contributes to Islamic finance literature in the area of risk-return sharing.
Based on important objectives of Islamic finance – equitable distribution of wealth and financial stability –
divergences identified and a modified IMM in the light of Musharakah principles is presented. Descriptive rules
are transformed into financial figures to document financial rights and liabilities of the concerned parties.
promising results so far. In addition to banking services, Islamic finance has
started penetrating in other sectors including capital markets and insurance.
This study aims to evaluate the newly emerging Takaful sector in Pakistani
market. The study covers an overview of insurance sector including Takaful;
comparative financial analysis of Takaful industry with conventional
insurance; an insight into the accounting and legal framework for Takaful;
a customer survey to document the perception about Takaful business;
and an insight and documentation of challenges to Takaful operations.
Findings suggest Takaful business has low market share, although growing
at a faster pace. The past financial performance appears to be poor, though
with singnificant potential depicted by healthy growth. A reasonably good
regulatory framework is also in place. Overall, market sentiments are very
positive about Takaful insurance in Pakistan.
Key Words: Takaful, Pakistan, market perception, regulatory framework, financial
analysis
financial rights and liabilities of the parties involved. With the advent of
Islamic finance the issue of financial reporting as per Islamic law was raised,
which was then addressed by the Accounting and Auditing Organization of
Islamic Financial Institutions [AAOIFI]. There exist differences as well as
similarities under both regimes of accounting [conventional and Islamic].
As in many countries, relevant changes in laws for application of Islamic
accounting are yet to be made, hence Islamic Financial Institutions [IFIs]
in those countries are bound to follow conventional accounting standards.
This study is intended to highlight the financial issues emerging due to
application of conventional accounting standard in Ijarah accounting by IFIs.
Comparison of two accounting standards IAS-17 and FAS-8 as well as their
implications is discussed.We found in the process that although an informed
effort is being made by experts in Islamic finance to match, revenue as well
as cost to customers, with conventional financial industry, however contract
of leasing and Ijarah carries more financial, legal and accounting differences
than similarities, hence application of conventional lease accounting is not
appropriate for an IFI.
Key Words: IAS 17, FAS 8, IFRS, IFAC, AAOIFI, Lease accounting, Ijarah accounting
Design/methodology/approach – To conclude on the objectives of the study, five most widely used contracts (modes/products), including Murabaha, Ijarah, Diminishing Musharaka, Sukuk and Mudaraba (deposits), were selected to test against the theory of the Islamic financial system.
Findings – It is found in the process that legally (legal form) contracts/products are in line with theory; however, economic substance is not very different from conventional counter parts.
Practical implications – Through application of alternative calculation measures/methods and proper training of human resources, Islamic financial institutions can shift economic substance of contracts in line with the theory of Islamic finance.
Originality/value – Islamic finance is an emerging area, and reasonably good amount of literature is available; however, perhaps, this is the only piece of work focusing on calculation methods, contributing in economic substance of contracts, being used in modern Islamic finance in addition to legal form as per essence of Islamic financial system.
Keywords Sukuk, Diminishing Musharaka, Ijarah, Market-based, Murabaha
Shar¯ ı‘ah compliant stock universes. Shar¯ ı‘ah compliant stock universe is featured as socially responsible investments, less levered, and more reflective of the real sector. This study is conducted to understand and document the short-run equilibrium among important macroeconomic indicators and Equity indexesIslamic and conventionalin the post-Shar¯ ı‘ah-screening era in Pakistan. Comparative study of linkages among stock indexes and
macroeconomic variables is of great interest to i) identify the important
macroeconomic factors; and ii) document whether Shar¯ ı‘ah screening
of stocks has created any difference (in macro risk factors). We have
included eight macroeconomic variables to study integration with stocks
for 64 Months’ period (07/2011-10/2016). Evidence has been obtained by application of correlation, unit root, OLS-regression and Granger causality tests. Findings suggest that both markets Islamic & conventional are integrated with selected macroeconomic indicators. However, evidence lacks the integration of markets themselves. We identify a set of two variables from real economy exports and workers’ remittances-linked with both markets, while the third variable is different for Islamic (industrial production) and conventional (Money Supply (MS)) markets. Important monetary variables interest rate and inflation have shown an insignificant association. Movements of Islamic index are in-line with the theory i.e., disassociation from interest and reflection of the real economy. Movements of conventional index cover both real and monetary sectors.
development to economic growth by studying a global
sample of countries engaged in providing Islamic
financial services. Fifteen countries are included in
the sample based on significant Islamic banking share
in total domestic banking assets. Results are documented
through the application of the Panel regression
(EGLS) method for the period 2001–2020. Findings
suggest a positive contribution of the Islamic Financial
Services Industry (IFSI) to economic growth in sample
countries in multiple regression settings. Additionally,
a range of control variables, including domestic credit
to the private sector, inflation, and trade openness,
contribute significantly to economic growth. We
recommend the creation of a conducive environment
for the promotion of IFSI on account of the built‐in
stability feature and positive contribution to economic
growth. We also recommend overall development in
the financial sector of selected economies, including
credit availability to the private sector and trade
openness. Our study helps in understanding the
dynamics of economic growth in economies with a
dual banking system (conventional & Islamic). This
article contributes to the literature by studying a larger
sample of countries engaged in the practice of Islamic
finance and considering the significance of the market
share of assets under IFSI.
Islamic Cooperation (OIC) region, covering exports, imports, and balance of
trade (BoT) from 2007 to 2016. The analysis is conducted by various lenses,
including whole OIC as a unit, objectively classified economic zones, and
economic cooperation unions. Findings suggest that OIC-region’s contribution
to global GDP and international trade is significantly lesser than the size of the
community. Performance in international trade and BoT is good in the initial
years of analyses; however, declines in the final years of the review period.
Performance of two economic zones (South & Southeast Asia, and Africa) of
OIC-region is quite unsatisfactory, based on the size of the communities.
Middle Eastern zone performs well, relatively, within the OIC region. Intra-
OIC trade is significantly lesser than the potential. OIC-region needs to
capitalise on abundant Human and natural resources to achieve higher
economic growth and exports.
Keywords: international trade; exports; imports; OIC; Organisation of Islamic Cooperation; Middle East; South & Southeast Asia; Central Asia; Africa.
KEYWORDS: Participative financing, Sharīʿah compliance, Islamic finance, Profit sharing, Angel investors, Silent partnership.
Design/methodology/approach – After documenting historical developments in currency systems, the study reviews the Islamic perspective on the matter. Features of an ideal currency system are listed and then a critical evaluation of existing currency systems – fiat, banking and cryptocurrency – is undertaken.
Findings – It is found that existing currency systems – fiat, banking and cryptocurrency – are not compatible with the socio-economic objectives of a forward-looking, progressive society, which upholds transparency and justice as its core values. The study documents that Sharīʿah norms have no preference or dislike for any of the existing currency systems. Any prudent currency system compatible with the objectives of the Islamic financial system (i.e. stability and equitable distribution of wealth) is acceptable. A single international reserve currency (with country-specific legal tendering) is subject to the risk of destabilisation across global markets.
Practical implications – This paper recommends autonomy of central banking, the spending of seigniorage for the welfare of community members, development of asset-backed currencies (following sukūk structures), as well as multiple international reserve currencies and joining of hands by professionals and Sharīʿah scholars to design a currency system compatible with the Islamic financial system. This paper’s
recommendation is against the adoption of cryptocurrency that lacks the backing of real assets.
Originality/value – The study contributes to the literature by evaluating the compatibility of existing currency systems in the achievement of socio-economic objectives of a welfare state which seeks to uphold justice and equitable resource distribution as core values in the financial system.
Keywords Cryptocurrency, Fiat currency, International currency, Islamic currency
Islamic capital markets, i.e. ICMs, featured as socially responsible investments, less levered and more reflective of the real sector, are a recent development in financial markets showing an impressive growth and offering the potential for portfolio diversification benefits. The purpose of this study is to understand the long-run integration of ICMs in the Asia/Pacific region.
Design/methodology/approach
This sample includes ICMs of Asia/Pacific region (such as Pakistan, India, China, Japan, Thailand, Malaysia and Indonesia) for 280 weeks between 2011 and 2016. Selected indexes are FTSE Islamic except for Pakistan and Indonesia. Evidence was obtained through the application of correlation, unit root, Johansen cointegration and Granger causality tests.
Findings
This study documents the results of the integration of ICMs based on developmental stage, geographic location, economic cooperation and shared religious beliefs/civilization. Partial support was observed for all hypotheses: integration of markets based on economic grouping, location, economic treaties and shared civilization. The Japanese market was the most integrated, while the Indian and Malaysian markets are the least. Evidence supports the shift of leadership role from advanced markets to emerging markets.
Practical implications
Selected diversification opportunities are available for global Islamic as well as conventional investors. This study recommends closer cooperation among Muslim majority countries of the region, as well as the effective use of economic cooperation treaties for joint economic growth and prosperity.
Originality/value
This study contributes to the literature by providing evidence on the integration of ICMs in an economically important region (Asia/Pacific) that is witnessing an increasing role in the global gross domestic product and international trade.
Keywords
stock universe from Sharīʿah and professional perspectives. We have
critically analyzed Sharīʿah-compliance methodologies of selected (eight) institutions
in the light of Islamic principles of business. The findings suggest multiple
weaknesses in the process, including variations in tolerance limits (for ḥarāmelements),
variations in the use of calculation methods (total assets and market
capitalization), insufficient income purification mechanism, and confusions about the
application of bayʿ al-ṣarf and bayʿ al-dayn regulations. In addition, we find lack of
revisions in the tolerance limits, corresponding to the expansion of the Islamic
finance market. We also find that certain important areas, such as questionable
marketing and sales practices and environmental damages, are ignored in filtration.
This study proposes a Sharīʿah-compliance rankings mechanism for Islamic stock
markets, within agreed upon framework, based on the degree of violations.
Keywords: Islamic capital market, Sharīʿah Screening, Islamic finance, Islamic
Indices, Islamic Business, Islamic stock Portfolio, Income purification.
JEL Classification: G10
KAUJIE Classification: L41, L43, O0
Purpose – The purpose of this paper is to present an analysis of current practices of Islamic mortgages in the
light of the principles of Islamic financial system, to document divergences – if any. A subsidiary goal is to
develop an Islamic Mortgage Model (IMM) based on Musharakah principles.
Design/methodology/approach – The author documents theoretical underpinnings of risk-return sharing
from the Shari’ah perspective. A comparative study of conventional and Islamic mortgages is completed;
existing practice of Islamic mortgages analyzed in the light of Musharakah principles and divergences
identified. IMM is developed after taking divergences and Musharakah principles into considerations. A
housing case is used to highlight differences (in financial terms) under multiple methods and scenarios.
Findings – Study documents multiple divergences from Musharakah principles in the existing practice of
Islamic mortgages including ignorance of market pricing in the negotiation of rentals and trading of equity
units, and transfer of all ownership risks and rewards (vacancy, damage, destruction and market) to one
partner (i.e. customer). Practice is divergent from principles in the area of economic substance. Modified IMM
is developed by taking into account Musharakah principles; and differences highlighted by calculating
financial figures – to determine financial rights and liabilities of the parties.
Practical implications – Divergence from the principles of risk-return sharing leads to failure in the
achievement of Islamic finance objective of equitable distribution of wealth. Moreover, protection of capital
for financier reduces the market abilities to achieve financial stability by matching credit expansion with the
rise in the real economy. Shari’ah boards and regulators, as well as, management of Islamic banking industry
are expected to incorporate proposed changes in-practice for the realization of Islamic finance objectives.
Originality/value – This study contributes to Islamic finance literature in the area of risk-return sharing.
Based on important objectives of Islamic finance – equitable distribution of wealth and financial stability –
divergences identified and a modified IMM in the light of Musharakah principles is presented. Descriptive rules
are transformed into financial figures to document financial rights and liabilities of the concerned parties.
promising results so far. In addition to banking services, Islamic finance has
started penetrating in other sectors including capital markets and insurance.
This study aims to evaluate the newly emerging Takaful sector in Pakistani
market. The study covers an overview of insurance sector including Takaful;
comparative financial analysis of Takaful industry with conventional
insurance; an insight into the accounting and legal framework for Takaful;
a customer survey to document the perception about Takaful business;
and an insight and documentation of challenges to Takaful operations.
Findings suggest Takaful business has low market share, although growing
at a faster pace. The past financial performance appears to be poor, though
with singnificant potential depicted by healthy growth. A reasonably good
regulatory framework is also in place. Overall, market sentiments are very
positive about Takaful insurance in Pakistan.
Key Words: Takaful, Pakistan, market perception, regulatory framework, financial
analysis
financial rights and liabilities of the parties involved. With the advent of
Islamic finance the issue of financial reporting as per Islamic law was raised,
which was then addressed by the Accounting and Auditing Organization of
Islamic Financial Institutions [AAOIFI]. There exist differences as well as
similarities under both regimes of accounting [conventional and Islamic].
As in many countries, relevant changes in laws for application of Islamic
accounting are yet to be made, hence Islamic Financial Institutions [IFIs]
in those countries are bound to follow conventional accounting standards.
This study is intended to highlight the financial issues emerging due to
application of conventional accounting standard in Ijarah accounting by IFIs.
Comparison of two accounting standards IAS-17 and FAS-8 as well as their
implications is discussed.We found in the process that although an informed
effort is being made by experts in Islamic finance to match, revenue as well
as cost to customers, with conventional financial industry, however contract
of leasing and Ijarah carries more financial, legal and accounting differences
than similarities, hence application of conventional lease accounting is not
appropriate for an IFI.
Key Words: IAS 17, FAS 8, IFRS, IFAC, AAOIFI, Lease accounting, Ijarah accounting
Design/methodology/approach – To conclude on the objectives of the study, five most widely used contracts (modes/products), including Murabaha, Ijarah, Diminishing Musharaka, Sukuk and Mudaraba (deposits), were selected to test against the theory of the Islamic financial system.
Findings – It is found in the process that legally (legal form) contracts/products are in line with theory; however, economic substance is not very different from conventional counter parts.
Practical implications – Through application of alternative calculation measures/methods and proper training of human resources, Islamic financial institutions can shift economic substance of contracts in line with the theory of Islamic finance.
Originality/value – Islamic finance is an emerging area, and reasonably good amount of literature is available; however, perhaps, this is the only piece of work focusing on calculation methods, contributing in economic substance of contracts, being used in modern Islamic finance in addition to legal form as per essence of Islamic financial system.
Keywords Sukuk, Diminishing Musharaka, Ijarah, Market-based, Murabaha
Shar¯ ı‘ah compliant stock universes. Shar¯ ı‘ah compliant stock universe is featured as socially responsible investments, less levered, and more reflective of the real sector. This study is conducted to understand and document the short-run equilibrium among important macroeconomic indicators and Equity indexesIslamic and conventionalin the post-Shar¯ ı‘ah-screening era in Pakistan. Comparative study of linkages among stock indexes and
macroeconomic variables is of great interest to i) identify the important
macroeconomic factors; and ii) document whether Shar¯ ı‘ah screening
of stocks has created any difference (in macro risk factors). We have
included eight macroeconomic variables to study integration with stocks
for 64 Months’ period (07/2011-10/2016). Evidence has been obtained by application of correlation, unit root, OLS-regression and Granger causality tests. Findings suggest that both markets Islamic & conventional are integrated with selected macroeconomic indicators. However, evidence lacks the integration of markets themselves. We identify a set of two variables from real economy exports and workers’ remittances-linked with both markets, while the third variable is different for Islamic (industrial production) and conventional (Money Supply (MS)) markets. Important monetary variables interest rate and inflation have shown an insignificant association. Movements of Islamic index are in-line with the theory i.e., disassociation from interest and reflection of the real economy. Movements of conventional index cover both real and monetary sectors.
This book is the result of five years teaching of Islamic finance course to MBA Finance students. This book is written with a clear focus on learning of Islamic banking & finance by accounting, banking, business and finance students/professionals. Resources available, so for, on the subject have focused on the legal side and very negligible work is available on the financial front for a common user. This book is written in financial perspective and the author has focused upon financial impacts, generated by application of Islamic financial laws. However, a summary of Islamic commercial laws of each chapter has been provided. Author has adopted balance sheet method to inculcate the knowledge; hence, understanding of elementary balance sheet is recommended to get maximum out of this book. This book is divided into five parts. Part-1 presents an update on Islamic finance. Part two is about asset-backed financing provided by IFIs. It includes trading (selling) modes of financing including Murabaha, Salam and Istisna'a; it also includes Ijarah financing. At the start of part two, a summary of Shari’a rulings about sales is reported. Part three of the book deals with profit and loss sharing modes of financing including Musharaka, diminishing Musharaka and Mudaraba. A special section is devoted to discussing the causes of lesser application of Musharaka in operations of IFIs, in addition to Shari’a rulings and financial impact. Chapter seven is about Diminishing Musharaka; a form of gradually declining partnership between an IFI and clients; generally used to finance real estates. Under diminishing Musharaka, I have discussed the basic Shari’a rulings, Islamic house financing, comparative study of conventional and Islamic mortgages and installment calculation under different assumptions for house financing. Chapter eight is about Mudaraba. Under this scheme of financing, IFIs provide capital to financially weak but skilful people to do the business and share the outcome with IFIs. Part four is about deposits management. Part five of the book presents special topics in Islamic Finance. In this part areas of liquidity management and Islamic insurance are discussed. Under Islamic capital market two dedicated chapters have been included; each for equities and Sukuk. Chapter 12 is dedicated for Islamic insurance. The last chapter has focused on challenges to Islamic finance industry. The third edition is definitely the outcome of very encouraging response by the academic community to earlier editions. In this edition due attention has been given to present material in a reader-friendly mode in addition to a thorough review of content, exercises and figures. In this edition Islamic capital market is re-written by including separate chapters on equities and Sukuk. Also, a special chapter is devoted to Islamic insurance. Updated figures on the global volume of assets, regional shares, equity funds and Sukuk are also part of this edition. Also, more examples included in the text to make the concept clear. In appendix guidance for the establishment of Islamic bank and appointment of Shari’a advisor as provided by the local central bank is included. An increased number of true/false, multiple choice questions and mini cases are also forming part of updated edition. This book is useful for MBA/BBA students as a three credit hour course as well as for banking/finance students and practitioners of Islamic banking & finance. It is also useful for accounting & finance professionals, trainers in Islamic banking, regulators, investors, corporate managers and the general public, interested in understanding Islamic finance. I hope this book will serve its purpose through imparting knowledge of Islamic banking & finance among accounting, business and finance graduates as well as practitioners of Islamic financial system, investors and the general public.
Muhammad Hanif
2014