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Journal of Islamic Banking and Finance April – June 2018 1 PDF

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Journal of Islamic Banking and Finance April – June 2018 1 2 Journal of Islamic Banking and Finance April - June 2018 Journal of Islamic Banking and Finance April – June 2018 3 In The Name of Allah, The most Beneficent, The most Merciful “O Believers: devour not Riba, doubled and redoubled; and fear Allah, in the hope that you may get prosperity.” Sura Ale-Imran (verse No. 130) ------------------------------------------------------------------- The articles published in this Journal contain references from the sacred verses of Holy Qur’an and Traditions of the prophet (p.b.u.h) printed for the understanding and the benefit of our readers. Please maintain their due sanctity and ensure that the pages on which these are printed should be disposed of in the proper Islamic manner 4 Journal of Islamic Banking and Finance April - June 2018 Journal of Islamic Banking and Finance Volume 35 April – June 2018 No. 2 Founding Chairman Academic Advisory Board Muazzam Ali (Late) Dr. Mohammad Kabir Hassan Former –Vice Chairman Professor of Economics & Finance Dar Al-Maal Al-Islami University of New Orleans, USA. Trust, Geneva, Dr. M. Ishaq Bhatti Switzerland Associate Professor of Finance and Financial Economics, LA TROBE University, Australia. Chairman Dr. Riham Rizk, Basheer Ahmed Chowdry Associate Professor in Accounting Shariah Advisor Durham University Business School, UK Uzair Ashraf Usmani Dr. Zubair Hasan, Ed itorial Board Professor Emeritus INCEIF Global University of Islamic Finance, Malaysia. Ahmed Ali Siddiqui Mufti Bilal Qazi Dr. Rodney Wilson Professor Emeritus, INCEIF, Lorong Universiti A S. A. Q. Haqqani Malaysia/France. Dr. Hasan uz Zaman Dr. Mohammad Uzair Dr. S. Nazim Ali, Altaf Noor Ali (ACA) Professor and Director, Center for Islamic Economics and Finance, Editor Hamad Bin Khalifa University, Doha, Qatar. Aftab Ahmad Siddiqi Dr. Mohd. Ma’sum Billah Associate Editor Professor IEI, King Abdul Aziz University, Seemin Shafi Kingdom of Saudi Arabia. Salman Ahmed Shaikh Dr. Mehboob ul Hassan Manager Publication Professor, Department of Economics, (CBA) King Saud University, Saudi Arabia. Mohammad Farhan Dr, R. Ibrahim Adebayo Published by: Department of Religions, University of Ilorin, International Association of Nigeria. Islamic Banks Dr. Huud Shittu Karachi, Pakistan. Department of Religion and Philosophy, Faculty of Ph: +92 (021) 35837315 Art University of Jos – Plateau State, Nigeria. Fax: +92 (021) 35837315 Dr. Manzoor Ahmed Al-Azhari, Email: ia _ ib @ yahoo.com Associate Professor (Islamic Law) [email protected] Ph.D, Legal Policy, Fac. Shariah & Law. Website: www.islamicbanking.asia Alazhar University, Egypt. Follow us on Facebook: Post Doc. Fac. of Law, Univ.of Oxford, UK. http://www.facebook.com/JIBFK Dr. Waheed Akhtar http://external.worldbankimflib.org/uhtbin/ Assistant Professor, Comsats Institute of Information cgisirsi/x/0/0/5/?searchdata1=37177{ckey} Technology (CIIT), Lahore, Pakistan. Registration No. 0154 Dr. Muhammad Zubair Usmani Jamia Daraluloom Karachi. Printed at M/S Maaz Prints, Karachi Journal of Islamic Banking and Finance April – June 2018 5 Journal of Islamic Banking and Finance Volume 35 April – June 2018 No. 2 C O N T E N T S 1. Editor’s Note ..........................................................................................................7 2. Mutual Funds in India - Potential for Islamic Versions....................................11 By Mustafa Hussain Khan & Syed Ahmed Salman 3. The Achievement, Implementation and Future of a Cooperative Zakat Model in the Inland Empire and Beyond................................................29 By Husam Suleiman 4. Corporate Social Responsibility (CSR) in Islamic financial Institutions: the Shariah Adoption and Standardization, UAE and Malaysian a Model...............................................................................43 By Abdul AzeezMarufOlayemi , Steyn Heckroodt and Schoepp Kevin 5. Challenges of Islamic Banking in Nigeria; Legal and Regulatory Perspectives ..........................................................................................................54 By Idris Muhammad Idris & N.M. Gatawa 6. Are Shari’ah Governance and Risk Management Important? A case of Islami Bank Bangladesh Ltd...............................................................68 By Md Akther Uddin, PhD 7. Conceptual Approach to identification of Fault lines in Conventional Financial System’s Risk Transfer Mexhanism: A case for Risk Sharing in Islamic Finance........................................................84 By Mustapha Abubakar PhD & Kabiru Jinjiri Ringim 8. The Halal and Haram Aspect of Crypto Currencies in Islam .........................91 By Sudais Asif 9. Country Model: Afghanistan .......................................................................102 10. Book Review: Financial Institutions and Shari’ah Advisory Board Importance, Responsibilities and Crierions: A Critical Review by Mufti Muhammad Iqbal & Prof. Dr. Lutfullah Saqib ..............................104 By Muhammad Ismail 11. World Governance Indicators ......................................................................108 6 Journal of Islamic Banking and Finance April - June 2018 Journal of Islamic Banking and Finance April – June 2018 7 Editor’s Note In developing countries with weak public and tax administration coupled with limited and concentrated supply of formal financial services, the role of third sector institutions becomes crucial. In such a scenario, there is an opportunity for Islamic institution of Waqf to provide an effective basis of channelizing charitable funds in the private non-profit sector given the high prevalence of voluntary giving in the form of cash throughout the year and the trust deficit between people and the public Zakat agency. In Pakistan, the incidence of poverty is high, especially in rural areas. As many as 58.7 million people in Pakistan are living in multidimensional poverty with 46% of the rural population and 18% of the urban population falling below the poverty line, according to Social Policy Development Institute. The 2016 United Nations Development Programmereport reveals that multi-dimensional poverty in Pakistan stands at 38.8%. Poor people usually depend on their incomes for consumption expenditure given the lack of other endowments in their ownership. In addition to that, the non-availability of other endowments makes them excluded from formal financial services. Indeed, only 3% of the population borrows from banks in Pakistan. There are only 25 borrowers per 1,000 adult people in Pakistan, according to 2014 Global Financial Development Report. Therefore, the poor have little salvage from exclusive lending criteria of commercial banks, low outreach of microfinance and lack of large-scale pro-poor public sector expenditures and social security programs. Hence, this void is largely filled by private philanthropy in Pakistan.It is estimated that people in Pakistan pay as much as Rs 500 billion per annum in charity. To give just a glimpse of how important the third sector is in the socio-demography of Pakistan, we list a few major success stories. The Sindh Institute of Urology and Transplantation (SIUT) is a privately funded dialysis and kidney transplant centre in Karachi. It is the country’s largest public sector health organisation providing services free of any cost. Shaukat Khanam Cancer Hospital and Research Center is the country’s largest cancer hospital with an annual budget of Rs 10 billion ($ 96 million). The hospital was built through private donation drive in 1994. Edhi Foundation which originated from Karachi holds the Guinness record for world’s ‘largest volunteer ambulance organization’ since 1997. Indus Hospital in Karachi provides free of cost treatment. It is a private hospital working on donations and has treated 2.3 million patients during 2007-2016. 8 Journal of Islamic Banking and Finance April - June 2018 Among the numerous food distribution centres, Saylani Welfare Trust provides meals twice a day to more than 50,000 people in the city of Karachi free of cost. This is just a small account of the vibrant and sizable private philanthropic system of social services in Pakistan, especially in the city of Karachi. Among the general public, studies suggest that there is inclination to use social intermediaries who can transparently and efficiently mobilize charitable giving. Given the high prevalence of cash based giving and higher trust deficit between people and the public Zakat agency, the Islamic institution of cash Waqf can be suitable for effectively channelizing the charitable giving in the form of cash. It is important to provide tax incentives to engage more people and corporations towards establishing Waqf. Corporations who engage in corporate philanthropy can effectively establish corporate Waqf. The contributions to these Waqf by individual and corporate donors shall be made eligible for tax credit like it is the case with other recognized institutions in Section 61 of the Income Tax Ordinance 2001. If a donor dedicates real estate to an existing Waqf or to establish a new Waqf, the taxes related to registration and transfer of property shall be exempted. Finally, it is vital to create social awareness for creating right kind of Waqf at the right place. Given the preference ranking of the respondents and based on social needs, targeted efforts shall be made in sectors and segments of more social priority, such as food security, basic literacy and basic health. This issue of Journal of Islamic Banking & Finance documents scholarly contributions from authors around the globe. Contributions in this current issue discuss the theoretical underpinnings of an Islamic economy, contemporary issues in Islamic finance and performance based empirical studies on Islamic banking and finance. Below, we introduce the research contributions with their key findings that are selected for inclusion in this issue. In their article based on primary research, “Mutual Funds in India - Potential for Islamic Versions”, Mustafa Hussain Khan, Islamic Finance Consultant, and Dr Syed Ahmed Salman, PhD- International Islamic University Malaysia, discuss the current Islamic Mutual Fund market in India and the potential for its growth. They look at this from perspective of the overall well developed mutual fund market in India, the investor readiness and the religious angle. The authors present that India has the world’s second largest muslim population and its inclusion in capital markets can boost the Indian economy further. They also present that an Islamic Mutual Fund would be attractive to non-muslims as well. The authors base their conclusions on primary research through interviewing a select sample of professionals from the finance industry. The research is an interesting one and can contribute to being the start of more research in understanding the motivation of investors in their investment decisions. In his article “The Achievement, Implementation and Future of a Cooperative Zakat Model in the Inland Empire and Beyond”, Husam Suleiman describe the issues Journal of Islamic Banking and Finance April – June 2018 9 besetting the muslim communities and mosques of the Inland Empire area with a dozen mosques and Islamic organizations, which is situated in California USA, in collection and distribution of Zakat and how these issues have so far been sorted out through a cooperative and replicable model to create a more efficient method and what else needs to be done going forward. In their article “Corporate Social Responsibility (CSR) in Islamic financial Institutions: the Shariah Adoption and Standardization, UAE and Malaysian Model”, Abdul Azeez Maruf Olayemi,, Steyn Heckroodt and Schoepp Kevin all associated with the College of Business, Jumeira University, Dubai, UAE, discuss the lack of a standardized or formal CSR model in IFIs and propose the adoption of the Carrol Model of CSR. They present that the Carrol model is readily adaptable and can easily be synced to requirements of Islamic Shariah. They discuss that with UAE Ministry of Commerce having instituted requirement for all corporate entities to register for mandatory CSR practice therefore according to the authors this is the ideal time for the IFIs to develop a standard practice based on Carrol Model. This they propose for UAE IFIs to do in order to keep their edge in Islamic Banking globally. “Challenges of Islamic Banking in Nigeria; Legal and Regulatory Perspectives”, an article contributed by Idris Muhammad Idris and N.M. Gatawa both from Usmanu Danfodiyo University, Sokoto, Nigeria discusses the challenges of Islamic banking in Nigeria, looking at the legal and regulatory perspective of the industry. They analyze the background of both the Islamic and conventional banking systems from the legal side supported by the major actors in the industry i.e. CBN and NDIC. The research concludes that Islamic banking is an essential sub-sector with potential and has a lot to contribute to the diversification of the Nigerian financial system. However, legal and regulatory challenges hinder its success. To have a robust Islamic banking and finance system, they amongst other suggestions, recommend that the policies guiding the operations of Islamic banking in Nigeria should be restructured to consider the AAOIFI standard, Islamic Financial market should be developed to enable Islamic banks to invest their excess liquidity, capacity building for the regulators and operators in the sub-sector should be intensified. The article entitled “Are Shari’ah Governance and Risk Management Important? A case of Islamic Bank Bangladesh Ltd.” contributed by Md. Akhter Uddin, Phd., Senior Lecturer and Program Coordinator. School of Business, University of Creative Technology, Chittagong, Bangladesh, explores the subject of Shari’ah Governance and Risk Management in Islamic Banks. The author studies the practices of Islamic Banks, Islamic Banking windows and operations in conventional banks vis-à-vis those of Islamic Bank Bangladesh and also explores the regulatory requirements on corporate governance for Islamic Banking. His study shows that while the focal bank has a well defined risk management structure, the regulatory framework is fragmented and not all in the same place. This study is useful for other Islamic Banks setting up their risk structures giving good insights on what works and what may not. 10 Journal of Islamic Banking and Finance April - June 2018 Mustapha Abubakar - PhD, Department of Business Administration, Ahmadu Bello University, Zaria-Nigeria and Kabiru Jinjiri Ringim, UTB School of Business, Universiti Teknologi Brunei, Negara Brunei Darussalam, have contributed their article “Conceptual Approach to identification of Fault lines in Conventional Financial System’s Risk Transfer Mechanism: A case for Risk Sharing in Islamic Finance” in which they discuss the concept, theory and practice of risk sharing in Islamic Finance and how it can overcome the fault lines that are inherent to Conventional Finance. They talk about how risk sharing in Islamic finance can lead to inclusion of the lower income segments and make them productive members of society. This they say will lead to a harmonized and equitable social structure. Sudais Asif from Lahore College of Arts and Science, Pakistan presents his paper “The Halal and Haram Aspect of Cryptocurrencies in Islam”. In this paper he argues that although the technology of cryptocurrencies in itself is Halal; different aspects contribute in deciding whether the specific digital currency in question is halal or haram. Asif quotes that the Grand Mufti of Egypt, the Turkish government, the Fatwa Center of Palestine and Shaykh Haitam from the UK among others have regarded cryptocurrencies as haram whereas others have regarded them as halal based on individual crypto vehicle, the protocols it uses and its underlying conditions. The basis of deeming it halal according to Asif is that an underlying asset is created when the crypto currency is mined. However the condition of the underlying asset being tangible is not discussed. The article discusses the different crypto currencies in use and how according to author these can be deemed halal or haram by muslim investors. An interesting read and a topic which requires much more research. Disclaimer The authors themselves are responsible for the views and opinions expressed by them in their articles published in this Journal. The opinions, suggestions from our worthy readers are welcome, may be communicated on E-mail: [email protected], Facebook: http://www.facebook.com/JIBFK, Website: www.islamicbanking.asia

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Journal of Islamic Banking and Finance April – June 2018. 1 . hospital working on donations and has treated 2.3 million patients during 2007-2016. http://www.sebi.gov.in/cms/sebi_data/attachdocs/1408513411215.pdf.
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