Search results

This paper aims to apply the doctrine of siyasah shariyyah to a policy proposal in the area of monetary economics, namely, the Grondona system of conditional currency convertibility, which has been proposed as a practical means of resisting the economic instability caused by the present-day fiat money system.

The paper uses library research to review the literature relevant to the Grondona system, and examines the extent to which its operations conform to the principle of siyasah shariyyah, thereby encouraging Maslahah, i.e. the public interest.

It has been found that the Grondona system conforms to the philosophy of siyasah shariyyah because it promotes public welfare in a number of ways. First, it is based on the fundamental principle of Prophet Yusuf’s/Joseph (peace be upon him) economic planning, which is accumulating reserves of primary commodities during times of plenty and releasing those reserves of commodities during periods of scarcity. Second, it provides the necessary linkage between the monetary world and the real economy. Third, it could be implemented in parallel with the existing monetary system by using the national currency. Fourth, it would help the least developed countries of the world, which mainly depend on exports of primary commodities (mostly agricultural).

Because of the chosen research approach, this research study is theoretical in nature. Therefore, researchers are encouraged to evaluate the system from economic perspective based on simulation for the purpose of possible implementation.

The paper includes important implications for the policymakers in the Organization of Islamic Cooperation countries for the possible implementation of Grondona system.

This paper fulfils an identified need to apply the philosophy of siyasah shariyyah to the area of monetary economics.

This study aims to examine the issues and challenges in contemporary affordable public housing schemes and proposes an alternative affordable public housing model for low- and middle-income households in Malaysia.

The paper applied qualitative research method. Semi-structured in-depth interviews with four government officials were conducted to understand the provision, framework and working mechanism of selected affordable public housing schemes. A focus group with nine participants was conducted with low- and middle-income households to validate pertaining residential issues and problems in affordable public housing schemes.

The overall findings reveal that the growing plights of unaffordability, poor maintenance and mismanagement have undermined the performance of affordable public housing schemes in Malaysia. The paper indicates that Islamic Public–Private Housing Co-operative Model (IPHCM) possibly has a comparative advantage in its design and operation and therefore can be implemented as an alternative model to address these issues in contemporary affordable public housing schemes in Malaysia. The findings also offer guidelines to government officials and managers of public housing schemes to implement the IPHCM model that can help in reducing the financial burden on low- and middle-income households, improving maintenance work and enforcing effective management practices with residents’ participation.

The paper is limited to develop a new Shariah-compliant affordable public housing model. The paper presents a design and defines the underlying Shariah concept and contracts and their working mechanisms in the proposed model. The paper has not considered other related areas in the development of IPHCM model including Shariah and subject matter expert’s perspective, consumer behavioural intention, legal and regulatory requirements.

The paper has relevance for policymakers and government institutions offering affordable public housing schemes to ensure successful deliverability of sustainable and affordable public housing for low- and middle-income households in Malaysia.

In line with the IFSB and BCBS methodology, the purpose of this study is to undertake a comparative analysis of dual banking systems for asset-liability management (ALM) practices with the duration gap, in Islamic Commercial Banks (ICBs) and Conventional Commercial Banks (CCBs). Based on the research objective, two research questions are developed: How do the duration gaps of ICBs compare with those of similar sized CCBs? Are there any country-specific and regional differences among ICBs in terms of managing their duration gaps?

The research methodology comprises two-stages: stage one uses a duration gap model to calculate the duration gaps of ICBs and CCBs; stage two applies parametric tests. In terms of the duration gap model, the study determines the duration gap with a four-step process. The study selected a sample of 100 banks (50 ICBs and 50 CCBs) from 13 countries for the period 2009-2015.

The paper provides empirical insights into the duration gap and ALM of ICBs and CCBs. The ICBs have more variations in their mean duration gap compared to the CCBs, and they have a tendency for a higher (more) mean duration gap (28.37 years) in comparison to the CCBs (11.79 years). The study found ICBs as having 2.41 times more duration gap compared to the CCBs, and they are exposed to increasing rate of return (ROR) risk due to their larger duration gaps and severe liquidity mismatches. There are significant regional differences in terms of the duration gap and asset-liability management.

Future studies also consider “Off-Balance Sheet” activities of the ICBs, with multi-term duration measures. A larger sample size of 100 ICBs with 10 years’ data after the GFC would be more beneficial to the industry. In addition, the impact of an increasing benchmark rate (e.g. 100, 200 and 300 bps) on the ICBs as per the IFSB 20 per cent threshold can also be established with the duration gap approach to identify the vulnerabilities of the ICBs.

The study makes profound contributions to the literature and suggests various policy recommendations for Islamic banks, regulators, and standard setters of the ICBs, for identifying and measuring the significance of the duration gaps; and management of the ROR risk under Pillar 2 of the BCBS and IFSB, for financial soundness and stability purposes.

To the best of the authors’ knowledge, this is a pioneer study in Islamic banking involving a sample of 100 banks (50 ICBs and 50 CCBs) from 13 countries. The results of the study provide original empirical evidence regarding the estimation of duration gap, and variations across jurisdictions in terms of vulnerability of ICBs and CCBs in dual banking systems.

After the collapse of the Bretton Woods fixed exchange rate system in 1971, countries moved towards floating exchange rates, and the expectation was that the requirement for foreign reserves would decrease. However, central banks currently hold more foreign exchange reserves to enhance the credibility of exchange rate policies. The demand for gold, which was the main reserve asset prior the collapse of the Bretton Woods system, has increased as a reserve asset once again following the global financial crisis (GFC) of 2008, given gold’s characteristics as a safe haven asset and a store of value. This study aims to analyse official reserves of four countries, namely, Malaysia, Turkey, KSA and Pakistan. The Black–Litterman model was used to build a new strategic portfolio with optimal allocation to gold. This study shows that all countries under the analyses should increase their gold holdings to preserve the value of the portfolio during times of financial turmoil.

The Black–Litterman model has been used to build a new strategic portfolio with optimal allocation to gold. The study shows that all countries in our analyses suggested increasing their gold holdings to preserve the value of the portfolio during times of financial turmoil.

The study found that countries under the analyses, namely, Turkey, Malaysia, KSA and Pakistan, suggested increasing their official gold holding given the outstanding performance of gold during the GFC.

Research can be further extended by including few more countries from Organisation of Islamic Cooperation such as Qatar and Indonesia.

Emerging economies such as China, India and Russia started to sharply increase their official gold holdings in the aftermath of the GFC. According to recent statistics, central banks of China and Russia have been adding to their gold reserves. Of note, only in few European countries and in the USA, is the share of gold in foreign reserves more than 50%. In the rest of the world, this figure is about 3-5%. The paper elaborates the aforementioned subject and suggests the strategic weight of gold reserve for each country under analysis.

This paper aims to discuss the opinions of current Shariah scholars on the concept of debt money in the present-day fiat money system.

Research design of this paper is a quantitative investigation of Shariah experts by distributing a questionnaire to them. As majority of Shariah scholars are also Shariah advisory of the current banking system, it is important to find out their level of knowledge on the issue of debt money created by the commercial banking system through the fractional-reserve banking (FRB) system.

Based on this investigation, most Shariah scholars are unaware of and confused about the mechanics underpinning the creation of money, especially with respect to FRB as it is practiced by the conventional and Islamic banking systems.

Based on this research, it is recommended that these scholars should improve their understanding of the operation of the fiat money system and its consequences. It is recommended that, in future, Shariah scholars should think “outside of the box” by creating Islamic financial instruments that do not resemble those of the conventional system.

The purpose of this paper is to determine whether the amount of profits gained from musharakah mutanaqisah model using coupon rate of 4.5 per cent, price at par and tenure of five years was greater than using ijarah principle where the price is at a discount. Also to compute and compare the profits obtained from sukuk investment in ijarah and musharakah mutanaqisah for 3.5 per cent coupon rate and price at par for a sukuk with tenure of 12.5, 15, 17.5 and 19 years.

In total, two models were used to calculate profit. These models are based on ijarah and musharakah mutanaqisah principles. Formulas are derived from ijarah and musharakah and mutanaqisah principles used in sukuk.

Sukuk investment using ijarah principle is found to be a better investment alternative than musharakah mutanaqisah principle, regardless of the number of years of the sukuk, as long as it is a long‐term tenure. However, for short‐term tenure, the latter is preferred based on the amount of profits generated.

The formulas and results shown in this research are just one of the mathematical approaches that can be used for decision making in sukuk investment. There are other approaches which may deemed to be more effective in decision making. This research was applied only to ijarah and musharakah mutanaqisah types of investment.

The results in the research will assist in making a quick decision on what type of sukuk investment for the investors and issuers and which will be suitable given the amount of financial resources and duration of the investment period.

Many researchers have attempted to study the implications of using mathematical formulas to guide decision making on the choice of sukuk investment and this research has, to a certain extent, concurred with and complemented the works of past researchers. Additionally it will create awareness and provide more information to potential investors on better sukuk investment alternative principles from a mathematical point of view.

To reason whether the interest‐based fiat monetary system is compatible with the objectives of the Islamic law or the Shariah.

This is a theoretical paper that uses the quantity theory of money and the objectives or maqasid al‐Shariah as expounded by scholars as basis for logical deductions therefrom.

The socio‐economic implications of fiat monetary system imply that the maqasid al‐Shariah cannot be attained. Indeed, the system is likely to cause a move away from the maqasid.

The paper is based primarily on theoretical deductions. Further empirical investigation would shed further light.

Practical implications are numerous. The definition of what is money is then crucial to address the socio‐economic implications caused by the fiat monetary system. For Islamic economics, this would imply that the process of Islamization of knowledge/disciplines is futile without addressing this issue first. Accordingly, the establishment of Islamic economics, banking and finance warrants a serious look into the current definition of money and monetary systems.

It calls for a definition of Shariah‐compatible money. This is beneficial to the researchers, proponents and practitioners of Islamic economics, banking and finance.

The purpose of this paper is to show that fractional reserve banking (FRB) has implications for the ownership structure of assets in the economy that violates the Islamic principles of ownership.

This is a theoretical paper that looks into the works of Islamic scholars on the issue of ownership that are based on Qur'an principles and the traditions of the Prophet, and evaluates the FRB from that perspective.

The conclusion of the paper is that money creation through FRB is creation of purchasing power out of nothing which brings about unjust ownership transfers of assets, from the economy to the bank effectively paid for by the whole economy through inflation. This transfer of ownership is not based on human effort by taking on legitimate risks and neither with the knowledge nor the consent of the initial owners. This violates the ownership principles in Islam and is tantamount to theft. It also has the elements of riba. Islamic governments should therefore not create fiat money since this is equivalent to taking assets of the people, rich and poor alike, forcefully without compensation.

Empirical investigations into how bank loans along the years have changed the asset ownership structure in economies may shed further light.

It is, therefore, important that Shariah scholars render a fatwa on both the fiat money and the FRB system. Such a fatwa is urgent and pertinent before Islamic banking and finance, that operate under these systems, takes a course that may prove difficult to reverse later. The Islamic economics and finance cannot be founded upon a money system that is fundamentally equivalent to theft and riba.

The paper shows how the operations of Islamic banking and finance within the fiat money, FRB system are invalid from the Islamic perspective.

Having argued in the part I paper that the interest‐based fiat monetary system is not compatible with the objectives of the Islamic law or the Shariah, this paper seeks to argue why commodity moneys, like the gold dinar and silver dirham, are compatible with the maqasid.

This is a theoretical paper that integrates information from the Qur’an, the traditions of the Prophet, the writings of early Islamic scholars and historical observations vis‐à‐vis the objectives or the maqasid al‐Shariah and makes logical deductions therefrom.

The theoretical conclusion is that while fiat money is counterproductive to the maqasid al‐Shariah, commodity moneys like the gold dinar and silver dirham, are indeed compatible with the maqasid. The Islamic economic system is, therefore, fundamentally a “barter” system, i.e. an exchange economy where goods and services are exchanged value for value, but avoids the problems associated with barter by taking some of the commodities exchanged in the economy, that have the characteristics of money, as money. Gold is argued to be the best Shari’ah money.

Empirical investigations may shed further light.

If the theoretical deductions and contentions of the paper are correct, then their practical implications cannot simply be understated. For the Islamic economic system to emerge in reality, or for that matter any process of Islamization of knowledge/disciplines to succeed, it is foremost crucial that commodity moneys gradually replace fiat money.

The paper establishes that commodity moneys like gold and silver are Shariah‐compatible moneys, whereas the current fiat money is not.

The purpose of this paper is to develop a new Islamic credit card model that is in line with Shariah principles and can be adopted as an alternative to contemporary Islamic credit card models by Islamic financial institutions in Malaysia.

This paper is theoretical in nature and mainly based on descriptive research method approach.

The overall findings indicate that the contemporary practice of Islamic credit card in Malaysia is still controversial in its design and operation. Moreover, the adoption and practice of Shariah contracts in bay’ al-inah, tawarruq and ujrah models are not in line with fundamental doctrines of Shariah and are imbued with the practice of hilah (legal trick), which allows them to circumvent the prohibition of riba. The paper indicates that Al-Muqassah model possibly has a comparative advantage in design and operation when compared with the bay’ al-inah, tawarruq or ujrah models.

The paper is limited to develop a new Shariah-compliant Islamic credit card model. The paper presents a design and defines the underlying Islamic financial contracts and their working mechanisms in the proposed model. However, it will not address other related areas like consumer perception, legal and regulatory requirements.

The paper will have direct implications on contemporary practice of Islamic credit card in Malaysia and elsewhere. The practice of Al-Muqassah model can also possibly have effects on common well-being and economic development.

The paper has relevance for Islamic financial institutions offering Islamic credit cards. The proposed model is fully in line with fundamental doctrines of Shariah and performs the key functions of an Islamic credit card.