Examining sustainable Shari’ah compliance under shirkah-ul-milk: does Shari’ah-compliant risk matter

Abstract

Purpose Shari’ah compliance has been a subject of debate to academics, Islamic scholars and practitioners since its inception in 1983. Besides a wide range of publications in Shari’ah compliance, only a few studies have examined Shari’ah-compliant risks especially among the Islamic banks. This paper aims to investigate the factors of Shari’ah-compliant risks in Shari’ah compliance under the Shirkah-ul-milk (hire purchase) in Bangladesh. Design/methodology/approach The investigation of Shari’ah compliant risks from both bankers and clients were gained via a structured questionnaire to acquire a better understanding of Islamic banking practices in Bangladesh. In analyzing the data, two empirical tests were used to draw inferences on Shari’ah-compliant risks–Shari’ah compliance relationship: the measurement model, a diagnostic test, was used to justify the reliability and validity of constructs, and the partial least squares structural equation modeling was applied to examine the hypotheses on the existent links between Shari’ah-compliant risks and Shari’ah compliance under Shirkahul-milk. Findings Unlike previous studies, the empirical evidence provides the pertinent attributes of Shari’ah-compliant risks, which are more significant in avoidance of the compliance of Shari’ah laws in banking operations. Such Shari’ah-compliant risks are significantly raised by various comprehensive, operational, environmental and distributional risks in banking that have failed to address fairness, justice and economic well-being at the transactional level. Originality/value A new empirical evidence focusing on the propagation of Shari’ah-compliant risks is preferred for effective Shari’ah compliance in operations as being an original structure of Islamic banks.

Guidelines for developing the shari'ah‐compliant products and shari'ah governance for sustainable banks in Bangladesh

“…Islamic banks act as financial intermediaries that turn deposits into bank assets through trades, commerce, and industry in accordance with shari'ah law (Ben Amar & El Alaoui, 2023; Bukair & Abdul Rahman, 2015). Islamic banks are devoted to offering shari'ah‐compliant products which sets them apart from conventional banks by trade featured by risk sharing, economic justice, equitable distribution, reasonable pricing, productive passion, and social welfare (Khan, 2017; Uddin, 2023). When Islamic banks conduct trade in accordance with the Qur'an definition, it is the best choice for interest‐based banking (Aziz & Fatima, 2012; Rashid et al, 2014).…”

Islamic Financial Literacy to Support Islamic Banking Human Resources

“…Financial literacy has now become one of the focuses of government policy in various countries including Indonesia. According to the Financial Services Authority, financial literacy is an activity or process and activity to increase knowledge, awareness, confidence, ability, and skills to manage finances, so that people can take advantage of financial services (conventional and sharia) for the sake of welfare and be aware of financial conditions or conditions in the future (Uddin, 2022). Financial literacy is a person's understanding of finance and their ability to make financial decisions effectively (Kumar et al, 2022).…”

“…On the other hand, the potential and growth of the large Islamic financial industry requires human resources who have competence in the Islamic financial industry. By having this knowledge, students should have the understanding, confidence, and skills in managing finances in sharia, in other words, Islamic banking students should be included in the well literate category (Uddin, 2022). Based on the description of the background of the problem, problems can be formulated: (1).…”