Points to Ponder in Islamic Finance

Purpose Since International Financial Reporting Standards (IFRS) are not primarily meant for the accounting needs of Islamic banks, the Accounting and Auditing Organisation for Islamic Financial Institutions (AAOIFI) was established to develop specific accounting standards for Shari’ah compliance. The purpose of this paper is to assess the de jure harmonisation between the disclosure requirements of the IFRS-based Malaysian Accounting Standards (MAS) and those of the AAOIFI. Design/methodology/approach Using Malaysia as a case study, the paper examines the extent of the de jure congruence between the IFRS-based MAS and AAOIFI’s Financial Accounting Standard No 1 (FAS1), which is considered to be one of the key disclosure standards for Islamic banks. We employ leximetrics and content analysis to analyse these accounting standards and the additional guidelines introduced by the Malaysian Accounting Standards Board (MASB) and the Central Bank of Malaysia (Bank Negara Malaysia, BNM) to identify the gaps between different tiers of MAS and FAS1. Findings The study finds that de jure congruence between the IFRS-based MAS and AAOIFI standards has improved through the introduction of additional accounting guidelines by both the MASB and the banking regulator, BNM. However, some gaps remain between the two standards. These gaps may be difficult to completely eliminate due to differences in the fundamental principles underlying the development of both standards. Originality/value While some studies have explored the de facto congruence between AAOIFI accounting standards and others, this paper is the first, to the best of the authors’ knowledge, to examine the de jure congruence between those standards with the IFRS-based MAS.

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“…An example of such possession is a bank account. For a discussion on ownership and possession, see ElGari (1997).…”

Section: Notesmentioning

confidence: 99%

Diverse accounting standards on disclosures of Islamic financial transactions

Ahmed

Ariffin²,

Karbhari

et al. 2019

AAAJ

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“…Kolb and Overdahl (2006) discovered that hedging can facilitate market participants to profit from market price volatility. Similarly, Elgari (2010) also indicated that profit is necessary in hedging activities, as profits gained is meant to compensate for adverse price movements. In contrast, Interviewee A disagreed about the speculative aspect of derivatives: Generally, most try to avoid derivative.…”

Section: Findings and Discussionmentioning

confidence: 99%

“…The interviewees’ views supported the findings in Islamic financial literature that argued for the use of derivatives, but with the prerequisite that it be used only for hedging and risk management, and that any hedging must be associated with real economic activities. (Al-Suwailem, 2006; Elgari, 2010; Ahmad and Halim, 2014). In this regard, Interviewee C expressed that: Its used only for hedging purposes […] the Islamic derivative, the underlying must be halal.…”

Section: Findings and Discussionmentioning

confidence: 99%

“…Furthermore, one of the issue that was given high emphasis by interviewees is the divergent legal opinion among shari’ah scholars on derivatives (Ayoub, 2013; Elgari, 2010). Interviewee A opinions that the differing understanding between scholars will lead to different opinions and fatwas: The divergence of fatwas will depends on the understanding of the scholars with regards to the issues.…”

Section: Findings and Discussionmentioning

confidence: 99%

“…Al-Suwailem (2006) believes that hedging activities should be used only to reduce risks. A more recent study by Elgari (2010) has considered hedging as a tool to avoid risks. In contrast, Kolb and Overdahl (2006) has found evidence suggesting hedging as an activity to gain profits based on market price volatility.…”

Section: Literature Reviewmentioning

confidence: 99%

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Shari’ah issues, challenges, and prospects for Islamic derivatives: a qualitative study

Sakti

Syahid

Tareq

et al. 2016

QRFM

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Purpose The purpose of this study is to investigate shari’ah scholars’ views and experiences pertaining the shari’ah issues, challenges and prospects in Islamic derivatives. Specifically, this paper critically examines the criticisms toward conventional derivative instruments and the controversies surrounding underlying contracts and current Islamic derivative products. Design/methodology/approach This study uses qualitative methods to form a deeper understanding of shari’ah scholars’ perception and experience on Islamic derivatives. Semi-structured interviews were conducted with five shari’ah scholars who are currently working in Islamic financial institutions in Malaysia and Singapore. This study used phenomenological techniques for its data analysis. Findings This study has found that shari’ah scholars are aware of the shari’ah issues surrounding Islamic derivatives and have provided comprehensive insight on the solution to these issues. It was found that it is important to take into account the derivatives instruments in Islamic financial industry because of the need for hedging and risk mitigation within Islamic financial institutions. Nonetheless, the study has also found that the use of wa’ad contracts to structure Islamic profit rate swaps and foreign currency exchanges are problematic because of it having features of bay’ al-kali’ bil-kali (the sale of one debt for another). Originality/value This study is one of few studies that highlight the shari’ah issues of Islamic derivatives in Islamic banking and finance industry. This paper is of value in discussing risk management and Islamic derivatives in Islamic financial institutions and how there are many issues under the investigation process, particularly issues related to controversial underlying contracts and products.

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Examining preference shares from the Shari’ah perspective: a systematic literature review

Nasr,

Hasan

2024

IMEFM

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Purpose This paper focuses on the different Shari’ah resolutions on preference shares. This study aims to provide a systematic review to cover all authentic, peer-reviewed literature on this issue between the years 2001 and 2020. Design/methodology/approach This library research combines, compares and contrasts the discussions and the results of all these papers besides the opinions and discussions of some renowned scholars in the field. Findings The aim of this paper was met as every research during that period was included and scrutinized which resulted in a comprehensive knowledge about the presence shares. Research limitations/implications One of the limitations was the limited research on the Shari’ah issues in preference shares as a regulatory capital that meets Basel III accords. Originality/value This paper will be the reference for any researcher who wants to add value on this issue and to start from where researchers ended.

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Points to Ponder in Islamic Finance

Cited by 10 publications

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Diverse accounting standards on disclosures of Islamic financial transactions

Diverse accounting standards on disclosures of Islamic financial transactions

Shari’ah issues, challenges, and prospects for Islamic derivatives: a qualitative study

Examining preference shares from the Shari’ah perspective: a systematic literature review

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