Shari'a Quality Rating

Merchant, Nasir Ali; Hunt‐Ahmed, Karen

doi:10.1002/9781118653814.ch19

Cited by 1 publication

(2 citation statements)

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“…It covers many aspects of an Islamic bank in issuing quality ratings. These include Sharīʿah board, internal Sharīʿah-control, training and development of human resources, corporate social responsibility (CSR), accounting and disclosures, corporate image and financing modes (Merchant, 2013). MARC issues corporate governance ratings, focusing on four pillars of corporate governance while rating an Islamic bank: accountability, transparency, responsibility and fairness.…”

Section: Stock-takingmentioning

confidence: 99%

“…In this study, the overall Sharīʿah-compliance system has been divided into multiple performance measures. Although factor selection is based on the judgment of the author, due contributions in the literature are acknowledged: Obaidullah (2005), Chapra (2008), Merchant (2013), MARC (2015) and Ashraf and Lahsasna (2017). This study has grouped banking operations into four major categories for Sharīʿah-compliance rankings: Portfolio construction (34 per cent) : Deposits, financing and investments (participatory modes and asset-based financing). Access to finance (18 per cent) : Share in financing of underprivileged segments including low-income groups and rural economy, screening of customers in the light of Sharīʿah and established CSR principles. Reputation (12 per cent) : Disclosures and opinions of stakeholders. Sharīʿah governance (36 per cent): Sharīʿah board, internal control and Sharīʿah audit, charitable operations, human resources, product development and organization. …”

Section: Classification and Score Allocationmentioning

confidence: 99%

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Sharīʿah-compliance ratings of the Islamic financial services industry: a quantitative approach

Hanif

2018

IJIF

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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 (deposits mechanism, participatory and asset-based modes of financing), access to finance (service to the less-privileged and sector screening), reputation (disclosures and stakeholders’ survey) and Sharīʿah governance (Sharīʿah supervision and controls, charitable operations, human resources, product development and organization). The Portfolio, Audit, Reputation and System (PARS) rating system is then developed. Practical implications A Sharīʿah-compliance rating system is helpful in measuring the progress towards goal achievement of the IFS and in gaining stakeholders’ trust. It is also important for Sharīʿah boards and regulators in policy formulation, for management in addressing weaknesses and taking corrective measures and potentially for standard-setting bodies. Originality/value This study presents a comprehensive quantitative Sharīʿah-compliance rating mechanism, taking into consideration the objectives of the IFS – equitable distribution of wealth and financial stability, in addition to Sharīʿah-compliance in operations. Development of Sharīʿah-compliance quality ratings for Islamic banking is essential to gain customers’ trust; the suggested methodology is thus a contribution to the literature on Islamic finance.

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Section: Stock-takingmentioning

confidence: 99%