International Journal of Islamic and Middle Eastern Finance and Management

Tanabandeh, Maryam

2021 International Journal of Islamic and Middle Eastern Finance and Management

doi: 10.1108/imefm-05-2019-0201

The purpose of this study is to identify the risks associated with money laundering in the scope of non-oil products export and related strategies to manage them.Design/methodology/approachThe statistical population of the research was the managers and experts of the Islamic Republic of Iran Customs Administration in Tehran. The sample needed for qualitative interviews was collected to the extent of theoretical saturation through a targeted judgment sampling. The qualitative data was analyzed by thematic analysis. In sum, 20 interviews were conducted.FindingsOut of 181 subcategories extracted from verbal propositions, 41 core categories were extracted. In this way, 23 subcategories constructed final codes, 6 codes were export risks and 70 codes were final and 12 codes constructed strategy of export risk management.Originality/valueThis qualitative study provides the first exploration of the state-of-art on export risk management and money laundering.

Ben Ayed, Wassim; Lamouchi, Rim Ammar; M. Alawi, Suha

2021 International Journal of Islamic and Middle Eastern Finance and Management

doi: 10.1108/imefm-05-2019-0209

The purpose of this study is to investigate factors influencing the net stable funding ratio (NSFR) in the Islamic banking system. More specifically, the authors analyze the impact of the deposit structure on the liquidity ratio using the two-step generalized method of moments approach during the 2000–2014 period.Design/methodology/approachBased on IFSB-12 and the GN-6, the authors calculated the NSFR for 35 Islamic banks operating in the Middle East and North Africa (MENA) region.FindingsThe findings of this study show the following: first, ratio of profit-sharing investment accounts have a positive impact on the NSFR, while ratio of non profit-sharing investment accounts increase the maturity transformation risk; second, the results highlight that asset risk, bank capital and the business cycle have a positive impact on the liquidity ratio, while the returns on assets, bank size and market concentration have a negative impact; and third, these results support the IFSB’s efforts in developing guidelines for modifying the NSFR to enhance the liquidity risk management of institutions offering Islamic financial services.Research limitations/implicationsThe most prominent limitation of this research is the availability of data.Practical implicationsThese results will be useful for authorities and policy makers seeking to clarify the implications of adopting the liquidity requirement for banking behavior.Originality/valueThis study contributes to the knowledge in this area by improving our understanding of liquidity risk management during liquidity stress periods. It analyzes the modified NSFR that was adopted by the IFSB. Besides, this study fills a gap in the literature. Previous studies have used the conventional ratios to determinate the main factors of the maturity transformation risk in a full-fledged Islamic bank based on an early version of NSFR. Finally, most studies focus on the NSFR as proposed by the Basel Committee, whereas the authors investigate the case of the dual-banking system in the emerging economies of seven Arab countries in the MENA region.

Al Rahahleh, Naseem; Akguc, Serkan; Abalala, Turki

2021 International Journal of Islamic and Middle Eastern Finance and Management

doi: 10.1108/imefm-09-2019-0379

The purpose of this paper is to examine the operating performance of Dow Jones Islamic Index (DJII) firms vs non-DJII firms. It also explores the impact of the 2007–2008 financial crisis on the operating performance of firms included under DJII relative to a comparable set of firms (i.e. industry-size matched) that are not included in the DJII.Design/methodology/approachThe final sample consisted of 1,128 unique firms (or 5,669 observations) in the DJII sample and 9,501 unique firms (or 55,889 observations) in the non-DJII sample. The paper uses a unique dataset from S&P’s Compustat North America database during the period of 2005–2014. This study uses univariate tests complemented with multivariate regression analysis to gain further insight into the influence of Shariah compliance on the operating performance of firms during the crisis.FindingsThe paper shows that DJII firms were more profitable than non-DJII firms during the sample period. In addition, DJJI firms’ profitability was not affected as much during the financial crisis as non-DJII firms. This finding is robust to various model specifications and to alternative definitions of operating profitability.Research limitations/implicationsCorporate governance and managerial characteristics and the possible effects of these on operational performance are not considered herein.Practical implicationsInvestors and fund managers could benefit from investing in Islamicly permissible equity funds when constructing investment portfolios in regard to asset allocation and policy responses to financial crises.Originality/valueThe present paper uses a unique sample and timeframe to show that the characteristics that makes a firm Shariah-compliant also leads to much higher operating profitability and reduces the impact of the financial crisis on firm profitability.

Arfaoui, Mongi; Ben Rejeb, Aymen

2021 International Journal of Islamic and Middle Eastern Finance and Management

doi: 10.1108/imefm-09-2019-0418

This paper aims to investigate the behavior of volatility of Islamic equity indices toward fundamental risk factors. It focuses on the degree and structure of sensitivity to commodity price changes, global risk perception and term premium and whether crises and fragility periods have shaped the degree and structure of this sensitivity.Design/methodology/approachQuantile regression incorporating structural changes and GARCH-class model are used to establish how sensitivities are varying across volatility distribution depending on global events. The data are daily series of return indices, over the period spanning from January 1, 2001 until January 22, 2018.FindingsThe results show significant sensitivity to fundamental factors. The sensitivity is identified for different regional indices and intensified across quantiles. Speculation has shaped the structure of sensitivity at normal time, but correction holds at time of crisis. The results reveal that even if they share common features, commodities cannot be considered as homogeneous asset class. Indeed, the exact relationship cannot be observed at normal time in presence of speculation and information delay. However, at time of financial fragility and periods of crisis, the sensitivity is assigned with the plausible sign.Practical implicationsThe obtained results present several policy implications as well for academics, portfolio managers and policy-makers. It opens new research paths for academic research, it helps in investment decisions, provides lessons for portfolio diversification, both for price discovery and hedging. The results serve as well to implement effective macroeconomic stabilization policies and even fiscal policies to counteract any inflationary impact of fundamental price changes on investors and Islamic banks.Originality/valueThis paper contributes to empirical literature by dealing with the sensitivity of Islamic equity indices to commodity prices and term premium along with the effect of investor sentiment. It pays attention to the financial stability of Islamic stock markets by investigating the sensitivity at normal time, during fragility periods and periods of crisis. It considers the financialization process of commodity markets and includes the term premium to control for rational expectations on term structure of interest rates and the VIX (Volatility index) as global risk perception to control for safety and risk aversion.

Selim, Mohammad

2021 International Journal of Islamic and Middle Eastern Finance and Management

doi: 10.1108/imefm-01-2020-0035

This paper aims to investigate the effects of eliminating Riba in foreign currency transactions. Riba or interest arises when foreign currencies are bought and sold at different rates. From the Islamic perspective, the difference between the buying and selling rates of foreign exchange will constitute Riba. Also, this paper examines the effects of eliminating such Riba on major macroeconomic variables.Design/methodology/approachThis study is based on the hadith which imply that if buying and selling rates of currencies or foreign exchanges are same, i.e. if one sells BD1 = Dh10 and Dh10 = BD1 on spot, there will be no Riba. This can be guaranteed if the Islamic banking system introduces the technology, often known as FinTech interest-free foreign exchange bank machines (IFfexBM), which will automatically dispense BD10 for Dh100 and vice-versa, both locally and globally, and it will have tremendous positive effects in the economy. Furthermore, the effects of introducing FinTech for eliminating Riba will be analyzed on economic and international trade activities by using aggregate expenditure (AE) and aggregate output model within the tenets of Islamic principles.FindingsIf Islamic banks (IBs) can introduce FinTech global network system where any client can buy or sell foreign currency at the same rate without any markup, it will increase the market share for IBs by increasing the number of customers and number of branches, and it will increase the inflow of funds and volumes of transactions, especially in international trade, global financial transactions and cross-border shopping. Such an increase in transactions will increase AE and AE will continuously shift up. Such an upward shift will have positive effects on equilibrium output, employment and prosperity.Originality/valueThis is, perhaps, one of the latest attempts to eliminate Riba from foreign exchange transactions by introducing FinTech IFfexBM in each and every locality. Such elimination of Riba will not only reduce the cost of cross-border transactions but it will also reduce cost in international trade and financial transactions among nations, and therefore, it will have expansionary effects on equilibrium output, employment and global prosperity.

Asutay, Mehmet; Yilmaz, Isa

2021 International Journal of Islamic and Middle Eastern Finance and Management

doi: 10.1108/imefm-03-2019-0130

This study aims to theoretically explore and examine the possibility of developing an Islamic social welfare function (ISWF) within the Islamic moral economy (IME) frame by going beyond the traditional fiqhī approach. It focuses on issues of preference ordering and utility through the normative dimension of Islamic ontology, as expressed and articulated within the IME.Design/methodology/approachBeing a theoretical paper, a conceptual and critical discursive approach is used in this paper.FindingsTo establish an ISWF, a narrow juristic approach remains inadequate; there is a need to integrate the substantive morality to complement the juristic approach to achieve the ihsani process as the ultimate individual objective, which makes an ISWF possible. As the scattered debate on the topic concentrates mainly on the juristic approach, the main contribution of this study is to present a model in which juristic and moralist positions endogenized and augmented to constitute ISWF.Originality/valueAs there is a limited amount of research available on the subject matter, this paper will be an important theoretical contribution. In addition, this study develops an IME approach rather than fiqh-based approach used in the available research, which makes it novel.

Rezaei Pitenoei, Yasser; Safari Gerayli, Mehdi; Abdollahi, Ahmad

2021 International Journal of Islamic and Middle Eastern Finance and Management

doi: 10.1108/imefm-04-2019-0146

The purpose of this study is to investigate the relationship between financial reporting quality and information environment (IE) in firms listed on the Tehran Stock Exchange (TSE).Design/methodology/approachIn this study, composite measures were used as the proxy to measure financial reporting quality and IE. In this regard, a sample of 1,490 firm-year observations of the firms listed on the TSE during the years 2008 to 2017 and a multivariate regression model was used to examine the research hypothesis.FindingsFindings indicate that financial reporting quality has a positive relationship with firms’ IE. This result is robust to the alternate measure of financial reporting quality and endogeneity problem.Originality/valueThe present study is the first study to develop a composite measure for the firms’ IE in the Iranian capital market. As a result, it not only expands the theoretical literature on the firms’ IE but also helps policymakers, regulators, investors and financial reporting users make informed decisions.

Shah, Syed Alamdar Ali; Sukmana, Raditya; Fianto, Bayu Arie

2021 International Journal of Islamic and Middle Eastern Finance and Management

doi: 10.1108/imefm-01-2020-0021

This study aims to propose a risk management framework for Islamic banks to address specific risks that are unique to Islamic bank settings.Design/methodology/approachA unique methodology has been developed first by exploring the dynamics and behaviors of various risks unique to Islamic banks. Second, it integrates them through a series of diagrams that show how they behave, integrate and impact risk, returns and portfolios.FindingsThis study proposes a unique risk-return relationship framework encompassing specific risks faced by Islamic banks under the ambit of portfolio theory showing how Islamic banks establish a steeper risk-return path under Shariah compliance. By doing so, this study identifies a unique “Islamic risk-return” nexus in Islamic settings as an explanation for the concern of contemporary researchers that Islamic banks are more risky than conventional banks.Originality/valueThe originality of this study is that it extends the scope of risk management in Islamic banks from individual contract-based to an integrated whole, identifying a unique transmission path of how risks affect portfolio diversification in Islamic banks.

Jafarian-Moghaddam, Ahmad Reza

2021 International Journal of Islamic and Middle Eastern Finance and Management

doi: 10.1108/imefm-04-2019-0189

The financial resources limitation, the difficult conditions for entry into the market and the lack of sufficient funds are the most important problems facing Iranian small and medium enterprises (SMEs). For these reasons, this paper aims to propose an appropriate methodology for formulating the most influential Iranian SMEs development strategies to make it possible to grow and make more income. Then, a framework is developed to precisely determine the target market for Iranian SMEs.Design/methodology/approachThe paper uses strengths, weaknesses, opportunities and threats (SWOT) analysis; Pareto principle and analysis of the market conditions to propose the development strategies and uses a methodology based on multicriteria decision-making (MCDM) method to determine the target market.FindingsAccording to the research results, it is necessary for the Iranian SMEs to follow the brand strengthening, product and market development, enhancing product quality and creating research and development units strategies focusing on the domestic market. The results obtained from the empirical study also indicated that the customer acquisition rate improved from 0.06 to 0.13 per month, and the company's income has a 64% growth in 2016 than the year 2015 through the selection of some public customers as the target market.Originality/valueVery few studies have been done so far on the formulation methodology of a market entry strategy for SMEs. Studies by researchers imply that no studies have been conducted in Iran in this regard. International studies also mainly focus on the impact of some marketing activities.

Nasir, Adeel; Farooq, Umar; Khan, Ashraf

2021 International Journal of Islamic and Middle Eastern Finance and Management

doi: 10.1108/imefm-04-2020-0192

The purpose of this research is to provide a comprehensive review of key influential aspects and conceptual structure of Takaful literature.Design/methodology/approachThe authors review 149 journal articles using bibliometric citation analysis, co-word analysis and citation histograms. However, the authors have introduced a new index of keywords for co-word analysis.FindingsThe results purpose four research clusters of Takaful literature. The first theme compared Takaful with conventional insurance from various perspectives. Second theme explored the business model and sharia-compliant issues. Third theme applied the marketing concepts and examined the customer behaviour such as commitment, loyalty, satisfaction or awareness. Fourth theme examined risk management, investment and corporate governance issues. This research also identified the structure of variables studied in each theme.Originality/valueThis paper follows a very novel and trending bibliometric approach and explores what has been published, encompassing all aspects of Takaful literature. This study also presents 22 future research directions which are either missing or less researched in Takaful literature.