Dilemmas and Challenges in Islamic Finance: Looking at Equity and Microfinance

235 Pages·2018·1.98 MB·English

by  Yasushi Suzuki, Mohammad Dulal Miah

Dilemmas and Challenges in
Islamic Finance
The phenomenal growth of Islamic finance in the last few decades has been
accompanied by a host of interesting questions and challenges. One of the critical
challenges is how Islamic financial institutions can be motivated to participate in
the ‘equity-like’ profit-and-loss sharing (PLS) contracts. It is observed that Islamic
banks are reluctant to participate in the pure PLS scheme which is manifested by
the rising concentration of investment on murabaha or mark-up financing. This
phenomenon has been the hotbed of academic criticism on the contemporary
practice of Islamic banking. This book explains the ‘murabaha syndrome’ in light
of the incentive provided by the current institutional framework and what are the
changes required in the governance structure to mend this anomaly.
Yasushi Suzuki is Professor at the Ritsumeikan Asia Pacific University, Japan.
Mohammad Dulal Miah is Assistant Professor at the University of Nizwa, Oman.
Islamic Business and Finance
Series Editor: Ishaq Bhatti
There is an increasing need for western politicians, financiers, bankers, and indeed
the western business community in general to have access to high quality and
authoritative texts on Islamic financial and business practices. Drawing on exper-
tise from across the Islamic world, this new series will provide carefully chosen and
focused monographs and collections, each authored/edited by an expert in their
respective field all over the world.
The series will be pitched at a level to appeal to middle and senior management
in both the western and the Islamic business communities. For managers with
a western background the series will provide detailed and up-to-date briefings
on important topics; for the academics, postgraduates, business communities,
or managers with western or Islamic backgrounds the series will provide a guide
to best practice in business in Islamic communities around the world, including
Muslim minorities in the west and majorities in the rest of the world.
Islamic Financial Economy and Islamic Banking
Masudul Alam Choudhury
God-Conscious and the Islamic Social Economy
Masudul Alam Choudhury
Labor in an Islamic Setting
Edited by Necmettin Kizilkaya and Toseef Azid
Islamic Macroeconomics
A Model for Efficient Government, Stability and Full Employment
Raja Almarzoqi, Walid Mansour and Noureddine Krichene
Dilemmas and Challenges in Islamic Finance
Looking at Equity and Microfinance
Edited by Yasushi Suzuki and Mohammad Dulal Miah
For more information about this series, please visit www.routledge.com/
Islamic-Business-and-Finance-Series/book-series/ISLAMICFINANCE
Dilemmas and Challenges in
Islamic Finance
Looking at Equity and Microfinance
Edited by Yasushi Suzuki and
Mohammad Dulal Miah
First published 2018
by Routledge
2 Park Square, Milton Park, Abingdon, Oxon OX14 4RN
and by Routledge
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Routledge is an imprint of the Taylor & Francis Group, an informa
business
© 2018 selection and editorial matter, Yasushi Suzuki and Mohammad
Dulal Miah; individual chapters, the contributors
The right of Yasushi Suzuki and Mohammad Dulal Miah to be
identified as the authors of the editorial material, and of the authors
for their individual chapters, has been asserted in accordance with
sections 77 and 78 of the Copyright, Designs and Patents Act 1988.
All rights reserved. No part of this book may be reprinted or
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or registered trademarks, and are used only for identification and
explanation without intent to infringe.
British Library Cataloguing-in-Publication Data
A catalogue record for this book is available from the British Library
Library of Congress Cataloging-in-Publication Data
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ISBN: 978-1-138-09540-3 (hbk)
ISBN: 978-1-315-10567-3 (ebk)
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Contents
List of figures viii
List of tables ix
List of contributors xi
Foreword xii
TUN ABDULLAH AHMAD BADAWI
Foreword xiii
PROFESSOR DR MOHAMMAD HASHIM KAMALI
Foreword xv
DATUK DR MOHD DAUD BAKAR
Preface xvi
YASUSHI SUZUKI AND MOHAMMAD DULAL MIAH
Acknowledgements xvii
Introduction 1
YASUSHI SUZUKI AND MOHAMMAD DULAL MIAH
PART I
Dilemmas and challenges on the prohibition of riba
and gharar 9
1 Heterodox vs. Islamic views on interest and uncertainty:
Commonalities and contradictions 11
YASUSHI SUZUKI AND MOHAMMAD DULAL MIAH
2 A critique to a naïve critique to ‘murabaha’ ‘tawarruq’ syndrome 28
MOHAMMAD DULAL MIAH AND YASUSHI SUZUKI
vi Contents
3 An inquiry into the scope of ‘acceptable’ gharar 45
MOHAMMAD HASHIM KAMALI, YASUSHI SUZUKI AND MOHAMMAD
DULAL MIAH
PART II
Issues in Islamic equity finance and microfinance 59
4 Altruism and reciprocity in Islamic equity fund: New
Institutional and philosophical speculations 61
YASUSHI SUZUKI AND MOHAMMAD DULAL MIAH
5 Anatomy of Islamic venture capital: Typology of Bahraini/
Indonesian Islamic venture capital 77
YASUSHI SUZUKI, A. K. M. KAMRUL HASAN AND SIGIT PRAMONO
6 Sukuk environment and challenges in Bangladesh and
Malaysia (with the supplement of the Japan-sukuk case) 95
S. M. SOHRAB UDDIN, NAHID AFROZ AND YASUSHI SUZUKI
7 A comparative study between the Grameen and Islamic
modes of microfinance in Bangladesh with reference to
Islamic microfinance in Pakistan 111
YASUSHI SUZUKI, HELAL UDDIN AND MOHAMMAD DULAL MIAH
8 An impact assessment of Islamic Saving–Loan and
Financing Cooperatives in Indonesia: Preliminary findings
from the artificial neural networks technique 127
YASUSHI SUZUKI, SAIFUL ANWAR, SIGIT PRAMONO AND TRISILADI
SUPRIYANTO
PART III
Dilemmas and challenges in governance structure 145
9 Anatomy of governance structure in the mode of Islamic
finance: An emphasis on the governance over Shari’ah boards 147
YASUSHI SUZUKI, SIGIT PRAMONO AND ONI SAHRONI
Contents vii
10 A comparative study on Shari’ah compliance frameworks:
Is the integrated or separated model well suited to Bangladesh? 163
S. M. SOHRAB UDDIN, ASIF NAWAZ CHOWDHURY AND YASUSHI
SUZUKI
11 Alternative views upon the ‘division of work’ and
‘specialization’ towards a new mode of profit–loss sharing 177
YASUSHI SUZUKI AND MOHAMMAD DULAL MIAH
Conclusion 190
YASUSHI SUZUKI AND MOHAMMAD DULAL MIAH
References 194
Index 212
Figures
4.1 NIE (TCE) framework explaining anomaly of Islamic
venture capital 71
5.1 VCBB’s net profit (US$ million), return on capital, total
investment to total assets, and leverage from 2006 to 2016 87
5.2 Comparison of total asset of PNM, PNM Venture Capital, and
PNM Ventura Syariah in 2016 and 2015 91
5.3 Comparison of total financing of PNM, PNM Venture Capital,
and PNM Ventura Syariah in 2016 and 2015 91
5.4 Comparison of total revenue of PNM, PNM Venture Capital,
and PNM Ventura Syariah in 2016 and 2015 91
5.5 Typology of Islamic financial institutions including Islamic
venture capital firms 93
6.1 Malaysian Sukuk issuance 101
6.2 Sukuk mechanism in Bangladesh 104
6.3 Sukuk mechanism in Malaysia 104
6.4 List of significant guidelines and practice notes on Sukuk 105
8.1 Portion of MSME financing in Indonesia’s Islamic banks 129
8.2 The networks training process 142
8.3 The validation evidence of artificial neural networks performance 143
9.1 Multiple principal–agent structure in the mode of Islamic finance 149
Tables
2.1 Lending (financing) structures of Islamic banks 35
2.2 Financing income of Islamic banks 36
2.3 Income from murabaha (in percentage) of different Islamic
banks in Bangladesh and Indonesia 37
2.4 Income share of murabaha of Islamic banks in Malaysia and Pakistan 38
3.1 Comparison of the post-Keynesian view and the Islamic mode
of investment of looking at animal spirits against uncertainties in
enterprise and speculation 52
5.1 Differences between Islamic microfinance and VC 78
5.2 VCBB’s total asset concentration 88
5.3 Comparison of total asset and total financing of the banking
industry, Venture Capital Company and PNM in selected years 90
5.4 Comparison of selected financial performance of PNM, PNM
Venture Capital, and PNM Ventura Syariah in 2016 and 2015 92
6.1 Sale, financing, and net outstanding amount of BGIIB 99
6.2 List of major government and corporate Sukuk securities
in Malaysia 100
6.3 Basic aspects covered by the guidelines 103
7.1 Performance of Grameen Bank 115
7.2 Loan disbursement and outstanding trend in MF sector 116
7.3 Purpose, period and ceiling of investment 117
7.4 RDS performance from 2012–2016 117
7.5 Microfinance industry in Pakistan 122
7.6 Performance in NRSP-MB 123
7.7 Share of Islamic advances in NRSP-MB 123
8.1 PPI scorecard for Indonesia 133
8.2 Statistical description of parameters 134
8.3 KSPPS-BMI members’ PPI score and PPP upon the
international standard 138
8.4 KSPPS-BMI members’ PPI score and PPP upon the national
standard 139
8.5 Comparison of statistical description for each parameter 139