An empirical survey of individual consumer, business firm and financial institution attitudes towards Islamic methods of finance Type:

Literature review Author(s): Alsadek Gait, Andrew Worthington

Abstract
Purpose The purpose of this paper is to review the attitudes, perceptions and knowledge of Islamic financial products and services. Design/methodology/approach A synoptic survey of empirical analyses about Islamic financial products and services and comparison with the literature on conventional financial services and products. Findings It was found that while religious conviction is a key factor in the use of Islamic finance, consumers also identify bank reputation, service quality and pricing as being of relevance. When selecting a financial institution's products and services, business firms usually employ criteria that are more conventional, such as the cost of finance, in their decision making. There is also interest among financial institutions in supplying Islamic financial products and services, but this is mitigated by complications with firm management and a lack of familiarity with business conditions. The concept of risk sharing with borrowers serves as a substantial barrier to most financial institutions engaging in Islamic methods of finance. Research limitations/implications This survey is limited to work published in refereed journals, books and book chapters.

Risk-return analysis of Islamic banks' investment deposits and shareholders' fund Type: Research paper Author(s): Saiful Azhar Rosly, Mohammad Ashadi Mohd. Zaini

Abstract
Purpose The purpose of this paper is to study the differences or variance in the yields of Islamic and conventional bank deposits and capital, respectively, in view of their contractual differences, namely the former which is based on equity and the latter on debt. Design/methodology/approach The paper uses a financial ratio approach. Findings It was found that deposit yields in conventional banks were lower than return on equity (ROE), which truly reflect the contractual differences between fixed deposit and bank's capital. Also, it was found that Islamic banks' deposit yield and ROEs do not reflect their risk-taking properties, as their variances were found to be smaller. Research limitations/implications The paper adds to the literature on risk-return relationship in Islamic capital theory, which currently lacks theoretical studies.

Special legal features of the Islamic wa'd or pledge: Comparison with the conventional law on promise within the sphere of Islamic finance Type: Conceptual paper Author(s): Ismail Wisham, Aishath Muneeza, Rusni Hassan

Abstract
Purpose The purpose of this paper is to theoretically assess the legal position of the Islamic doctrine of wa'd (or pledge) in relation to 'aqd (within the sphere of Islamic finance), and compare it with the conventional viewpoint, while discussing the several modes/means/usages in terms of applied Shariah. Design/methodology/approach The paper utilizes a doctrinal approach to focus on the theoretical aspect of the concept while attempting to suggest practical adaptation and structuring, enabling smoother and more efficient use. The status quo was dependent on the wa'd being an operational instrument in today's world and further development in terms of bridging the understanding was the approach. Findings Before invoking the legal validity of wa'd in a court, it is important to view the practice of wa'd to be a dominant ideology utilized in Islamic finance. The first advocate who called for the practice of the binding promise in commutative financial contracts was probably Sheikh Mustafa Al-Zarqa who adopted the position that if it was admissible, for the unilateral promise (wa'd) to be binding in donations, then, in his view, it was even more justifiable for the wa'd to be binding in commutative contracts. According to the preponderant opinion among Maliki scholars, a unilateral promise is as binding as a contract if the reason was mentioned in it or the contract was initiated based on the promise, a view shared by scholars such as Imam Bukhari. The other point of view, according to contemporary jurists such as Al-Syntiqi and Dr Muhamed Sulaiman opine that a unilateral promise would not create any liability upon the promisor and it also does not confer any right to the promisee, although from religion point of view, it is recommended to fulfill it.
Islamic macroeconomics? Type: Research paper Author(s): Masudul Alam Choudhury

Abstract
Purpose The paper aims to offer a new perspective on the strictly microeconomic nature of all of Islamic economics. Writers in this field continue to work in the mainstream tradition without noticing the micro-interface of the theoretical nature of Islamic economics. This paper aims to address this issue. Design/methodology/approach The paper provides a comparative study of received literature in the history of economic thought and contrasts the ethical foundations of Islamic economics from the mainstream dichotomy between microeconomic and macroeconomic parts.

Findings There is a cogent microeconomic foundation of Islamic economics for the economy-wide treatment of ethical economic issues and problems including the policy framework. Research limitations/implications This is a theoretical exploration. The empirical part is yet to be expanded upon. Practical implications The paper has practical implications for graduate students on policy formulation and economic theorizing, by making them analytically aware on the extensive relevance of microeconomics in the building block of ethical content of economic theory, policy and institutions.
Determining the viability of rental price to benchmark Islamic home financing products: Evidence from Malaysia Type: Research paper Author(s): Rosylin Mohd Yusof, Salina H. Kassim, M. Shabri A. Majid, Zarinah Hamid

Abstract
Purpose The purpose of this paper is to analyze the possibility of relying on the rental rate to price Islamic home financing product. Design/methodology/approach By comparing two models consisting of either rental rate or lending rate (LR) and selected macroeconomic variables that could influence property value, the study focuses on the Malaysian data covering the period from 1990 to 2006. The study adopts several econometric time-series analysis, such as the autoregressive distributed lag estimates, bi-variate Granger causality, and multivariate causality based on the vector errorcorrection model. Findings The study finds consistent evidence that the rental price (RP) is a better alternative than the LR to price Islamic home financing product. In particular, the rental rate is found to be resilient to short-term economic volatility, while in the long run, it is truly reflective of the economic fundamentals. Practical implications This feature of the RP renders it as a fair pricing mechanism for the Islamic home financing product. Results of this study contribute towards finding an alternative benchmark for the Islamic home financing product which is currently using the conventional interest rate as its benchmark. Originality/value To the best of the authors' knowledge, the current study is the first of its kind which provides empirical evidence for the possibility of relying on the rental rate to price Islamic home financing product.
Measuring service quality of conventional and Islamic banks: a comparative analysis Type: Research paper Author(s): Manshor Amat Taap, Siong Choy Chong, Mukesh Kumar, Tat Kee Fong

Abstract
Purpose Based upon an extended SERVQUAL model, this paper attempts to measure and compare the service quality between conventional and Islamic banks in Malaysia. Design/methodology/approach A new dimension, i.e. convenience was added to the existing SERVQUAL model of five dimensions. Data were collected from 287 bank customers residing in two major cities in Malaysia using self-reporting questionnaires. Factor analysis is used to validate the instrument, after which the gap and dominance analyses techniques are employed. Findings The factor analysis extracted four dimensions of service quality, i.e. tangibility, reliability, competence, and convenience. The results reveal that there are large and significant differences between respondents' expectations and their perceptions. Specifically, the expectations on competence and convenience are significantly different between the conventional and Islamic banks, whereas the perceptions on tangibility and convenience are found to be significantly different between the two types of banks. The application of dominance analysis to predict the SERVQUAL gap indicates that the difference between the two types of banks lie in terms of degree but not pattern. Competence and convenience are found to be the relatively more dominant dimensions in both types of banks. These two dimensions, taken together, can help to reduce the overall service quality gap to an extent of 72 percent in the case of conventional banks and 85 percent in the case of Islamic banks. Research limitations/implications Although the outcomes lend support to the extended SERVQUAL model, the results are derived based on a relatively small sample size with an uneven distribution between the two types of banks. This limits the generalizability of the study results which calls for future research attention. Practical implications The Malaysian banking sector needs to take initiative to become more competent by being more responsive through fulfilling their assurance for customers and by providing banking facilities more conveniently. Originality/value This study is one of the first to examine and compare the service quality between conventional and Islamic banks using an extended SERVQUAL model. The results could be particularly useful to countries adopting dual banking systems.
Islamic work ethic: a critical review Type: General review Author(s): Abbas J. Ali, Abdullah Al-Owaihan

Abstract
Purpose The purpose of this paper is to present a coherent but critical treatment of Islamic work ethic (IWE). It explores the nature of IWE in the context of cultural and political evolution and offers a cultural and religious perspective pertaining to organization and management. Design/methodology/approach It briefly investigates the economic and cultural conditions that facilitate the emergence of work ethics and the centrality of trade in Islamic culture. The

paper, then, reviews the pillars and foundations of IWE and investigates various empirical studies conducted in various countries. Findings IWE has economic as well as moral and social dimensions. These along with basic elements of IWE seem to provide the faithful with a sense of worthiness and strengthen organizational commitment and continuity. That is, work is viewed not as an end in itself, but as a means to foster personal growth and social relations. Practical implications Offers managers and consults various avenues on how to design teamwork and new methods of change that focus on producing results which reinforce existing commitment and enthusiasm. As justice and generosity in the workplace are considered virtues, issues of a hiring and firing become part of a broader concern with consequences far beyond the organization. Originality/value IWE is a multidimensional concept. It links an organization's prosperity and continuity to societal welfare. Its four elements effort, competition, transparency and morally responsible conduct have the promise to strengthen commerce and economic progress in today's world.
The importance of service quality in bank selection for mortgage loans Author(s): Constantine Lymperopoulos, Ioannis E. Chaniotakis, Magdalini Soureli : Type: Research paper

Abstract
Purpose This project aims to offer an in-depth understanding of bank customers' buying behaviour in relation to the selection process, and provide bank managers with useful insight into the development of high quality relationships with customers. Design/methodology/approach The research involved a review of available literature on bank choice criteria, the fieldwork, the identification of factors that affect customers' choice, and the development of related managerial implications. A research questionnaire was administered by personal interviews to 1,092 bank customers in the greater area of Athens. Findings Four distinct factors were identified as the main choice criteria that influence consumers' bank choice. Bank service quality is the most important element that customers consider in order to select their mortgage providers and establish a long-term relationship with them. The other three refer to product attributes, access, and communication. Research limitations/implications Limitations relate to the use of non-probability sample and the restricted geographical area of the field research. This study contributes to the body of academic knowledge by shedding more light into the role of service quality in the selection process of mortgage provider. Practical implications An understanding of consumer buying behaviour with respect to mortgage loans is important to bank managers for the attainment of organisational objectives that are focused on building beneficial customer relationships. Management guidelines for improving service quality are presented.

Originality/value The paper manages to identify the perceived important characteristics of banks and particularly highlight the role of service quality in bank selection for mortgages and further development of long-term relationships.

Islamic finance product. 1. Musharakah (Partnership) Musharakah literally means sharing. In the Islamic finance literature it refers to a joint enterprise in which all the partners share the profit or loss of the joint venture. The financial term is derived from the Islamic legal term shirkah with the same literal meaning but having a broader application. In the Islamic fiqh literature shirkah is of two kinds: The first is shirkat-ul-milk which means joint ownership of two or more persons of a particular property which may come into existence either through inheritance or joint purchase. The second kind of shrikah is shirkat-ul-aqd, which means a partnership established through a contract. Such contractual partnerships are usually established for commercial purposes and take several forms such as partnership in the capital of the enterprise, partnership in labour and management, common goodwill or a combination of these elements. Musharakah as a financial contract refers to an arrangement where two or more parties establish a joint commercial enterprise and all contribute capital as well as labour and management as a general rule. The profit of the enterprise is shared among the partners in agreed proportions while the loss will have to be shared in strict proportion of capital contributions. The basic rules governing the musharakah contract include: i) Profit of the enterprise can be distributed in any proportion by mutual consent. However, it is not permissible to fix a lump sum profit for anyone. ii) In case of loss, it has to be shared strictly in proportion to the capital contributions. iii) As a general rule all partners contribute both capital and management. However, it is possible for any partner to be exempted from contributing labour/management. In that case, the share of profit of the sleeping partner has to be in strict proportion of his capital contribution.
As a mode of finance, an Islamic bank can advance money to a client using the contract of musharakah. Normally the bank will use the option of being a sleeping partner. The contract can be more widely used by Islamic funds whereby the unit holders can assume the role of sleeping partners. The contact can also be used in securitized assets.

2. Mudarabah (Passive Partnership) Mudarabah is a special type of partnership. This is a contract between two parties: a capital owner (called rabb al-mal) and an investment manager (called mudarib). Profit is distributed between the two parties in accordance with the ratio that they agree upon at the time of the contract. Financial loss is borne by the capital owner; the loss to the manager being the opportunity cost of his own labour, which failed to generate any income. Except in the case of a violation of the agreement or default, the investment manager does not guarantee either the capital extended to him or any profit generation. Some other important features of the mudarabah contract include: i) While the provider of capital can impose certain mutually agreed conditions on the manager, he has no right to interfere in the day-to-day work of the manager.

ii) mudarabah is one of the fiduciary contracts (uqud al-amanah). Mudarib is expected to act with utmost honesty, otherwise he is considered to have committed a grave sin (in addition to worldly penalties). This has important implications for the moral hazard problem. iii) The liability of the rabb al-mal is limited to the extent of his contribution to the capital. iv) The mudarib is not allowed to commit the mudarabah business for any sum greater than the capital contributed by the rabb al-mal. v) All normal expenses related to mudarabah business, but not the personal expenses of the mudarib, can be charged to the mudarabah account. vi) The contract of mudarabah can be terminated at any time by either of the two parties on giving a reasonable notice. (This condition may create serious problems in the context of modern commercial enterprises. However, using the Golden Principle of Free Choice the parties can agree on any conditions in the contract that will regulate the termination so as not to cause any damage to the enterprise). vii) No profit distribution can take place (except as an ad hoc arrangement, and subject to final settlement), unless all liabilities have been settled and the equity of the rabb al-mal restored. As a mode of finance applied by Islamic banks, on the liabilities side, the depositors serve as rabb-al-mal and the bank as the mudarib. Mudarabah deposits can be either general, which enter into a common pool, or restricted to a certain project or line of business. On the assets side, the bank serves as the rabb-al-mal and the businessman as the mudarib (manager). However the manager is often allowed to mix the mudarabah capital with his own funds. In this case profit may be distributed in accordance with any ratio agreed upon between the two parties, but the loss must be borne in proportion to the capital provided by each of them.