Search results

Islamic banks, despite being Shariah-compliant, have long been criticized for mimicking conventional banks in terms of their products and processes (Khan, 2010; Kuran, 1996). However, several Islamic banks do engage in philanthropy (zakat and charity) and risk-sharing financing (mudarabah and musharakah) instruments that better meet their raison d'etre, the fulfillment of Maqasid al-Shariah (Jatmiko et al., 2023). These contracts, however, are more susceptible to moral hazard and adverse selection problems than traditional debt-based finance (Azmat et al., 2015) and may impair Islamic bank stability. This paper explores the relationship between social finance and the stability of Islamic banks, and whether institutional quality moderates this relationship.

Using hand-collected annual data on social finance from 12 Islamic banks in four countries: Bangladesh, Bahrain, Indonesia and Malaysia, between 2006 and 2019, the authors employ the feasible generalized least squares and the panel-corrected standard errors methods for the analysis. The Stata version 16 software was used to analyze the data for the study.

The results indicate that mudarabah and musharakah financing raises the stability of Islamic banks. The authors also found that mudarabah and musharakah expose Islamic banks to more risk-taking behavior amidst the conditioning effect of institutional quality. On the other hand, charity induces the stability of Islamic banks, while zakat increases the risk-taking behavior of the banks. Further, when the quality of institutions was used as a moderator, both zakat and charity induced the stability of Islamic banks. The results were robust when liquidity risk was used and partially robust when portfolio risks were employed as measures of stability.

One concern regarding the application of Islamic social finance is that it might be a risky strategy for Islamic banks. In terms of research implications, the available evidence suggests that the use of Islamic social finance instruments is not detrimental to the stability of Islamic banks. Hence, regulators and policymakers should not penalize Islamic banks for using Islamic social finance instruments that help provide financial solutions to the underserved and unserved. In terms of research limitations, the study could not include other relevant Islamic social finance instruments such as waqf and qard al-hassan. Furthermore, data availability restricts the analysis to only 12 Islamic banks in fourcountries. As more Islamic banks in different countries venture into Islamic social finance, and the quantity and quality of information improve, future studies could explore the issue further.

The available evidence suggests that the use of Islamic social finance instruments does not worsen the stability of Islamic banks. Given the dominance of sale- and lease-based contracts in Islamic financing (Aggarwal and Yousef, 2000; Šeho et al., 2020), these findings should encourage other Islamic banks to provide financial solutions using other Shariah-compliant contracts including those based on risk-sharing and philanthropy. This would be a better reflection of the Islamic banks’ value proposition as it helps boost social activities that have a high impact on the activities of small businesses, contributing to the real economy and promoting well-being in society.

Previous studies mainly relied on mudarabah, mushakarah and zakat separately as they relate to the performance of Islamic banks. This study explores the impact of social finance which includes charity and zakat to examine their impact on Islamic banks’ stability. Further, the authors use institutional quality as a moderating variable in the relationship between Islamic social finance instruments and the stability of Islamic banks.

The peer review history for this article is available at: https://publons.com/publon/10.1108/IJSE-06-2022-0441

This paper aims to examine the effects of corporate governance mechanisms (board chairman independence, board independent director meeting attendance, audit committee size and audit committee meetings) on the environmental, social and governance (ESG) and its individual component disclosures of listed firms in Saudi Arabia.

The study used unbalanced panel data obtained from the Bloomberg data set over 11 years, from 2010 to 2020.

The findings indicate that board chairman independence (BCI) and audit committee size (AC size) have a significant negative and positive association with ESG disclosure, respectively. However, the results show that board independent director meeting attendance (BIMA) and audit committee meetings (AC meetings) do not significantly influence ESG disclosure. Regarding the individual dimensions (components), the results show that only BIMA has a significant negative association with environmental disclosure. Besides, only BCI and AC meetings have a significant positive association with social disclosure. Also, only BIMA and AC size have a significant positive and negative relationship with governance disclosure, respectively.

The study used a sample of 29 listed companies in Saudi Arabia. Each firm has at least four years of ESG disclosures. Besides, the paper considered only four corporate governance attributes, comprising two each for the board and audit committee.

The results provide insights to regulators, boards of directors, managers and investors to enhance ESG and its components’ reporting toward the sustainable operations and better performance of Saudi firms.

This study is among the few that provide empirical evidence on how some essential corporate governance attributes that have not been given adequate attention by prior studies (board chairman independence, board independent directors’ meeting attendance, audit committee size and audit committee meetings) influence not only ESG reporting as a whole but also its individual dimensions (components).

This study aims to examine the nexus between CAMELS, risk-sharing financial performance and Islamic banks' stability. It also attempts to assess the conditioning effects of institutional quality in the relationship between risk-sharing contracts and the stability of Islamic banks.

The quantitative research design was employed using secondary data from 20 Islamic banks in six countries over the period 2007–2019. The study utilized the feasible generalized least squares method for the analysis.

The results indicate that not all CAMELS variables support the stability of Islamic banks. The musharakah contract induced stability of the banks, whereas mudarabah financing reduced it. The interaction between risk-sharing finance and the quality of institutions suggested that the mudarabah contract via institutional quality raises the stability of Islamic banks. On the other hand, the quality of institutions encourages the banks to offer more musharakah, but it leads to an increase in their risk-taking. We show the impact of changes in risk-sharing variables on stability amplified by institutional quality. The results were robust when alternative measures of stability were used.

Various stakeholders in banking activities could learn from the results of this study. Islamic banks could improve their positions in terms of screening for risk-sharing financing. They could also leverage more on musharakah, as it promotes stability and could generate more returns for the banks. The mudarabah financing can be improved if there is a proper evaluation of entrepreneurs. Policymakers would learn more about the importance of institutional quality, as it provides a friendly environment for both mudarabah and musharakah businesses to thrive. This could increase the participation of Islamic banks in the real economy.

Previous studies concentrated on the effects of CAMELS on the profitability of Islamic banks. This study shows that CAMELS alone might not necessarily capture the financial performance of Islamic banks. Therefore, the risk-sharing financing variables are included alongside CAMELS to determine their effects on stability. Second, unlike the past research, this study used the quality of institutions to moderate the nexus between risk-sharing financing and the stability of Islamic banks.

The problem of inaccessibility of finance for farm investment is a common phenomenon among farmers, especially the rural dwellers. Thus, there is a need to know how the accessibility of informal finance can be increased to increase farm investment. Therefore, this study evaluates farmers’ access to informal finance and its contribution to farm investment among rural farmers in Northcentral Nigeria.

A three-stage random sampling technique was employed to select 160 farmers. Primary data collected were analysed with descriptive statistics and the Heckman selection model.

The study revealed that cooperative society is the major informal means of loan acquisition used by the farmers followed by Rotational Savings and Credit Associations (RoSCAs). Informal loans contributed to agricultural investment through the various operational activities involved in production. Factors influencing farmers’ access to informal loans were the age, farm size and income of the farmers. Interest charged, farmers' age, farming experience, household size, education and loan duration were the drivers of the amount borrowed from the informal financing sector.

The findings of the study call for policies that will sustain informal financial institutions in developing economies, like Nigeria. Thus, the government through its regulatory agencies should assist informal finance providers with the necessary resources to achieve more goals. This is because the informal credit lenders help in bridging financial gaps created by formal financial institutions, such as commercial banks.

Unlike the previous research studies, this study investigated the driving factors of the amount borrowed from informal finance and its use in farm investment.