I

ntr
oduct
ion

Name Mar
yam Ar
if
Rol
lnumber 02
Sessi
on 2018To2022
Submi
tby Mar
yam Ar
if
Submi
tto Si
rFar
zan
I
ssuedate 10/
04/2021
Subj
ect For
eignExchangeManagement
Semest
er 6th
Assi
gnmentN0 01

Let
’sSt
artt
heAssi
gnment
Tabl
eofCont
ent
s
1:
Isl
ami
cfi
nanci
alsy
stem andconv
ent
ionalbank: 3
Abst
ract 3
1.
2 I
ntr
oduct
ion 4
1.
3. 
Backgr
oundofI
slami
cbanki
ng 4
1.
4. 
Moder
nIsl
ami
cbanki
ng 5
1.
5. 
Dif
fer
entI
slami
cbanki
ngpr
oduct
sthatar
ecommonl
yusedi
nPaki
stan 5
1.
6. 
Isl
ami
candconv
ent
ionalbanki
ng 6
1.
7. 
Thepr
esentst
udy 6
2.
 Li
ter
atur
erev
iew 6
3.
1:Si
ddi
qui(
2008) 7
3.
2:Ol
sonandZoubi(
2008) 8
3.
3:Suy
ant
o,2009 8
4:
Probl
em st
atement 9
4.
1: 
Hypot
hesi
s 9
4.
2 Fi
nanci
alr
ati
os 9
4.
3 Popul
ati
onandsampl
e 10
Ourpopulati
oncont ainsal
ltheIsl
ami
cbanks(inthecategoryofIsl
amicbankingofout
i
ndependentv ari
able)andallt
heconventi
onal
banks( i
ntheConv ent
ionalbanki
ng
categor
icalvari
able“Banki
ngSy st
em”)inPaki
stan.Thefol
lowingfourbanksaresel
ect
ed
fortheassessment . 10
5:
Dat
aanal
ysi
sanddi
scussi
on 10
5.
1 Regr
essi
onmodel 10
6:
Summar
yandconcl
usi
on 11
6:
Conf
li
ctofi
nter
est 11
7:
Visi
onst
atementofbank 11
7.
1:I
ntr
oduct
ion 12
8:
Visi
onandMissi
onThr
eeI
ndonesi
anI
slami
cFi
nanci
alI
nst
it
uti
ons:BSM,
BNISy
ari
ah,
andBRISy
ari
ah 13
1.BankSy
ari
ahMandi
ri 13
8.
1:I
slami
cFi
nance 14
8.
2:Fi
nanci
alI
nst
it
uti
onsi
nthePer
iodofPr
ophet 15
9:
Visi
onMi
ssi
onSui
tabl
ytheShar
iaFi
nanci
alI
nst
it
ute 16
10:
Missi
onst
atementofAsi
anI
slami
cbank 18
 10.
1:I
ntr
oduct
ion 18
10.
2:I
slami
cMi
crof
inance 19
10.
3:Pr
inci
plesofMi
crof
inance 19
10.
4:I
slami
cMi
crof
inance 20
10.
5:Shar
ia-
compl
ianti
nst
rument
sofmi
crof
inance 20
11:
Dat
aandMet
hodol
ogy 21
11.
3:I
nput
sandOut
put
sSpeci
fi
cat
ions 21
11.
4:Testofr
etur
ntoscal
e 22
12:
Financi
alper
for
manceofMFI 22
12.
1:DEAef
fi
ciencyscor
es 22
12.
2:Resul
tsoft
heTestf
orgr
oupdi
ff
erences 23
13:
Concl
usi
on 23
14:
Ter
ms 23
15:
Hist
oryofAsi
anI
slami
cbank 24
16:
ManagementHi
erar
chy
: 25
17:
Whati
stheI
slami
cconceptofTakaf
ul? 25
17.
1:HowdoesTakaf
ulwor
k? 26
17.
2:Pr
oduct
s 26

1:
Isl
ami
cfi
nanci
alsy
stem andconv
ent
ionalbank:
Abst ract
Thepr esentst udyi sconduct edtof indoutt hediff erencebet weent hetwo
areasofbanki ng,t hatis,Islami candconv enti
onalbanki ngwi threspectt o
profitabi l
it
y,efficiencyandl i
qui di
ty.Thesecondar ydat afrom banksofeach
banki ngsect orist akenf orassessment .Ratioanaly sisandonesampl e t
-t
est
i
s appl i
ed t o det ermine the char acteri
stics ofst udy r espondents and
regressi onanal y sisisappliedt oexami net hediffer
encei nt erm ofsignifi
cant
factor st hatinf
luencecust omert r
ustofI sl
ami cbanksandcommer cialbanks.
Ther esul t
soft hest udyopposemanypr eviousfindingsast heanal ysisshows
thatt her eissigni fi
cantdi f
fer encebet weent hebot ht ypesofbanki ngf orthe
variablesunderst udy .Mor eov er
,i nfl
uenceofr et
ur nonasseti smor eon
cust omert rustf ort hestudyper iod( 2013–2017)f ortheI sl
amicbankas
compar ed t ot he conv entionalbanki ng.The st udy al so exami nes t he
significantf actorst hatareimpor t
antf orgrowt hofIsl ami cbanki ng.
1.
2 I
ntr
oduct
ion
Isl
am pr ohi bitsi nt erest ,sot heI slami cbanki ngsy stem i nvol vest hepr oduct s
whichdo noti ncl uder iba( i
nt erest)and whi ch ar eaccor di ng t o Shar i
’ah
pri
nci ples,t her ef orei ti sal socal ledt hei nterest-freebanki ng.Thesy stem i s
developi ngwi tht hepassageoft imeast hedemandofi nterest -freepr oduct s
i
sal soi ncr easi ng.Mor eandmor ecust omer sar ekeent obanki nt heI slami c
way and many commer cialbanks ar e also i ntroduci ng I sl ami c banki ng
product ssepar atef rom t heconv entionalones.Manynon- Musl i
msal soar e
thecust omer sofI slami cbanks.I slamicbanki ngi sal sov er ypopul ari nsome
non-Musl i
m count ri
es.Accor di ngt oar eportbyt heSt ateBankofPaki stan,
therear emor et han300I slami cf i
nanci alinstit
ut i
onsoper atingi nal most75
count ries( Anwar ,2010) .
Isl
ami cbanksar econt inuousl ygr owi ngandi nnumber ssi nce1971.“ Ata
growt hr ateof15per cent ,ay ear ,Isl
ami cbanki nghas$65bi lli
oni nasset s.
Howev er ,thi sisl esst han1per centofbankasset swor ldwide”( Wi lson, 1995) .
Thef irstI slami cbankwasest abl i
shedi n1963i nEgy ptwhi l
ei nPaki stan,t he
Isl
ami cbanki ng emer ged i n1970s( Ar i
ff
,1988) .I slami cbanki ng wasr e-
l
aunchedi nPaki st ani nt hey ear2002.Andnow,manyf ull-fledgedI slami c
banksi nPaki stanar eoper ating( suchasFay salbank, Meezanbank, andBank
Isl
ami ,DubaiI slami cBank,et c.).Manyconv ent i
onalbanks( suchasAskar i
bank,BankAl falah,et c.)ar ehav i
ngsepar ateI slami cBanki ngbr anches.So,
theov eral lbanki ngsy st em canbecal ledasadualbanki ngsy st em wher e
Isl
ami candconv ent i
onalbanki ngi si noper at i
onsi debysi de.Thef ourth
annualI slami cFi nancenewspol lwashel dint hey ear2008andSt at eBankof
Pakist anwasv ot edasatsecondnumberf rom t hecent ralbanksal lov ert he
worldt hatar et aki ngi nt er esti npr omot i
ngI slami cbanki ng.
The cur rentgl obalf inanci alcr i
sisi st he r esultof t he i nterest -based
economi es.Thecount r
ieswhi chwer ehav ingv erysuccessf ulmar ket sand
werel eadi ngt hewhol ewor ld, wer ealsohi twitht hecr i
sist osuchanext reme
thatnowt he  i
nt er estr at e isbr oughtdownnear l
yt ozer o.Thesecount riesar e
nowt akingkeeni nt eresti nI slami cbanki ngbecausei tisnotbasedoni nt erest
rate sy stems.Rat her i ti s asset -
based banki ng as compar ed t ot he
conv ent i
onalbanki ngwhi chi smoneybased.Ar epor tbyt heSt ateBankof
Pakist anconf irmst hatt heI slami cbanki ngisnotdi rectlyinfect edbyt hecr i
si s
(Anwar ,2012) .
1.
3. 
Backgr
oundofI
slami
cbanki
ng
Islami cf inancialsystem isbaseduponacommer cel aw knownasf i
qhal -
mu’ amal at.Thislawconsi dersi ssuesofsoci alj usti
ce,equity,andf air
nessin
allbusi nesst r
ansactions,andpr omot est heent repreneurship,protectsthe
pr oper t
yr i
ghtsandemphasi zest hetranspar encyofcont r
actualobl i
gati
ons
accor dingt odi
v i
nelawofAl l
ahandhi sl astmessengerMuhammad( PBUH).It
i
s based on Shar i
ah appr oved pr oduct s whi ch do not i nvolve Riba
(interest /usur
y) ,ghar ar (uncer taint
y),mai sir( gambl i
ng),and non- halal
(pr ohibited)act i
vi
ti
es.Al t
houghI slam hasal lowedt hepr ofi
ts,butt hepr e-
det ermi nedf i
xamountofr etur nsi snotal l
owed.Ri skofl ossandv ar i
abil
i
tyof
pr ofit
smustbef acedt ogett her eturns( Ariss, 2010) .

1.
4. 
Moder
nIsl
ami
cbanki
ng

TheI slami cbankingwasst artedwi t

ht hesi mplepr ofi
tandl ossshar i
ng
account s,I
slamicsav i
ngsandinv est
mentpr oductsbutitisnowf l
ourishingas
theIslami cbonds( Sukuk)andhedgef undsar eintroducedinthemar ket,the
mainpr oductsofI sl
ami cbanksar enow basedonpr of
itandl ossshar i
ng
pri
nciple( Mudarabah) ,par
tnershipsorj oi
ntv entures( Musharakah),Sal es
contract( Salam),leasingcontract(Ij
arah)andi nterest-
fr
eel oans( Qar d-e-
Hasna) ,tr
adewi t
hmar kup(
Mur abaha).

1.
5. 
Dif
ferentI
slami
cbanki
ngpr
oduct
sthatar
ecommonl
yused
i
nPakistan

I
jarah:Thi sproducti smostlyusedf orthepur chaseofv ehicl
esl i
kecar s,
deli
v er
yv ans,etc.thebankpur chasesthevehi clef ort
hecl ientandt heclient
paysmont hlyrentals.Whent hecostofthev ehicleplust hepr ofi
tamounti s
paidbyt hecl i
ent,theownershipistransf
erredt ot heclient(Chhapr a,Ahmed,
Rehan, &Hussai n,2018) .
Mudar abah:Thi s pr oductis used tof i
nance t he businesses.The bank
providest hef i
nancesandt hebusi nesspr ovidest hel abor.I fanyl ossi s
occur r
ed,iti
sbor nebyt hebankpr ovi
dediftherei snoint entoftheMudar i
bof
theloss(Gunput h,2014) .
Mur abaha:Itisacont r
acttosellthegoodswi t
hamar k-uppr ofi
tont hecost
ofthegoods.Thecl i
entinst
ructsthebanktopur chaset hegoodsf r
om at hird
party
.Thebankt hensel l
sthegoodst otheclientont hepricethatincludes
costplusthepr ofit
.Thisproductisalsousedt ofinancethebusiness(Shahi d,
Hassan, &Rizwan, 2015).
Mushar akah:itisapar tnershipcontractbetweent hebankandt heclientin
whichbot hthepar tnersinvesttheircapit
ali
napr ojecti
napr oporti
on.They
shareprofitorlossinawayt hatthelossissharedbet weenthepartner
si nthe
proporti
on t hey invested their capit
al,but t he profitis shared ina
predetermined proporti
on wi th mutualconsensus ( Mehtab,Zaheer,& Al i
,
2015).Thi sproducti sgener al
lyusedi nhomel oans( forconstr
ucti
onand
renovati
onpur poses).

1.
6. 
Isl
ami
candconv
ent
ionalbanki
ng

Islamicbanki ngi sdif

ferentfrom theconv entionalbanki ngasi ti sint
erestfr
ee.
Islamicbanki ngoper at
esunderdi f
ferentprinciplesandt heyhav ediff
erent
riskpr ofi
les.TheI sl
ami cbankshav eregulat i
onsoft wot ypes;f i
rstist he
gov ernmentandt hecentralbankt hatgov ernt heconv enti
onalbanksaswel l
andt heot herist heShar i
ahSuper vi
soryBoar dthatappr ovest heproductsof
theI slamicbanksandkeepsacheckov ert heimpl ement ationoft herules
def i
nedbyt heboar d.Thecent ralbankdef i
nessomer uleswhi charespeci fi
c
tot heI sl
ami cbanks.Forexampl e,minimum capi talrequirement sarehigher
toest abli
shanI slamicbankt hant heconv ent i
onalbanks.I slami cbankshav e
topaymor et axesandr egistr
ati
oncost sbecausei tis asset -based banking
andt hebankhast oownt hegoodsi tfurthersellswhi chev ent ual l
yarepaidby
thecl i
ent,butitincreasest hecost .

1.
7. 
Thepr
esentst
udy

Thepr esentst udyi sconf i

ned t othepr ofi
tabil
ity,ef f
iciencyand l i
quidit
y
compar isonbet weent wot ypesofbanki ng,thatis,I slamicandconv enti
onal
banking.Fort hispur pose,t wobi gIslami cbanks,i .
e.MeezanBankPaki stan
and bank I sl
amiar et aken i nt he study f ort he compar ison oft hei
r
performancewi thtwo l argecommer ci
albanksofPaki stan,i .
e.Standard
Char t
eredBankPaki stanandMCB Bankdur ingt hey ear2013–2017.The
i
mpor t
anceoft hi speri
odi shi gherbecausei tisthel atestav ai
labledataandit
showst heper formanceoft hebanksdur i
ngt her ecession( f
inanci
alcrisi
s)
period.So,t her esul
tsal sodepi ctthei mpactoft hiscr i
sisonbot htypesof
banking.Al so,t hesel ectedbanksar et her epresent ati
veoft hebotht he
categoriesast heyar emostwel l
knowni nt hei
rfiel
d.
2.
 Li
ter
atur
erev
iew

Ther ear emanyr esear chespubl ishedr ecent lywhi chst udyt hedi f
fer ences
betweent heper f
or manceofI slami candconv ent i
onalbanki ngi ndi fferent
parts oft he wor ld( such as  Abdul -
Maj id etal .,2010,  
Sai f-
Al yousf ietal .
,
2017,  Samad,2004) .Di ffer ent r esear cher s used di fferent t echni que t o
measur et hev ar i
ables.Rat ioanal ysisi smostf requent lyusedt echni quei n
thi
sar ea.Di fferentr esear cher sf ounddi ffer entr esults.Her ei st her ev iew of
mor et hant went yr esear cher sr elatedt ot heper f
or manceofI sl
ami cand
conv ent ional banki ng.
Ther at ioanal ysist echni quei susedi nast udyofcompar isonbet weenI slami c
andconv entionalbanki ngi nPaki stanby  
Awan( 2009) .Theaut horcal cul ated
the per formance and pr ofitabili
tyr ati
os f ort he y ear2006–2008 f ort he
sampl eofsi xI slami candSi xconv ent i
onalbanksoft hesamesi zef rom
Pakist an.Ther esul tsf rom t heanal ysi
sofr at iosl i
keROA,ROD,ROE,EPS,
Equityt oTot alAsset s,Debtt oAsset ,Casht oDeposi tr ati
o,et c.show t hat
mostoft hepr obabi lityr atioswer enegat iv ef ort heconv entionalbankst hat
showt heirlowper formancedur i
ngt hest udyper iod.Butt hepr of itabil
ityr atios
calculat edofI slami cbanksshowedposi ti
v er esul tsthatshowhi ghr etur nst o
thebankandi tsshar ehol der s.Theasset sf orI slami cbanksi ncr easedabout
278% ascompar edt oonl y57% i nconv ent i
onalbanks’asset sdur ingt he
period2006–2008.Themar ketshar ehasi ncr easedf rom 2. 5% t o5%.The
rati
of ornon- performi ng l oans f orI slami c banks was f arl ess t han t he
conv ent ionalbanks’ .Al so,t heI slami cbanksar ehav i
ngmor epr ov i
sionsf or
thebaddebt st hant heconv entionalbanks.Ther esul tsconcl udet hatt he
overal lef fi
ciencyofI sl ami cbanksi shi ghert hant heconv entionalbanks.The
studyal sor eveal edt hatal lt hesegoodr esul tsar enotat tai
nedbyexpl oi t
ing
thedeposi torsorshar ehol der sinf actt heI slami cbanksar epay ingmor et oit
i
nv estor st hant heconv ent i
onalbanks.Thecostoff undsf orI slami cbanks
was6. 5%ascompar edt o4. 5%f ort heconv ent ionalbanksast hebanksshar e
50%ofi t spr of i
tsonModar ababasi stoi tsdeposi t
ors.Al so,t hev olatili
tyof
profitabilityi nI slami c banks i sl ess as t han t he conv ent i
onalbanks i n
Pakist an.Al lthemeasur ef orI slami cbanksshowedposi tiv
er esul t
sandt he
authorsuggest st hatt heI slami cbanki ng i st heul timat esol ut i
on t ot he
currentf i
nanci al cr i
sisi nt hewor ld.

3.
1:Si
ddi
qui(
2008)
 
f r
om Kuwaitst
udied the per
for
mance ofIsl
amic banks i
n Paki
stan.He
select
edthetoptwoI slamicbanksi
nPakistan,i
.e.MeezanandAl baraka
Isl
amicBankandcalcul
atedRetur
nonAssetsandRet ur
nonEquityr
at i
osfor
both.Ther esult
sr evealedt hatthepr of i
tabil
itymeasur esf ortheset wobanks
werebet t
ert hant heav er agef orthebanki ngi ndust ry.Meezanbankshowed
evenbet terresultsthant heot herone.
Thepr ofitabi
lit
ybet weent heI sl
ami candconv ent i
onal banksal lovert hewor l
d
wascompar edbyanexami ner(Ariss,2010)whobui ltasampl eofbanksf r
om
thi
rteencount r
iesofwor ld.Thi spaperconcl udest hatt heIslami cbankshav e
mor ecr edit(port
folio)riskbecausei t
sassetbasei scompr isedofl oansand
advances most l
y but t herei s no si gnifi
cant di fference bet ween t he
profit
abili
tyoft het wot ypesofbanki ng,i .
e.t heI slami cbanksar enotmor e
profit
ablet hant heconv ent i
onalbanks.Ther easoni smaybet hatI slamic
bankingi sst il
lasi tsev ol uti
onar ystageanddoesnothav eat tainedi tsfull
potential.Thest udyal so concl udedt hatI slami cbanksar eshowi ngl ess
compet i
ti
oni nthegl obalf inancialmar ket s.Thest udyal soconcl udedt hatthe
Isl
ami cbankshav eshownmor eresili
encet ot hef i
nanci alcrisesar oundt he
worldbecauset heyi nvestmor eint her ealasset sr athert hant hef inancial
assetsbecausei nShar iah,t hereisal awt haty oucannotsel lthet hingst hat
youdonotown.

3.
2:Ol
sonandZoubi(
2008)
 
conduct edar esear chtocompar ethepr ofi
tabi
li
ty,effi
ci ency ,assetqual ity,
l
iquidityandsol vencyoft hebot hty pesofbanksi nt heGul fCooper at
ion
Counci lregion.Theysel ect edasampl eof141conv enti
onaland96I slami c
banksf ortheconsi derati
on.Thepaperal soassessest heaut hent i
cit
yoft he
account ingr at i
ost ocompar et hebot hty pesofbanki ngandf oundt hem as
goodest i
mat or s.Accor di ngt ot hef indings,t heaccount i
ngi nformat i
oni s
helpfulnotonl yint hedev elopedeconomi esbutal soi nt hedev el
opingones.
Ther atiosforbot hki ndsofbanksr evealedal mostthesimi l
arr esul t
sandt hi s
i
sobv iousbecauset hebot ht y pesofbanksoper at
ei nt hesamef inanci al
environment .Secondl yt hebanki ngr egul ationsar esamef orbot h.Butt he
operat i
onalchar act eri
sti
csoft hebot ht ypesofbanki ngar ediff erent.So,t he
resultsi ndicat et hatt he I slami c banks ar e mor e pr ofit
abl et han t he
convent ionalbanks,butt heyar el essef ficient.Al
so,t heI slami cbankskeep
mor ecashwi tht hem becauseoft her i
skofwi t
hdrawalsf rom t hecust omer s.
Also,t he I sl ami c banks r ely mor e on t he depositsf or t heir capi tal
requirement swhi chenhancest hei rri
sk.
A case st udy on t he Bank Muaml atI ndonesia( an I slami c bank)was
conduct edt ocompar eitspr ofitabil
ity,liquidit
y,riskandsol v encywi t
ht he
convent ional banksi nIndonesi a.
3.
3:Suy
ant
o,2009

usedt her atiosf ort hest at edpur poseandappl i

eddi f
f erentst ati
st i
caltests
on t he obt ai ned dat a.The r esultsr ev ealed t hatt her ei sno si gnif
icance
differ enceamongt hepr ofitabil
ityoft heBMIandt hei nt er est-basedbanks, but
ther esul tsshowedt hatt hel iquidityiscompar ativelyl essi ntheI slami cbank.
The r estoft he v ar iabl es wer e al so notsi gnif i
cant l
ydi ffer
entf rom t he
conv ent ional banks.
Ast udyt ofindt her easonswhyI slami cbanki ngi sgr owi ngwi thsuchaf ast
pace was conduct ed by  
Indr i
ani( 2008) .She pi cked t went y-
five banks of
Indonesi afrom whi ch2bankswer ef ull-fl
edgedI slami cbanks,hal foft hem
wi tht heI sl
ami c( int erestf ree)f inanci ngandt her estwi tht hei nterest-based
financi ng.Shecal cul at edr atiost oanal yzet hepr of i
tabi l
ityper f
ormanceoft he
bot ht y pesofbanks.  Descr iptivest ati
st i
cs  andr egr essi onanal ysist echniques
wer eusedt oanal y zet hedat aandi twasf oundt hatt heI slamicbanksar e
pr onet omor epr of itr at er isk.Thi si sbecauset heI slami cbanksar emor e
uncer tainaboutt hef or thcomi ngr eturnsont heirasset s( thati st hel oans
whi char edisbur sedbyt hebank) .Theaut horconcl udedt hatt he“ NetPr ofi
t
Mar gin”i sani mpor tantf act orwhi chi nfluencest hepr ofitriskoft hebanks.
The r esear ch concl udes t hat t he I slami c banks ar e showi ng bet t
er
per for mancet hant heconv ent i
onalones.Thecr edi tr iskandt hepr ofi
trate
riskhav east rongi nf luenceont hisper formance.Butt heI slami cbanki ng
sect ori sdev elopingandhencer educi ngt herisks.

4:
Probl
em st
atement
Manyr esearchershaveconcludedthattheIsl
amicbanksaremoreprofi
tabl
e
andeffici
entthant heconventi
onalbanks.Someauthorsbeli
evet
hatIsl
amic
banksar esufferi
ngf r
om excessliqui
dit
y.Isther
eadi f
fer
encebetweenthe
prof
it
abi l
i
ty,eff
ici
encyandliqui
dit
yoftheI sl
amicBanksandtheconvent
ional
banks.

4.1:Hy
  pot hesis
HeTher ei ssigni
fi
cantfactorthatinfl
uenceoncust omertr
ustofbot
hbanki
ng
system. i
.e.Isl
amicbanksandconv ent
ionalbanksofPakist
an.
H1.Ther
eisno
signif
icantfactorthati
nfluenceoncust omert r
ustofbothbanki
ngsyst
em.i
.e.
Isl
ami cbanksandconv enti
onal banksofPakistan.
4.
2 Fi
nanci
alr
ati
os

Prof i
tabil
it
y,Ef ficiency and Li quidit
y Ratios oft wo banks (Islamic and
conv entional)iscal cul
atedandt hencompar ed.Thef oll
owingr atioswer e
calculated:measur est hesuccessabankhasi nusi ngitsassetstoear nprofit.
Tot alassetsar ef inancedbyt hecr edit
ors,depositorsandt heshar ehol
der s.
Interest(profiti
nt hecaseofI slami cbank)isthei ncomeear nedont hemoney
prov i
dedbyt hecr editor
sanddeposi torsandneti ncomei stheprofitavai
lable
tobedi stri
butedt ot heshar ehol ders.So,theinterestexpenseisaddedbank
tot heneti ncomebecauset hisexpensei salsot hereturnearnedont he
asset sbyt hebusi ness( banksi nourcase) .Theav erageofthetotalasset sis
takent ogetar epresentativ
e.

4.
3 Popul
ati
onandsampl
e

Ourpopulationcont ai
nsalltheI sl
amicbanks( i
nt hecategoryofI sl
amic
bankingofouti ndependentvari
able)andalltheconventi
onalbanks( i
nthe
Conventi
onalbankingcategori
calvari
able“
BankingSystem”)inPaki
stan.The
fol
lowingfourbanksareselect
edfortheassessment.

5:
Dat
aanal
ysi
sanddi
scussi
on

Respondent '
schar acteri
sticsar eani ntegralpartoft hestudyt ocat egorize
thesampl ebanks( Fig.1).I nor dertov erif
yt hesampl eofobser vati
onf or
respondent sofI slami cbanksandconv entionalbanks, t
 -
testsf oral litems
wereconduct ed( Samad&Hassan,1999) .Ther esultsshow t hatal loft he
vari
abl esexceptROACB  andROEIB  ofbot hgroupsar esi gni
fi
cantat. 05level.In
termsoft hegr oupmeanofunder ly
ingi t
ems,t her esult
si ndi
cat et hatt he
meanscor esofconv ent
ionbanksar ehi ghert hant hatoft heIslami cbanks
respondent s.representst hev aluesoft hismeasur edur i
ngt hest udyper iod
forbot ht ypesofbank( Isl
ami candconv entionalbank) .Thisv aluewasv ery
high int he under l
yi
ng y earofouranal ysis( 0.0363 or3. 63%)f ort he
conv entionalbankwhi chi sSt andar
d Char tered Banki nt hest udy ,buti t
declinedwi thav eryfastpaceandcamenear0.Thi shugedecl inewast he
resultofgl obal f
inancialcrises.But,asitisclearthatt hevalueoft hisr ati
o,for
theIslami cbanks, hasnotdecl inedatt hatrate.Infact,itwassl i
ght l
ychanges
duringt hest udyper i
odandt hent herewasasl i
ghtdecl i
ne.Thi sshowst hat
theIsl
amicbankingwasnothi tbythefi
nanci
alcr
isestotheext
entithitt
he
conventi
onalbanks.Al
thoughitwasnotthatmuchhighinthest
art
ingperi
od
fortheIslami
cbank,buti tremainedal
mostconstantduringt
heperiodof
study.

5.
1 Regr
essi
onmodel

Manyr esear chesbydi fferentaut hor si ndi ff erentpar tsoft hewor l

dconcl uded
thatI slami cbanki ngi ssuf feringf rom excessl i
quidityasdescr ibedi nsect i
on
ofl iteraturer ev i
ew,t oanal ysisandt estt hei mpactofbi gliquidi
tyr atio,the
ratiot hatenhancet hecust omert rustonbank( Samad&Hassan,1999) ,the
hy pot hesist est ingi sdonebyr egr essi on.
Tabl e2  forI slami cbankr egr essi onf orCTDshowst heest i
mat ed R squar eis
.994, indicatingt hat99. 4%changesi nCTD( dependent )isduet ochangi ngin
i
ndependentv ariable ar er el iabl e.Mor eov er,t he r esultshows t her ei s
signi fi
cantv ar i
abl es thati nf luences pr of itabili
tywi thr espectt o CTD f or
Islami cbanks.TheDur bin–Wat sont estr esul tsare2. 885;whi chi mpl i
est hat
ther ei s no aut ocor relati
on among t he r esi
dual sf rom t he r egr ession
i
nv est igation. f or conv ent i
onal bank r egr ession f or CTD shows t he
est i
mat ed R squar eis.991, indi cat ingt hat99. 1%changesi nCTD( dependent )
i
sduet ochangi ngi ni ndependentv ar iablear ereliable.Mor eover,t her esult
showst her eissi gni f
icantv ar iabl est hati nfluencespr of i
tabil
itywi t
hr espectt o
CTDf orconv ent ionalbanks.TheDur bi n–Wat sont estr esultsar e2.870; which
i
mpl ies t hatt herei s no aut ocor r
el ation among t he r esidualsf rom t he
regr essioni nv est igat i
on.
6:
  Summar yandconcl usi on
Thepr esentst udyi sconduct edt oempi rical l
yt estt hatwhet hert her ei sany
differencei nt heper f
or manceoft heI slami candconv ent i
onalbanki ngwi th
respectt ot hecust omerdeposi tofeachbank.Thesecondar ydat ai st aken
from t heannualr epor tsoft heconv ent ionalandI slami cbanks.Mostoft he
dat awasav ai l
abl eont heof ficialwebsi tesoft hebanks.Thedescr ipti
ve
anal ysisofdi ff erentpr of i
tability, effici encyandl i
qui dit
yr ati
osi sdonef orbot h
cat egor i
esoft hebanks.Theanal y sisoft hedat aaccept snul lhypot hesest hat
theI slami cbanki ngandt heconv ent i
onalbanki ngar edi f
ferentf r om each
otheri nt ermsoft heirper f
or mance.Butmostoft heper formancemeasur es
areshowi ngaposi ti
vet rendf ort heI slami cbanki ng.Thi sshowsagr owt hof
theI slami cbanki ngi ndust ryast heI slami cbanki nourst udyisshowi ngbet t
er
per formancet hant heconv ent ional banki nt hel atery ears.

Thefut
ureofIslami
cbanki
ngseemsbrightert
hantheconvent
ionalbanki
ng
astheresul
tsshow t
hatt
heIsl
amicbankingisnotsuf
fer
edfrom theglobal
fi
nanci
alcri
sistotheext entconventi
onalbanki
ngissuf fer
ed.Ther esul
tsof
thi
sstudyar
ei nparall
eltostudyof 
NawazandBar dai(2017) and Bukhari
etal.
(2014)
,banking st rat
egies can be bui l
t ar
ound t he si gni
ficance and
i
mpor t
anceofcertainfi
nancialr
ati
os.Af ut
urest
udybasedonal argersample
andmor eadvancedst ati
sti
caltool
scov eri
ngallfi
nancialratiosofPakistan
wouldhaveall
owedusamor epowerfulanal
ysi
s.
6:
Conf
li
ctofi
nter
est

Theaut horshav enoaf fi

l
iati
onswi thorinv ol
v ementinanyor ganizati
onor
enti
tywi th anyf i
nanci
ali nterest(such as honorari
a;educationalgr ants;
parti
cipat
ioninspeakers’bur eaus;Member ship,employment,consultancies,
stockowner ship,orotherequi t
yinter
est;andexper ttesti
monyorpat ent-
l
icensingarrangements),i
nt hesubjectmat terormat er
ial
sdiscussedi nt hi
s
manuscr i
pt.

7:
Visi
onst
atementofbank

ABSTRACT

Shar iah f inanci al i nstit

ut i
on i n I ndonesi a gr ows f ast. Howev er,t he
consider ati
onofI slami cbankt hathasnotf ul f
il
edt hecr i
teri
aofshar i
ahi sst il
l
occur .Theassumpt ionwhi chi sdev elopedi sbecauseav ai
lableIslamicbank
hasnotsui t
abl ey etwi t
ht hev isi
onandt hemi ssi onofshar i
ahf inanci al
i
nstitutionatt hebegi nningofI sl
ami cer a.Iti sbecomet hebackgr oundoft his
study.Thi sst udyt racedbackhow t hev isionandt hemi ssionoff inanci al
i
nstitutionofRasul ullahandKhul afurrasy idiner abyusi ngLi braryResear ch
met hodi nwhi chi tt racedv ariousf actsoft hev isi
onandt hemi ssiont hrough
theliteraturer ev i
ew.Theanal ysismet hodsoft hisst udyi susingt heCont ent
Analy si
s and Compar ati
v e met hod.The dat af rom t he lit
eraturer ev i
ew
concer n wi tht he v isi
on and t he mi ssion off inanciali nsti
tution att he
Rasul ull
ahandKhul afaurrasyi
di neraar ebei ngcompar edwi t
ht hev i
sionand
themi ssionofI slami cfi
nanci alinstitutionespeci all
yI slamicbank.Bot hof
them hav ethesi mi l
ar it
ywhi chi sbeingt hei ntermedi ati
onbet weensur plusof
fundanddef icitoff und.Thedat aoft hi sst udyar etakenf r
om t hesampl eof
topt hreeofI slami cbanksi nI ndonesi aatt hey earof2014,suchasBRI
Syariah, BNISy ariahandBankSy ari
ahMandi ri
.Thi sst udyf i
ndst hatthev ision
andt hemi ssi onofI slami cbanki nI ndonesi ahasnotsui tabley etwi t
ht he
vi
sion and t he mission of financi
al inst
it
ution at Rasul ull
ah and
Khulaf
aur
rasyi
dinerainwhichconcernswiththeimpr ov
ementoft hepeople
welfar
eandnotmer el
yconcer
nwi t
ht hecompanybenef i
cial
.Theresultofthi
s
studyisbeingexpectedcoul
di mprovesthescientif
ictreasur
esofI sl
amic
bankandalsochangestheparadi
gm ofIsl
amicbakingmanager .
7.
1:I
ntr
oduct
ion

I
. Inanor gani zat ion, companyori nstitut i
ont her eisal way sbev ision
andmi ssi on, incl udi ngI slami cf i
nanci alinst i
tut ions: Islami cbanki ng.
Visionandmi ssi onar enotj ustasetofwor dsorcompl ementan
organi zationorcompany ,butav it
al par toft heest abl ishmentoft he
organi zationandi tsbusi ness.Wi tht hev isionandmi ssi onoft he
companycanf ocusmor eonwhatt ot ar getandexpl ai nt hei nl ong-
term andshor t-term pur pose.Vi sioni snotj ustagoal orast atet obe
achi ev ed, butt her ei sal soaneedi nt hev aluesandaspi r ationsoft he
futur e.Thev isionandmi ssionoft hecompanywi l
l uni fyt hev arious
element sofmot ionst epsbot hi nter nal andext ernal relat edt ot he
cor por ateent ity.Sev eral paper shav eexami nedt hei mpor tanceof
visionandmi ssi on.Vi sioni saser iesofsent encest hatexpr ess
i
deal sordr eamsofanor gani zat i
onorcompanyt hatwant st o
achi ev ei nthef ut ur e.Kot ler(1997: 69- 70)st at est hatt he
organi zation'smi ssi ondev elopedbyt hecompanywi llber efer redby
manager s,empl oy ees, andcust omer s.Agoodmi ssi ongi v es
pur pose, direct ion, andoppor tuniti
esf orwor ker s.Thi smi ssion
becomes" i
nv isibl ehand"t hatgui desf orgeogr aphical lydi sper sed
wor ker snotonl yt owor ki ndependent lybutal socol lect ivel ytowar ds
ther eal izationoft heobj ect i
vesoft heor gani zat ion.Soi tcanbe
concl udedt hatt hemi ssi oni sast atementofwhatshoul dbedoneby
theagencyi ni tsef for tst or ealizet hev i
sion.I noper ation, peopl ear e
guidedbyt hemi ssi onst at ementast her esul tofacompr omi se
i
nt erpr etat i
onf rom Vi sion.Themi ssi oni ssomet hingt angi bl
et oai m
andcanal sopr ov i
dei nst ructionsout lineofhowt oachi ev eVi sion.I n
thecont extofI ndonesi anI slami cFi nanci al I
nst i
tutions, someof t
he
thingst hatmakest hedi scussi onaboutt hev isionandmi ssi onoft he
companyi si mpor tantt odo, especi allyint hecont extoft hi sst udy ,
 thevisionandmi ssionoft heIslamicbanksinIndonesi aisnow
growingr apidl
y.IfcontextualizedinIsl
amicFinancialInsti
tuti
onsby
exami ningthephenomenonoft heprol
ifer
ati
onofav ariet
yofnews
thatsay sIsl
ami cf i
nancialinsti
tut
ions,
mor especifi
callyisinIsl
ami
c
banking, i
salthoughl abeledShar i
abuttheynotdemonst r
ate
conformi ty
,obedi encetoShar ia.I
tcanbeconcl udedt hatIsl
amic
banksar ealmostt hesameasconv ent
ionalbankswhi chuset he
usurybanki ngsy stem.
8:
Visi
onandMissi
onThr
eeI
ndonesi
anI
slami
cFi
nanci
alI
nst
it
uti
ons:BSM,
BNI
Sy
ari
ah,andBRISy
ari
ah

1.BankSyari
ahMandi
ri
a.Vi si
onLeadt
hedev el
opmentofeconomicnobleci
vil
izat
ion.b.Missi
on1)
Achievegr
owthandprofi
tabi
l
ityabov
ethei
ndustr
yaveragesustainabl
e.
2)Pr
ior
it
izef
undandt
hedi
str
ibut
ionoff
undi
ngt
otheUMKM segment
.
3)Dev
elopat
alentmanagementandheal
thywor
kenv
ironment
.
4)I
ncr
easi
ngconcer
nfort
heenv
ironmentandsoci
ety
.
5)Dev
elopuni
ver
sal
val
uesofshar
ia
2.BankNegar
aIndonesi
aSy
ari
ah
a.Vi
sion
Publ
i
cchoi
cei
ntoashar
iabankt
hati
sexcel
l
encei
nser
viceandper
for
mance
b.Mi
ssi
on
1)Makeaposi
ti
vecont
ri
but
iont
osoci
etyandcar
efort
heenv
ironment
.
2) Provide solut
ions f
or t
he communi
tyt
o t
he needs of I
slami
c
banki
ngserv
ices.
3)Pr
ovi
deopt
imal
inv
est
mentv
aluef
ori
nvest
ors.
4)Cr
eatethebestr
idesasaplaceofpri
def
ort
hewor
kandachi
evementf
or
empl
oyeesasamanifest
ati
onofworshi
p.
5)Bei
ngont
hel
eadi
ngcor
por
ategov
ernancemandat
e.
8.
1:I
slami
cFi
nance
HistoryandDev elopmentoff inanceandconv ent i
onalf inanci ali nst itut ions
from t imet ot imei sr apidlyi ncr easi ng,manychangesandi mpr ov ement s
from v ar i
oussi des.Nei theroft hesy st emsofusur y/i nt er est/i nt erestr ate
used,dev elopmentagenci esandot herr oles.Hi st or yhasr ecor dedi t,rangi ng
from anci enteconomi cexper t
swhol at erdev el opedf ur therbyhi sf ollower s
unti
lt he economi c exper tsi n moder nt imes.The sy st em off inanci al
i
nstitutions,ormor e speci fi
cal lyr efer r
ed t o ast he r ul esconcer ning t he
fi
nanci alaspect soft hef inanci almechani sm sy stem acount ry ,hasbeen
i
nstrument ali nt he smoot hr unni ng ofa count r
y '
s dev elopment .I n an
economyofI sl am wasso,hi stor yhassai dt hatt hef inanceandf inanci al
i
nstitutionscanal way sev olvet of i
tt heci r
cumst ances.Asagl obalpi cture
canbeobser vedi nt hehi storyoff inanceandf i
nanci ali nst itut i
onst imeoft he
Prophet ,Cal iphs Rasy i
din,af terCal iphs Rasy idin,I sl ami c count ri
es post
cali
phat e,andi nI ndonesi a.Fi f
t eencent uriesagot her ewasnocl earconcept
ofhow t ot akecar eoff i
nancesandt hecount ry '
sweal thi nanypar toft he
world.Thegov er nmentofacount ryist hebodyt hati sbel iev edt obet hesol e
admi nist ratorofst at easset sandf i
nances.Pr opheti st hef irstheadofst ate
toint roduceanew concepti nt hef ieldofst at ef i
nancesi nt hesev enth
century ,thatar eal lther esul toft hecol lectionoft hest at eshoul dbecol lect ed
i
nadv anceandt heni ssuedi naccor dancewi t
ht hecount ry'sneeds.Themai n
coll
ect ioni sownedbyt hest at edoesnotbel ongt oani ndi vi
dual .These
coll
ect ionpoi nt sar ecal l
edBai t ulMaalort reasur yTheconceptofI slami c
fi
nanci ali nstitutions expl icit
ly notcal led int he Qur 'an.Buti ft hatt he
i
nstitution meant i t somet hing t hat has el ement s such as st ruct ure,
management ,funct ionsandr ight sobl igat i
ons, t
henal lt heagencyr efer redt o
expli
ci tl
y .Wor dssuchasf ami ly,communi ty( communi tygr oups) ,gr andi ose
(government ),bal lads( thecount ry),thesuq( mar ket )andet c.ident i
fiest hat
theQur '
ansuggest st hatt henamesoft hef unct ionsandspeci fi
cr olesi nt he
developmentofsoci ety.Si milar l
y ,concept st hatr efert ot heeconomy ,such
aszakat ,sodaqah,ghar imah,mal lsandet chav et heconnot ationoft he
functionsper for medbycer tainr oles.Li kewi se,I slami cbanki ngpr inci ples
requiret hatf inanci alt ransact ions backed bygenui ne t rade act ivities by
businesses.Fi nancef ornon-busi nesshasacor relationwi t hsuchact iviti
es
suchasf or ei
gnexchangespecul ation, fi
nanci alnon-pr oduct i
vemani pul ation
arenotexcl uding.
8.
2:Fi
nanci
alI
nst
it
uti
onsi
nthePer
iodofPr
ophet
Int heer abef oret hecomi ngoft hePr ophetMuhammad, t
heAr abcommuni ty
has been known as a v ery accompl ished t r
ader .They per form t radi ng
act iv i
tiest ov ar i
ouscount riesout sidet heAr ab:Cont inentofAf r
ica,Cent ral
Asi a,and Sout heastAsi a,t o Eur ope.Thei gnor ancei nt hepast ,t radi ng
sy st ems( economi c)awayf r
om t hepr inciplesofj ust i
ce.Tr ader sseekt o
pr of i
tmaxi mizat i
onr egar dlessofwhet hert hei ract ionswer er ightorwr ong.
Thus,whenI slam came,al lf or msoft radef orbot hi ti sagambl e( may si
r),
uncl ear( ghar ar )andi nt erest s( riba)ar ev ani
shed.Ther efore,itisagai nstt he
Islam wayofl ifewhi chi sr ahmat anl i
l'al ami n,f airandt r
anspar ent.Theear ly
day s oft he apost ol ate,y ett her ei s an I sl ami cf inanci ali nstitut i
on t hat
regul atest r
adi ngsy st em sy stemat ically,butal way sr eferst other ev elat i
on
Il
anhi .Heal way spr act icedt radingsy stem wi tht heai m ofhel pingt heweak
(poor ).The new Pr ophetbegan t ol ook att he economi c and f i
nanci al
pr obl emsoft hest ate,af terhecompl etedt hepol i
t i
calandconst itutional
af fairsi nMadi nai nt heear lyday sofmi gr
at ion,namel yt hepostmi gr ated
from Mecca t o Medi na af ter t hirteen y ear si n Mecca.The Pr ophet
Muhammadpost -arri
v alt ot heci tyofMedi na,i nashor tt i
met heci tywas
pr ogr essi ngr api dly.Pr ophetmanagedt ol eadt heent i
recent ralgov ernment
Medi na,appl y i
ng t hepr inci plesi nt headmi nistrationand or gani zat ionof
i
nst itution-buildi ng i nst it
ut i
ons, di r
ect ing f or eign af fairs, gui ding hi s
compani onsi nt hel eadandul ti
mat elygav euphi sposi tioni nf ull
.Att het i
me
oft hePr ophetMuhammad, itwasseenf rom pol i
ciesandpr acticesr elat edt o
pol iticalandeconomi cappl i
edbyhi m andhi scompani ons.Regar dingpubl i
c
financesatt het imeoft hePr ophetwasadepar t
ur ef rom hi sposi tionast he
headofst ate.Li kewi sewi tht hef ri
endsRashi dun,al sopl acedast heheadof
stat ebecause,t heposi tion ast hehead ofst atewasi dent icalwi tht he
posi tionofser vingt hepubl ic.

9:
Visi
onMi
ssi
onSui
tabl
ytheShar
iaFi
nanci
alI
nst
it
ute
From thehist
ori
caldevelopmentoff i
nanci
alinst
itut
ionsthatbuil
tupduring
t
heProphet,wecanseehowt hev
isi
onofaf i
nancialinst
it
uti
oninaccordance
wi
thsharia.Vi
sionisani mageoft heshapeormodeloff i
nancebui
lt
,whi l
e
t
hemi ssionisabr eakdownofv i
sionthatisbuiltintoaki ndofcommon
t
arget
st obeachi evedbyt hecompany .Att het i
meoft heProphetand
rashi dunl ooksv eryclearv isionandmi ssi
onoff inanciali
nst i
tuti
ons.Vi sionis
const r
uctedf rom af i
nanci ali nsti
tutionatthet i
meoft hePr ophetsur rounded
byI slamicv alues.Vi sion was f ol
lowed byt he Caliph af t
ert he Pr ophet
Muhammad, AbuBakrAssi diq, Ummari bnKhat tab,Uthmani bnAf fanandAl i
i
bnAbiTal ib.It'
sjustt hatt her ear econst ructionRasul ulahv isiondi f f
erent
mi ssionsbet weenKhul afurrasy i
din.Eachbui ldingadi f
ferentmi ssion.The
mi ssion wasbui ltand based on t hecont extoft heci rcumst ancesofa
differenter a.From thedescr i
pt i
onoft hevisionoff i
nancialinsti
tutionsatt he
ti
meoft hePr ophetandt heCal i
phwhohav ei ncommon, thent hatv i
sioni sa
form ofI slamicf i
nanci alinst it
utionsbasedonI slamicv aluesar eequi table,
transpar ent,account able,andef ficientthusi mpr ov i
ngt hequal ityofsoci al
and economi cl ife ofsoci ety,whi ch int urn can r educe soci o-economi c
dispar it
ies.Whi lethefinanci alinst i
tuti
on'smi ssionov ervi
ewbui l
tinev eryage
are:
1.Themi ssi
onoff inanci
ali
nstit
uti
onsatthetimeoft heProphet:a.Bui
ldi
ng
fi
nancialsystemst hatmandat easy st
em thatisfai
r,tr
ansparent,openand
fai
r.b.Buil
dingaf i
nancialsy
stem ori
entedi
nsti
tuti
onstohelptheweak( poor)
andtheoppr essed.
2.Themi ssionoff i
nanci
alinst
it
uti
onsatt hetimeofAbuBakrAssi
diq
Enfor
cingfi
nancialinsti
tut
ionsasamy lthat
serv
esasthecl
erkt
ookzakat
fundsandchanneli
ngzakat,inf
aqandSadaqah.
3.Themi ssi
onoffinanci
ali
nsti
tut
ionsatt
heti
meofCal i
phUmar
.Creat
inga
soci
alsecuri
tysy
stem inthefor
m ofbenef
it
sforpeopl
ewhoarenotcapabl
e
ofcr
eati
ngequaljusti
ce.
4.Themissionoff i
nanciali
nst
it
uti
onsatt
hetimeofCali
phUthmanbinAffan
Makingaf i
nancialinsti
tuti
onasacenterofeconomicdynamicsofsociet
y
star
ti
ng fr
om t he leaderdown t othe small
estcommunity wi
th st
rong
admini
str
ati
v eorganizat
ion.
5.Themi
ssi
onoff
inanci
ali
nst
it
uti
onsatt
het
imeofCal
i
phAl
ii
bnAbi
Tal
i
b.

6.Fr
om thedescri
pti
onoft
hevisi
onandmissi
onment i
onedabove,t
hereare
si
gni
fi
cantchangesinthel
if
eofst at
eandsociety
.Theimmediatebenefi
ts
ar
efoundont hevisi
onandmissi
onofIsl
amicf i
nanci
ali
nst
it
uti
ons,among
ot
her
s:
a.I
mpr
ovi
ngt
hequal
i
tyandquant
it
yofbusi
ness
b.I
mpr
ovi
ngempl
oymentoppor
tuni
ti
es
c.I
ncomegener
ati
ngl
ots
d.Increasi
ngt hepart
ici
pationofmanypeopl einthedev el
opmentprocess,
especial
l
yint hefi
eldoff i
nancialeconomicswhoisknownt herear
emany
peoplewhoar erel
uct
antassoci at
edwi t
hbanksorotherf
inanciali
nst
it
uti
ons,
becauseitassumesthatinteresti
sRiba.
e.Educateand gui
dethepubl
ictothi
nkofIsl
amiceconomi
cs,I
slami
c
busi
nessesbehav
eandi
mprov
ethequal
it
yofl
i
feoft
hepeopl
e.
Concl
usi
on

Islami cf i
nanci alinstituti
onshasbasi cal
lybeenar oundsi ncet het imeoft he
prophett hati sr eali
zedi nt hef orm oft heBai t
ulMaall aterwasconf i
rmed
duringt hel eader shipofI slam af t
ert hePr ophetMuhammad' sAssi diqCal i
ph
AbuBakr ,Umar ,Uthmani bnAf f
an,andAl ibi nAbiTal i
b.Then,f inanci al
i
nst it
ut ionssuchmodel swasf orwar dedbyt heCal iphUmarbi nAbdulAzi z.
Financi ali nst i
tutionsar ebuiltent ir
elyasi ntendedandi sor ientedi nst i
tut i
ons
toimpr ovet hewel fareofsoci ety.Thi sisthev isi
onandmi ssi onofI slamic
fi
nanci alinst it
ut ions.Att hepr esentt ime,Islami cbanki ngi nI ndonesi ahasa
vi
siont hati sst il
lnoti naccor dancewi ththeI slamicf ramewor ki ndev eloping
av isionofI slami cfinancialinst it
utions.Thi sisev identf rom t hedescr i
pt i
on
ofav isiont hathasnotdemonst ratedf ul
fi
lmentoft hef unct ionsoft heact ual
Shar i
a ofr ealizing t he wel far e and benef itofsoci etyt hr ough f inanci al
i
nst it
ut ions.I slami c Banki ng i nI ndonesiat oday is st il
la pr of i
t-oriented
maxi mi zationorgai nmaxi mum benef i
t.Thisr esult
edi nmanypr acticesused
cont racti sst il
lwear i
ngt heconceptofcapi tal
ism ort heaccumul ationof
capital /capi tal asmuch.Notsur pri
singly,manyoft hecont ractpr acticest hat
arei nconsi stentwi thShar iabecausei ti
sdesi gnedf ort hebenef itofcapi tal
al
one.I ndeedt her ezakatbutt henumber sdonotsi gnif
icantt oi ncr ease
social wel far e.

10:
Missi
onst
atementofAsi
anI
slami
cbank
Microfi
nancehasbeen identi
fi
ed asan importantpoli
cyinst
rumentthat
all
owsgr eaterfi
nanci
alandsociali
ndependenceforwomenandpoorby
faci
li
tat
ing access tofi
nanci
alservi
ces fort he poor
estand dest
it
ute.
Mi crof i
nanceinst i
tutions( MFI s)hav emost lyahi ghconcent rationofwomen
benef i
ciar
iesandai m atal lev i
ati
onofpov ertyi nallitsf or ms.Accor dingl y,the
pr i
ncipalpur poseofmi cr ofinancei nstituti
onsi stobesoci alper formi ngby
reduci ngpov erty.Howev er ,theyhav et or econci lethisobj ectivewi thf i
nanci al
per formancebyt ryingt obepr ofit
abl eandsust ai
nabl e.Onot hersi de, Islami c
Mi crof i
nancehasgr owing pr ogressi velyi nt hewor l
d,par ticul arlyi n poor
count ri
es,as cr edible alternat i
v e whi ch al lows poorpopul ationst o hav e
accesst obasi cf i
nanci alser vi
cesatl ow cost .Thei ntegrat i
onofI slami c
finance concept st o mi crof i
nance was one oft he v aluabler easons i n
at tr
act i
ngpoort ogetadv ant ageoft heseser v i
ces.Wher east hecompl exityof
thesemet hodsi nmi crofinanceandl ackoft ranspar encyi npr of itdi str
ibut i
on,
ther ear esomechal lengesaboutt heiref ficiency .Itist heref or eofut most
i
nt erestt o consi deri ft hef i
nanci alper for manceofI slami cmi crofinance
i
nst ituti
onswi llbenegat ivelycor r
elat edwi tht hedept hofout reach.Theai m
oft his paperi st o exami ne t he per f
ormance ofI slami c mi crofinance
i
nst ituti
onsincompar i
sonwi t
hconv entionali nst i
tuti
ons.Thi sst udyf ocuses
anal ysison t heMENA r egion,wher eal argepr opor t i
on oft hepoorar e
pr actici
ng Musl i
msand ar et husunabl et ot akeadv ant ageoft r
aditional
mi crof i
nancecont ractswhi char ei ncompat i
bl ewi thShar i
a’ .Usi nganon
par amet ri
cdat aenv elopmentanal ysis( DEA)t oest imat et heef ficiencyoft he
mi crof i
nancei nstit
ut i
ons,ourst udypr ovidest heempi r
icalev idencef rom
Islami candconv entional mi crofinancei nstitutionsi nMENAr egi on.

10.
1:I
ntr
oduct
ion
Thepr ovisionoff inancialser vi
cest othepoorst imul atesl ocaleconomi esby
i
ncreasinghousehol di ncomeandt heref
or ecreatingdemandf orothergoods
andser vi
ces.Howev er,thepoor estmi ghtnotpar tici
pat et othedev el
opment
processbecauset heyar eexcludedf rom thef i
nanci alsy stem.Wi t
hnoaccess
tofinanci
alser vi
ces,t hesehousehol dsfinddi ffi
cul t
iest obui ldasset sort o
fi
nancet heirchi l
dren’seducat i
on.Ther efore,financi alexcl usi
onbi ndst hem
i
nto v ici
ous ci r
cle of pov ert
y( Obaidull
ah &Khan, 2008) . Conversely
,
microfi
nancei mpl iespr ov i
sionoff inancialservicest opoorandl ow-income
peoplewhoar eexpel ledf rom formalf i
nanci alsy stems.Accesst oservices
suchas,cr edit,savings,v enturecapitalandi nsurance,i spr ovi
dedt oami cro-
scaleenabl ingpar ti
cipationoft hosewi thsev erelyl imitedf i
nancialmeans.
Thepr ov i
sionoff inanci alser vi
cestot hel ow i ncomepeopl ehel pst hus,t o
reduce t heirv ulner abili
ty by i ncr
easi ng t heiri ncomes and t oi mpr ov e
economi csecur i
ty.Mi crofi
nancehasbeeni dent if
iedasani mpor t
antt ooli n
suppor ting and st rengt hening the economyatt he bot tom oft he soci o-
economi cpy r
ami dbyf acil
it
atingaccesst of inanci alser v
icesf orthepoor est
anddest itute.Mi crofinancegener al
lyr eferst ot hepr ov i
sionofabr oadar ray
off i
nanci alser vices i ncluding,credi t,pay ment s,sav i
ngs,and i nsurance
tai
loredt omeett hepar ti
cularneedsofl ow i ncomehousehol dsandt heir
InternationalJour nalofBusi nessandmi cr oent erpri
ses.I tal sohel pst hem
prov i
dingabet terl i
fecondi ti
onbyi ncreasi ngt hehousehol dr ev enuesandj ob
creation f ormi cro-ent repreneurs.The pr incipalpur pose ofMi crofinance
i
nst i
tutions ( MFI )i st hus t o be soci alper formi ng by r educi ng pov er ty
.
Howev er,t heyhav et or econcilethi
sobj ectivewi t
hf inancialper formanceby
tryi
ngt obepr ofi
tabl eandsust ai
nable.Mi cr of i
nancei nstit
utionshav emost l
y
ahi ghconcent rationofwomenbenef iciari
esandai m atalleviationofpov erty
i
nal litsf or ms.Accor dingly,Mi cr
ofi
nancehasbeenr ecogni zedwor ldwideas
ani mpor tantpolicyi nst rumentwhi chal l
owsf orgr eaterfinanci alandsoci al
i
ndependencef orwomen.

10.
2:I
slami
cMi
crof
inance
Mi cr
ofinance hasbeen i dentif
ied asan i mpor tantt oolini ncreasing the
productivi
ty of t he poor and i n enhanci ng economi c dev el
opment .
Microfi
nancemeans“ progr am whichext endssmal ll
oanst ov erypoorpeopl e
forselfempl oy mentpr ojectswhi chgener atei ncomei nall
owi ngt hem t otake
careoft hemsel v
esandt heirfamili
es”(Mi crocr edi
tSummi t,1997) .Howev er
,
l
argepr oportionsoft hepoorar epr act
icingMusl i
ms,andar et husunabl et o
take adv antage oft raditionalmi crof
inance cont r
acts whi ch i nvolvet he
paymentofi nterest( ElKommi &Croson,2012) .Accor di
ngt oAbdulRahman
(2007),Islami c Mi crofinance has an i mpor tantr olef orpr omot i
ng socio-
economi cdev el
opmentoft hepoorandsmal lent repreneurswi t
houtchar ging
i
nterest( ri
ba) .Givent hemor alandet hi calat tri
butesofI slamicf inancing
schemes, microent repreneur swill
bemot ivatedt osucceed.

10.
3:Pr
inci
plesofMi
crof
inance
Thef irstexper
imentofmi cr
ofinancewasinBangl
adesh,i
tstart
edin1976
aft
ert hewi de-
spr
eadf aminein1974.Then,theideaofmi cr
ofi
nancehas
spreadgloball
yinpoorcountr
ies(Afri
ca,
Lat
inAmeri
ca,andAsi
a)aswellasi
n
ri
chereconomi esl ikeNor way ,theUnitedStates,andEngl and.Micr ofi
nance
aimst of i
nancemi croent r
epreneursandpoorbysmal lloans.Thet ermsand
conditi
onsoft hesel oansar e generall
yf l
exible and easyt o under stand.
Mor eover,loansar egi venwi thoutcollater
alorguar antorandar egener all
y
basedont rust.Giv entheat t
ribut
esofmi crof
inance,i tisconsideredasan
alt
ernativeformi croent repreneurswhoar enoteligibl
et oreceiv
el oansf rom
commer ci
albanks2.Ther efore,potenti
albor rowerneedsonl yt oj oint he
reci
pientgr oup ofmi crofi
nance i n ordert o obtainl oans among gr oup
member s.Then,new smal lloanswi l
lbegi venaf terthepr evi
ousl oansar e
repaid.

10.
4:I
slami
cMi
crof
inance
Whi chdi f
ferences?I slami cmicrofinancer epr esents“theconf luenceoft wo
rapidlygr owi ngsect ors:mi crof
inanceandI slami cf i
nance”( CGAP,2013) .As
Islami cfinancesect or,referstofinancialsy stem basedonShar i
a’.Thest ri
ct
pr ohibi
tionofpay i
ngorr eceivi
nganyf ixed,interest(ri
ba)i sthemostwi dely
known f eature oft hisf i
nancialsy stem.Ther efor
e,I slamic mi crofi
nance
i
nst itut
ionsshoul doper ateont hebasi sofpr ofit
.Inthev einofI slamicbanks,
thesei nst i
tutionscanear npr of
it
si nthreear eas:t r
ading,leasingandbydi rect
financingi nPr of
itLossShar i
ng(PLS)cont acts( Al-
Omar&Abdel -Haq, 1996).

10.
5:Shar
ia-
compl
ianti
nst
rument
sofmi
crof
inance
Islamicfinanci
alsystem provi
desanar r
ayofinstr
umentsandmi crof
inance
products which are conform to nor
ms inI sl
amicfinance such as t he
prohibi
ti
onofr iba,ghararanddarar.Accor
dingtoCGAP( 2013),Mur abaha
andQar d-
Hassanl oansarethemainIsl
amicfi
nancingpr
oductsfort hepoor.
-Mi cro-savi
ngs:Poorpeopl e wantto save and t hei
rsav i
ngs willbe
considered as investmentsf orIsl
amic MFIs.Theymake i nvest
ment s of
depositswhi char econsistentwiththeprinciplesofI sl
amicreli
giouslaw
(Shari
a).Thepr of i
tsandl osseswi l
lbeshar edbet weent heMFIandt he
customeri fthe productofdeposi tis mudar aba.The deposit
s are al
so
i
nv est
edonmushar akaortakaful
.
-Micro-
credit
:Mi cr
o-cr
editisconsideredasanal t
ernat
ivetomi cro-
credit
offer
ed byconv enti
onalmi cr
ofi
nancei nsti
tuti
ons( MFIs)
.Cont r
aryt ot hi
s
credi
tthatviol
atest hefundamentalprohibi
tionofr iba,I
slamicMFIal lows
customerstheacqui si
ti
onofasset st hatar er equi
redtot hei
rpr oductiv
e
acti
vit
ybygi vi
ngthem forrent.Tof i
nancet heseacqui
siti
ons,MFIsusea
vari
etyofShari
a-compli
antmechanisms,suchas, qar
dhasan, mur
abahawit
h
bai-
bit
haman-aji
l
,ij
ara,bai
-sal
am etc.Allthesemodescr eatedebtfort
he
customerbypayingthepri
ceofassetswithgrossmargin.
-Mi cro-lease:Mi crofi
nancei nsti
tuti
ontoler
atesitscli
entusingitsassets.
Contrarytoconv enti
onallease,ther i
sksareveryhightotheinsti
tut
ionwhich
takesont heresponsibil
i
tyal ldamagesi nvol
untarycausedt oit
scust omer.
Thei deai stoav oi
dt hatleaseholdisconsideredasasal et r
ansacti
onwith
i
nterests.Besides,t
hemodal i
tiesofleasi
ngcontractar
edefinedinadvance.
-Mi cro-t
akaf ul
:Forprotect
ionagai nstunpr edict
edr i
sksbybor rowers,micro-
i
nsur ancewoul dt aketheform ofmi crotakafulbasedonmut ualguarantee.
Thecont ri
butionofeachmembert oi nsurancef undhel psthem toi mpr ove
prevent i
on tor isks and strengthen the secur i
tyofbor r
ower s.Thisf und
compensat es bor r
owers who f ace emer gencies—such as f i
re, flood,
agricultur
allosses,anddeat h—t hataffecttheirbusinesses.Premiumswi l
lbe
i
nv estedinor dertobedi f
fer
entt ointerestmechani sm.

11:
Dat
aandMet
hodol
ogy
DataofMFI s:Accor dingt othe2013CGAPf ocusnot e, t
herear e255f i
nancial
servicepr ovidersof feri
ngShar i
a-compl iantmi crofi
nancepr oduct sar oundt he
world.Appr oximately28per centoft hesepr ovidersar econcent r
at edi nthe
Middl eEastandNor t
hAf ricawhi chisoneoft hetwor egionsr epr esenti
ng
al
most92per centofal lprov iders( SeeIt’
susef ultoremi ndt hatt heobj ectiv
e
oft hi s paperi st o exami ne t he per formance ofI sl
ami c mi cr ofi
nance
i
nstitutionscompar edt oconv entionalMFI sduringtheper i
od2005- 2010.The
met hodol ogy used t o anal yze t he ef fi
ciency i sthe non- par amet ri
c data
envelopmentanal y sis( DEA) .Dat acamef rom t heMi crofi
nanceI nformat i
on
Exchange( MI X)dat abasewhi chi st hepr emiersourcef orobj ecti
v e,qual i
fi
ed
andr elevantmi crofinanceper for
mancedat aandanal ysis.Thebasepr ovi
des
actual l
yaccesst of i
nancialand soci alper formancei nformat i
on cov eri
ng
approxi mately2,000MFI sar oundt hewor l
d.Oursampl ei scomposedofan
unbal anceddat aof65Ar abMFI( l
ocat edi nSudan,Pal esti
ne,Yemen,I raq,
Jordan,Lebanon,Sy ri
a,Egy pt,Mor occoandTuni si
a)ov ert heper iod2005-
2010.Oursampl ei scomposedoft wogr oups:convent i
onalandI slami cMFI .
Fort hesecondgr oupbot hf ul l
yf ledgedI slamicMi crofinancei nstituti
onsas
wel
lasconv
ent
ional
MFI
swi
thI
slami
cwi
ndowsar
eincl
uded.

11.
3:I
nput
sandOut
put
sSpeci
fi
cat
ions
Thesel ectionofi nputsandout putstoi ncorpor at
eint hemodeli soneoft he
mosti mpor tantst ages int he DEA assessment .Ther ei s no restri
cti
ve
conditi
oni nt henumberofi nput
sandout put st ousei ntheDEA model .
Howev er,wehav et okeepi nmi ndthecur seofdi mensionalit
y( l
ownumberof
DMUs r el
at i
v et o number of i nput–out put v ari
ables) often presenti n
nonparamet ricest i
mation.Bankeretal .(1989)suggestar oughr ul
eofthumb.
Letm bet henumberofi nputsandsbet henumberofout putsusedi nthe
analysi
s, t
hent hesampl esizenshoul dsat isfyn≥max{ m ×s, 3(m +s)}.Each
MFIhasa“ doubl ebottom line”:soci
alandf inancialobjecti
ves.Besidest hei
r
fi
nancialobj ectiv
eMFI sal sohav eadev elopment alorsoci alobjecti
ve.Whi l
e
str
ugglingtoachi everapidgr owth,servemor epoorcl i
ents,i
mpr ovepor t
foli
o
quali
ty,andbecomef inancial
lysustainable,MFI swi t
hadoubl ebot t
om l i
ne
haveal so to ensur et heyar emeet i
ngt heirdev elopmentgoal s(women’ s
empower ment ,ruraloutreach,andsoci alresponsi bi
lit
ytocl i
ents).Toassess
the performance ofMFI ,we shoul dt hen t ake into accountt hese t wo
objecti
ves.

11.
4:Testofr
etur
ntoscal
e
Inthissect i
onwewi l
ltestthenat ureofr
etur
nst oscalebef oreimplement ing
theDEAmodel .Previ
ousst udiesassumedv ariabl
e(VRS)orconst antr eturn
toscale( CRS)wi thoutt est
ingifsuchhy pothesisholdsempi r
ical
ly.Att his
purpose,we hav e appli
ed t he Simarand Wi l
son (2002)boot st
rap-based
proceduret otestt henat ur
eofr et
urnstoscaleoft hedi ffer
entMFIi nt he
MENAr egion.Therefore,wewi llcomputetheDEAef fi
ciencyscor efort hree
i
nputs and t wo out puts according toits convenientr eturns to scal e
assumpt i
on.

12:
Financi
alper
for
manceofMFI
Aswesai dbefore,oursampl eofArabMFIi sdivi
dedint wocat
egoriesor
groups:convent
ionalandI slamicmicrof
inanceinst
it
uti
ons.Wef ocusour
analysi
sont hei
reffi
ciencyfortheperi
od2005-2010.Fir
st,wecomput ethe
i
nput-ori
ent
edCRSDEAi nor dert
oidenti
fythemostef fi
cientMi
crof
inance
i
nstit
uti
onsintheMENAr egi
on.
12.
1:DEAef
fi
ciencyscor
es
Weuseasampl eofI slami candconv enti
onalMFIov ertheper iod2005t o
2010 t o assess whet her t here are si gnifi
cant diff
erences bet ween
convent i
onaland I slami cMFI .Fort hefirstst ep,wecomput ethe input
-
ori
ent edCRSDEAest i
mat es.Themeanef ficiencyfortheDEAscor esforthe
year2005f orI sl
amicandConv enti
onalMFIi srespecti
vely0.88and0. 85,thi
s
i
mpl iesthatt hemeanpot entialfori
nputsav ingsamongMFI sisr especti
vel
y
equal to0.12and0. 15.Fori ndivi
dualyear
s,wecanobser vefluctuati
onsinthe
averageef ficiencyfort heper i
odunderst udy .Thesef l
uctuati
onsar emor e
vi
siblefrom t hefoll
owingf igure.

12.
2:Resul
tsoft
heTestf
orgr
oupdi
ff
erences
Wewantt otestdat af rom agr oupofMFIt odet ermi nei fef f
iciencydepends
ont hef actt hatt hei nst i
tuti
oni sIsl
ami corconv entional .Then,gr oup1i s
compr isedofI slami cMFI ,whereasgroup2i scompr isedofconv ent
ionalMFI.
Wehav ecal cul
at edt he and definedabov eandwe
wil
lev aluat ewhet hert heef fi
ciencyoft hetwogr oupsi si denticalornot .The
cal
cul atedv al
ueoft he i
sequal t
o1.183, andast he97. 5%upper
cri
ti
calv alue( thesi zeoft het estis5%)i nt heFdi stri
but i
oni s1.315;we
cannotr ej ectthehy pothesi sthatthedistri
buti
onofef ficiencyi sequalf orthe
twogr oups.The isequalt o1. 335,andast he97. 5% upper
cri
ti
calv alue( thesi zeoft het estis5%)i nt heFdi stri
but i
oni s1.463;we
cannotr ej ectthehy pot hesisthatthedistri
butionisequalf orthet wogr oups.
Ther esul tofKol mogor ow- Sir
monovt estsuppor t(p-v aluesr espect i
velyequal
to0.497)t hesamef indings.
13:Concl usion
Int hi
sst udywedealwi t
ht heemer gi
ngIslamicmi crofi
nancesect orinMENA
region,speci fi
call
yhowt heycompar ewithconv entionalinsti
tutionsint erms
oftechni calef f
iciency.Byusi nganonpar ametricDEAmodelf ort heper iod
2005- 2010,ourst udyshowsnosi gnif
icantdif
ferencesi ntheef fici
encyoft he
twogr oups.Wecanconcl udet hereforethattherel i
gionandmor especificall
y
theuseofShar i
acompl iantpr oduct sdoesnotaf fecttheef f
iciencyofMFIi n
theMENAr egi
on.Nowaday sIslami cfinanceisgai ningconsider ableattention
from regul ator
s, f
inancialservicepr ovidersaswel lasot herfi
nanci alinclusion
stakehol ders.Ithasr egisteredi nt helastfewy ear saf our-
foldgr owt hint he
numberofpoorcl ient
sest imat edt o1. 28mi l
lionandhasdoubl edi nt he
numberofprov
ider
s.Nev
ert
heless,
it’
sst
il
lanascentsect
orandmanyeff
ort
s
mustbedonet obuil
dsustai
nablebusi
nessmodelswi t
habr oadr
angeof
di
ff
erentpr
oductst
omeettheneedsofMusli
m poorpeopl
e.

14:
Ter
ms
Shar i
a:( Arabic:‫ﺔ‬‫ﻌ‬‫ﻳ‬‫ﺮ‬
‫( ﺷ‬i sthemor alcodeandr el
igi
ouslaw ofI slam.Shar i
a
dealswithmanyt opicsaddr essedbysecularlaw,i
ncl
udingcrime, polit
ics,and
economi cs,aswel lasper sonalmat terssuchashy giene,diet
,pr ayer,and
fasti
ng.Thoughi nterpretat
ionsofshar iavar
ybetweencul t
ures,i
ni tsst r
ictest
defi
niti
oni ti
sconsi deredthei nfal
li
blelawofGod—asopposedt ot hehuman
i
nterpret
ationoft hel aws.Ther ear etwopr i
marysourcesofshar ialaw:t he
preceptssetf or t
hi nt heQur an,andt heexamplesetbyt heI sl
ami cpr ophet
Muhammadi nt heSunnah.
Wherei thasof f
ici
alstatus,shari
aisinterpretedbyIslamicjudges(qadis)
wit
hvaryingr esponsibi
l
iti
esf ortherel
i
giousl eaders(i
mams) .Forquesti
ons
notdir
ect l
yaddr essedint hepri
marysour ces,theappl i
cati
onofshariai s
ext
endedt hroughconsensusoft hereli
giousschol ar
s( ulama)thoughtt o
embodyt heconsensusoft heMusli
m Communi ty(i
j
ma).
Islami cj urisprudencewi l
lalsosomet imesi ncorporateanalogi
esf rom t he
Qur anandSunnaht hroughqi yas, t
houghShi ajuri
stspreferr
easoning( '
aql)to
anal ogy.7TUht tp:
//en.wikipedia.
org/wiki
/Shar i
aU7T(Accessed9Apr i
l2013)
Zakahi st het hi
rdoft hef i
v ebasicpill
arsofI sl
ami cf
aith.RulesofShar i
aar e
fai
rlycl earandel aborateindef i
ningthenat ur
eofwhoar eli
abletopayz akah
andwhocanbenef i
tfrom zakah.Thef i
rstandf oremostcategoryofpot ential
benef ici
ariesi sthepoorandt hedestit
ute.Zakahi salevynormallyatther ate
of2. 5%char gedoncer taintypesofweal thsuchasbusi nesswealth,personal
i
ncomeet c.Onl ytheMusl imswhoownt heweal t
hbey ondthemi nimum l i
mi t
arechar gedzakah.

15:
Hist
oryofAsi
anI
slami
cbank
Historyprovedthatfree-
ribat r
ansacti
onshav ebeenpract icedi nMal ay
siaas
earlyasthe16t hcent ur
y.Thi sprinci
plecanbeseeni nt hel aw ofMal acca.
Furthermore,most of t he st ates in Malaysi
a during t he er a before
i
ndependencewer ealsoinfluencedbyMal acca'
slawincludi ngt hoseinvol
ving
theaspectoff r
ee-ri
bat r
ansact i
onseitherdir
ect
lyorindirect l
y( Cart
esa,1944;
Fang,1976;Wi nstedt
,1969;Shel lebear1977).I
nt heMal accaAct ,muamal at
affai
rsaretouchedf r
om cl ause29t oclause34.2asint hecl ausestati
ngt he
prohi bitionofr ibai nasal eorexchanget ransact ion, i
.e.incl ause30af fect ing
thel aw ont hesal eandpr ohibitionofusur yt ransact ions( Nasohah,2004) .
Howev er, i
ti sbel i
ev edt hatt hef ree- ribat ransact ionhasbeenpr act i
cedear li
er
than t he 16t h cent urybecause hi st oryr ecords t hatI slam had come t o
Mal ay sia, whi chbegani nKel antansi ncet he7t hcent ur y,thenspr eadt oKedah,
Pahang,Ter engganu,Mel aka,Johor ,Per akandi nt ot hesubsequentst atesof
thesamecent ury .Thi si sundoubt edl yt heact iviti
esoff ree- ribat ransact i
ons
hav ebeen car ri
ed outal though i twasnotenf orced i nl aw becauset he
transact i
onofr ibai samat terwhi chI sl
am i shi ghlydemandedt oav oid
(Abdul l
ah, 1989) .Ther ei sal soev idenceoft heuseoft hepr incipleoff ree- riba
transact i
on t hati s condi t
ionalsal e pr acti
ced by t he Mal ay communi ty,
especi allybyf armer si nKedah,Per lis,Nor thPer akandKel antanbef orepr e-
coloni al era.
Thi st ransact i
onwaspr acticedast heydi smi ssedt hel endi ng- basedl oans
managedbyt heCet iatt hatt ime( Maxwel l,
1884; Hooker ,1970; Gul li
ck, 1987) .
Buang ( 1993)descr i
bed t he condi tionalsal e as t he pr inci ple ofI sl ami c
transact i
onsknownasal -bay 'al-waf a' ,i
.e.sel l
i
nggoodswi tht heopt iont obuy
back.Al -Bay 'al -
Waf a'cont ainst wowor ds,i.e.al -bay 'andal waf a'
,f rom a
l
anguageper spect i
v e,al -bay ’meanssal eandal -
waf a'meansr epay mentor
settlementofadebt .
Theschol ar sdef inedt heal -bay ’al-waf a’asasal ebyt wopar ti
est hatt her ei s
acondi ti
ont hatt hesel lercanr epur chaset hegoodsatt heexpi ryofacer tain
per i
od whi ch has been mut ually agr eed ( al-Zar qa,1968) .Thi sf or m of
transact i
oni sai medatr aisingcapi talf reeofusur yi nt hecul t
ivat i
onofpaddy
andmanymor eandav oidingobt aini ngf undi ngf r
om t heCet iorf inanci al
i
nst itutiont hatpr acticingar ibat ransact ion( Hassan, 2005) .Thi scont r
actwas
i
ni t
iallypr act icedbyr esi dent si nCent ralAsi a( Bukhar aandBal kh)i nt he
mi ddleoft he5t hcent ur yofHi j
raht oav oidobt ai ningl oanswi tht heel ement
ofr iba.Subsequent l
y ,thepr acticecont i
nuedt oexpandi nt ot heMi ddleEast ,
thenbr oughtt othear chi pelagobypr eacher sinl i
newi ththei ncl usionofI slam
(Al-Sabuni ,1980) .The cont ractt hatbecomes t he cul ture oft hisl ocal
communi tywaspr act icedt oobt aincr editf acilitieswi thoutbei ngi nv ol ved
wi t
ht heel ementofr iba.Usual ly,thi st ransact i
oni spr act icedi nt hesal eof
l
andorpr oper tyoft hesel lert ot hebuy erwi t
hanunder taki ngt or epur chase
wi t
hinaspeci fi
edper i
od.

16:
ManagementHi
erar
chy
:
The managementhi erarchy
 ofan agil
eenterpr
ise 
is,i
nmanyway s,si
mil
arto
themanagementhi erarchyoftraditi
onalor
ganizat
ions.Howev er
,inaser
vice-
orient
edenterpr
ise,ev erymanageri sapr oviderofser v
ices.Heorshei s
responsi
bletotheser vi
ceusersf orthecost,qualit
y,andt i
meli
nessofthe
servicespr ovided( i
.e.,whati sdone)andt othemanagementchai nf ort he
effecti
ve management of r esources i n compl iance wi th gov ernment
regulati
onsandr equirement sforent erpriseoptimization(i.e.,howi tisdone) .
Manager shi gheri nt hemanagementhi erar
chyhav eresponsi bil
ityf oran
aggregat i
onofser vi
cest hatgener allyhav esomesi mi l
ar i
tiesorcommon
objectives,asdi scussedl ater.Theseser v
icegr oupsmay  includespeci ali
sts
andsuppor tser vicesf orser vicesuni tsi ntheirar eaofr esponsi bil
i
ty .For
exampl e,amanuf acturingmanagermayal sohav emat er i
alsmanagement ,
machi ner epair,andpr oductr epairser v
iceuni tstosuppor tt hev aluechai n
operationsf orpr oduction.
Themanagementchai nhasdi rectcont r
oloft hewayser v i
cesar eper formed
butmustnegot i
ateser vicer equirement st ooptimizeut il
izat i
onofr esour ces
whi l
emeet i
ngcur rentandf utureneedsofser viceuser s.Themanagermust
pursuecont i
nuousi mpr ovementandadaptt ochangi ngbusi nesschal l
enges
and oppor t
unities,t o mai ntain atl eastan i ndustrybest -practice levelof
performance,i fnotacompet itiveadv antagef ortheent erprise.I nasense,
eachmanageri sr esponsi bleforasubor di
nateent erpri
set hatmustmeett he
needsofi t
scust omer sandachi evest ockholderobject i
ves.
17:
Whati
stheI
slami
cconceptofTakaf
ul?
Thewor dTakaf ulisderiv
edf rom theAr abicv er
bKaf al
a,whichmeanst o
guarantee;tohelp;totakecareofone’ sneeds.Takaf uli
sasy st
em basedon
the principl
e of Ta’ awun (mut ualassi stance) and Tabarr
u( vol
untary
contri
bution),whereri
skisshar edcoll
ecti
vel ybyagr oupofpart
ici
pants,who
by paying cont ri
but
ions to a common f und,agree tojoint
ly guarantee
themselvesagai nstl
ossordamaget oanyoneoft hem asdefi
nedint hepact.
Takafuli s operated on the basis ofshar ed r
esponsi
bil
it
y,brotherhood,
soli
dari
tyandmut ualcooperat
ion.

17.
1:HowdoesTakaf
ulwor
k?
Takaf ulof ferst wobenef it
s– Sav i
ngsandPr otection.I naTakaf ulplan,a
portionofy ourcont ri
bution( Tabarru’at)thaty ouwi sht osavegoesi ntoa
solidari
tyf und.Cont r
ibutorst othef und agreet o shar edefined fi
nanci al
l
ossest obepai doutofdef i
nedfinanci alresources.Thi sisforthecommon
goodoft hepeopl epar ti
cipati
ngint hepr ogrammewi t
ht heaim ofdiminishing
andspr eadingser iouslossesr esulti
ngf rom cert
ainadv erseevents.Theot her
portionwhi chi sthesav i
ngspor ti
oni sinvestedi nShar i
a-compliantf
undst o
offery ouat t
ractiv
er eturns.Inshor t,Takaf ulprovidesy ouwi t
hacompl etely
Halal alternativ
et oconv entionali
nsur ance, soyoudon’ thav etocompr omi se.
Ther e’
snot hingbet terthant heAl-IslamiSav i
ng&Takaf ulPl
ant ofulfi
l
ly our
dreamst heI sl
ami cWay !Basedony oursav i
ngcapaci t
y ,Al
-I
slamiSav ing&
Takaf
ulPl
anoffersyouarangeofinvest
mentopt
ionst
osui
tyourr
iskpr
ofi
l
e,
wit
hmostflexi
blepaymentopt
ions.
17.
2:Pr
oduct
s
Ourbankof
fersfouruni
quetakaf
ulpr
oduct
sspeci
all
ydesignedf
orour
cust
omersneeds.Thefol
lowingpr
oduct
sarei
nouroffer
ing

1.Al
Isl
ami
Sav
ings&Takaf
ul
2.Al
Isl
ami
Sar
may
a&Takaf
ulPl
an(
Lump-
sum)
3.Al
Isl
ami
AsaanSav
ingsPl
an
4.Al
Isl
ami
CashCov
er
THEEND