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Islamic finance is one of the most rapidly growing sectors of the global financial system. This paper empirically outlines the pure effect of Islamic finance including Islamic banking and Islamic bonds on economic growth in major Muslim countries. Current study has taken up Islamic banks’ assets and Islamic banks’ financing, total value of sukuk issued and real GDP as measuring proxies. For the analysis, PMG of ARDL framework has been utilized. The outcomes of the study revealed that in the long run, Islamic banks’ assets, Islamic banks’ financing and Islamic bonds are significantly correlated with real GDP in Muslim countries.

Participatory financing schemes, including Musharakah and Mudarabah, are theoretically claimed to be the ideal modes of Islamic financing, but their practice is restrained by several factors. That is why Islamic banks have a consistent tendency to avoid participatory financing on the assets side throughout the world. However, recently this trend has started changing in Pakistan and Indonesia where the share of participatory finance has raised significantly in the financing portfolio of Islamic banks. The present paper explores this recent spur of participatory finance in Pakistan in terms of its domains of applications and the responsible factors. The findings lead to a novel posteriori framework which shows that the shift toward participatory financing is primarily characterized by increase in working capital financing and commodity operations financing through Musharakah mode Islamic banks. Moreover, five factors contribute to the spur of participatory financing including: (i) introducing varieties in Musharakah, (ii) enhanced applicability, (iii) high volume projects, (iv) government interventions, and (v) regulator’s role. The framework can significantly advance understanding with respect to the implementation theory of participation financing within Islamic banking and related Shariah compliance and regulation.

Despite the enormous growth in Islamic banking, most studies, using DEA/Stochastic Frontier Analysis, find Islamic banks are either equally or less productive than conventional banks. We apply the Olley–Pakes (OP) and Ackerberg–Caves–Frazer (ACF) approaches for estimating the production functions of conventional, Islamic and mixed banks in Bahrain and Malaysia between 1990 and 2011. The ACF results are the most plausible. Though Islamic banks tend to be less efficient than conventional banks the difference is not statistically significant. In Malaysia, mixed banks are significantly more productive than other banks and tend to have faster productivity growth.

This paper models a default-free convertible facility to finance infrastructure projects in emerging Muslim countries. The mortgage is designed as a combination of an Islamic credit facility (allowing the collateralization of debt by the assets of the firm as espoused in Scott[32], Stulz and Johnson[36]) and inclusion of real warrants (as espoused in Green[12], Haugen and Senbet[15]) to mitigate the agency cost of debt discussed in Myers[27]. Numerical simulation is employed to endogenously solve for the rate of return, tenure and fractional ownership to be conveyed to financier upon conversion of the facility without resorting to any interest based (ribawi) index. Finally, sensitivity analysis is conducted to study the impact of exogenous variables and to reconcile with the existing mainstream finance literature such as Barclay and Smith[3], Stohs and Mauer [35] and Guedes and Opler [13].

Islamic finance has started to grow in international finance across the globe, with some concentration in few countries. Nearly 20% annual growth of Islamic finance in recent years seems to point to its resilience and broad appeal, partly owing to principles that govern Islamic financial activities, including equity, participation, and ownership. In theory, Islamic finance is resilient to shocks because of its emphasis on risk sharing, limits on excessive risk taking, and strong link to real activities. Empirical evidence on the stability of Islamic banks (IBs), however, is so far mixed. While these banks face similar risks as conventional banks (CBs) do, they are also exposed to idiosyncratic risks, necessitating a tailoring of current risk management practices. The macroeconomic policy implications of the rapid expansion of Islamic finance are far reaching and need careful considerations.

The paper assesses the risk implications of rapid Islamic financing growth after the Global Financial crisis and whether financing — risk relations are more reflective of large Islamic banks. Employing a panel regression methodology and a sample of 72 Islamic banks from 14 countries over the period 2010–2019, our analysis indicates that Islamic financing growth does lead to credit risk deterioration up to two years ahead. We note further that Islamic banks are “too small to succeed” in that the risk effect of financing growth is more apparent for small Islamic banks. But, once an Islamic bank reaches a certain size threshold, it demonstrates ability to manage and mitigate credit risk arising from its financing activities. Based on these results, we conclude that Islamic banks need to be bigger.

Since the launch of the Sustainable Development Goals (SDGs) by the United Nations (UN) in 2015, the global financial markets have strongly inclined towards being more ethical, responsible and value-based investing. Similar with the conventional counterparts, the stakeholders in Islamic finance have initiated its efforts and thrives in manifesting and incorporating the global sustainability agenda into its business operations and product innovations. Given that the principles of Islamic finance fundamentally support socially inclusive, environmentally preserved and economically prosper, the potential for Islamic finance to play a role in realizing and translating the SDGs into practical approach is extensively explored in this paper. This paper reviews the role of Islamic finance industry, specifically the Islamic banking and Islamic capital market in Malaysia, in contributing the realization and manifestation of the SDGs in its day-to-day business activities by analyzing few existing products in the local market namely, Islamic microfinance, Islamic green financing, green sukuk and ESG Islamic fund. The discussion presented in this paper predominantly derived from a comprehensive analysis conducted through literature review approach. The paper concludes that Islamic finance industry in Malaysia is still on the right track in terms of contributing to sustainable development goals, environmental preservation and social welfare, as advocated by the United Nations. All of the key stakeholders in Malaysia also have been working hard to make sure the overall Islamic financial ecosystem is aligning with the global sustainable finance movements. This paper provides an indirect motivation and personal incentive for the policy makers to continue assimilating and harmonizing the SDG elements into the Islamic finance industry.

With the increased number of Islamic institutions, the necessity for a standardized Islamic accounting framework has emerged. The origin of Islamic accounting can be traced back further than conventional accounting. Many studies show that Islamic accounting was the primary source of the basic accounting fundamentals. Besides, the critical role of Islamic accounting is to provide financial reports which adopt the Islamic objectives and laws. The Islamic beliefs hold ethics and morals that drive and influence accounting, auditing, and reporting procedures of the Islamic financial institutions. Accordingly, many studies have emphasized the morality and characteristics of Islamic accounting and economic disciplines required in different institutions and banks. This chapter has adopted the systematic literature review technique to explore the overall available articles and studies on Islamic accounting and the growth of these studies over the years. The researchers have addressed 30 papers retrieved from a variety of online databases according to a set of inclusive and exclusive criteria. The systematic literature review methodology results synthesize different aspects of the topic, methods, and theories used in Islamic accounting studies. This chapter indicates broad concepts and objectives of Islamic accounting retrieved from various online databases with a set of recommendations for further research to fill the gap in this field.

Islamic banks are presumed to behave ethically toward numerous stakeholders, including investors, customers, governmental authorities, and the public in general, within the Islamic jurisprudence (Sharia) prescriptions. One of the most important pillars of Sharia prescriptions is the protection of all parties, interests rather than the conventional notion of financial performance maximization of shareholders. This principle is the core value of the stakeholder’s theory and the derived corporate social responsibility (CSR) notion. In this chapter, we compare CSR practices as proxied by the reported ESG performance score for a sample of both Islamic and conventional banks in the GCC region for the period 2009–2019. Our results show that conventional banks and Islamic banks display different outcomes in ESG performance score, especially in the reporting of individual pillars (environmental, social, and governance). In that, Islamic banks perform on average better than conventional banks in most of the ESG performance pillars. Most importantly, our findings show that Islamic banks, and conventional banks, sustainability practices differ when the individual pillars are disaggregated into their main components: emission score, environmental innovation, and resources use for the environmental pillar; human rights, workforce, community, and product responsibility scores for the social pillar; management, CSR strategy, and shareholders scores for the governance score. Our findings can be helpful to Islamic banks’ managers looking for more compliance with sustainability standards and for markets and standardization authorities when issuing new sustainability guidelines.

The value-based intermediation (VBI) has been recently announced by the Central Bank of Malaysia (Bank Negara) as a vital driver in expanding the responsibilities and influence of Islamic finance in the future. It aims to reinforce the foundations of Islamic finance in social justice and advocate a value-based economy via increased integrity, inclusivity, and sustainable growth. This chapter analyses the current practices of VBI information for Islamic banks operating in Malaysia. Also, it proposes a guideline to communicate VBI information to stakeholders through the bank’s business model as the core of integrated reporting (IR). Using a sample of all the 16 Islamic banks operating in Malaysia, content analysis was employed to collect data over a four-year period from 2017 to 2020. The results revealed that the adoption of IR and VBI has seen considerable interest among the research sample. Approximately 82% of all banks in our selection have embedded the VBI information in the recent annual reports of 2020. More than half (7 out of 13) of VBI adopter banks have applied IR to draw and communicate the VBI information to stakeholders. Additionally, the IR framework and business models represent the best strategic tools banks could utilize to provide the VBI progress in a holistic, concise, and useful manner compared to traditional reporting practices. This chapter contributes to the Islamic finance literature by offering vital perceptions to banks’ management, analysts, shareholders, and policymakers on the importance of the VBI information disclosures and how to deliver it using the business models.