In past thirty years, Islamic banking has established itself in the global market as an alternative method of financing to interest-based financing. Most of Islamic financing products are formulated on debt financing contract such as murabaha and tawaruq contracts where elements of interest, ambiguities, gambling and impure commodities are duly avoided. While these contracts have complied with the fundamental principle of the Shariah, less attention is accorded to the pricing aspect of the contract especially in the setting of finance charges, namely profit rates on the facilities. While regulatory murabaha Shariah parameter defined the selling price of murabaha as a sum of the cost of purchase and profit margin, less study is attempted on the latter. Claims of exorbitant profits charged by Islamic banks have been voiced by various parties including consumer associations are not without basis. The first objective of this study is to examine and confirm the claims made by the consumer groups. This study has confirmed that the complaints have been true where Islamic banks were found to use the monthly profit rate compounding system as well as the flat rate method which have contributed to the questionable increase in profits earned by the banks. In the former, the effective profit rates (EPF) are found always higher than the quoted profit rates (QPR) while in the latter the use of flat rate method (FRM) over the reducing balance method (RBM) where both of these practices have increase banking profits at the detriment of customers. This study considers this case as an ethical issue as no clear guideline on this matter is accorded by the regulator in the murabaha Shariah parameter.

This study is the first attempt to conduct a comparative analysis of the internal and external determinants of the Islamic banks' profitability in the GCC region applying dynamic GMM, quantile regression, and wavelet coherence approaches. The dynamic GMM tends to indicate that equity financing and operating efficiency and macroeconomic variables such as money supply, and inflation are significantly related to Islamic banks' performance. The bank-specific variables such as credit risk, equity ratio, and cost-efficiency ratios are not significant at different percentiles. ROA is driven by credit risk, equity ratio, and cost-efficiency ratios (as evidenced in wavelet coherence analysis).

Sukuk is a highly appealing alternative instrument of conventional bond in the financial market over the last two decades. To a certain extent, the market players assume sukuk as the same as bond. However, sukuk has its own fundamental asset backed principles, whereas bond is backed by debt. The objective of the study is to examine the Granger-causality and lead-lag relationship between sukuk and bond by using the data of the Malaysian Government securities return for both conventional and Islamic instruments. The data for every working day of 7 years covering the period from January 31, 2007 to December 31, 2013 were collected from Bloomberg database. The yield returns of both securities have been plotted for each six months of a year. This study applied both Granger-causality and dynamic co-movement techniques such as, continuous wavelet transforms (CWT) coherence for analyzing the temporal evolution of the frequency content of both securities by decomposing each period into different time scales. The empirical findings of the paper reveal that with a bit of exception, there is a causal relationship between sukuk securities and conventional bonds for a given period of time. For robustness, this study applied the wavelet coherence approach and found that bond is led by sukuk in the long term investment horizon rather than in the short term. Our findings relating to the lead-lag relationship between sukuk and bonds have important implications in terms of policy regulations and investment management. Future research and market practices could reinvestigate the differences between these two securities across different markets and types