Journal Article

This study examines the Islamic banking industry's commitment to ESG (environmental, social and governance principles) in selected countries by assessing it from the maqasid al-Shari'ah (objectives of Islamic law) pyramid perspective. A rigorous quantitative study was conducted using the Refinitiv database, which covered 12 countries from 2020 to 2024, resulting in 497 observations. The study finds statistically significant evidence that the Islamic banking industry sets a high standard of ESG for Islamic banks to comply with at the country level. In the long run, the rate of commitment of the Islamic banking industry to each component of the ESG score is explained by the industrial environmental index score (7.21%), the social index score (25.43%), and the governance index (17.98%), respectively. This parameter provides information about the proportion of the ESG score to which there is a greater commitment than for the others. This suggests that the Islamic banking industry pays more attention to the social index score, followed by governance and the environment. It can therefore be deduced that the Islamic banking industry pays substantial attention to the social aspects as daruriyat (essentials), followed by strengthening governance factors as hajiyyat (needs) and the environmental factor as tahsiniyyat (embellishments). On average, the commitment of Islamic banks to ESG at the country level is statistically significant (49.73%). However, there is still scope for Islamic banks at the country level to increase their commitment. Since ESG commitment varies among Islamic banks, the number of Islamic banks with low ESG commitment contributes to the average being driven down. Therefore, the Islamic banking industry is expected to have a standardised industry benchmark for each ESG component and the combined ESG. This study adds value to the body of knowledge by exploring the Islamic banking industry's commitment to ESG through the three levels of maqasid al-Shari'ah-a first in this area that is not found in previous studies on ESG. The availability of data imposed certain constraints on including more countries beyond the selected Muslim nations. Nonetheless, the findings offer valuable insights for Islamic banks in countries not covered in this study. This study provides Islamic banks with a clear understanding of the extent of their contributions to ESG within the framework of maqasid al-Shari'ah. Therefore, each Islamic bank could re-strategise its approach as necessary. These findings present Islamic banks with the opportunity to examine the environment in which they operate and adhere to the most essential aspects of maqasid al-Shari'ah that are pertinent to that location, thus making their contribution significant to the local community.

While most articles and studies are focused on zakat collection per se, this study would like to explore the optimality of zakat collection rate, albeit actual zakat collection rate versus potential zakat collection rate. Issues such as awareness, education and accountability are among the key obstacles that hinders the optimization of zakat collection rate. This study is explorative in nature. Data was collected from zakat institutions and Department of Statistics Malaysia, which are all publicly available, covering 2005 to 2022. Proxies were used for estimation of potential zakat collection rate, namely fraction of gross domestic product (GDP) and Muslim population. A formula was also used to complete this process. It was found that Kelantan is the state with the highest actual collection rate, followed by Kuala Lumpur and Terengganu. Issues of education, awareness and accountability is also present in this study; hence, better promotion of zakat and accountability of zakat institutions are required to optimize the zakat collection rate in Malaysia.

Sustainable Development Goals (SDGs) are becoming the global pressure to ascertain sustainable development in a country or any institutional level worldwide. It affects the policymakers in providing future direction and responding to current developments. Thus, the study attempts to examine the performance of Majlis Agama Islam dan 'Adat Melayu Perak/Islamic Religious and Malay Tradition Council in Perak State (MAIPk), Malaysia, on the SDGs achievement, which relates to the issue of zero hunger in the society. The study adopts in-depth interviews with the stakeholders of MAIPk and performs a survey of Islamic social finance recipients in Perak State, focusing on the monthly financial and food bank assistance programs, which the number of recipients is 11,769 and 25,144 recipients. The finding of the study reveals that MAIPk successfully contributes to the achievement of SDG 2, whichcreate social impact for the recipients, such as an increase in the ability to access healthy food, increase physical and mental health, and motivate the recipient to be involved in altruism activities. The study pioneers the scientific examination of thesocial impact assessment in the State of Perak, Malaysia case. Additionally, the findings of the study imply that the Islamic social funds' institution needs to increase its awareness of measuring social impact on society instead of only focusing on the output-based measurement.

Following the recent global financial crisis, Islamic banks (IBs) have grown rapidly and are found to create more liquidity for the economy relative to their conventional counterparts. Nonetheless, the significance of their impact on real economic output relative to pure conventional banks (PCBs) has not been examined empirically. The aim of this study therefore is to investigate the liquidity creation impact of full-fledged Islamic banks (FIBs) and PCBs on real economic output. We examine 12 Muslim-majority countries over a period of 13 years from 2010 to 2022. We employ both the feasible generalized least square (FGLS) and panel-correlated standard errors models. Our findings show that both FIBs and PCBs liquidity creation per capita have a statistically significant positive impact on real economic output. Notably, FIBs have a marginally higher impact than PCBs. In terms of bank size, our findings show that only large FIBs and PCBs have positive impacts on real output. These findings are robust for both types of banking systems' on- and off-balance sheets liquidity creation components and subsamples including countries where IBs are systematically important. Finally, our findings also indicate a positive bidirectional causality between the liquidity creation of FIBs and real output but a reverse unidirectional causality between PCBs' liquidity creation and real output. Our results imply that policymakers should maintain a clear differentiation between the business models of FIBs and PCBs and act to enhance their liquidity creation to spur real economic output.

This study employed a novel methodological perspective to evaluate the impact of zakat on one of the sustainable development goals (SDGs), i.e., education. The study has employed macrolevel data on zakat spending collected from the zakat department of Khyber Pakhtunkhwa, Pakistan, and microlevel data from a renowned national survey, the Pakistan Social and Living Standards Measurement Survey (PSLM). Based on the data set used for empirical analysis, a multilevel model was used to control the effect of intraclass correlation. The findings of this study confirmed that zakat spending by the public sector reduces deprivation in education. Hence, the households benefiting from zakat allocations are less likely to face barriers in accessing education. Furthermore, the study shows that educated and female-headed households are less likely to experience deprivation, emphasizing the importance of empowering such households as a strategy to reduce educational inequality. However, the mechanism of zakat disbursement should be refined and made transparent to pursue SDGs by empowering individuals through quality education, vocational training, and enhancing technical skills, which may ultimately reduce poverty in the country. In addition, the method ology adopted in the study opens doors for further research to decompose the results and design policies accordingly.

There is no uniform methodology adopted worldwide for Shariah equity screening. The purpose of this research paper is to suggest reforms required to improve Shariah screening methodologies used for equities using Dow Jones Islamic Market Index, which is the world’s first such methodology adopted. This research uses a qualitative research methodology that goes beyond analysing secondary data on the subject matter. It includes conducting semi-structured interviews with selected subject matter experts to gain insights into the practical issues associated with existing Shariah screening methodologies. The aim is to identify areas for potential reforms that can be implemented in the future. By combining secondary data analysis with first-hand perspectives from experts, this research provides a comprehensive understanding of the challenges and opportunities in Shariah screening, contributing to the development of practical and effective reforms. The study recommends the inclusion of additional filters in Shariah screening methodologies to promote stocks that are not only Shariah-compliant but also socially responsible. It suggests that while a certain level of Shariah non-compliance threshold may be tolerated during the initial screening stage, over time, this accepted threshold should gradually decrease. The ultimate goal is to achieve 0% thresholds for Shariah-compliant equities. By advocating for stricter criteria and a progressive reduction in non-compliance tolerance, the study highlights the importance of continuously improving and refining Shariah screening practices to ensure higher levels of compliance and alignment with Shariah principles.