Journal of Islamic Business and Management

Revisiting the Mission of Islamic Finance Amid Rising Global Consumerism

2026-01-01T07:17:22+00:00

A deepening culture of consumerism increasingly defines modern economic life; an ethos systematically engineered and sustained by capitalist financial structures and, more specifically, by the evolving business models of commercial banks. What began historically as an intermediary role for facilitating productive activity has shifted into an elaborate financial architecture that promotes relentless consumption, often at the cost of social stability, ethical values, and long-term shared well-being.

Smart Liquidity Risk Management and Islamic Banking Institutions of Pakistan: Challenges and Way Forward

2025-06-12T20:07:57+00:00

Purpose: What are the challenges faced by the Islamic banking institutions (IBIs) of Pakistan in the management of liquidity risk and what are the possible alternatives adopted to mitigate that risk? This study discusses the challenges faced by IBIs; since Islamic banking has now been deeply rooted as an alternative banking system that offers Sharīʿah-based financial solutions and contributes towards the growth of economy.

Design/Methodology/Approach: To explore the challenges and obstacles encountered by IBIs, semi-structured interviews with bank professionals from Risk Management Department, Treasury Front Office and Shariah Advisors are conducted.

Findings: Based on the insights gained from experts through interviews, this study suggests that IBIs are at a disadvantage compared to conventional banks when it comes to managing the liquidity risk. Besides, interviewees opined what needs to be done so that IBIs can effectively manage their liquidity risk when faced with either excess liquidity or shortages thereof.

Originality / Significance: No detailed prior work available for the challenges faced by Islamic Banking Sector during the two-year period of 2019-2020 specifically and afterwards, where Islamic banking institutions faced the high liquid asset crunch due to non-availability of Government Ijara Sukuk or other investment avenues and thus IBIs are forced to place their assets in the form of Cash in hand / Balances with Central Bank or alternatively placements with other banks.

Research Limitations/Implications: This study explores alternative options for IBIs to manage their excess liquidity without impacting the bottom line. Thus, provides insights for banking regulator and management of IBIs.

The Impact of Introduction of Islamic Finance in Pakistan on Inclusive Growth

2025-08-27T10:13:49+00:00

Purpose: This paper examines the impact of Islamic finance on inclusive growth in Pakistan. While financial development is widely recognized as a driver of economic growth, through efficient capital allocation, investment promotion, and expanded credit access, conventional financial systems have often been associated with rising inequality and financial instability. Islamic finance, grounded in principles of risk-sharing, ethical investment, and asset-backed transactions, presents a potentially more inclusive and stable alternative that aligns financial intermediation with real economic activity.

Design/Methodology/Approach: The study employs the Autoregressive Distributed Lag (ARDL) model to analyze both short- and long-term relationships among financial development, Islamic finance, and inclusive growth over the period 1990–2021. An Inclusive Growth Index and four Financial Development Indices are constructed using Principal Component Analysis (PCA), guided by frameworks from the IMF, World Bank, and ADB. To capture the unique effects of Islamic finance, the model incorporates an Islamic finance dummy variable alongside key control variables. Individual financial indicators are also analyzed to uncover dimensions potentially obscured by composite indices. Findings: The results reveal that financial development significantly enhances inclusive growth, and the integration of Islamic finance has a positive and statistically significant effect. These findings underscore the role of Islamic finance in promoting a more equitable and resilient financial system.

Do Sharīʿah-Compliant Firms Experience Low Information Asymmetry and Stock Price Synchronicity? Evidence from Dow Jones Islamic Market Index

2025-07-31T09:53:21+00:00

Purpose: This study examines the impact of voluntary disclosures and earnings management activities on stock price synchronicity between Sharīʿah-compliant and conventional business model firms. We investigate if Sharīʿah-compliant firms having additional voluntary disclosures and lower earnings management activities report a lower level of stock price synchronicity, or is it similar to conventional firms?
Design/Methodology/Approach: We used data for 50 Sharīʿahcompliant firms and 50 conventional non-financial firms listed in Dow Jones Islamic Market Index and Dow Jones Large-Cap Index, respectively, from 2013 to 2022. The study applied panel data regression and controlled endogeneity by applying Generalized Method of Moments. The study also employed pre-requisite diagnostic tests.
Findings: The findings of this study suggest that Sharīʿah compliance has no effect on the stock price synchronicity in comparison to the conventional firms. In addition, the earnings
quality using voluntary disclosure of the information and discretionary accruals are also found to be similar to conventional firms. The results are in line with the view that environment and regulations influence firms more than just listing in the Sharīʿah
compliance index.
Significance: The study contributes by examining whether Sharīʿah-compliance, earnings management, and voluntary disclosures impact the stock price synchronicity in the developed
economies. It is found that the impact of Sharīʿah-compliance on stock price synchronicity is limited in U.S due to already higher disclosure standards.

Impact of Data Verification System on Financial Statements Readability: Evidence from Islamic and Conventional Financial Institutions in Bangladesh

2025-08-25T05:51:49+00:00

Purpose: The main objective of this study is to examine the impact
of Document Verification System (DVS), a verification software by
ICAB, on readability of financial statements prepared by
Bangladeshi banks and insurance companies listed in Dhaka Stock
Exchange. This study also explores the potential moderating role of
Islamic Sharīʿah- compliant reporting by full- fledged Islamic
banks and insurance companies.
Design/Methodology/Approach: The sample includes all 10
Islamic banks and 8 Islamic insurance companies, along with an
equivalent number of conventional banks and conventional
insurance companies listed on Dhaka Stock exchange in January
2024. Therefore, a total of 36 companies constitute our sample. As
DVS had been implemented in 2020, financial statements for 2018,
2019 (pre-DVS period) and 2021, 2022 (post DVS period) have
been collected to enable comparative analysis. Pooled OLS with
Fixed Effects Model and Random effects Model have been used as
estimation techniques.
Findings: Results of the study show that there is significant
negative relationship between DVS and financial statements
readability, indicating that introduction of DVS led to an
improvement in financial statements readability, as measured by a
lower Bog Index readability score. However, the study also found
that Islamic reporting adopted by Islamic banks and insurance
companies does not moderate the effect of DVS on financial
statements readability.
Significance: This research is the first conducted examination of
DVS and its impact financial statements readability. Its outcomes
are expected to pave the way for regulators to reap the most benefits
of DVS and protect stakeholders' interests.

Do Sharīʿah and ESG-Compliant Firms Outperform Others? Evidence from S&P 500 Index Companies

2025-12-07T16:57:23+00:00

Background: Sharīʿah-compliance and Environmental, Social, and Governance (ESG) principles represent two major ethical paradigms shaping contemporary finance. Yet, empirical evidence on their combined impact on firm performance remains limited.
Objective: This study investigates how Sharīʿah and ESG compliance, individually and jointly, affect firm performance, focusing on both accounting-based (ROA) and market-based
(Tobin's Q) indicators.
Methods: Using a dynamic panel dataset of 504 firms from the S&P 500 index spanning 2012–2022, the research applies the System Generalized Method of Moments (GMM) to address endogeneity and unobserved heterogeneity. Two novel frameworks are employed: (1) the Sharīʿah Compliancy Score (SCOMS), which quantifies degrees of Sharīʿah financial and business compliance; and (2) a Sharīʿah–ESG Integrated Rating Model, combining SCOMS with ESG performance metrics to evaluate holistic ethical alignment.
Results: Findings reveal that Sharīʿah financial compliance significantly enhances both ROA and Tobin's Q, while Sharīʿah business compliance alone exerts limited or negative effects.
Standalone ESG compliance similarly shows weak performance links. However, firms demonstrating high compliance across both Sharīʿah and ESG dimensions achieve significantly superior financial and market outcomes, confirming the synergistic value of
integration.
Conclusion: The study validates the effectiveness of an integrated ethical framework that unites Sharīʿah and ESG principles. Such alignment strengthens stakeholder trust and corporate resilience, offering an empirically grounded model for sustainable and faith-consistent value creation.