fundamentals of corporate finance 11th canadian edition test bank.docx
Revisiting the objective of islamic banking, tbl approach.
1. Revisiting The Objective of Islamic Banking, TBL
Approach.
M. Ishaq Firdaus
What is the objective of Islamic Banking? The question seems to be very
radical but in fact there is no serious effort to really address this question
formally. It has been taken for granted that Islamic Banking is only about
avoiding Riba. As such the present conventional yardstick is being used by
Islamic Banking1
, means that the performance measurement by islamic banking is
merely uses the financial ration mesurement (shareholder oriented)2
Yuwono (2004), Antonio, Sanrego and Taufiq (2012), argued that
generally, in the practices of company performance measurement including
Islamic Banking are only limited to financial ratio such as CAMELS (Capital,
Assets, Management, Equity, Liquidity, Sensitifity of Market Risk), and EVA
(Evaluation Value Added), Basic indicator for company performance
measurement using only limited to financial ratio.
In looking at the practices of Islamic Banking, one can easily observe that
the early “Idealistic” vision has significantly changed in practice. Idealist, liberal
and pracmatic approaches to Islamic Banking and Finance can be identified in a
continuum3
. The idealist approach seeks to maintain and minimalize gap from the
practices as in applied by Islamic Banking to the relative contract that were
developed by contemporer islamic scholar and the shariah in classic period.
The objective of Islamic Economic “ideologically” according to Ahmad K
(1996) is to achieve al-falah in terms of khilafah, tauhid rububiyyah and tazkiyah
1
Muhammad and Djusjastri. 2008. The perfomance Measure of Islamic Banking Based on the
Maqosid Framework. Departement of Economics, Kulliyah of Economics and management
Science, International Islamic University Malaysia, Malaysia.
2
Antonio, Sanrego and Taufiq. 2012. An Analysis of Islamic Banking Performance : Maqashid
Index Implementation in Indonesia and Jordania. STEI Tazkia. Bogor. Indonesia
3
Saeed, A. 2004. Islamic Banking and Finance : In Search of a Paradigmatic Model. In Hooker, V.
& Saikal, A (ed) . Islamic Perspectives on the New Millenium. Singapore : ISEAS.
2. (philosophical based), to eliminate poverty and deprivation (economics based) and
to eliminate injuctice in society (social based).4
Practically, the performance of Islamic Banking largelly tends to profit
oriented only (shareholder oriented). A further pragmatic shift in Islamic Banking
and finance is the almost complate move from supposedly Profit and Loss Sharing
(PLS) banking to sales based system5
. Ironically, The vast majority of Islamic
Banking is lately avoid PLS as the most important basis for their investment
activities, this is a counterback with its literature of the 1960s and 1970s was
clearly stated that Islamic Banking and Finance should based on Profil and Loss
Sharing.6
Instead, investment activities held by Islamic Banking operates largely on
the basis of contracts that are considered “mark-up” based such murabahah,
salam, ijarah, or istisna’. For the most their investment operation, Islamic
Banking have opted for these mark-up based, relatively safe contracts, which are
similiar “fix-interest” in conventional bank. Simultaneously, the use of less secure
and more risky contracts such as mudharabah and musharakah has been
dramatically reduced to only a small share of assets on the invesment side. This
just to ensure that Islamic Banking is just profit oriented and yet fully
implemented the ideal objective of Islamic Economics which is to eliminate
poverty and deprivation (economic based objective).
Meanwhile we cannt forced the Islamic Banking to practice more in Profit
and Loss Sharing, but to gain sustainable growth in Islamic Banking Industry,
they need a shifting paradigm from profit oriented into triple bottom line
concepts, Siddiqi S.H (2001) said, their main activities must be focused on benefit
4
Muhammad and Shahwan, 2013, The Objective of Islamic Economics and Islamic Banking in
Light of Maqoshid Syariah : A Critical Review, Departement of Economics, Kulliyah of Economics
and management Science, International Islamic University Malaysia, Malaysia.
5
Saeed, A. 2004. Islamic Banking and Finance : In Search of a Paradigmatic Model. In Hooker, V.
& Saikal, A (ed) . Islamic Perspectives on the New Millenium. Singapore : ISEAS.
6
Abdul Rahman, 2007, Islamic Microfinance : A Missing Component in Islamic Banking.
3. approach not only for the shareholder, but also to wider stakeholder that is the
community and the environment.7
The Triple Bottom Line offers solution to make greater in business as well
as implementation of “idealist” objective of Islamic Banking, hence the real added
value of Islamic Banking which is eliminating poverty will be accomplised. The
Islamic Banking and Finance is not merely avoiding riba activities but also this is
solution in world economic problems.
Triple bottom line is an accounting framework with three parts, social,
environment, and financial. Many multi national company have adopted the TBL
framework to create greater business value8
. So that the company can create their
company under TBL framework. The author proposes this humble idea to achive
both idealist and practice objective of Islamic Banking, therefore the idea can be
implemented on real sector not only to be academic consumtion.
Triple bottom line concepts are in line with the concepts of maqoshid
syariah as stated by Ibn Qayyim Al-Jauziyah that syariah basis is to realize
benefit to society (Al-Jauziyah, 1973) in (Antonio, Sanrego and Taufiq, 2012).
Meanwhile the author did not use the maqoshid syariah index as solution
approachment on this essay because the absence of financial factor on MSI model.
This is not in line with majority scholar including Antonio and Sanrego because
the author belives that profit is the main factor in any business activity cant be
eliminated from its benchmark model.
The idea proposes in this esay is TBL to be conecting bridge beetwen
idealist and practices of Islamic Banking, TBL can be benchmark from any
decision planed by Islamic Banking, meanwhile still Maqoshid Syariah Index is
the best methodelogy to measure Islamic Banking’s performances. The following
concept is the model developed by the author on how does the TBL works in
Islamic Banking.
7
Antonio, Sanrego and Taufiq. 2012. An Analysis of Islamic Banking Performance : Maqashid
Index Implementation in Indonesia and Jordania. STEI Tazkia. Bogor. Indonesia
8
Slaper and Hall, 2011, The Triple Bottom Line : What is it and How Does it Work,
http://www.ibrc.indiana.edu/ibr/2011/spring/article2.html open in December 26 2015
4. Table : Ilustration Tripple Bottom Line Model
The sustainable growth must be the main objective of any busineness,
TBL offers long term growth not only short time growth, yet this concepts still
need further research on how it will really happen as Islamic Banking benchmark.
The first modern Islamic Banking is ony 40 years old since the
establishment of the first bank, the Dubai Islamic Bank in 1975. The expansion
and performance of Islamic Banking within this period has been remarkable
inspite of operating in a competitive environment along side its conventional
counter-part. However there are still many things that need to be critical about the
practice of Islamic Banking due to creating Islamic Banking as new solution in
world’s economy.
The Ideal objective of
Islamic Banking
The Field Practices of
Islamic Banking
REMOVING THE GAP
GAP
TRIPPLE BOTTOM LINE
FINANCIAL
1. Wellfare Oriented
2. Company’s Income
3. Minimize Risk
4. Job Growth
Environment
(Investment Criterias)
1. Green Investment
2. Sustainable Energy
3. Selected only in low-
emission company
4. Non-Haram Campany
Social
1. Education
2. fairness
3. Microcredit
4. Postive Externalities
5. Refrences
Saeed, A. 2004. Islamic Banking and Finance : In Search of a Paradigmatic
Model. In Hooker, V. & Saikal, A (ed) . Islamic Perspectives on the New
Millenium. Singapore : ISEAS.
Antonio, Sanrego and Taufiq. 2012. An Analysis of Islamic Banking Performance
: Maqashid Index Implementation in Indonesia and Jordania. STEI Tazkia.
Bogor. Indonesia.
Slaper and Hall, 2011, The Triple Bottom Line : What is it and How Does it
Work, http://www.ibrc.indiana.edu/ibr/2011/spring/article2.html open in
December 26 2015
Abdul Rahman, 2007, Islamic Microfinance : A Missing Component in Islamic
Banking.
Muhammad and Shahwan, 2013, The Objective of Islamic Economics and Islamic
Banking in Light of Maqoshid Syariah : A Critical Review, Departement
of Economics, Kulliyah of Economics and management Science,
International Islamic University Malaysia, Malaysia.
Muhammad and Djusjastri. 2008. The perfomance Measure of Islamic Banking
Based on the Maqosid Framework. Departement of Economics, Kulliyah
of Economics and management Science, International Islamic University
Malaysia, Malaysia.