Skip to main content

Muhammad Ayub

Riphah International University, RCIB, Faculty Member

Followers

205

Following

94

Co-authors

2

Public Views

Dr. Muhammad Ayub is Professor of Islamic finance and economics at Riphah International University Islamabad. He is Founder Editor of Riphah's JIBM (www.jibm.org). He is non-resident Editor of the AAOIFI’s Journal of Islamic Finance Accountancy (JOIFA) as well.

less

Interests

Uploads

Papers by Muhammad Ayub

EVOLVING MONETARY ECONOMICS IN ISLAMIC PERSPECTIVE

Journal of Islamic Monetary Economics and Finance, 2021

The challenges facing the Islamic banking and finance industry include, inter alia, resolving the... more The challenges facing the Islamic banking and finance industry include, inter alia, resolving the issue of 'form over substance', adopting value-based social and ethical finance, and reinforcing public confidence that its business and services conform to the principles of Shari'ah in both letter and spirit. These challenges can be faced only if Islamic finance is based on the money and monetary perspective of Islamic economics. An important aspect for discussion in this context is the issue of money creation. This paper is based on an analysis of the literature on conventional and Islamic economics and Islamic finance. It comprises observational and narrative research mainly because monetary policy from an Islamic perspective has not been implemented in any jurisdiction in the modern world. Its objective is thus to suggest how monetary policy might evolve from the perspective of Islamic law of contracts. It discusses an economic model in which a new theory of monetary economics could become a basis for evolving Islamic finance in its value-based perspective. It also discusses monetary economics and monetary policy from an Islamic perspective in the context of contemporary Muslim economies. The Islamic financial system must be based on the Islamic system of money, monetary economics and exchange principles. Hence, economists and policymakers may first focus on evolving monetary economics and policy from an Islamic perspective, to serve as a basis for structural reforms.

Islamic financial services industry Aspirations and achievements Wiley BEER 2021

Business Ethics, Env & Resp. 2022;31:257–271., 2021

Islamic Financial Services Industry (IFSI) crosses the age of 40 years, and sufficient empirical... more Islamic Financial Services Industry (IFSI) crosses the age of 40 years, and sufficient
empirical evidence exists to evaluate in light of the distinctive aspirations. This study
fills the gap in the literature by evaluating the performance of IFSI in light of Islamic finance objectives—financial stability, equitable distribution of wealth and social responsibility; Shari’ah principles, and professional practices. Our investigation documents
the achievements based on real accounting data from 23 countries, and the suitability
of tools in practice to achieve the stated objectives by promotors of IFSI. Findings
suggest that the objectives of IFSI have been achieved to an extent. However, visible
contribution to the achievement of socio-economic justice is yet to emerge. Practical
application of tools shows divergence (in spirit) from the original design, primarily to
achieve integration and coherence with the prevailing conventional financial system.
IFSI needs collaborative efforts to overcome the challenges at hand.
KEYWORDS
economic systems, equitable wealth distribution, financial stability, Islamic finance, socioeconomics

Revisiting the paradigm of Sharīʿah governance of Islamic financial institutions

Journal of Islamic Accounting and Business Research, 2023

Purpose-The purpose of this paper is to find out the possible gaps in the Sharīʿah governance, an... more Purpose-The purpose of this paper is to find out the possible gaps in the Sharīʿah governance, and suggest how to fill the same, in line with the principles of Islamic finance and the global developments regarding social and value-based financial intermediation. Design/methodology/approach-The paper uses secondary data gathered through analysis of documents and regulations to portray the current Sharīʿah governance framework and to suggest a unique paradigm to be adopted by the regulators of Islamic financial institutions. Findings-The paradigm encompassing value-oriented financial ecosystem would need a comprehensive set of discipline, accountability and governance for making the pursuit of sustainable development goals and corporate social responsibilities effective in a well-defined schedule prepared and implemented by the regulators. Research limitations/implications-The scope of this research is limited to theory building in the light of emerging trends in responsible and social finance. It is not to empirically test the impact of the governance framework in terms of social justice, corporate responsibility and sustainability. Practical implications-It would help the policy makers, regulators, researchers and the practitioners in finance to align banking and finance with social and environmental responsibility, and equity through governance and accountability for realizing the sustainable development goals. Social implications-It links the regulatory approaches to the emerging paradigm and ecosystem comprising sustainability and value-based governance, awareness and corporate social responsibility. Originality/value-The paper adds value to the current regulatory frameworks enabling the Islamic financial institutions to realize the economic, social and sustainability objectives, in addition to Shariah legitimacy and enhanced credibility.

Islamic Finance: Focusing Project Financing for Growth and Realizing the Higher Objectives of Sharīʿah

Journal of Islamic Business and Management (JIBM)

Islamic system of finance has the capacity to serve the purpose of financial intermediation as a ... more Islamic system of finance has the capacity to serve the purpose of financial intermediation as a means to create sustainable value in the real economy at national and global levels. However, the most of Islamic Banks and Financial Institutions (IBFIs) are lacking in application of the Divine principles in letter and spirit. They have not learned the lesson of avoiding finance products that led to instability, injustice and crises in the global finance. They might be lagging behind the conventional institutions in adoption of value based finance that emerged in global finance in the wake of GFC, 2008 (World Bank and Islamic Development Bank Group, 2016; p. 6) to focus on Value Based Intermediation (VBI), Environment, Social and Governance (ESG) aspects and the stakeholders approach. This article focuses on the area of project financing by the IBFIs for different sectors including communication means, energy, residential and commercial buildings, infrastructure and socioeconomic projects, and the role that Islamic banks can play in financing the projects leading to development and shared prosperity. Its finding is that while the conventional institutions are turning to the ethics and values based financial intermediation and business, it's more a duty of the IBFIs to move to VBI by focusing on project financing.

Institutionalising ‘Waqf ’ for Realising the Shared Development Objective by Islamic Banks and Financial Institutions

Journal of Islamic Business and Management (JIBM)

Never will you attain the good (reward), unless you spend (for others" welfare) of that which you... more

Case for Standardization of Fatāwá : Products Approval and Sharī'ah Certification Processes in Islāmic Finance

Journal of Islamic Business and Management

Editorial-JIBM- Vol 04; No. 02 Abstract Islamic finance, while progressing impressively in terms ... more Editorial-JIBM- Vol 04; No. 02 Abstract Islamic finance, while progressing impressively in terms of figures, competitiveness with the conventional finance in financial engineering, and hence profitability, is losing in terms of integrity as a value-based system beneficial for the human society. Regulators and institutions are increasingly strengthening the move to converge and compete with the conventional system and institutions in profit taking on liquidity on the basis of fatāwa issued purely on the basis of legal ruses. Islamic finance has to be pro-active for real businesses sticking to its divinely advised principles rather than being subservient to the conventional finance. Moving ahead on this direction, common values can be agreed with reference to the Golden Rule, important characteristics of which are simplicity, impartiality, consistency, reciprocity and fairness; and this is what Islam or Islamic finance wishes to implement and achieve. This state of affairs calls for standardizing the bases and procedures of fatāwa issuance, product approval and Sharī‘ah certification by the jurists / Sharī‘ah scholars associated with the IFIs. The editorial cautions the policy makers, Sharī‘ah scholars and the practitioners that such changes in the Sharī‘ah bases merely on legal grounds may lead to juristic subversion in the areas of Islamic commercial law. It suggests that there have to be some universal and integrative bases and principles to be agreed upon to serve as the procedural foundation of fatāwa issuance and collective decision making. Only then Islamic finance system could evolve on sustainable basis to effectively serve the human being at large. Keywords: Islamic finance; Fatāwá, Sharī‘ah certification, Products approval process; Golden Rule. KAUJIE Classification: A6, B2, C2, I11, J42, L2, L22, L23, L24, L33, K1, K12, K13, K14, N0 JEL Classification: G2, G39, K12, N20

Islamic Finance as Basis for a New International Finance Protocol

Journal of Islamic Business and Management

The failure to properly understand the conventional tools of minting money, prior to their adapta... more The failure to properly understand the conventional tools of minting money, prior to their adaptation, combined with the desire for quick-fix solutions has led the Islamic finance institutions (IFIs) to mimic or use conventional products without taking into account their impact on sustainability of the system. The over ‘financialisation’ that started since 1970s / 1980s is the real issue causing problems for the global finance. Islamic finance as per its theory and principles might lead to resolution of the problems facing global finance. However, as the IFIs are currently following the same path, they may not expect stability as claimed in the theory of Islamic Finance. Financial engineering and securitization of debt have had excessive influence on the objectives and procedures pursued by them. The objective of this editorial is to analyse the performance and discuss the opportunities, potential and the challenges, keeping in view the developments in global finance during past 10-15 years namely influx of derivatives followed by the meltdown of innovative finance and the lessons to be learnt. Referring to the 2012’s Nobel Prize winner Alvin Roth, it tends to ascertain that people can make a stable market based on mutually-beneficial swaps rather than cash to satisfy a specific need. It suggests an international protocol to solve the problems facing global as also national economies and finance by adoption of the Law that money can earn return only by way of taking business risk and adding value for the parties concerned. It requires, in addition to regulatory controls, the different policy approaches, new structures of finance as a business, new models, procedures and fresh thought to relate banking and finance with the real economy. Ethical and responsible finance is the need of the global economy and finance and the IFIs have to serve as the role model for transition to such finance. Keywords: Financialisation, Islamic finance, Ethical protocol, Global finance, Money creation, Ulama as successors of the Prophets.

A Concise Glossary on Technical Terms Used in the Literature on Islāmic Business and Finance

Journal of Islamic Business and Management, 2015

A comprehensive glossary of Sharī'ah related terms used in Islāmic commercial law -business, bank... more A comprehensive glossary of Sharī'ah related terms used in Islāmic commercial law -business, banking and finance was published in the JIBM, Vol.2 No.2, 2012. In continuation of that, JIBM is making another humble addition to the literature on Islāmic business, banking and finance by giving the, so far, most concise glossary on technical terms being used currently in the literature of Islāmic finance. Sincere effort has been made to portray the best explanation of the terms.

Dichotomy between Sharī'ah Compliance and the Economic Goals of Islamic Finance Institutions

Journal of Islamic Business and Management

Islamic banking has crossed the milestone of forty years since the Dubai Islamic Bank and the Isl... more Islamic banking has crossed the milestone of forty years since the Dubai Islamic Bank and the Islamic Development Bank were established in 1975. Islamic banking windows, standalone Islamic banking systems and even fullfledged Islamic banks, are operating as a part of global finance industry in the scenario wherein interest based institutions capture the overwhelming part of the business. Islamic banking institutions (IBIs) use Islamic equivalents of almost all conventional finance products for financing and liquidity and risk management, from "over draft" to the most toxic derivatives like swaps to compete with the conventional banks in profitability. As a commercial necessity and the need to compete for profitability, many Islamic finance professionals, academics and some Sharī"ah scholars advocate for the use of such products and devices treating it "╒ājjah" for risk hedging on the basis of "ma╖la╒ah" or 'umūm balwa". The path dependency syndrome may lead to credibility loss to Islamic finance resulting in persistent financial exclusion of the faith based clients / investors. This paper discusses the severity of the dichotomy between economic goals and the Sharī"ah compliance focusing on the negative impact of financial derivatives and suggests some policy initiatives and steps to reduce it and make Islamic banking and finance an increasingly sustainable global discipline based on sound principles. It recommends that the jurists and Islamic finance professionals should explore the Sharī"ah rules and real business potentials to find answers to the current Islamic banking conundrum and lead the industry on the right path of developing Sharī"ah based ethical products and using really Sharī"ah based devices to hedge risk.

Global Financial Crisis ( GFC ) and Growth of Islamic Finance

Journal of Islamic Business and Management, 2012

Enhancing the Competence and Effectiveness of Shar¯ı‘ah Advisory Boards: Case of Islamic Banking Institutions in Pakistan

by Muhammad Ayub and Muhammad Asghar Shahzad

Journal of Islamic Business and Management (JIBM)

The objective of this paper is to make an assessment of the competence of the members of Sharī'ah... more The objective of this paper is to make an assessment of the competence of the members of Sharī'ah Boards of the Islamic Banking Institutions (IBIs) in terms of enabling and ensuring Sharī'ah compliance of banks business. The competency of Sharī'ah board members is considered as a critical issue in the State Banks Sharī'ah Governance Framework (SGF), which considers degree from any Wafāq al-Madāris as the basic qualification for their appointment. The paper investigates into the curricula of madāris (religious schools) in Pakistan and orientation of the madāris graduates for understanding increasingly innovative banking and finance operations. It also analyzes the syllabubs of the specialization/takhas. s. us. fī al-fiqh/takhas. s. us. fī al-iftā in the madāris. Some pragmatic recommendations have been made to enhance the expertise of the Sharī'ah board members in the light of SBPs Fit & Proper criteria. This is a pioneer study discussing the scheme of studies in Pakistani madāris and provides a basis for further research on this area.

Evolving Monetary Economics in Islamic Perspective

Journal of Islamic Monetary Economics and Finance, 2021

The challenges facing the Islamic banking and finance industry include, inter alia, resolving the... more The challenges facing the Islamic banking and finance industry include, inter alia, resolving the issue of ‘form over substance’, adopting value-based social and ethical finance, and reinforcing public confidence that its business and services conform to the principles of Shari’ah in both letter and spirit. These challenges can be faced only if Islamic finance is based on the money and monetary perspective of Islamic economics. An important aspect for discussion in this context is the issue of money creation. This paper is based on an analysis of the literature on conventional and Islamic economics and Islamic finance. It comprises observational and narrative research mainly because monetary policy from an Islamic perspective has not been implemented in any jurisdiction in the modern world. Its objective is thus to suggest how monetary policy might evolve from the perspective of Islamic law of contracts. It discusses an economic model in which a new theory of monetary economics coul...

Institutionalising 'Waqf ' for Realising the Shared Development Objective by Islamic Banks and Financial Institutions

by Journal of Islamic Business and Management JIB and Muhammad Ayub

Islamic financial system has evolved since last four decades with the objective to do justice to ... more Islamic financial system has evolved since last four decades with the
objective to do justice to all economic agents in an economy. But, the Islamic Banks and Financial Institutions (IBFIs) have been working on the conventional paradigm by replicating the interest based products. Justifying the contracts on the basis of legal form, without ensuring the underlying real spirit of the transactions [economic substance], amounts to abusing the Shar¯ ı‘ah principles (Dusuki & Abdullah, 2007, Hanif, 2016). Waqf is a civil societal institution and a crucial part of
the ‘virtuous sector’ of Islamic economy. It involves voluntary charity of perpetual tendency for benefit of mainly the poor. This editorial explores the areas that might be helpful in revitalisation of the institution of waqf by involving banks and other financial institutions for sustainable socio economic development of society and the economy. Based on the available literature, it suggests that establishing and running awq¯af at macro and micro levels has to be a common feature of the Muslim
society, while banks may facilitate in establishing and running such awq¯af . This way, IBFIs could make visible contribution through innovation and entrepreneurship. The editorial may help the IBFIs and the regulators, as also the researchers, to restructure the banking and non-banking financial institutions for benefiting from the potential of waqf for welfare of the poor and vulnerable sections of the societies
at broader levels.

Ayub, M- Liquidity Management by Islamic Banks-An Issue or a Contrivance for Risk-free Returns Editorial JIBM June 2017.pdf

Islamic finance as being practiced is losing its meaning and rationale despite its established st... more Islamic finance as being practiced is losing its meaning and rationale despite its established strengths, due mainly to replication of almost all products in use of conventional interst based finance. Despite this erratic approach, shortage of liquidity management (LM) tools is considered to be the most serious issue hampering the growth of Islamic finance. Although liquidity shortage is a genuine concern for Islamic banks, but practically the excess of liquidity has been the hallmark making liquidity management a case of profit maximization even by compromising on the Shariah principles and becoming a conduit for transfer of liquidity to the interest based system. This editorial analyses such products / practices, and suggest a new approach enabling Islamic finance to serve the cause of humanity by enhancing socioeconomic inclusion. Islamic banks are holding public money as a trust and they are accountable both to the public as also to the Almighty. It suggests the policy changes to be introduced to evolve a real, stable and sustainable Islamic system of finance.

Focusing on Sharī'ah Governance in Regulating the Islamic Banking Institutions

Islamic banking and finance has developed consistently over last four decades despite serious glo... more Islamic banking and finance has developed consistently over last four decades despite serious global financial crises time to time. This values based finance system can serve the real purpose of financial intermediation to create sustainable value in the real economy at national and global levels. But, Islamic finance institutions (IFIs) are using " Islamic " equivalents of almost all conventional products for financing and liquidity / risk management, from " over draft " to the most toxic derivatives to compete with the conventional banks in profitability. This has created credibility problem for Islamic system of finance. It refers to need for strengthening the governance of the IFIs. This editorial discusses Islamic banking practices in two categories of jurisdictions namely the countries where mainstream approach based on AAOIFI " s Shariah Standards prevails and the countries like Malaysia where specific approach has been adopted on a number of juristic issues. It finds that although the approach is apparently different, but practically Islamic banks in both categories of countries are replicating many conventional products to get comparable returns in financial markets. The paper suggests reorientation of the regulatory and governance framework enabling Islamic banks to contribute for stability of the national and global financial systems. There has to be one basis for products approval and decision making, and AAOIFI " s Sharī " ah Standards could be the best such basis.

Focusing on Shariah Governance in Regulating the Islamic Banking Institutions Editorial JIBM

Islamic banking and finance has developed consistently over last four decades despite serious glo... more Islamic banking and finance has developed consistently over last four decades despite serious global financial crises time to time. This values based finance system can serve the real purpose of financial intermediation to create sustainable value in the real economy at national and global levels. But, Islamic finance institutions (IFIs) are using " Islamic " equivalents of almost all conventional products for financing and liquidity / risk management, from " over draft " to the most toxic derivatives to compete with the conventional banks in profitability. This has created credibility problem for Islamic system of finance. It refers to need for strengthening the governance of the IFIs. This editorial discusses Islamic banking practices in two categories of jurisdictions namely the countries where mainstream approach based on AAOIFI " s Shariah Standards prevails and the countries like Malaysia where specific approach has been adopted on a number of juristic issues. It finds that although the approach is apparently different, but practically Islamic banks in both categories of countries are replicating many conventional products to get comparable returns in financial markets. The paper suggests reorientation of the regulatory and governance framework enabling Islamic banks to contribute for stability of the national and global financial systems. There has to be one basis for products approval and decision making, and AAOIFI " s Sharī " ah Standards could be the best such basis.

Running Musharkah- Running from Musharaka or Return back to Square one (Editorial JIBM).pdf

While the main problem of the conventional banking and finance system is the socialization of los... more While the main problem of the conventional banking and finance system is the socialization of loss and privatization of gain, the theory of Islamic finance is based on sharing of risks and profits. Renowned jurist, M. Taqi Usmani presented the idea of running mushārakah based on shirkah al-‘aqd for providing working capital to the corporate sector around the year 2000. However, the way it is being applied by the banks in Pakistan as replica of conventional Overdraft (OD) facility involved a number of Sharī‘ah and practical issues. It cannot be termed as mushārakah in real sense. It has rather further contaminated the originality of Islamic banking and would strengthen the tendency of Islamic banks to use ‘artificial devices’ “and a true Islamic system will not come into being” (Usmani, M. Taqi, 2000). The editorial reviews the theoretical as well as some practical issues and concludes that ‘Running Musharaka’ is worse than murāba╒ah, salam, leasing and other modes with fixed rate of return as the latter category, if genuine, performs the requisite function of linking finance with production and business activities. It is rather running away from Musharaka. Although giving hibah by a partner to the other at the time of distribution of profit is permissible as per AAOIFI’s Standard (clause 3/1/5/4), but if it becomes a norm to the effect that one party gets a fixed return by formal understanding as integral part of the contact agreed in the very beginning, it becomes riba based activity. It leads to forfeiture of the right of the depositors to get due profit. A stipulation that one partner will get as profit share a lump sum from the profit or a percentage (e.g. 5%) of the capital renders the shirkah void (AAOIFI; 3/1/5/8). Reporting such financing by banks as shirkah al ‘aqd based financing is misleading.

Keywords: Islamic finance, Working capital, Running Musharaka, Pakistan.

KAUJIE Classification: K3, L2, N6, O4, Q65, T0
JEL Classification: D63, G21, G3

Dichotomy between Sharī'ah Compliance and the Economic Goals of Islamic Finance Institutions

Islamic banking has crossed the milestone of forty years since the Dubai Islamic Bank and the Isl... more Islamic banking has crossed the milestone of forty years since the Dubai Islamic Bank and the Islamic Development Bank were established in 1975. Islamic banking windows, standalone Islamic banking systems and even full-fledged Islamic banks, are operating as a part of global finance industry in the scenario wherein interest based institutions capture the overwhelming part of the business. Islamic banking institutions (IBIs) use Islamic equivalents of almost all conventional finance products for financing and liquidity and risk management, from " over draft " to the most toxic derivatives like swaps to compete with the conventional banks in profitability. As a commercial necessity and the need to compete for profitability, many Islamic finance professionals, academics and some Sharī " ah scholars advocate for the use of such products and devices treating it " ╒ājjah " for risk hedging on the basis of " ma╖la╒ah " or 'umūm balwa ". The path dependency syndrome may lead to credibility loss to Islamic finance resulting in persistent financial exclusion of the faith based clients / investors. This paper discusses the severity of the dichotomy between economic goals and the Sharī " ah compliance focusing on the negative impact of financial derivatives and suggests some policy initiatives and steps to reduce it and make Islamic banking and finance an increasingly sustainable global discipline based on sound principles. It recommends that the jurists and Islamic finance professionals should explore the Sharī " ah rules and real business potentials to find answers to the current Islamic banking conundrum and lead the industry on the right path of developing Sharī " ah based ethical products and using really Sharī " ah based devices to hedge risk.

Islamic Finance as basis for a New International Finance Protocol

Progressing rapidly during last 40 years Islamic finance has come of age and reached the point of... more Progressing rapidly during last 40 years Islamic finance has come of age and reached the point of maturity. Despite global crisis faced by the conventional finance since 2008, Islamic finance as a whole has been covering increasing areas in the global finance and strengthening the capital base. Globally, 22 Islamic banks now have US $ 1b or more in shareholder equity with Capital Adequacy Ratio (CAR) ranging between 14 and 26 %. The average ROE of top 20 banks offering Islamic finance ranged between 6-20 % during 2010–14. Having covered this milestone, the JIBM aspires to analyse the performance and discuss the opportunities, potential and the challenges, keeping in view the developments in global finance during past 10-15 years-influx of derivatives followed by the meltdown of innovative finance, lessons to be learnt from the recent crises and responsibilities of the Sharī " ah fraternity, academicians, policy makers and the practitioners of Islamic finance.

Islamic Finance as basis for a New International Finance Protocol

The failure to properly understand the conventional tools of minting money, prior to their adapta... more The failure to properly understand the conventional tools of minting money, prior to their adaptation, combined with the desire for quick-fix solutions has led the Islamic finance institutions (IFIs) to mimic or use conventional products without taking into account their impact on sustainability of the system. The over ‘financialisation’ that started since 1970s / 1980s is the real issue causing problems for the global finance. Islamic finance as per its theory and principles might lead to resolution of the problems facing global finance. However, as the IFIs are currently following the same path, they may not expect stability as claimed in the theory of Islamic Finance. Financial engineering and securitization of debt have had excessive influence on the objectives and procedures pursued by them.
The objective of this editorial is to analyse the performance and discuss the opportunities, potential and the challenges, keeping in view the developments in global finance during past 10-15 years namely influx of derivatives followed by the meltdown of innovative finance and the lessons to be learnt. Referring to the 2012’s Nobel Prize winner Alvin Roth, it tends to ascertain that people can make a stable market based on mutually-beneficial swaps rather than cash to satisfy a specific need. It suggests an international protocol to solve the problems facing global as also national economies and finance by adoption of the Law that money can earn return only by way of taking business risk and adding value for the parties concerned. It requires, in addition to regulatory controls, the different policy approaches, new structures of finance as a business, new models, procedures and fresh thought to relate banking and finance with the real economy. Ethical and responsible finance is the need of the global economy and finance and the IFIs have to serve as the role model for transition to such finance.

Keywords: Financialisation, Islamic finance, Ethical protocol, Global finance, Money creation, Ulama as successors of the Prophets.