International Journal of Islamic Finance

Determinants of Islamic Banking Profitability: A Cross-Country Panel Analysis from IFSB Data (2016-2024)

2025-11-04T11:48:36+07:00

Background: Islamic banking plays a crucial role in promoting financial inclusion and economic stability across member countries of the Islamic Financial Services Board (IFSB). However, the variability in profitability across nations raises questions regarding which internal financial factors most strongly influence performance at the industry level.

Objectives: This study aims to analyze the influence of CAR, NPF, CIR, and LR on the ROA of Islamic banking industries across twelve IFSB member countries during 2016-2024.

Novelty: This study provides a cross-country industry-level analysis of Islamic banking profitability, revealing that efficiency and credit risk management are stronger determinants of performance than capital strength.

Research Methodology / Design: This research employs panel data regression using secondary data from IFSB. The sample includes 12 countries with consistent financial reporting from 2016–2024.

Findings: The results reveal that NPF and CIR have significant negative effects on profitability, while LR has a significant positive effect. CAR shows a positive but statistically insignificant relationship.

Implication: Theoretically, the study reinforces the efficiency and risk management theories within Islamic financial systems. Practically, regulators should prioritize policies enhancing operational efficiency and credit risk governance, while banks should optimize liquidity without compromising profitability sustainability.

Digital Shariah Governance and the Future of Islamic Finance: A Framework for AI-Driven Shariah Compliance in a Global Regulatory Environment

2025-11-04T12:01:46+07:00

Background: Digital transformation in Islamic finance offers significant opportunities while simultaneously challenging the sustainability of Sharia principles, particularly in governance, transparency, and compliance. Although Artificial Intelligence (AI) enhances operational efficiency and decision-making accuracy, its application raises ethical and juridical concerns due to the gap between technological innovation and maqasid al-shariah values.

Objectives: This study aims to develop a conceptual model of AI-based digital Sharia governance by integrating the Technology Acceptance Model (TAM), Institutional Theory, and Maqasid al-Shariah to explain technology acceptance, institutional legitimacy, and the realization of public welfare objectives.

Novelty: The novelty lies in integrating these three major frameworks, which are rarely combined in Islamic finance studies, by bridging user acceptance, institutional pressures, and Islamic normative values within a unified digital Sharia governance model.

Research Methodology / Design: This study adopts a conceptual-theoretical approach through systematic analysis and synthesis of reputable international literature in Islamic finance, financial technology, and ethical governance. The model links perceived usefulness, institutional legitimacy, and maqasid orientation without employing empirical data.

Findings: The proposed model indicates that the success of AI-driven digital Sharia governance depends on the synergy between user acceptance, institutional compliance, and alignment with maqasid al-shariah values, particularly justice, public welfare, and the protection of collective interests.

Implication: Theoretically, this study contributes to the literature on the integration of technology and Islamic ethics. Practically, it provides a strategic reference for regulators and Islamic financial institutions in designing AI-based digital governance frameworks that are not only technologically efficient but also Sharia-compliant and ethically grounded.

Generation Z’s Investment Interest In Indonesia’s Blockchain-Based Green Sukuk

2025-11-04T14:32:16+07:00

Background: As sustainable finance gains prominence, blockchain technology has emerged as an innovative tool to enhance transparency, efficiency, and trust in Islamic capital markets. Blockchain-based Green Sukuk is one of the applications in finance and has the potential to attract investment interest from Generation Z, a demographic characterized by a strong openness to innovation.

Objectives: This study aims to examines the determinants of Generation Z’s investment interest in Indonesia’s blockchain-based Green Sukuk.

Novelty: This study addresses the relationships between digital financial literacy, Islamic fintech, and Generation Z’s investment interest in blockchain-based green sukuk.

Research Methodology / Design: This research adopts a quantitative approach, collecting survey data from Generation Z respondents with knowledge or experience in digital financial services. The study focuses on two main predictors: digital financial literacy and Islamic fintech adoption.

Findings: Findings reveal that higher digital financial literacy significantly increases the likelihood of investing in blockchain-based Green Sukuk, as it equips young investors with the ability to assess risks, understand product features, and navigate digital investment platforms. Furthermore, Islamic fintech serves as an enabler by providing Sharia-compliant, user-friendly, and accessible channels for sustainable investment products. The integration of blockchain in Green Sukuk issuance is found to strengthen investor confidence by ensuring accountability and traceability of funds toward environmentally beneficial projects.

Implication: The results offer practical implications for policymakers, Islamic financial institutions, and fintech providers seeking to engage younger generations in sustainable Islamic finance. By combining sustainability goals, Sharia compliance, and emerging technology, this study contributes to bridging the gap between environmental objectives and the evolving investment preferences of Generation Z in Indonesia.

Economic Growth and Islamic Financial Inclusion in OIC Countries: Evidence with Spline Approach

2025-11-15T18:32:46+07:00

Background: Digital financial inclusion is presently one of the most acknowledged domains of international development. Financial inclusion is pertains to the accessibility of inexpensive financial services for individuals and enterprises to fulfill their requirements.

Objectives: This study aims to analyze the effect of Islamic financial inclusion on economic growth in Organisation of Islamic Cooperation (OIC) member countries, focusing on the importance of financial infrastructure and digital adoption in Muslim-majority nations.

Novelty: This study presents a novel methodology by analyzing the correlation between economic growth and Islamic financial inclusion in the context of OIC (Organization of Islamic Cooperation) nations with a Spline regression model. This research explicitly examines Islamic financial inclusion, a neglected aspect that adheres to the norms and practices of Sharia law, in contrast to traditional studies that address financial inclusion in a general sense.

Research Methodology / Design: The research employs the Spline regression approach to capture the non-linear relationship between Islamic financial inclusion and economic growth. The dependent variable is economic growth represented by GDP per capita, while the independent variables consist of the number of ATMs, Islamic bank branches, mobile phone usage, and internet access. The study uses data from 47 OIC member countries, with independent variables from 2022 and the dependent variable from 2023.

Findings: The results indicate that the maturity level of financial infrastructure and the adoption of technology significantly contribute to economic growth. The separation of indicators based on their influence provides valuable insights for policymakers to design more targeted financial inclusion strategies. Furthermore, the findings highlight that access to financial services, digital adoption, and Islamic financial practices play a transformative role in improving GDP per capita across OIC countries.

Implication: The findings provide both theoretical and practical implications by demonstrating that tailored financial inclusion policies are needed to accommodate diverse national contexts and stages of economic development in OIC member states.

Does Islamic Social Reporting Enhance the Profitability of Islamic Banks? Evidence from Selected OIC Countries

2025-11-15T18:30:03+07:00

Background: Awareness of social responsibility within Islamic banking has grown rapidly in recent years, driven by increasing expectations for Islamic financial institutions to fulfill not only financial but also social and environmental obligations. This evolution reflects the growing importance of legitimacy and trust among stakeholders. Countries with a majority Muslim population, such as Indonesia, Malaysia, and the Gulf states, are expected to lead in implementing Islamic-based social responsibility practices and transparent reporting through Islamic Social Reporting (ISR)

Objectives: This research aims to examine the impact of Islamic Social Reporting (ISR) disclosure on the profitability of Islamic banks in selected Organization of Islamic Cooperation (OIC) member countries.

Novelty: The novelty of the study lies in its cross-country comparative analysis of ISR practices among Islamic banks within OIC member nations. While prior studies have explored the relationship between ISR and financial performance, limited research has examined how cultural, regulatory, and institutional contexts across Islamic economies shape this relationship. This study contributes to the literature by providing empirical evidence on how ISR may entail short-term trade-offs with profitability but serve as a foundation for long-term sustainability and ethical accountability.

Research Methodology / Design: A quantitative research approach was employed using secondary data derived from the financial statements and sustainability reports of Islamic banks from 2021 to 2024. Data analysis involved classical assumption testing, simple linear regression to test the relationship between ISR and profitability (ROA, ROE), and one-way ANOVA to identify cross-country differences. Statistical analysis was performed using SPSS software.

Findings: The findings reveal that ISR disclosure has a significant negative influence on Islamic banks’ profitability as measured by both ROA and ROE. Additionally, ISR disclosure levels vary significantly across countries, with Indonesia demonstrating higher levels compared to Malaysia and the Gulf states. These results indicate that while ISR strengthens ethical accountability and transparency, its financial benefits are not immediate but may accumulate over time.

Implication: The study implies that Islamic banks must strategically balance their social and financial objectives. Theoretically, the findings support the legitimacy theory and stakeholder theory by emphasizing that socially responsible behavior enhances institutional credibility. Practically, policymakers and banking regulators should encourage standardized ISR frameworks to ensure that social responsibility reporting contributes not only to ethical governance but also to sustainable financial performance in the long term.

Reconstructing Islamic Finance Through Maqashid Shariah and Green Economy: An Agent-Based Adaptive Model

2025-11-15T18:36:38+07:00

Background: The global financial landscape is evolving toward greater ethical, social, and environmental accountability. However, Islamic finance originally a moral alternative to capitalism often mirrors conventional systems with limited Shariah depth. Bridging the gap between maqāṣid al-sharīʿah ideals and practice requires reconstructing Islamic financial governance through an integrative model aligning Shariah principles with green economy sustainability.

Objectives: This study aims to reconstruct an Islamic financial model grounded in maqashid al-shariah and green economy principles through the Agent-Based Modeling (ABM) approach, in order to understand how green fiscal policies such as carbon taxation and green subsidies affect the investment behavior of Islamic financial institutions and the dynamics of economic sustainability.

Novelty: This research introduces a novel conceptual framework called the Maqashid Green Adaptive Finance System (MGAFS), which operationalizes maqāṣid al-sharīʿah within the context of adaptive financial governance. Unlike prior studies that are predominantly descriptive or institutional, this study employs ABM to dynamically simulate multi-agent interactions among regulators, IFIs, and consumers in response to green fiscal policies. The model represents a methodological and theoretical innovation by bridging Islamic ethical foundations with computational systems thinking, thereby transforming maqāṣid al-sharīʿah from a normative doctrine into an empirical tool for sustainability analysis.

Research Methodology / Design: This study employs an experimental computational approach based on Agent-Based Modeling (ABM) involving three primary agent groups: regulators, Islamic financial institutions (IFI), and consumers. The main parameters include the number of consumers, number of IFI, simulation periods, carbon tax rates, and levels of green subsidies. Two policy scenarios high green subsidy and high carbon tax are compared to analyze the systemic responses to different policy interventions.

Findings: The simulation results indicate that green subsidies have a more significant impact on enhancing green investment and total income compared to carbon taxes. However, the combination of both policies produces a synergistic effect on the long-term stability of the Islamic financial system.

Implication: These findings provide an empirical foundation for policymakers to integrate the principles of maqashid shariah with green economic instruments, thereby strengthening sustainable and adaptive governance within the Islamic financial system amid the global ecological transition.