Examining sustainable Shari’ah compliance under shirkah-ul-milk: does Shari’ah-compliant risk matter

Abstract

Purpose: Shari’ah compliance has been a subject of debate to academics, Islamic scholars and practitioners since its inception in 1983. Besides a wide range of publications in Shari’ah compliance, only a few studies have examined Shari’ah-compliant risks especially among the Islamic banks. This paper aims to investigate the factors of Shari’ah-compliant risks in Shari’ah compliance under the Shirkah-ul-milk (hire purchase) in Bangladesh. Design/methodology/approach: The investigation of Shari’ah compliant risks from both bankers and clients were gained via a structured questionnaire to acquire a better understanding of Islamic banking practices in Bangladesh. In analyzing the data, two empirical tests were used to draw inferences on Shari’ah-compliant risks–Shari’ah compliance relationship: the measurement model, a diagnostic test, was used to justify the reliability and validity of constructs, and the partial least squares structural equation modeling was applied to examine the hypotheses on the existent links between Shari’ah-compliant risks and Shari’ah compliance under Shirkahul-milk. Findings: Unlike previous studies, the empirical evidence provides the pertinent attributes of Shari’ah-compliant risks, which are more significant in avoidance of the compliance of Shari’ah laws in banking operations. Such Shari’ah-compliant risks are significantly raised by various comprehensive, operational, environmental and distributional risks in banking that have failed to address fairness, justice and economic well-being at the transactional level. Originality/value: A new empirical evidence focusing on the propagation of Shari’ah-compliant risks is preferred for effective Shari’ah compliance in operations as being an original structure of Islamic banks.