Measuring Shariah non-compliance risk (SNCR): claw-out effect of al-bai-bithaman ajil in default

Saiful Azhar Rosly, Muhammad Arzim Naim and Ahcene Lahsasna

Journal of Islamic Accounting and Business Research, 2017, vol. 8, issue 3, 272-283

Abstract: Purpose - The purpose of this paper is to examine the meaning, nature and measurement of Shariah non-compliant risk faced by Islamic banks. Design/methodology/approach - Al-bai-bithaman ajil (BBA) contract documentation is analyzed in the light of the legal environment in Malaysia and measurement of Shariah non-compliant risk based on constructed or hypothetical cases. Findings - Shariah non-compliant risk will adversely affect bank’s earnings when BBA contracts are deemed invalid in the court of law, either in a foreclosure or ruling via court declaration. Research limitations/implications - The paper is written based on content analysis, Malaysian legal cases with hypothetical examples for better understanding. Practical implications - Islamic banking should be able to use the findings to estimate potential loss from Shariah non-compliant risk and make the necessary provisions. Originality/value - This paper provides new insights of risks faced by credit-intensive Islamic banks, that when relinquishing critical requirement of Islamic contract such as ownership risk will suffer loss.

Keywords: Al-bai-bithaman ajil; Claw-out effect; Foreclosure; Profit-in-suspense; Shariah non-compliance risk (search for similar items in EconPapers)
Date: 2017
References: Add references at CitEc
Citations: View citations in EconPapers (1)

Downloads: (external link)
https://www.emerald.com/insight/content/doi/10.110 ... d&utm_campaign=repec (text/html)
https://www.emerald.com/insight/content/doi/10.110 ... d&utm_campaign=repec (application/pdf)
Access to full text is restricted to subscribers

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:eme:jiabrp:jiabr-02-2016-0018

DOI: 10.1108/JIABR-02-2016-0018

Access Statistics for this article

Journal of Islamic Accounting and Business Research is currently edited by Dr Mohammad Hudaib and Prof Roszaini Haniffa

More articles in Journal of Islamic Accounting and Business Research from Emerald Group Publishing Limited
Bibliographic data for series maintained by Emerald Support ().