Ownership, physical, financial, and informational supply chain flows and scor model processes of the financed assets from the perspective of Islamic financing contracts

Abstract

It has been acknowledged that Islamic banks’ financings are based on assets, and scant is known about the supply chain flows and processes of financed assets with Islamic finance contracts and principles. Due to the Islamic finance principles, it is pertinent to understand the supply chains of the financed assets along with the finance contracts and principles. Therefore, this study aims to elaborate on the supply chain flows and processes of financed assets from the Islamic finance contracts perspective. This qualitative case study investigated the supply chains of financed assets within the context of Islamic banking in Pakistan. Since not much empirical evidence was found in the academic literature, hence qualitative research using a case study approach was carried out. Six banks in Pakistan were selected to participate in this study, and data collection sources included interviews, official documents, and web pages. The interview protocol was used to guide the interview sessions with the representatives from the six selected banks to gain in-depth insights into the study. The study found that the supply chain flows, and processes of the Islamic finance contracts were characterised by complexity. In essence, three main patterns were found in the ownership supply chain flows of the financed assets. Islamic banks become the owner of the financed asset between the supplier and client in pattern one, between the client and third-party customer in pattern two and between the supplier and the third-party customer in pattern three as the client's partner. The participating six Islamic banks mostly appoint the same clients as agents for physical, financial, and informational supply chain flows of the financed assets, especially in business assets’ financing. This study concludes that Islamic banking is a model between trading company and banking company models in terms of supply chain flows and processes of the financed assets. This research contributes to the body of knowledge in the fields of supply chain management and Islamic finance and, thus, provides avenues for future research. This study recommends using other theories and methodologies in future such as the action research method.