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American Journal of  Economics and 
Business Innovation (AJEBI)

Exploring the General Knowledge of  Islamic Finance Principles: A Factor Analysis 
Study Among College Students

Christhoffer P. Lelis1*, Neil Patrick S. Muega1, Jose Karlo T. Caballero II1

Volume 2 Issue 3, Year 2023
ISSN: 2831-5588 (Online), 2832-4862 (Print)

DOI: https://doi.org/10.54536/ajebi.v2i3.2032
https://journals.e-palli.com/home/index.php/ajebi

Article Information ABSTRACT

Received: August 20, 2023

Accepted: September 25, 2023

Published: September 30, 2023

This study explored the foundational constructs of  general knowledge concerning the 
principles of  Islamic Finance, with a specific focus on college students majoring in Business, 
Finance, and Accountancy. Employing a combination of  exploratory factor analysis 
(EFA) and confirmatory factor analysis (CFA), the research identified and validated three 
distinct factors shaping this knowledge domain. The first factor, named “Risk Tolerance 
and Permissible Transactions,” looks at how well students understand financial risk and 
which transactions are allowed in Islamic finance. The second, “Shari’ah Foundation and 
Transparency,” highlights the importance of  Shari’ah principles and transparency in financial 
dealings. The third, “Riba Prohibition and Ethical Finance,” strongly emphasizes the ban 
on Riba (interest) and unethical financial practices in Islamic finance. These factor names 
were chosen carefully to represent the main ideas in each category. Overall, this research 
contributes by creating a validated objective knowledge scale for Islamic Finance knowledge 
among students in Business, Finance, and Accountancy programs.

Keywords
College Students, Factor Analysis, 
Financial Literacy, Islamic 
Finance, Knowledge Assessment

1 Department of  Finance, School of  Business and Governance, Ateneo de Davao University, Philippines
* Corresponding author’s e-mail: lelischristhoffer@gmail.com

INTRODUCTION 
Islamic Finance (herein referred as “IF”) represents 
a faith-driven financial system, rooted in Shariah law 
and the principles of  Islamic economics (Habib, 2018). 
Its foundation rests on a fundamental rule which is 
the avoidance of  exchanging current money for future 
money at an additional cost (Al-Jarhi, 2017, p. 118). 
Moreover, its underlying principles emphasize equity, 
fairness, compassion, collaboration, entrepreneurship, 
morality, and the overall welfare of  both the environment 
and society, as opposed to mere profit maximization 
(Habib, 2018). Among its guiding principles is the 
avoidance of  exchanging current goods or services for 
future monetary gains at a premium (Bourar & Mouloudi, 
2020, referencing Al-Jarhi 2017). Additionally, there is a 
core prohibition on Riba (interest) due to its inclination 
towards risk-sharing and profit-and-loss distribution 
(Khattak & Rehman, 2010), rendering IF an alternative 
to conventional finance. To attain proficiency in IF, one 
must acquire, through education and/or experience, 
knowledge specific to Islamic financial products and 
concepts (Rahman, Tajudin, & Tajudin, 2018). Notably, 
IF is not confined solely to Muslims countries; it is 
increasingly garnering interest and acceptance worldwide 
(Bourar et al., 2020, citing Khattak & Rehman, 2010).
The demographic and educational landscape in 
Mindanao, as highlighted by the 2015 Census of  
Population conducted by the Philippine Statistics 
Authority (PSA), underscores the significance of  Islam 
as the second largest religion in the region. With 93% of  
the entire Islamic population of  the Philippines residing 
in Mindanao, this region serves as a crucial hub for the 
practice and propagation of  Islamic faith and culture 
(PSA, 2017). Notably, Mindanao is also home to Ateneo 

de Davao University, an institution with a Catholic-
Jesuit heritage. This juxtaposition of  religious diversity 
is a testament to the region’s commitment to fostering 
inclusivity and understanding among its diverse student 
population. Ateneo de Davao University, through its 
support for organizations like the Al Qalam Institute and 
the Salaam Movement, plays a pivotal role in nurturing 
the Muslim student community within its walls (Ateneo 
de Davao University, 2017).
In line with this inclusive approach, the School of  Business 
and Governance (SBG) at Ateneo de Davao University 
offers a forward-thinking Bachelor of  Science in Finance 
program that includes a subject titled “Finance in Asia,” 
specifically dedicated to Islamic Finance and Banking 
(Ateneo de Davao University, 2018). This academic 
initiative not only reflects the university’s commitment 
to providing a holistic education but also recognizes the 
importance of  Islamic Finance (IF) in the contemporary 
financial landscape. Graduates from this program are 
well-positioned to become potential practitioners who 
can effectively operationalize the principles of  IF. This 
educational endeavor not only equips students with the 
necessary skills and knowledge to engage with Islamic 
finance but also contributes to the broader goal of  
promoting economic inclusivity and diversity in the region.
In essence, the presence of  Islam as a significant religious 
demographic in Mindanao, alongside the efforts of  Ateneo 
de Davao University to promote interfaith understanding 
and inclusivity, serves as a compelling example of  how 
diverse religious and educational institutions can coexist 
and collaborate to enrich the educational experience. 
By offering a specialized finance program in Islamic 
finance and banking, the university not only empowers 
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also contributes to the promotion of  Islamic finance 
principles and economic diversity in the region. This 
multifaceted approach highlights the importance of  
recognizing and celebrating religious and cultural diversity 
within educational institutions to foster mutual respect, 
understanding, and economic growth.
There is, however, a limited assessment tool to measure 
these students’ financial knowledge on IF. Existing 
tools that have been developed are subjective and may 
be inadequate to objectively measure their knowledge. 
Further, an assessment tool specific to the said students 
incidentally assesses the curriculum’s effectiveness on 
ensuring that IF knowledge survives generations. The 
objective of  this research, therefore, was to develop 
an objective type of  questionnaire with an attempt to 
establish constructs that measure the general knowledge 
of  SBG students from Ateneo de Davao University, 
regarding the core principles of  Islamic Finance.

LITERATURE REVIEW
Core Principles of  Islamic Finance
Islamic finance represents an approach to financial 
activities that operates in accordance with Shariah 
principles, as founded, regulated and illustrated by 
Shariah law (Alamad, 2017). The term “IF” is also used to 
denote a financial service or product that is consistent or 
principally implemented to adhere to Shariah or Islamic 
law principles (Gait & Worthington, 2008). Additionally, 
Islamic Finance constitutes a comprehensive rule-based 
financial system, with its foundational principles rooted in 
the Holy Quran and the practices of  Prophet Muhammad 
(Uddin, 2015). Its banking and financial framework are 
established to provide range of  religiously acceptable 
financial services to Muslim communities (Hassan and 
Lewis, 2007, citing Chapra, 1985). In contrast to the 
profit-maximizing focus of  interest-based banking 
systems, its primary objective is to render socio-economic 
benefits to Muslims (Ahmad and Hassan, 2007). This 
underscores the importance of  comprehending the 
fundamental rules that set Islamic Finance distinct from 
Conventional Finance. Velayutham (2014) affirms that the 
Islamic principles exerting the most profound influence 
on Islamic Economics encompass the prohibition of  
interest payments (Riba), the sale of  high-risk assets or 
dealings involving uncertainties (Gharar), and speculative 
activities like gambling (Maysir).
Riba, an Arabic word (raba), literally means “to grow” or 
“expand,” or “increase” or “inflate” or “excess” and is 
generally translated as “usury” or “interest” (Ahmad and 
Hassan, 2007, citing Al-Isfahani, Al-Raghib & Al-Husain, 
1961). In Shariah, it technically refers to the “premium” 
that must be paid by the borrower to the lender, along 
with the principal amount as a condition for the loan 
or for an extension in its maturity (Ahmad and Hassan, 
2007, citing Chapra). The absolute prohibition of  Riba in 
al-Qur’an is a command to establish an economic system 
from which all forms of  exploitation are eliminated, that 
is, the injustice of  the financier being assured of  a positive 

return without sharing the risk, while the entrepreneurs, 
despite their management and hard work, is not assured 
of  such a positive return (Ahmad and Hassan, 2007). The 
prohibition of  Riba in al-Qur’an is, therefore, a way to 
establish equity between financiers and entrepreneurs 
(Id). Riba in Islamic Finance is absolutely prohibited. 
In practical terms, it signifies the additional amount that 
borrowers must pay to lenders, in addition to the principal 
amount, as a requirement for the loan or an extension in 
its maturity (Iqbal & Mirakhor, 2011).
Meanwhile, the Arabic word Gharar literally means deceit, 
risk, fraud, uncertainty, or hazard that might lead to 
destruction or loss (Uddin, 2015). Scholars have defined 
it as something which its consequence is undetermined 
or something that is concealed in both its manner and 
consequences (Uddin, 2015). Gharar in Islam, therefore, 
refers to any transaction of  probable objects whose 
existence or description is not certain due to a lack of  
information and knowledge of  the ultimate outcome of  
the contract or the nature and quality of  its subject matter 
(Id). Gharar occurs in all sorts of  transactions where the 
subject matter, the price, or both are not determined 
and fixed in advance or there are certain ambiguities in a 
contract or transaction. Modern financial practices such 
as speculative activities in the capital market, derivatives 
instruments, and short-selling contracts often exhibit 
bright examples of  Gharar (Uddin, 2015). In Islamic 
Finance, the basic principle is avoidance of  Gharar, 
although it is not absolutely prohibited as there are certain 
exceptions to it in certain cases.
Lastly, “Maysir” refers to speculation or the easy 
acquisition of  wealth by chance, whether or not it 
deprives others of  their rights (Uddin, 2015). In the 
Qur’an, the term “Maysir” is mentioned three times, 
while the specific term “Qimar,” referring to betting, is 
not found within its verses (Abdullah, 2017). Engaging 
in Maysir and Qimar can lead to consequences such as 
hostility, cursing and disagreement among participants, 
and harm to economic growth, in addition to diverting 
people from remembering Allah and performing prayers 
(Abdullah, 2017, citing Al-Razi, 1981). Participation in 
betting associated with Qimar and Maysir can also create 
an insatiable desire to win, especially after experiencing 
losses, potentially leading to the depletion of  all one’s 
assets. This inevitably results in significant social problems 
and disrupts the socio-economic fabric of  society 
(Abdullah, 2017). In the context of  business activities, 
Maysir involves deriving monetary gains solely through 
chance, speculation, or guesswork (Uddin, 2015, citing 
Hameed, 2009). What makes Gharar illegal is not just the 
degree of  uncertainty but also the absence of  risk-sharing 
between the contracting parties (Uddin, 2015). 

Studies on Islamic Financial Knowledge 
Abdullahi and Shaharuddin (2016) conducted a study 
to assess the extent of  knowledge and awareness 
among the Muslim population in Macedonia, a country 
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Islam, regarding Islamic banking services. The research 
outcomes revealed that a substantial portion of  the 
Muslim community in Macedonia is well-informed about 
the prohibition of  interest (Riba) and consequently 
refrains from engaging with conventional banks. 
However, the study also found that their comprehension 
of  Islamic banking principles and services is at a moderate 
level. In essence, this research illustrates that while many 
Macedonian Muslims are cognizant of  the importance 
of  avoiding interest-based transactions, there is room 
for further education and awareness-building regarding 
the intricacies of  Islamic banking concepts and services 
within this demographic.
Alfarisi (2020) conducted a comprehensive analysis of  
the influence of  courses related to Islamic economics and 
finance on the level of  Islamic Financial Literacy (IFL) 
among university students. The findings of  this study 
unveiled a significant impact of  these specialized courses 
on enhancing the level of  Islamic financial knowledge or 
literacy among the students. This observation aligns with a 
similar study conducted by Md and Ahmad (2020), which 
revealed that courses specifically designed for Muslim 
undergraduate students in Malaysia had a substantial 
positive effect on their overall financial literacy scores.
Additionally, Rahim, Rashid and Hamed (2016) identified 
key factors that play a pivotal role in shaping IFL among 
university students. These factors encompass religiosity, 
financial satisfaction, and hopelessness, highlighting the 
multifaceted nature of  IFL development. Interestingly, 
a study concentrating on a sample group of  students 
enrolled in the faculty of  Islamic economics and business 
found that, among these factors, “age” was the sole 
determinant influencing the level of  financial literacy 
(Hisan, 2019). However, it’s important to note that the 
existing literature on IFL seems to have gaps when it 
comes to exploring other potential contributors to this 
concept, suggesting the need for further research in this 
domain to gain a more comprehensive understanding of  
the determinants and dynamics of  Islamic financial literacy.
Widityani, Faturohman, Rahado and Yulianti (2020) put 
forth a framework comprising three key variables—
attitude, perception, and knowledge and behavior—that 
contribute to the development of  Islamic Financial 
Literacy (IFL) among college students. Their research 
also highlighted that the IFL index varies depending on 
the level of  education and gender, with students who 
have taken Islamic finance-related courses tending to 
exhibit higher IFL indices. Furthermore, students with 
a higher IFL index demonstrated a greater preference 
for Islamic financial products. This underscores the 
significance of  education and awareness in fostering IFL 
among students.
Antara and Musa (2020) took a different approach by 
employing Rasch analysis to create a reliable and valid 
instrument for measuring IFL among Muslim urban 
millennial (MUM) generations. Their study successfully 
resulted in the development of  a robust measurement 

scale. However, it did reveal gender-based biases in the 
responses to three specific items, emphasizing the need 
for addressing potential biases when assessing IFL.
In a related context, Nawi, Daud, Ghazali, Yazid and 
Shamsuddin (2018) delved into the IFL concept and 
suggested suitable items for its measurement. Their 
research led to the creation of  proposed measurement 
items for IFL, along with the formulation of  various 
questions related to topics such as Islamic banking, 
fundamental financial principles, Shariah-compliant 
investments, and takaful. These contributions in the 
literature are crucial for advancing our understanding of  
IFL and providing the tools to effectively measure and 
nurture this essential financial literacy concept among 
various demographic groups.

MATERIALS AND METHODS
Design and Measurement
In this study, an exploratory quantitative research approach 
was employed to establish constructs for measuring the 
general knowledge of  Principles of  Islamic Finance 
(PIF) among students majoring in business management, 
accountancy, and finance at Ateneo de Davao University 
(AdDU) during the second semester of  the academic year 
2022-2023. The instrument for this research took the 
form of  an objective questionnaire featuring statements 
with binary responses (true or false). 
To assess PIF knowledge, the researchers crafted 30 
statements grounded in the fundamental principles of  
Islamic Finance. These constructs were then rigorously 
analyzed through exploratory factor analysis, followed 
by validation through confirmatory factor analysis. This 
methodological framework enabled a systematic and 
comprehensive evaluation of  the students’ understanding 
of  PIF, contributing to a better grasp of  the state of  
Islamic financial literacy within this academic cohort.

Sample, Data Collection and Statistical Analysis
The study involved a sample of  201 respondents, 
consisting of  college students enrolled in the School of  
Business and Governance at Ateneo de Davao University. 
These students were specifically from academic programs 
such as Business Management, Finance, and Accountancy. 
Data collection was carried out through an online survey 
conducted via Google Forms, with the survey link 
distributed to the intended respondents via email. 
The collected data were subsequently subjected to 
a series of  statistical analyses. Initially, Exploratory 
Factor Analysis (EFA) was employed, using methods 
like Principal Axis factoring and Varimax rotation, to 
identify and extract underlying factors within the dataset. 
Following this, Confirmatory Factor Analysis (CFA) was 
conducted to assess the validity of  the factor structure 
that had been derived from the EFA results. Several fit 
indices, including χ²/df, TLI, and CFI, were utilized to 
evaluate the goodness of  fit. The entire statistical analysis 
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software known as JAMOVI 2.2.5 (The Jamovi Project, 
2022). This comprehensive methodological approach 
ensured the rigorous examination and validation of  the 
constructs underlying the study’s objectives.

RESULTS AND DISCUSSION
Exploratory Factor Analysis 
Exploratory Factor Analysis (EFA) is a statistical technique 
used to uncover the underlying structure or latent factors 
within a set of  observed variables or items. In this specific 
case, the researchers employed Principal Axis Factoring 
(PAF) with varimax rotation, which is a common method 
in EFA. The goal of  EFA is to reduce the complexity of  
data by identifying patterns or relationships among the 
items, allowing for a more straightforward interpretation 
of  the data.
The results of  the analysis, as shown in Table 1, reveal two 
important indicators: the Kaiser-Meyer-Olkin (KMO) test 
and the Bartlett test of  sphericity. The KMO test assesses 
the adequacy of  the sample size for factor analysis, with 
a value above 0.5 indicating that the data are suitable for 
factor analysis. In this case, the KMO value meets this 
criterion, indicating that the sample size is adequate. The 
Bartlett test of  sphericity, which tests the null hypothesis 
that the correlation matrix is an identity matrix (meaning 
there are no underlying factors), becomes significant 
when there is evidence of  a meaningful factor structure 
in the data. The fact that the Bartlett test is significant (P 
< 0.001) suggests that there are indeed underlying factors 
present in the data, further validating the appropriateness 
of  conducting factor analysis. These results collectively 
indicate that the dataset is suitable for EFA, allowing 
for the identification of  latent factors among the items 
in the scale. 

To determine the number of  dominant factors in the 
dataset, the researchers conducted a Parallel Analysis 
using a Monte Carlo Simulator. This analysis involved 
comparing the actual data to simulated data. In Figure 1, 
the analysis showed that there were three factors based 
on the number of  points where the data intersected 
with the simulated lines. Following this determination, 
the data analysis was rerun with three factors, and a 
threshold of  factorial saturation at 0.4 or higher was 
applied. This criterion was used to assess the strength 
of  the relationship between each item and its respective 
factor. As a result of  this analysis, a total of  18 items were 
removed from the factors because their factor loadings 
were below the 0.4 threshold. This step was crucial for 
refining the factor structure and retaining only those 
items that demonstrated a strong association with their 
respective factors, ensuring the validity of  the factor 
analysis results.
The development of  the Principles of  Islamic Finance 
(PIF) General Knowledge scale involved several steps to 
refine the questionnaire. Initially, it comprised 30 items 
designed to assess participants’ understanding of  Islamic 
finance principles. Following the first exploratory factor 
analysis, the scale was refined, reducing the number of  
items to 12. Subsequently, a factor analysis was conducted 
on these 12 selected items. The results of  this analysis, as 
presented in Table 2, revealed a categorization of  these 
items into three distinct factors.
Factor 1 encompasses 5 items, each demonstrating factor 
loadings ranging from 0.39 to 0.66. These factor loadings 

Table 1: KMO and Bartlett’s test
Test Value
KMO measure of  sampling Adequacy 0.636
Bartlett’s test of  sphericity approximately 
Chi square

248

Degrees of  freedom (df) 66
Significant 0.000

Figure 1: Parallel Analysis using Monte Carlo Simulator

Table 2: Extracted Factors with Factor Loadings
Factor Item 

Number
Item Statement Factor 

Loading

1

IF15 It is permissible for a person to speculate or spend money on an undertaking with 
a high risk or probability of  failure.

0.66

IF11 Acquisition of  wealth by chance such as lotteries is permissible. 0.61
IF16 Riba means interest, which is allowed in Islamic law. 0.50
IF9 Option derivatives are permitted because there is no certainty whether a 

transaction will take place because the option buyer has the right but not the 
obligation to transact.

0.47

IF2 It is permitted to pay the principal borrowed with pre-agreed additional 
commodities of  different kinds.

0.39



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indicate the strength of  the relationship between each 
item and Factor 1, with higher loadings suggesting a more 
significant contribution to this factor. Factor 2 comprises 
3 items, and their factor loadings range from 0.35 to 
0.54. Similarly, Factor 3 encompasses 4 items with factor 
loadings between 0.34 and 0.49. These factor loadings 
serve as indicators of  how well each item aligns with its 
respective factor. Altogether, this factor analysis resulted 
in the classification of  the 12 items into three distinct 
factors, helping to simplify and structure the PIF General 
Knowledge scale for assessing participants’ knowledge of  
Islamic finance principles.

Confirmatory Factor Analysis 
After establishing the factor structure through the 
exploratory factor analysis (EFA), the researchers 
conducted a confirmatory factor analysis (CFA) to validate 
the obtained model. The CFA aims to assess how well 
the data align with the hypothesized factor structure. 
As indicated in Table 3, the results of  this analysis 
demonstrated that the 3-factor scale exhibited a good fit 
with the data based on several fit indices.
The χ²/df  ratio, which measures the goodness of  fit, was 
found to be 1.241. A value close to 1 suggests a good fit, and 
in this case, it indicates a relatively good fit of  the model to 
the data. The p-value associated with the χ² test was 0.115, 
indicating that the model’s fit was not significantly different 
from the observed data. Additionally, the Comparative Fit 
Index (CFI) and the Tucker-Lewis Index (TLI) were both 
reported as 0.916 and 0.935, respectively. These indices 
measure the model’s fit in comparison to a baseline model. 
Values closer to 1 for both CFI and TLI indicate a better 
fit, and in this case, they suggest a reasonably strong fit of  
the 3-factor model. Lastly, the Root Mean Square Error of  
Approximation (RMSEA), which assesses the discrepancy 
between the model and the observed data, was reported as 
0.035. An RMSEA value below 0.08 is typically considered 
a good fit, and here, the RMSEA falls well within this 
criterion. Collectively, the results of  the confirmatory 
factor analysis (CFA) suggest that the 3-factor scale is a 
good fit for the data, providing validation for the proposed 

factor structure of  the Principles of  Islamic Finance (PIF) 
General Knowledge scale.
The results of  the confirmatory factor analysis (CFA), 
as presented in Table 4, provide further validation for 
the proposed 3-factor structure of  the scale developed 
through the exploratory factor analysis. Specifically, the 
CFA results demonstrate that all item factor loadings 
for each of  the three factors were highly significant (p < 
0.001). This statistical significance confirms the strength 
of  the relationships between the individual items and their 
respective factors.
To delve deeper into the specifics, the CFA analysis revealed 
that Factor 1 is significantly influenced by the indicators 
IF11, IF16, IF2, IF9, and IF15. Factor 2 is significantly 
measured by the indicators IF18, IF24, and IF22, while 
Factor 3 is significantly accounted for by the indicators IF13, 
IF26, IF20, and IF17. These findings not only reinforce the 
validity of  the 3-factor structure but also provide insights 
into which specific items contribute most significantly to 
each factor, offering a deeper understanding of  the scale’s 
underlying constructs. Overall, the CFA results underscore 
the robustness of  the scale and its ability to effectively 
measure the Principles of  Islamic Finance (PIF) General 
Knowledge across these three distinct factors.
Following the comprehensive analysis of  both the EFA 
and CFA results, the researchers delved into a thorough 
examination of  the statements associated with each 
factor. This examination aimed to discern the prevalent 
themes or underlying concepts conveyed by these 
statements. It involved a meticulous interpretation of  the 
factor contents and a systematic approach to the naming 
process. Consequently, the final factor names, namely 

2

IF22 Islamic finance prohibits dealing in liquor, pork, gambling, pornography and 
anything else that Shari'a (Islamic law) deems haram (unlawful).

0.54

IF18 The Shari'ah teachings are considered to be the bedrock of  the Islamic financial 
system as the Shari'ah teachings are not confined only to the boundaries of  law.

0.54

IF24 In certain Islamic financial contract, the bank should inform the customer of  the 
cost/capital outlay which is the history of  the acquisition and the profit/added 
value margin of  the transaction.

0.35

3

IF17 Any risk-free or guaranteed interest on a loan is considered a Riba. 0.49
IF20 A misconception of  riba is that it is often translated as usury because in modern 

times usury normally refers to exorbitant rates of  interest.
0.47

IF13 The prices in a derivative are based on the fluctuations of  underlying assets such 
as stocks and bonds which makes it prohibited.

0.42

IF26 Any form of  interest-free banking based on ethical ideals of  financial transactions 
will be recognized as Shariah -compliant.

0.34

Table 3: Fit Measures of  the 3-Factor Scale
Fit Index Criterion Values
χ²/df 1< <2 1.241
p-value >0.05 0.115
CFI >0.90 0.916
TLI >0.90 0.935
RMSEA <0.05 0.035



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“Risk Tolerance and Permissible Transactions for Factor 
1,” “Shari’ah Foundation and Transparency for Factor 
2,” and “Riba Prohibition and Ethical Finance for Factor 
3,” were thoughtfully selected to aptly encapsulate the 
fundamental concepts embodied by the statements within 
each respective factor.
This first factor, “Risk Tolerance and Permissible 
Transactions,” explores students’ comprehension of  
financial risk tolerance and the permissibility of  specific 
transactions within Islamic finance. It aims to understand 
how comfortable or willing students are to take financial 
risks, which is a fundamental aspect of  Islamic finance. 
Additionally, it delves into their understanding of  which 
transactions are considered permissible (halal) according to 
Islamic principles. In Islamic finance, certain transactions 
are allowed, while others are prohibited. This factor 
investigates students’ awareness and knowledge of  these 
distinctions, shedding light on their attitudes toward risk 
and their understanding of  permissible financial dealings 
in the context of  Islamic finance.
The second factor, “Shariah Foundation and Transparency” 
emphasizes the central role of  Shari’ah principles in 
Islamic finance. It examines how well students recognize 
and appreciate the significance of  Shari’ah (Islamic law) as 
the foundational framework guiding financial activities in 
Islamic finance. Shari’ah compliance is essential in Islamic 

finance, and this factor explores students’ understanding 
of  its importance. Moreover, it underscores the value 
of  transparency in financial transactions. Transparency 
ensures that financial dealings align with Shari’ah principles 
and are conducted in an open and ethical manner. This 
factor assesses students’ awareness of  the critical role 
played by Shari’ah and transparency in Islamic finance.
The third and last factor, “Riba Prohibition and Ethical 
Finance” places a strong emphasis on two key aspects. 
Firstly, it highlights the prohibition of  Riba, which refers to 
interest or usury. Islamic finance strictly prohibits any form 
of  interest on loans or financial transactions. This factor 
assesses students’ understanding of  this core prohibition 
and its significance in Islamic finance. Secondly, it focuses 
on the broader concept of  ethical finance. Islamic finance 
prioritizes ethical and morally responsible financial 
practices. This factor examines students’ knowledge of  
these ethical foundations and their recognition of  the 
importance of  conducting financial activities in an ethical 
and socially responsible manner within the Islamic finance 
framework.
In summary, these factors provide insights into students’ 
awareness and comprehension of  critical elements within 
Islamic finance, including risk tolerance, permissible 
transactions, the role of  Shari’ah principles, transparency, 
the prohibition of  Riba, and ethical finance principles.

Table 4: Significance of  the Item Factor Loadings 
Factor Item Indicator Unstandardized 

Estimate
Standardized 
Estimate

SE Z p

Factor 1 (Risk 
Tolerance and 
Permissible 
Transactions)

IF11 0.314 0.631 0.0411 7.63 < .001
IF16 0.253 0.506 0.041 6.16 < .001
IF2 0.169 0.377 0.0375 4.52 < .001
IF9 0.213 0.470 0.0373 5.7 < .001
IF15 0.312 0.634 0.0404 7.72 < .001

Factor 2 (Shariah 
Foundation and 
Transparency)

IF18 0.139 0.402 0.035 3.96 < .001
IF24 0.119 0.375 0.0354 3.37 < .001
IF22 0.208 0.682 0.0447 4.66 < .001

Factor 3 (Riba 
Prohibition and 
Ethical Finance)

IF13 0.168 0.372 0.0477 3.52 < .001
IF26 0.204 0.456 0.0484 4.22 < .001
IF20 0.221 0.536 0.0469 4.72 < .001
IF17 0.154 0.349 0.0457 3.36 < .001

CONCLUSIONS
This study represents an initial attempt to investigate the 
fundamental constructs related to general knowledge 
concerning the core principles of  Islamic Finance. Through 
exploratory factor analysis, three distinct factors were 
identified. Subsequently, a confirmatory factor analysis 
was conducted to validate these three factors, each of  
which is characterized as follows: Factor 1, termed “Risk 
Tolerance and Permissible Transactions,” highlights on the 
willingness to accept financial risk and the permissibility 
of  specific transactions within the domain of  Islamic 
finance; Factor 2, denominated “Shari’ah Foundation 
and Transparency,” underscores the pivotal role played by 

Shari’ah principles in Islamic finance and highlights the 
significance of  transparency in financial transactions; and 
Factor 3, labeled “Riba Prohibition and Ethical Finance,” 
places emphasis on the prohibition of  Riba (interest) and 
other unethical financial practices, thereby accentuating the 
ethical underpinnings of  Islamic finance.
These findings offer valuable insights into the underlying 
dimensions that constitute the Principles of  Islamic 
Finance. It is essential to recognize, however, that this 
study’s scope is restricted to evaluating the general 
knowledge of  core principles of  Islamic finance, utilizing a 
researcher-developed true-or-false questionnaire to gauge 
the perceived knowledge of  college students majoring 



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Am. J. Econ. Bus. Innov. 2(3) 61-67, 2023

in Finance, Accountancy, and Business Management. 
In sum, this research makes a noteworthy contribution 
to the existing literature by creating a validated objective 
knowledge scale for Islamic Finance, which holds promise 
for future research works.

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