Journal of Islamic Monetary Economics and Finance (JIMF)
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Do Regulation, Maqasid Shariah and Institutional Parameter Improve Islamic Bank Efficiency?
Get PDFWe use a new dataset on Islamic banks to link regulation and bank efficiency. Specifically, we examine how bank efficiency is influenced by: (i) bank regulation, (ii) institutional variables, (iii) economic freedom, and (iv) Shariah law parameters. Our hypothesis attempts to prove that better regulation will produce a higher level of efficiency. We will also try to prove that the Shariah law parameter will promote better efficiency among Islamic banks. Data Envelopment Analysis (DEA) is used to measure efficiency, while the panel data method is used to analyse the data. Specifically, our results suggest that a significant relationship exists between bank efficiency and greater restrictions on Islamic bank activities. The results also show that regulatory quality has a positive and significant impact on bank efficiency. The negative coefficient of the economic freedom indicates that Islamic banks have a greater ability to enter into the banking industry and obtain an easy licence, create products and services, and close the business. All would dampen bank efficiency. Overall, our findings support the argument that regulation should be adapted to the risk and size level of the Islamic banks that are being regulated
Conceptualising Islamic Credit Cards Based on Mushāraka Mutanāqisa
Get PDFThe purpose of this paper is to conceptualise an Islamic credit card (or mushāraka card) based on the Islamic principles of mushāraka mutanāqisa. A qualitative methodology was employed, with qualitative content analysis used on AAOIFI Shari’a Standard (SS) No. 12 “Sharikah (Musharaka) and Modern Corporations” to derive key rulings and controls for mushāraka mutanāqisa, which were then used to conceptualise an Islamic credit card based on mushāraka mutanāqisa. Theoretically, it should be possible to develop an Islamic credit card based on the Islamic rulings of mushāraka mutanāqisa. The concept provided in this paper could be adopted as a pilot project by Islamic retail banks. Evidence suggests that a new revised standard for credit cards (included within AAOIFI Shari’a Standard (SS) No. 2) was under construction while this research was being undertaken. Therefore, it was not possible to review what perhaps may be relevant information for conceptualising a new Islamic credit card. The research intends to fill the gap by qualitatively conceptualising an Islamic credit card based on a mushāraka mutanāqisa in an in-depth manner, especially with the use of AAOIFI as a base for the conceptual analysis
Determinants of Islamic Financial Exclusion in Indonesia
Get PDFThe study aims to uncover the determinants of Islamic financial exclusion in Indonesia by gathering the response from financially-excluded respondents. A total of 110 respondents were surveyed, representing five provinces, namely West Java, South Sulawesi, Aceh, East Kalimantan, and North Maluku. The criteria of financially-excluded respondents are those who do not have any Islamic financial products, neither saving, financing, nor capital market account. The study employs Confirmatory Factor Analysis (CFA) to identify indicators explaining Islamic financial exclusion determinants in Indonesia. The paper found that location is the key barrier to obtain financing from and participate in saving in Islamic banks/Islamic microfinance, while lack of financial knowledge is identified as the critical barrier to deal with Islamic capital market products. Overall, most of the respondents perceive human capital, as well as product and services as the two most significant determinant of Islamic financial exclusion in Indonesia, followed by infrastructure, policies and regulation, financial literacy, social influence, and religious commitment, respectively. The originality of the paper lies in detailed insight into the perception of financially-excluded on the factors leading to Islamic financial exclusion
Islamic Financial Development and Economic Growth in Nigeria: A Bounds Testing Approach
Get PDFUsing a bounds testing approach to the cointegration and error correction method developed within the autoregressive distributed lag (ARDL) framework, this paper analyses the short- and long-run dynamic relationships between Islamic financial development and economic growth in Nigeria. Quarterly time-series data (2012:1 to 2019:3) are employed for the variables, together with non-interest bank financing to the private sector and real gross domestic product as indicators of Islamic financial development and economic growth respectively. The results indicate a significant short- and long-run relationship between Islamic financial development and economic growth. The relationship, however, is neither Schumpeter’s supply-leading nor Robinson’s demand-following type; rather, it appears to be bi-directional. In addition, empirical evidence is found that underscores the important role of Islamic bank financing in the economic performance of Nigeria. The paper recommends that improvement of the Islamic financial system in Nigeria may foster economic development and enhance welfare and poverty alleviation in the long run
Islamic Banking and Bank Performance in Malaysia: An Empirical Analysis
Get PDFThis paper examines the performance of Malaysia’s banking sector and its relationship to the presence of Islamic banking in the country. More specifically, by controlling for the theoretically relevant determinants of bank performance we compare the efficiency, profitability and risk of Islamic banks to conventional banks and examine the spillover effects of Islamic banking penetration on bank performance. To these ends, we adopt a panel modelling approach. Taking note that our focal variables comprise the time-invariant Islamic banking dummy and potentially endogenous Islamic banking share, we apply the Hausman–Taylor (HT) instrumental-variable estimator in the analysis. Our results indicate that Islamic banks in Malaysia are less profitable than their conventional counterparts and that Islamic banking penetration is associated with lower bank profitability. However, the increasing presence of Islamic banking appears to make Malaysian banks less risky and, with limited evidence, more efficient. Finally, the efficiency–risk trade-off seems to have potential as the Islamic banking portion of the sector increases in size. These results are reasonably robust compared to alternative specifications of the model.
 
Challenges Facing Islamic Banking in Iran: Evaluation and Policy Implications
Get PDFIran is one of the few countries that has instituted shariah-compliant banking nationwide and does not have a conventional banking sector. However, since the Riba-Free Banking Act (RFBA) was passed and put into practice in 1983, the Iranian Islamic banking system has experienced some significant challenges and shortcomings. The main purpose of this paper is to identify the various impediments facing the Iranian Islamic banking industry and to suggest a prioritized listing of these challenges. To achieve this goal, a three-round Delphi study (a method designed to aid consensus building) is used to determine the major challenges and rank them based on relative importance. The research panel consulted consists of 32 Iranian Islamic banking experts with in-depth knowledge and experience. The results show that the top five challenges to the Islamic banking system in Iran are (1) the governmental attitude towards Islamic banking; (2) lack of competition; (3) not revising the law (RFBA); (4) lack of shariah supervision; and (5) lack of accounting and auditing standards. This paper contributes to the literature addressing Islamic banking by critically analysing the more than three decades of Iranian experience in implementing shariah-compliant banking
The Introduction of Waqf into Fractional and Full Reserve Banking Systems to Achieve Economic Stability
Get PDFFractional reserve banking is a system in which banks extend loans by creating credit/deposit money, and which can be considered the basis of modern financial architecture. Nevertheless, it has been criticised because of its inherently weak and fragile structure in terms of financial and economic stability. As a theoretical solution, full reserve banking has been supported in academic circles, with many technical variations. However, Islamic economics can help to maintain financial and economic stability with its original institution of waqf. Besides performing social functions, waqf also undertakes financial intermediary functions and preserved financial stability in the period of the Ottoman Empire. The purpose of this study is to examine the effects of fractional reserve banking on economic stability and to make a comparison with full reserve banking to observe its potential as an alternative solution. The study also examines the efficiency of the Islamic social and economic institution of waqf in maintaining economic stability in both fractional and full reserve systems. The results demonstrate that full reserve banking is a promising approach to maintaining economic stability and that waqf enhances economic stability in both banking systems
The Resilience of the Indonesian Banking System and Macroeconomic Fluctuation: Islamic versus Conventional Banking
Get PDFThis study aims to analyze the challenges of the dual banking system during macroeconomic fluctuations. By using the default probability mapping method and macroeconomic stress testing, we can measure the stability of the financial system through credit calculation. In addition, by using the stress test method, we can find information about the characteristics of the financial system in crises and its financial-related assistance in the financial system. Considering if a financial system can detect it early, the government can take preventative measures to minimize the consequences. The results of the study show that Islamic banking has a higher default probability than conventional banking. So it can be concluded that the current stability of Islamic banking is not better than conventional banking. Our findings suggest that inflation is only a macroeconomic variable that has a high level of sensitivity to the default probability of banks. Moreover, Islamic and conventional banking have different responses to the sensitivity of inflationary interventions
The Utilisation of Islamic Fintech (I-Fintech) in Promoting Sustainable Inclusive Growth: Evidence from Micro-Entrepreneurs in Malaysia
Get PDFInformation technology is fundamentally changing the world today. The power of technology applicable fastly in Islamic financial technology (i-Fintech), as it expands access to mobile financial services. This is evidenced by the increasing number of customers who interact using technology, especially micro-entrepreneurs, who adopt the tools into their business models to tap into this opportunity to enhance their income. Therefore, it is imperative to examine the impact of i-fintech use in stabilising micro-entrepreneurs’ income. A quantitative technique was employed through the use of 120 questionnaires distributed to micro-entrepreneurs who had adopted i-fintech into their business. Using Amos and SEM models, the study indicates that crowdfunding, mobile money and peer-to-peer lending play a significant role in ensuring income sustainability for micro-entrepreneurs. The study also discusses both the theoretical and managerial implications in comprehending the determinants of sustainable income growth in Malaysia. The findings should help practitioners, researchers and regulators to have better understanding of the dynamics between the potential of i-fintech and sustainable income
Social Media Data to Determine Loan Default Predicting Method in an Islamic Online P2P Lending
Get PDFCurrently, financial technology is growing rapidly in Indonesia. One of financial technology major type is online peer to peer lending platform. Islamic online peer to peer lending is also emerging. However, credit risk still a major concern for this platform. In order to address this issue, social media assessment is developed. Therefore, in this paper, authors aimed to identify social media variables that could be used as default probability predictors and to determine predictability level by added social media data to the model. Six independent variables consist of social media data and seven control variables from historical payment and demographic data are used to construct credit scorecard and logistic. The result identifies five variables that could be considered and used as default probability predictor which are Posting Frequency in Midnight, Followers, Following, Employment, and Tenor. Interestingly, number of religion accounts followed in Instagram is not a significant variable. Furthermore, the model with selected variables through the combination of demographic, historical payment, and social media data could increase the predictability level by 6.6%