Journal of Islamic Monetary Economics and Finance (JIMF)
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A Markov Chain Model for Islamic Micro-Financing
Get PDFThis paper introduces a Markov chain model for Islamic micro-financing, especially mudarabah and murababah contract. Mudarabah and murabahah are two Islamic micro-financing contracts that have enormous potential in creating a balance between the monetary and sharia sector because these two products are moving to manage the business sector which undoubtedly adds value to the economic movement directly. On the other hand, these two contracts have the potential to cause problems in their implementation. The most common problem of the two contracts is asymmetric information, which consists of adverse selection and moral hazard. We propose the Markov chain model as a solution for the Islamic banks to reduce the risk because of adverse selection and moral hazard in mudarabah and murabahah contract. In our model, we also propose a mechanism to avoid strategic default in mudarabah contract. We observed two different probabilities of an applicant to become a beneficiary to find the solution to the problems. The results of this study, the bank can decrease the probability of an applicant to become a beneficiary to reduce the adverse selection and moral hazard in mudarabah and murabahah contract
Regional and Accessibility Analysis of the Banking System and Their Impacts Toward Regional Financial Inclusion in Indonesia
Get PDFFinancial inclusion has been widely discussed in the global level. The increased engagement in discussion of financial inclusion is inseparable from the implementation of policy priorities which are seemingly leaning towards improving financial inclusion to tackle poverty and growing inequality in a country. This article seeks to identify whether regional variables (income level, educational level, income inequality, population size and banking accessibility) are significant on influencing financial inclusion in Indonesia. This study proxied financial inclusion level by measuring the financial inclusion index using the method developed by Sarma in 2012. The research is conducted for 3 years, between 2012-2015. Employing the panel data estimation method, the results indicate that income level, educational level, and banking accessibility possess significant impact on financial inclusion in regional Indonesia
THE Credit Supply Channel of Monetary Policy Transmission Mechanism: An Empirical Investigation of Islamic Banks in Pakistan versus Malaysia
Get PDFThe transmission mechanism of monetary policy is explained through the relationships
between a change in money supply and the level of real income. Monetary policy
transmits to the real sector through several different channels. Such channels include
the interest rate channel, the exchange rate channel, the asset-pricing channel, the credit
supply channel, and the bank balance sheet channel. This paper empirically investigates
the credit supply channel of monetary policy and explores the differential impact of
monetary policy on credit supply of Islamic banks in Pakistan versus Malaysia. The
robust two-step System-Generalize Method of Moments (GMM) estimator is applied
on an unbalanced panel dataset over the period 2005-2016. While estimating the effects
of three alternative measures of monetary policy on banks’ credit supply, several bank-
specific variables are included in the specification as control variables. We provide
strong evidence on the existence of credit supply channel in the baseline models for
both countries and differential impact of monetary policy through Islamic banks in
Pakistan versus Malaysia in the extended models. Our findings suggest that there is
a vital need to consider the nature of Islamic banks while devising the instruments
of an effective monetary policy in countries with dual banking system like Pakistan,
Malaysia, Indonesia, Bahrain, Saudi Arabia, Qatar and others
Islamic Banking and Economic Growth: Applying the Conventional Hypothesis
Get PDFGrowth in Islamic banking has gained lot of interest and attention during last few
years. The debate currently shifts from theoretical to empirical framework. The growth
in empirical work has given rise to a new concept, which can be called as “Islamic
banking development” (IBD). It will be interesting to test nexus between IBD and
growth, since literature suggests a positive result for conventional finance and growth.
Our study uses a panel of 24 countries for a period of 11 years using annual data
(2004-2014) to test conventional hypothesis of supply leading or demand following
between IBD and growth. In addition, we also investigate direction of causality in a
panel setting between the two. Apart from the topic, this paper differs from existing
limited literature, on the basis of dataset used and the estimation procedure to assess
the nexus. Our results suggest that IBD affect growth positively. Comprehensive tests
suggest the presence of a long run relationship between IBD and growth. Moreover,
the direction of causality seems to follow supply leading hypothesis: IBD affects
economic growth, and that evidence on a reverse causality was not found. This is true,
even when we control for CFD
Principal-Agent Preferences in Imperfect Markets: Theoretical Analysis on Murabahah and Ijarah
Get PDFThis paper aims to determine the optimal contract for the principal and the agent in imperfect market, when murabahah and ijarah are used. The financial contracting enforceability approach is employed to determine the contract that maximizes the value of the firm subject to agents’ constraints when the shock is low and high, and regarding market frictions. Furthermore, this approach allows us to assess the level of market frictions that agents may bear in case of low shock and high shocks. Findings reveal that the simulated values of the market frictions’ parameters for both contracts increase when moving from the low shock to the high shock. Such evidence implies that the agent is more likely to cheat and hide significant information about the project when the shock is high. As a response to this higher risk, the simulated values of the profit margin parameters for the principal rise also when the shock is high in order to compensate for the increase of market frictions and mitigate conflicts of interest. By comparing both contracts based on the simulated optimal values of the firm, it is noticeable that the gap between both contracts is very tight, which can be attributed to their common debt-based financial arrangements. However, the results show that ijarah allows the principal and the agent to generate the highest value in case of low shock and high shock, comparing to murabahah. Therefore, ijarah seems to be more attractive for the principal and the agent than murabahah
Customer Attitude and Intention toward Sharia-Compliant Hotels
Get PDFThe purpose of this study is to investigate the effect of customer’s attitudes on costumer intention towards sharia compliant hotel. This hotel arranged to serve customers creatively, based on sharia principles. The dimensions of the customer attitudes variable are customer attitudes of hotel operating, hotel design and hotel finance. This study applied convenience sampling to choose the members of samples. 183 hotel costumers were collected to be respondents. Data used is primary data. These data is collected by distributing questionnaires. This study applied partial least square to analyze data. Partial least square appropriate for small size sample. It also appropriate for communication and behavior research. The results of the study shows that customer attitudes of hotel operating, hotel design and hotel finance influenced customer intentions towards sharia compliant hotel positively and significantly. This moderate effect of customers attitude to their intention indicated that there are other factors that might affect customers intention such as price and hotel position.  
Do Internet Marketing Factors with Islamic Values Improve SME Performance?
Get PDFInternet marketing is regarded as the right business strategy for small and medium-
sized enterprises (SMEs) in the current revolutionary era. This study aims to determine
the impact of internet marketing factors on improving the business performance of
SMEs using the Islamic perspective. Specifically, the aim of this study is to examine
how the influence of landing pages, search engine optimisation and customer
databases affects SME performance through internet marketing with Islamic values.
Statistical testing was undertaken to build and test statistical models in the form of
causal models, along with factor analysis, path analysis and regression. The analysis
was therefore undertaken using the structural equation modelling (SEM) approach.
The research project was conducted among the internet marketer community in
Indonesia, with a sample of 245 business units based on the desired criteria. Analysis
of the research results shows that the hypotheses in this study as a whole are accepted,
from which it can be concluded that a business strategy that uses a combination of
internet marketing aspects and Islamic perspectives can be a competitive advantage.
This is especially true in the aspects of building consumer trust, categorising consumer
preferences specifically and producing broad customer relationship solutions
Ibn Khaldun Model on Poverty: The Case of Organization of Islamic Conference (OIC) Countries
Get PDFIf we consider the state of the world economy, especially in the OIC countries, some
countries have to struggle in dealing with the problems of poverty. Hypothetically,
the wealth of natural resources is potentially in the welfare of the population, but the
facts on the ground say the situation is another in which it is far from being well-
being. This study aims to analyze poverty in OIC countries by using a development
model proposed by Ibn Khaldun. The model consists of six variables: human resource
variable (proxy HDI), the variable role of government (proxy government spending
in education and health), variable of development (proxy foreign direct investment),
state assets variable (proxy for GDP/capita), justice variable (gini index proxy) and
sharia variable (a proxy perception index of corruption). This study uses panel data
regression analysis with nine object OIC member countries (Indonesia, Malaysia,
Egypt, Azerbaijan, Kazakhstan, Tajikistan, Kyrgyzstan, Turkey and Benin) over the
years from 2010 to 2016. The results showed that the variables of development model
Ibn Khaldun significant effect on poverty in OIC countries is development variable, the
variable role of government (proxy for government spending in health sector), justice
variable, wealth nation variable and control variables (unemployment). While the role
of government variable (proxy government spending in the education sector), HR
variables and sharia variables not significant. From these studies, it can be concluded
that not all the variables of development model Ibn Khaldun significant effect on
poverty in OIC countries
Why Are Youth Intent on Investing Through Peer to Peer Lending? Evidence from Indonesia
Get PDFThis study aims to analyse the factors that influence the intention of youths/millennials in Jakarta, the capital of Indonesia, to invest in Peer to Peer (P2P) lending. Due to the relative newness of P2P lending in Indonesia, the framework utilised is the Technology Acceptance Model (TAM), and the study involves around 400 youths, the majority of whom are Muslims. Further, the study employs Structural Equation Modelling (SEM) and logistic regression to analyse the influence of socio-demographic variables (gender, religion, marital status, education, employment, religion and income) on the intention to invest through P2P lending. The results of the study indicate that intention to invest in P2P lending is positively correlated and influenced by the attitude variable, which is itself influenced by factors including perceived ease of use, knowledge and trust in P2P lending. The results imply that the potential of youth to invest in P2P lending might be enhanced by improving technology (ease of use), literacy and trust in P2P lending. Moreover, it is suggested that those most interested in and more likely to invest through P2P lending are Muslims, have higher education and have higher incomes. With better literacy and marketing programmes, these groups could be targeted by P2P lending platforms to become potential investors. Lastly, the findings are expected to contribute to Islamic finance concepts and practices, particularly in the context of Indonesia
The Money Demand Functions in Islamic Economy: New Evidence from Iran‑ARDL Approach
Get PDFThe demand for money is one of the most fundamental issues of the monetary economy for policy decision. On the other hand, according to the principle of prohibition of Riba, attitudes about the money market conditions in Islamic economics, is quite different from conventional economics. Hence achieving the money demand function in an Islamic country would be necessary. Most studies about the money demand in Islamic economy used the Keynesian approach, while in modern macroeconomics, money demand function derived by using the microeconomics-based approach. Hence in this article investigate some models of the microeconomics-based approach, then, in accordance with Islamic principles, it choose the best among them that is shopping-time model. After that we derive the Islamic money demand function. The results indicate that the demand for money is the function of income and rental rates of sukuk. The marginal product of capital due to an additional unit of income spend for Infaq (spending in Allah's way), depend on the expected inflation rate, depreciation rate and rental rates of Sukuk. In this paper, apply ARDL approach to estimate the money demand function in Islamic republic of Iran in period of 1978-2008 i.e. after Islamic revolution. The results suggested that M1 and M2 money demand are co-integrated with income and rental rate of Sukuk. Incorporating CUSUM and CUSUMSQ tests into co-integration analysis, we conclude that M2 money demand is more stable than M1