INCEIF Knowledge Repository (INCEIF University)
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Qard hasan financing in Islamic banks
No full textQard hasan - commonly defined as an interest-free loan - is a benevolent economic behaviour, an outlet for the placement of savings, an instrument of finance and an institution for bona fide lending. Having such versatile attributes, it is distinguishable from other charitable financial activities such as waqf (endowments) and infaq (spending in the way of Allah) as well as other modes of finance used in Islamic financial institutions. The purpose of this paper is to present the alternative prospects of this Islamic instrument and to provide an explanation for each form of its application. Applying Tobin’s (1958) Portfolio Theorem, the paper explains why people extend loans to others without the expectation of return and position this bona fide loan among the other recommended financial activities in Islam. Furthermore, the paper investigates why Islamic banks continue to make use of this financial instrument despite the fact that they gain no financial return from it. Data on Islamic banks’ application of qard hasan financing and its share compared to other banks’ assets portfolio are presented. It is further argued that qarḍ ḥasan is an act of worship and benevolence and should be distinguished from the qard (loan) contract, which is simply a permissible type of exchange and a mode of saving deposits in Islamic banks. The paper concludes with recommendations to the financial community for more extensive and effective use of this interest-free loan
Time varying correlation between Islamic equity and commodity returns: implications for portfolio diversification
No full textThis paper aims at investigating the time varying relationship between Islamic equity and commodity returns in order to examine how combination of Islamic equities and commodities contribute to the benefits of portfolio investors and managers. In order to investigate this relationship, we employed multivariate GARCH method on return series of five different commodity groups (energy, precious metals, agricultural, non-ferrous metals and softs group), Dow Jones spot commodity index as a proxy of an aggregate commodity market and Dow Jones Islamic index over the period January 3, 2001 - March 28, 2013. Our findings show that correlations between commodity and Islamic stock markets’ returns change in different time periods and these two markets moved very closely during 2008 financial crisis in particular. Besides, volatility of returns in both markets reached at their peaks during the 2008 crisis period. We also show that despite sharing some common features, commodities cannot be considered as a homogeneous asset class: a speculation phenomenon is for instance, highlighted for energy sector comprising oil, while the safe-haven role of gold is evidenced, which constitutes a part of precious metal sector
Role of education via English language proficiency: a catalyst of economic growth in developing countries?
No full textIn recent years, globalization has brought about the importance of English language especially in developing countries. It is believed that English proficiency is integral to human capital development and economic growth. The purpose of this study is to determine the link between English language proficiency and earnings via economic growth in developing countries. The study used the percentage of English language proficiency, per capita income, foreign direct investment and unemployment to conduct an analysis on fifty-three (53) developing countries. The model was regressed cross sectionally and White standard error was employed to remove traces of heterogeneity. As expected, it is found that there are significant relationships between (1) English language proficiency and income per capita; and (2) foreign direct investment and income per capita. The results have important policy implications for the countries desiring to achieve higher earnings and improvement in the overall standard of living
Heads we win, tails you lose: is there equity in Islamic equity funds?
No full textWe made the first estimate of the proportion of fund alpha statistically attributable to luck rather than skill for a sample of Malaysian Islamic equity funds. Broadly, the funds do not outperform market benchmarks. In the limited instances where performance is superior, based on a contemporary methodology, as much as 47% of the observed positive fund alpha is statistically attributable to luck. Thus, at 5% significance level, we find only 1.95% of our funds to be genuinely skilled. Our findings raise questions regarding the equitability of these funds levying fixed fees, making a case for potential innovation in fund remuneration structure
al-Wasit fi sharh al-qawa’id al-fiqhiyyah al-kubra wa-ma yan durju tahtiha min qawa’id fiqhiyyah sughra
No full textMaldives proved that nothing is impossible
No full textThe Maldives is a 100% Muslim nation where Islamic finance is emerging as a proxy to the existing conventional system which has been in the country from an immemorial time. The first form of Islamic finance that was adopted in the country was Takaful. In 2003, the first Takaful company was established in the country under a conventional insurance license. In 2011 only, Islamic banking and Islamic capital market services were introduced to the country. Since then Islamic finance in the country has been spreading like wild-fire. The government has also realized the importance of Islamic finance in resolving economic and financial problems. As such Islamic finance has been considered as an integral part in the development of nation and the evergreen future of Islamic finance is evident in the country now
Dynamic capital structure and political patronage: the case of Malaysia
No full textThis paper investigates the effect of political patronage on firms' capital structure. The evidence is from Malaysia, a country characterised by relationship-capitalism, and covers 1988 to 2009. Using a system GMM estimator we find firms set leverage targets and adjust towards them following deviations at the rate of 28% per annum. Next, we construct a natural experiment and use a difference-in-differences model to investigate if the strategic financing decisions of politically patronised firms differ from non-connected firms after an exogenous shock caused by the 1997 Asian crisis. Our results unambiguously demonstrate a significant difference in the capital structure of patronised firms relative to non-connected firms following the exogenous shock but only for the crisis period 1998–2001. After 2002 the capital structures of patronised and non-connected firms are statistically equivalent
Crime and unemployment in Malaysia: ARDL evidence
No full textThe purpose of the present study is to determine whether there is long-run relationship between crime rates and unemployment rate in Malaysia for the period 1973 to 2003. The autoregressive distributed lag bounds testing procedure was employed as the main tool to infer cointegration or the long-run relationship between unemployment and the crime rates. The results indicate that the unemployment rate, and crime rates: total crime rate, violent crime (murder, robbery, and assault), and property crime (daylight burglary, night burglary, and motorcycle theft) are cointegrated. The estimated long-run coeffi cients suggest that unemployment rate has negative effect on violent crime, murder, robbery, assault, and motorcycle theft. The paper shows that jobless population in Malaysia as a result of recession tend to remain in or near homes and neighborhoods and this likely will reduce the occurrence of crime
Rationalizing the value premium in emerging markets
No full textWe reconfirm the presence of value premium in emerging markets. Using the Brazil-Turkey-India-China (BTIC) grouping during a period of substantial economic growth and stock market development, we attribute the premium to the investment patterns of glamour firms. We conjecture based on empirical evidence that glamour firms hoard cash, which delays undertaking of growth options, especially in poor economic conditions. Whilst this helps to mitigate business risk, it lowers market valuations and drives down expected returns. Our evidence supports arguments that the value premium is explained by economic fundamentals rather than a risk factor that is common to all firms
Development needs of the Islamic banking industry
No full textIn this concluding chapter, we summarize of the main themes and ideas in the preceding chapters before considering the challenges the Islamic financial services industry is facing in the second decade of the twenty-first century. The first contribution of this book is that we have sought to connect the Islamic banking theories to the rich conceptual framework already developed over some five decades that form the basis of research (and graduate courses) on conventional banking and financial intermediation, in particular, information asymmetries, adverse selection, moral hazard, agency theory, optimal contract design and incentive structures