INCEIF Knowledge Repository (INCEIF University)
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By the rules: Islam's foundations for economy and finance
No full textThe objective of these institutions is to achieve social justice. Important among their functions is reduction in uncertainty for members of society in order to allow them to overcome the obstacles to decision making caused by paucity of information. Rules specify what kind of conduct is most appropriate to achieving just results when individuals face alternative choices and must take action. They impose restrictions on what society's members can do without upsetting the social order on whose existence all members count in deciding on their own actions and forming their expectations of others' responses and actions
Islamic banking in the United Kingdom
No full textThis chapter examines the experience of Islamic banking in the United Kingdom since 1980, focusing onwholesale operations, retail saving and investment products and home finance. Regulatory and legal issues are discussed, as well as institutional developments and the challenges of serving the British Muslim community of over 1.8 million people. The operations of exclusively Islamic banks are examined, notably the Al Baraka International Bank during the 1980s and early 1990s and the Islamic Bank of Britain from 2004. The activities of conventional banks offering Islamic facilities are also analysed, the focus being on the United Bank of Kuwait and its successor the Al Ahli United Bank, and more recently HSBC through its Amanah Islamic finance subsidiary and Lloyds TSB
Forecasting inflation in Malaysia
No full textThis paper aims to identify the best indicator in forecasting inflation in Malaysia. In methodology, the study constructs a simple forecasting model that incorporates the indicator/variable using the vector error correction (VECM) model of quasi-tradable inflation index and selected indicators: commodity prices, financial indicators and economic activities. For each indicator, the forecasting horizon used is 24 months and the VECM model is applied for seven sample windows over sample periods starting with the first month of 1980 and ending with the 12th month of every 2 years from 1992 to 2004. The degree of independence of each indicator from inflation is tested by analyzing the variance decomposition of each indicator and Granger causality between each indicator and inflation. We propose that a simple model using an aggregation of indices improves the accuracy of inflation forecasts. The results support our hypothesis
Credit creation and control: an unresolved issue in Islamic banking
No full textPurpose - To reopen for discussion the issue of credit creation and control in the area of Islamic banking. Design/methodology/approach - In view of a rapid expansion of Islamic banking in recent decades, the answer to questions whether Islamic banks can create credit like mainstream banks and, if yes, what methods central banks could use to control it in their case is of paramount importance. An overview of the literature on the subject is provided and credit creation process is explained as background material for the discussion. Findings - The literature on the subject is scanty, controversial and inconclusive. One reason seems to be the mismatch between structural design of Islamic banks and the objectives they are supposed to meet. It is concluded that Islamic banks can create credit in the usual manner but central banks will have to design new tools for credit control applicable to Islamic banks. Research limitations/implications- It is not a rigorous analytical exercise as the main purpose of the paper is to reopen an important issue for discussion. It is an opinioned work and presents rather tentative answers to the questions raised. Practical implications - The findings of the paper may have serious implications for the current structure of Islamic banks and the legal framework for regulating their credit creation activities. Originality/value - The paper draws attention to a rather neglected issue in Islamic banking and offers guidelines to resolve it
Strategic choices for Islamic banks in service provision for home and overseas markets
No full textIslamic banks have enjoyed considerable success during the last three decades in establishing retail branch networks to serve their national markets. They have been able to attract deposits from the pious, who feel uncomfortable in dealing with conventional riba based banks. Prior to the emergence of Islamic banks, many Muslims had little choice other than to open current accounts with conventional banks, but most avoided savings account on which interest accrued
The paradox struggle between the Islamic and conventional banking systems
No full textMalaysia is a multi religious and a multi ethnic society with a plural legal structure. The banking system of country is essentially dual in nature and hence, there are two different sets of legal framework working simultaneously. Today, the Islamic Banking system which emerged in 1983 has levelled up to the conventional banking system which had rooted itself in the society a long time ago. Whether we believe it or not there are challenges and clashes at hand due to the existence of the dual system in the society and they need to be addressed properly, so that the clashes between these two types of banking system can be minimized. There are several quarrels between conventional and Islamic Banking laws. Some of these clashes are created due to the application of common law or conventional law based legislation to resolve the problems in the Islamic banking system. The impact of this is huge, primarily because, Islamic economics has a different premise from conventional banking and applying the same legal principles to resolve disputes for both markets does not work. Unlike conventional banking's capitalist conviction that winner takes all, Islam argues for a fair distribution of profit and loss and bans purely speculative activity
Bail-out was a success? An evidence from the investment-cash flow relationship
No full textThis paper is aimed to examine the impact of bail-out policy carried out following the financial crisis which hit the Malaysian economy some years ago. Using panel estimation methods, this study tries to analyze the relationship between firms‟ investments and their cash flows before and after the crisis period. Theoretically, the relationship becomes tight due to the crisis. This tight relationship indicates the existence of severe financial constraints faced by existing firms. Such relationship is on the contrast to the loose relationship prior the crisis when the financial market was liberalized through various deregulations including the interest rates deregulation. However, to combat the crisis Malaysia carried out a variety of counter-crisis measures. The measures are packaged under the bail-out policy implementation. If the bail-out policy was a success, it can be measured through the easiness of financial constraints the firms faced. Using annual financial data of unbalanced panel of 1988-2005, the results found are in favor of the bail-out policy
Shariah parameters reconsidered
No full textThe purpose of this paper is to explain three additional parameters, namely maqasid al-Shariah, financial reporting, and legal documentation of contract for determining Shariah legitimacy of financial instruments in Islamic financial institutions. Currently, contract (’aqd) is the only parameter recognized by Shariah scholars at the supervisory level. This analysis begins with examining the pitfalls of the contract approach and proceeds to present the maqasid, financial reporting and legal documentation approaches in ascertaining absolute Shariah compliant of financial products.The paper argues that the four approaches must be applied in package in determining Shariah compliant status to avoid costly errors that might lead to litigations and loss of competitiveness in the Islamic financing business. The paper provides new insights and integrated analysis of Shariah auditing where knowledge clusters concerning the Shariah, economics, finance and accountancy, and law are algamated to ascertain wholesome Shariah viewpoint
Commercialization of accounting profession: the case of non-audit services
No full textOver the last decade, the accounting profession has witnessed the commercialisation of audit firms through offering of non-audit services (i.e. business consultancy services) to their audit client. Regulators and stakeholders have placed a great concern on the potential threat of commercialization of audit services on perceived auditor independence. This study reports the effects of the joint provision of audit and non-audit services (NAS) and the type of NAS on perceived auditor independence. The main findings suggest that auditor independence is perceived to be compromised when audit and NAS were jointly offered by audit firms. However, when there exist proper segregation of duties in audit firms that offer both services, the perception changed
The equity premium puzzle, ambiguity aversion, and institutional quality: implications for Islamic finance
No full textWith cross-section data from 53 emerging and mature markets, we provide evidence that equity premium puzzle is a global phenomenon. In addition to risk aversion, equity premium may reflect ambiguity aversion. We explore the sources of equity premium using some pertinent fundamental independent variables, as well as the World Bank institutional quality indexes and other proxies for the degree of ambiguity in the sample countries. Some World Bank and other indexes are statistically significant, which indicates that a large part of equity premium may reflect investor aversion to ambiguities resulting from institutional weaknesses. Implications of the results for Islamic finance are discussed