INCEIF Knowledge Repository (INCEIF University)
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Cross-cultural borrowing and comparative evolution of institutions between Islamic world and the West
No full textThe tragic events in our post 9/11 world disguise the fact that Islam and the West have actually been in a symbiotic relationship over the very long period. Cross-cultural institutional borrowing has constituted a major component of this symbiosis. I intend to focus in this paper on the way these civilizations borrowed important economic institutions from each other. The paper will start with a brief theoretical model explaining the process of cross-cultural institutional borrowing. This will then be followed by an account of the economic institutions actually borrowed
The impact of the wakalah system on the performance of takaful business in Malaysia
No full textMarketing takaful products does not imply exploiting the religious factor alone. Equally important is the distribution channel. As a marketing tool the agency system is vital. Insurance agents who sell policies are not employees to the insurance operators. They work on commission basis and thus, motivated by the volume of sales made. By using agents, insurance companies can cut overhead costs and help expand markets without using or setting up new costly subsidiaries. The first Takaful operator in Malaysia, Syarikat Takaful Malaysia Berhad (STMB) did not use the agency system. STMB says that it is against the Shari[ah law to apply the contract of Agency (al Wakalah) in the takaful business. This has a lot to do with the ikhtilaf on whether the takaful operator (Mudarib) can use part of the capital provided by the participants (Rab al mal) to pay for management expenses. On the contrary, the second takaful operator, Takaful Nasional Sendirian Berhad (TNSB), applies the agency system since it holds a different view of the wakalah contract. This study looks at how the differences in juristic views have impacted performance of both takaful operators. The study found that TNSB performed better than STMB. In this sense, the Wakalah system was able to generate greater benefits (manfaat) to the takaful operators while not causing harm (madarrah) to customers. It is therefore crucial for STMB to review their policy on al wakalah and embrace the agency system to improve performance
The revival of the institution of waqf in Sudan
No full textDuring the early period of the Islamic civilization, the institution of waqf played various roles in the life of the Muslim. It had provided many crucial services in various sectors without inflicting any cost to the government. However, these roles have deteriorated since the 19th century to the present time. Since then, the situation of almost all waqf properties has been neglected, unproductive, and a burden to all the Muslim countries, including Sudan, and has weaken its roles in providing any services. This paper will highlight the recent revival of the institution of waqf in Sudan in the last decades and will find out to what extend this revival succeeded in developing the old waqf properties
Corporate bankruptcies and official bail-outs: a cost-benefit analysis
No full textThe existence of government guarantees to bail out investors and the use of official support to prevent corporate bankruptcies are commonly viewed to have largely contributed to the financial fragilities of many emerging market economies during the 1990s. This paper attempts to rationalize the existence and the duration of such policies. By using a simple model of the economy, we formalize governments' decision on how long to provide resources to bridge the gap between the corporate sector's earnings and obligations. By considering both the costs and benefits of bail-outs in an environment where there are unfavorable productivity shocks, we show that the bail-out policy ends sooner; the higher the initial level of foreign borrowing, the lower the productivity, the lower the rate of time preference, and the higher the world interest rate. We also show that given any set of fundamentals, an unfavorable shift in market sentiments may end such policies sooner than otherwise
The practice of Islamic banking system in Sudan
No full textThis paper sheds light on the practice of Islamic banking system in Sudan. Its main objective is to show how successful the Islamic banking system in Sudan is and how this system succeeded in converting all existing banks into interest-free banks. Moreover, it emphasises the establishment of new Islamic banks in all the regions of Sudan and shows how those banks succeeded in minimising dealing with interest, attracting more depositors and financing the different sectors. To achieve this, the paper reviews the emergence of the Islamic banking system in Sudan within the last three decades, presents the structure and operations of the Sudanese Islamic banks, and highlights their contribution to the different sectors
Macroeconomic policy trilemma in open economies: which policy option is ideally suited to the Malaysian context?
No full textRight now Malaysia has the major economic fundamentals more or less right (excepting the budget deficit). The inflation rate is low (1.2%), unemployment rate is relatively low (3.5%), current account balance is significantly positive (13.7%), foreign reserves are growing and comfortable and the savings rate is high. Given Malaysia's current economic and political strength and the experiences of many other open economies, it appears to me that as long as the macroeconomic discipline as well as the ongoing financial and corporate sector restructuring developments are maintained, Malaysia can enhance its FDI inflows, growth rate of output and employment significantly by continuing with the current independent monetary policy but shifting towards a managed peg linked to a basket of currencies weighted by trade balance along with an accelerated removal of capital controls. The regime change will send a powerful positive signal to the outside world about Malaysia's own confidence in its future prospects
The case for universal banking as a component of Islamic banking
No full textUniversal banking is one of the main components of Islamic banking. Islamic banks provide finance to enterprises through either sharing directly in the net results of their activities or financing their purchases of assets, goods and services on credit. We can therefore expect Islamic banks to hold equity in corporations and sit on their boards of directors. This paper aims to put forward the case of universal banking as a part of Islamic banking. A large amount of literature is surveyed that comes from banking theory, macroeconomic and monetary theory, as well as empirical studies about banking practices. The conclusion is that universal banking on its own is a sound practice that can offer developing countries special advantages. Such a conclusion is rather important because many of the Islamic countries where believers in Islamic banking reside are developing. It would therefore be helpful to see that Islamic banking as it contains universal banking would give a helping hand in the process of development that would not be easily obtained from conventional banking
The term structure of interest rates in Australia: an application of long run structural modelling
No full textThe term structure of interest rates in Australia, using data of different types as well as frequencies covering the period 1991(11) to 2000(9) is investigated using a relatively new modelling strategy previously untested on Australian interest rate data. Developed by Pesaran and Shin (2002 Pesaran,MH and Shin,Y. 2002. "Long-run structural modeling." Econometric Reviews, 21:49-87.), this strategy incorporates long-run structural relationships in an otherwise unrestricted vector auto regression model (VAR). The econometric tests indicate that in Australia, contrary to popular belief, long-term interest rates more often than not lead shorter-term interest rates, at least for the interest rates and time period under investigation. While these findings are not conclusive, if they are an accurate representation of interest rate behaviour, this does pose a major challenge for the monetary policy in Australia. The findings are consistent with the recent experience of the USA as well (Sarno and Thornton, 2003 Sarno,L and Thornton, DL. 2003. "The dynamic relationship between the federal funds rate and the treasury bill rate: an empirical investigation." Journal of Banking and Finance, 27(6):1079-110.). The findings of the study based on recent rigorous time-series techniques tend to cast doubts on the efficiency and effectiveness of current monetary policy in Australia
Islamic project financing
No full textThere are numbers of things one should consider to better understand project financing from an Islamic perspective. Most are interested in examining the nature and structure of Islamic instruments used to mobilise the capital needed by a project company. Structuring an Islamic bond (sukuk) is becoming more challenging among investment bankers. Most popular are the Al-bai bithaman ajil bonds (BAIDS) and murabaha notes issuance facility (MuNif
Islamic banking: doing things right and doing right things
No full textTo do the right thing, the contract ('aqad) method is usually employed to define Syariah legitimacy of Islamic banks. Equally important, the Islamic banking business is expected to operate on the moral principles of risk-taking (ghorm), work (kasb) and responsibility (daman). By doing so, the ethico-legal dimension of Islamic banking can be made evident. While claiming Syariah legitimacy, doing things right is critical where Islamic banks must compete on the basis of efficiency. In this way, factors affecting bank performance such as size of capital, scale economies and adverse selection must not be discounted in determining the success of the Islamic banking business