INCEIF Knowledge Repository (INCEIF University)
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Consumer financial protection in Islamic banking: a study of conduct risk in Shari'ah governance
No full textIslamic banks (“IB”) are predominant institutions of Islamic Finance (“IF”) worldwide. Consumers are key stakeholders in IBs. The central objective of this research is to study consumer financial protection (“CFP”) in IBs. The presence of conduct risk (“CR”) in the form of reputational damage, monetary awards, costs and fines, emanating from grievances, claims and disputes between IBs and their consumers is indicated as resulting from laxity in CFP. As with conventional banks (“CB”), lax CFP in IBs results in CR due to various forms of misconduct, whether intentional, negligent or inadvertent. However, in IBs, lax CFP may also result in CR due to “tensions” in Shari'ah governance (“SG”) that may have nexus to CFP. That conundrum may lead to Shari'ah risk (“SR”) and Shari'ah non-compliance risk (“SNCR”). Statistical analysis and modeling of CFP key indicators is therefore instrumental in examining the relationships. Exploratory factor analysis (“EFA”), confirmatory factor analysis (“CFA”) and covariance-based structural equation modeling (“CB-SEM”) on consumer-facing survey instrument responses (key measurement CFP variables) was conducted. The resulting empirical evidence indicates that latent and key measurement CFP variables hypothesised by multinational banking institutions have a statistically significant impact on CFP in IBs. taxonomy of civil court rulings involving IBs and Shari'ah-compliant contracts for the period 2011-2018 using a qualitative legal document review methodology, limited in scope to those civil case rulings and decisions resulting in money awards, damages, asset impairment, costs and significant exposure, was conducted. A literature review of pre-2011 and post-2018 civil cases involving IBs and regulatory actions was also conducted, in search of indicia of CR. Recent Bank Negara Malaysia (“BNM”) enforcement actions involving CFP issues were reviewed and annotated. Islamic banking disputes lodged with the Ombudsman of Financial Services (“OFS”) and the related awards for the calendar years 2014-2018 were qualitatively reviewed in search of further indicia of CR in IBs. Results indicate that taken together, these civil court rulings, enforcement actions and alternative dispute resolution (“ADR”) actions from OFS form compelling evidence of the persistent presence of CR in IBs. Moreover, EFA and CFA on consumer-facing survey instrument responses statistically buttress the conclusion that latent and key CR measurement variables trigger grievances, disputes and claims against IBs
An empirical study of the oscillator option pricing model and an alternative modification to Black-Scholes
No full textThe option pricing model introduced by Black-Scholes in 1974 gained wide acceptance for its simplicity but was inefficient in pricing options as it relied on implied volatility. Despite the evolution of various versions of option pricing models since their seminal work, little progress had been documented on the use of implied volatility, leaving Black-Scholes to be a mathematical identity to calculate the instantaneous implied volatility as it fails to be an efficient pricing equation. Although interpreted as market expectation of future volatility of stocks, implied volatility is literally a black box that captures market information that is not specifically known yet also internally inconsistent (e.g., having a different implied volatility surface for put and call options). The four main objectives of this thesis are: first, to empirically studying the performance of the Oscillator model developed by Baaquie (2019) and examining its efficiency in pricing options as compared to Black-Scholes model. The Oscillator model has only two sets of parameters in addition to the classical form of Black-Scholes; one to model for the underlying stochastic evolution of the stock price, and the second are of market time. Market time is a behavioural parameter introduced by Baaquie and Bouchaud (2004) which scales the time to maturity to capture the market sentiment of the underlying instrument. This thesis also introduced an alternative version of Black-Scholes by adjusting it for market time. Second, the thesis tested the put-call parity violation. Third, the thesis tested three main option hedging Greeks; Delta, Gamma, and Theta, which are partial differentiations of the option pricing equation. Fourth, the thesis discussed the calibrated output and parameters' behaviour to provide insights into the implied volatility information content and gain new understanding of the parametric gap of Black-Scholes particularly in the light of the Oscillator and Black-Scholes models adjusted for market time
Judicial challenges facing the Islamic finance industry of Nigeria
No full textShariah-compliance of Islamic finance transactions compels conformity with Shariah dictates in all aspects and ramifications of such transactions. Indeed, Islamic commerce and finance jurists are unanimous that Shariah-compliance lies at the very heart of Islamic finance transactions. Equally essential is dispute resolution, as it is unarguable that disputes will invariably arise in such transactions. A viable dispute resolution mechanism is a societal pillar indispensable for the regulation and sustenance of commercial transactions
Need to redefine Islamic finance in the light of Maqasid al-Shariah
No full textThe history of Islamic finance began with the inception of Islam in the world. However, the modern institutionalization of Islamic finance began in the 1960s with the establishement of the first Islamic bank, Mit Ghamr in Egypt in 1963. prior to this, Islamic finance was practices in isolation at an informal level in communities where Muslims wanted to practice muamalat or commercial matters in accordance with Islamic law. These ad hoc practices were customized as pert the requirement of the societies and the benefits from these practices were enjoyed by Muslims of selected communities. When institutionalization of Islamic began, the compatibility of it with the conventional financial system was questioned at it was considered as a remote event that will not be sustainable in the world
Zakat calculation software for corporate entities
No full textEnsuring socio-economic justice, eradication of poverty and equitable distribution of wealth are among the primary objectives of Islam. Even so, a significant number of Muslims around the world are deprived of their basic needs. The scenario only worsens in times of financial and political turbulence. There is a desperate need to find sources of funding to rescue people from their miseries and offer sustainable solutions. Zakat has great potential to meet the funding needs. This chapter argues that zakat contributions will be amplified if corporate entities pay zakat as legal persons or on behalf of their Muslim shareholders. This chapter proposes development of a zakat calculation software to facilitate corporate entities and Islamic financial institutions calculating their zakat obligations reliably. Development of such software requires Islamic finance research entities to team up with information technology experts. Prominent Shariah scholars will play the essential role of validating and endorsing the Shariah compliance of the software
The global perspective of Islamic finance and the potential for China to tap into the Islamic finance market
No full textIslamic finance is considered one of the fastest-growing segments of the global financial industry. Over the last four decades, Islamic finance has expanded globally to western and other non-Muslim countries. This paper aims to explore the potential for China to tap into the Islamic finance market and the challenges that may face the implementation of Islamic finance there. This study adopts a qualitative method of inquiry and utilizes the inductive method and content analysis to build comprehensive knowledge that would assist in exploring the significance and potential benefits that China may gain from the adoption of Islamic finance. The study reveals that China has a huge opportunity to capitalize on Islamic finance for economic development, particularly in the implementation of China�s Belt and Road Initiative (BRI). The paper also highlights the critical success factors for introducing Islamic finance in China, most importantly, political will. Genuine support from the government is needed for the effective introduction of Islamic finance in the country. This support should be subsequently followed by the development of the legal framework, an amendment of the laws, broad publicity to raise public awareness, and effective collaboration with international organizations
Shariah governance practices at Islamic banks in Pakistan
No full textA significant challenge facing the Islamic banking industry in Pakistan is the scarcity of qualified Shariah scholars. Due to scarcity, the regulatory body in Pakistan has allowed Shariah Board members to serve in the Shariah Boards of up to three Islamic financial institutions. Does this create a conflict of interest as confidential corporate information may inadvertently be communicated across banks, impacting competitive advantage, or even worse, revealing private data? The situation requires a closer focus, especially when two out of three Shariah scholar members in the regulatory Shariah Advisory Committee (SAC) of State Bank of Pakistan (SBP) serve on multiple Shariah Boards of Islamic banks. This study investigates the challenges in Shariah Board appointment in Pakistan, with a focus on talent scarcity and recommendations to support the industry in resolving these issues. We also explore if the composition of Shariah Boards and the criteria for appointment of its members is adequate. Further, since Shariah Board members are financially remunerated by their respective Islamic financial institutions, the study also researches the issue of impaired independence and lack of objectivity in passing Shariah rulings by Shariah Boards
Drawing ethical mentation in Islamic banks; addressing operational lines heterogeneity with special reference to Al-Ghazali's ethical philosophy
No full textThis study aims to examine the decision-making behaviour of Islamic banking practitioners of the United Arab Emirates with special reference to the operational line heterogeneity by employing factors that are religious in nature such as intellect, satanic force and divine knowledge as encapsulated in alGhazali's ethical philosophy. A total of 337 samples were collected from the Islamic banking practitioners in the United Arab Emirates using a purposive sampling technique, and the empirical analysis was conducted with the measures of model fit and bootstrapping technique using Partial least square Structural equation modelling and multi-group analysis. The empirical findings reveal that the dedicated use of intellect in making decisions related to ethical issues where desires and emotions tend to overwhelm reason and human choices. While divine knowledge is found ineffective guidance of the intellect, the element of satanic force is found significantly impacting decision-making. As the lack of religious consciousness is evident among respondents, higher exposure to operational risk is expected. These findings were found identical across the Islamic banking practitioners in different lines of operations. Findings of the study highly suggest respective authorities of Islamic financial institutions to intensify the capacity-building programs on the foundation of faith which includes Islamic thought and worldview, to enhance the corporate ethical decision-making. Moreover, equal importance should be given to all the banking practitioners regardless of line of business operations. With undue emphasis is given to the juristic (fiqh) aspects of Shariah compliance in the Islamic banking and finance industry, less has been attempted to explore its ethical dimension (akhlaq) in the compliance parameters that leave a relatively large gap to address prevailing unethical practices in Islamic finance institutions. Findings from this study can be useful as a warning to the Islamic banking firms to enhance the sense of God-fearing and improve existing measures in the organisation in mitigating operational risks that may arise from people or system and consequently ensure the smooth governance of the Islamic banks
Shari'ah analysis of zakat on sukuk
No full textSukuk in its contemporary form as a financial instrument has gained prominence only over the last one to two decades. Like a share, a sukuk is defined as an instrument representing undivided ownership over the underlying assets. Naturally, the question arises whether sukuk are subject to the same zakat rulings as shares. Accordingly, this research has identified the similarities between shares and Sukuk. The zakat rulings applicable to shares are also identified, and the research has made an attempt to apply those rulings in the context of sukuk. However, the research has identified the peculiarities of sukuk as it is currently practiced in the global market and provided fresh insights on how these may impact the applicability of zakat to sukuk. While the research includes theoretical Shari'ah analysis and discussion on various relevant zakat matters, it also reviews today's practices. Accordingly, relevant Shari'ah standards and requirements of various jurisdictions are identified, and several sukuk prospect uses are examined in relation to zakat calculation and disclosures. By this the research aims at enabling a coherent understanding of the theory and practice
In search of safe haven assets during COVID-19 pandemic: an empirical analysis of different investor types
No full textThis study assesses the role of gold, crude oil and cryptocurrency as a safe haven for traditional, sustainable, and Islamic investors during the COVID-19 pandemic crisis. Using Wavelet coherence analysis and spillover index methodologies in bivariate and multivariate settings, this study examines the correlation of these assets for different investment horizons. The findings suggest that gold, oil and bitcoin exhibited low coherency with each stock index across almost all considered investment horizons until the onset of the COVID-19. Conversely, with the outbreak of the pandemic, the return spillover is more intense across financial assets, and a significant pairwise return connectedness between each equity index and hedging asset is observed. Hence, gold, oil, and bitcoin do not exhibit safe-haven characteristics. However, by decomposing the time-varying co-movements into different investment horizons, we find that total and pairwise connectedness among the assets are primarily driven by a higher-frequency band (up to 4 days). It indicates that investors have diversification opportunities with gold, oil, and bitcoin at longer horizons. The results are robust over different types of equity investors (traditional, sustainable, and Islamic) and various investment horizons