INCEIF Knowledge Repository (INCEIF University)
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Restructuring and bank performance in dual banking system
No full textThis paper assesses the impact of changing competition landscape and Islamic bank penetration on bank risk, profitability and capitalization. This study utilizes an unbalanced panel dataset consisting of 37 commercial banks over the period 1997 to 2015. The paper uses a panel VAR methodology to discern the interactions between bank competition and Islamic banking presence on one hand and bank performance on the other hand. We find evidence supportive of both competition - stability and competition - fragility views for conventional banks. The results suggest that bank competition improves conventional bank risk and, at the same time, lower profitability and capital holdings. As for Islamic banks, competition seems to robustly influence only bank profitability. Finally, we note that increasing Islamic bank penetration improves the risk profile of conventional banks and, as expected, reduces their market power. These results bear important implications on the design of competition policies in a dual banking system as well as on the development of the Islamic banking sector
The human development link between financial development, poverty and income inequality: evidence from the OIC countries, based on Islamic values
No full textPoverty and income inequality are the two of the most pertinent global challenges facing the world economy today. Despite many attempts aimed at combating poverty and income inequality, the problem still persists. It takes more than monetary value to eradicate poverty and reduce income inequality, for the outcome would depend very much on the capabilities of the poorer segments of society. The world needs inclusive growth to ensure that the benefits of economic growth are equitably distributed across society. This research empirically investigates into the impact of financial development on poverty reduction and income inequality. However, the inconclusiveness of this relationship in the previous studies has given us a clue that this relationship may well be mediated by other contextual variables such as Islamic Human Development. Our study focuses on 30 OIC Countries from 2004 to 2016. For the first research question, we assess the impact of finance development on poverty and income inequality. The results suggest that financial development that consists of banking development and financial inclusion does not inevitably benefit the poor in the OIC countries. It shows that neither the banking development factor nor the financial inclusion factor play any significant role in poverty eradication. However, the results show negatively and significantly on income inequality. The study further finds evidence, for our second research question, that our holistic Islamic Human Development approach could help fight poverty and income inequality
Pandemic crisis, digitalization and social responsibility: an emerging role of Islamic economics and finance
No full textIslamic economics and finance derived its axioms from Shariah. Irrespective of the faith convictions, Islamic economics and finance has gained momentum in the world today. It is reported that by 2024, the global Islamic finance industry assets will reach USD2.02 trillion on halal sectors inspired by ethical consumption needs while it is anticipated that by 2024, this amount will reach to USD$2.4 trillion at a five-yaer cumulative annual growth rate of 3.1% (Dinar Standard, 2020). It is also forecasted that there will be 8% decrease in global Muslim spending in 2020 due to pandemic on sectors covered by report published by Dinar Standard (2020) which re food, pharmaceutical, cosmetics, fashion, travel and media/recreation sectors. It is also anticipated that except for travel sector, all the other sectors covered by Dinar Standard (2020) will return to pre-pandemic spends level by the end of 2021
The structure of retirement scheme of Singapore Central Provident Fund (CPF): a Shariah analysis
No full textRetirement is placed as one of the top three priorities in many peoples' lives to ensure financial stability as we enter the phase of elderhood. As Singapore moves into a greying population, retirement will be a focus area that concerns every individual. Most Singaporeans will be dependent on the retirement scheme under the care of the Central Provident Fund Board (CPFB) as one of their sources of retirement income. Being in a country with Muslims co-existing within the population, the permissibility of the retirement scheme may need to be assessed to address it's Shariah non-compliance and thus develop a Shariah complaint model to provide a halal source of retirement income for the Muslims in Singapore. Hence, this project paper aims to provide a comprehensive Shariah review of the Central Provident Fund (CPF) retirement scheme in Singapore addressing the different stages from depositing to withdrawal, understanding the awareness of the Muslims in Singapore on the permissibility of this scheme and their concerns, and finally to propose a Shariah compliant retirement scheme. This study will refer to secondary sources to explain a certain concept or to support the views that are laid forth in this research. In addition, primary data collection in the form of a questionnaire will be utilised to understand the awareness among the Muslims in Singapore on the Shariah compliance of the retirement scheme and their comprehension of the returns provided by the CPFB. An analysis of the retirement scheme does show some elements that are prohibited by the Shariah from the depositing, investment, returns and pay-out stage. On top of that, an analysis on the awareness of the Muslims in Singapore regarding the practices of the retirement scheme, many of the respondents were unsure of its Shariah compliance out of which 36% are concerned with its ruling while the other 64% are not. As of today, Majlis Ugama Islam Singapura (MUIS) has issued a fatwa to respond to the interest rate offered by the CPFB which rules it as a gift (hibah) and thus permissible
The role of Islamic finance in achieving Sustainable Development Goals (SDGs)
No full textThe concept of sustainable development has been articulated for the first time in the Brundtland Report, also called "Our Common Future" published in 1987 by the World Commission on Environment and Development (WCED) and supported by the United Nations (UN). According to Brundtland Report, Sustainable Development is defined as "development that meets the needs of the present without compromising the ability of future generations to meet their own needs." In 2015 the United Nations has introduced the new global development agenda for 2015 through 2030 and adopted a set of seventeen Sustainable Development Goals (SDGs) for the action of the member states. According to UNDP, the SDGs as global agenda represents a universal framework for comprehensive development. It aims to plan for a better and sustainable future and address the global challenges faced by people and the planet
Enhancing zakat distribution with IoT: eliminating multiple registration by poor to receive zakat
No full textThe Internet of things (IoT) is described as the network of physical objects - 'things' or objects - that are embedded with sensors, software, and other technologies for the purpose of connecting and exchanging data with other devices and systems over the Internet. Today using IoT it is possible to measure the stress level and the poverty level of a household. As such, there is no reason why zakat distribution to the poor can be enhanced via linking it with IoT. The advantage of this could be that the poor who register with zakat administration authorities will have to register a single time and via the data receive from the household, the zakat administrator can determine whether the household is eligible to receive zakat and can deliver the zakat via a QR Code through the smart gadget with sensor connected to the internet that collects the data from the household or by physical delivery of zakat to them by locating their geographical location through GPS tracking enabled feature that will be embedded in the smart gadget
Why sustainable investments matter more now - a reality check in the light of Shariah and COVID-19
No full textThe COVID-19 pandemic continues wrecking global economies on an unprecedented scale. Despite its socio-economic damage, the pandemic has triggered a significant acceleration in Environmental, Social and Corporate Governance (ESG) and Sustainable and Responsible Investment (SRI) uptake, including a mainstreaming and maturing of responsible investment philosophies and practices. According to Morningstar, the first three months of 2021 saw US20.5 billion set in the fourth quarter of 2020 and more than double the US$10.4 billion seen one year ago in the first quarter of 2020. Blackrock reported that 88% of sustainable funds in their analysis outperformed their non-sustainable counterparts in the period 1 January to 30 April 2020
Empirical analysis of a pricing model for corporate bonds with stochastic coupons
No full textThis study empirically investigates the stochastic corporate coupon bond pricing model proposed by Baaquie (2020b) and the pioneering structural risky bond pricing model proposed by Merton (1974). Merton's risky zero-coupon bond pricing model is converted into a portfolio of zeros to study corporate coupon bonds. The seminal work of Merton (1974) is considered as the backbone of corporate bond pricing. Merton's model is based on the generalization of Black and Scholes (1973) option pricing theory. The coupon bond pricing model, proposed by Baaquie (2020b), is based on Merton's bond pricing theory, but coupons are stochastic. Hence, we can call it a stochastic coupon bond pricing model where coupon varies from payment to payment based on the issuer's performance. The proposed model of stochastic coupons has a built-in hedge for the issuer and has the feature of profit and loss sharing between investor and issuer, making it a viable instrument for Islamic finance. The model can be calibrated and tested using market data. This thesis is structured into six chapters, including an introductory chapter, a review chapter, three core chapters, and a concluding chapter. The introductory chapter highlights the motivation, problem statement, and objectives of this study. In review chapter, theoretical and empirical works along with derivation of Merton (1974) and Baaquie (2020b) are reviewed. In conclusion, a summary of the thesis, policy recommendation, limitation, and future directions are discussed. In the third chapter of the thesis, we investigate the following three questions. First, how can one use the proposed model for an empirical study of fixed coupon bonds, since apparently, the model implies stochastic coupons being paid continuously? Second, how the newly introduced parameters, three exogenous parameters - market time and firm's effective valuation and two endogenous parameters - stochastic coupon and firm value volatility, behave for different categories of the bonds and contribute to the improvement of the model's fit? Third, does the stochastic coupon model estimate the bonds' market price more accurately compared to Merton's model? To answer these questions, we have shown how to calibrate and test the stochastic corporate coupon bond pricing model along with newly introduced parameters using a sample of fixed coupon bonds issued by the US corporations. Estimated coupon bond prices from the stochastic model are then compared with the estimated prices from the extended version, portfolio of zeros, of the Merton model
Dividend payout policy of Shariah compliant firms: evidence from United States
No full textThis paper investigates the effects of religious screening on payout behavior of US firms. Shariah compliant (SC) indices serve as suitable sample as they are emerging as alternative investment class in the last two decades. Through an analysis of a sample of US firms belonging to Dow Jones proprietary database for the period 2006-2018, this study provides evidence that SC firms are more prone to make total payout, cash dividends and repurchases. We use panel logistic regressions with industry and year fixed effects. The findings reveal that the drivers of higher propensity of total payout are higher profitability, higher retained earnings, lower debt capital structure and lower asset growth. The factors that contribute to likelihood of paying higher cash dividends are higher profitability, lower governance levels and lower market/book assets ratio. Moreover, better governance, lower asset growth and lower equity/assets increase the propensity of SC firms to make higher repurchases. These findings are important contribution to the Islamic corporate finance and dividend policy literature
Embracing maqasid Shari'ah via integrated via integrated reporting: the case of Islamic banks in Malaysia
No full textFinancial reporting has undergone tremendous development in the last couple of years. It traditionally discloses financial results that mainly consist of income statement, balance sheet, and cash flow. This information aids its shareholders, customers as well as the public to assess and measure the financial performance of the corporation or organization. It also informs them of the resource allocation, investment decision that affects the business operations in that particular year. However, such format of reporting has in recent years faced disruption due to the introduction of Integrated Reporting (IR). The style of reporting under IR is that it reports not only financial but non-financial information. It gives emphasis on value creation and sustainability as well as future outlook of a company via its short-, medium-, and long-term planning