INCEIF Knowledge Repository (INCEIF University)
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The substitution hypothesis of agency conflicts: evidence on Shariah compliant equities
No full textAccording to the substitution hypothesis and recent evidence, firms that are better governed carry less debt and experience fewer agency problems. This may also imply that firms with lower debt are better governed and experience lower agency costs. We test this hypothesis by comparing the agency costs of Shariah compliant (SC, and therefore low debt) and Shariah noncompliant (SNC) firms, using a proprietary dataset comprising constituents of the Dow Jones Islamic index for the period 2006-2015. The findings support the hypothesis but are contingent on the firm's idiosyncratic risk; SC firms with low idiosyncratic risk have higher agency costs
Does competition make banks riskier in dual banking system?
No full textThis paper investigates competition and risk-taking behaviour of Islamic banks taking a sample of 59 Islamic banks and 149 conventional banks from 10 highly developed Islamic banking countries between 2006 and 2016. The level of competitiveness between the two types of banks is determined using Lerner index and estimations show that Islamic banks have lower market power than conventional banks. After controlling all the bank and country-specific variables, the results show that competition and risk are positively related for the overall banking system and inversely related for Islamic banks which undoubtedly emphasize that inherent difference between risk-competition relationships among these two distinct bank types. Overall, in the case of Islamic banks, the results provide evidence in favour of "competition stability view" where higher competitive market associated with fierce competition from conventional banks and its peers' reduces Islamic banks' risk-taking behaviour
Towards conceptualizing ethical decision-making model in marketing: a religious-humanistic approach with special reference to ethical philosophy in Islam
No full textThis paper aims to present a synthesized conceptual model for ethical decision-making in marketing that accommodates both humanistic and religious aspects. A religious-humanistic approach is adopted on synthesizing. “Ferrell and Gresham’s (1985) contingency framework for ethical decision-making in marketing” and “Al-Ghazali’s ethical philosophy” are considered to be the theoretical base for the synthesized model. Al-Ghazali’s ethical philosophy that stands for the religious dimension in this study was found appropriate for incorporating into the Ferrell and Gresham contingency framework for ethical decision-making in marketing. The approach (religious-humanistic) adopted for synthesizing the two aspects into one model was justified accordingly. A newly synthesized model is only conceptually validated. Statistical validity is required based on the variables included in the conceptual model. Future studies are recommended to attain the model fit
Islamic banking in a bind?
No full textWithout a doubt, Islamic finance has increasingly become an integral part of the global financial system, with Islamic banking playing a lead role in this new trajectory in many parts of the world. Islamic banking assets, deposits and financing have been growing at double-digit pace annually. In recent times, Islamic banking has attracted much international attention, especially in the aftermath of the global financial crisis of 2007-2008 which showed that Islamic banks are generally more stable than their conventional peers, although empirical evidence is admittedly mixed. A unique feature of Islamic finance is that it is interest-free with many ethical safeguards such as zero space for speculation, ambiguity, uncertainty, short selling, etc. In a sense, Islamic banking is doubly safe, as it is subjected to both [Shari’ah] screening and conventional oversights. Be that as it may, the fact remains that Islamic banking products are strikingly similar to the conventional ones, the only differentiating factor being the Shari’ah compliance. In other words, Islamic banking products are no more than Islamised versions of conventional banking products. It is not difficult to understand why this is indeed the case
Post-default sukuk restructuring: an appraisal of Shari'ah issues
No full textSukuk restructuring primarily aims at offering a debtor more latitude, in form and time, to settle his obligations. To meet Shari'ah requirements of transferring assets to Sukuk holders in asset-based Sukuk, the originator usually transfers the beneficial ownership to the issuer special purpose vehicles (SPV). However, in asset-backed Sukuk, the originator sells the underlying asset to an SPV and Sukuk holders do not have recourse to the originator in the event of defaults. Among some key unresolved Shari'ah issues in this regard is whether a change of contract necessitates entering a new contract. Other related issues that conflict with the tenets of Shari'ah are: (1) Sukuk structuring on tangible assets and debts; (2) receiving the full title by the Sukuk holders to the underlying assets in the event of default in case of securities that are publicized as asset backed; (3) Sukuk's similarity with interest bearing conventional bonds: (a) capital guarantee by the originator or third party, (b) the originators, promise to repurchase Sukuk at face value upon their redemption, and (c) providing internal and external credit enhancement. The Shari'ah-compliance of the above-mentioned clauses and structures of Sukuk remain debated among the Shari'ah scholars. Based on some specific cases, this study examines the Shari'ah viewpoint on sukuk restructuring and potential solutions to these unresolved Shari'ah issues in light of the past and recent declaration of some Sukuk defaults as non-Shari'ah complaints. Undoubtedly, resolution of these and other unresolved issues pertaining to Sukuk defaults can help strengthen the confidence of investors in Islamic capital market structures
Essays on the impact of capital flows on the institutional infrastructure of the OIC countries
No full textIn spite of the expanding number of studies investigating the effect of institutional quality on capital flows, a very few attempts has been made to investigate the impact of capital flows on the institutional quality of host countries.This study investigates the role of capital flows on the institutional infrastructure of the OIC countries, which are divided into three separate essays. The first essay investigates the impact of the official development assistance (ODA) on the institutional development of the OIC counties. The research uses system GMM, and the data for this study is obtained from 40 OIC countries for the three-year average period from 1991 to 2016. Empirical findings suggest that aid reduces the Institutional quality for the aid recipient countries. For robustness test and heterogeneous relationship among aid recipient countries, this study uses panel quantile regression and finds that foreign aid generally reduces Institutional quality, and its reduction effect is greater in less institutionally developed countries ..
MIBFI Conference 2019 focuses on Islamic social finance in the Maldives
No full textThe 6th Maldives Islamic Banking and Finance Industry (MIBFI) Conference organized by Uto Edu Consult in association with Women on Boards, Maldives was successfully held on the 17th September 2019 at the Islamic University of Maldives, themed 'Sustainable Development through Islamic Social Finance'. This is an important theme for the Maldives as national level targets have been set to achieve the UN's Sustainable Development Goals
Reforming Islamic finance for achieving sustainable development goals
No full textThe paradigm of Islamic economics and finance is guided by the motivation of comprehensive human development (CHD) and its preservation as manifested in the objectives of Shari'ah (maqasid al-Shari'ah). However, the real world free-market economies are driven by the linear economy paradigm under the influence of Hotelling's 1931 famous work concerning the economics of exploiting natural resources, in which, the ecological environment is not recognized as a resource. The global financial architecture is designed to protect and preserve the linear economic paradigm. In practice, Islamic finance has also remained a halal sub-set of this system. The resultant social, environmental, and governance imbalances have recently led to different initiatives sponsored by the UN including the Sustainable Development Goals (SDGs). Like the maqasid, the SDGs also aim at achieving and preserving human development. In practice, for the first time, a real paradigm shift from the linear to the ecological/circular economy is noticeably taking place, also inducing the transformation of the financial architecture. In this paper, in a broader perspective, we use the CHD and SDGs interchangeably, and discuss a number of paradigmatic and regulatory reforms that will be required to enhance the actual effectiveness of Islamic finance in achieving the ideals of CHD, and the SDGs at large. The paper in fact outlines a wider scope of the potential reform initiative
Financialization of the economy and income inequality in selected OIC and OECD countries: the role of institutional factors
No full textIncome inequality is a serious problem confronting not only the developed world but also developing countries. Recently, financialization has been one of the culprits identified in literature as one of the cause of income inequality. This book offers the only detailed presentation of the how financialization aided the spread of income inequality in Organization of Islamic Cooperation, OIC countries. Finance has taking a center stage in the affairs of most developing economies, surpassing the real sector of the economy. The result is the creation of an indebted society in which people are comfortable with financing their financial needs through credit. This creates a debt laden society that is trapped in the cycle of debt. This book represents a comprehensive and indispensable source for students, practitioners and the general public at large. It presents data which shows the buildup of debt and the rising income inequality in Muslim countries. It includes discussion of the rise in rentier income, financialization of everyday life, decline in physical capital accumulation and deregulation of the financial sector. The book therefore, proffers solutions on how Muslim countries can come out of the present economic problem facing them. The promotion and adoption of Islamic principles, which promotes risk sharing based contracts as against debt based transaction is the way to go. When financial contracts are based on the principles of risk sharing, any gains from economic activities get to be shared equitably. Hence, not only capital owners get to enjoy the benefit from the income derived from investments, but rather, all parties that partake in the contract. Distinguished by its clarity and readability as it is written in a very easy to understand language, it is an important reference work for any concerned individual interested on the recent causes of income inequality in Muslim World
How do Islamic equities respond to monetary actions?
No full textThe purpose of this paper is to appraise the effectiveness of monetary policy actions in variant market conditions for Islamic stocks. These stocks offer ground for a natural experiment as they have restrictions on the line of business and their distinguished capital structure does not allow them to combat the liquidity crisis through the use of leverage. The paper uses the quantile regression approach for a multi-country sample of Islamic stock indices to assess the impact of domestic as well as US expansionary monetary policy on stock returns of Islamic indices at various locations of distribution of returns. It is found that, at lower return levels, an expansionary monetary policy has a negative effect on the returns. In other cases, there is no significant impact of policy rate change on index returns. It is more appropriate to use firm level data of Islamic stocks instead of stock indices. However, the information regarding index constituents is not publicly available ..