INCEIF Knowledge Repository (INCEIF University)
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Liquidity risk determinants: are Islamic banks different from conventional banks?
No full textThis research examines comparatively the impact of cost efficiency and other relevant determinants of liquidity risk of Islamic banks and conventional banks in 16 OIC countries from 1999 to 2013. The study employs three-stage empirical approaches to analyse the data. First, cost efficiency is estimated using DEA with the input output specifications based on intermediation approach and value added approach for traditional versus non-traditional banking activities. Second, liquidity risk determinants model is analysed using panel static (LSDV) and panel dynamic model (system GMM). However given the limitations of static panel and the superiority of dynamic GMM, the second approach is expected to generate more reliable results and therefore, serve as the main findings. Third, the one-step and two-step system GMM estimator is applied to establish the dynamic relationship between efficiency and liquidity risk and uses Wald test to conclude on the Granger causality relationship. The findings suggest that cost efficiency is positively related to liquidity risk and, the relationship is sensitive to the choice of input output mixes. Other significant factors include capital, bank specialisation, credit risk, profitability, size, and inflation whereas market concentration is not significant. The study found weak evidence on the important effect of GDP growth and the higher level of liquidity risk of Islamic banks than conventional banks. The findings imply the importance of money market to provide liquidity as indicated by the lower liquidity risk of banks in Malaysia as compared to other countries that are devoid of such facility. The most important factor affecting liquidity risk in Islamic banks is cost efficiency while for conventional banks, it is bank specialisation. Finally, regulation on asset restriction restrains liquidity risk in banking
The practice of takaful benefit (nomination) in the context of IFSA 2013: a critical appraisal
No full textNomination, in the context of takaful (Islamic insurance), involves the takaful participant nominating a person to receive the takaful benefits in the event of the participant's death before the maturity of the takaful plan. Distribution of the takaful benefits that are to be received upon maturity of the takaful plan is a main concern arising in family takaful, an Islamic alternative to life insurance. Upon the death of the participant, the takaful benefits may either be payable to the estate of the participant or to a person nominated by the participant as the sole recipient of the benefits of such a takaful policy. The effect of such a nomination is the central focus of this research paper. Reference to the Islamic Financial Services Act 2013 (IFSA) is crucial to identify the nature, position and effect of nomination in Malaysia
Does trust contribute to stock market development?
No full textIn view of the increasing contributions of social capital in financial development, we examine the relevance of social capital in stock market development by applying Bayesian model averaging on 37 variables across 60 countries from 2000 to 2006. The results demonstrate that trust is a robust and positive determinant of stock market depth and liquidity, and that trust is the most relevant component of social capital in market development. Macroeconomic instability in the form of inflationary changes has a dampening effect on trust in the trading of stock. Further, social capital and its components, particularly trust, are more relevant to stock market development in countries with weak rule of law, non-Organization for Economic Co-operation and Development (non-OECD) and Organization of Islamic Co-operation (OIC) countries that are generally characterized by lower formal institutional quality. Our results seek to reinforce the relevance of social capital in complementing the much needed reform of stock markets globally
A dynamic heterogeneous panel estimation of the impact of income, inflation and happiness on stock
No full textThis study examines the long-run relationships and short-run dynamic interactions between stock returns and its determinants comprising of GDP per capita, inflation and happiness, over the period 1973 to 2012. The study applies the dynamic heterogenous panel estimation techniques of Mean Group (MG), Pooled Mean Group (PMG) and Dynamic Fixed Effects (DFE) to analyse a set of macro panel data on selected OECD countries to establish the possible causal relations between these variables. The theoretical framework of this study is based on the stock returns theories of Present Value Model/Discounted Cash Flows and “Risk-as-feelings” Theory. The results of this study show evidence that income has a favourable impact on stock returns, while inflation dampens stock returns. Interestingly, the study also revealed that happiness is not significant in determining stock returns in these selected countries, indicating that the market participants are rational economic beings who always act in self-interest, making optimal decisions by trading off costs and benefits weighted by statistically correct probabilities
Takaful is a game of numbers
No full textThe advantage of large numbers is well known in many success stories. This is not to deny that quality of the individuals can be more important than mere numbers. We have seen in history especially that of Islam, where many times the early Muslim army was outnumbered by the opponents by three, four or even ten times, yet they won almost every battle. For instance, in the first battle with idolaters of Makkah better known as Battle of Badr, in the second year of Hijrah, the Muslim army managed to gather only about 317 people, with only two horses and 70 camels for transport. The Makkans came with 1,300 strong, 100 horsemen, 600 soldiers with mail armour and many camels. Yet this first ever battle between the two sides was won by the smaller army mainly due to the quality of the individuals in the Muslim army. They killed 70 men and brought back 70 more as captives
Do sukuk credit ratings create a value effect?
No full textThe Islamic finance industry has shown an extraordinary accomplishment in the last decade. A major contributor to this success can be attributed to a significant increase in sukuk issuance: from US 138 billion in 2013. Malaysia is the world's largest sukuk market with about US 551.357 billion of domestic sukuk in the financial world, a whopping 78.09% of the total global domestic sukuk market. This significant development has necessitated the need for an effective credit rating mechanism for the Sukuk issuance. Credit rating has become an important instrument to assesses the creditworthiness of an issuer, most often based on the history of the issuer's borrowing and repayment, its underlying assets, its outstanding liabilities and its overall business performance (Arundina, Azmi Omar, & Kartiwi, 2015)
Business cycle and bank lending procyclicality in a dual banking system
No full textThe paper studies bank lending behaviour over the business cycle in a dual banking system, Malaysia, with the objective of ascertaining whether Islamic banks have a role in stabilizing credit. The study makes use of unbalanced panel data of 21 conventional banks and 16 Islamic banks covering mostly the period 2001–2013. Applying dynamic GMM estimators, we find the aggregate loans by banks to be pro-cyclical in conformity with existing studies. However, when we segregate the lending/financing behaviour of conventional and Islamic banks, the cyclicality of bank lending seems to be true only for conventional banks. As for the Islamic banks, the business cycle does not seem to affect their financing decisions. Indeed, there is indication that the Islamic banks in general and the full-fledged Islamic banks in particular can even be counter-cyclical in their financing decisions. This conclusion is fairly robust to a different loan measure, alternative model specifications, and to an alternative business cycle measure. Hence, our results provide further support to the “stability” view of the Islamic banks in that they have the ability to stabilize credi
Shariah non-compliance risks in shared and outsourced services of takaful operators with insights from maqasid al-Shariah
No full textThe study investigates the Shariah non-compliant risks in shared and outsourced functions of takaful operators through content analysis and interviews from the perspective of Maqasid al-Shariah. Shared services are generally functions that are provided in-house while outsourcing refers to the functions provided by a third party or outside the company. While these arrangements have been allowed by the regulator, the requirement for takaful operators to be Shariah-compliant end to end is paramount. The study focuses on identifying whether such risks while incorporating maslahah and cost analysis to aid decision-making on such services ..
Marketing effectiveness of Islamic and conventional banks: evidence from Malaysia
No full textThe study aims at addressing marketing effectiveness of both Islamic banks and conventional banks by using a modified "chain-of-effect" framework. Against the current literature, which, based on the customer survey, reports lack of marketing activities by the Islamic banks, the study undertakes a bank perspective to explore the Islamic bank's behavior in this regard. Applying fixed effect panel regression on the quarterly data of ten banks (five Islamic & five conventional) in Malaysia, the study aims at exploring the influence of the marketing efforts on performance (both financial & non-financial) and if such relation varies by the type of banks in Malaysia
Benchmarking objectives of Shari'ah (Islamic law): index and its performance in select OIC countries
No full textIslam offers a sustainable and comprehensive development model for humanity that can be systematically categorised as the means as well as the ideal outcome of achieving Maqasid (objectives) of Shari'ah (Islamic law). As a rule-based religion, Islam's prescription for development goes well beyond market regulations and includes rules necessary to maintain a dignified life; in order that the faithful can maximise their intellectual capacity, preserve and promote their health and education, and have equal opportunity for employment and partnership in the economic and social development of society, and unhampered by practices of fraud, cheating, corruption, or property abuse, among others. In practice, however, there is dichotomy between Islam's prescription and the current state of affairs in Muslim countries. In order to develop a better understanding of the factors contributing to this divergence, this paper provides the design of a benchmark for the monitoring of adherence to and compliance with Maqasid al-Shari'ah. This benchmark is intended to serve as a self-inspection tool for policy makers to monitor economic, social and policy development within the scope of Maqasid, and to serve as a benchmark for the progress and performance of OIC member countrie