INCEIF Knowledge Repository (INCEIF University)
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Risk sharing in corporate and public finance: the contribution of Islamic finance
No full textThe risk sharing principles of Islamic finance as embodied in mudarabah and musharakah contracts have been extensively used throughout history. For example, the maritime trades of 14th century Italian city-states with Middle East and Asia were financed by ‘sea loans' and ‘commenda’. Historians have traced the development of commenda to borrowing from the concept of mudarabah used by Muslims (Udovitch, 1962; 1967; 1970; Mirakhor, 2003). They have also recorded how crucially important these contracts were to the growth of not only the maritime trade but also to the economic, social and political progress of European city-states
Islamic capital markets: principles & practices
No full textThe book presents the various aspects of the theory of Islamic capital markets (ICM) and its operations by starting with the simplest ideas and moving on to the complex applied issues. The topics covered include: an overview of ICM and its development; Shari'ah principles, contracts and issues; regulatory and governance frameworks; risk management, accounting and taxation issues; details on different segments of the ICM, including sukuk, Shari'ah-compliant stocks, Islamic fund management, Islamic private equity and venture capital, Islamic derivatives and Islamic structures investment products; and future directions for the ICM
Ethical behavior and trustworthiness in the stock market-growth nexus
No full textWhile formal institutional quality has been used to explain the finance-growth nexus, the role of social capital has not been fully addressed. The proposition of “better finance, more growth” is important amidst concerns over the erosion of ethics and trust in finance in the aftermath of the 2007/2008 global financial crisis. Using threshold estimation technique, this study examines whether the growth effect of stock market development differs according to the distinct levels of ethical behavior and trustworthiness in a cross-section of 73 jurisdictions during the post-crisis period. The results demonstrate that the impact of stock market liquidity on gross domestic product (GDP) and total factor productivity (TFP) growth is positive and significant only where there is high level of ethical behavior in firms. Similar effect is discerned in the case of strong trustworthiness and confidence. However, there is mixed evidence when formal institutional quality in the form of regulation and supervision of securities exchanges is considered. In terms of policy implications, this study upholds the “better finance, more growth” proposition and contributes to the identification of thresholds above which ethical behavior and trustworthiness can influence positively the relations between stock market development and macroeconomic performance
The "gatekeeper of financial truth" in Malaysian IFIs: some evidence
No full textThe concept of Shariah governance has its foundation in the Qur'an and the Sunnah. Shariah (which literally means "the way") is the divinely ordained guidelines of conduct for Muslims in all aspects of their life, which includes financial matters. Any form of transaction, irrespective of financial or otherwise, must be free of any element of injustice to the transacting parties
Islamic financial reform and macroeconomc policies: a case of Malaysia
No full textMalaysia's overarching economic objective is to achieve developed country status by the year 2020. On the back of sluggish global economic condition and tight fiscal space, the economy will need to grow by a stable and rapid rate over the next few years. Currently, macroeconomic policies in Malaysia follow the conventional model based on the risk-transfer paradigm. Over the next decade, the potential for risk sharing as an alternative to risk transfer is expected to grow rapidly. As pointed out by a number of scholars and researchers, economies can be made more resilient to shocks by adopting financing methods that limit risk transfer (interest rate based debt contracts) and allow greater risk sharing among the market participants on a broad scale. Risk sharing is also the essence of Islamic finance
The role of higher learning institution in the development of Islamic finance
No full textIt gives me very great pleasure indeed to be invited by my dear brother Dr Muhammad Syafii Antonio the Head of Tazkia University College of Islamic Economics to deliver this address at the 11th convocation. I have been requested to speak on the role of higher learning institutions in the development of Islamic finance. This is a very appropriate topic for this occasion when the Islamic Finance landscape has made tremendous progress within a short period of about four decades and is facing various challenges that need to be addressed if we want to bring it to the next level. Let us first serf the current landscape of Islamic finance
Corporate governance and firm's credit ratings: an analysis on corporate bond and sukuk issuing firms' in Malaysia
No full textAfter the 1997 Asian financial crisis, conventional bond and sukuk have become one of the major financial instruments for private and public listed firms in Malaysia to raise capital. In order to continuously attract both foreign and domestic investors and to maintain their participation in the bond and sukuk market it is vital that the regulatory authorities continuously strengthened corporate governance practices and regulatory framework to protect and safeguard the bond and sukuk holders' interest ..
What happens when Islamic capital markets move away from tax neutrality – a look at Oman & Saudi Arabia
No full textThis article evaluates how tax reforms affect stock prices of local and foreign firms in Oman and Saudi Arabia. Both countries introduced corporate tax on foreign firms, exempting local firms from corporate tax, when they moved away from a pre-existing Islamic tax neutrality policy. These reforms were implemented in 2009 in Oman and in 2004 in Saudi Arabia. These tax reform events – applying to foreign firms and not applying to local firms in the same markets – offer ideal experimental situations in two economies to test the taxation theories on how stock prices must react. We find that the results support the Modigliani- Miller and Elton-Gruber tax theories in two ways. Firstly, foreign firms that had their taxes reduced experienced stock price increases. Secondly, local firms not subjected to tax or tax reduction showed no visible tax effect. These are theory-consistent findings in the unique tax environments in these two Islamic countries, which moved away from tax neutrality, enabling us to obtain very clear evidence on modern theories of taxation. In our view, this evidence is significantly important addition to the literature on tax and taxation and for those contemplating a move away from Islamic tax neutrality
Performance and trading characteristics of exchange traded funds: developed vs emerging markets
No full textExchange Traded Funds (ETFs) are one of the most successful financial innovations of the last decades. The main focus of this study is to examine the risk adjusted performance, tracking error and trading characteristics of emerging and developed markets ETF. 43 passively managed equity ETFs have been chosen to cover both markets. The results indicate that the emerging markets are less efficient in terms of index replication and possess higher tracking error compared to the developed market ETF. Conversely, emerging markets provide better risk adjusted performance. Last but not least, it is also found that assets size has positive impacts towards ETFs performance and in contrast, the expense ratio has a negative impact on ETFs performance. To determine the policy matters, investment types and strategy for the two different types of capital market products, this study is quite relevant to the individual investor, institutional investors, policy makers and the regulators
