INCEIF Knowledge Repository (INCEIF University)
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Linkages and co-movement between international stock market returns: case of Dow Jones Islamic Dubai Financial Market index
No full textUsing wavelet techniques (discrete and continuous), this paper is the first attempt to investigate the co-movement dynamics at different time scales or horizons of Islamic Dubai Financial Market (DFM-UAE) index returns with their counterpart regional Islamic indices returns such as GCC index, ASEAN index, Developing Countries index, Emerging Countries Index, and the Global Sukuk. Finally, we examine the impact of the LIBOR on the Islamic DFM-UAE return. Our first finding is that the two markets DFM_UAE, and (GCC and Saudi) are converging, in the long run, to the same level of risk and volatility with the Global Sukuk index. The wavelet analysis based on betas indicates a strong non-homogeneous correlation across scales and for different periods of time. Closer markets tend to suggest a contagion effect showing higher correlation and higher interdependence with a certain time delay. Evidence shows a flight to quality to the less risky Sukuk market mostly during the last financial crisis. The lead–lag analysis tends to indicate that the GCC leads DFM-UAE which leads Sukuk. Finally, this study sheds further light on the important leading impact of the overnight LIBOR on the returns of Islamic stock indices especially during the big changes or under shocks indicating policy implications for portfolio diversification for the international investors. The results are plausible and intuitive and have strong policy implications
Shari'ah and legal issues in surplus sharing and business models in takaful operations
No full textMajority of Shari'ah scholars maintained the opinion that conventional insurance is not permissible in Shari'ah due to the elements of gharar "uncertainty", maysir "gambling" and riba "usury" that was found on it. This necessitated the establishment of takaful "Islamic Insurance" in the late 1970s, but this also did not go without criticisms as there are different opinions among Islamic scholars and also legal and regulatory practitioners on the permissibility of surplus sharing and takaful models that has been adopted by takaful operators ..
Shari'ah committee independence: an insider’s view
No full textShariah committee independence has been highlighted by the Shariah Governance Framework as an important credential for an effective functioning of Shariah committees. This study examined Shariah committee independence of local IFIs as perceived by the shariah committee members of the IFIs. The results identified Shariah committee independence safeguards and threats, and implied better effectiveness through clearly defined meaning of independence and guidelines or code of best practices as a guide for the committee and related parties
Undermining shared prosperity? Risk shifting and Islamic banking
No full textAutomatically, risk shifting is absent in an ideal Islamic financial system (The Kuala Lumpur Declaration, 2012). Creating an opportunity for shared prosperity is a litmus test of the authenticity of Islamic banking. The present formation of Islamic finance has grown out of conventional finance and it uses its instruments
Financial intermediation costs in Islamic banks: the role of bank-specific, market-specific and institutional-governance factors
No full textThis study empirically investigates the financial intermediation costs represented by net financing margins in the Islamic banking sector in OIC countries for 2005-2011 period utilizing Generalized Method of Moments (GMM). We focus on the role of bank-specific, macroeconomic, market-specific and institutional-governance factors on the Islamic banks' margins. For comparative analysis, we assess the difference in margins and analyse whether the factors that affect margins in conventional banks affect Islamic bank differently by constructing an unmatched and matched sample ..
The concept of actual financial loss (darar mali fi'li) in the context of Islamic banking operations
No full textAs a financial intermediary, an Islamic financial institution's (IFI) efficiency in liquidity management is determined by its financing to deposit ratio which is calculated as the amount of the respective IFI's financing divided by the amount of its deposits at any given time. The higher the ratio, the more the IFI is said to be utilising the funds and the more the bank is deemed efficient, provided that its cost of operation is managed efficiently. Most deposits need to be paid back to the depositors in a certain period of time, depending upon the types of deposit. To generate assets, an IFI usually provides Islamic financing facilities from these much shorter maturity funds (deposits) which may lead to asset-liability mismatch, particularly in the event of breach of terms and conditions as well as default by the customers. On account of this scenario, the IFI usually imposes various charges on customers to compensate for the financial loss it suffers, particularly in relation to asset-liability mismatch that affects its capital and liquidity requirements
The 2nd Maldives Islamic Banking and Finance (MIBFI) Conference emphasizes importance of establishing an Islamic finance center in Maldives
No full textThe 2nd Maldives Islamic Banking and Finance (MIBFI) Conference has acted as a forum where the Islamic banking and finance fraternity converge to discuss a plethora of issues. While the local players took center stage, the participation of foreign delegates complemented the Maldivian participants in engaging one another in discussions relating to the future prospects of the Islamic banking and finance industry in Maldives and beyond. This year's theme of the conference was 'Creating a center of Islamic Finance'
Structuring innovative tier 2 (T2) capital instruments under Basel III: a Shari'ah perspective
No full textBasel III has redefined the criteria for qualifying regulatory capital instruments. Banks have to maintain Common Equity Tier 1 (CET1) capital of at least 4.5% of Risk-Weighted Assets (RWA) and Tier 1 (T1) capital should be at least 6% of RWA at all times, while total capital (i.e., Tier 1 plus Tier 2) must be at least 8% of RWA at all times. T1 capital will absorb losses during going-concern - a situation where the bank is still solvent and continuing operation. Tier 2 (T2), on the other hand, refers to gone-concern capital, which will absorb further losses when the bank is facing financial distress and reaches the point of non-viability
Does heterogeneity in investment horizons affect portfolio diversification? Some insights using M-GARCH-DCC and wavelet correlation analysis
No full textRecent literature draws attention to the issue of whether heterogeneity in investment horizons has an effect on resulting investor exposures. In this article, using Malaysia as a case study, we make the first attempt to examine comovement dynamics of Islamic equity returns to identify international portfolio diversification opportunities for investors having heterogeneous investment horizons. We use three recent and appropriate methodologies: M-GARCH-DCC, Continuous Wavelet Transforms (CWT), and Maximum Overlap Discrete Wavelet Transform (MODWT). The results significantly tend to indicate that effective portfolio diversification opportunities between our sample markets exist mainly for short holding periods while for longer investment horizons, where investor stockholding periods exceed one year, the markets appear to be mostly highly correlated yielding minimal portfolio diversification benefits. Overall, the results critically highlight the significance of heterogeneity in investment horizons and bear important implications for portfolio diversification strategie
Auditor independence and corporate governance
No full textFailures of major financial institutions globally that have supposedly audited has led to major criticism of the auditing profession. The collapse of many large companies and the demise of one of the major auditing firm, Arthur Andersen, have damaged the credibility of financial statements and undermined the reputation of audit profession. Among the many explanations for these failures (like investors’ irrational exuberance, infectious greed, and foolishness; the bursting of the bubble; the impoverished morality of CEOs), the tendency of management to cook the books; the failure of the gatekeepers; and the ambiguities in application of financial reporting standards, which have encouraged auditors to be creative and apply their accounting gimmicks, are directly related to the auditing profession