Journal of Islamic Finance (JIF)
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The Influence of Financial Education on Consecutive Debt-taking Behaviour of Low-Income Households in Indonesia
Get PDFDebt is considered as one of the major sources of funds from third party, especially for low-income households. Even though Islam allows debt, it should not be used recklessly. Taking one debt after another is apparently not suggested for the low-income households although it is common among them. In order to understand the consecutive debt-taking behaviour among the low income households in Indonesia as well as the role of financial education in influencing this behaviour, this study adopts the Structural Equation Modelling (SEM) to analyse pertinent data elicited from 1,780 low-income households from six areas in Indonesia. The study finds that financial education has positive effect on using debt consecutively albeit wisely for fulfilling family needs. By wisely, it means that the low income households are able to control their desire and satisfaction, thus practicing the true spirit of consumption as proposed in Islam
Determinants of Maturity Transformation Risk in Islamic Banks: A Perspective Of Basel III Liquidity Regulations
Get PDFMaturity transformation risk is highlighted as one of the major causes of recent global financial crisis. Basel III has proposed new liquidity regulations for transformation function of banks and hence to monitor this risk. Specifically, net stable funding ratio (NSFR) is introduced to enhance medium- and long-term resilience against liquidity shocks. Islamic banking is widely accepted in many parts of the world and contributes to a significant portion of the financial sector in many countries. Using a data-set of 68 fully fledged Islamic banks from 11 different countries, over a period from 2005 – 2014, this study attempts to analyze various factors that may significantly affect the maturity transformation risk in these banks. We utilize a 2-step system GMM estimation technique on unbalanced panel and find bank capital, credit risk, financing, size and market power as significant bank specific factors in determining maturity transformation risk. Furthermore, gross domestic product and inflation are found to be the significant macroeconomic factors that influence this risk. However, we find no evidence for the effect of bank profitability, cost efficiency and income diversity on maturity transformation risk in Islamic banking system.
 
Structuring Model for Corporate Productive Cash-Waqf in Indonesia (A Case Study for PT. Semen Indonesia)
Get PDFThe development of Waqf in Indonesia has attracted plenty discussion about the third sector economy model (voluntarily sector) and it’s potential to overcome social economic problems. Semen Indonesia is a giant multi-national state-owned company with various programs of community service that could potentially adopt the concept of cash Waqf as an innovative support for financing socio economic programs for the benefit of the surrounding society. The study has utilized qualitative data by analyzing important and relevant secondary data, direct observation of Semen Indonesia Group, and conducting interviews with key informants. The productive cash Waqf model has been recently developed for corporate Waqf equipped with information technology systems like E-Waqf applications to encourage Semen Indonesia’s big community to donate to the cash Waqf program. The fund accumulation is managed in profitable investment around Semen Indonesia and society environment. The financial and managerial system of Semen Indonesia Company and holding is possibly adopting the productive cash Waqf concept when managed properly and transparently.
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Bank Performance and Shari'ah Supervisory Board Attributes on Islamic banks: Does Bank Size Matter?
Get PDFThis study aims to provide new empirical evidence on whether the impact of Shari’ah Supervisory Board (SSB) characteristics on Islamic Banks (IBs) performance can be affected by the size of the bank by using a sample of 25 banks for the period from 2007 to 2015. Six SSB characteristics were employed as explanatory variables which are (size, cross-membership, educational qualification, reputation, experience and change in the composition). By employing random-effects GLS and GMM method for a robustness check, it is found that four SSB characteristics (size, cross-membership, educational qualification and change in the composition) significantly affect the performance of IBs when the full sample is examined. However, the findings vary when the sample is divided into two subsamples, large and small bank. Four SSB characteristics (size, cross-membership, reputation and experience) are found to play an important role in enhancing the performance of large IBs while only (reputation and experience) significantly affect the performance of small IBs. This confirms that the impact of SSB characteristics on performance concentrates more on large IBs as compared to the small banks. Thus, there is a lack of Shari’ah governance practices in the small IBs in Malaysia and Indonesia as compared to the large banks
Maqasid Al-Shari'ah in Ijarah (Leasing) Contract of Islamic Banking System
Get PDFThe operating ijarah and ijarah financing are currently generating interest among the Islamic banks, investors, customers and even policy makers due to their less risk overloads and better profits to the public. This paper attempts to highlight the benefits of applying the Islamic legal objectives (Maqasid Al-Shari’ah) in ijarah contract, and how a strict compliance to the latter can help manage Shari’ah, business and distribution of wealth in the society. The paper discusses the impact of Muslim scholars in applying ijtihad and analogical deduction to fashion out the appropriate ruling in respect of the issues, by putting into consideration what would be the best interest of Islam and Muslim community as a whole. It also discusses the consent of the contracting parties as one of the conditions validating the ijarah contract, and as a supplement to the objective of avoiding injustice and embezzlement of another person’s wealth. The paper explains how the profit made and the risks incurred, if any, are shared between the parties involved in ijarah transaction which are proportionally shared according to what has been earlier agreed upon
Interest Rate Risk Management and Islamic Banking: Evidence from Malaysia
Get PDFThe fluctuation of interest rate in the market has let the Islamic banks becoming more cautious and taking a step ahead in managing good risk management practices. This is an important element when a country adapts a dual banking system. The interest rate is obviously prohibited in Islam; however, it does not mean that the Islamic banks will not encounter any risk due to the interest rate fluctuation in the market. This is due to the nature of the Islamic banking balance sheet where it is fixed on asset side whereas in the conventional banking it looks more flexible to the asset, thus putting the Islamic banks unable to react expeditiously to the fluctuation in market interest rate which later leads to greater exposure to the rate of return risk. Therefore, the present study aims to investigate the effect of the interest rate risk towards the portfolios of the Islamic banks operating in the Malaysia. The quantitative result reveals that the majority of the Islamic banks are exposed to the interest rate risk and it is explained by the financial and economic variables. This study is expected to add value to the existing literature in risk management by proposing policy recommendations and methodological innovation
The Role of Islamic Banks In Enhancing SMEs' Access to Financing via Musharakah Financing
Get PDFMost Islamic banks’ operations are dominated by debt based financing, which limit SMEs' access to financing due to their inability to provide adequate collateral, oblige high-profit payment, and provide sufficient track records. In relation to this, many past studies have discussed that Musharakah financing would be functioning as a viable alternative financing for SMEs to overcome this problem. However, most of the Islamic banks are reluctant to operate Musharakah financing as it is vulnerable to agency problems which expose the banks to high financing risks. Moreover, SMEs' unwillingness to allow banks to take part in their business operations also impede the application of Musharaka financing. In view of this problem, this study is conducted to evaluate bank's participation in Musharakah financing with a view to determining its viability as an alternative financing for SMEs. Using survey questionnaire administered on SMEs in Malaysia, data elicited was subjected to statistical analysis using structural equation modeling. The results demonstrate SMEs' agreement on the bank's participation in their business operations thus indicating the potential of Musharakah as a viable financing for SMEs
Challenges of Islamic Debt Restructuring in a Multi Creditor Environment
Get PDFThe growth of Islamic Finance over the last few decades has brought Islamic Finance to a level where it co-exists hand in hand with conventional banking. It is now common for the same customer to take up both Islamic financing and conventional loans as opposed to only conventional loans in the past. While such development is positive, there are inherent issues resulting from such co-existence. One notable issue is when default occurs due to non-payment by the customer, and when both the Islamic financier (Islamic creditor) and the conventional lender (conventional creditor) subsequently opt for debt restructuring instead of proceeding with insolvency action. Debt restructuring helps prevent further default, thus can assist in preserving the business value of the customer and the interests of the creditors as a whole. It is not a difficult task if a customer has one creditor only. However, the situation can become complex when the debt of both the Islamic and conventional creditor are to be restructured concurrently. This situation is referred to as Multi-Creditor debt restructuring. While the objective of a Multi-Creditor Debt Restructuring is beneficial to all creditors and the customer, there are challenges for Islamic debt restructuring in a Multi-Creditor situation such as differing creditor’ rights, multiple interpretation on Shari’ah contracts and lack of clarity in documentation of transactions. These could lead to difficulties, amongst others, in proving the right amount of debts due and owing as well as in ascertaining the priority of claims vis-a-vis conventional loans. This research discusses some of the key issues faced when restructuring Islamic debts in a Multi-Creditor situation and how those issues and gaps are to be addressed with some recommended process flow, procedures and guidelines
Debt Determinants of Shari'ah Approved Firms: Empirical Evidence from Malaysia
Get PDFThe issue of high reliance on debt has raised major concern especially since its impact has been linked to the several corporate problems in United States’ big corporations such as Enron and Lehman Brothers. On a wider scope, the impact of debt may also be evidenced by the Greek Depression in the year 2009. Various studies have been conducted to explain which factors determine debt of the firms, given different setting of periods, countries and methodologies. Uniquely, this study focuses on the firms which stocks are Shari’ah approved in accordance to the Malaysia’s Securities Commission guidelines. This study covers a balanced panel of 239 Shariah approved firms listed on the Bursa Malaysia for the period of analysis from 2000 to 2014. To meet its objective, this study employs a static panel regression model which includes the pooled OLS, random effect model (REM) and fixed effect model (FEM). The study also conducts a robustness test to the empirical model. Several factors have been examined and the result shows that certain firm-specific variables like growth opportunity, size, bankruptcy risk, non-debt tax shield (NDTS) and Herfindahl-Hirschman Index are significant determinants of a firm’s debt. Also macro variables such as inflation, GDP and economic crisis are also found to be significant determinants of Shariah approved firms’ debt. In contrast with the prior studies that focuses on the non-Shariah approved firms, the output from this study provides new insight and understanding on the debt determinants of Shariah approved firms
Further Evidence on the Stability of Islamic versus Conventional Banks in selected GCC countries from 1999 to 2015
Get PDFBased on the theory of financial intermediation from both the perspective of original theory and the Islamic perspective, this paper aims to investigate the level of stability of the Islamic and the conventional banks. It also examines the different timing effects including the period of crisis on the stability of the Islamic and the conventional banks. The study evaluates 51 conventional banks and 50 Islamic banks in selected Gulf Cooperation Council (GCC) using data from the Bankscope database over the period of 1999 to 2015. The study employs two-sample t-test with unequal variance t-test and the non-parametric Wilcoxon test and Mann-Whitney test to compare i) mean of Islamic versus conventional banks over different timing period ii) mean of tested period versus other periods for each of the Islamic and conventional banks. The study suggests that the GCC Islamic banks are more stable compared to their conventional counterparts. However, in testing different timing period, only GCC conventional banks seem to be affected by the crisis period while Islamic banks are less prone to the crisis.. Findings of this study contribute to the literature and fill the gap towards extending the theory of financial intermediation through empirical works of investigating the stability of the Islamic and the conventional banks