1,720,980 research outputs found
Conventional versus Mudarabah Financing: An Agency Cost Perspective
No full textConventional versus Mudarabah Financing: An Agency Cost Perspectiv
Incentive-Compatible Ṣukūk Mushārakah for Private Sector Funding
No full textDespite the huge potential on both the demand and supply sides of the ṣukūk market, the current ṣukūk structures fall short of adequately meeting the market’s needs as the Sharīʿah compliance of many of them and/or their economic efficiency are questionable. Even though partnership-based ṣukūk are claimed to reflect the true spirit of Islamic finance, their underuse as a financing instrument is a notable fact. Such a situation, if not addressed, will impede the development of the ṣukūk market in the future. This paper proposes an innovative ṣukūk mushārakah model for consideration by companies and revenue generating infrastructure projects. The model has an incentive-compatible feature by making the share of the issuing entity in the profit positively related to its performance in addition to a convertibility clause. The sector Return on Equity (ROE), adjusted with the firm beta, is considered a benchmark for measuring the performance of the firm. The paper examines the design of the model, its risk return profile as well as its pricing for secondary market trading. The theoretical properties of the model are empirically validated through two types of simulations: Monte Carlo Simulation and backtesting. The proposed model constitutes a new class of financial security with respect to the residual nature of the claim and its limited tenor. It, thus, presents an opportunity for diversification. The model implies higher risk for the investor, as neither the profit nor the capital is guaranteed–like common stock– but the return is expected to be higher. The model would entail higher financial cost for companies–as compared to debt instruments–but it would imply at the same time lower probability of bankruptcy, since the ṣukūk are equity-based instruments
Public Sector Funding and Debt Management: A Case for GDP-Linked Sukuk
Full text linkDespite the huge amount of wealth in the hand of Muslims, most countries with Muslim majority population fall in the category of developing nations. The development of infrastructure has been proven to be an effective means for
economic growth and poverty reduction. Usually governments have recourse to conventional debt financing to undertake infrastructure projects. However, this form of financing is unsuitable in an Islamic framework due to the prohibition of
interest. Moreover, the recurrent sovereign debt crises over the last few decades stresses the importance of debt management that helps avoid the high costs of these forms of catastrophe. Debt indexation to some indicators from the real economy (like GDP or Commodity price) has been identified as an effective means for the reduction of sovereign default. Such an idea has the property of
strengthening the linkage between the real and the financial sectors of the economy and allows risk sharing between the parties involved in the transaction. In spite of the convergence of such an idea with the spirit of Islamic finance, the Sukūk market has not yet taken advantage of it. The objective of this paper is, therefore, to propose an innovative model of Sukūk for financing non revenue generating public sector projects whose return is linked to the GDP development of the issuing country. The paper examines the potential benefits and obstacles of the GDP-Linked Sukūk (GLS) model, which is based on Forward Ijārah, as well as its risk-return profile. Furthermore, a framework for pricing GLS is put forth. Based on a sample of countries from five regions of the Muslim world, the theoretical properties of the GLS are validated through backtesting method. The model is shown to be a new asset class between the traditional debt and equity instruments and offers interesting diversification opportunities. Besides its
theoretical contribution, the model proposed in this paper addresses in an effective way the issue of debt management, in an interest-free context, and the issue of benchmarking sovereign Sukūk against the interest rate
COVID-19'dan Dersler - Virüs Bize Ne Öğretti
Full text linkThe traditional view, of a linear relationship between the development levels of countries and their ability to deal with problems has been completely changed with the coronavirus disease 2019 (COVID-19) pandemic. The countries hit hardest by the pandemic have been the so called developed ones of Western Europe and the USA. Equating development to mega cities has been shown to be misplaced. The pandemic has spread fastest in crowded cities such as New York and Los Angeles. Aside from overpopulated cities, ignoring the environment and the need for healthy living conditions are other important reasons for their failure to control the epidemic. Yet, countries such as Taiwan, South Korea and Japan have had very low infection rates relatively, even though most of their populations live in large urban centers. The difference may be due to the extensive practice of using face masks in these countries. The need to emphasize and rely on science and technology to solve the problems of humankind is among the key lessons that the pandemic has taught us. A final lesson the virus has taught us, is that regardless of which country we live in, our well-being and destinies are closely indeed intertwined. A health care crisis anywhere in the world can affect us all and very quickly too
Incentive-Compatible Sukuk Musharakah for Private Sector Funding
Full text linkDespite the huge potential on both the demand and supply sides of the ÎukËk market, the current ÎukËk structures fall short of adequately meeting the market’s needs as the SharÊ’ah compliance of many of them and/or their economic efficiency are questionable. Even though partnership-based ÎukËk are claimed to reflect the true spirit of Islamic finance, their underuse as a financing instrument is a notable fact. Such a situation, if not addressed, will mpede
the development of the ÎukËk market in the future. This paper proposes an innovative ÎukËk mushÉrakah model for consideration by companies and revenue generating infrastructure projects. The model has an incentive-compatible feature by making the share of the issuing entity in the profit positively related to its performance in addition to a convertibility clause. The sector Return on Equity (ROE), adjusted with the firm beta, is considered a benchmark for measuring the performance of the firm. The paper examines the design of the model, its risk return profile as well as its pricing for secondary market trading. The theoretical properties of the model are empirically validated through two types of simulations: Monte Carlo Simulation and backtesting. The proposed model constitutes
a new class of financial security with respect to the residual nature of the claim and its limited tenor. It, thus, presents an opportunity for diversification. The model implies higher risk for the investor, as neither the profit nor the capital is guaranteed–like common stock– but the return is expected to be higher. The model would entail higher financial cost for companies–as compared to debt instruments–but it would imply at the same time lower probability of bankruptcy, since the ÎukËk are equity-based instruments
Daily returns seasonality and impact of stock index futures: evidence from the Kuala Lumpur Stock Exchange
Full text linkThis paper examines the impact of Stock Index Futures (SIF) trading on Day of Week (DOW) pattern of daily Kuala Lumpur Stock Exchange returns. We address a total of four research questions using both a simple OLS model and a GARCH (1,1) specification. Three daily return measures, CTC, OTC, CTO are used. The impact of DOW pattern on the new T+3 day settlement is also examined.
As documented in previous studies, we see evidence of a DOW pattern in daily stock returns in the period prior to SIF introduction. However in the period of following SIF introduction the DOW pattern diminishes. The null hypothesis that mean daily returns are equal across the week cannot be rejected. The T+3 day settlement rule also had an impact on stock market DOW pattern. Between SIF and trading rule change, while the SIF introduction reduced the DOW effect substantially, the T+3 implementation eliminated even the marginal individual day effects
Making Mudarabah workable: altering risk-return profiles through equity Kickers
No full textCritics of contemporary Islamic finance often highlight the absence of meaningful presence of equity-based financing instruments such as mudarabah. It has been argued that this is attributable to inter alia, the agency problems inherent in mudarabah financing. Within a risk and return framework, mudarabah financing presents an uninviting commercial proposition to financiers. The use of equity kickers effectively shifts the risk/return balance in favour of the rabbal mal and thereby possibly rekindling interest in mudarabah on the part of financiers. This paper explores the dynamics of such an employment of equity kickers. Our analysis shows that equity kickers are particularly expedient, from the financier’s perspective, when project durations are short, expected profitability is less assuring and when mudarib’s equity stake is high. In addition, it is demonstrated that the profit sharing ratio can be used as a balancing mechanism to achieve equitability between the interests of the rabbal mal and mudarib
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