Search results
1 – 10 of over 90000Isti Yuli Ismawati and Taufik Faturohman
This chapter shows how to identify the characteristics of borrowers that are part of a credit scoring model. The credit risk scoring model is an important tool for evaluating…
Abstract
This chapter shows how to identify the characteristics of borrowers that are part of a credit scoring model. The credit risk scoring model is an important tool for evaluating credit risk associated with customer characteristics that affect defaults. This research was conducted at a financial institution, a subsidiary of a commercial bank in Indonesia, to answer the challenge of determining the feasibility of providing financing quickly and accurately. This model uses a logistic regression method based on customer data with indicators of demographic characteristics, assets, occupations, and financing payments. This study identifies nine variables that meet the goodness of fit criteria, which consist of WOE, IV, and p-value. The nine variables can be used as predictors of default probability: type of work, work experience, net finance value, tenor, car brand, asset price, percentage of down payment (DP), interest, and income. The results of the study form a risk assessment model to identify variables that have a significant effect on the probability of default.
Details
Keywords
The second major area of the so-called risk treatment is risk financing. Risk financing includes measures to finance the costs of losses, risks, and uncertainties. Historically…
Abstract
The second major area of the so-called risk treatment is risk financing. Risk financing includes measures to finance the costs of losses, risks, and uncertainties. Historically, risk financing has been virtually synonymous with buying insurance. However, over time alternatives to insurance have evolved – self-insurance, pools, captives, large deductible programmes, finite insurance programmes, banking arrangements, and capital market-based solutions. The concept of risk financing has expanded to include products that address a range of financial risks such as interest rate and credit risk. These products include derivatives and some new innovative securities.
Today, the rapid development of the risk financing market has created several practical problems. Notably, regulatory and legal structures have not always kept pace with change, leading to much confusion about risk financing alternatives. Many products look and function almost identically to others, and yet history and custom have dictated very different treatment by regulators, tax authorities, and others. There is growing pressure for significant legal and regulatory realignment.
For newcomers to the field, risk financing measures can be thought of as existing on a continuum, ranging from pure retention (all losses paid directly out of pocket) to pure transfer (where a third party accepts and bears the full costs of risk). An important recognition of the continuum of risk financing is that there are no products that are fully retention or transfer, but rather a varying blend of the two. Hedging of risk, for example, is arguably here a near perfect blending of a retention and a transfer of risk.
Details
Keywords
Mutamimah Mutamimah and Pungky Lela Saputri
This study aims to analyse the role of corporate governance in moderating the effects of murabahah, mudharabah and musyarakah financing on the financing risk and financial…
Abstract
Purpose
This study aims to analyse the role of corporate governance in moderating the effects of murabahah, mudharabah and musyarakah financing on the financing risk and financial performance of Islamic banks.
Design/methodology/approach
The population for this study covered Islamic banks in Indonesia. Purposive sampling was performed, and statistical analysis was conducted using moderating regression analysis by selecting among the common, fixed and random effects models.
Findings
The results showed that murabahah financing has a positive effect on financing risk; conversely, mudharabah financing has a negative effect on financing risk. By contrast, musyarakah financing has no effect on financing risk. However, corporate governance weakens the influence of murabahah financing on financing risk and increases that of mudharabah financing on financing risk. Further, corporate governance cannot weaken the effect of musyarakah financing on financing risk. Additionally, financing risk reduces financial performance.
Research limitations/implications
This research focusses only on Indonesian Islamic banks; future research should be extended to Islamic insurance and Islamic micro finance.
Practical implications
The results serve as input for government regulations on corporate governance in Islamic bank financing and encourage Islamic banks to diversify their financing proportionally.
Social implications
This research can be used for optimising Islamic bank financing to empower the realty sector and reduce poverty.
Originality/value
Research on the role of corporate governance as a moderating variable in reducing financing risk in Islamic banks remains limited.
Details
Keywords
Mohammad Ashraful Ferdous Chowdhury, Chowdhury Shahed Akbar and Mohammad Shoyeb
The purpose of this paper is to examine the linkage between Islamic financing principles and economic growth (EG) by taking into consideration two Islamic Financing Principles…
Abstract
Purpose
The purpose of this paper is to examine the linkage between Islamic financing principles and economic growth (EG) by taking into consideration two Islamic Financing Principles: Risk Sharing and non-risk sharing separately.
Design/methodology/approach
The data for this study are obtained from the annual reports of all Islamic banks from Bangladesh using Bank scope database and annual report for the period 1984-2014. The research uses an Autoregressive Distributive Lags (ARDL) approach. For robustness, this study also employs a continuous wavelet transform approach.
Findings
The empirical findings reveal that the risk sharing instruments are positively related to the EG of the country. On the other hand, non-risk sharing instruments are negatively related to the EG of the country.
Research limitations/implications
The dominant use of non-risk sharing-based financing has undermined the greater possibility of Islamic banking to contribute more to the EG of the country. Banks and other financial institutions need to pay greater attention to systemic risk created by risk transfer and apply risk sharing methods of financing more vigorously to achieve greater equity, efficient allocation of resources, stability and growth of the financial system and welfare of the society as a whole.
Originality/value
This study has advanced the knowledge by examining the issue of Islamic financing principles and EG. This is probably one of the first attempts to find the linkage between Islamic financing principles and EG by taking into consideration two portfolios: risk sharing and non-risk sharing separately and provide significant insights for policy makers, market players and academicians.
Details
Keywords
Rayenda Khresna Brahmana and Maria Kontesa
This paper examines the impact of sharia-compliant debt financing on stock price crash risk. Unlike those previous studies that took Sukuk or sharia-compliant firms, this study…
Abstract
Purpose
This paper examines the impact of sharia-compliant debt financing on stock price crash risk. Unlike those previous studies that took Sukuk or sharia-compliant firms, this study tests the impact of the proportion reported sharia-compliant debt financing in the balance sheet on the risk of price crash of a firm.
Design/methodology/approach
Using the data from 2,752 firm-year observations of 344 Malaysian non-financial listed companies from 2012 to 2019, this article used a robust panel data estimation technique for statistical inferences. This study also employs panel GMM and quantile least squares as the robustness check.
Findings
This study established a negative relationship between sharia-compliant debt financing and stock price crash risk. The robustness checks with different estimation techniques confirm the results. It implies that firms with a more significant proportion of Sharia-compliant financing tend to have lower future stock price crash risk.
Practical implications
Consistent with the Islamic finance literature, the present study contributes to the existing literature on Islamic capital markets from the perspective of stock price crash risk because it is vital for risk management and investment decision-making as a measure of tail risk for stocks. The findings of this research will assist investors in developing portfolio strategies that incorporate firms with higher levels of sharia-compliant debt financing in their balance sheets. Additionally, the results of this study suggest that policymakers and regulatory bodies should consider revising their monitoring approaches for publicly listed firms.
Originality/value
This study is interesting and unique, as it is a pioneer in testing the impact of sharia-compliant debt financing on reducing stock price crash risk.
Details
Keywords
Muhammad Rabiu Danlami, Muhamad Abduh and Lutfi Abdul Razak
This study aims to examine the nexus between CAMELS, risk-sharing financial performance and Islamic banks' stability. It also attempts to assess the conditioning effects of…
Abstract
Purpose
This study aims to examine the nexus between CAMELS, risk-sharing financial performance and Islamic banks' stability. It also attempts to assess the conditioning effects of institutional quality in the relationship between risk-sharing contracts and the stability of Islamic banks.
Design/methodology/approach
The quantitative research design was employed using secondary data from 20 Islamic banks in six countries over the period 2007–2019. The study utilized the feasible generalized least squares method for the analysis.
Findings
The results indicate that not all CAMELS variables support the stability of Islamic banks. The musharakah contract induced stability of the banks, whereas mudarabah financing reduced it. The interaction between risk-sharing finance and the quality of institutions suggested that the mudarabah contract via institutional quality raises the stability of Islamic banks. On the other hand, the quality of institutions encourages the banks to offer more musharakah, but it leads to an increase in their risk-taking. We show the impact of changes in risk-sharing variables on stability amplified by institutional quality. The results were robust when alternative measures of stability were used.
Practical implications
Various stakeholders in banking activities could learn from the results of this study. Islamic banks could improve their positions in terms of screening for risk-sharing financing. They could also leverage more on musharakah, as it promotes stability and could generate more returns for the banks. The mudarabah financing can be improved if there is a proper evaluation of entrepreneurs. Policymakers would learn more about the importance of institutional quality, as it provides a friendly environment for both mudarabah and musharakah businesses to thrive. This could increase the participation of Islamic banks in the real economy.
Originality/value
Previous studies concentrated on the effects of CAMELS on the profitability of Islamic banks. This study shows that CAMELS alone might not necessarily capture the financial performance of Islamic banks. Therefore, the risk-sharing financing variables are included alongside CAMELS to determine their effects on stability. Second, unlike the past research, this study used the quality of institutions to moderate the nexus between risk-sharing financing and the stability of Islamic banks.
Details
Keywords
Ling Zhang, Sheng Zhang and Yingyuan Guo
The purpose of this paper is to compare the effects of equity financing and debt financing on technological innovation, and prove that the enhancement of a financing system’s risk…
Abstract
Purpose
The purpose of this paper is to compare the effects of equity financing and debt financing on technological innovation, and prove that the enhancement of a financing system’s risk tolerance for technological innovation can enhance the innovation risk preference of enterprises and thus promote innovation.
Design/methodology/approach
This study is based on a transnational sample of 35 developed countries from 1996 to 2015, by using the panel econometric model to empirically examine the effects of two financing modes on innovation.
Findings
The findings showed that equity financing, which has higher risk tolerance, has a more positive impact on innovation than debt financing in terms of both economic uptrend and economic downtrend, and that government efficiency plays a significant role in supporting the performance of technological innovation.
Originality/value
The paper provides a research framework for examining how a financing system’s risk tolerance capacity affects the development of technological innovation through promoting risk preference among enterprises. This paper provides transnational and cross-cycle comparative evidence that equity financing with a strong risk tolerance capacity can better support technological innovation, even in periods of economic downtrend. Moreover, the importance of financing system’s risk tolerance capacity for innovation during economic crises is discussed.
Details
Keywords
City investment companies (CICs) in China, set up and funded by the government, are playing an important role in the construction of urban infrastructure in China. The purpose of…
Abstract
Purpose
City investment companies (CICs) in China, set up and funded by the government, are playing an important role in the construction of urban infrastructure in China. The purpose of this paper is to analyze the structural risk of diversified project financing of CICs and explore its key influencing factors.
Design/methodology/approach
The best worst method (BWM) is used in this study to empirically analyze and quantitatively study the optimization of the structural risk of diversified financing of CICs.
Findings
In this study, the structural risk of diversified financing of CICs has been clearly defined, and its key evaluation indexes, including the structure of projects, the structure of financing, asset-liability ratio, earnings before interest and tax margin, the rate of return on capital and the ratio of long-term debt and short-term debt, have been determined. What is more, a comprehensive evaluation system of the structural risk of diversified financing has been established.
Originality/value
This study has established a comprehensive evaluation system of the structural risk of diversified financing. Based on the validated systematic evaluation, comparison and ranking of the structural risk of diversified financing of CICs by using the BWM, the ranking results can help investors to select the CICs with small structural risk of diversified financing to invest.
Details
Keywords
Gulizhaer Aisaiti, Luhao Liu, Jiaping Xie and Jun Yang
The purpose of this paper is to investigate and understand China’s rural farmers’ financing intention of inclusive finance, and it examines related drivers like knowledge of…
Abstract
Purpose
The purpose of this paper is to investigate and understand China’s rural farmers’ financing intention of inclusive finance, and it examines related drivers like knowledge of inclusive finance, perceived benefits and perceived risks of ordering finance. Besides, the social enterprise embeddedness and digital finance are integrated into the conceptual model to further investigate their moderating impact.
Design/methodology/approach
The authors designed an inclusive finance intention model to examine the relations between dependent variable knowledge of inclusive finance, intermediary variables perceived benefits and perceived risks of ordering finance and the independent variable financing intention of inclusive finance. The embeddedness of social enterprise and digital finance were identified as modifying factors. Both exploratory and conclusive research strategies were applied. A structured questionnaire was developed to collect empirical data from the rural areas of China.
Findings
It suggests that knowledge of inclusive finance can strengthen both perceived benefits and perceived risk of ordering finance. Interestingly, the embeddness of social enterprise can significantly reduce risk perceptions and improve perceived benefits of ordering finance. Furthermore, perceived benefits of ordering finance can positively enhance rural farmers’ financing intention of inclusive finance, whereas perceived risks can negatively influence the financing intention. Moreover, digital finance as a modifying factor can significantly strengthen the positive correlation between perceived benefits of ordering finance and financing intention of inclusive finance.
Practical implications
The research indicates that a systematic inclusive finance educational project is needed to enhance rural farmers’ understanding of inclusive finance and its components. Moreover, the study reveals that it is crucial to promote social enterprise participation and digital finance to develop inclusive finance in rural China, as the service attributes of social enterprise and efficiency of digital finance can greatly reduce the existing transaction cost of farmers.
Originality/value
The conceptual model would potentially contribute to researchers interested in investigating the financing intention of inclusive financial services relating to rural population. The integration of social enterprise embeddedness and digital finance is the uniqueness of this research conceptual model.
Details