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Article
Publication date: 2 January 2018

Rosylin Mohd Yusof, Farrell Hazsan Usman, Akhmad Affandi Mahfudz and Ahmad Suki Arif

This study aims to investigate the interactions among macroeconomic variable shocks, banking fragility and home financing provided by conventional and Islamic banks in…

Abstract

Purpose

This study aims to investigate the interactions among macroeconomic variable shocks, banking fragility and home financing provided by conventional and Islamic banks in Malaysia. Identifying the causes of financial instability and the effects of macroeconomic shocks can help to foil the onset of future financial turbulence.

Design/methodology/approach

The autoregressive distributed lag bound-testing cointegration approach, impulse response functions (IRFs) and forecast error variance decomposition are used in this study to unravel the long-run and short-run dynamics among the selected macroeconomic variables and amount of home financing offered by both conventional and Islamic banks. In addition, the study uses Granger causality tests to investigate the short-run causalities among the selected variables to further understand the impact of one macroeconomic shock to Islamic and conventional home financing.

Findings

This study provides evidence that macroeconomic shocks have different long-run and short-run effects on amount of home financing offered by conventional and Islamic banks. Both in the long run and short run, home financing provided by Islamic banks is more linked to real sector economy and thus is more stable as compared to home financing provided by conventional banks. The Granger causality test reveals that only gross domestic product (GDP), Kuala Lumpur Syariah Index (KLSI)/Kuala Lumpur Composite Index (KLCI) and house price index (HPI) are found to have a statistically significant causal relationship with home financing offered by both conventional and Islamic banks. Unlike the case of Islamic banks, conventional home financing is found to have a unidirectional causality with interest rates.

Research limitations/implications

This study has focused on analyzing the macroeconomic shocks on home financing. However, this study does not assess the impact of financial deregulation and enhanced information technology on amount of financing offered by both conventional and Islamic banks. In addition, it is not within the ambit of this present study to examine the effects of agency costs and information asymmetry.

Practical implications

The analysis of cointegration and IRFs exhibits that in the long run and short run, home financing provided by Islamic banks are more linked to real sector economy like GDP and House Prices (HPI) and therefore more resilient to economic vulnerabilities as compared to home financing provided by conventional banks. However, in the long run, both conventional and Islamic banks are more susceptible to fluctuations in interest rates. The results of the study suggest that monetary policy ramifications to improve banking fragility should focus on stabilizing interest rates or finding an alternative that is free from interest.

Social implications

Because interest plays a significant role in pricing of home loans, the potential of an alternative such as rental rate is therefore timely and worth the effort to investigate further. Therefore, Islamic banks can explore the possibility of pricing home financing based on rental rate as proposed in this study.

Originality/value

This paper examines the unresolved issues in Islamic home financing where Islamic banks still benchmark their products especially home financing, to interest rates in dual banking system such as in the case of Malaysia. To the best of the authors’ knowledge, studies conducted in this area are meager and therefore is imperative to be examined.

Details

Journal of Islamic Accounting and Business Research, vol. 9 no. 1
Type: Research Article
ISSN: 1759-0817

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Article
Publication date: 2 May 2017

Kevin Loke Ke Wei and Hassanudin Mohd Thas Thaker

The purpose of this paper is to explore the development of Islamic home financing and some of its practical issues. In addition, the study also intends to draw attention…

Abstract

Purpose

The purpose of this paper is to explore the development of Islamic home financing and some of its practical issues. In addition, the study also intends to draw attention to some recommendations to the issues highlighted from the viewpoint of industrial experts.

Design/methodology/approach

The methodology for this study follows the qualitative research approach which aims to capture the thoughts and extensive knowledge of a few related experts in the field. Eight respondents who are mainly scholars and bankers in Islamic banking were selected for the interview purpose. A semi-structured interview was adopted to investigate a series of themes concerning the Islamic home financing in Malaysia.

Findings

In terms of development, the findings showed that a majority of the participants agreed that the Islamic banking and finance (IBF) is developing in line with its counterpart – the conventional banks. This is due to its innovation in products as well as offering a variety of financial products including home financing. Some of the practical issues highlighted by the respondents include pricing, adherence to conventional framework and interest rate movement. Islamic home financing is argued to be much more expensive and faces difficulty in working within a conventional framework. The issue of interest rate movement is also becoming a major hurdle in Islamic banking due to the absence of a proper benchmark for IBF. At present, IBF still follows the benchmark set by its conventional counterpart. Furthermore, the respondents also believed that the product of home financing, together with other financial products, are not in line with the teaching of Shariah principles and guideline. In addressing those issues, the respondents provided some suggestions to counter those problems, which include promoting Islamic home financing, particularly in terms of Musharakah Mutanaqisah (MM), ensuring the transparency of products, strengthening due diligence, legal aspect and others.

Research limitations/implications

This study is limited in terms of the relatively small number of respondents used to generate its findings. Time constraint is another limiting factor of the research. Additionally, potential respondents in a higher position were unable to take part in the study. Due to these factors, the generalisation of the study’s findings will be visibly restricted.

Practical implications

This paper is expected to generate several practical implications. Firstly, the study’s exploration of the issues surrounding home financing will likely provide a general overview of the recent development in Islamic banking and the challenges it faces. Consequently, this will indirectly help policymakers and bankers alike to design a better policy when dealing with Islamic home financing issues. In the review of various literatures in the field, a majority of research studies were observed to mainly focus on a quantitative approach. Hence, in terms of methodological innovation, the study’s use of qualitative inquiry based on an interview method may provide a deeper understanding of the matter. The resolutions proposed by the various experts are hoped to contribute to shaping a better framework and system in Islamic and conventional home financing in Malaysia.

Originality/value

Despite having many literatures revealing mixed results concerning Islamic home financing, especially the Bai Bithaman Ajil and MM, addressing the issues of Islamic home financing, particularly from an expert perspective, has been lacking. The majority of research studies claim those issues from a theoretical viewpoint rather than a practical one. With this gap and lack of initiative, the current study is motivated to undertake an in-depth analysis on the issues of Islamic home financing and how to address those arising issues from an industrial expert’s point of view via a qualitative approach.

Details

Qualitative Research in Financial Markets, vol. 9 no. 2
Type: Research Article
ISSN: 1755-4179

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Book part
Publication date: 30 March 2017

Rwan El-Khatib

I study the determinants of conventional leverage in a sample of publicly listed corporations based in Saudi Arabia, United Arab Emirates, and Qatar, for a period spanning…

Abstract

I study the determinants of conventional leverage in a sample of publicly listed corporations based in Saudi Arabia, United Arab Emirates, and Qatar, for a period spanning from 2005 up to end of 2014, and investigate whether those determinants can also explain the utilization of Sukuk by the same corporations in their capital structures. Evidence related to the determinants of conventional leverage is consistent with results from prior studies conducted on corporations based in developed and developing countries. Firm’s size, profitability, tangibility, age, and tendency to pay dividends are significant determinants of conventional leverage. However, not all those factors significantly explain the utilization of Sukuk as a financing vehicle. The size of the firm remains to be the most significant factor, in addition to the conformance of those corporations with respect to Shari’a principles measured by their utilization of other Islamic investments and financing instruments. Overall, I conclude that models used to predict conventional leverage are not capable of fully explaining the determinants of Sukuk issuances.

Details

Global Corporate Governance
Type: Book
ISBN: 978-1-78635-165-4

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Article
Publication date: 3 May 2016

Muhammad Rizky Prima Sakti, Ahmad Syahid, Mohammad Ali Tareq and Akbariah Mohd Mahdzir

The purpose of this study is to investigate shari’ah scholars’ views and experiences pertaining the shari’ah issues, challenges and prospects in Islamic derivatives…

Abstract

Purpose

The purpose of this study is to investigate shari’ah scholars’ views and experiences pertaining the shari’ah issues, challenges and prospects in Islamic derivatives. Specifically, this paper critically examines the criticisms toward conventional derivative instruments and the controversies surrounding underlying contracts and current Islamic derivative products.

Design/methodology/approach

This study uses qualitative methods to form a deeper understanding of shari’ah scholars’ perception and experience on Islamic derivatives. Semi-structured interviews were conducted with five shari’ah scholars who are currently working in Islamic financial institutions in Malaysia and Singapore. This study used phenomenological techniques for its data analysis.

Findings

This study has found that shari’ah scholars are aware of the shari’ah issues surrounding Islamic derivatives and have provided comprehensive insight on the solution to these issues. It was found that it is important to take into account the derivatives instruments in Islamic financial industry because of the need for hedging and risk mitigation within Islamic financial institutions. Nonetheless, the study has also found that the use of wa’ad contracts to structure Islamic profit rate swaps and foreign currency exchanges are problematic because of it having features of bay’ al-kali’ bil-kali (the sale of one debt for another).

Originality/value

This study is one of few studies that highlight the shari’ah issues of Islamic derivatives in Islamic banking and finance industry. This paper is of value in discussing risk management and Islamic derivatives in Islamic financial institutions and how there are many issues under the investigation process, particularly issues related to controversial underlying contracts and products.

Details

Qualitative Research in Financial Markets, vol. 8 no. 2
Type: Research Article
ISSN: 1755-4179

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Article
Publication date: 19 October 2018

Hasnan Baber

This paper aims to explore Islamic finance’s resilience in times of financial crisis and considers Islamic finance’s viability as an alternative to the current financial system.

Abstract

Purpose

This paper aims to explore Islamic finance’s resilience in times of financial crisis and considers Islamic finance’s viability as an alternative to the current financial system.

Design/methodology/approach

Established on a review of theoretical aspects underlying the notion of Islamic finance being proficient of reducing the harshness of financial crises and a latent solution to financial volatility, this paper assesses actual performance of Islamic and conventional banks during and in the repercussion of the current financial crisis. Interviews were also conducted with managers of Islamic banks.

Findings

The paper concludes that performance of Islamic banks during the global financial crisis is found to be supportive of their argued resilience and consistency. However, the latest financial crisis has brought to light a number of theoretical and realistic issues that challenge Islamic finance and its absorbing capacity against financial crises.

Originality/value

The paper is an original work which suggests about moderating risks and proposing various ways in which the Islamic finance can be made more stable and resilient.

Details

Qualitative Research in Financial Markets, vol. 10 no. 4
Type: Research Article
ISSN: 1755-4179

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Article
Publication date: 26 September 2008

Alsadek Gait and Andrew Worthington

The purpose of this paper is to review the attitudes, perceptions and knowledge of Islamic financial products and services.

Abstract

Purpose

The purpose of this paper is to review the attitudes, perceptions and knowledge of Islamic financial products and services.

Design/methodology/approach

A synoptic survey of empirical analyses about Islamic financial products and services and comparison with the literature on conventional financial services and products.

Findings

It was found that while religious conviction is a key factor in the use of Islamic finance, consumers also identify bank reputation, service quality and pricing as being of relevance. When selecting a financial institution's products and services, business firms usually employ criteria that are more conventional, such as the cost of finance, in their decision making. There is also interest among financial institutions in supplying Islamic financial products and services, but this is mitigated by complications with firm management and a lack of familiarity with business conditions. The concept of risk sharing with borrowers serves as a substantial barrier to most financial institutions engaging in Islamic methods of finance. Research limitations/implications – This survey is limited to work published in refereed journals, books and book chapters.

Practical implications

Need for further theoretical and empirical research on how religious convictions affect consumers in their financial decision making. In addition, most work on Islamic finance is in a single national context, international comparisons are required.

Originality/value

This paper is the only known empirical survey of attitudes, perceptions and knowledge of Islamic financial products and services. It provides guidance for future research in Islamic finance and serves as an aid for decision making by policymakers, consumer interest groups, business firms and financial institutions.

Details

International Journal of Social Economics, vol. 35 no. 11
Type: Research Article
ISSN: 0306-8293

Keywords

Content available
Article
Publication date: 18 October 2018

Muhamed Zulkhibri

This paper aims to examine the distributional differences of Islamic bank financing responses to financing rate across bank-specific characteristics in dual banking…

Abstract

Purpose

This paper aims to examine the distributional differences of Islamic bank financing responses to financing rate across bank-specific characteristics in dual banking system. The study also aims to provide understanding of how efficiently Islamic banks perform their roles as suppliers of capital for businesses and entrepreneurs.

Design/methodology/approach

The study uses panel regression methodology covering all Islamic banks in Malaysia. The study estimates the benchmark model for Islamic bank financing with respect to bank characteristics and monetary policy.

Findings

The evidence suggests that bank-specific characteristics are important in determining Islamic financing behaviour. The Islamic financing behaviour is consistent with conventional lending behaviour that the Islamic bank financing operates depending on the level of bank size, liquidity and capital. There is no significant difference between Islamic bank financing and conventional bank lending behaviour with respect to changes in monetary policy.

Originality/value

Many problems and challenges relating to Islamic financing instruments, financial markets and regulations must be addressed and resolved. In practice, it would be a good idea if Islamic banks move away from developing debt-based instruments and concentrate more efforts to develop profit and loss sharing instruments.

Details

Journal of Economics, Finance and Administrative Science, vol. 23 no. 46
Type: Research Article
ISSN: 2077-1886

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Article
Publication date: 13 November 2019

Hasnan Baber

Using data from World Bank and Global Islamic Finance Report, this paper aims to compare the performance of countries following Islamic and conventional finance system in…

Abstract

Purpose

Using data from World Bank and Global Islamic Finance Report, this paper aims to compare the performance of countries following Islamic and conventional finance system in terms of financial inclusion and FinTech.

Design/methodology/approach

Ten countries from both financial systems have been selected based on the presence of Islamic finance and conventional finance in the country. Data was analyzed from year 2011 to 2017 and keeping the former as base year to measure the change in the population fraction.

Findings

The findings found that Islamic finance countries are more inclusive in terms of financial inclusion and women are financially more empowered as compared to the counterpart. On the contrary, countries with conventional finance have a higher number of FinTech users.

Research limitations/implications

The difference between the performances of two systems in terms of financial inclusion is relatively small; therefore, future studies should incorporate more indicators for financial inclusion.

Originality/value

This study will be useful for understanding the nature of both financial systems, and the further research can be done to find the determinants of financial inclusion.

Details

Qualitative Research in Financial Markets, vol. 12 no. 1
Type: Research Article
ISSN: 1755-4179

Keywords

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Abstract

Details

Monetary Policy, Islamic Finance, and Islamic Corporate Governance: An International Overview
Type: Book
ISBN: 978-1-80043-786-9

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Article
Publication date: 3 June 2014

Rihab Grassa and Kaouthar Gazdar

The purpose of this paper is to compare the effects of Islamic financial development and conventional financial development on the economic growth for five GCC countries…

Abstract

Purpose

The purpose of this paper is to compare the effects of Islamic financial development and conventional financial development on the economic growth for five GCC countries (Bahrain, Kuwait, Qatar Saudi Arabia and UAE).

Design/methodology/approach

Using generalized least squares, OLS and panel data frameworks, this paper employs different measures of financial development for the period (1996-2011).

Findings

Empirical results strongly support the hypothesis that Islamic finance leads to growth in the five GCC countries, however, no significant relationship observed between conventional financial development and growth.

Practical implications

The findings of this paper suggest the need to accelerate the financial reforms for Islamic finance that have been launched in the region since the last decade and to improve the efficiency of these countries’ Islamic financial systems to stimulate saving/investment and, consequently, long-term economic growth.

Originality/value

This study has several contributions to the existing literature. To the best of the authors’ knowledge, this paper is the first study that examines empirically the effect of Islamic finance on economic growth in GCC countries. As well, this paper is the first to compare the different effects of Islamic finance and conventional finance on economic growth on a context of countries having the most developed Islamic financial system in the world operating side-by-side with a conventional financial system.

Details

International Journal of Social Economics, vol. 41 no. 6
Type: Research Article
ISSN: 0306-8293

Keywords

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