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Article
Publication date: 3 October 2016

Rosylin Mohd Yusof, Mejda Bahlous and Roszaini Haniffa

This paper aims to contribute to the banking and housing market literature by proposing an alternative measure of rate of return for Islamic banks that is based on the…

Abstract

Purpose

This paper aims to contribute to the banking and housing market literature by proposing an alternative measure of rate of return for Islamic banks that is based on the rental rate of the property. This alternative Islamic mortgage pricing mechanism could be adopted by Islamic banks as a replacement for mortgage rates if it is found to be independent from any form of interest rates as required by Islamic law.

Design/methodology/approach

By investigating the short run and long run dynamics between rental price index (RPI) and the proposed Islamic Rental Rate (RR-I) and, three selected macroeconomic indicators in the UK via autoregressive distributed lag model, the authors examine the link between RPI, RR-I and the real economy.

Findings

The findings provide evidence that while RPI in the UK is significantly related to three leading macroeconomic variables, namely, gross domestic product (GDP), real effective exchange rate and interest rates measures, while RR-I is only impacted by changes in GDP. More importantly, the authors show that there is no short or long run dynamics between the rental rate and any form of interest rates.

Research limitations/implications

This paper did not attempt to investigate the impact of the physical attributes of the rental property to formalize the model describing the relationship between RPI and RR-I. Also, other macroeconomic factors like household income growth, risk, house value growth rate and taxation could be included in future models.

Practical implications

As Rental Rate is not linked to the macroeconomic determinants, it is therefore more stable, resilient and sustainable and, at the same time, making the financing less risky for both parties, as they are less susceptible to economic vulnerabilities.

Social implications

Some calculations incorporating the proposed RR-I can also be extended to the pricing of products based on other contracts such as Tawarruq, Bai Bithaman Ajil or even Murabahah for a fairer and just pricing to both the banks and customers.

Originality/value

The results suggest that Islamic banks should consider incorporating the proposed rental rate (RR-I) when pricing their home financing products, as this will lead to less dependence on interest rates for benchmarking. In addition, using the proposed rental rate (RR-I) reduces the exposure to the subjective evaluation by property valuators and speculative macroeconomic elements.

Details

International Journal of Housing Markets and Analysis, vol. 9 no. 4
Type: Research Article
ISSN: 1753-8270

Keywords

Article
Publication date: 2 July 2020

Mejda Bahlous-Boldi

The purpose of this study is to demonstrate that the conventional mortgage system is not appropriate for household finance because it encourages equity extraction and…

Abstract

Purpose

The purpose of this study is to demonstrate that the conventional mortgage system is not appropriate for household finance because it encourages equity extraction and excessive leverage during housing boom and leads to negative equity during a housing bust, a situation that translates into mortgage defaults and foreclosures. Home financing could alternatively be structured as a diminishing partnership preventing the homeowner from ever having negative equity.

Design/methodology/approach

Using Johansen’s cointegration test, the authors provide evidence of a long-run relationship between the delinquency rates, volume of refinancing and the change in house price index (HPI) during the 1994–2019 period. To unravel the short run dynamics between these variables, the authors used a Granger causality test that concludes that the volume of refinancing and the change in the HPI Granger cause default rates.

Findings

The authors provide evidence that under the current conventional mortgage system, excessive refinancing opportunities and equity extraction that are the main factors determining delinquency rates leading to a non-sustainable homeownership.

Practical implications

If mortgages were such that they do not incentivize defaults and foreclosures during a housing downturn, the recovery of the housing market always leads to capital gains. Therefore, disincentivizing refinancing and equity extraction would lead to a more sustainable homeownership.

Social implications

Households would be encouraged to pursue sustainable homeownership through a partnership-based model with long-term wealth accumulation for themselves and their heirs rather than short-term home ownership through the conventional mortgage system, leading to negative equity and defaults when the housing market slumps.

Originality/value

Policymakers ought to rethink the mortgage design by promoting partnership-based finance to protect the equity a household accumulates over a lifetime and thereby enhancing stable and sustainable homeownership.

Details

International Journal of Housing Markets and Analysis, vol. 14 no. 2
Type: Research Article
ISSN: 1753-8270

Keywords

Open Access
Article
Publication date: 18 June 2021

Mejda Bahlous-Boldi

This paper aims to investigate the link between agency costs mitigation via three levels of rights protection (minority rights protection, enforcing contracts, resolving…

Abstract

Purpose

This paper aims to investigate the link between agency costs mitigation via three levels of rights protection (minority rights protection, enforcing contracts, resolving insolvency issues) provides the propitious climate for financing investment opportunities around the world.

Design/methodology/approach

We use Bartlett’s three-group method to stratify countries based on how well they protect investors as measured by the scores provided in the Doing Business dataset developed by the world bank for 189 countries. We then test a variety of independent hypotheses that the alleviation of agency costs via three levels of protection (minority investors’ rights, contract enforcement, resolving insolvency issues) is associated with better access to credit via the banking system, better valuation of listed firms via the stock market and higher investment and growth.

Findings

Our findings support Agency Theory which explains why the absence of legal protection of external investors leads to stock markets and financial institutions failing to fulfill their role of financing the economy.

Practical implications

The policy implication from this study indicates that countries ought to (1) develop legislation that protects investors’ rights, (2) improve the quality of their judicial system in terms of enforcing the legislation and (3) build the framework for resolving disputes during insolvency as these are important ingredients for a developed financial system.

Originality/value

We use the World bank dataset and a new methodology to quantify the significance of the relationship between minority rights protection, ineffective enforcement, lack of bankruptcy laws and access to firm financing via the banking sector and the stock market. It provides new evidence that the quality of the judicial system in a country matter for firms’ ability to raise financing and enhance value creation.

研究目的

本文旨在探討一個假設,該假設為透過三級別權利保障(保障少數群體的權利、執行合同、解決破產問題)的代理成本緩減會為世界各地的金融性投資機會提供良好的氣侯。

研究設計/方法/理念

我們以巴特利特(Bartlett)的三組法把國家分組,分組方法是基於該國家保障投資者的程度,而保障程度是以世界銀行為189個國家而制定的營商資料集內提供的評分來衡量的。我們把國家分組後,便就各樣的獨立假設進行測試。這些假設是:透過三級別保障(保障少數股權投資者的權利、合同的執行、解決破產問題)的代理成本緩減是連繫於透過銀行系統而產生的更佳信貸途徑,透過股市的更佳上市公司估值及更高的投資和增長。

研究結果

研究結果証實了代理理論,該理論說明為何當外來投資者沒有得到法律保障時,結果會導致股票市場和金融機構不能履行其為經濟提供資金的角色。

實際的意義

本研究具有政策方面的意義,因研究顯示了國家應該:(1)設立保障投資者權利的法律;(2)在執行法律方面,改善其司法系統的素質;(3)建立解決破產時爭議的體系。這些是應該做的,因它們是一個已發展的金融體制的重要元素。

研究的原創性/價值

本文強調了一個保障投資者權利的法律環境所需的三個特定要素:對少數股權投資者權利的保障、有效的執行、有效的破產法律及透過銀行部門和股票市場而取得公司融資。這提供新的證據, 證實這三級別權利保障對公司籌集資金及提高價值創造的能力而言至為重要。

Details

European Journal of Management and Business Economics, vol. 31 no. 3
Type: Research Article
ISSN: 2444-8451

Keywords

Article
Publication date: 3 June 2014

Mejda Bahlous and Rosylin Mohd. Yusof

The purpose of this paper is to assess the benefits to investors of international diversification among only Islamic funds. Compared to conventional investors who are not…

1355

Abstract

Purpose

The purpose of this paper is to assess the benefits to investors of international diversification among only Islamic funds. Compared to conventional investors who are not restricted in their choice of funds, Islamic investors are restricted to investing in shari’a-compliant funds, thus giving up some diversification benefits. The possibility of international diversification among only Islamic funds may thus help Islamic investors to invest in accordance to their religious beliefs and still benefit from diversification.

Design/methodology/approach

The paper assesses the benefits of diversification by analyzing the extent of co-integration among four regional Islamic funds and by estimating the short-term and long-term structural dynamics of and among these funds. The paper uses an Autoregressive-Distributed Lag (ARDL) approach to testing the long-run relationships among these funds and use variance decomposition and impulse response functions to examine the structural dynamics of the relationship between these funds. These methods can also be used for predictive purposes and represent, in authors opinion, a useful approach that complements the traditional methodology of static covariance matrix to find the efficient frontier at a given moment in time.

Findings

The results indicate that international diversification can help reduce risk if Asia Pacific Islamic funds and MENA region Islamic funds are invested contemporaneously and/or Asia Pacific Islamic funds and North America Islamic funds, and/or Europe funds and MENA funds. The paper also finds that investors would benefit from investing in North American funds and MENA funds both in the long run and in the short run. Conversely, the paper finds that Europe funds and North American funds are co-integrated in the long-run precluding the opportunity for substantial diversification benefits from these particular portfolio mixes.

Research limitations/implications

The long-run analysis helps passive fund managers and investors in composing their portfolio by providing evidence that some portfolio mixes of different regional Islamic funds lead to better risk return performance than one regional Islamic fund portfolios. The short-run analysis however helps the active fund managers and investors as it suggests that diversifying in the short run and reviewing their portfolio on a regular basis would be beneficial as well.

Originality/value

This analysis justifies the promotion of Islamic finance as the negative correlation between several Islamic funds across the regions studied suggests better opportunities of investments via international diversification making Islamic funds more desirable.

Article
Publication date: 23 September 2013

Rosylin Mohd. Yusof and Mejda Bahlous

The purpose of this paper is to assess the contribution of Islamic finance to economic growth in countries that were early adopters of Islamic banking: Malaysia, Indonesia…

2492

Abstract

Purpose

The purpose of this paper is to assess the contribution of Islamic finance to economic growth in countries that were early adopters of Islamic banking: Malaysia, Indonesia and the Gulf Cooperation Council (GCC) countries.

Design/methodology/approach

Through panel cointegration analysis, variance decompositions (VDCs) and impulse response functions, this study investigates the Islamic finance and growth nexus.

Findings

Islamic banking is found to contribute to economic growth both in the long run and the short run for both GCC countries and the selected East Asia (EA) countries. In the short run however, Islamic banking contributes more to economic growth in Malaysia and Indonesia compared to the GCC countries.

Practical implications

The results lend support to the view that Islamic intermediation not only leads to economic benefits but also; increases managers' entrepreneurial skills through the involvement of the lender in the decision making and the partnership like relationship between the fund provider and the entrepreneur and also; reduces agency costs which produces positive impact on both the economy and the development of the society. This serves as a motivation for other countries to continuously promote Islamic finance.

Originality/value

To assess the importance of Islamic finance to economic growth, this study compares two main regional Islamic financial hubs, the GCC and EA countries. Another novel aspect of this study is in the methodology; it employs panel cointegration analysis, VDCs and impulse response functions on the set of annual data for period of 2000-2009.

Details

Journal of Islamic Accounting and Business Research, vol. 4 no. 2
Type: Research Article
ISSN: 1759-0817

Keywords

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