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Article
Publication date: 6 July 2021

Rifki Ismal

Banks in Indonesia offer two currency-hedging mechanisms to business players to hedge their portfolio against exchange rate risk, namely, Islamic hedging and conventional…

Abstract

Purpose

Banks in Indonesia offer two currency-hedging mechanisms to business players to hedge their portfolio against exchange rate risk, namely, Islamic hedging and conventional hedging. Taking into account that Islamic finance stakeholders in Indonesia want to accelerate Islamic hedging transactions, assessing the feasibility of Islamic hedging to serve the business players is very important. Thus, this paper aims to compare the conventional and Islamic currency-hedging mechanisms, particularly to identify which one to be preferred by the business players, identify terms and conditions if Islamic hedging is more preferable, give information regarding the estimated profit and payment of the premium in adopting currency-hedging (both conventional and Islamic hedgings) and prove the workability of Islamic currency-hedging as a new hedging mechanism for the business players.

Design/methodology/approach

The paper uses qualitative research methodology by comparing Islamic and conventional hedging and a quantitative research method by using a forward contract formula. Technically, the paper conducts a static simulation of the forward transactions by using both conventional and Islamic hedgings to hedge the foreign exchange (forex) credit received by business players from banks. The forward contract simulation uses US dollar (USD) against Indonesian rupiah (IDR) from December 2003 to February 2019 and the forward premium uses both Islamic and conventional money market rates called PUAB (conventional interbank money market) rate and PUAS (Islamic interbank money market) rate.

Findings

The paper finds that Islamic hedging is more preferable to conventional one due to some considerations which are the number of profitable months, the minimum payment of premium and the highest payment of profit. However, even though the Islamic hedging mechanism has the advantage of having a higher Islamic money market rate than the conventional one, the economic condition (particularly the movement of IDR exchange rate) has to be considered as well particularly during the volatile exchange rate movement.

Research limitations/implications

The paper has not occupied macroeconomic variables such as inflation, GDP, international trade, as they might influence the movement of IDR exchange rate. In addition, it uses static simulation rather than a dynamic one.

Originality/value

This is the first paper assessing both Islamic and conventional hedging mechanisms in the case of Indonesia

Details

International Journal of Islamic and Middle Eastern Finance and Management, vol. ahead-of-print no. ahead-of-print
Type: Research Article
ISSN: 1753-8394

Keywords

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Article
Publication date: 26 June 2018

Sugiyarti Fatma Laela, Hilda Rossieta, Setyo Hari Wijanto and Rifki Ismal

This paper aims to examine the effect of management accounting–strategy coalignment on the maqasid Shariah-based performance of Islamic banks in Indonesia. The study also…

Abstract

Purpose

This paper aims to examine the effect of management accounting–strategy coalignment on the maqasid Shariah-based performance of Islamic banks in Indonesia. The study also examines the role of the corporate life cycle of Islamic banks in influencing the relationship between management accounting–strategy coalignment and performance.

Design/methodology/approach

Management accounting practices, management control systems, strategy and maqasid Shariah-based performance are measured using questionnaires which were distributed to 97 directors and heads of Islamic banks. The model of this study is analyzed using structural equation model.

Findings

This study finds that the coalignment between low cost-oriented strategy, strategic management accounting practices and mechanistic management control system has positive impact on improving maqasid Shariah-based performance. However, this study is unable to verify that corporate life cycle strengthens the positive relationship between management accounting–strategy coalignment and performance.

Research limitations/implications

Limited indicators of management accounting practices in this study illustrate less comprehensive management accounting practices. Further studies may add other relevant management accounting as described by the International Federation of Accounting Committee to provide a more comprehensive management accounting practices.

Practical implications

This study provides recommendations to the management of Islamic banks to design management accounting practices and management control systems that fit to their strategic orientation.

Originality/value

This paper fulfils limited empirical studies on management accounting practices and strategy in Islamic banking industry.

Details

International Journal of Islamic and Middle Eastern Finance and Management, vol. 11 no. 4
Type: Research Article
ISSN: 1753-8394

Keywords

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Article
Publication date: 26 June 2019

Rifki Ismal and Nurul Izzati Septiana

The demand for Saudi Arabian real (SAR) is very high in the pilgrimage (hajj) season while the authority, unfortunately, does not hedge the hajj funds. As such, the hajj…

Abstract

Purpose

The demand for Saudi Arabian real (SAR) is very high in the pilgrimage (hajj) season while the authority, unfortunately, does not hedge the hajj funds. As such, the hajj funds are potentially exposed to exchange rate risk, which can impact the value of hajj funds and generate extra cost to the pilgrims. The purpose of this paper is to conduct simulations of Islamic hedging for pilgrimage funds to: mitigate and minimize exchange rate risk, identify and recommend the ideal time, amount and tenors of Islamic hedging for hajj funds, estimate cost saving by pursuing Islamic hedging and propose technical and general recommendations for the authority.

Design/methodology/approach

Forward transaction mechanism is adopted to compute Islamic forward between SAR and Rupiah (Indonesian currency) or IDR. Findings – based on simulations, the paper finds that: the longer the Islamic hedging tenors, the better is the result of Islamic hedging, the decreasing of IDR/USD is the right time to hedge the hajj funds and, on the other hand, the IDR/SAR appreciation is not the right time to hedge the hajj funds.

Findings

Based on simulations, the paper finds that: the longer the Islamic hedging tenors, the better is the result of Islamic hedging, the decreasing of IDR/USD is the right time to hedge the hajj funds and, on the other hand, the IDR/SAR appreciation is not the right time to hedge the hajj funds.

Research limitations/implications

The research suggests the authority to (and not to) hedge the hajj fund, depending on economic conditions and market indicators. Even though the assessment is for the Indonesian case, other countries maintaining hajj funds might also learn from this paper.

Originality/value

To the best of author’s knowledge, this is the first paper in Indonesia that attempts to simulate the optimal hedging of hajj funds.

Details

Qualitative Research in Financial Markets, vol. 11 no. 3
Type: Research Article
ISSN: 1755-4179

Keywords

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Article
Publication date: 23 February 2010

Rifki Ismal

The purpose of this paper is to analyze and evaluate the present liquidity management in the Indonesian Islamic banking industry. It also proposes an integrated and…

Abstract

Purpose

The purpose of this paper is to analyze and evaluate the present liquidity management in the Indonesian Islamic banking industry. It also proposes an integrated and comprehensive program of liquidity risk management which captures and assimilates the whole aspects of the issue and brings the industry into a better way of managing liquidity risk based on sharia principles.

Design/methodology/approach

The paper first examines the organizational structure of Islamic banks and Islamic windows in managing liquidity. Second, it investigates the characteristics of the depositors, their investment behaviors and expectations followed by the banks efforts and policies to manage the liquidity. Then, it identifies the potential liquidity problems and Islamic liquid instruments. Finally, it proposes an integrated and comprehensive program for managing liquidity.

Findings

The paper suggests institutional deepening; restructuring the liquidity management on the liability and asset sides; and revitalizing the usage of the Islamic liquid instruments, in the integrated program.

Originality/value

This is believed to be the first paper to propose a liquidity management improvement program in the Indonesian Islamic banking industry.

Details

Humanomics, vol. 26 no. 1
Type: Research Article
ISSN: 0828-8666

Keywords

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Article
Publication date: 31 August 2010

Rifki Ismal

The paper attempts to analyze the volatility of returns and expected losses of Islamic bank financing. In particular, it takes the case of Indonesian Islamic banking industry.

Abstract

Purpose

The paper attempts to analyze the volatility of returns and expected losses of Islamic bank financing. In particular, it takes the case of Indonesian Islamic banking industry.

Design/methodology/approach

The paper uses Value at Risk (VaR) approach to compute the volatility (risk) of returns and expected losses of Islamic bank financing. In particular, it uses variance‐covariance method to calculate VaR of multi‐asset portfolios (groups of equity‐, debt‐ and service‐based financing).

Findings

First of all, equity and debt‐based financing produce sustainable returns of bank financing. Moreover, they are also very resilient during unfavorable economic conditions. Second, the performance of service‐based financing is very sensitive to the economic conditions. Lastly, VaR computation on the volatility of returns and expected losses of bank financing finds that risk of investment and expected losses are well managed.

Practical implications

The paper demands Islamic banks to keep intensifying equity‐based financing rather than only debt‐based financing and improve the banking services to support the performance of service‐based financing.

Originality/value

To the best of the author's knowledge, this is the first paper to assist the volatility of returns and expected losses of the Islamic banking financing in Indonesian.

Details

International Journal of Islamic and Middle Eastern Finance and Management, vol. 3 no. 3
Type: Research Article
ISSN: 1753-8394

Keywords

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Article
Publication date: 22 June 2010

Rifki Ismal

The purpose of this paper is to assess liquidity risk management (LRM) practices in Indonesian Islamic banking industry during the period 2000‐2007.

Abstract

Purpose

The purpose of this paper is to assess liquidity risk management (LRM) practices in Indonesian Islamic banking industry during the period 2000‐2007.

Design/methodology/approach

The paper constructs the LRM index (100 scale) which is composed of individual index of asset side; liability side; LRM policies; and the overall LRM index.

Findings

The index produces a “good” grade for the liquidity management practices in the Indonesian Islamic banking industry, represented by three Islamic banks which capture 82 percent of the total market share of the industry. However, the breakdown of the index of every Islamic bank suggests various achievements.

Research limitations/implications

It is found that the practices of LRM are not optimal yet based on some considerations explained in this paper. Further progressive actions have to be taken by the regulators and all industry's players to improve the LRM practices.

Originality/value

To the best of the author's knowledge, this is the first paper trying to assess how good the LRM in Indonesian Islamic banking is.

Details

International Journal of Islamic and Middle Eastern Finance and Management, vol. 3 no. 2
Type: Research Article
ISSN: 1753-8394

Keywords

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Article
Publication date: 30 March 2012

Rifki Ismal

The purpose of this paper is to formulate both withdrawal risk and bankruptcy risk to mitigate the risks and to find the equilibrium area of revenue sharing to depositors…

Abstract

Purpose

The purpose of this paper is to formulate both withdrawal risk and bankruptcy risk to mitigate the risks and to find the equilibrium area of revenue sharing to depositors. Taking the case of the Indonesian Islamic banking industry, this work might benefit the Islamic banks, banking regulators and all stakeholders to manage the risks and maintain the robust development of the industry.

Design/methodology/approach

First, the application of revenue sharing ratio in Islamic banks is studied. Withdrawal risk might happen because of the displaced commercial risk and bankruptcy occurs when the banks fail to manage such withdrawal risk. Referring to that, by using a mathematical approach, the formulas of withdrawal risk and bankruptcy risk are created with some underlying scenarios. Finally, mathematical formula and three dimensions area of the equilibrium revenue sharing ratio are developed.

Findings

The paper generates the financial mathematical formulas to assess the vulnerable and invulnerable conditions of the withdrawal risk and the bankruptcy and solvency conditions of the bankruptcy risk to be used by decision makers to mitigate the risks. The ultimate output of the paper is the equilibrium area of the revenue sharing ratio, which locates Islamic banks in a proper condition of no withdrawal risk and bankruptcy risk.

Originality/value

To the best of the author's knowledge, this is the first paper trying to analyze the issues under the Indonesian case.

Details

International Journal of Islamic and Middle Eastern Finance and Management, vol. 5 no. 1
Type: Research Article
ISSN: 1753-8394

Keywords

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Article
Publication date: 18 November 2013

Rifki Ismal and Rice Haryati

The Indonesian Islamic banking industry is very promising, but there has been no analysis of the optimal and decreasing growth rate of the industry. Information regarding…

Abstract

Purpose

The Indonesian Islamic banking industry is very promising, but there has been no analysis of the optimal and decreasing growth rate of the industry. Information regarding these is essential for policy makers, Islamic bankers and all related parties to guide the future development of the industry and sets up proper plans and strategies. The paper aims to explore the optimal and decreasing growth rates of the industry and in so doing contribute to the current literature on the Indonesian Islamic banking industry.

Design/methodology/approach

The paper first reports on the performance of the Indonesian Islamic banking industry, before explaining conditions where the Islamic banking industry is believed to be still immature. Third, in order to identify the optimal and decreasing growth rates, the paper estimates the future performance of the industry by using ARIMA models to identify periods where the growth rate is at optimal and decreasing points. Then, on the basis of a number of assumptions and statistical simulations, the analysis broadens to become qualitative in nature by determining the optimal numbers of Islamic banks to be established in the future.

Findings

The paper generates some important findings. First, the optimum growth rate of the market share (0.12 percent) is predicted to occur in December 2012; the market share in that month is estimated to be 5.75 percent. Second, although the market share keeps growing, the paper finds the rate of increase to be slow, and in October 2018, it becomes negative, at 0.004 percent. The estimated market share in that time is 11.63 percent. Finally, the optimal number of Islamic banks in December 2012 is shown to be 23 and in October 2018, 24.

Research limitations/implications

Qualitative information on the months of the optimal and decreasing growth rates and quantitative information on the optimal number of Islamic banks to be established are significant information for policy makers, Islamic bankers and other related parties. The information is likely to be important in relation to their efforts to develop the Islamic banking industry, to anticipate decreasing growth in the industry and to establish new Islamic banks. More generally, the paper helps the related parties to direct and guide the future development of the industry.

Originality/value

To the best of the authors' knowledge, this is the first paper that attempts to establish optimal and decreasing growth rates in the Indonesian Islamic banking industry, or the optimal numbers of Islamic banks to be established in the future.

Details

Qualitative Research in Financial Markets, vol. 5 no. 3
Type: Research Article
ISSN: 1755-4179

Keywords

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Article
Publication date: 28 October 2014

Rifki Ismal

This paper analyzes the gold Murabahah contract, which tends to be very popular in the Indonesian Islamic banking industry. As the contract is very sensitive to the gold…

Abstract

Purpose

This paper analyzes the gold Murabahah contract, which tends to be very popular in the Indonesian Islamic banking industry. As the contract is very sensitive to the gold price movement and speculative motive, a comprehensive assessment is done to assess the behavior of the gold price movement, behavior of the investors and the limits of the gold Murabahah contract. It proposes recommendations to manage the gold Murabahah contract and to mitigate its potential risks.

Design/methodology/approach

The paper examines the gold price, termination of contract and limitation of the amount of funds in the gold Murabahah transactions by using quantitative formulas, such as variance, expected prices and probability of occurrence. In addition, it includes a qualitative analysis of the historical pattern of daily gold prices in the past 12 years. As such, a combination of both approaches generates a comprehensive analysis and recommendations to policymakers, Islamic bankers and investors.

Findings

It finds some interesting outcomes with regard to the behavior of gold prices, behavior of investors regarding the gold Murabahah contract and intention of investors to terminate gold Murabahah contracts prior to their maturity date. Such outcomes become the material for the policy recommendations of the paper. Particularly, it proposes the margin of the Murabahah gold contract, tenor of the contract, down payment and a review of the base gold Murabahah regulation to manage the gold Murabahah contract and to mitigate risks.

Research limitations/implications

The paper does not consider macroeconomic variables such as inflation, exchange rate and economic growth which may affect the movement of the world’s gold prices. It does not examine the gold Murabahah contract in other countries, as it is believed that the gold Murabahah contract is very popular only in the Indonesian Islamic banking industry.

Originality/value

To the best of the author’s knowledge, this is the first paper examines the gold Murabahah contract in relation to the Indonesian Islamic banking industry.

Details

International Journal of Commerce and Management, vol. 24 no. 4
Type: Research Article
ISSN: 1056-9219

Keywords

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Article
Publication date: 10 November 2014

Rifki Ismal

The purpose of this paper is to analyze individual financing instruments and portfolios of instruments, and find the location of the most efficient portfolio financing…

Abstract

Purpose

The purpose of this paper is to analyze individual financing instruments and portfolios of instruments, and find the location of the most efficient portfolio financing. The Indonesian Islamic banking industry is very promising with four dominant financing instruments, namely, Mudarabah, Musharakah, Murabahah and Istishna. Each instrument has unique pattern of return, expected return and risk. Moreover, the variances of two, three and four financing instruments suggest the importance of identifying the most prospective financing instruments. Further, the most efficient portion of the most prospective financing is determined by constructing an efficient portfolio financing frontier.

Design/methodology/approach

Technically, it uses risk and return theory to compute risk, return and variance of an instrument and set of financing instruments. In addition, it uses an efficient portfolio frontier curve to locate all combination of the most progressive portfolio financing and finds the most efficient portfolio financing.

Findings

It finds some interesting finding with regard to the pattern of return, characteristics of a financing instrument and groups of financing instruments. The most essential finding of the paper is the location of the most efficient portfolio financing.

Research limitations/implications

The information and finding of this paper benefit the Indonesian Islamic banking industry to optimize the performance of an individual and groups of financing instruments. Particularly, for the most progressive financing instruments, it proposes the combinations of portfolio financing which give optimum output.

Originality/value

To the best of author’s knowledge, this is the first paper trying to analyze and construct an efficient portfolio financing frontier of the Indonesian Islamic banking industry.

Details

Humanomics, vol. 30 no. 4
Type: Research Article
ISSN: 0828-8666

Keywords

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