Ahamed Kameel Mydin Meera

Dynamic linkages among ASEAN‐5 emerging stock markets

Purpose – The purpose of this paper is to empirically explore market integration among five selected Association of Southeast Asian Nations (ASEAN) emerging markets (Malaysia, Thailand, Indonesia, the Philippines and Singapore) during the pre‐ and post‐1997 financial crisis periods.Design/methodology/approach – Employs two‐step estimation, cointegration and generalized method of moments (GMM).Findings – The study finds that the stock markets in the ASEAN region are cointegrated both during the pre‐ and post‐1997 financial crisis. However, the markets are moving towards a greater integration, particularly during the post‐1997 financial crisis. Finally, as measured by the error correction terms, except the emerging market of Indonesia, all other ASEAN markets appear to be the important bearers of short‐run adjustment to a shock in the long‐run equilibrium relationships in the region both during the pre‐ and post‐crisis periods.Research limitations/implications – The study only focuses on stock markets of th...

Part I: Seigniorage of fiat money and the maqasid al‐Shari’ah: the unattainableness of the maqasid

Purpose – To reason whether the interest-based fiat monetary system is compatible with the objectives of the Islamic law or the Shariah. Design/methodology/approach – This is a theoretical paper that uses the quantity theory of money and the objectives or maqasid al-Shariah as expounded by scholars as basis for logical deductions therefrom. Findings – The socio-economic implications of fiat monetary system imply that the maqasid al-Shariah cannot be attained. Indeed, the system is likely to cause a move away from the maqasid. Research limitations/implications – The paper is based primarily on theoretical deductions. Further empirical investigation would shed further light. Practical implications – Practical implications are numerous. The definition of what is money is then crucial to address the socio-economic implications caused by the fiat monetary system. For Islamic economics, this would imply that the process of Islamization of knowledge/disciplines is futile without addressing this issue first. Accordingly, the establishment of Islamic economics, banking and finance warrants a serious look into the current definition of money and monetary systems. Originality/value – It calls for a definition of Shariah-compatible money. This is beneficial to the researchers, proponents and practitioners of Islamic economics, banking and finance.

COMBINING LOCAL AND GLOBAL MARKETS IN ASSET PRICING IN EMERGING MARKETS: EVIDENCE FROM THREE BRICS NATIONS

Asset pricing models, originally designed for the US market, assume sufficiency of local market in capturing systematic market risk in the stock returns. The models were extended to other developed markets that are fully integrated with the US market by replacing the local market with the global market. However, the ability of these models to capture systematic risks and explain stock returns in emerging markets is undermined by emerging markets’ partial integration with and structural differences from the developed markets. In these markets, relying only on local or global market is expected to cause loss of valuable return-relevant information leading to inaccuracies in the return estimates. To customize the asset pricing models to emerging markets settings, we propose combining local and global markets in the models. In this regard, we extend Koedijk et al. model by replacing global instruments with global market portfolio to propose a two-factor CAPM, and Fama & French three-factor model by adding global market portfolio as the fourth factor. We test the proposed models in three BRICS nations, China, India, and South Africa, using ten-year, monthly data from January 2004 to December 2013 on non-financial firms with positive equity holdings. We apply Fama & French double sort on size and book to market value of equity on listed firms to construct nine dependent portfolios. The sort procedure is also used to construct two portfolios—SMB and HML—used along with market portfolios as explanatory variables in Fama & French models. The test results of the models reveal differences in the behaviors of the markets studied. The Chinese market behaves like a fully segmented market wherein local market portfolio subsumes the effect of the global market in both models. On the other hand, the South African market acts like a partially integrated market where both local and global market portfolios have significant impact on the stock returns. The Indian market behaves like a segmented market in two-factor model and like a partially-integrated market in the four-factor model. Hence, we conclude that incorporation of local and global markets in asset pricing in emerging markets in necessary to insure against inaccuracies in the stock return estimates. The proposed models provide investors and investment managers with tools for gauging risks involved in investing in emerging markets and making well-informed investment decisions.

Al-Muqassah model: An alternative Shariah-compliant Islamic credit card model for Islamic financial institutions in Malaysia

Purpose - – The purpose of this paper is to develop a new Islamic credit card model that is in line with Design/methodology/approach - – This paper is theoretical in nature and mainly based on descriptive research method approach. Findings - – The overall findings indicate that the contemporary practice of Islamic credit card in Malaysia is still controversial in its design and operation. Moreover, the adoption and practice of Research limitations/implications - – The paper is limited to develop a new Practical implications - – The paper will have direct implications on contemporary practice of Islamic credit card in Malaysia and elsewhere. The practice of Originality/value - – The paper has relevance for Islamic financial institutions offering Islamic credit cards. The proposed model is fully in line with fundamental doctrines of

Analysis of commodity reserve currency system from siyasah shariyyah perspective

This paper aims to apply the doctrine of siyasah shariyyah to a policy proposal in the area of monetary economics, namely, the Grondona system of conditional currency convertibility, which has been proposed as a practical means of resisting the economic instability caused by the present-day fiat money system.,The paper uses library research to review the literature relevant to the Grondona system, and examines the extent to which its operations conform to the principle of siyasah shariyyah, thereby encouraging Maslahah, i.e. the public interest.,It has been found that the Grondona system conforms to the philosophy of siyasah shariyyah because it promotes public welfare in a number of ways. First, it is based on the fundamental principle of Prophet Yusuf’s/Joseph (peace be upon him) economic planning, which is accumulating reserves of primary commodities during times of plenty and releasing those reserves of commodities during periods of scarcity. Second, it provides the necessary linkage between the monetary world and the real economy. Third, it could be implemented in parallel with the existing monetary system by using the national currency. Fourth, it would help the least developed countries of the world, which mainly depend on exports of primary commodities (mostly agricultural).,Because of the chosen research approach, this research study is theoretical in nature. Therefore, researchers are encouraged to evaluate the system from economic perspective based on simulation for the purpose of possible implementation.,The paper includes important implications for the policymakers in the Organization of Islamic Cooperation countries for the possible implementation of Grondona system.,This paper fulfils an identified need to apply the philosophy of siyasah shariyyah to the area of monetary economics.

Identifying the optimal level of gold as a reserve asset using Black–Litterman model: The case for Malaysia, Turkey, KSA and Pakistan

Purpose After the collapse of the Bretton Woods fixed exchange rate system in 1971, countries moved towards floating exchange rates, and the expectation was that the requirement for foreign reserves would decrease. However, central banks currently hold more foreign exchange reserves to enhance the credibility of exchange rate policies. The demand for gold, which was the main reserve asset prior the collapse of the Bretton Woods system, has increased as a reserve asset once again following the global financial crisis (GFC) of 2008, given gold’s characteristics as a safe haven asset and a store of value. This study aims to analyse official reserves of four countries, namely, Malaysia, Turkey, KSA and Pakistan. The Black–Litterman model was used to build a new strategic portfolio with optimal allocation to gold. This study shows that all countries under the analyses should increase their gold holdings to preserve the value of the portfolio during times of financial turmoil. Design/methodology/approach The Black–Litterman model has been used to build a new strategic portfolio with optimal allocation to gold. The study shows that all countries in our analyses suggested increasing their gold holdings to preserve the value of the portfolio during times of financial turmoil. Findings The study found that countries under the analyses, namely, Turkey, Malaysia, KSA and Pakistan, suggested increasing their official gold holding given the outstanding performance of gold during the GFC. Research limitations/implications Research can be further extended by including few more countries from Organisation of Islamic Cooperation such as Qatar and Indonesia. Originality/value Emerging economies such as China, India and Russia started to sharply increase their official gold holdings in the aftermath of the GFC. According to recent statistics, central banks of China and Russia have been adding to their gold reserves. Of note, only in few European countries and in the USA, is the share of gold in foreign reserves more than 50%. In the rest of the world, this figure is about 3-5%. The paper elaborates the aforementioned subject and suggests the strategic weight of gold reserve for each country under analysis.

Fiat money: from the current Islamic finance scholars’ perspective

Purpose This paper aims to discuss the opinions of current Shariah scholars on the concept of debt money in the present-day fiat money system. Design/methodology/approach Research design of this paper is a quantitative investigation of Shariah experts by distributing a questionnaire to them. As majority of Shariah scholars are also Shariah advisory of the current banking system, it is important to find out their level of knowledge on the issue of debt money created by the commercial banking system through the fractional-reserve banking (FRB) system. Findings Based on this investigation, most Shariah scholars are unaware of and confused about the mechanics underpinning the creation of money, especially with respect to FRB as it is practiced by the conventional and Islamic banking systems. Originality/value Based on this research, it is recommended that these scholars should improve their understanding of the operation of the fiat money system and its consequences. It is recommended that, in future, Shariah scholars should think “outside of the box” by creating Islamic financial instruments that do not resemble those of the conventional system.

Testing the financial distress prediction model for sukuk- issuing companies in Malaysia

Companies are exposed to business and financial risk and are affected by business cycles and economic downturns. A company is fortunate if it is capable of preventing and alleviating financial crises by utilizing existing financial distress models to deal with volatile markets and changes in the global economy. Such models are capable of signalling to a company worst case scenarios and remedial possibilities to prevent future distress. However, applying such risk models to sukuk-issuing companies remains a point of contention because sukuk and related bonds are fundamentally different types of financial instruments and possess dissimilar risk exposure to traditional instruments. The current study examines this difference by testing existing financial distress prediction models on sukuk-issuing companies. The results show that the Altman and Ohlson financial distress models were capable of alerting companies of possible financial distress with a 52.78 per cent prediction accuracy. Further testing revealed that the Ohlson model produced a higher prediction power than the Altman model for Malaysian sukuk-issuing companies. These signify that logit model is more powerful for sukuk issuing companies.

Viability cf implementing direct interest-free credit clearance system in Muslim countries

This study aims to examine the possibilities of implementing direct interest-free credit clearance (DIFCC) system,which is one of the viable alternatives to solve the problems of contemporary currency system. The DIFCC, which is based ona netting system,has been implemented successfully by several countries in the conventional setting, not to replace the current fiat money system, but rather as a parallel complementary currency. In this system, the distribution of credit as money will not be monopolized by the commercial banks, rather the distribution ison a mutual basis as long as there are products or services that can be offered to others among the members. As such, the system is fairer compared to the fiat money system and is free from the prohibited elements in Islamic finance such as riba, gharar and maysir as it requires exchange of real goods and services. In the context of the Muslim countries, the negative socio-economic effects of using the fiat money will not allow the countries to attain the objectives of the Shari’ah(maqasid al-Shari’ah). This study discuss the viability of implementing the DIFCC model which essentially applies the concepts of muqasah (nett-off) and hiwalah (transfer), apart from assessing the Shari’ah-compliancy of the model to be implemented as an innovative product in Islamic finance.

Priority of Waqf Development among Malaysian Cash Waqf Donors: An AHP Approach

The practise of cash Waqf is increasingly gaining popularity among the Malaysian Muslim. Waqf institutions (SIRCs) are responsible to utilise the collection of cash Waqf to develop relevant projects in order to benefit the society in general. The purpose of this study is to explore the cash Waqf donors’ priority toward what types of development that fulfilled the current need of the society. Hence, to accomplish this purpose; thirty (30) Muslim employees who have contributed cash Waqf were interviewed. This study employs analytical hierarchy process (AHP) analysis to identify the rank of the developments that priorities by donors. The result shows that the cash Waqf contributors prefer to channel their money for Waqf development in the following rank order: (1) education, (2) health, (3) masjid and madrasah, (4) social-care and welfare (5) trade and commerce (6) environment (7) infrastructure and (8) art, culture and heritage.