Nafis Alam

Islamic Venture Philanthropy: A Tool for Sustainable Community Development

The magnitude of philanthropic giving in Muslim communities is estimated to total between USD 250 billion and USD 1 trillion annually. In spite of having such a huge philanthropic wealth base, in most countries it is being either mismanaged or misappropriated. The current research proposes that this Islamic philanthropy can be interpreted using conventional models of venture philanthropy. This can be done by applying tailored financing. For example it can be used for professional financial advice and assistance to build strong communities. Philanthropic wealth can be invested in Shariah compliant activities and the returns can be further used for larger community development. This model will encourage networking of local business people and Islamic investors; a true partnership based on shared risk and profit and with clear development objectives. This model measures both social and financial impact of Islamic venture philanthropy for Muslim communities at large.

Risk‐taking behaviour of Islamic banks: application of prospect theory

Purpose – The paper aims to gain an insight into behavioural characteristics of Islamic banks and how they influence the risk‐taking decisions of Islamic banks in financial markets within the prospect theory context.Design/methodology/approach – The study employs review and application of prospect theory in Islamic banking industry across the globe, making use of 99 Islamic banks across 14 countries.Findings – Empirical evidence shows that Islamic banks located above target risk level tend to show risk‐adverse behaviour, while banks below target risk level inclined towards risk‐seeking attitude. Results also highlighted that banks which have higher loans to total asset ratio tend to take on lower risk.Practical implications – Islamic bank regulators will be better prepared to monitor the Islamic banking system if they understand risk‐taking behaviour of Islamic bank managers. The findings will provide more effective bank regulatory oversight, thus preventing Islamic bank failures in future.Originality/val...

Empirical Research in Islamic Banking: Past, Present, and Future

Islamic banking is an emerging research theme in banking-related studies that can be further expanded owing to a dearth of extensive studies in this field. A major part of the literature contains a comparative analysis of Islamic banking and its conventional counterparts, based on performance and regulatory theme. The aim of this chapter is to demonstrate the extraordinary potential and depth of current and future research theme in Islamic banking domain. The chapter discusses the areas and issues that have been covered intensively in the recent literature, and also helps to identify the areas that have received relatively less attention. Finally, it also points to the newest areas of research that seem promising for future research in Islamic banking theme.

Corporate Governance in Islamic Banks

Corporate governance (CG) refers to methods by which a corporation is directed, administered or controlled. CG is important to all corporations, and especially to Islamic banks, as these institutions have a moral dimension to their commercial transactions. The chapter discusses the challenges in CG implementation in Islamic banking using Malaysia as a case study. The chapter further proposes how standardization can be achieved in Islamic banking through better CG model.

Does Decentralized Decision Making Increase Company Performance Through Its Information Technology Infrastructure Investment

A companys Information Technology (IT) infrastructure is a key factor in its sustainability and ongoing success and profitability. This paper explores the relationship between a companys investment in IT and its performance. Performance is measured, with the help of a Balanced Scorecard (BSC), in four ways; financial, internal business processes, innovation & learning and customer perspective. The relationship between each BSC category serves as indicators of the effect of IT investment on a companys performance. This will help establish the benefits of both financial and non-financial indicators. We focus on the Electrical and Electronic manufacturing performance of companies Malaysia. System Resource Theory (SRT) is used as the background theory to explain the concepts of organizational effectiveness, efficiency, productivity and multidimensional performance measurements and to link the variables used in this study. We conduct an empirical study in order to confirm the moderating effects of decentralized decision making. The results suggest that IT investment produces a significant relationship with all BSC perspectives, but the moderating effect is only significant only from a customer perspective.

Banking mergers – an application of matching strategy

Purpose - – ASEAN region has emerged as a major hotspot for banking mergers and acquisitions (M&A) in Asia. This paper aims to examine the determinants of acquisitions for 47 acquired banks and 33 acquiring banks in ASEAN from 2003 to 2011 by applying matching strategy. Design/methodology/approach - – Three binary logistic regressions are estimated in the study to identify the determinants of acquisitions in the ASEAN banking industry. Furthermore, the paper examines the Findings - – The division of the sample into sub-samples reflects significant changes in the determinants of the likelihood of being acquired over different time periods. In the normal period prior to the financial crises, acquired banks are also found to have greater loan activities. Asset quality and liquidity played important roles in determining the likelihood of being acquired in the period after the onset of the 2007 global financial crisis and the European sovereign debt crisis. Larger banks with higher growth and greater profitability are more likely to engage in acquisitions as acquiring banks rather than as acquired banks. The study indicates that financial crises bring about a change in the determinants of bank acquisitions. Research limitations/implications - – The results for the bank-specific determinants are consistent with the growth-resource and inefficient management hypotheses. It is obvious that the involvement of ASEAN banks in acquisitions is strongly motivated by the pursuit of growth, consistent with the rapid economic growth in the region. Originality/value - – The study identifies the bank-specific and country-specific characteristics of acquiring and acquired banks which influence their involvement in M&A. The uniqueness of this paper lies in the applied methodology on matching strategy.

Islamic economics and Islamic finance in the world economy

This paper places the articles in this special issue in the contexts of Islamic economics and finance research. It highlights the foundations of Islamic economics, which are in practice manifested in Islamic finance. Then, the paper brings up three key issues in Islamic finance today – the Islamicity of Islamic banking, real contributions of Islamic finance, and Islamic finance in the present monetary framework. While there are some promising theoretical and empirical findings pointing to positive contributions of Islamic finance, there is still a need for Islamic finance to distinguish itself from the conventional finance and to further demonstrate its real effect.

Do Islamic banks shift from mark-up to equity financing when their contracting environments are improved?

ABSTRACT Islamic banks should share their profits and losses with their customers through equity financing but most of their assets are mark-up financing, which resembles loans. Theoretically, one of the reasons is Islamic banks operate in poor contracting environments where equity financing is very risky. Using fixed-effects models, we examine whether better contracting environments induce Islamic banks to shift from mark-up to equity financing. We find no evidence that contracting environments do, which means debt-like instruments will continue dominating Islamic banks’ assets in the near future.

Assessing Sukuk defaults using value-at-risk techniques

The purpose of this paper is to investigate the default characteristics of Sukuk issues by corporate firms in Malaysia using value-at-risk (VaR) techniques over a period of 16 years from 2000 to 2015 and across nine economic sectors.,The paper employs non-parametric and Monte Carlo simulations to estimate Sukuk defaults.,The authors analyses revealed that the VaR predictions were fairly consistent with the ratings provided by credit rating agencies, despite the limited tradability of Sukuk in the secondary market. The study was able to demonstrate that Sukuk is not riskier than conventional bonds in the Malaysian context.,The research findings suggested that VaR values will depend on the fundamental value of a firm based on the considerations of market, credit and operational risk. It does not rely on the type of debt instrument, whether a Sukuk or conventional bonds.,The use of Sukuk along with conventional bonds as debt instruments creates opportunities for investors and bond issuers globally.,Although Sukuk has generated much interest among financial market players, studies are lacking on how to predict Sukuk defaults and whether Sukuk has the same risk profile compared to conventional bonds.

Does hedging enhance firm value in good and bad times

The purpose of this paper is to examine if the hedging strategy of the firm adds value to the firm, and if so, is the source of the benefit consistent with the hedging theory?,The paper used data from 129 top non-financial Indian companies spanning a period of 2008-2015 and analyzed using the ordinary least squares regression technique.,The study finds that firms engaged in hedging compared to non-hedgers have less volatility in the firm’s value. The use of hedging during the financial crisis is found to be value enhancing for the hedgers. The results also found that some firms do not disclose the notional value of derivatives clearly, which highlights the need of clear regulation for derivative declaration in the annual reports.,Research implications of this study are to gain an insight into the hedging effectiveness in the highly volatile Indian market as compared to developed countries. High volatility in the exchange rate of Indian rupee further makes it one of the most relevant markets to study the effect of hedging on the firm’s value.,Mostly hedging is done purely for risk management, and if managers try to time the market by selective hedging, it can bring a negative impact for the firm. Findings show that managers should manage their hedging strategy based on changing the economic environment and not purely on the firms’ financial value.,To the authors’ best knowledge, this is the first study to extract the dollar value of derivative usage of sample firms and analyze its effectiveness in enhancing firm value in the presence of other financial parameters. This will be an advancement of previous studies, which used hedging as a dummy variable only. Most studies on this topic are carried out in developed countries; there is a limited research on developing markets such as India, and past studies have been more generic one like determinants of hedging and overall derivative scenario.