Salina Kassim

Impact of the 2007 US financial crisis on the emerging equity markets

Purpose – The purpose of this paper is to explore empirically the effects of the current financial crisis on the integration and co‐movements of selected stock markets of the emerging economies, namely Indonesia and Malaysia.Design/methodology/approach – The paper employs the standard time series technique and vector autoregressive framework.Findings – The results of this paper support the general view that stock markets tend to show greater degree of integration or increased co‐movements during the crisis period, resulting in lesser benefit of diversification that can be gained by investors participating in these markets.Research limitations/implications – This paper only focuses on emerging equity markets of Malaysia and Indonesia.Practical implications – This paper reveals that unlike during the pre‐crisis period, the long‐run diversification benefits that can be earned by investors across the emerging equity markets of Indonesia and Malaysia during the crisis period tend to diminish.Originality/value ...

A comparative analysis of the performance of conventional and Islamic unit trust companies in Malaysia

Purpose - The purpose of this paper is to investigate the efficiency of selected conventional and Islamic unit trust companies in Malaysia during the period 2002 to 2005. Design/methodology/approach - The paper adopts Data Envelopment Analysis (DEA) to investigate efficiency, as measured by the Malmquist index, which is decomposed into two components: efficiency change and technical change indexes. Findings - The study indicates that technical efficiency is the main contributor to enhancing the efficiency of the Malaysian unit trust industry. In addition, the larger the size of the unit trust companies, the more inefficient the performance. In comparing the efficiency of unit trust companies, the study finds that some of the Islamic unit trust companies perform better than their conventional counterparts. Research limitations/implications - The study is limited to five Islamic unit trust companies. Thus, the findings of this study are indicative, but inconclusive for the unit trust industry as a whole. Practical implications - The results have two important implications for both conventional and Islamic unit trust companies in Malaysia. First, the deterioration of total factor productivity (TFP) in the unit trust industry in Malaysia is due to the deficiency of innovation in technical components. Second, the size of the unit trust companies has an adverse effect on the TFP performance. Originality/value - The contribution of this study is that it analyzes the efficiency of the two types of unit trust industry which are important and relevant for Malaysia. This significance arises from the dual financial system, in which the Islamic unit trust companies operate in parallel with their conventional counterparts. The comparison sheds some light on the performance of the Islamic unit trust companies, whose operations are based on profit-sharing, in contrast to the conventional unit trust companies.

Determining the viability of rental price to benchmark Islamic home financing products: Evidence from Malaysia

Purpose – The purpose of this paper is to analyze the possibility of relying on the rental rate to price Islamic home financing product.Design/methodology/approach – By comparing two models consisting of either rental rate or lending rate (LR) and selected macroeconomic variables that could influence property value, the study focuses on the Malaysian data covering the period from 1990 to 2006. The study adopts several econometric time‐series analysis, such as the autoregressive distributed lag estimates, bi‐variate Granger causality, and multivariate causality based on the vector error‐correction model.Findings – The study finds consistent evidence that the rental price (RP) is a better alternative than the LR to price Islamic home financing product. In particular, the rental rate is found to be resilient to short‐term economic volatility, while in the long run, it is truly reflective of the economic fundamentals.Practical implications – This feature of the RP renders it as a fair pricing mechanism for th...

A critical review of the literature on the rate of return risk in Islamic banks

Purpose – This paper aims to provide a critical review of the literature on the rate of return risk faced by Islamic banks.Design/methodology/approach – Through a thorough review of the literature, this paper presents the discussion among scholars regarding the rate of return risk in Islamic banks.Findings – One of the major issues highlighted is the sensitivity of Islamic banks to the changes in the conventional interest rate due to the fact that many Islamic banking products are benchmarked against the conventional interest rate. Moreover, the limited techniques and instruments available to mitigate the rate of return risk also need serious attention by the regulators.Research limitations/implications – The study relies solely on the literature and highlights important issues in the area but does not provide any empirical evidence of the importance of rate of return risk to Islamic banks as it is beyond the scope of the paper.Practical implications – There are several issues that should be taken into co...

The information content of the Islamic interbank money market rate in Malaysia

Purpose - The purpose of this paper is to analyze the information content of the Islamic interbank money market rate (IIMMR), with respect to several macroeconomic indicators such as output, inflation, exports, imports, bank loans and stock market index, and compare it against that of the conventional interbank money market rate using the Malaysian data. Design/methodology/approach - The paper relies on the causality tests based on the Toda-Yamamoto method, focusing on the period from January 2000 to December 2006. Findings - The results provide empirical support for the high information content of the IIMMR. Practical implications - A major implication of this study is that the IIMMR can be a reliable variable for monetary policy implementation in the Malaysian case. Originality/value - There have been no studies undertaken in the area of Islamic finance to analyze the information content of the Islamic money market rate to determine its possibility as a monetary policy variable. Alos, the paper enriches the literature by presenting the Malaysian experience in developing its Islamic interbank money market.

Assessing the contribution of Islamic finance to economic growth: Empirical evidence from Malaysia

Purpose – This purpose of this paper is to empirically examine the contribution of the Islamic banking and financial institutions (IBFIs) to economic growth in Malaysia. Design/methodology/approach – Focusing on the post-1997 economic turmoil, the paper relies on several time series tests, such as autoregressive distributed lag (ARDL), vector error correction model (VECM) and variance decompositions (VDCs). Findings – The paper documents significant role played by the IBFIs in Malaysian economy. In particular, significant unidirectional causality was found from the IBFIs development to economic growth, supporting the finance-growth led hypothesis or the supply-leading view. Research limitations/implications – The paper only focuses its analysis on the role of the IBFIs in the Malaysian economy and not the financial sector as a whole. Thus, the findings of this paper are indicative, but inconclusive for the entire financial sector in the country. Practical implications – Continuous efforts should be undert...

Issues and challenges in financing the poor: case of Baitul Maal Wa Tamwil in Indonesia

Purpose – The purpose of this paper is to highlight the issues and challenges in providing financing to the poor people based on the experience of Baitul Maal Wa Tamwil (BMT) in Indonesia. Design/methodology/approach – A series of structured interviews were conducted with the chairman and staff of the Central BMT (Induk Koperasi Syariah) in Jakarta which is the head-quarter of 382 BMTs throughout Indonesia, with additional chairman and shari’ah supervisory in Central BMT (Pusat Koperasi Syariah) in Makasar. Subsequently, the results from the structured interviews were analyzed using qualitative analysis to arrive at the model of the peculiarities of financing the poor in Indonesia. Findings – The findings show that the Central BMT has built specific products and empowerment mechanisms for the poor and has an ideal product to be applied in 382 BMT in Indonesia. There are two schemes of financing source in BMT, namely, social ministry (Kelompok Usaha Bersama) and private financing (national and internationa...

Assessing the Impact of Islamic Microfinance on Poverty Alleviation in Northern Nigeria

Nigeria is one of the leading economies in Africa endowed with vast oil reserve and abundant human and material resources. Despite these resources, poverty among the populace is widely spread. The National Planning Commission in Nigeria in 2012 reported that more than 75 million people are trapped by poverty. Several efforts have been put forward at various points in time by successive governments, private entrepreneurs and other development partners to overcome the menace of poverty among the populace. Recently, the Islamic microfinance becomes a mechanism through which poverty is being challenged aswitnessed in some Muslim countries such as Bangladesh, Malaysia, and Pakistan. The purpose of this study is to examine the role of Islamic mircofinance products on poverty alleviation in northen part of Nigeria. The study used recipients of Islamic loan from some selected microfinance banks in Kano and Jigawa states of Nigeria. A total of 400 samples drawn from beneficiaries of Islamic microfinance loan through simple random sampling were used. Questionnaires were used and the data generated were analyzed using Pearson correlation analysis. The findings of the study has also identified that amount of Islamic loan, age, level of education, and gender as important variables for increasing household income. Microfinance regulators or policy makers (Central Bank of Nigeria) will also make use the findings of this study in designing policy framework for microfinance institutions in Nigeria.

Contract agreement model for murabahah financing in Indonesia Islamic banking

Purpose - The main objective of this research is to measure the pattern of contract agreement process in order to map various banks’ position in perceiving sharia conduct. This is done by incorporating the dynamics of culture, market demand and sharia literacy in different bank. Finding of this research will serve as the formula to map the latent degree of Islamic bank’s commitment to their strategic vision and identity as an Islamic based financial institution. Design/methodology/approach - This research develops its theoretical background in classical and contemporary literature review on murabaha contract in Islamic perspective. Focus Group discussion (FGD) and In Depth Interview is conducted on 32 bankers (in 14 Islamic banks), 2 national sharia council, 5 academician and 3 Central bank representative as an input for qualitative analysis. Content analysis is utilized in this paper to emphasize the process of discovering the relationship between dynamic factors affecting contract agreement process in murabaha scheme in Indonesian banking. Findings - There are four dimensions affecting the contract agreement: fairness to customer, country regulation, perceived business practicality and product characteristic. The four dimensions are assumed to be influence with categories proposed, as the category item is mostly repeated and is perceived to be significant in the participant’s perspective. Originality/value - This research will be beneficial in mapping the determinant of degree of sharia compliance in sharia banking in Indonesia, focusing on the contract agreement process.

Unique aspects of the Islamic microfinance financing process experience of Baitul Maal Wa Tamwil in Indonesia

Purpose This paper aims to highlight on the unique aspects of Islamic microfinance based on the experience of Baitul Maal Wa Tamwil (BMT) in Indonesia. Design/methodology/approach It adopts the content analysis approach and focuses on three phases of financing, namely, pre-financing, financing and post-financing using coding and model buildings. Data are collected through in-depth interview with a sample of representatives of BMTs that offer product based on Islamic principle for the poor located in Jakarta, Bogor, Depok, Tanggerang and Bekasi (JABODETABEK), Sulawesi Selatan, Yogyakarta and Nusa Tenggara Barat (sample chosen based on the most concentrated areas of Islamic microfinance that offered product based on Islamic principles). Ultimately, a model based on the unique features of Islamic microfinance will be developed based on the findings of the content analysis. Findings The proposed model incorporates the peculiarities of the poor people in pre-financing, financing and post-financing activities of micro-financing products to serve as a reference for policy makers. The paper also found that each region has unique product preferences depending on the poor’s characteristics. Research limitations/implications This study is only conducted in four areas with BMT representation, namely, Jakarta, Bogor, Depok, Tangerang, Bekasi (often abbreviated as JABODETABEK), Sulawesi Selatan, Yogyakarta and Nusa Tenggara Barat) in Indonesia. Despite the limited scope, the findings have wide applications to the Islamic microfinancing in general. Originality/value The paper adds value to the literature on Islamic microfinance by enabling researchers and practitioners to understand the model of three step financing (pre-financing, financing and post-financing) in Islamic microfinance in Indonesia. Although not a new issue, the paper provides the practice of pre-financing, financing and post-financing processes which may differ from the practices of Islamic microfinance in other settings because of different cultural influences unique to every region.