Syed Aun R. Rizvi

The Impact of Global Financial Shocks to Islamic Indices: Speculative Influence or Fundamental Changes?

The ripples of the financial crisis are still being felt over different parts of the world causing much distress to the real economy. The capital market, in particular, took a massive hit during the crisis plummeting to all-time lows. In the footsteps of globalization, a financial shock to the US capital market can cause a spill over effect to other markets, Islamic capital market included. Hence, this paper attempts to address the question whether Islamic indices are affected through fundamental changes or short-term influences by sudden changes in volatility as compared to their conventional counterparts. To empirically analyze this, we apply continuous wavelet technique to identify comovements between world financial indices and Islamic indices for World, Asia Pacific and Emerging Markets specifically. Covering a time period of 15 years (1997 – 2011), our results confer that Islamic indices in the Asia Pacific and Emerging Market region are partially immune to speculative shocks to global financial services making them a good alternative. Similarly, Islamic indices testified more stable due to their rigid screening criteria.

An Empirical Study of Islamic Equity as a Better Alternative during Crisis Using Multivariate GARCH DCC

Risk Sharing is the core of the Islamic finance, the closest modern equivalent being equity investments. Through the decades of Islamic Finance development scholars have stressed on equity as the most beneficial financial mechanism while most accept modern joint-stock companies as quasi Mush rakah and Mu rabah forms, but this segment is still small in Islamic finance. Multitude of reasons contributes to it, primarily, the risk averseness and myth of equities as more risky alternate. This paper attempts to investigate this myth utilizing MGARCH DCC method, by studying the volatilities and correlations of Islamic indices over a period of twelve years. The findings are promising, suggesting a low moving correlation between the conventional and Islamic indices. The results substantiate the authors’ argument, that during crisis, Islamic indices provide though not complete, but partial insulation, thus a safer haven. This bodes well for a hugely untapped Islamic alternate investment avenue for exploration.

Risk Sharing and Public Policy

This chapter explores the fundamental question of on what is the current economic system based. The answer lies in exploring the concept of risk, and the modes of transferring and sharing it. Based on discussions in the literature, this chapter explores how the risk shifting-based system has collapsed and how the notion of risk sharing is required. For governments to sustain their future there needs to be a shift towards a risk sharing-based economic society. The chapter further explores the notion of Islamic financial ideology being based in risk sharing, and how this can play its role in public policy. The idea of a global risk sharing between sovereigns is the possible answer.

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.

Emissions and trade in Southeast and East Asian countries: a panel co-integration analysis

Purpose – The purpose of this paper is to analyse the implication of trade on carbon emissions in a panel of eight highly trading Southeast and East Asian countries, namely, China, Indonesia, South Korea, Malaysia, Hong Kong, The Philippines, Singapore and Thailand. Design/methodology/approach – The analysis relies on the standard quadratic environmental Kuznets curve (EKC) extended to include energy consumption and international trade. A battery of panel unit root and co-integration tests is applied to establish the variables’ stochastic properties and their long-run relations. Then, the specified EKC is estimated using the panel dynamic ordinary least square (OLS) estimation technique. Findings – The panel co-integration statistics verifies the validity of the extended EKC for the countries under study. Estimation of the long-run EKC via the dynamic OLS estimation method reveals the environmentally degrading effects of trade in these countries, especially in ASEAN and plus South Korea and Hong Kong. Pra...

Impact of corruption on bank profitability: an analysis of Islamic banks

The great influx of Islamic finance to the global scene has raised an interesting notion about its behaviour towards corruption. As the practice of corruption can be found in almost any corner of the world, it is most likely that Islamic banks may have been exposed to certain unscrupulous practices. This brings forth an important yet interesting discussion as sometimes corruption becomes unavoidable and this is something that is prohibited in Islam, proving to be a conflict of interest. This novel study sought to econometrically analyse the impact of corruption on Islamic bank profitability in highly corrupt countries. Using a panel dataset comprising 300 observations of 10 unique banks over the 2000-2010 time period panel least squared regression results reveal that corruption has a significant positive impact on bank profitability. The results lend some credence to implications that banks are thriving from corruption in the country.

Outsourcing the Islamic Way : A Look into the Challenges Faced by Financial Institutions

Outsourcing The Islamic Way: A Look Into The Challenges Faced By Financial Institutions Fuelled by the growth of Islamic finance, banks and other financial institutions are increasingly seeking to outsource their non-core business functions. The benefits of outsourcing have already been well documented in literature and while it is good business sense to indulge in outsourcing when required, it becomes a matter of concern when it comes to outsourcing Shariah compliancy. Although there is a great avenue for growth in outsourcing, the industry must be conscious of the risks involved. This article addresses the issues and challenges in outsourcing Shariah approval for banks that do not have their own Shariah advisory board. This unique perspective into outsourcing by Islamic banks divulges into the Shariah risks, governance issues and Shariah arbitraging. For instance, when dealing with consultancy firms that contract Shariah scholars, the issue of rubber stamping is created. This becomes a problem because in many cases these scholars are not held accountable for their actions as the board of directors would be, hence leading to a conflict of interest between Shariah scholars and banks. Furthermore, it is established that subsiding this risk can be done through a convergence of Shariah opinions and a greater need for collaboration between the private sector, the government and regulatory bodies is required.

Stabilising economic growth through risk sharing macro instruments

The risk sharing principles of Islamic Finance have ironically been studied and used extensively outside the Muslim World. The development of early European city states was founded on the risk sharing principle. The risk sharing financing helped these city states to develop their infrastructure and rule the scientific and economic landscape of the west. The Western financial system of today still carries traces of risk sharing in the form of venture capital financing, albeit the primary focus has diverted to risk shifting†based debt financing. Over the past decades, much effort and research has gone into establishing a viable set of Islamic financial institutions. Most Muslim nations are heavily indebted with high reliance on multilateral financing primarily based on high interest rates. This vicious cycle of interest rates and debt has stunted the growth of these nations and worsened the conditions of the masses. This research brings to the forefront the concept of an equity in nature GDP†linked paper, which allows for enhanced risk sharing†based sovereign financing. It aims to present empirical proof of the stability this instrument offers in economic growth, for a large sample of developing economies, comprising bulk of Islamic countries. While analysing the empirical work, a strong favourable argument for this instrument is derived for its benefits in stability. Through this study, we endeavour to initiate a thought†provoking and practical discussion for further development of these instruments for the betterment of developing countries.

Islamic Economics’ Contribution to Conventional Economics

This chapter presents an overview of the key elements of Islamic economics and tracks its contribution to conventional economics. The chapter draws upon particular features of Islamic economics and how they can provide a blueprint for overcoming the chaos of the global economy. It also attempts to identify the role of players, from individuals to governments, within an Islamic economic system.

Markets and the Way Forward

This chapter aims to compress our thoughts and discussion in the matter of how public policy managers tend to utilize capital markets through intervention to fulfill economic goals. With capital markets providing in their true nature a risk sharing mode, the role of Islamic finance comes into play, and the proposed macromarket and micromarket instruments can be very beneficial. We also explore some reasons why these kinds of instruments have not yet gained popularity, and how the concerns raised about them can be addressed. On a parting note, we highlight how crucial it is for us to address the concerns of the world economy through risk sharing in order to create a sustainable future.