PhD

This research attempts to show that risk sharing, as defined under Islamic finance, makes financial systems antifragile. The recent financial crisis has given rise to discussions around a new term known as antifragility, used for evaluating the long-term stability of a financial system. Antifragility specifies conditions under which systems become resilient to shocks caused by Black Swans. These are highly unpredictable outlier events that have a major negative (or positive) consequence when they occur, with their occurence only being explained retrospectively. According to this concept, the long-term survivability of any system centers exclusively on its antifragile nature, that is, its ability to absorb and actually benefit from Black Swan-type shocks. This research aims to investigate risk sharing Islamic finance, qualitatively (via literature-based research) and quantitatively (via mathematical modeling), as an antifragile system ...

The rapid growth in Islamic banking has been accompanied by a considerable amount of research on Islamic banks, however all of the research has been at the bank level. To the best of knowledge, no branch level studies of Islamic banks has been published to date despite the recognition that branch level analysis is more critical than bank level studies (Berger & Humphrey, 1997). An often ...

Women consist of almost half of the world’s population but are disadvantaged in all human development fields. They face barriers in access to valued resources which include education, health, employment, access and ownership of land, banking and finance. Despite recent advances in important aspects of the lives of girls and women, pervasive challenges remain, most often as a result of widespread constraints which often violate women's basic human rights. These differences matter as they directly affect economic outcomes. We therefore make the economic empowerment of women the focus of this study. Research on women’s economic empowerment can be approached in several ways. We look at two very basic and essential aspects; financial inclusion and economic growth. First, we gain insights into the gender gap in the economic empowerment of women through the financial inclusion lens. Second, this study explores women’s economic empowerment and its relationship with economic growth. We address the first issue in two ways. First, at the micro-level by focusing on a data set of 6,000 individuals from the country of Pakistan. The country represents not only a Muslim majority country but also ranks amongst the lowest in women empowerment indicators. Second, we look at the status of financial inclusion of women on a global level by focusing on data of 140 countries and segregate the data from the World Bank and United Nations on women for 42 OIC member countries and 108 developing countries in order to compare. For the second issue we look at the relationship between economic growth and women’s economic empowerment with the data for OIC countries and developing countries from the same sources with additional indicators on Political Risk from ICRG.

The issue of whether banks should diversify or focus their portfolios is theoretically and empirically open to debate. Traditional wisdom in banking argues that diversification can reduce risk and improve retums. The theory of corporate finance, however, contends that diversification increases earnings volatility, write-downs and write-offs, agency problems and inefficiency. While the former suggests that banks should be as diversified as possible, the latter recommends that banks should focus their activities. In an attempt to test these arguments, numerous empirical studies have been conducted - primarily on conventional banks in single-banking systems from developed economies and large emerging market countries. However, there is no consensus thus far as there is evidence supporting both arguments. In other words, no single strategy can be uniformly applied across banks from different countries ...

Economists and scholars have identified that risk shifting is the root cause of global financial crisis. Unfortunately, the danger of this debt-financing feature has been neglected. One piece of evidence is that global debt continues to grow at record level post crisis. Recognizing the relationship between risk shifting and the global financial crisis, this study encourages the need to curb this feature by defining types of securities that may induce firms to engage in risk shifting ...

This dissertation begins the discussion by referring to Verse 278 of Surat al-Baqarah to distinguish it from the ribawi system. Allah swt said: "Allah has permitted al-bay' and prohibited al-riba." The findings suggest that al-bay' in this verse refers to a system. Al-bay' as a mutual exchange in which one bundle of property rights is exchanged for another allows both parties to share production and transportation. Al-bay' or exchange has surrounding rules that construct the system. The outcome of this system can claim that it is through its rules which govern just exchange, distribution ...

Throughout the world, the income gap between the rich and the poor has continued to widen. It has been reported that income inequality is spiraling out of control and this is a dangerous trend that pose significant threat to the global sustainability. Several factors have contributed to this widening income gap, among which is financialization of the economy (much faster growth of the financial sector than in the real sector of the economy through rapid growth of debt and large increases in financial sector profits). The aim of the study is to examine the prevalence of income inequality in Organization for Islamic Countries, (OIC) countries and examine how it differs from Organization for Economic Corporations and Development (OECD) countries. In this study, Generalize Method of Moments (GMM) was used in the data analysis. The study employs two sets of financialization data. The first financialization indicators are: Bank profit (BPROF), market capitalization of listed firms (MCAP), stock value traded (STD) and financialization aggregate (FIN_AGG). While the second indicators are: Rate of growth of finance relative to real GDP (RFING), rate of growth of debt relative to Gross domestic product (GDP) (RDEBT). Private sector credit (PCR) and financialization aggregate (FIN_AGG). For a robust test, the study employs securities under banks asset (SEC). Using overall sample (data from both countries OIC and OECD), the result of the study confirms financialization is one of the major causes of income inequality in the studied countries. Also, the findings revealed that income inequality is higher in OIC than in OECD countries. Using the first financialization dataset, the study reveals a more detrimental effect of financialization on inequality in the overall sample than in OIC countries.

Wealth inequality has been a core field of research in economics in the post-Global Financial Crisis era since it is an important driver of economic/financial crises and inhibits long-term growth. Compelling evidence indicates that wealth inequality has been increasing over and above income inequality but traditional theories of inequality lack in explaining the causes of such an increase in wealth inequality. This study shows that interest-based debt contracts may be the underlying cause of wealth inequality. The study discusses that asset-based redistribution, which targets the re-distribution of wealth through re-designation of financial contracts, has pronounced advantages over and above income-based re-distribution policies. The study also underlines that risksharing mechanisms are the building blocks of asset -based re-distribution policies. Stock-flow consistent modeling approach (SFCA) allows measuring comparative benefits of implementing risk-sharing asset-based redistribution policies compared to the base scenario of debt-based financialized economy. In this regard, a large SFCA macroeconomic model is constructed in order to measure comparative advantages of asset-based redistribution tools above that income-based redistribution tools. The results accentuate that an interest rate and debt-based economy goes to absolute inequality without policy interruption. The subsequent simulation gauge distributional effects of different set of fiscal policies. As per the simulation results, asset-based risk-sharing policies are much effective compared to income-based redistribution policies in taming the wealth inequality. Among others, GDP-linked sukuk and zakah should be taken seriously as important asset-based redistribution policy alternatives.

The breakdown of trust and cooperation as well as the failure of institutions to govern effectively can be attributed as the critical causes of the global financial meltdown. This research will extend the behavioural investigation into testing the level of adherence towards these rules of behaviour in the members of society - specifically separated into two groups, Muslims and non-Muslims. This research will analyze the comparative behaviours of Muslims and non-Muslims using selected games (from the body of published work on behavioural and experimental games). The experimental games will be carried out on test subjects in Singapore as well as in Malaysia from diverse backgrounds ...

There has been considerable research providing evidence of a negative link between natural resource abundance and economic growth leading to the coining of the term 'resource curse' (Yuxiang & Chen, 2009; Anshasy & Katsaiti, 2011). The member states of the Islamic Cooperation Countries (OIC) comprise 57 countries, including those that are resource rich. Given that oil exports revenue has been the main resource contributor, it is expected that continuous increase in fuel prices over the past decade would have positioned the OIC countries at the forefront of economic performance and growth. This research undertakes a review on ten of the Islamic Cooperation Countries (OIC) (‘the OIC Countries’) and assesses whether sustainable growth in economic performance is demonstrated from the discovery of their tradable resources. On this premise, the study evaluates whether the resource curse symptom exists and determines whether natural resource abundance in the OIC countries is a curse or a blessing. Using the Fixed Effect method, the analysis firstly explores whether there is negative relation between oil resources or rent and real GDP to prove the presence of a resource curse. The research also evaluates potential mechanism that account for the resource curse such as quality of institutions and financial development. The study ultimately attempts to provide policy recommendations on how the OIC countries could benefit more from their resource wealth by adopting welfare enhancing reforms of their policies and institutions according to the framework envisioned by the Qur’an.

There is a misfit in applying multilayered and opaque tijarah contracts for investment purposes. Such misfit has contributed to the divergence between Shariah and Common Law and caused tremendous problems and systemic legal risks to Islamic finance. This dissertation introduces the Shariah Investment Agreement which is based on bay' and meant for investment purposes. It has been carefully drafted to ensure that it is Shariah compliant and can be applied in Common Law jurisdictions as well. It is intended to pave a clear route to harmonious convergence between Shariah and Common Law ...

Since the 2007/2008 financial crisis, research has revealed that all financial crises, such as banking or exchange rate crisis, have been, in essence, debt crises (see for example Reinhart & Rogoff, 2009, 2011). Further, econometric investigations have demonstrated that the chain of causation starts from fractional reserve-based credit expansion to debt increase to leverage expansion leading to crisis (see for example Turner, Haldane, Woolley, & et al., 2010). Moreover, post-crisis diagnostics have led to conclusion that conventional monetary policy has been unable to induce growth resumption ...

The main objective of this dissertation is to critically examine the factors that affect liquidity risk management of Islamic banks and then to develop an alternative regulatory framework appropriate for liquidity management of these banks. While there are several studies on the performance, growth, and efficiency of Islamic banks, empirical studies from the regulatory and supervisory perspectives are very limited. Primarily, this dissertation seeks to fill this gap by examining liquidity risk management of ...

Islamic finance is often criticized for its non-practicality in today's modern economics. The principles of promoting exchange and prohibition of interest-rate based transactions are understood as endorsing risk sharing economic system is said to be incompatible in an open and modern market like today. This view was contrary to the spirit of the 2012 Kuala Lumpur Declaration, where Islamic-scholars, jurisprudents, and economists all vouched to force the enactment of risk sharing principle into our economic system ...

The thesis addresses the failure of a model of economic development in Senegal and many other developing countries. Despite decades of economic adjustment programs designed by international financial institutions and supported by donors, Senegal could not achieve sustained prosperity or show strong internal and external balances. The thesis proposes to break the vicious circle of weak economic growth, financial imbalances, high level of debt and poverty. Accordingly, it adopts an Islamic paradigm that offers far better prospects for macroeconomic growth and social justice ...

Risk shifting is, axiomatically, absent in an ideal Islamic banking system, where equity holders are expected to share assets' upside and downside potential with investment account holders (depositors). The Islamic banking model, thus, provides unique paradigm with risk sharing at its core. However, the present formation of Islamic banking has grown out of conventional banking and uses many of its techniques and instruments. Whereas significant research has delineated the theoretical foundations of Islamic banking and its axiomatic characteristics, empirical assessment of the implications of present form Islamic banking is relatively limited and often focused on issues of efficiency, profitability and stability. The main objective of this dissertation is to make the initial attempt to empirically investigate the risk shifting behaviour in Islamic banks in dual banking systems of OIC member states1, using Merton (1977) and Duan et al. (1992) models. Also, unlike existing literature, this study controls for dynamic bias by applying the two-step dynamic difference GMM to an unbalanced panel of 272 conventional banks and 75 Islamic banks from 2002 to 2013 ...

One of the objectives of the implementation of the Islamic Financial Services Act 2013 (IFSA) is to promote greater risk-sharing in the Islamic financial industry. Accordingly, IFSA has distinguished the two major sources of funding for an Islamic banking institution, i.e. deposits and investment accounts. However, more than five years into the implementation, the Act is deemed to have failed in terms of upholding its risk-sharing values, where change could only be observed in the statutory position of investment account. This dissertation aims to motivate Islamic banks to move away from continuing risk-transfer practices, by proposing a risk-sharing investment account model (including its operationalisation) for the consideration of the Islamic banking industry in Malaysia ...

Over the past three decades, the Malaysian economy has been experiencing economic growth, but at the same time inundated by a deterioration of overall fiscal balance and consequently a rise in national debt. As a country that has faced persistent fiscal deficits for the last 16 years, Malaysia now needs more fiscal space and a plausible fiscal sustainability plan that would place its economy on a trajectory to a higher growth path. Its budget deficit in 2013 stood at 4% of GDP while federal government debt stands at 53% of GDP ...

The role of regulation extends beyond ensuring stability and confidence in the financial system, as it is also a behavioral shaper of market players. The laws, standards and guidelines issued are instrumental in creating an incentive structure for market players to behave in certain ways. If well designed, these tools will induce appropriate behavior that is consistent with the social objective of systemic stability and equitable economic prosperity ...

Crowdfunding as a part of sharing economy is a fast developing method of projects finance mobilization. From Islamic finance point of view, it is important to address the Islamic crowdfunding system to improve the new Fintech trends in Islamic communities. Moreover, risk sharing is the essence of Islamic finance and equity crowdfunding potentially is a proper musharakah risk sharing scheme to be compliance with Shariah of Islam. However, the lack of trust and the problem of information asymmetry are the main challenges of any type of risk sharing deal as well as crowdfunding. The main problem that should be answered to implement a successful Islamic crowdfunding platform is information asymmetry. Reputation mechanism is one of the newest ways to solve asymmetric information in web based social networks. The primary objective of reputation mechanisms is to enable efficient transactions in communities where cooperation is compromised by post-contractual opportunism or information asymmetries. A reputational mechanism has been designed in this research specifically for crowdfunding system to eliminate moral hazard and reduce asymmetric information. The role of reputation is important as a mechanism for establishing trust to address the risk of fraud in online transactions. We defined the concept of “Fame”, in order to implement the reputation mechanism in our designed crowdfunding system. “Fame” refers to credibility of every individual who is a member of the crowdfunding system.