4. Theses

This project paper aims to explore the utilisation of ISF instruments to fund orphans for tertiary education in Malaysia in achieving reduced inequality. Orphans in Malaysia often face significant obstacles in accessing higher education due to their financial circumstances, which perpetuates the cycle of poverty and inequality. The three main purposes of this study are (i) to study the challenges faced by orphans in Malaysia to obtain tertiary education to achieve SDG No. 10 (Reduced Inequalities); (ii) to analyse the role of Islamic finance in other countries in eliminating financial challenges faced to provide tertiary education to orphans; and (iii) to explore the potential of ISF in providing financing opportunities for orphans' tertiary education in Malaysia. ISF provides a framework for using socially responsible financial instruments to address social issues and promote equity. The qualitative research methodology has been identified as the main methodology throughout this research. The findings suggest that ISF can be an effective means of funding tertiary education for orphans in Malaysia as the financial burden on orphans can be alleviated, while also promoting social responsibility among the broader community. This project paper highlights the potential of ISF as a tool for promoting equity in education and addressing social issues in Malaysia. The findings can provide guidance to the policymakers, educators, and ISF institutions on the effective implementation of ISF to fund tertiary education for orphans, thus promoting inclusive growth and development.

Since the introduction of LIWF by the LFSA in 2015, it has garnered tremendous interest from various interest from various parties for its flexibility, sustainability, and governance features. Relevant guide allows Malaysian founder or assets situated in Malaysia to be endowed into the LIWF, subject to obtaining necessary approval from the SIRC. Though the governing charter for such establishment is the Waqfiyyah itself, it has to take into consideration various ongoing issues and discussion on the forum of convenience to hear, try, and decide on dispute related to the Waqf, special position of the SIRC as the sole Mutawalli in the states in Malaysia ...

This research will look at the reasons for the civil courts being the preferred mode of dispute resolution for Islamic finance disputes in Malaysia and how arbitration, based on the shari'ah can play an active role to resolve disputes in Islamic finance cases. Various features of arbitration in general and Islamic arbitration in particular will be looked into, followed by a study of the arbitration rules under two arbitration centres to find the common themes of these centres and the differences in their approach, if any ...

The option pricing model introduced by Black-Scholes in 1974 gained wide acceptance for its simplicity but was inefficient in pricing options as it relied on implied volatility. Despite the evolution of various versions of option pricing models since their seminal work, little progress had been documented on the use of implied volatility, leaving Black-Scholes to be a mathematical identity to calculate the instantaneous implied volatility as it fails to be an efficient pricing equation. Although interpreted as market expectation of future volatility of stocks, implied volatility is literally a black box that captures market information that is not specifically known yet also internally inconsistent (e.g., having a different implied volatility surface for put and call options). The four main objectives of this thesis are: first, to empirically studying the performance of the Oscillator model developed by Baaquie (2019) and examining its efficiency in pricing options as compared to Black-Scholes model. The Oscillator model has only two sets of parameters in addition to the classical form of Black-Scholes; one to model for the underlying stochastic evolution of the stock price, and the second are of market time. Market time is a behavioural parameter introduced by Baaquie and Bouchaud (2004) which scales the time to maturity to capture the market sentiment of the underlying instrument. This thesis also introduced an alternative version of Black-Scholes by adjusting it for market time. Second, the thesis tested the put-call parity violation. Third, the thesis tested three main option hedging Greeks; Delta, Gamma, and Theta, which are partial differentiations of the option pricing equation. Fourth, the thesis discussed the calibrated output and parameters' behaviour to provide insights into the implied volatility information content and gain new understanding of the parametric gap of Black-Scholes particularly in the light of the Oscillator and Black-Scholes models adjusted for market time.

The agony of poverty in the world is rather a perplexing one, despite the growth of global economies and advances in science and technology yet over 700 million people live in extreme poverty globally. While donor organisations, researchers and governments have recommended and implemented orthodox policies to solve this conundrum. It is only fair to explore the potentials of Islamic social financing, which can complement the global efforts in eradicating poverty on the face of mother earth. This study employed an Error Correction Model (ECM) and OLS technique to empirically analyse the nexus between agricultural investment and productivity. Using a time-series data of 27 years annually, we estimate six different regression models in determining the causal effects of the following explanatory variables; Fertiliser, Pesticide, Land availability for agricultural activities and government aid to farmers on the six dependent variables such as; Vegetables, Paddy Rice, Groundnut, Maize, Millet and Sorghum. The results indicate a positive relationship between investment in agricultural input and productivity, however, fertiliser has a negative relation with Paddy rice, Groundnuts, Maize, Millet and Sorghum, this could be explained as a result of the inadequate supply of fertilisers by the government to farmers. Thus, as a proxy of poverty in this study, productivity is empirically established to be affected by the quality and amount of investment in agricultural inputs. Through Islamic social financing, the study proposes an Integrative Waqf Model to fund agricultural investment for women farmers in The Gambia. This model describes a sustainable funding structure for women farmers in The Gambia, as they account for about 78% of the active population in the agricultural sector. Hence, the paper recommends the establishment of a Waqf Institution in the Gambia to complement the efforts of the state in the battle against poverty alleviation amid the post-COVID-19 recovery strategic planning.

Islamic financial instruments differ from conventional instruments because of their risk sharing and justice factor. Talking specifically about fund raising instruments, Sukuks are the most vital and demanded instrument. Despite of its risk sharing and equity feature, Sukuk defaults yet happened which eventually raised several questions on the viability of these instruments and their treatment in a distressed situation that provides us with another avenue of research on these instruments. In this paper, we analysed five major Sukuk defaults that happened recently in the aftermath of the 2007 global financial crisis ...

The derivatives markets in the Asian region have shown significant growth and development since their inception. Similarly, derivatives market in Malaysia and Bursa Malaysia Derivatives have experienced remarkable changes and developments. This study focuses mainly on the stock index futures contract (FKLI) and its relationship with the underlying spot index (FBM KLCI). The FKLI is chosen instead of other permissible futures due to availability of the data and its relevance in the context of fund managers' asset allocation strategy. The FKLI is chosen instead of other permissible futures due to availability of the data and its relevance in the context of fund managers’ asset allocation strategy. Mainly based on intraday data, this study makes an analysis of issues on pricing efficiency, the expiration-day effects on volume and volatility, the lead lag relationship between stock index and stock index futures, in Malaysian derivatives market as a newly advanced emerging market. Based on the underlying assumption that if a mispricing were to arise, unlimited arbitrage trading would trigger the market price back to its theoretical fair value and hedging effectiveness may go down as a result of pricing inefficiency, the first essay investigates the study of pricing efficiency specifically on the extent of mispricing by contract, evolution of mispricing, and mispricing episodes. Daily data based on the cost-of-carry model and 15-minute intraday data based on the basis model are used to address the issue of pricing efficiency. This essay fills the gap by introducing 15-minute intraday data, in addition to a larger time span of daily data. The results show variations in mispricing over time under study and provide valuable information for policymakers and fund managers as the Malaysia markets become more efficient and seem to provide a better avenue to hedge their positions and protect their investment values.

This study aims to analyse the most preferred financing type among Malaysian Islamic banking consumers and the preferred Islamic banking contracts by Islamic bankers during COVID-19 pandemic. This paper also examines whether Malaysian Islamic banks are better off with debt-based portfolios during COVID-19. The methodology for this study is qualitative approach, using survey and interview as primary data and literature study as secondary data. The findings of this paper show that Malaysian Islamic banking consumers preferred variable-rate financing/instruments and Islamic bankers preferred debt-based contracts such as Tawarruq and Ijarah. Thus, debt-based financing with variable-rate mechanism is the most preferrable and practicable during COVID-19. The implication for regulators and industry players are to strengthen the policy with regards to debt-based financing and review all the Islamic finance contracts related policy document to include the clauses related to moratorium and economic crises associated with pandemic.

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 internal control system is designed as comprising technical practices to prevent or detect accounting errors or loss of assets. However, the scandals and collapse of the financial institutions in recent years has asserted the importance of the internal control system. This study aims to develop an internal control framework that can be applied to the Islamic financial transactions. COSO framework is a regular internal control designed for the financial organisations commonly to realise their objectives about the effectiveness and efficiency, reliable financial reporting and compliance with the laws and regulation ...

With the development of Islamic banking and finance in most Muslim countries, money market became necessary for financial institution to solve the liquidity problems. However, there is much criticism of Islamic banks and financial products for their pegging to the interest rate. Islamic money market is based on the same PLS principle with other Islamic financial products, if such products are pegged to their rate of interest, then they are not PLS. More correctly, they are based on well-and sometimes not so well-hidden conventional or interest-based contracts ...

Theoretically, a monetary policy intervention of a central bank in form of exchange rate devaluation will make exports of such a country cheaper with a resultant increased competitiveness. However, should developing country such as Nigeria that is mostly import-dependent adopt the same approach? Will a greater focus on the structural and developmental changes be a better option? In a long-run, what is the lead-lag relationship between exchange rate and the Balance of Payment (BOP)? These are issues this project paper sets out to empirically investigate through a multivariate vector error correction framework ...

Despite the global upward trend of the Islamic fintech industry, the size of the Islamic fintech offering is still embryonic in the West African Economic and Monetary Union (WAEMU) region considering the number of Islamic fintech providers. However, the growth potential of Islamic Fintech in the WAEMU member countries is real in light of (i) the high percentage of Muslim population in the region, (ii) the ongoing initiatives of the decision makers, intended to improve and finetune the Islamic banking regulation and financial inclusion, (iii) willingness of the regulator to establish an efficient regulatory framework for fintech to address customer's expectations/needs and (iv) the positive impact of framework for conventional fintech on Islamic one, notably in terms of infrastructure and regulation. As part of its initiatives to promote financial innovations and inclusion, the Central Bank of the West African States (BCEAO) has implemented some initiatives aiming at promoting the harmonious development of fintech industry in WAEMU. However, considering the achievements observed so far from the relevant policy makers, it is appropriate to examine whether the initiatives involve Shariah compliant fintech or not, before addressing potential Shariah governance issues of fintech. Despite the encouraging improvement of the financial inclusion, most of the population does not have access to the basic financial services, such as payment, transfer money, etc. As of today, the use of digital financial services has become the most appropriate way to serve the populations excluded from the traditional financials services, considered as challenging and unaffordable by the poor population, either because of onerous conditions (high lending rate), limited offers or religious believes (prohibition to be funded as per the conventional financing products).

The paper examines the level of awareness of the people in the Kyrgyz Republic about Islamic Banking and Finance and whether they are willing to adopt an Islamic financial system in the country. It also attempts to explore population's opinion of the mechanism of the banking business in general. Questionnaire forms were developed and distributed among 300 nationals. It has been found that while a small proportion of the practicing Muslims have some notion of Islamic Banking and Finance, non-practicing Muslims and non-Muslims almost completely lack in this field of knowledge ...

This paper examines the existence of behavioural finance aspects among Malaysian fund managers. We identify behavioural biases of loss aversion, disposition effect and illusion of control. We also study the endowment effect and mental accounting which rooted in the Prospect Theory. We developed two-parts experiments i.e. investment-related decisions and general behavioural questions. The study revealed that Malaysian fund managers are prone to behavioural biases in investment decisions and general aspects as well. We also analysed the data in comparison with demographical information such as age, gender, years of experience and investing style. We find that the younger fund managers tend to experience behavioural biases more than the elders. Female fund managers prone to loss aversion and disposition effect than male fund managers, while male fund managers experience a moderately higher percentage in illusion of control than the female counterpart.

China is currently building a network with more than 80 countries across Asia, Africa, Europe, and Oceania initiating "One Belt and One Road". The main focus of the Belt and Road Initiative (BRI) is in infrastructure transportation, and energy. Countries with majority of Muslim population are involved in BRI and in some ofthese countries Islamic finance is being adopted. The public-private partnership (PPP) model is an important way of infrastructure financing which has potential in reducing government financial pressure by improving operation efficiency, service quality and societal benefits. World Bank report (2018) has discussed flexibility of Islamic financing and the cracking potential of PPP to incorporate with Islamic finance. Existing financial institutions , such as the World Bank and Asian Development Bank have accumulated rich experience in the field of PPP mode of infrastructure financing. However, the newly established Asian Infrastructure Investment Bank (AIlB) dedicated to the development ofinfrastructure for the supporting of BRI has still not established a model in line with Islamic finance principles. China and Islamic countries can seek common cooperation based on PPP models consistent with Islamic financial system. This paper aims to contribute to the literature for a better understanding of the great potential of China link with Islamic countries to help to boost BRI ...

Beneficial ownership is applied in the modern Islamic financial contracts such as financing and sukuk structure, especially in countries where common law is dominant. It has been recognized by some scholars and rejected by others. In this regard, the concept of beneficial ownership in Shari'ah should be analysed to develop a clear interpretation of the concept of beneficial ownership from the Shari'ah perspective. The purpose of this study is to examine the meaning of beneficial ownership in Common Law system and its recognition from the Shari’ah point of view. It begins with identifying the meaning of milkiyyah (ownership) and its characteristics in the Islamic law and followed by the analysis of beneficial ownership in the current practice of Islamic finance as to whether it fulfils the Shari’ah requirements. The approach that is applied in this study is qualitative research in nature, with regards to documentation and secondary sources by reviewing and analysing the application of beneficial ownership in Islamic banking; in addition, some interview sessions were conducted with practitioners involved in the financial industry. The findings of the research are that the transfer of ownership in Shari’ah immediately occurs after the execution of ijāb and qabūl and interestingly, this idea is also shared by the Common law, which actually borrowed it from the Islamic law.

The current global market is not seeing enough investment products catered to impact investing strategy, especially in the public equity context; this gap needs to be addressed as the construct of their massive size and relationships across the supply chain would implicitly cause social and environmental impacts at every level. Thus, investors seeking to impart positive changes beyond mere financial returns must also assess the positive and negative impacts oftheir public equities portfolio as the bulk of their capital's impact lies there. In assessing non-financial impacts, big data could be leveraged to materialise these impacts. The study explores the big data ecosystem and suggests ways of incorporating them towards impact investing strategy applied to the asset management context. This includes establishing the current trend of utilising big data in academic and industry context, and identifying best practices to act as a reference.

The topic of poverty and inequality is still a central discussion among the economist. The current efforts in fighting poverty and inequality, which are considered unsuccessful, has motivated the economist and policy makers to find new ideas and strategies in combatting poverty and inequality. At the same time, the area of economic freedom is increasingly being discussed and linked with other major economic areas. This paper aims to examine the relationship between economic freedom and poverty as well as inequality ...

The alignment of the United Nations' Sustainable Development Goals (SDGs), introduced in 2015, with the objectives of Maqasid Shariah, particularly in the realms of poverty alleviation, hunger eradication, and enhancing well-being, forms a critical intersection in the context of Islamic social finance (ISF). This congruence lays the groundwork for leveraging Islamic financial practices, such as zakat, to support achieving SDG targets in Indonesia. Effective collaboration between key Indonesian entities, such as Bappenas (the Ministry of National Development Planning) and BAZNAS (the National Zakat Agency), is imperative for this integration. Clear and specific regulations are essential to guide this process, ensuring that zakat practices are aligned with and actively contribute to the SDG targets. Leadership from the highest governmental levels, especially from the President, is pivotal in this context. Such leadership ensures that the efforts to achieve the SDGs are in harmony with Indonesia's unique religious values and socio-economic priorities. The recent legal developments, like Presidential Regulation 112 of 2022, demonstrate a commitment to supporting these endeavors. These legal frameworks provide a structural basis for integrating ISF with SDGs, offering guidelines and formal recognition of this collaborative approach. The study delves into the relationship between ISF and the SDGs, exploring how ISF can support achieving these global goals. It examines how ISF can facilitate this support, relying on qualitative research methods such as interviewing critical leaders in ISF and SDG implementation. These interviews provide valuable insights into the perceptions and strategies of those at the forefront of these sectors.

In the Islamic finance capital market spectrum, the potential of mudharabah and musyarakah sukuk is hampered with criticism by Shariah scholars. Among the criticisms include the presence of uncertainties surrounding sukuk returns, the risk of losses that the rabbul-mal (investors) have to bear, and the need to mitigate agency costs (for mudharabah contracts). This have made it a deterrent for both issuers and investors in seeing the instrument as a viable alternative to debt-based sukuk structures. This study proposes an improvement to musyarakah sukuk. It begins with a qualitative examination of the structure of corporate mudharabah and musyarakah sukuk issued in Malaysia. The examination finds risk-sharing sukuk structures in Malaysia contain features that supresses the risk sharing element between the sukuk investors and issuer. Findings from qualitative analysis is supported by generalized method of moments (GMM) and threshold analysis. Based on the sample of 86 corporate mudharabah and musyarakah sukuk issuances, the introduction of partnership sukuk in the firm's capital structure is found to be insignificant in affecting both firm risk and firm performance. The present partnership sukuk structure is then modified to incorporate variable returns (coupon payments) proportionate to the firm's net profits and variable principal repayment proportionate to the firm's total assets value. This study finds that when sukuk returns are made variable, sukuk investors are able to earn better/ equitable returns compared what they are earning in the current sukuk structure.