4. Theses

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 ...

Consumer protection has never been more needed now as financial products and services are widely available. Due to information asymmetries, consumers often have lower bargaining power when using financial products and services. The concept of consumer protection is not directly found in classical Islamic writings. However, it is part and parcel of the Maqasid al-Shariah and evidenced in the Qur’an and Prophetic traditions. This study focuses on the issue of consumer protection in Islamic home financing from the Shariah perspective and related specifically to abandoned housing projects in Malaysia. It is an endeavour to find out the extent of protection consumers get when their homes financed from Islamic financial institutions end up abandoned. It is a qualitative study based on primary Shariah sources, analyses of legal documentation/structural operations of BBA, ijarah muntahiyyyah bi al-tamlik, musharakah mutanaqisah and tawarruq) and information gathered from interviews. Content analysis was applied to analyze all relevant information leading to the findings. The review of legal documentation found that there are no clauses, terms and conditions that protect consumers as most of the clauses appear to be in favour of the bank in the event the project is abandoned. Operationally, regardless of the contract, the study found that they do not reflect the inherent rights of protection especially for homebuyers in case of abandonment. The products are structured that all risks and liabilities are transferred to customers and the use of standard legal documentation has seen to this.

Globally, the awareness about sustainability has increased due to the lingering environment, social and governance-related issues. In this perspective, the role of social media and consumer awareness are important since they influence the corporate sector to care for sustainable development. Banks, being very important to the economy, contribute to sustainability through their internal (through governance, data security, etc.) and external (through environment-friendly loans , financial inclusion, etc.) practices. These practices are collectively called as environment, society, and governance (ESG) sustainability. ESG practices by banks are important since they operate on public funds, have interconnections with the businesses and at times bailed out at the expense of taxpayers. An intriguing question, though, is whether these ESG activities impact bank profitability and risk. Further, as identified in the literature, there are certain moderators such as competition and institutions which may impact the ESG-profitability and ESG-risk relationship. We investigate these relationships for Organization for Islamic Countries (OIC) and Non-OIC countries. Specifically, we employ data of 341 banks from 65 countries, further divided into Non-OIC (54 countries, 295 banks) and OIC countries (11 countries, 46 banks). ESG data has been used for the years 2007-2016 while the dynamic panel model has been estimated using the Generalized Methods of Moments technique ...

The objective of this study is to investigate the factors affecting the rise of Shariah non-compliance risk that can bring Islamic banks to succumb to monetary loss. The study is also intent to propose a measurement of Shariah non-compliance risk via accounting technique. Subsequently, the study has also entails to identify the causal modelling of the Shariah non-compliance risk ...

In the aftermath of the Global Financial Crisis of 2008-2009 , there has been increased scrutiny in the way that credit rating agencies (CRAs) have conducted credit risk analysis. Through the UN-supported Principles for Responsible Investments (PRJ), a growing number of investors and CRAs have collaborated to enhance the systematic and transparent consideration of environmental, social and governance (ESG) factors in the assessment of corporate creditworthiness. While there exists a burgeoning literature that examines the relationship between corporate social performance (CSP) and credit risk, there are several prevailing issues. Firstly, previous studies of CSP have relied on measures which do not account for the differential materiality of ESG issues across different industries. Taking into consideration ESG issues that are material from a value creation perspective would allow for better integration with financial markets. Secondly, the majority of previous studies exploring the CSP-credit risk relationship have not used market-based measures of credit risk ...

This dissertation examined the efficacy of Islamic financing instruments in bridging the energy infrastructure investment gap in Nigeria, a fiscally-burdened, developing country. A growing energy infrastructure investment gap is an imminent concern in Nigeria, like in many developing countries, and has been precipitated by financial and economic challenges. This research sheds light on two critical problems associated with the conventional infrastructure financing instruments in PPP: a. high risk of financial distress due to high debt gearing; and b. a substantial fiscal risk that endangers fiscal sustainability. Using a case study approach, the dissertation presents the case of Nigeria's Mambilla Hydro Electric Power (HEP) Project that has failed to kick off for over forty years since its initial approval due to several financing hurdles. This study examined in the Mambilla HEP project in its pre-set conventional financing framework and developed research hypotheses to design and structure an alternative Islamic financial instrument. Further, the study employs two distinct financial modelling techniques to test each of the hypotheses. First, it uses Monte Carlo simulation with optimisation algorithms to solve an objective function that maximizes the project's financial viability subject to specific economic constraints. Second, the dissertation uses scenario-based sensitivity analysis to assess Nigeria's (as the host country) fiscal sustainability position of the host country before and after implementing the infrastructure project using both the pre-set conventional financing instrument and the proposed Islamic financing solution.

One of important non-financial information to be disclosed by IFIs is the information related to environment, social and governance (ESG) matters. Solid ESG practices result in lower risk and better operational performance of firm. The increasing cases of corporate collapse over non-financial issues during the last decades have highlighted the importance of ESG disclosure. IFIs have been seen left behind in term of providing their stakeholders with enough information to the stakeholders' attached surrounding from environmental aspect. In addition of that , the study examines SC characteristics from SC size, SC meeting and international member on the linkages between governance mechanisms and ESG disclosure. The SC characteristics are utilized as the moderating variables as SC is the additional layer Shariah governance of IFIs. They are suggested to moderate the linkages between BOD characteristic and ESG disclosure, and not other governance mechanism such as AC characteristics and disclosure quality as the SC can indirectly influence the BOD on the ESG disclosure decision. The results of the descriptive statistics reveal the low extent of ESG disclosure by 16 IFls in Malaysia ...

In current time there are many discussions relating to the question of social justice and how exclusion affected people s ability, opportunity, and dignity. Although inclusion is a worthy pursuit by itself, other characteristic of society such as mobility and cohesiveness are also pursued. Thus, we may look at the relationship of these social objectives, and how they relate to each other, thus helping policy makers in making a better choice for implementation of policies. In general, as will be see in this paper, we see a positive correlation between mobility and inclusion, and cohesion and inclusion. However, since terms such as mobility, inclusion and cohesion are coarse, and usually used to define many good things aspire by society, our specific definition of the terms will see different relationship. Thus, absolute mobility and relative mobility have different relationship with different factors of inclusion. Furthermore, the use of education standard may neglect traditional schooling for many OIC countries, reflecting some differences between those countries and developing countries in general. Here, using horizontal trust among citizens as proxy for social cohesion we see across countries positive correlation between cohesion and our measures of inclusion.

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 ...

This study empirically investigates the financial integration threshold effects and risk sharing implication for Islamic countries from 1980 - 2011. The study utilizes threshold effect technique for the non-dynamic panel introduced by Hansen (1999). We focus on the four different types of financial market integration measures, which are (i) full financial market (ii) equities (iii) capital market and (iv) governance. We found that there is single threshold effect for equities and governance and a double threshold effect for full financial market integration and capital market ...

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.

Many studies have affirmed that financial liberalization leads to higher output growth, yet the effect of financial liberalization on prosperity is ambiguous. The most common measurement to study prosperity is the GINI index, which is a single-dimensional index based on GDP. WEF2018 reported that global income inequality has steadily widened with 82 percent of all wealth created by only one percent of the world's richest countries. Therefore, this study uses the Legatum Prosperity Index, which is more comprehensive based on additional factors such as wealth, education, well-being, and health. This study focuses on OIC countries considering their impressive growth in Islamic finance. Our first objective is to identify the impact of financial liberalization on prosperity in OIC countries. The second objective is to further analyze the different impacts between two groups of OIC countries, namely the high-income and the low-income OIC countries. The third objective is to examine the importance of institutional quality as a mediator or facilitator to sustain prosperity in OIC countries. This study adopts the fixed and random effects panel technique to evaluate the determinants of financial liberalization and to identify the relationship between financial liberalization and prosperity. This study also employs the static panel technique regression to study the role of institutions in affecting the relationship, on a dataset from 40 OIC countries for the 2007-2016 period. The results confirm that financial liberalization has a significant impact on prosperity in OIC countries. Income, female labour, government spending and institutional quality are factors that contribute positively to prosperity. In addition, financial liberalization has a higher impact in OIC-LOW countries than OIC-HIGH countries. Significant contributing factors are domestic credits, foreign direct investment net and trade openness, whereas capital account openness shows a neutral effect. Further, this study finds that the impact of financial liberalization on prosperity varies with the level of institutional quality. Optimal governance would be more conducive as stringent rules and regulations could hamper financial liberalization. These findings could also assist policymakers in narrowing the gap between other rich and poor countries towards better income equality and global prosperity.

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 ...

Innovation is a key factor in propelling a country into a sustainable economic advancement. The neoclassical model of growth and thereafter the endogenous growth theories have repeatedly pointed to technological improvements in productivity as the catalyst to changes in the way we produce and consume. The ecosystem to nurture this outcome is not simple. It requires building a strong foundation. This study posits the notion that 5 key pillars of Infrastructure, Industry, Institution, Knowledge, Human Capital and Research & Development (R&D), and finally Finance & Investments are the essential ingredients to building the foundation. We analyse the policy gaps of Muslim countries within these themes against the most innovative countries and test our hypothesis through a regression model for the Muslim countries. From our study, we discern that R&D expenditure was rarely prioritized, and foreign talent was heavily leveraged upon as opposed to skilling the endowed labour force. For budding entrepreneurs, they found themselves limited in acquiring funds with venture capital rarely in presence. Many of the countries in the Muslim world are undergoing their own transformation journey. The proof in the pudding will be determined by their execution, commitment, and transparency. To this end, we have suggested a few recommendations to focus resources to.

From the start of 21st century, there has been rapidly increasing awareness of the environmental impact of people’s way of life and usage of resources. This impact arises from overconsumption, pollution, destruction of natural resources which result in emission of greenhouse gases, and permanent destruction that mankind cause to the planet. As the awareness of the serious and far-reaching consequences of climate change continues to grow, communities are looking for solutions to slow down, halt, and mitigate these effects. The renewable energy projects emerge as winning proposition against the current climate and environmental concerns which are the consequence of unsustainable economic activities. This study aims to exhibit great potential of Islamic finance in providing instruments for renewable energy projects. It explains and compares the financial structures used in both conventional finance and Islamic finance for green energy investments, resulting that Islamic finance has plenteous numbers of instruments for financing these projects. The research finds that Islamic finance, compared to its conventional counterpart offers better structures for renewable energy projects thanks to its asset based nature.

The world is striving towards eradicating poverty via inclusive growth. Financial inclusion is seen as an important tool towards getting the unbanked, poor population into the financial system. Does greater financial inclusion create financial stability? Engaging the less financially capable people into the financial system is not a risk-free undertaking. Relaxation of rules and regulations which trigger sub-prime crisis in 2007-2008 has proven that more exposure to 'unfit' borrowers may lead to financial instability. Our study focuses on OIC countries for the impressive growth of lslamic finance during the past decade where 95% of the assets reside in the majority-Muslims countries yet their financial inclusion still within the lower range. We benchmark all the Research Questions against OECD countries which represent the advanced economies with higher level of financial development. Our first objective of the study is to identify the key determinants of financial inclusion. Following which, this study also analyses the impact of financial inclusion on financial stability. Succeeding the financial crisis in 2007-2008, the literature has been relating the important influence of institutional quality in maintaining financial stability. This brings us to our third objective of the study, which is to examine the role of institutional quality as a mediator for maintaining financial stability in both regions.

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 ...

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 ...