nep-isf New Economics Papers
on Islamic Finance
Issue of 2018‒02‒12
three papers chosen by
Halimatun Aris

  1. Risk-Sharing Financing of Islamic Banks: Better Shielded Against Interest Rate Risk? By Seho, Mirzet; Alaaabed, Alaa; Masih, Mansur
  2. Stealing Shahbag: A Re-legitimization of Islamism in the Aftermath of a Secularist Social Movement By Anupam D. Roy
  3. A Look to The Ottoman Cash Waqfs As Altruistic Finance Model By Bulut, Mehmet; Korkut, Cem

  1. By: Seho, Mirzet; Alaaabed, Alaa; Masih, Mansur
    Abstract: In theory, risk sharing based Financing (RSF) is considered a corner stone of Islamic finance. It is argued to render Islamic banks more resilient to shocks. In practice, however thus feature of Islamic financial products is almost negligible. Instead, debt-based instrument, with conventional like features, have overwhelmed the nascent industry. In addition, the framework of present-day economic, regulatory and financial reality inevitable exposes Islamic banks in dual banking systems to problems of conventional banks. This includes, but is not limited to, interest risk rate. Empirical evidence has, thus far, confirmed such exposures, despite Islamic bank’s interest-free operations. This study applies system GMM in modeling the determinants of RSF, and finds that RSF is insensitive to changes in interest rates. Hence, our result provide support to the “stability” view of risk-sharing-based financing. This suggest RSF as the way forward for risk management at Islamic banks, in the absence of widely acceptable Shariah compliant hedging instruments. Further support to the stability view is given by evidence of counter-cyclicality. Unlike debt-based lending that inflates artificial asset bubbles through credit expansion during the upswing of business cycles, RSF is negatively related to GDP growth. Our result also imply a significantly strong relationship between risk- sharing deposits and RSF. However, the pass- through of these deposits to RSF is economically low. About 40 percent of risk-sharing deposits are channeled to risk-sharing financing. This raises questions on the validity of the industry’s claim that depositors accustomed to conventional banking shun away from risk sharing and signals potential for better balance sheet management at Islamic banks. Overall, our findings suggest that, on the one hand, Islamic banks can gain ‘independence’ from conventional banks and interest rates through risk- sharing products, the potential for which is enormous. On the other hand, RSF could enable policy makers to improve systemic stability and restrain excessive credit expansion through its counter cyclical features.
    Keywords: Islamic banks, risk-sharing, financing, interest rate, dynamic system GMM.
    JEL: G21
    Date: 2016–12–31
  2. By: Anupam D. Roy (Howard University)
    Abstract: The Shahbag movement emerged in early February of 2013 as a sit-in protest in the Shahbag square of Dhaka city on the demands of capital punishment of war criminals of the 1971 liberation war of Bangladesh. This paper evaluates the movement as case study for the framing tasks theory of social movements and explores how faulty framing of the movement grievances led to counterproductive consequences for the movement constituents. The theoretical analysis is supported by the empirical findings of an original public opinion survey of up to 300 movement participants. Key movement leaders and movement critics were also interviewed through open-ended questions to further inform the survey data. The paper provides a genealogy of the secularist civil society framing tasks and shows how Shahbag, after originating from that frame, eventually shifted away from it under the a politically coopted leadership. As a consequence, the Islamist civil society mobilized a countermovement under the banner of Hefazat-e-Islam, which lead to the re-legitimation of Islamism as a political ideology and reestablished Islamists as an influential interest group.
    Keywords: Social movement theory, Shahbag Movement, Islamism, Bangladesh
    Date: 2018–02
  3. By: Bulut, Mehmet; Korkut, Cem
    Abstract: Although the waqfs have existed with the history of humanity and are useful in all societies, they had different role and place in Islamic societies. The waqfs have made institutionalized cooperation and solidarity among people. Especially in Islamic societies, great importance has been attached to waqfs. The waqfs that helped institutionalize the concept of infaq met many needs of the community. One of the Islamic states where the foundations are very active was the Ottoman Empire. The size of the waqf services in the Ottoman Empire expanded so much that, besides the human services, waqfs for injured birds and sick animals were established. The fact that the waqfs are so widespread in the state has made it possible to refer to the Ottoman Empire as a waqf civilization. One of the waqf types operating in the Ottoman Empire was the cash waqfs (CWs) which were made up of cash in the capital. The CWs operated the cash that made up its capital with various Islamic finance methods. Revenues from the operating money were used in the direction of waqf purpose. The CWs provided the vital necessities of the society such as education and religion in the period they were active in the Ottoman Empire. Another function of these waqfs was to operate as a micro-credit mechanism. Through these waqfs, the surplus and the accumulated savings in the hands of the asset owners were made available to merchants, farmers, craftsmen, and artisans. Hence, these waqfs have served as resource transfer channels as well as functioning as a charity in the society. The ultimate goal of CWs, which is the pioneer of modern interest-free financial institutions today, is different from these institutions. The CWs did not transfer the profits they got to the waqf founder or owner. The income obtained has been spent to fulfill the charitable services in the direction of the waqf purposes. Therefore, these institutions created Altruistic Finance Model operating within the borders of Islamic prohibitions and orders. In our study, the financial mentality of the Ottoman society in the context of the CWs and how this mentality shaped the CWs will be discussed.
    Keywords: Cash Waqfs, Ottoman Empire, Islamic Finance, Philanthropy, Altruistic Finance Model
    JEL: G21 N20 P45 Z12
    Date: 2017–05

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