nep-isf New Economics Papers
on Islamic Finance
Issue of 2018‒10‒22
four papers chosen by
Halimatun Aris

  1. The Basis for Legitimate Entitlement to Profit in Islamic Law By Güney, Necmeddin
  2. Bank Lending Behavior and Business Cycle in Dual Banking System: Evidence from Indonesia By Zulkhibri, Muhamed; Prima Sakti, Muhammad Rizky
  3. The Role of Ownership and Governance Mechanism in Sukuk Financing by Malaysian Firms: An Application of A Double Selection Model By Ashraf, Dawood; Rizwan, Muhammad Suhail; Azmat, Saad
  4. Does Religiosity Affect Multidimensional Poverty? Evidence from World Values Survey (2010-14) By Syed Ali, Salman; Hasan, Hamid

  1. By: Güney, Necmeddin (Necmettin Erbakan University Faculty of Divinity, Konya, Turkey)
    Abstract: This paper is intended to investigate the basis for legitimate profit in Islamic law and compare it to the theories held by modern conventional economics regarding the cause of profit. This study shall use the theoretical framework of the Hanafi concept of damān (guarantee) and apply it to the cases of fixed revenue and profit. Finally, this paper aims at exposing how the Hanafi formulation of damān, along with capital and labor, can be useful in explaining and determining the basis for a legitimate profit in Islamic law.
    Keywords: Profit; Legitimate; Islamic law; Damān; Partnership
    JEL: A12 D31 D33 P40
    Date: 2018–07–23
  2. By: Zulkhibri, Muhamed (The Islamic Research and Teaching Institute (IRTI)); Prima Sakti, Muhammad Rizky (Islamic Economic Forum for Indonesian Development (ISEFID), Indonesia)
    Abstract: This study examines bank-lending channel over the business cycle for Indonesian dual banking system by ascertaining to what extent Islamic banks have a role in the credit smoothing. In this context, we utilize Indonesian dual banking system unbalanced panel data for the period 2001-2015. By employing two-step dynamic GMM estimators, the study shows that the bank lending behaviour are procyclical. However, when we categorize the lending behaviour into conventional and Islamic banks, the cyclicality of bank lending affects only conventional banks. As for the Islamic banks, the business cycle does not affect their financing decision. Specifically, large Islamic banks are more counter-cyclical in their financing behavior than small and medium size Islamic banks. Robustness tests using different measures of loans and model specifications confirm the results that Islamic bank is more stable and less procyclical in the case of Indonesian banking system.
    Keywords: Procyclicality; Bank Lending; Dual Banking System; GMM; Indonesia
    JEL: E59 E69 G29
    Date: 2018–05–08
  3. By: Ashraf, Dawood (The Islamic Research and Teaching Institute (IRTI)); Rizwan, Muhammad Suhail (NUST Business School, National University of Sciences and Technology, Islamabad, Pakistan); Azmat, Saad (Lahore University of Management Sciences Lahore, Pakistan)
    Abstract: After controlling for the double selection bias in a sequential three-equation model of the decisions to issuance, to choose a Sukuk structure, and the volume of Sukuk engagements, we find robust evidence suggesting that ownership structure and governance mechanisms play a significant role in controlling agency costs through issuance of Sukuk. In line with monitoring hypothesis, we find that higher government ownership positively influences the decisions to participate, issue a debt-like Sukuk and volume thereof. Similarly, in line with complementarity hypothesis, the empirical evidence suggests that firms with higher board of directors’ independence are more likely to participate in issuing Sukuk with higher volumes. We also find that ethnicity, in the form of a higher proportion of Malay/Muslim members on the board of directors, does not influence the initial decision on whether or not to issue Sukuk. However, once the decision to issue Sukuk is made, firms with higher institutional ownership or a higher proportion of Malay/Muslim board members are more likely to issue equity-like Sukuk
    Keywords: ukuk Financing; Ownership Structure; Governance Mechanisms; Double Selection Models
    JEL: F40 G21 G29
    Date: 2018–05–14
  4. By: Syed Ali, Salman (The Islamic Research and Teaching Institute (IRTI)); Hasan, Hamid (IIIE, International Islamic University, Islamabad)
    Abstract: Does religiosity affect multidimensional poverty? There is no simple answer to this question because there is no simple relationship between poverty and religiosity. Poverty is affected by religion in so many different ways, positively and negatively, through different routes and channels, that no plain general argument can be built. Yet, it is a fact that poverty, and its feel, is indeed affected by religion and religiosity of the people. In its influence and impact, the content of the religion as well as the practice of its followers greatly matter. It would be interesting to analyse how the content of different religions would differently affect poverty. However, before reaching that stage, even some more basic questions need to be answered that have not been studied and that could lead to improved understanding and open new avenues for further research. For example, we do not know whether the poor and non-poor are equally religious. We understand that poverty is multidimensional, that it is not only in income and wealth but also in other dimensions important for human life. In this case, what dimensions should matter? How do the patterns of deprivation across these various dimensions differ between the religious and non-religious multidimensional poor, and what impact does religiosity make on multidimensional poverty? The present paper attempts to provide a first cut answer to these questions. It also develops a new methodology by applying deprivation counting technique to analyse the issues at hand.
    Keywords: Religion; Maqasid al-Shariah; Poverty; Multidimensional Poverty
    JEL: N30 Z12
    Date: 2018–09–27

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