nep-isf New Economics Papers
on Islamic Finance
Issue of 2021‒11‒08
five papers chosen by
Mohamed Mohamed Tolba Said

  1. Corruption and bank risk-taking: The deterring role of Shari'ah supervision By Mushtaq Hussain Khan; Mohammad Bitar; Amine Tarazi; Arshad Hassan; Ahmad Fraz
  2. Islam and the State: Religious Education in the Age of Mass Schooling By Samuel Bazzi; Masyhur Hilmy; Benjamin Marx
  3. Sustainability, Trust and Blockchain Applications: Best Practices and Fintech Prospects By Ahmet Faruk Aysan; Fouad Bergigui
  4. China's Transition to a Digital Currency: Does It Threaten Dollarization? By Ahmet Faruk Aysan; Nawaz Farrukh
  5. Indebted Demand By Atif Mian; Ludwig Straub; Amir Sufi

  1. By: Mushtaq Hussain Khan (Department of Management Sciences, University of Azad Jammu & Kashmir, Muzaffarabad, Pakistan); Mohammad Bitar (University of Nottingham Business School, Nottingham, UK); Amine Tarazi (LAPE - Laboratoire d'Analyse et de Prospective Economique - GIO - Gouvernance des Institutions et des Organisations - UNILIM - Université de Limoges); Arshad Hassan (Faculty of Management & Social Sciences, Capital University of Science & Technology, Islamabad, Pakistan); Ahmad Fraz (Pakistan Institute of Development Economics, Islamabad, Pakistan)
    Abstract: This paper investigates whether the risk-taking of Islamic banks is differently affected by corruption compared to conventional banks. Indeed, the presence of Shari'ah supervisory boards (SSBs), as a cornerstone of Islamic banking, is expected to deter the influence of corruption on risk-taking for Islamic banks. We consider a matched sample of 70 Islamic and conventional banks operating in 10 OIC (Organization of Islamic Cooperation) countries over the 2012-2017 period. We find consistent evidence that higher levels of corruption are associated with higher bank risk for both conventional and Islamic banks. However, this association is stronger for conventional banks. Furthermore, for Islamic banks, the impact of corruption on risk-taking is significantly reduced with higher representation of females in Shari'ah supervisory boards and higher academic qualifications of board members. The role played by such board members in mitigating the impact of corruption on risk-taking is more effective for Islamic banks than for conventional banks.
    Keywords: Bank risk taking,Corruption,Ethical banking,Shari'ah supervision
    Date: 2021–10–05
  2. By: Samuel Bazzi (BU - Boston University [Boston]); Masyhur Hilmy (BU - Boston University [Boston]); Benjamin Marx (ECON - Département d'économie (Sciences Po) - Sciences Po - Sciences Po - CNRS - Centre National de la Recherche Scientifique)
    Abstract: Public schooling systems are an essential feature of modern states. These systems often developed at the expense of religious schools, which undertook the bulk of education historically and still cater to large student populations worldwide. This paper examines how Indonesia's longstanding Islamic school system responded to the construction of 61,000 public elementary schools in the mid-1970s. The policy was designed in part to foster nation building and to curb religious influence in society. We are the first to study the market response to these ideological objectives. Using novel data on Islamic school construction and curriculum, we identify both short-run effects on exposed cohorts as well as dynamic, long-run effects on education markets. While primary enrollment shifted towards state schools, religious education increased on net as Islamic secondary schools absorbed the increased demand for continued education. The Islamic sector not only entered new markets to compete with the state but also increased religious curriculum at newly created schools. Our results suggest that the Islamic sector response increased religiosity at the expense of a secular national identity. Overall, this ideological competition in education undermined the nation-building impacts of mass schooling.
    Date: 2020–05–01
  3. By: Ahmet Faruk Aysan (HBKU - Hamad Bin Khalifa University); Fouad Bergigui
    Abstract: Since the adoption of the SDGs in 2015, it has been a 5-year journey of trial and error experimentations all over the world to come up with innovative solutions beyond business-as-usual and get the job done. In this paper, we assess blockchain-backed solutions beyond the hype. While the technology has a promising potential to trigger disruptive innovations to fulfill the SGDs, it is not mature yet with many gaps in terms of approaches and tools to develop blockchain use cases, monitor and evaluate blockchain experiments, mitigate associated risks and ethical considerations while managing changes within organizations leading blockchain-powered platforms. It is only by filing these gaps that blockchain can deliver its promises and may be effectively used as an SDG accelerator. Islamic finance can play a key role in shaping the transition towards a more circular economy. One promising way of doing so, is by scaling-up the use of blockchainenabled solutions in the practices of circular economy and Islamic finance. As the technology is still getting mature, more innovative and applied research is needed to capitalize on the lessons learned within various geographies and across a wide range of economic, social, and environmental spectrums.
    Keywords: Blockchain,SDGs,innovation,Islamic finance,circular economy
    Date: 2021–10–05
  4. By: Ahmet Faruk Aysan (HBKU - Hamad Bin Khalifa University); Nawaz Farrukh
    Abstract: This article provides a detailed introduction to China's launching of a digital currency. We conduct a comparative analysis concerning whether digital currency is a more stable and reliable currency than cryptocurrency and investigate whether a digital renminbi (or yuan) could replace the US dollar as a medium of exchange in international transactions. China has gained a first-mover advantage by rolling out a central bank digital currency (CBDC). But the outcome will depend on the US response as well as the future evolution of the US and Chinese economies. Most other articles on this topic focus on domestic use of the Chinese CBDC. But this study is unique in analyzing the prospects of a digital renminbi as a replacement for the US dollar in international commerce.
    Keywords: China,cryptocurrency,digital yuan,People's Bank of China,US. JEL Classifications: E42,E58,G28
    Date: 2021–10–05
  5. By: Atif Mian; Ludwig Straub; Amir Sufi
    Abstract: We propose a theory of indebted demand, capturing the idea that large debt burdens lower aggregate demand, and thus the natural rate of interest. At the core of the theory is the simple yet under-appreciated observation that borrowers and savers differ in their marginal propensities to save out of permanent income. Embedding this insight in a two-agent perpetual youth model, we find that recent trends in income inequality and financial deregulation lead to indebted household demand, pushing down the natural rate of interest. Moreover, popular expansionary policies-such as accommodative monetary policy-generate a debt-financed short-run boom at the expense of indebted demand in the future. When demand is sufficiently indebted, the economy gets stuck in a debt-driven liquidity trap, or debt trap. Escaping a debt trap requires consideration of less conventional macroeconomic policies, such as those focused on redistribution or those reducing the structural sources of high inequality.
    JEL: E21 E44 E6
    Date: 2021–10

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