nep-isf New Economics Papers
on Islamic Finance
Issue of 2021‒12‒06
nine papers chosen by

  1. Financial institutions, poverty and severity of poverty in Sub-Saharan Africa By Simplice A. Asongu; Valentine B. Soumtang; Ofeh M. Edoh
  2. COVID-19 Global Pandemic, Financial Development and Financial Inclusion By Nathanael Ojong; Simplice A. Asongu
  3. The Impact of Financial Inclusion on Household Health Expenditures in Africa By Ofeh M. Edoh; Tii N. Nchofoung; Ofeh E. Anchi
  4. To be or not to be “green”: how can monetary policy react to climate change? By Boneva, Lena; Ferrucci, Gianluigi; Mongelli, Francesco Paolo
  5. Financial determinants of informal financial development in Sub-Saharan Africa By Simplice A. Asongu; Valentine B. Soumtang; Ofeh M. Edoh
  6. Credit Creation, Economic Progress and the Saturation Effect: A Sector Level Analysis By Nader AlKathiri; Sambit Bhattacharyya
  7. Do NBFCs Propagate Real Shocks? By Ghosh, Saurabh; Mazumder, Debojyoti
  8. Religious Practice and Student Performance: Evidence from Ramadan Fasting By Hornung, Erik; Schwerdt, Guido; Strazzeri, Maurizio
  9. Loan Officers Impede Graduation from Microfinance: Strategic Disclosure in a Large Microfinance Institution By Natalia Rigol; Benjamin N. Roth

  1. By: Simplice A. Asongu (Yaounde, Cameroon); Valentine B. Soumtang (Yaoundé, Cameroon); Ofeh M. Edoh (Yaoundé, Cameroon)
    Abstract: The study assesses how financial institution dynamics have affected poverty and the severity of poverty in 42 sub-Saharan African countries for the period 1980-2019. In order to increase for policy relevance of the study, three financial development indicators are used, namely: financial institutions depth, financial institutions access and financial institutions efficiency. The adopted empirical strategy is a quantile regressions approach which enables the study to assess how financial institutions dynamics affect poverty and the severity of poverty throughout the conditional distribution of poverty and severity of poverty. The findings show various tendencies, inter alia: (i) financial institutions depth (efficiency) consistently decreases the severity of poverty (poverty headcount) and (ii) financial institutions access consistently decreases both poverty and the severity of poverty and the decreasing effect increases with increasing levels of poverty in the top quantiles and throughout the conditional distribution of the severity of poverty. Policy implications are discussed with respect of SDG1 on poverty reduction.
    Keywords: financial development; poverty alleviation; Africa
    JEL: G20 I10 I20 I30 O10
    Date: 2021–11
  2. By: Nathanael Ojong (York University, Toronto, Canada); Simplice A. Asongu (Yaoundé, Cameroon)
    Abstract: This chapter examines how the Covid-19 pandemic has affected financial development and financial inclusion in African countries. The study provides both broad perspectives and country-specific frameworks based on selected country cases studies. Some emphasis is placed on the achievement of sustainable development goals (SDGs) that are related to financial inclusion. The study aims to understand what immediate challenges the COVID-19 pandemic has represented to the economies and societies on the one hand and on the other, the effect of the COVID-19 on the interconnected financial systems in terms of consequences of the pandemic. The relevance of the study builds on the importance of these insights in helping both scholars and policy makers understand how the effect of the pandemic on the financial system and by extension, the global economy can be mitigated for more financial inclusion.
    Keywords: Covid-19 pandemic; financial development; Financial inclusion; Africa
    Date: 2021–01
  3. By: Ofeh M. Edoh (University of Dschang, Cameroon); Tii N. Nchofoung (University of Dschang, Cameroon); Ofeh E. Anchi (University of Bamenda, Cameroon)
    Abstract: This study examines the impact of financial inclusion on household health expenditure in 17 African countries. It argues that financial inclusion is an active influencer of individuals’ health demand and that Gross Domestic Product (GDP) per capita and voluntary health insurance schemes tend to be active transmission channels through which financial inclusion affects household health expenditures. The study used an instrumental variable (2SLS) technique for the analysis over a period from 2008 to 2017.Results from the study show that being financially included leads to increase household health expenditures. Suggestions for policy emerging from this study to governments in Africa are on the aspect of fostering financial inclusion to a wider population alongside enhancing the Universal Health Coverage (UHC) plan to ease the burden of out-of-pocket payments on households.
    Keywords: Financial inclusion, Health expenditure, Out-of-pocket (OOP) payments, 2SLS
    JEL: G15 I13 C23
    Date: 2021–01
  4. By: Boneva, Lena; Ferrucci, Gianluigi; Mongelli, Francesco Paolo
    Abstract: Climate change has profound effects not only for societies and economies, but also for central banks’ ability to deliver price stability in the future. This paper starts by documenting why climate change matters for monetary policy: it impacts the economic variables relevant to setting the monetary policy stance, it interacts with fiscal and structural responses and it can generate dislocations in financial markets, which are impossible for monetary policy to ignore. Next, we survey several possible ways central banks can respond to climate change. These range from protective actions to more proactive measures aimed at mitigating climate change and supporting green finance and the transition to sustainable growth. We also discuss the constraints and trade-offs faced by central banks as they respond to climate risks. Finally, focusing on the specific challenges faced by inflation-targeting central banks, we consider how certain design features of this regime might interact with, and evolve in response to, the climate challenge. JEL Classification: E52, E58, Q54
    Keywords: climate change, environmental economics, green finance, monetary policy, sustainable growth economics
    Date: 2021–11
  5. By: Simplice A. Asongu (Yaounde, Cameroon); Valentine B. Soumtang (University of Yaoundé II, Cameroon); Ofeh M. Edoh (Yaoundé, Cameroon)
    Abstract: This study assesses financial determinants of informal financial sector development in 48 Sub-Saharan African countries for the period 1995-2017. Quantile regressions are used as the empirical strategy which enables the study to assess the determinants throughout the conditional distribution of informal sector development dynamics. The following financial determinants affect informal financial development and financial informalization differently in terms of magnitude and sign: bank overhead costs; net internet margin; bank concentration; return on equity; bank cost to income ratio; financial stability; loans from non-resident banks; offshore bank deposits and remittances. The determinants are presented from a plethora of perspectives, inter alia: U-Shape, S-Shape and positive or negative thresholds. The study not only provides a practical way by which to assess the incidence of financial determinants on informal financial sector development, but also provides financial instruments by which informal financial development can be curbed.
    Keywords: Informal finance; financial development; Africa
    Date: 2021–08
  6. By: Nader AlKathiri (Department of Economics, University of Sussex, Falmer, United Kingdom); Sambit Bhattacharyya (Department of Economics, University of Sussex, Falmer, United Kingdom)
    Abstract: We investigate the effect of credit creation on real value added in manufacturing, services and agriculture and whether the effect is conditional on the level of development (saturation effect). We also investigate potential heterogeneity across credit types (households and non-financial corporations) and the significance of credit impulse (or new credit creation). Using a sample of up to 95 countries covering the period 1970 to 2017, we find that private credit has strong positive effects on manufacturing value added but not on agriculture and services. We also find evidence of credit saturation across all three sectors even though the effect is noticeably weaker in agriculture. The unbundled effects of household and non-financial corporation credit on value added in manufacturing and services are statistically significant. We also do not find any effect of credit impulse.
    JEL: D72 O11
    Date: 2021–11
  7. By: Ghosh, Saurabh; Mazumder, Debojyoti
    Abstract: In this paper, we try to explain the role of Non-bank Financial Intermediation (NBFI) to percolate and propel a real shock to the rest of the economy through the bank-NBFI interactions. We propose a simple theoretical model which identifies the channels and distinguishes between idiosyncratic, structural and sectoral shocks, cleanly. In our model, the non-deposit taking Non-bank Financial companies (NBFCs) which are the provider of risky, small and fragmented loans, are financed by borrowing from commercial banks. This link connects the NBFCs with the commercial banks and, in turn, with the rest of the economy. A higher realization of the failed firms (idiosyncratic shock) in the NBFC financed sector and a rise in the sector-wide productivity risk (sectoral risk) increase the interest rate charged by the banks and unemployment rate but reduces the real wages and per capita capital formation of the economy. However, when the average number of failed firms increases (structural shock), the reverse happens.
    Keywords: NBFC, Bank-NBFC interaction, Real Shock, Search and matching unemployment
    JEL: E44 G21 G23 J64
    Date: 2021–11–11
  8. By: Hornung, Erik (University of Cologne); Schwerdt, Guido (University of Konstanz); Strazzeri, Maurizio (University of Bern)
    Abstract: We investigate how the intensity of Ramadan affects educational outcomes by exploiting spatio-temporal variation in annual fasting hours. Longer fasting hours are related to increases in student performance in a panel of TIMMS test scores (1995–2019) across Muslim countries but not other countries. Results are confirmed in a panel of PISA test scores (2003–2018) allowing within country-wave comparisons of Muslim to non-Muslim students across Europe. We provide evidence consistent with the hypothesis that a demanding Ramadan during adolescence affects educational performance by facilitating formation of social capital and social identity via increased religious participation and shared experiences among students.
    Keywords: social identity, Ramadan, religious participation, religion, education, social capital, PISA, TIMMS
    JEL: I21 Z12 J24 O15
    Date: 2021–10
  9. By: Natalia Rigol; Benjamin N. Roth
    Abstract: One of the most important puzzles in microfinance is the low rate of borrower graduation to larger, more flexible loans. Utilizing observational and experimental data from a large Chilean microfinance institution, we demonstrate that loan officers impede borrower graduation due to common features of their compensation contracts. Our partner lender offers both microloans and larger, more flexible graduation loans, and relies on loan officer endorsements to determine borrower graduation. Loan officers are rewarded for the size of their portfolio and repayment, and so are implicitly penalized when good borrowers graduate. In an experiment designed to isolate strategic disclosure, we modify compensation to reduce this implicit penalty and document that loan officers withheld endorsements of their most qualified borrowers prior to the shift. Graduated borrowers endorsed after the shift are 34% more profitable for our partner lender than those endorsed beforehand. A back-of-the- envelope calculation suggests that strategic behavior of loan officers accounts for $4.8-29.2 billion in lost social value from forgone borrower graduations in microfinance worldwide. Our experimental design may prove useful for other experiments within firms.
    JEL: G21 M52 O16
    Date: 2021–10

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