nep-isf New Economics Papers
on Islamic Finance
Issue of 2022‒01‒31
six papers chosen by

  1. Strategic complementarity and substitutability of investment strategies By Nikolay Doskov; Thorsten Hens; Klaus Reiner Schenk-Hoppé
  2. Evolutionary finance for multi-asset investors By Michael Schnetzer; Thorsten Hens
  3. Financial inclusion: the globally important determinants By Ozili, Peterson K
  4. A Framework for Financing Housing Development and Ownership in Africa By Jonathan Oladeji; Joseph Yacim; Benita Zulch
  5. Diversity matters in the world of finance: does ethnic and religious diversity hinder financial development in developing countries By Amin, S.; Murshed, S.M.
  6. Microfinance, Moneylenders, and Economic Shocks: An Assessment of the Bangladesh Experience By Emran, M. Shahe; Shilpi, Forhad

  1. By: Nikolay Doskov (LGT Capital Partners, Pfaffikon); Thorsten Hens (University of Zurich - Department of Banking and Finance; Norwegian School of Economics and Business Administration (NHH); Swiss Finance Institute); Klaus Reiner Schenk-Hoppé (University of Manchester - Department of Economics)
    Abstract: Institutional investors in equities tend to follow well-defined investment strategies, often based on factors such as size, value, momentum, quality, dividend yield and other stock characteristics. This paper explores the impact of capital flows between investment strategies on the cross-section of their performance. We find that the correlation between factor performance and the cyclical nature of risk premia can be explained by capital flows. The CAPM with a non-mean-variance investor supports these results.
    Date: 2022–01
  2. By: Michael Schnetzer (Sammelstiftung Vita); Thorsten Hens (University of Zurich - Department of Banking and Finance; Norwegian School of Economics and Business Administration (NHH); Swiss Finance Institute)
    Abstract: Standard strategic asset allocation procedures usually neglect market interaction. However, returns are not generated in a vacuum but are the result of the market's price discovery mechanism which is driven by investors' investment strategies. Evolutionary finance accounts for this and endogenizes asset prices. This paper develops a multi-asset evolutionary finance model. Requiring little more than dividend and interest rate data, it facilitates an interesting glimpse into the inner workings of financial markets and provides a valuable guide to this class of models. While traditional mean/variance optimization is static and concerned with finding the optimal asset allocation, evolutionary portfolio theory is dynamic and its focus is on finding the optimal investment strategy. This paper shows that yield-based strategies generate asset allocations that outperform competing alternatives. Therefore, strategic asset allocation approaches that rely on such an economic foundation are evolutionarily advantageous for multi-asset investors.
    Keywords: Evolutionary finance, strategic asset allocation, multi-asset.
    JEL: G10 G11 G17
    Date: 2022–01
  3. By: Ozili, Peterson K
    Abstract: This paper highlights the globally-important determinants of financial inclusion. The determinants identified in this paper are formal account ownership; demand for formal savings; demand for formal borrowings; financial literacy and education; debit and credit cards usage; the need to receive remittances from family and friends; size of the financial system; number of automated teller machines (ATMs); number of bank branch; closeness to a bank; availability and access to mobile phones; availability of digital financial products and services; technology infrastructure; government policy; culture and traditional belief systems; national financial inclusion strategy and implementation; and direct legislation.
    Keywords: financial inclusion; determinants; unbanked adults; access to finance; digital finance; financial literacy
    JEL: G20 G21 I31
    Date: 2021
  4. By: Jonathan Oladeji; Joseph Yacim; Benita Zulch
    Abstract: Purpose: There is a need for the modification of mortgage finance to embrace new innovative finance options that will facilitate access to housing by low- and middle-income earners in Africa. Thus, this paper seeks to evaluate the suitability of informal finance options for incremental housing development in Africa.Design / methods followed/ approach: A desktop survey of the literature was carried out to consider mortgage financing in contrast to other housing financing options. The approach was used to critically appraise and consolidate existing studies on innovative financing (informal finance option) in Africa. The Mendeley app was used to collate and organize the literature chronologically spanning 24 years of 1994-2018. Thematic content analysis was used to appraise positions, gaps, and lapses in the implementation of different informal housing financing solutions.Findings: In most African countries like Kenya, Rwanda, Nigeria, and Malawi, mortgage finance research continues to grow as a major part of affordable housing finance. However, there are considerable interests in innovative affordable housing finance tools and incremental housing for the low-income groups.Research limitations / implications: This study is limited by the low volume of quantitative literature and data gaps about incremental housing in the African context. However, this motivates the need for a more elaborate exploration of the research and knowledge available.Practical implications: This study adds to the growing discussion of exploring available research on innovative housing finance in Africa.Originality / Value of work: To our knowledge, this study provides insight into the opportunities for a diverse pool of formal and informal financing options to build an acceptable house finance framework for the African housing market.
    Keywords: Affordability; Africa; developing; economies; Finance; Framework; housing; Incremental; loans; Mortgage
    JEL: R3
    Date: 2021–09–01
  5. By: Amin, S.; Murshed, S.M.
    Abstract: This paper investigates the relationship between ethnic and religious diversity and financial development by using the data for 102 developing countries. It is widely accepted that financial depth, and the more ready availability of finance, has a central role to play in fostering economic growth. We hypothesize that financial development in developing countries, especially those at the early stages of economic development, may be retarded by pre-existing ethnic and religious diversity, which may produce conflict. However, we believe that this risk can be moderated by sound institutional functioning – including good governance and democracy. Financial depth is measured by M2 and private credit (as a percentage of GDP); the Alesina fragmentation index is used for measuring ethnic and religious diversity, varieties of democracy (VDEM) and the quality of governance datasets. Our results are supportive of our hypothesis that ethnic and religious diversity can indeed hamper financial development; these risks, however, are mitigated by well-functioning institutional arrangements
    Keywords: Ethnic diversity, religious diversity, financial development
    JEL: Z10 Z13 G0
    Date: 2022–01–10
  6. By: Emran, M. Shahe; Shilpi, Forhad
    Abstract: The effectiveness of microfinance in improving the economic lives of the poor has been under extensive scrutiny in last two decades. Most of the studies on Bangladesh focus on the poverty and women’s empowerment impacts of microfinance. We provide a discussion on two relatively neglected aspects: the impacts on moneylenders, and the coping ability of households facing adverse shocks. The available evidence suggests that the microfinance in Bangladesh helped free many households from the “clutches” of moneylenders, contradicting the claim of some critics that microfinance exacerbates their dependence on moneylenders. The likelihood that a household takes loans from moneylenders declines by about 70 percent once it becomes a member of a microfinance program. However, the evidence also suggests that the moneylender interest rate goes up when the MFI coverage is high enough in a village, implying that the remaining clients of moneylenders suffer a negative pecuniary externality. The evidence on coping ability suggests that microfinance membership improves food security during flood and Monga. But microfinance membership does not reduce the propensity to sell labor in advance in the lean season and may not help a household undertake short-term migration to urban labor market in response to a shock.
    Keywords: Microfinance, Microcredit, Moneylenders, Interest rate, Cream Skimming, Economic Shocks, Flexible Loan Contract, Seasonal Hunger, Monga, Missing Markets Microfinance, Microcredit, Moneylenders, Interest rate, Cream Skimming, Economic Shocks, Flexible Loan Contract, Seasonal Hunger, Monga, Missing Markets Microfinance, Microcredit, Moneylenders, Interest rate, Cream Skimming, Economic Shocks, Flexible Loan Contract, Seasonal Hunger, Monga, Missing Markets
    JEL: D4 G23 L3 O12 O16
    Date: 2021–12–19

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