No abstract

No abstract

The purpose of this article is to propose an alternative approach for portfolio optimization combining financial and ethical constraints in one hand, and objective and subjective investor’s preferences in the other hand. This approach intends to support investors in selecting and optimizing financial and social portfolio’s performances. More precisely, we introduce analytic hierarchy process (AHP) to measure the ethical performance (EP) score of each asset considering ethical criteria. For its part, fuzzy multiple criteria decision making (FMCDM) is used to determine the overall financial quality score of assets with respect to key financial criteria i.e., short term return, long term return, and risk. Besides, interactive fuzzy programming approach is applied to support the investor’s decision, considering its subjective preferences. The robustness of our approach is tested through an empirical study involving the case of the Casablanca Stock Exchange (CSE). The results give evidence that the Socially Responsible (SR) Portfolio have performed similar to the conventional one, as no significant differences were found in term of return. However, the SR portfolio allows the investor to achieve his ethical goal, against a slight financial sacrifice.

In this research, we provide a game theoretical approach of new projects financed under musharakah contracts using two types of contracts. The first type is effort based. It compensates the agent for the effort provided regardless of market conditions. The other type of contract is output based where the agent compensation is based solely on output realized. Our intuition is, on one hand, that an agent acceptance of an effort based contract signals a higher ability and therefore merits a higher compensation. On the other hand, an agent opting for an output based signals a reliance on market condition and therefore a lower effort ability meriting lower compensation. We found evidence that an effort based contract offer better compensation to the agent in the form of lower sharing ratio to the financier. This result has two important Islamic implications. First it emphasizes the sentiment of altruism which the financier shows by taking a smaller sharing ratio. Second it emphasizes the sentiment of positive reciprocity which the agent exhibits by providing high effort. Another finding is that an effort based contract offers more span of negotiation than an output based contract. This is an important Islamic concept as the agent has fewer restrictions in terms of negotiations. This paper tackle two problems of information assymetries. Namely it tackles adverse selection and moral hazards.

Microfinance refers to the provision of financial services like saving, microcredit, and insurance to the poor who have limited access to traditional banking services with the aim of reducing their poverty. However, in the last decade, the literature stresses that the microfinance institutions focus more on their profit rather than the customer. Numerous methods have been used to model customer satisfaction in microfinance. However, a large majority of these methods is unable to take into account complex interactions and dependencies between variables. They may also find difficulties in handling limited and uncertain knowledge. The objective of this article is to model the effect of microfinance-lending process operations on overall customer satisfaction. We managed to develop a fuzzy Bayesian networks model; such an approach is widely required for modeling complex systems characterized by sparse or uncertain information as well as for conducting the cause and effect analysis.

In this paper, we try reducing the moral hazard of profit misreporting in Profit and Loss Sharing Contract (PLS). In this kind of contracts , the corporate manager has a temptation to misreport profits which can lead to either project failing or to financiers receiving an unfair allocation of profits. To help in solving this problem we propose a new model that includes a real option that gives the corporate manager (agent) the right, but not the obligation, to gradually buy shares in the corporation from the financier/bank. We compare our results with the standard case of PLS without real options. We show, using a multi-agent simulation (Netlogo) that embedding real options in the PLS contract can reduce the profit misreporting case. The fact that PLS contracts are riskier compared to other forms of financing such as debt, provides an incentive for the creation of models that reduce their risk to capital providers. Given the results obtained from our real options model, the latter could prove to be of practical use to financial institutions willing to engage in PLS financing.

This article aims to use a bargaining power model to reduce moral hazard—in the form of entrepreneurial effort shirking—and derive an optimum sharing ratio of a Profit and Loss Sharing (PLS) contract that involves a Venture Capitalist and an Entrepreneur. The model reveals the following interesting findings. First, under complete information—where the Venture Capitalist has a bargaining power ‐ Venture Capitalist offers the entrepreneur a profit sharing ratio that is less than her capital contribution ratio. Second, in an incomplete information setting, the entrepreneur demands a profit sharing ratio higher than her capital contribution ratio when the sum of the marginal cost (from exercising a higher effort) and private benefits (from exercising a low effort) is greater than the marginal return (from exercising a high effort). In addition, the model is used to derive a span of negotiation about the profit sharing ratio. Finally, an agent based simulation (Netlogo) platform is considered to implement the model, which allows a faster numerical calculations of the profit share and helps decide on the validity of the funding contract.

Critics concerning the real impact of traditional microfinance as a tool for poverty alleviation are becoming frequent. In contrast, the financial crisis brought out interest for Islamic finance, whose models have been increasingly studied. Today, the real challenge lies in evaluating the impact of microfinance in a complex environment, where both Islamic and conventional microfinance institutions exist and address evolving clients in constant interaction. New methods and models are therefore needed in order to test the efficacy and assess the impact of introducing Islamic microfinance products, compared to the conventional system. In this context, this paper proposes an approach to build an Agent-Based Modeling (ABM) framework, which is aiming to test the effects of such products implementation using Islamic interest-free group loans. It also helps assess the impact of the behavioral biases as well as agents’ interactions within the repayment process.