Islamic Finance in the Light of Modern Economic Theory

Basov, Suren; Bhatti, M. Ishaq

doi:10.1057/978-1-137-28662-8

Cited by 18 publications

(19 citation statements)

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“…Riba (interest) literally means an increase or excess (Usmani 2002). Its modern‐day definition, however, includes any excess above the principal amount of loan (Basov and Bhatti 2016). Islamic banks use Shariah ‐compliant alternatives to conventional finance that are free from riba (interest), gharar (uncertainty), and maysir (gambling), such as Qard Hasana (interest‐free loan), Islamic joint ventures ( Musharkah and Mudarabah ), and trade or lease‐based modes, such as Murabaha , Ijarah , Salam , or Istisna (see Usmani 2002; see also Al‐Rahahleh, Ishaq Bhatti, and Najuna Misman 2019, for recent review of literature).…”

Section: Islamic Versus Conventional Banking Productsmentioning

confidence: 99%

Islamic Banking, Costly Religiosity, and Competition

Azmat

Azad

Bhatti

et al. 2020

J of Financial Research

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In this article we explain how Islamic banks (IBs) maximize profitability in the presence of costly religiosity. Because of strong competition between IBs and conventional banks (CBs), a unique equilibrium emerges that affects the IB pricing structure. We propose a new model that identifies the optimal rate on the asset and liability sides of IBs. It shows that the financial products offered by IBs are not an exogenous function of religiosity; instead, they are endogenously determined by the nature of market forces in which IBs are operating. We show that in the presence of costly religiosity and competition, the rates of both converge. Moreover, the competitive pricing mechanism induces IBs to structure their asset-and liability-side financial products (particularly Murabaha) with a risk profile similar to that of the CB loan system. This article empirically supports the theoretical propositions by using data from 17 Muslim majority countries where both IBs and CBs coexist from 2000 to 2015. We find that, holding other factors of bank returns constant, competition significantly affects IB asset-and liability-side returns. The analysis also reveals that because of increasing competition between IBs and CBs, the market power of IBs has significantly declined over time. JEL Classification: G14, G21, G24We thank the editor and two anonymous referees for their constructive comments that have improved the final version of the paper. The paper has also benefited from the constructive comments of Andrei Shleifer, Nadia Masood, Frankel Allan, and the seminar/

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Section: Islamic Versus Conventional Banking Productsmentioning

confidence: 99%

Islamic Banking, Costly Religiosity, and Competition

Azmat

Azad

Bhatti

et al. 2020

J of Financial Research

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“…Ijara is an agreement based on leasing an asset to a customer for a specific time with a certain rent instalments. Ijara can end in a change of ownership of the asset to the lessee at the end of the lease period (Basov & Bhatti, 2016;El-Gamal & Eissa, 2003). Moreover, Islamic finance has experienced an expansion in the halal industry, with significant growth in halal economic activities such as tourism, trade, dinning and commerce that comply with Shariah rules.…”

Section: Islamic Financementioning

confidence: 99%

Exploring Connexion between Sovereign Wealth Funds and Islamic Finance in the Gulf Countries

Mishrif¹,

Akkas²

2018

IJEF

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This study explores the relationship between the development of sovereign wealth funds (SWFs) and Islamic finance in the Gulf Cooperation Council countries. It argues that despite a simultaneous growth in both industries in the petrodollar era, there has been insignificant degree of complementary between them and the size of SWFs investments in Islamic finance is limited. Analysis attributes such divergence to the peculiarity of SWFs" objectives, decision-making and investment strategy. Islamic finance has yet to provide low-risk long-term investment opportunities that are more attractive to SWFs than that available in the conventional market, hence bringing the industry under the funds" radar. The study concludes by arguing that despite such limitation, both SWFs and Islamic finance have contributed to economic development and have the potential to overcome such lack of conjunction.

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“…Therefore, to settle on sensible and Islamic investment decisions from a specifically Islamic perspective, Muslim investors need to obey shariah. Stocks that are permissible in divine Islamic law or shariah are designated as shariah-compliant stocks, and they form the investment opportunities set for both Muslim individual investors and institutions (for details, see Rahman 2015;Basov and Bhatti 2016;Azmat et al 2020).…”

Section: Introductionmentioning

confidence: 99%

The Investment Performance of Ethical Equity Funds in Malaysia

Mansor

Bhatti

Rahman³

et al. 2020

JRFM

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This paper investigates the investment performance of Malaysian Islamic equity funds and a matching sample of conventional equity funds relative to their market benchmark. An integrated model is used to simultaneously capture the market timing and selectivity skills of fund managers. Our findings indicate that the Islamic funds do not match the performance of the conventional funds in terms of selectivity skill. However, Islamic funds perform no worse than their conventional counterparts in market timing, although neither outperform the market. These findings have crucial implications not only for fund managers’ investment decisions, but also for sensitive shariah-compliant investors and risk-seeking investors of Islamic equity funds in their investment portfolio preference.

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Islamic Finance in the Light of Modern Economic Theory

Cited by 18 publications

References 0 publications

Islamic Banking, Costly Religiosity, and Competition

Islamic Banking, Costly Religiosity, and Competition

Exploring Connexion between Sovereign Wealth Funds and Islamic Finance in the Gulf Countries

The Investment Performance of Ethical Equity Funds in Malaysia

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