Impact of exchange rate and oil price on the yield of sovereign bond and sukuk: Evidence from Malaysian capital market / Huda Arshad, Ruhaini Muda and Ismah Osman

This study analyses the impact of exchange rate and oil prices on the yield of sovereign bond and sukuk for Malaysian capital market. This study aims to ascertain the effect of weakening Malaysian Ringgit and declining of crude oil price on the fixed income investors in the emerging capital market. This study utilises daily time series data of Malaysian exchange rate, oil price and the yield of Malaysian sovereign bond and sukuk from year 2006 until 2015. The findings show that the weakening of exchange rate and oil prices contribute different impacts in the short and long run. In the short run, the exchange rate and oil prices does not have a direct relation with the yield of sovereign bond and sukuk. However, in the long run, the result reveals that there is a significant relationship between exchange rate and oil prices on the yield of sovereign bond and sukuk. It is evident that only a unidirectional causality relation is present between exchange rate and oil price towards selected yield of Malaysian sovereign bond and sukuk. This study provides numerical and empirical insights on issues relating to capital market that supports public authorities and private institutions on their decision and policymaking process

ASSESSMENT OF VALUE-BASED PRINCIPLES ON ISLAMIC BANKING PRACTICES IN MALAYSIA: AN EXPLORATIVE STUDY USING BANK’S DISCLOSURE

Background and Purpose: This study aimed to understand banking practices to legitimise their role in society and meet stakeholder needs in terms of their products and services. This study narrowed its scope to use the underpinning thrust of value-based intermediation (VBI) as it is a primary pillar of the VBI framework. Towards these same ends, the study also sought to gauge how banks integrated their products and services with the framework.   Methodology: This study employed the triangulation approach, which comprised of a content analysis of annual reports of the bank and trend analysis of court cases. This study used Bank Islam Malaysia Berhad (BIMB) as an explorative study.   Findings: The findings indicated a decrease of total occurrences over the years on litigation cases involving BIMB, related to know-your-customers compliance. Meanwhile, the analysis of annual reports of the bank indicated that shariah non-compliance incidents are due to operational failures and lack of shariah knowledge among the staff. This study highlighted the need for the banks to strengthen the know-your-customer compliance, besides enhancing and promoting Islamic financial literacy and ethics to their stakeholders.   Contributions: This study contributes a novelty in this area of study by using data triangulation on court cases and annual reports to provide a more comprehensive perspective on the issue. This study also added to the current literature on VBI, especially within Malaysian context.   Keywords: Corporate responsibility, due diligence, know-your-customer, Islamic ethics, financial literacy.   Cite as: Talib, S. A., Mohd Iskandar, T., & Muda, R. (2023). Assessment of value-based principles on Islamic banking practices in Malaysia: An explorative study using bank’s disclosure.  Journal of Nusantara Studies, 8(TI), 429-452. http://dx.doi.org/10.24200/jonus.vol8issTIpp429-45

Value-based intermediation for islamic banking institutions directed towards sustainable development goals

n Malaysia, the adoption of sustainable investing activity started with the initial development of the Islamic funds industry in the 1980s. Moving forward, the Islamic financial industry needs to realign their focus beyond compliance towards more wholesome value-based activities in ensuring long term sustainable growth. In moving towards this focus, the Central Bank of Malaysia issued a Strategy Paper titled Value-Based Intermediation (VBI): Strengthening the Roles and Impact of Islamic Finance in July 2017. This paper aims to provide a simulation of VBI banking practices in Malaysia. The simulation affirms the potential benefits identified in the Strategy Paper: (1) Innovation: Impact-driven mind-set creates new market opportunity through development of innovative financial solutions, (2) Efficiency: Adapting current practices to enhance impact, and (3) Effective Ecosystem: Improving existing skills, supply chain or solving common issues faced by communities or other stakeholders, which eventually facilitates business success and socioeconomic wellbeing of the nation

Social sukuk: a new mechanism to fund social services / Saadiah Mohamad … [et al.]

While the premise of Islamic finance embraces the principles of maqasid al-shariah and risk sharing with claims to social justice and welfare, the direct impact of the modern Islamic finance industry and its contribution to the social sector has been limited. This paper examines the claim among critics that there is an inherent weakness of the present day Islamic banking and finance in terms of its underdeveloped social sector and argues for the need for new models that will enhance a proliferation of shariah compliant financial products for solutions in the social sector. The paper examines the emergence in Social finance of social bonds as new financing tools targeting on social needs and problems that otherwise would not be tackled. This paper discusses the benefits of structuring such a shariah compliant product and makes recommendations for structuring this new asset class referred to in this paper as social sukuk

The Challenges of Asnaf Entrepreneurs in Forming Entrepreneurial Resilience

Resilience plays an important role in entrepreneurship; however, an in-depth study of the factors that affect the resilience of Asnaf entrepreneurs is unknown. This paper aims to fill this knowledge gap by delving deeper into the challenges that affect the resilience of asnaf entrepreneurs thus hindering their business expansion. The study also observed the ability of asnaf entrepreneurs to deal with economic shocks due to the COVID-19 pandemic. In-depth interviews conducted with 2 executive officers of the entrepreneur development sector and 10 LZS enforcers who supervise 901 asnaf entrepreneurs throughout Selangor present an overview of the impediments that hinder the business progress of asnaf entrepreneurs. From 901 asnaf entrepreneurs, a total of 25 asnaf entrepreneurs were selected based on the criteria that have been outlined, namely those who run food-based businesses and have undergone the LZS micro-entrepreneurship program for more than 6 months. Constraints experienced are analyzed. Three essential themes that enlighten challenges in fostering entrepreneurial resilience emerged, namely; the role of family members, non-tech savvy and fear of failure. These themes are discussed based on the methodology used and the findings of previous studies. The findings provide an insight that is useful for LZS in designing entrepreneur development instruments and organizing periodic entrepreneurship modules

The impact of interest rate changes on the Islamic foreign exchange forward in the Malaysian derivative market

Islamic foreign exchange forward plays a significant role to mitigate various foreign currency exchange risks. The main challenge that impedes the development and operation of the Islamic foreign exchange forward as a hedging instrument is the behaviour of relying on existing conventional framework with core conception of relying on interest rate and excessive risk taking. This study utilized monthly data from April 2004 to October 2017 of the Malaysian derivatives market. This study found that in the absence of an alternative profit-rate related benchmark and cross border activities, Islamic banks are constrained to use the interest rate benchmark. In the short run, both medium term (6-months) and longer term (12-months) tenures indicate faster speed of adjustment possibility due to higher trading volume and less demand for the medium term for the Islamic foreign exchange forward contract. It implies a need of the Islamic foreign exchange forward as a longer term hedging instrument and not for a short term speculation and risk-taking purposes, as prohibited by shariah

CAN GOOD GOVERNANCE ENHANCE LOCAL GOVERNMENT PERFORMANCE?

The first objective of this study is to examine the effect of audit results on the local government performance. Secondly is examining the moderating role of good governance on the relationship between audit results and local government performance. This study collected 536 local governments data from 134 local authorities in Indonesia from 2016 to 2019. The data employed for audit results were extracted from findings and rectification of audit reports. For the Good Governance, this study develops the Good Governance Principles index by mapping the data taken from Evaluation of Local Government Performance by the Ministry of Home Affairs RI with IGI indicators. Meanwhile, the local government performances were measured using the total local own revenue. This study uses multiple moderated regression analyses to explain the relationship between the audit results and good governance on local government performance. As the result, it has a significant effect on both variables tested. This research also found a significant interaction between audit results and good governance on local government. These results assert that good governance enhances local government to be more effective in responding to audit results to improve their performances in the following years

Capital Structure–Firm Performance Nexus: The Moderating Effect of Board Independence

The purpose of this study is to investigate the relationship between capital structure and firm performance by exploring the moderating effect of one of the corporate governance mechanisms, namely board independence. Panel data regression was employed based on a sample of 492 non-financial listed companies in Malaysia from 2010 to 2019. The results showed that capital structure has a significant positive impact on firm performance. Meanwhile, board independence significantly and negatively moderates the relationship between capital structure and firm performance. The findings of this study shall provide better insights for investors, firm managers, and policymakers on the critical role of corporate governance mechanisms in enhancing firm performance, particularly in implementing suitable actions and policies

Failure and potential of profit-loss sharing contracts: a perspective of New Institutional, Economic (NIE) theory

This paper theoretically evaluates why profit–loss sharing (PLS) contracts in Islamic banking fails and its potential for improvement within the scope of the New Institutional Economic Theory (NIE). The objective of the evaluation is to draw conclusive theoretical arguments of whether Islamic banking institutions in Malaysia should act as either financial intermediaries or entrepreneurs. Further, we analyze this issue from the perspective of agency theory, financial intermediation theory and entrepreneurship theory with four economic agents in the Islamic banking sector, namely entrepreneurs, depositors, shareholders, and the Islamic banks. Specifically, the first three economic agents represent the asset (equity-based financing), liability, and equity of the Islamic banks, respectively; while the latter is the Islamic banks, which act as a separate legal entity. Finally, we suggest that PLS contracts would best be positioned if Islamic banks play the role of genuine entrepreneurs

Real effects of government debt on sustainable economic growth in Malaysia

The persistent increase of government debt in Malaysia in the recent years has raised con-cerns as to whether the borrowings have spurred the economy or became a drag on econom-ic growth. The present paper investigates the real effect of government debt on sustainable economic growth in Malaysia using the Autoregressive Distributed Lag approach for the period of 1970-2015. The results show there are positive significant long- and short-run relationships between government debt and sustainable economic growth. There is also a unidirectional causality running from government debt to sustainable economic growth. The findings indicate that Malaysia’s government debt is an important macroeconomic element for sustainability of economic growth in Malaysia. There is no evidence, however, to con-clude that the level of government debt had any adverse impacts on sustainable economic growth