Optimization of solvency margin in family Takaful and Life Insurance Institutions in Malaysia: Application of Data Envelopment Analysis

Purpose - The purpose of this paper is to present the findings of the study on optimizing solvency margin in family Takaful and life insurance institutions in Malaysia.Method - The population of this study is family Takaful and life Insurance Institutions in Malaysia during the period 2010 - 2019. The selection of samples in this study uses the purposive sampling method and selected 11 family Takaful and 14 life Insurance Institutions. The data were analyzed using Data Envelopment Analysis.  Result - The results showed that for from 2010 to 2019, the family Takaful operators’ efficiencies are improving, whilst the life insurers have become less efficient even though their efficiency score is higher than the family Takaful operators. In terms of the optimum size (i.e., scale), the results are reversed which means that the family Takaful operators are still not at the optimum size but once they reach there, they could improve their efficiency substantially. However, for both family Takaful operators and life insurers, 2019 seems to dip their efficiency in terms of pure technical and also scale.Implication - The results of this research open a new way of measuring the efficiency of family takaful and life insurance not only in Malaysia but can be generalized to measure the efficiency level of family takaful and life insurance in general.Originality - This research is the first study that used the combination of inputs and outputs specifically for the family Takaful and life insurance institutions in Malaysia

Optimization of solvency margin in family Takaful and Life Insurance Institutions in Malaysia: Application of Data Envelopment Analysis

Purpose - The purpose of this paper is to present the findings of the study on optimizing solvency margin in family Takaful and life insurance institutions in Malaysia.Method - The population of this study is family Takaful and life Insurance Institutions in Malaysia during the period 2010 - 2019. The selection of samples in this study uses the purposive sampling method and selected 11 family Takaful and 14 life Insurance Institutions. The data were analyzed using Data Envelopment Analysis.  Result - The results showed that for from 2010 to 2019, the family Takaful operators’ efficiencies are improving, whilst the life insurers have become less efficient even though their efficiency score is higher than the family Takaful operators. In terms of the optimum size (i.e., scale), the results are reversed which means that the family Takaful operators are still not at the optimum size but once they reach there, they could improve their efficiency substantially. However, for both family Takaful operators and life insurers, 2019 seems to dip their efficiency in terms of pure technical and also scale.Implication - The results of this research open a new way of measuring the efficiency of family takaful and life insurance not only in Malaysia but can be generalized to measure the efficiency level of family takaful and life insurance in general.Originality - This research is the first study that used the combination of inputs and outputs specifically for the family Takaful and life insurance institutions in Malaysia

Waqf Financial reporting and transparency: Case of Ar-Raudhatul Hasanah Islamic Boarding School

This paper provides an insight on which standard that had to be applied for Islamic Boarding School’s financial statement and the gaps encountered while new accounting waqf is implemented. The existence of various financial statements format among waqf foundations these days is becomes a reason of this research. To be precise, Ar-Raudhatul Hasanah Islamic Boarding School is undertaken as an object analysis. This article will also introduce the new waqf accounting standard prepared by Institute of Indonesia Chartered Accountant and Central Bank of Indonesia. The methodology used in this research is qualitative research with purposive sampling as its sampling technique. Furthermore, finding of this research asserted that Ar-Raudhatul Hasanah Islamic Boarding School had been adopting the Statement of Government Accounting Standard (PSAP) number 01 concerning the presentation of financial statements and the Government Regulation Republic of Indonesia number 8 of 2006 in drafting their financial statements. However, the appropriate accounting standard for it is PSAK No. 45. Therefore, it has not fully implemented the components of financial statement in accordance with PSAK 45 due to the absence of statement of activity. This paper also revealed the encouragement to adopt new waqf accounting standard in preparing the financial statement and to publish it on the official website. Hence the benefit is to attract the interest of stakeholders in giving endowments as well as to eliminate the diversity format in recording financial transaction of waqf asse

Lowly or Negative Benchmark Rates Bandwagon: Any Risk Implications for Islamic banks?

To stimulate the economy, regulators across all jurisdictions have been taking unconventional approaches. Thus, in recent years, the management of benchmark rates (or interest rates) has received considerable prominence in the banking sector due to some reasons including supervision banks' benchmark rates under Basel II. This paper reviews the possible dysfunctional implications of lowly and/or negative rates and provides a risk management and regulatory perspective for Islamic banks. These consequences call for a better risk management with appropriate tools and effective supervisory oversight. It hoped that the initial discussion presented in this paper on the implications and controls invites a broader debate on this issue in the Islamic financial services industry. DOI: 10.15408/aiq.v10i1.612

Towards providing the best Sharī'ah governance practices for Waqf based institutions

Waqf is the donation for the sake of Allah (s.w.t). Historically, it isproven that society can benefit from waqf assets. Waqf assets can beused for religious purposes like building mosques, public health,transportation and education and others. However, due to the limitedregulatory framework and control over waqf institutions, there aremany undesirable issues regarding the Waqf management authority.Most of the issues are due to inadequate management of waqf andtheir accountability towards the donors and beneficiaries. If theseissues continue, the waqf institutions will have a negative publicimage and undermine the objective of the waqf leading peoplehesitant to donate to waqf. Thus, this paper highlights the negativeissues in the waqf institutions and proposes the need for Shari’ahgovernance. This paper proposes that Sharī‘ah governance practicesfor waqf institutions should be based on trust, accountability, Godconsciousness, hisbah, and mutual consultation. It is believed thatthis paper will alert the respective authorities and waqf managementto issue a Sharī‘ah governance framework

The impact of competition on cost efficiency of insurance and takaful sectors: evidence from GCC markets based on the stochastic frontier analysis

In recent years, competition in the insurance sector has increased due to the number of players added by the emergence of takaful. This paper examines the impact of competition on the cost efficiency of conventional insurance and takaful sectors in Gulf Cooperation Council (GCC) countries between 2009–2016 using a stochastic frontier cost function. Overall, results suggest that the relationship between competition and efficiency is positive and supports the Quiet Life (QL) hypothesis where managers in a less competitive market may utilise the market power of their firms and reduce their efforts. However, importantly, there are differences between takaful operators and conventional insurers in this respect. The relationship between competition and efficiency turns out to be negative where conventional insurance is concerned, and positive only for takaful. The positive relationship between competition and cost efficiency may encourage policy makers and regulators to support a competitive insurance industry which should improve efficiency. However, they should be aware of the degree of competition and use restrictions and requirement for market entry carefully

Waqf for Socio-Economic Development: A Perspective of Ibn Khaldun

Vakıf geçmişinin toplumun refahı üzerinde önemli katkısı kabul edilirken, vakfın bu çağdaş dönemde İslam medeniyetini kurmak ve sosyo-ekonomik adaleti teşvik etmek adına bir simge ve saygın bir kurum olma potansiyeline sahip olduğuna inanılmaktadır. Vakıf üzerinde çok fazla çalışma yapılmasına rağmen, Batı perspektifinin tartışmaya hâkim olduğu açıktır. Vakıf gelişimi ile ilgili iç görü kazanmak için tanınmış Müslüman âlimlerden ise daha az çalışma tetkik edilmiştir. Haddi zatında bu çalışma vakfın dirilişi için bu tutum ile İbn Haldun'un perspektifini keşfederek ve onunla ilişkilendirerek bu boşluğu dolduracaktır. İlk olarak, bu makale İbn Haldun'un sosyo-ekonomik kalkınma için Devletin rolü konusundaki perspektifi üzerinde duracaktır. İkinci olarak, İbn Haldun’un toplumda sürdürülebilir ve adil ortamı garanti eden ahlaki değerlerin nasıl teşvik edileceğine ilişkin bakış açısını ele alacaktır. Onun bakış açısına dayanarak, sosyo-ekonomik kalkınma için vakfın teşvik edilmesi adına önerilen bir uygulama teklif edilmektedir. Bu çalışma sürdürülebilir sosyo-ekonomik kalkınmayı teşvik etmek için vakıf ve İbn Haldun’un bakış açısını detaylı bir şekilde ele alma girişiminde bulunan öncü çalışmaları temsil etmektedir.While waqf past significant contribution towards the welfare of society has been acknowledged, it is believed that waqf has potential to be the icon and esteemed institution to establish Islamic civilization and promote socio economic justice in this contemporary era. While more studies on waqf have been conducted, it is apparent that Western perspective dominates the discussion. Less literatures from well-known Muslim scholar is explored to gain the insight for waqf development. As such, with the spirit for waqf revival, this current study is going to fill this gap by exploring and relating to the perspective of Ibn Khaldun. Firstly, this paper is going to elaborate the perspective of Ibn Khaldun on the role of the State for socio-economic development. Secondly, it will elaborate the Ibn Khaldun’s perspective on how to promote moral values that warrant sustainable and fair environment in the society. Based on his perspectives, a recommended practice is proposed to promote waqf for socio-economic development. This study represents the pioneer work that attempts to elaborate waqf and Ibn Khaldun’s perspective to promote sustainable socio-economic development

Predicting Distress in Islamic Banks: The Effectiveness of Capital Measures in CAMELS Framework

This study aims to identify key capital adequacy measures and other parameters that effectively predict distress in Islamic banks taking a panel of 65 banks from 13 countries between 2008-2017 using logistic regression model. The paper also intends to see whether simpler ratios perform better than more complex, risk weighted measures in predicting distress in these banks. A total of nine alternative capital and leverage indicators are used in the model that mainly rely on financial and accounting data, which are supplemented by the addition of market leverage for listed banks. In order to capture variability in cross country analysis and impact of economic conditions and shocks, the study also adds several macroeconomic indicators in the model. The results suggest that most of the standard CAMELS indicators are relevant for studying distress in Islamic banks. Further, it is shown that three other capital ratios – Tier 1, tangible common ratio and market leverage - are equally effective in studying Islamic bank failures. The findings, however, reflect that Basel III leverage ratio and other accounting-based ratios do not offer effective early warning signals of Islamic bank stress. Overall, equity based risk-weighted capital ratios offer a more robust framework of regulation and supervision in Islamic banks

Shariah governance framework for Islamic co-operatives as an integral social insitution in Malaysia

In Malaysia, Islamic cooperatives are recognized as providers of some form of Islamic financial service similar to Islamic Banks and Takaful Operators. An Islamic Co-operative refers to a co-operative conducting activities and businesses based on Shariah principles. Being a non-banking financial institution, its main objective is to enhance social economic welfare of its members. As a form of captive social institution, it enables the less economically privileged members of society to pool resources as a cooperative. Malaysia is spearheading the Islamic banking and finance industry globally by having in place a proper and well-designed legal and regulatory framework for Islamic Financial Institutions, which includes the area of Shariah governance. However, the Shariah governance framework for the Islamic Co-operative in Malaysia is still in its infancy stage. In this paper, this area will be given focus and properly highlighted. Later, comparison will be made with the Shariah governance framework for the Islamic financial institutions. This paper will conclude that the requirements with regard to Shariah governance for the Islamic Co-operative are flexible and not as strict as required for the Islamic financial institutions

The effect of symmetric and asymmetric information on volatility structure of crypto-currency markets: a case study of bitcoin currency

Purpose – This paper aims to examine whether the crypto-currencies’ market returns are symmetric or asymmetric informative, through analysing the daily logarithmic returns of bitcoin currency over the period of 2011-2017. Design/methodology/approach – In doing so, the symmetric informative analysis is estimated by applying the generalised auto-regressive conditional heteroscedasticity (GARCH) (1,1) model, whereasasymmetric informative or leverage effects analysis is estimated by exponential GARCH (1,1), asymmetric power ARCH (1,1) and threshold GARCH (1,1) models. In addition, the generalized autoregressive conditional heteroskedasticity in mean (GARCH-M (1,1)) was applied to examine whether the risk-return trade-off phenomenon was persistent in crypto-currencies market. Findings – The main findings indicate that bitcoin market return or volatility is symmetric informative and has a long memory to persist in the future. Furthermore, the symmetric volatility is found to be more sensitive to its past values (lagged) than to the new shock of the market values. However, asymmetric informative response of volatility to the negative and the positive shocks do not exist in the bitcoin market or, in other words, there is no leverage effect. This suggests that the bitcoin market is in harmony with the efficient market hypothesis (EMH) with respect to the asymmetric information and violated the EMH with regard to the symmetric information. Hence, the market price or return of bitcoin currency could not be predicted by simply exercising such past market information in the short-run investment. In addition, the estimated coefficient of conditional variance or risk premium (l ) in the mean equation of CHARCH–M (1,1) model is positive however, statistically insignificant. This indicates the absence of risk-return trade-off, in which case the higher market risk will not essentially lead to higher market returns. This paper has proposed that an investment in the crypto-currency market is more appropriate for riskaverse investors than risk takers. Originality/value – The findings of the study will provide investors with necessary information about the bitcoin market price efficiency, hedging effectiveness and risk management