Comparative evaluation of credit risk determinants between Islamic and conventional banking

The successful co-existence of the dual banking system in Malaysia poses several claims that the Islamic and conventional banking operations are the same in their approach towards banking risks. This study aims to investigate this issue through fulfilling the research objectives, namely (a) to document the Islamic philosophy of risks that exists in the Quran and Hadith, and establish the differences from the conventional perspectives; (b) to conduct an empirical investigation on the credit-risk level and to determine the influence of fourteen bank specifics and six macroeconomic variables affecting the credit risk of the two banking streams and (c) to establish statistical difference between the credit-risk determinants of the Islamic and conventional banks. The study employs financial data from the annual reports of 15 Islamic banks and 13 conventional banks for the period of 11 years from 2000– 2010. The finding reveals that risk in Islamic banking refers to a wider interpretation covering the concepts gharar. mysir, mukhatarah, al ghunm bil ghurm and al kharajbil daman than the element of uncertainty as in the conventional finance. The credit-risk level was found higher in conventional banking in the early years of the study but gradually decreased to almost the same level for both banking streams in the later part of the study, against a backdrop of better economic performance, improved asset quality and risk management. Three determinants, namely risky sector financing, regulatory capital, and Islamic contract are found to be significant contributors to the credit risk of Islamic banks with the Islamic contract being the largest contributor. For conventional banks, a different set of variables such as loan- loss provision, debt-to-total asset ratio, regulatory capital, size, earning management, and liquidity are significant factors influencing their credit risk. At the macro level, only inflation and money supply aresignificant to credit risk for both the Islamic and conventional banks. However, the result shows that the Islamic banks’ unique investment structure provides a better buffer against risk since they are less affected by the economic factors. Since the factors examined showed different impacts on the credit risk of the Islamic and conventional banks, the findings imply that different risk-management strategies should be applied by each type of bank for better performance. While conventional banks engage in more off-balance sheet items as part of their risk-diversification strategy, Islamic banks should diversify their financing concentration in Bai-Bhithaman Ajil (BBA) and Murabahah contracts to high quality assets- backed-based projects

The paradox of managerial ownership and financial decisions of the textile sector: An Asian market perspective

The managerial ownership and its impact on financial decisions such as cash holding, and capital structure have been the subject of debate of corporate governance literature. The main objective of this study is to investigate the impact managerial ownership places on financing and cash holding decisions. In addition to that, the currents study is also offering an interesting insight on the issue of simultaneity of financing and cash holding decisions and also will discuss that how the interdependence changes as the level of managerial ownership changes. This study examines the data of 60 companies listed on Pakistan Stock Exchange over the period from 2013 to 2017. To trace the endogeneity, we have employed the Wu Hausman test. It evident from the results that the p-value of both models is significant, which confirms the endogeneity between cash holdings and capital structure decisions. In both models, the managerial the leverage and cash holdings are in positive relation. The MO appears in a non-linear relationship with both cash holding and capital structure decisions of textile firms. The results of the study are also providing support to agency theory, pecking order theory and signaling theory

The emergence of Islamic banking: development, trends, and challenges

Islamic banks have emerged over the last four decades and witnessed remarkable growth in terms of numbers of new Islamic banks being established all over the world.This expansion is paralleled to an equal high growth in Islamic banking education.There exist various colleges and universities offering courses related to Islamic banking and finance.This paper maps the growth and development of Islamic banking industry from 1963 to the 21st century both in terms of education, trend and challenges.This study could provide a systematic documentation of the rapid growth in the Islamic banking industry and able to attract new participants.However, the rapid development in the global financial markets poses various challenges to Islamic banking in the present era. These issues and challenges need to be addressed very carefully in order to sustain the rapid growth it experienced before.This paper highlights the various developments, issues and challenges confronting the Islamic banking to offer recommendations for further improvement

Green marketing and purchasing decisions among teenagers: an empirical perspectives

The objective of this paper is to identify relationship between green marketing and purchasing decision among teenagers. A convenience sampling method was employed from university students enrolled in Malaysia, who have embarked on green marketing successfully. Eight factors were found to be critical for purchasing decisions among teenagers. The factors are demographic, environmentally conscious consumer behaviour, perceived consumer effectiveness, environmental concern, liberalism, eco-brand and green marketing advertisement. The paper provides a framework for future research to explore the teenagers purchasing decisions

Syari’ah compliance and lawful profit making dilemma in Malaysian Islamic Banks

The significant roles of syari’ah and Islamic banking undeniably critical in order to ensure about compliances to the Islamic principle this in turn provide a very conclusive picture whether Islamic banks truly concerns about Islamic requirement when introducing any type of product that might have any significant effect on its marketability, however the terms used in Islamic banks currently are highly suspicious of being involved in unlawful practices as mentioned in the holy text Al-Quran, this has triggers the increased concerned about the strength of relationship between syari’ah compliance and profitability.The trade-off between profit and syari’ah compliance has remained one of very important issues which they must be addressed to ensure that Islamic banks are not only profit making financial institution but it also very concerns about the roles of Islam and the way that profit is gained to avoid making any profit that against the principle of syari’ah

Systematic and Unsystematic Risk Determinants of Liquidity Risk Between Islamic and Conventional Banks

The fundamental function of banking remains unchanged throughout the the history of banking theory. The management of risk, asset and liability remain the core function of banking. The early signal of banking crisis can be observed from the volatility of liquidity risk. Hence, this study attempted to investigate the influence of external and internal factors affecting liquidity risk of Islamic and conventional banks. This study employs time series regression analysis of Islamic banks and conventional banks from 2000 to 2010. The study found that Islamic banks maintain higher liquidity compared to conventional banks. The multivariate regression analysis shows that four out of fourteen bank-specific factors and one macroeconomic factor significantly influence the liquidity risk of Islamic bank whereas conventional banks show that Five out of thirteen bank-specific factors are significant to liquidity risk. Keywords: Liquidity risk, Islamic banks mode of financing and unique risks  formation JEL Classifications: E58, G21, E400, E430, G01

Theory of Gharar and its interpretation of risk and uncertainty from the perspectives of authentic hadith and the Holy Quran: Review of literatures

The inconclusive definition of Gharar as risk and uncertainty can be commonly found in the contemporary literatures. The difference in the meaning of Gharar is generally thought to be due to the difference in the jurisprudence point of views. The current practice is that there is no standard in defining the terms. The study employs content analysis approach to review available literature on the term Gharar. The finding of this study introduces steps in defining terminology namely; dictionary definition, Arabic linguistic definition and jurisprudence definition. However, the philosophy of risk as stated in the Holy Quran and Hadith differs from the concept of risk in conventional finance. The finding reveals that risk in Islamic banking refers to a wider interpretation covering the concepts gharar. mysir, mukhatarah, al ghunm bil ghurm and al kharajbil daman than the element of uncertainty as in the conventional finance. This contributes to the existing body of knowledge in the area of risk elements in Islamic contracts

Factor influencing job involvement in Universiti Malaysia Perlis (UniMAP)

This paper attempts to identify the relevant factors that create a massive collision on the job involvement at Universiti Malaysia Perlis (UniMAP). The sample of 110 was drawn from academic staff which are divided into categories of professor, associate professor, senior lecturer and lecturer. The results indicated that job involvement of UniMAP academic staffs is depends on the three dimension factor of job involvement in workplaces which are motivation, organizational citizenship behavior and job satisfaction. Among three factors tested in this study, UniMAP academic staff agreed that organizational citizenship behavior and job satisfaction influenced their job involvement. However, it is found that motivation has no significant relationship with job involvement of UniMAP academic staff

Theory of Gharar and its interpretation of Risk and Uncertainty from the perspectives of Authentic Hadith and the Holy Quran: A Qualitative Analysis

The inconclusive definition of Gharar as risk and uncertainty can be commonly found in the contemporary literatures. The difference in the meaning of Gharar is generally thought to be due to the difference in the jurisprudence point of views. The current practice is that there is no standard in defining the terms. Hence, this study introduces steps in defining terminology namely; dictionary definition, Arabic linguistic definition and jurisprudence definition. However, the philosophy of risk as stated in the Holy Quran and Hadith differs from the concept of risk in conventional finance. The finding reveals that risk in Islamic banking refers to a wider interpretation covering the concepts gharar. mysir, mukhatarah, al ghunm bil ghurm and al kharajbil daman than the element of uncertainty as in the conventional finance