Determinants Contributing To The Primary Market Spread Of Securitization In Malaysia

During the year 1997, the Asian financial crisis disclosed the inherent weaknesses of the financial market in Asia. Organisations had an over-dependence to the banks as the primary sources of fund is one of the reasons why companies faced difficulty during the financial crisis. One of the factors that contributed to the financial crisis was that organizations failed to diversify their financing structure. It is to be noted that when organisations want to source for funds, they can either issue stocks, bonds or finance from banks locally or globally. Source capital from equity and borrowing through debt is considered difficult, expensive and will distort the financial leverage of the company. The development of securitization allows the organization to smooth up their cash flow by converting the illiquid assets into a liquid asset through a special purpose vehicle (SPV). SPV is a legally separated entity from the company or the holder of the assets. SPV can take the forms of either a trust, corporation or partnership set up just for the purchasing of the originator's assets. There are many literature pieces of research that regard the factors that contribute to the pricing of corporate bonds but there are few empirical studies on the determinants on securitization in Malaysia. In view of the increases of awareness of securitization, this paper intends to investigate the determinants contribute to the primary market spread of securitization in Malaysia. The primary market rate is the initial or first-time offer rate by the originator and issued by the SPV. The rate offered by the SPV is based on the underlying lease payment form the originator collection. This research applied regression analysis for the period from 2004 to 2014. The regression results show that three variables have negative and one positive relationship with the primary market spread. Thus, it can conclude that selective variables can act as an important influence to the primary market spread in helping the originators setting the competitive prices in securitization

Does Malaysian Islamic Money Market Efficiently Predict Inflation In The Future? Evidence From Fisher Effect Theory

Fisher theory explains relationship between interest rate and expected inflation rate that indicates market efficiency. In Malaysia, the Islamic money market has gained importance since its own largest composition in Malaysian financial market. This study attempts to examine the existence of Fisher Effect relationship in Malaysian Islamic Money Market. Period of the time series data spanning from 2010 to 2017. Three variables include in this paper which are Inflation Rate (INF), 3-months Malaysian Islamic Treasury Bills Rate (MITB) and Islamic Interbank Rate (IIR). First stage of analysis is to examine the existence of the Fisher effect relationship by applying Autoregressive Distributed Lag (ARDL) approach as an estimation method. Second stage analysis is to determine the Fisher Effect relationship appear in a weak or strong form relationship. The findings suggest the Fisher Effect theory exists in Malaysian Islamic money market thus implies the efficiency of Islamic Money Market to predict inflation’s movement in the future. However, it appears in a weak form of relationship. Overall, the outcome of this study is highly benefit to policy maker as the role of Fisher Effect in predicting inflation reflect an effective monetary policy to promote economy growth and sustainable development

Validity of fisher effect theory: Evidence from the conventional and Islamic money market in Malaysia

This study attempts to examine existence of Fisher Effect theory in Malaysia’s conventional and Islamic money markets. Time series data has been included for the years 2011 to 2018 and consists of two stages of data analysis. First stage analysis examines the existence of a Fisher Effect relationship by applying the Autoregressive Distributed Lag (ARDL) approach as an estimation method. Second stage analysis determines the strength of the Fisher Effect relationship by imposed restriction β=1 using standard asymptotic Chi-square in Wald test. The findings found that the Fisher Effect theory valid in Malaysia’s Islamic money market but there is no evidence for the conventional market. This outcome suggests that the Islamic money market can accurately predict inflation in the future. However, it appears in a weak form of relationship. Overall, outcomes of this study provide benefits for policy-makers since the existence of the Fisher relationship reflects an effective monetary policy for economic growth and sustainable developmen

Validity Of Fisher Effect Theory: Evidence From The Conventional And Islamic Money Market In Malaysia

This study attempts to examine existence of Fisher Effect theory in Malaysia’s conventional and Islamic money markets. Time series data has been included for the years 2011 to 2018 and consists of two stages of data analysis. First stage analysis examines the existence of a Fisher Effect relationship by applying the Autoregressive Distributed Lag (ARDL) approach as an estimation method. Second stage analysis determines the strength of the Fisher Effect relationship by imposed restriction β=1 using standard asymptotic Chi-square in Wald test. The findings found that the Fisher Effect theory valid in Malaysia’s Islamic money market but there is no evidence for the conventional market. This outcome suggests that the Islamic money market can accurately predict inflation in the future. However, it appears in a weak form of relationship. Overall, outcomes of this study provide benefits for policy-makers since the existence of the Fisher relationship reflects an effective monetary policy for economic growth and sustainable developmen

Social role of microfinance institutions in poverty eradication: evidence from ASEAN-5 countries

Banking institutions have witnessed the failure of poverty reduction due to high risk service for poor people. Microfinance institutions (MFIs) were developed to provide financial services for low income households. In the drive to supply continuous financial services for the poor, performance of the MFIs has been one of the crucial aspects that needs consideration. The MFIs began with a social goal aim of poverty reduction. However, the commercialization of the MFIs has resulted in them becoming financially independent as they are funded by a previous government. Today the MFIs need to retain the social role, to eradicate poverty whilst at the same time they must strive to sustain long term operation. Are the MFIs still able to sustain their social goals when they also need to focus on financial sustainability? This study proposes to determine the level of social efficiency among MFIs in ASEAN 5 countries as the first objective. Secondly it will examine the impact firm characteristics that internally influence the social efficiency of the MFIs. The data consists of 168 MFIs from Southeast Asia that covers five countries from the year 2011 to 2017. The first stage of analysis to identify the level of social efficiency by using non parametric Data Envelopment Analysis (DEA) approach. The second stage of analysis is to examine the impact of firm characteristics to influence the social efficiency by applying Multivariate Panel Regression Analysis (MPRA) as an estimation method. The findings reveal the MFIs in ASEAN 5 countries have a lower social efficiency. This indicates the MFIs in ASEAN 5 countries has traded their original mission of poverty reduction to focus more on achieving financial sustainability for long term viability

The Impact Of The Bank Regulation And Supervision On The Efficiency Of Islamic Banks

This study investigates the impact of bank regulation and supervision on the efficiency of banking sectors on 108 Islamic banks from 26 countries offering Islamic banking and finance products and services. The technical efficiencies of individual Islamic banks have been analyzed using the data envelopment analysis method (DEA). The ordinary least square estimation method is employed to examine the impact of country supervision and regulation on the technical efficiency of Islamic banks. The empirical findings suggest that supervisory power, activity restrictions and private monitoring positively influence the efficiency of Islamic banks. The study revealed that Islamic banks that are operating in Middle East and North Africa (MENA) and middle-income countries are more technically efficient given the less stringent rules on capital requirement and we found that there is statistically significant evidence that higher capital requirements are negatively associated with the efficiency of Islamic banks. The empirical findings of this study are expected to help policy-makers and government officials to better understand how their decisions affect the performance

Impact of firm characteristics, macroeconomic conditions, bank regulation and supervision on social and financial efficiency of microfinance institutions

Commercial banks have witnessed the failure of poverty reduction due to high risk to serve for poor people. Microfinance institutions (MFIs) were established to fill the gap created by the commercial banks by providing a financial service mainly for low income people. In the drive to supply continuous financial services for the poor, performance of the MFIs has been one of the crucial aspects needs to consider. The MFIs begins the operation with its social goal aims for poverty reduction. However, the commercialization of Microfinance in the 1990s has resulted them to become a financial independent, since they are fully funded by a government in previous. Thus, to count solely on the social goal to measure the performance of the MFIs is no longer consistent. They need to be in parallel with the financial goal to ensure the stability of the MFIs in providing financial products in the long run. The commercialization also has upgraded the legal status of the MFIs to be regulated and govern by bank regulation and supervision. Is it acceptable for the MFIs with dual needs of social and financial sustainability being govern under the same roof with the commercial banks? To date, the question is remained debatable. This study proposes to determine the performance of the MFIs from two different aspects of social and financial efficiency in the first objective. In the second objective is to examine the impact of firm characteristics and macroeconomic conditions on the level of social and financial efficiency of the MFIs. The third objective of the study is to investigate the effect of bank regulation and supervision on social and financial efficiency of the MFIs. The data consists of 168 MFIs from five countries in Southeast Asia region (ASEAN-5) from 2011 until 2017. First stage of analysis is to identify the level of social and financial efficiency of the MFIs by using Data Envelopment Analysis (DEA) method. The data are further tested by parametric (t-test) and non-parametric Mann-Whitney (Wilcoxon) and Kruskal-Wallis tests. Second stage of analysis is to evaluate the determinants and the impact of bank regulation and supervision on the social and financial efficiency by applying the Multivariate Panel Regression Analysis (MPRA) and Generalized Method of Moments (GMM) as an estimation method. The findings in the first stage analysis show the score of financial efficiency is higher than social efficiency. Although the MFIs is financially efficient to sustain the operation in the long run, the result also discovers the MFIs in ASEAN 5 countries are inconsistent to balance between the social and financial performance as they tend to focus more in achieving financial sustainability thus leave the social effort for poverty eradication. In the second stage of analysis, main result from the GMM estimations indicates the firm characteristics and macroeconomic conditions give a significant influence on the social and financial efficiency of the MFIs. Furthermore, the results also present the significant impact of bank regulation and supervision to the social and financial efficiency of MFIs. However, bank regulation and supervision are found to give more positive impacts to the financial efficiency while negatively effect to the social efficiency of the MFIs. This indicates the bank regulation and supervision are not appropriate with operations of the MFIs since they are not equally fulfill between the social and financial needs of the MFIs. Overall, the study provides a new insight to the MFIs industry especially for the bank regulators and policy makers to develop a uniform set of regulation and supervision that more appropriate with the nature of the MFIs operations. This is to ensure the MFIs able to achieve financial goal for sustainability in the long run while in the same time accomplish the social goal for poverty reduction

The Fisher Effect in conventional and Islamic money markets in Malaysia

Current volatile environment in the global financial markets provides a challenging avenue to which the Malaysian financial system and economy would be in pressure by negative external forces. The global economy crisis in year 1998 and 2008 has brought many negative consequences to Malaysian economy as inflation is recorded high and increase in unemployment rate. In this condition, the movement between interest and inflation rates becomes tough to estimate. High inflation and high interest rates hamper economy growth by discouraging investment and reducing output of the country. This study examines the relationship between interest rates and expected inflation rates in Malaysia. Fisher (1930) postulates a theory that explained one-to-one relationship between interest rates and expected inflation rates. In Malaysia, previous empirical studies on the Fisher Effect have focused the relationship on conventional market, leaving Islamic market with no or very few studies. On the first objective, this study aims at assessing the validity of Fisher Effect between Conventional and Islamic Money Market in Malaysia. Time series data spanning from 2005 to 2012 is chosen as the study duration. Five variables are used in this study; they are Inflation Rate (INF), 3-months Treasury Bills Rate (MTB), Interbank Rate (IBR), 3-months Islamic Treasury Bills Rate (MITB) and Islamic Interbank Rate (IIR). In order to investigate the Fisher Effect, this paper employs the Autoregressive Distributed Lag (ARDL) approach that is capable of testing for the existence of a long-run cointegration between the variables irrespective of whether the time series that are being studied are I(0) or I(1). This analysis has also identified the relationship whether they are in a strong or weak form of Fisher Effect. The estimation results indicate the presence of Fisher Effect relationship on the basis of Islamic money market in Malaysia. However, the relationship appears in a weak form. For conventional market, no evidence of Fisher Effect has been found. For the second objective, this study examines the direction of relationship between interest rates and inflation rates in the short run. Although the existence of a long-run relationship among these variables has been identified, the direction whether the changes in interest rates is causing changes in inflation or changes in inflation is causing changes in interest rates is still inconclusive. For this purpose, this study employs a Granger causality test developed by Granger 1969). The findings revealed that the IBR, MITB and IIR have unidirectional relationship with inflation rate in the short run. However, no directional relationship has been found between MTB and Inflation rates. Overall the study provides supportive evidence on the importance of Fisher Effect theory and the results help monetary authorities to formulate better monetary policy in future (Ito, 2009). Other than that, the results also help the investors by giving direction on the behaviour of inflation rates so that they can preserve their value of money and invest in better investment vehicles

Does bank regulation and supervision impedes the efficiency of microfinance institutions to eradicate poverty? evidence from ASEAN-5 countries

Purpose: The purpose of this study is to examine how banking regulation and supervision affect the performance of microfinance institutions (MFIs). It proposes performance of the MFIs from the aspect of social and financial efficiency because the MFIs nowadays not only view to sustain the social role of poverty eradication but in the same time they must strive the financial sustainability to maintain the operation in long run. This study also includes the macroeconomic condition and firm level variables to control for social and financial efficiency of the MFIs. Design/methodology/approach: The data consists 168 MFIs from five countries in Southeast Asia from year 2011 to 2017. First stage of analysis is to identify level of social and financial efficiency by using data envelopment analysis approach. Second stage is to examine impact of bank regulation and supervision to the social and financial efficiency by applying panel regression analysis and generalized method of moments for robust estimation methods. Findings: The finding shows the MFIs own lower social efficiency and higher score in financial efficiency. This indicates in pursuing financial sustainability, the MFIs in Southeast Asia countries have lost sight of their original mission of poverty reduction. Furthermore, the result also presents a significant impact of bank regulation and supervision to the social and financial efficiency of the MFIs. However, the results appear in different direction when more negative effect is associated with social efficiency. This specifies that bank regulation and supervision are not appropriate to accommodate the social needs, thus hampering the effort of poverty reduction by the MFIs. Research limitations/implications: The present study only concentrates on the impact bank regulation and supervision to the performance of the MFIs. As the operation of the MFIs currently has been largely exposed in banking operation, it is suggested that future studies to look for other special issues such as country governance that might influence specifically in social and financial aspect of the MFIs. Practical implications: The empirical findings from this study could be useful and may have significant implications for the regulators. The regulators or policymakers could establish the new regulation framework that fulfil the dual needs (social and financial) of the MFIs. Furthermore, the empirical findings also could serve as guidance to regulators and decision-makers in designing new policies for a sustainable and competitive sector of the MFIs. Although the MFIs recently brings a similar role as commercial banks, they need to retain the social aspects as that is the original mission of the MFIs. Originality/value: The present study proves that the bank regulation and supervision have brought a significant influence to the performance of the MFIs in ASEAN 5 countries