Capital Adequacy Ratios, Efficiency and Governance: a Comparison Between Islamic and Western Banks

The profit and loss sharing principle that is peculiar to Islamic finance reformulates the allocation of risk between stakeholders. Since in Islamic banks depositors are closer to stockholders in terms of residual claiming on profits, the relationship between capitalization and efficiency should in principle be weaker than in their Western counterparts. Results, obtained by means of a stochastic cost frontier analysis on samples of European-15 and Islamic banks during the period 1996-2002, show that the ratio of equity to deposits negatively affects inefficiency in both types of banks, but this effect is considerably undersized in Islamic banks as compared to European ones. This supports the reluctance that has accompained the proposal of capital adequacy ratios for Islamic banks in accordance to Basel Agreements.Islamic Banks, capital, governance.

Courts Delays and Crime Deterrence (An Application to Crimes Against Property in Italy)

Using Italian data in the period 1999-2002, we estimate the impact of trials delay on the willingness to commit crimes against property. However, the endogenous relationship that links the former to the latter could generate serious problems of inconsistency in the estimation procedure. Since geographical distance can be considered an exogenous determinant of the probability of belonging to peripheral courts, which are typically considered less efficient than main ones, it should represent a valid candidate instrument for trials delay. Estimates obtained by means of Two- Stages Least Squares show a significant positive effect of trials duration on crimes, supporting the hypothesis that some criminals are either sensitive to the discounting process of punishment or aware of the probability of prescription, or both. As a side result, we also find a relationship between courts' fragmentation and trials duration. This suggests that an optimal dimension of courts is likely to exist, and that policy makers should take this into consideration in the design of the jurisdictional geography.Illegal Behavior, enforcement of Law, Criminal Law.

Microfinance and Investment: a Comparison with Bank and Informal Lending

Using data from a World Bank survey carried out in Bangladesh during the period 1991-1992, we compare the impact of microfinance programs and other types of credit on agricultural investment. After controlling for several measurable determinants of credit agreements, such as interest rates and collateral, estimates still show that microfinance programs are more likely to increase variable input expenditure than informal and bank credit are able to do. This provides evidence that microfinance incentive devices (joint responsibility, peer monitoring, social sanctions, future credit denial in case of default, etc.), perhaps together with other services associated with programs, are effective in order to promote a productive use of funds.Microfnance, Banks, Informal lending, Investment.

Solidarity Behind Microfinance

In this paper we analyse the role of peers' solidarity in fostering investment in production in the context of micro?nance. When there is asymmetric information between lenders and borrowers on the use of borrowed funds and loans are not collateralized, there is a high chance that borrowers use loans for current consumption sacrifying productive projects. We study the effect of solidarity in the form of insurance from a network of relatives on borrowers' intertemporal preference for consumption and its impact on myopic behavior. The main result of the model is that solidarity might increase the share of funds devoted to investment but it might also reduce the amount of the loan in equilibrium. This result is in accordance with several features of micro-lending. We test the model using survey data from the World Bank on a sample of households in Bangladesh during the period 1991-1992. Empirical fi?ndings support the predictions of the model.Microfinance, credit rationing, social networks

Judicial Ideal Points in New Democracies: The Case of Taiwan

This paper extends the empirical analysis of the determinants of judicial behavior by estimating the ideal points for the Justices of the Taiwanese Constitutional Court from 1988-2009. Taiwan presents a particularly interesting case because the establishment and development of constitutional review corresponds to the country \u27s political transition from an authoritarian regime to an emerging democracy. The estimated ideal points allow us to focus on political coalitions in the Judicial Yuan based on presidential appointments. We did not find any strong evidence of such coalitions. Our empirical results indicated that, with the exception of a handful of Justices, most of them have moderate estimated ideal points. In the context of the Taiwanese Constitutional Court, our results also confirm the previous econometric analysis that largely rejected the attitudinal hypothesis, which predicted that Justices would respond to their appointers\u27 party interests

Money management and entrepreneurial training in microfinance: impact on beneficiaries and institutions

This study uses a randomized control trial to evaluate the outcome of integrating money management and entrepreneurial training into a microcredit program in India. We find positive and significant effects on clients' financial management skills and entrepreneurship abilities, particularly for clients with higher human capital, or more diligent, or having an entrepreneurial idea, and an increase in initiative and self-confidence. Effects appear stronger for clients obliged to attend the training course or more interested in attending it. By considering missed or delayed repayments reduction we assess the benefits of the training provided and of extending it for the institution

Are bankers “crying wolf”? Type I, type II errors, and deterrence in anti-money laundering: the Italian case

Excessive and useless reporting, called the “crying wolf effect,” is a crucial shortcoming that any anti-money laundering (AML) design aims to address. For this reason, in recent years, AML policies in both the US and Europe have switched from a rule-based to a risk-based approach. This study theoretically and empirically investigates whether the risk-based approach delivers the expected results. The theoretical model shows that a trade-off can emerge between accuracy (fewer type-I and type-II errors) and deterrence. The empirical analysis, conducted after the risk-based approach was introduced in Italy, confirms this trade-off. More specifically, deterrence seems a priority, whereas accuracy is sacrificed. In this respect, the data suggest that Italian bankers are likely to “cry wolf.