Islamic Banking: a Growing or Shrinking Consumer Market in Kuwait?

Islamic Banking: a Growing or Shrinking Consumer Market in Kuwait?
By Faten Jabsheh, Weam Behbehani, and Shaima Al-Shamali

Abstract: "The steady expansion of Islamic banks (IBs) has been the hallmark of the Muslim financial landscape of the 1980s and 1990s. With a network that covers over 60 countries and an asset base of over $166 billion, Islamic banks are currently playing an increasingly significant financial and developmental role in their respective economies. Islamic banking has gained increased attention in the GCC (Gulf Cooperation Council) over the past number of years, capturing a growing 13% share of total Islamic banking assets around the world. This paper questions the growth of Islamic banking activity in the GCC, and focuses on developing prospects for one GCC country, namely Kuwait. Using detailed survey instruments regarding the provision of various Islamic banking services, the results of this study affirm the hypothesis that Islamic banking is claiming a growing market share and consumer market in Kuwait."

Islamic Banking: a Growing or Shrinking Consumer Market in Kuwait?

Background Material: Islamic Interbank Benchmark Rate (IIBR)

You can find additional information on the recently launched Thomson Reuters' Islamic Interbank Benchmark Rate (IIBR) through the various links below.  This includes the main Islamic Benchmark website as well as various PDF documents included below.


Further details can be found on the following topics:
- Background
- Definition, methodology & criteria
- Timing of publication
- Contributor Panel
- Governance

Specific PDF documents include:
IIBR fact sheet
IIBR FAQ
IIBR Governance Procedures 
Terms of Reference - Shariah Committee
Terms of Reference – Islamic Benchmark Committee
Shariah Opinion (English)
Shariah Opinion (Arabic)

Background Material: Islamic Interbank Benchmark Rate (IIBR)

Harvard Islamic Finance Project DataBank

The Harvard Islamic Finance Project (IFP) website contains reports of IFP events for the past sixteen years and the Databank with over 9,000 records which include bibliographic information along with abstracts on articles, books, book chapters, conferences and theses relevant to the field of Islamic finance and economics. In addition to these resources, a collection of Quranic verses and hadith as well as a glossary of terms related to Islamic finance are included.


Users can register and access the Databank free of cost at http://ifp.law.harvard.edu. The IFP also features an option for users to submit their own published work or any relevant items via "Submit Your Work" option on the menu bar.


Many thanks to Muhammad Hassaan Yousuf for highlighting this resource.

Harvard Islamic Finance Project DataBank

Intertemporal Test of Beta Stationarity Performance of Islamic Sector Structured Mutual Funds

Intertemporal Test of Beta Stationarity Performance of Islamic Sector Structured Mutual Funds
By Mahmoud Haddad, Ghassem Homaifar, Said Elfakhani and Hikmat Ahmedov

Abstract: "The purpose of this research paper is to examine social Islamic mutual funds’ financial performance. Since Islamic mutual funds have only been around for the past two decades, most of the research on this topic is fairly new. In this study we apply the single factor model of Schwert and Seguin (1990) to a sample of Islamic mutual funds. The Islamic mutual funds market is one of the fastest growing sectors within the Islamic financial system. Several studies have investigated the characteristics of individual Islamic mutual funds (see Elfakhani, et al (2006), Elfakhani ,et al (2005), and Hassan, et al (2005). We are not aware of any studies that have applied the Schwert and Seguin methodology to Islamic mutual funds. Such an application is important because it allows for studying the impact of market volatility on the time variation of monthly betas and the corresponding returns. Using the S&P 500 and the FTSE Global Islamic indices on sector structured Islamic mutual funds, our results suggest that the volatility of the market and that of the Islamic mutual funds portfolio behave differently with inter and intra market proxies. There is also evidence that the volatility persistence of each Islamic mutual fund portfolio and its systematic risk are significantly related. Hence, the systematic risks of different portfolios tend to move in a different direction during periods of increased market volatility. As a result, we gain an insight into the return dynamics and the process by which Islamic mutual funds prices are determined."

Intertemporal Test of Beta Stationarity Performance of Islamic Sector Structured Mutual Funds

Financial Guarantee as an Innovation Tool in Islamic Project Finance

Financial Guarantee as an Innovation Tool in Islamic Project Finance
By M. Kabir Hassan & Issouf Soumaré

Abstract: "This paper proposes a model to study the arrangement of Islamic project finance with the participation of the government as a provider of loan guarantees. The owner-shareholders (musharaka certificate holders) initiate a project and raise funds by issuing Islamic profit-loss sharing mudaraba certificates. The government intervenes in providing financial guarantees in order to enhance the creditworthiness and increase the mudaraba capital capacity of the project. Our work raises several policy implications related to the structuring of Islamic project finance and the participation of both government and multilateral public agencies such as the Islamic Development Bank. It provides a unifying framework for the improvement of access to funds for Islamic projects and gives a rationale for government intervention in the arrangement of these projects."

Financial Guarantee as an Innovation Tool in Islamic Project Finance

Can Islamic finance play key role in growth and prosperity?

Can Islamic finance play key role in growth and prosperity?
By Mushtak Parker
Arab News
July 2011

"In perhaps one of her more potentially important speeches in recent times, Zeti Akhtar Aziz, governor of Bank Negara Malaysia, the central bank, stressed that the increasing internationalization of Islamic finance and the burgeoning trade and economic linkages between the emerging countries present an important opportunity for the industry to make a meaningful and enhanced contribution toward economic growth and prosperity of these countries."

Can Islamic finance play key role in growth and prosperity?

A Different Kind of Consolidation in Islamic Finance

A Different Kind of Consolidation in Islamic Finance
By Rushdi Siddiqui
July 2011

One of the most over-used words in Islamic finance is not standardization, scholars, regulations, etc., but 'consolidation'. Islamic banks, Islamic leasing companies, Takaful companies need to consolidate to reach size and achieve scale.

A Different Kind of Consolidation in Islamic Finance

Development of Islamic Banking with Reference to UAE

Development of Islamic Banking with Reference to UAE
Fayaz Ahamed
June 2010

Abstract: Banks play an important and active role in the economic development of a country. The global financial system (GFS) is a financial system consisting of institutions and regulators that act on the international level, as opposed to those that act on a national or regional level. Islamic banking is a classical concept. Islamic banking system has emerged as a competitive and a possible substitute for the conventional banking system during the last three decades. Islamic Banking is no longer limited to specialized institutions and has expanded both geographically and in product richness, with structured credit finance receiving most of the attention. Greater importance of the General Council for Islamic Banking and Finance Institutions (GCIBFI), the Islamic Financial Service Board (IFSB), the Islamic International Rating Agency (IIRA) and the Accounting and Auditing Organization of Islamic Finance Institutions (AAOIFI), will add consistency in accordance to Islamic laws [shariah] interpretations by religious boards and the primacy of bankable governing law as a matter of form remain essential to further growth of Islamic banking.


Islamic banking transactions are governed by the codes of the shariah, which prohibits interest and regulates that income, must be resulting as return from capitalist investment. This present study analyses the Islamic banking operations currently practiced in Global banking system. This paper explains the fundamental legal principles of Islamic Banking, which includes a brief review of the current state of Islamic banking development and provides the analysis of Islamic Banks with their acquired results. The paper suggests a Global organization that would allow Islamic banks to develop in compliance with its Islamic laws [shariah] principles.

Development of Islamic Banking with Reference to UAE

Have Islamic Banks Been More Resistant than Conventional Banks to the 2007-2008 Financial Crisis?

Have Islamic Banks Been More Resistant than Conventional Banks to the 2007-2008 Financial Crisis?
By Khawla Bourkhis and Mahmoud Sami Nabi

Abstract: "The recent global financial crisis has induced a series of failure of many conventional banks and led to a renewal of Minsky (1986)’s critics about the inherent instability of the fractional-reserve banking. In this context, many economists advocate for the return to narrow banking and/or for favoring the development of Islamic banking supposed to be more resilient to the financial crises. This paper attempts to answer empirically the two following questions: i) Have Islamic banks (IBs) been more resistant than their conventional peers (CBs) to the 2007-2008 financial crisis? ii) Could the presence of Islamic banks in a conventional banking system enhance the overall systemic stability? The main findings are the following. Before the financial crisis, IBs were more profitable than CBs. Then, in 2007-2008, only the large IBs remained more profitable than the large CBs. However, IBs became less profitable in 2009 when the crisis’s pass-through to the real economy had sufficiently increased. Moreover, we show that CBs were more resistant to the crisis than IBs. Hence, IBs illustrated a degree of resilience and stability during the first (financial) wave of the crisis. However, they have been impacted during the second (real) wave because of their higher exposure to real estate and their limited reliance on risk sharing instruments. Nevertheless, we find a positive externality of large IBs on the soundness of large CBs which could be justified by their asynchronous reactions to the crisis."

Have Islamic Banks Been More Resistant than Conventional Banks to the 2007-2008 Financial Crisis?

The International Role of Islamic Finance

The International Role of Islamic Finance
QFinance
By Andreas Jobst

Executive Summary

• Islamic finance has become mainstream, with more than US$800 billion of assets worldwide. However, it still faces distinct developmental challenges from economic and legal constraints associated with sukuk, banking-specific issues, and fragmented financial regulation.

• Although Islamic capital markets and banking have defied the impact of the financial crisis, some negative effects were felt in 2008 and are likely to inhibit further expansion.

• Despite current challenges, most of which arise from the infancy of the industry, Islamic finance has promising long-term prospects.

The International Role of Islamic Finance

Report Card of Islamic Indices

Report Card of Islamic Indices
By Rushdi Siddiqui
Business Times
July 2011

"Islamic equity indices, 1.0, became a global ‘instrument’ in 1999, with the launch of the Dow Jones Islamic Market Index (DJIM). But, what progress, if any, has been made in the last 11 years on Islamic indexing?"


Read more: Report card of Islamic indices

Report Card of Islamic Indices

The 1997-98 East Asian Financial Crises: an Islamic Perspective

The 1997-98 East Asian Financial Crises: an Islamic Perspective
By Adam B. Elhiraika

Abstract: "This paper examines the causes and policy implications of the 1997-98 financial crises in East Asia from an Islamic perspective. The paper suggests that the crises may be better understood as consequences of internal contradictions in the interest-based financial system as regards risk and return sharing between financiers and entrepreneurs. The analysis challenges orthodox policy prescriptions and concludes that the Islamic principle of partnership in finance, which calls for profit and loss sharing and emphasizes the need for project finance, seems to provide the ingredients for the long-sought solutions."

The 1997-98 East Asian Financial Crises: an Islamic Perspective

Residual Income Models and the Valuation of Conventional and Islamic Banks

Residual Income Models and the Valuation of Conventional and Islamic Banks
Doctoral thesis, University of Surrey
Schoon, Natalie (2005)

Residual Income Models and the Valuation of Conventional and Islamic Banks

The Stability of Islamic Banks During the Subprime Crisis

The Stability of Islamic Banks During the Subprime Crisis
Aniss Boumediene, Université Paris I Panthéon-Sorbonne - Institut d'Administration des Entreprises de Paris (IAE Paris)
Jerome Caby, ICN Business School
December 2009

Abstract: "This empirical study examines the stability of Islamic banks during the subprime crisis. It covers a sample of fourteen Islamic banks and fourteen conventional banks. The conditional variance (volatility) of returns was used to measure stability. The E-GARCH and GJR-GARCH asymmetric models were used to estimate volatility due to their ability to take into account the leverage effect. The results of this study show that conventional bank returns were highly volatile during the crisis period, while Islamic banks saw their volatility - initially low - increase during the crisis, though to a much more moderate extent. These results corroborate both the hypothesis that Islamic banks were at least partially immune to the subprime crisis and the underlying hypothesis that Islamic banks are not subject to the same risks as conventional banks - although, due to their links with the real economy, they do eventually suffer the consequences of the subprime crisis."

The Stability of Islamic Banks During the Subprime Crisis

Exploring the Optimal Method of Penetration into the Saudi Islamic Investment Banking sector

Exploring the Optimal Method of Penetration into the Saudi Islamic Investment Banking sector
Banker Middle East Magazine
By Mohammed Khnifer (MSc,MBA,CIFP)

This research paper highlights the potential which lies within the opportunities offered by the under-developed Saudi Islamic investment banking sector.

Exploring the Optimal Method of Penetration into the Saudi Islamic Investment Banking sector

Do Islamic Banks Employ Less Earnings Management?

Do Islamic Banks Employ Less Earnings Management?
Majdi Anwar Quttainah, Laing Song and Qiang Wu

Abstract: "In this paper, we examine 1) whether Islamic banks are less likely to manage their earnings, and 2) how the corporate governance system, especially Shari’ah Supervisory Boards (SSBs), impacts the earnings management behaviors within Islamic banks. Using a sample of Islamic Banks and a matched non-Islamic Banks in the ERF region, we find that first; Islamic Banks are less likely to conduct earnings management as measured by both earnings loss avoidance and abnormal loan loss provisions. Second, there is no significant difference between Islamic Banks with and without SSBs in terms of earnings management. Third, several SSB characteristics and board characteristics, such as SSB size, Auditing Organization for Islamic Financial Intuitions (AAOIFI), and outside board members, are important determinants of the earnings management for Islamic Banks with SSBs."

Do Islamic Banks Employ Less Earnings Management?

Islamic Bond Issuance - What Sovereign Debt Managers Need to Know

Islamic Bond Issuance - What Sovereign Debt Managers Need to Know
Prepared by Andreas Jobst, Peter Kunzel, Paul Mills, and Amadou Sy
IMF Policy Discussion Paper
Monetary and Capital Markets Department
July 2008

Abstract: "Recent years have witnessed a surge in the issuance of Islamic capital market securities (sukuk) by corporates and public sector entities amid growing demand for alternative investments. As the sukuk market continues to develop, new challenges and opportunities for sovereign debt managers and capital market development arise. This paper reviews the key developments in the sukuk market and informs the debate about challenges and opportunities going forward."


Alternate link (SSRN)

Islamic Bond Issuance - What Sovereign Debt Managers Need to Know

E&Y: World Takaful Report 2011

Ernst & Young’s World Takaful Report 2011
The fourth edition of Ernst & Young’s World Takaful Report 2011: Transforming Operating Performance, was unveiled recently.

E&Y: World Takaful Report 2011

Financial Guarantee as Innovation Tool in Islamic Project Finance

Financial Guarantee as Innovation Tool in Islamic Project Finance
Issouf Soumaré, Laval University
Kabir M. Hassan, University of New Orleans
February 2006

Abstract: "This paper proposes a model to study the arrangement of Islamic project finance with the participation of the government as provider of loan guarantees. The entrepreneur (musharakah) initiates a project and raises funds by issuing Islamic profit sharing debt instruments (mudarabah). The government intervenes in providing financial guarantees in order to enhance the creditworthiness and increase the debt capacity of the project. Our work raises several policy implications related to the structuring of Islamic project finance and the participation of both government and multilateral public agencies such as the Islamic Development Bank. It provides a unifying framework for the improvement of access to funds for Islamic projects and gives a rationale for the government intervention in the arrangement of those projects."

Financial Guarantee as Innovation Tool in Islamic Project Finance

Risk & Return of Islamic Stock Market Indexes

Risk & Return of Islamic Stock Market Indexes
Conference Paper
Sam Hakim and Manochehr Rashidian
2002

Abstract: "The Dow Jones Islamic market index - US (DJIMI) tracks the stocks of corporations compatible with Islamic law. A parallel and unrestricted counterpart of DJIMI is the Wilshire 5000 Index (W5000) which tracks the price performance of the largest 5000 US companies. Of that index, approximately 75% of the companies fail to meet the Islamic criteria, leaving only approximately 700 companies as potential candidates for inclusion in the DJIMI. Using cointegration techniques we place the DJIMI under analytical scrutiny and ask (1) how has this selection restriction affected the performance of Islamic investments represented by the DJIM index? (2) is the DJIM index less diversified than the DJW index? (3) if so, to what extent has the limited diversification affected its risk and return? (4) and finally, what dynamic correlation and long-term relationship exist between the two indexes over time."

Risk & Return of Islamic Stock Market Indexes