CHAPTER 1 T his chapter provides an extensive overview of the Islamic capital market (ICM), or mo... more CHAPTER 1 T his chapter provides an extensive overview of the Islamic capital market (ICM), or more broadly the Shari'ah-compliant finance industry, and its various segments, including equities, sukuk (Islamic investment certificates), investment funds and Islamic banks. This overview is presented in the context of the international capital markets of which the ICM forms a growing part. Later chapters in this volume deal in more detail with various aspects of the ICM, including Islamic equities, sukuk, Islamic investment funds and legal, Shari'ah and regulatory issues. HISTORY OF THE ICM The beginning of the modern Islamic financial industry can be dated to the mid-1970s. Fundamentally different in some important respects from the conventional financial model, Islamic finance has its religious identity and is based on the principles of Shari'ah (Islamic law) and the rules of Fiqh al Muamalat (Shari'ah commercial jurisprudence). Total assets of Shari'ah-compliant financial institutions have grown by an average of 15-20 percent per annum over the past five years, suggesting strong demand for Islamic investing. It is expected that Islamic finance will continue to grow at this rate for the next few years. The figure for total assets in Islamic finance was around USD2.0 trillion at the end of 2015. The growth in Shari'ah-compliant finance has also been mirrored in the growth of Shari'ah-compliant investment funds. It is estimated that currently there are more than USD75 billion under management in Shari'ah-compliant investment funds, while sukuk outstanding now amount to around USD300m (Table 1.1).
Market discipline is one of the main pillars of stability and resiliency in the banking system. T... more Market discipline is one of the main pillars of stability and resiliency in the banking system. The mechanism of market discipline primarily relies on the role of depositors who receive timely information and act accordingly through their respective accounts. In this study, we use generalized method of moments panel technique for 44 Islamic banks across different regions to research the presence of market discipline in the global Islamic banking system, focusing on the behaviour of the PSIA holders and their role in the governance of Islamic banks. These results have a significant policy implication in reviewing the framework governing the Islamic banks. K E Y W OR D S : market discipline; Islamic banks; PSIA (profit-sharing investment account); interactive dynamic mechanism.
This issue has four excellent articles - Dr. William (“Bill”) M. Isaac, former Chairman of the U.... more This issue has four excellent articles - Dr. William (“Bill”) M. Isaac, former Chairman of the U.S. Federal Deposit Insurance Corporation, and now a top global banking industry consultant, has submitted a thought-provoking article on lessons learned from the 2008 banking crisis in the U.S. In his article, Chairman Isaac contends that, prior to the Crisis, bank supervisors had sufficient regulatory powers and tools to deal with developing problems and curb excessive risk-taking, but were reluctant to use them. Chairman Isaac also questions the value and relevance of the voluminous U.S. post-Crisis regulatory reform legislation, as he believes it does not closely relate to the root causes of the Crisis. An article by Professor Datuk Ahmed Abdel Karim and Professor Simon Archer discusses innovative liquidity management options that have been developed to assist Islamic banks in managing their liquidity and also in meeting the liquidity requirements of the new Basel III standards. Dr. F...
Journal of Financial Regulation and Compliance, 2019
Purpose This paper aims to examine the issue that arises in the context of benchmark rate (or int... more Purpose This paper aims to examine the issue that arises in the context of benchmark rate (or interest rate) changes made for reasons of monetary policy in a jurisdiction with a significant presence of Islamic banks. Changes, especially increases, in the prevailing interest rate made by central banks raise issues of asset-liability management for banks, which typically have longer maturities on the asset side than on the liabilities side, resulting in exposure to interest rate risk for conventional banks, and what is known as rate of return (RoR) risk for Islamic banks, which for reasons of compliance with Islamic religious law (Shari’ah) do not use interest in their operations. Islamic banks use various financial instruments which reflect the cost of funds by means of contracts of sale on credit or of leasing or forms of partnership, which allow them to earn returns on their funds and to pay returns to customers who deposit funds with them. Design/methodology/approach The methodolo...
Journal of Islamic Accounting and Business Research, 2016
Purpose This paper aims to provide a methodology for designing and conducting solvency stress tes... more Purpose This paper aims to provide a methodology for designing and conducting solvency stress tests, under the standardised approach as per IFSB-15, including the establishment of macro-financial links, running scenarios with variation of assumptions and stress scenario parameters; apply and illustrate this methodology by providing a stylised numerical example through a tractable Excel-based framework, through which Islamic Commercial Banks (ICBs) can introduce additional regulatory requirements and show that they would remain in compliance with all capital requirements after a moderate to severe shock; and identify the potential remedial actions that can be envisaged by an ICB. Design/methodology/approach The paper uses the data of the one of the groups to which certain amendments and related assumptions are applied to develop a stylised numerical example for solvency stress-testing purposes. The example uses a Stress Testing Matrix (STeM; a step-by-step approach) to illustrate the...
CHAPTER 1 T his chapter provides an extensive overview of the Islamic capital market (ICM), or mo... more CHAPTER 1 T his chapter provides an extensive overview of the Islamic capital market (ICM), or more broadly the Shari'ah-compliant finance industry, and its various segments, including equities, sukuk (Islamic investment certificates), investment funds and Islamic banks. This overview is presented in the context of the international capital markets of which the ICM forms a growing part. Later chapters in this volume deal in more detail with various aspects of the ICM, including Islamic equities, sukuk, Islamic investment funds and legal, Shari'ah and regulatory issues. HISTORY OF THE ICM The beginning of the modern Islamic financial industry can be dated to the mid-1970s. Fundamentally different in some important respects from the conventional financial model, Islamic finance has its religious identity and is based on the principles of Shari'ah (Islamic law) and the rules of Fiqh al Muamalat (Shari'ah commercial jurisprudence). Total assets of Shari'ah-compliant financial institutions have grown by an average of 15-20 percent per annum over the past five years, suggesting strong demand for Islamic investing. It is expected that Islamic finance will continue to grow at this rate for the next few years. The figure for total assets in Islamic finance was around USD2.0 trillion at the end of 2015. The growth in Shari'ah-compliant finance has also been mirrored in the growth of Shari'ah-compliant investment funds. It is estimated that currently there are more than USD75 billion under management in Shari'ah-compliant investment funds, while sukuk outstanding now amount to around USD300m (Table 1.1).
Market discipline is one of the main pillars of stability and resiliency in the banking system. T... more Market discipline is one of the main pillars of stability and resiliency in the banking system. The mechanism of market discipline primarily relies on the role of depositors who receive timely information and act accordingly through their respective accounts. In this study, we use generalized method of moments panel technique for 44 Islamic banks across different regions to research the presence of market discipline in the global Islamic banking system, focusing on the behaviour of the PSIA holders and their role in the governance of Islamic banks. These results have a significant policy implication in reviewing the framework governing the Islamic banks. K E Y W OR D S : market discipline; Islamic banks; PSIA (profit-sharing investment account); interactive dynamic mechanism.
This issue has four excellent articles - Dr. William (“Bill”) M. Isaac, former Chairman of the U.... more This issue has four excellent articles - Dr. William (“Bill”) M. Isaac, former Chairman of the U.S. Federal Deposit Insurance Corporation, and now a top global banking industry consultant, has submitted a thought-provoking article on lessons learned from the 2008 banking crisis in the U.S. In his article, Chairman Isaac contends that, prior to the Crisis, bank supervisors had sufficient regulatory powers and tools to deal with developing problems and curb excessive risk-taking, but were reluctant to use them. Chairman Isaac also questions the value and relevance of the voluminous U.S. post-Crisis regulatory reform legislation, as he believes it does not closely relate to the root causes of the Crisis. An article by Professor Datuk Ahmed Abdel Karim and Professor Simon Archer discusses innovative liquidity management options that have been developed to assist Islamic banks in managing their liquidity and also in meeting the liquidity requirements of the new Basel III standards. Dr. F...
Journal of Financial Regulation and Compliance, 2019
Purpose This paper aims to examine the issue that arises in the context of benchmark rate (or int... more Purpose This paper aims to examine the issue that arises in the context of benchmark rate (or interest rate) changes made for reasons of monetary policy in a jurisdiction with a significant presence of Islamic banks. Changes, especially increases, in the prevailing interest rate made by central banks raise issues of asset-liability management for banks, which typically have longer maturities on the asset side than on the liabilities side, resulting in exposure to interest rate risk for conventional banks, and what is known as rate of return (RoR) risk for Islamic banks, which for reasons of compliance with Islamic religious law (Shari’ah) do not use interest in their operations. Islamic banks use various financial instruments which reflect the cost of funds by means of contracts of sale on credit or of leasing or forms of partnership, which allow them to earn returns on their funds and to pay returns to customers who deposit funds with them. Design/methodology/approach The methodolo...
Journal of Islamic Accounting and Business Research, 2016
Purpose This paper aims to provide a methodology for designing and conducting solvency stress tes... more Purpose This paper aims to provide a methodology for designing and conducting solvency stress tests, under the standardised approach as per IFSB-15, including the establishment of macro-financial links, running scenarios with variation of assumptions and stress scenario parameters; apply and illustrate this methodology by providing a stylised numerical example through a tractable Excel-based framework, through which Islamic Commercial Banks (ICBs) can introduce additional regulatory requirements and show that they would remain in compliance with all capital requirements after a moderate to severe shock; and identify the potential remedial actions that can be envisaged by an ICB. Design/methodology/approach The paper uses the data of the one of the groups to which certain amendments and related assumptions are applied to develop a stylised numerical example for solvency stress-testing purposes. The example uses a Stress Testing Matrix (STeM; a step-by-step approach) to illustrate the...
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