1. Scholarly Works
Browse 1. Scholarly Works by Author "Abbas Mirakhor"
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- PublicationAn introduction to Islamic finance: theory and practiceZamir Iqbal; Abbas Mirakhor (John Wiley & Sons (Asia) Pte. Ltd., 2007)
This book explains the fundamental principles and functions of an economic, banking and financial operating under Shariah (Islamic law). Numerous tenets of Islamic - from social justice, equality, preservation of property rights, sanctity of contracts and the prohibition of riba (interest) - are discussed with relation to the economic behavior of individuals, society and state.
- PublicationChallenges in economic and financial policy formulation: an Islamic perspectiveHossein Askari; Zamir Iqbal; Abbas Mirakhor (Palgrave Macmillan, 2014)
This book provides an introductory, yet comprehensive, treatment of macroeconomic policies and their implementation in an Islamic-designed economic system
- PublicationDoes sectoral diversification of loans and financing improve bank returns and risk in dual-banking systems?Mirzet Seho; Abbas Mirakhor; Mansor H. Ibrahim (Elsevier B.V., 2021)
This paper investigates the effects of sectoral diversification of loans and financing on the risk and the returns of banks in dual-banking systems. We employ the system GMM estimator on a unique panel data of 46 Islamic and 60 conventional banks from six countries over the period 2000-2015. Our findings reveal that sectoral diversification of loans and financing reduces the returns and increases the risk of both Islamic and conventional banks; the impact of sectoral diversification on returns varies across risk levels, with negative effects at low- and no effect at moderate- and high-risk levels; the difference between the impacts on Islamic and conventional banks across risk levels are marginal, and the adverse effects of sectoral diversification were exacerbated during the 2008 financial crisis. Expansion of loan and financing portfolios into new sectors has no impact on bank returns and risk in our sample. The findings may provide valuable implications for all stakeholders, regulators, and policymakers.
- PublicationDoes trust contribute to stock market development?Ng Adam Boon Ka; Abbas Mirakhor; Mansor H. Ibrahim (Elsevier, 2016)
In view of the increasing contributions of social capital in financial development, we examine the relevance of social capital in stock market development by applying Bayesian model averaging on 37 variables across 60 countries from 2000 to 2006. The results demonstrate that trust is a robust and positive determinant of stock market depth and liquidity, and that trust is the most relevant component of social capital in market development. Macroeconomic instability in the form of inflationary changes has a dampening effect on trust in the trading of stock. Further, social capital and its components, particularly trust, are more relevant to stock market development in countries with weak rule of law, non-Organization for Economic Co-operation and Development (non-OECD) and Organization of Islamic Co-operation (OIC) countries that are generally characterized by lower formal institutional quality. Our results seek to reinforce the relevance of social capital in complementing the much needed reform of stock markets globally.
- PublicationEmpirical evidence of risk shifting in bonds and debt-based sukuk: the case of Malaysian corporationsSiti Raihana Hamzah; Abbas Mirakhor; Nurhafiza Abdul Kader Malim; Obiyathulla Ismath Bacha (Emerald Publishing Limited, 2018)
The purpose of this paper is to examine the extent of risk shifting behavior in bonds and sukuk. The examination is significant, as economists and scholars identify risk shifting as the primary cause of the global financial crisis. Yet, the dangers of this debt-financing feature are largely ignored - one needs to only witness the record growth of global debt even after the global financial crisis. To identify the signs of risk shifting existence in the corporations, this paper compares each corporation's operating risk before and after issuing debt. Operating risk or risk of a firm's activities is measured using the volatility of the operating earnings or coefficient variation of earning before interest, tax, depreciation and amortization (EBITDA). Using EBITDA as the variable offers one distinct advantage to using asset volatility as previous research has - EBITDA can be extracted directly from firms' accounting data and is not model-specific.
- PublicationEpistemology of finance: misreading SmithAbbas Mirakhor (Edbiz Consulting Limited, 2011)
Before the inception of the Islamic finance industry, there was what could be called a “market failure” in the conventional financial system. There was substantial unmet demand for Shari’a-compliant financial products. Islamic finance grew out of conventional finance to meet this demand. Muslim scholars writing mostly since the 1970s about Islamic finance focused on development of an Islamic finance system; they not only emphasised elimination of riba contracts but urged their replacement with risk-sharing contracts. The practitioners, most of whom had been operating in the conventional finance space, were however interested in developing ways and means of finance that, while Shari’a compatible, would be familiar to and accepted by market players in conventional finance.
- PublicationEthical behavior and trustworthiness in the stock market-growth nexusNg Adam Boon Ka; Abbas Mirakhor; Mansor H. Ibrahim (Elsevier, 2015)
While formal institutional quality has been used to explain the finance-growth nexus, the role of social capital has not been fully addressed. The proposition of “better finance, more growth” is important amidst concerns over the erosion of ethics and trust in finance in the aftermath of the 2007/2008 global financial crisis. Using threshold estimation technique, this study examines whether the growth effect of stock market development differs according to the distinct levels of ethical behavior and trustworthiness in a cross-section of 73 jurisdictions during the post-crisis period. The results demonstrate that the impact of stock market liquidity on gross domestic product (GDP) and total factor productivity (TFP) growth is positive and significant only where there is high level of ethical behavior in firms. Similar effect is discerned in the case of strong trustworthiness and confidence. However, there is mixed evidence when formal institutional quality in the form of regulation and supervision of securities exchanges is considered. In terms of policy implications, this study upholds the “better finance, more growth” proposition and contributes to the identification of thresholds above which ethical behavior and trustworthiness can influence positively the relations between stock market development and macroeconomic performance.
- PublicationFinancialization of the economy and income inequality in selected OIC and OECD countries: the role of institutional factorsFatima Muhammad Abdulkarim; Abbas Mirakhor; Baharom Abdul Hamid (De Gruyter, 2019)
Income inequality is a serious problem confronting not only the developed world but also developing countries. Recently, financialization has been one of the culprits identified in literature as one of the cause of income inequality. This book offers the only detailed presentation of the how financialization aided the spread of income inequality in Organization of Islamic Cooperation, OIC countries. Finance has taking a center stage in the affairs of most developing economies, surpassing the real sector of the economy. The result is the creation of an indebted society in which people are comfortable with financing their financial needs through credit. This creates a debt laden society that is trapped in the cycle of debt. This book represents a comprehensive and indispensable source for students, practitioners and the general public at large. It presents data which shows the buildup of debt and the rising income inequality in Muslim countries. It includes discussion of the rise in rentier income, financialization of everyday life, decline in physical capital accumulation and deregulation of the financial sector. The book therefore, proffers solutions on how Muslim countries can come out of the present economic problem facing them. The promotion and adoption of Islamic principles, which promotes risk sharing based contracts as against debt based transaction is the way to go. When financial contracts are based on the principles of risk sharing, any gains from economic activities get to be shared equitably. Hence, not only capital owners get to enjoy the benefit from the income derived from investments, but rather, all parties that partake in the contract. Distinguished by its clarity and readability as it is written in a very easy to understand language, it is an important reference work for any concerned individual interested on the recent causes of income inequality in Muslim World.
- PublicationFunding development infrastructure without leverage: a risk-sharing alternative using innovative sukuk structuresAbbas Mirakhor; Obiyathulla Ismath Bacha (John Wiley & Sons Ltd, 2018)
Muslim developing countries like many of their conventional counterparts suffer serious indebtedness. Amongst the 57 OIC countries, only the six Gulf cooperation Council countries have positive fiscal balances. The other 51 OIC nations have government budget deficits. Nineteen of these 51 countries are classified by the World Bank/IMF as HIPC (heavily indebted poor country). That government expenditure exceeds government revenues is a fairly common characteristic of developing economics. It is typically the result of the need to fund development. As matters now stand, there are two key problems with this. First, the budget shortfall is typically met by way of interest-based borrowing. Second, as domestic capital accumulation is usually insufficient, governments have to resort to borrowing in foreign currency.
- PublicationHow to achieve further progress in Islamic financeAbbas Mirakhor (ISRA, 2014)
Islamic finance is a fairly young industry. It is only 30 years old. When I first began looking into the industry back in the late 1970s, the asset size was about US$50 million. The industry has now grown to reach US$1 trillion. This growth is a good sign; however, in order to progress further the industry and policy makers need to consider the lessons of the most recent financial crisis and explore the path that would take the industry forward without experiencing similar crises.
- PublicationIntermediate Islamic financeNabil Maghrebi; Abbas Mirakhor; Zamir Iqbal (John Wiley & Sons, 2016)
The principal objective of this work is to foster a better understanding of the essence of Islamic finance. For perhaps the first time - economists, practitioners, regulators, and students have an in-depth guide to the advanced concepts of Islamic finance, which has deep historical roots and a promising role in rethinking economics in the future. This book articulates an authoritative analytical approach to the theory and practice of Islamic finance.
- PublicationInvestigating risk shifting in Islamic banks in the dual banking systems of OIC member countries: an application of two-step dynamic GMMAlaa Alaabed; Abul Mansur Mohammed Masih; Abbas Mirakhor (Macmillan Publishers, 2016)
In the last five decades, advances in information technology and in financial innovations have made possible the emergence of an immense capacity for banks to switch regimes from risk transfer to risk shifting. The devastating power of this capacity was amply pronounced in the financial crisis of 2007/2008. The fallout of which has intensified calls for a re-examination of current banking model and its risk management (or rather mismanagement). Risk shifting is, axiomatically, absent in an ideal Islamic financial system. The Islamic banking model, thus, provides unique paradigm with risk sharing at its core, potentially fostering financial inclusion and reducing the incidence of bank failures and the size of losses incurred by depositors and tax payers. However, the present formation of Islamic banking has grown out of conventional banking and reverse engineers many of its techniques and instruments. The main objective of this paper is to empirically investigate risk management in Islamic banks in dual banking systems in member states of the Organization of Islamic Countries. The two-step dynamic difference GMM is applied to cater for the nature of Islamic banking data, which is characterized by a larger dynamic panel and a smaller timeframe. Findings tend to indicate that Islamic banking has a limiting effect on risk shifting. The effect however is not sufficient to fully nullify the overall risk shifting incentives. The evidence supports strengthening risk sharing and reforming Islamic banking configuration as the way forward.
- PublicationIs the regime of risk transfer sustainable? Impossible contract and inequalityAbbas Mirakhor; Ng Adam Boon Ka; Ginanjar Dewandaru; Baharom Abdul Hamid (Elsevier, 2017)
In a risk transfer and shifting financial systems, an interest rate based debt contract is an "impossible contract," since, under the axioms of conventional economics, the borrower has an incentive not to repay the loan. Such impossible contract is made possible by creating a virtual world of certainty through mechanisms such as collateral requirements and an edifice of legal, administrative, policy incentive mechanisms that include positive and negative enforcements that protect the creditor. The society has to bear huge costs to make them possible. Risk sharing has the potential to enhance efficiency as each party to contracts has "skin-in-the-game", thus eliminating or minimizing the principal-agent problem. Participants in a contract of an economic undertaking can choose higher risk-higher return projects thus increase the efficiency and productivity of the system. It can also create a reciprocal and trusting environment that strengthens social cohesion, promotes social mobility and reduces income inequality without perverse incentive effects.
- PublicationIslamic capital markets and developmentAbbas Mirakhor; Obiyathulla Ismath Bacha (The World Bank Group, 2013)
The question of whether capital markets (and the financial sector) are necessary for economic growth and development appeared to have been settled. However, the recent spate of financial crises and the devastating effect they have had on growth and macroeconomic stability have re-stoked questions; not so much about whether the capital markets are necessary for growth as whether they are playing the role expected of them.
- PublicationIslamic capital markets: a comparative approachAbbas Mirakhor; Obiyathulla Ismath Bacha (Wiley, 2013)
The book begins with an introductory chapter of founding thoughts of markets, asset prices, risk, uncertainty, and risk sharing. The risk-sharing philosophy runs throughout the book. The first three chapters provide the foundation. Chapter 4 through 12 examine each Islamic capital markets or conventional market and products. The final chapter, in providing an overall conclusion, examines the role of government in developing capital markets, specifically, Islamic capital markets.
- PublicationIslamic economics and finance: an institutional perspectiveAbbas Mirakhor (IIUM, 2009)
After a millennium of atrophy, Muslims have begun a critical reexamination of Islamic thought in all its dimensions in light of the present state of the world. Arguably the first discipline that began this process during the early decades of last century was political philosophy. Reexamination of economics started much later in the second half of the twentieth century and has continued uninterrupted to the present. There is an ongoing constructive debate among scholars on the fundamental question of whether there is a discipline that can be defined unambiguously as Islamic economics and if so what are its distinguishing characteristics? This presentation is a modest contribution to that debate. It seems reasonable to suggest that any label or prefix that is attached to an economic discipline must bear concrete relationships with economic system that the discipline serves. Thus, disciplines such as socialist economics, capitalist economics, Buddhist economics, Christian economics, Jewish economics, Gandhian economics and others, relate to an envisioned system defined by its characteristics.
- PublicationIslamic finance in multipolar worldAbbas Mirakhor (The European Financial Review, 2011)
Continuation of a debt-based financing regime will not necessarily allow the benefits of emerging multipolarity to accrue to the world economy. The new system can be more effective with a new regime of financing. Indications are that almost all emerging countries in Asia are actively considering risk sharing via Islamic finance as a possible alternative.
- PublicationIslamic finance: an overviewAbbas Mirakhor; Mansor H. Ibrahim (Elsevier, 2014)
The recurring financial crises with the global financial crisis as a latest example have placed the financial markets operating on the basis of interest rate, normally referred as conventional financial markets, under close scrutiny. While some have looked at ways and means to fix the instability inherent in the conventional interest-based system, others have searched for alternative financial systems. In this respect, the Islamic financial system seems to offer a promising avenue for future financial resiliency and stability. However, to date, this view has been largely circulated within professional circles and only recently it has become a topic of academic inquiries.
- PublicationIslamic financial reform and macroeconomc policies: a case of MalaysiaNorhanim Mat Sari; Azura Othman; Syed Othman Alhabshi; Abbas Mirakhor (2015)
Malaysia's overarching economic objective is to achieve developed country status by the year 2020. On the back of sluggish global economic condition and tight fiscal space, the economy will need to grow by a stable and rapid rate over the next few years. Currently, macroeconomic policies in Malaysia follow the conventional model based on the risk-transfer paradigm. Over the next decade, the potential for risk sharing as an alternative to risk transfer is expected to grow rapidly. As pointed out by a number of scholars and researchers, economies can be made more resilient to shocks by adopting financing methods that limit risk transfer (interest rate based debt contracts) and allow greater risk sharing among the market participants on a broad scale. Risk sharing is also the essence of Islamic finance.
- PublicationLimited purpose banking (LPB) and Islamic finance: could LPB model be applied to Islamic finance?Edib Smolo; Abbas Mirakhor (Emerald, 2014)
This paper primarily aims to review and analyze a new model for Islamic finance based on Laurence J. Kotlikoff's idea of limited purpose banking (LPB). In addition, this paper aims to highlight, explain and discuss various aspects of LPB and how it suits the original aspirations of pioneer writers in Islamic finance. Based on an extensive literature review, this paper aims to highlight, explain and discuss the reform of the Islamic finance industry based on Kotlikoff's model of LPB. Based on a modified LPB model, Islamic financial institutions could be established to provide specific services with clear aims and objectives. These LPB Islamic financial institutions would operate in a similar way to LPB. As there is no perfect plan, the proposal of this paper is far from being perfect and is open to discussions and improvements. The paper will, hopefully, spark off quite a discussion on the topic; may result in a better understanding of the model; and provide some alternative solutions to the current structurally ill financial system. The paper provides some practical ideas for a better implementation of Shari'ah principles in financial intermediation of the Islamic financial system. Kotlikoff's LPB proposal for reforming the financial system is new and has been directed to the conventional financial system. This paper represents the first attempt to apply his proposal to the Islamic finance industry.
- PublicationOn building social capital for Islamic financeNg Adam Boon Ka; Abbas Mirakhor; Mansor H. Ibrahim (Emerald, 2015)
The purpose of this paper is to set forth seven broad recommendations and 15 specific initiatives within a four-dimensional framework for the development of social capital in Islamic finance, particularly the stock market, given its role as the first best means of risk sharing. The four-dimensional framework comprises dimensions of principle and value, trust-reinforcing regulation, investment opportunity and infrastructure, as well as reputational intermediaries. A web of multi-pronged initiatives that are mutually reinforcing is proposed considering the multifaceted dimensions of social capital and the various possible transmission channels by which social capital can influence the financial system. While empirical studies have demonstrated the importance of trust and ethics in financial development, the pressing issue remains how social capital, including trust and ethics, can be developed to achieve a trustworthy, ethical and efficient financial system. This paper attempts to address this concern.
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