Recent Submissions

Now showing 1 - 6 of 122
  • Publication
    Depositors response to the ESG risks: evidence of market discipline from banks in the Organisation of Islamic Cooperation Countries region
    Dana Abdullatif AlZayani; Baharom Abdul Hamid; Kinan Salim (INCEIF, 2022)

    The Global Risk Report (2021) identifies ESG risks as the number one risk faced by the global economy. Banks have contributed to this risk and can also contribute to mitigating it. High exposure of Banks to ESG risks will contribute to climate disaster, which in turn will have financial risk implications for banks in the form of disaster events risks and energy transition risks. Depositors can discipline banks in reducing and preferably eliminating their ESG risks through enforcing market discipline by deposit withdrawal. This thesis investigates the extent to which deposit withdrawal works as market discipline against ESG risks in the banks of the OIC region. The thesis also examines the impact of financial risk represented by CAMELS variables on depositors' behavior. The generalized method of moments (System GMM estimator) is used for dynamic panel data models, as well as a sample from 65 countries over the period 2007 to 2016. Our findings indicate that depositors react significantly to environmental and governance risks while depositors' discipline does not exist with social risks. With regard to financial risks, our findings suggest weak evidence of market discipline. However, regressing CAMELS components separately provides better results and understanding than regressing CAMELS components collectively. In the OIC region, the study indicates that depositors tend to be sensitive to changes in capital adequacy, bank earnings and ESG risks, while in the non-OIC region, depositors are only sensitive to management quality.

  • Publication
    The nexus of financial development, institutional quality and environment: do Islamic countries differ?
    Zuraini Abdul Hamid; Baharom Abdul Hamid; Mohamed Ariff Abdul Kareem (INCEIF, 2022)

    This paper attempts to examine the relationship of financial development with environmental quality, incorporating the role of institutional quality. There are three objectives of this study which are: to examine the impact of financial development on environmental quality and to ascertain the existence of Environmental Kuznets Curve (EKC); to examine the role of institutional quality in the relationship; and to highlight differences, if any, between Islamic countries and non-Islamic countries on the said relationship. This research applies generalized method of moments (GMM) for estimation which is the most suitable estimator to manage the unobserved fixed-effects and endogeneity issue between dependent and independent variables. Average 3-years data is used from World Development Indicator of World Bank and ICRG database of 72 countries globally and with period ranging from of 1980 to 2012. The dependent variable is environmental quality while independent variables are financial development, GDP per capita, energy use, trade openness and institutional quality. The results from the GMM estimation suggests that financial development have significant impact on environmental quality. However, the direction of the impact is inconsistent, depending on the type of emission. In addition, there is an evidence of EKC relationship between environmental quality and income. Energy use has a significant and positive impact on environmental quality, although trade openness has no significant impact on environmental quality. The study further analyses the role of institutional quality on these relationships and proves that institutional quality does play a role in reinforcing financial development to improve environmental quality. Nonetheless, the degree of impact varies with the strength of the institutional quality.

  • Publication
    The sustainability of microfinance institutions and its key drivers: a multi-criteria based performance analysis in OIC and non-OIC countries
    Priyonggo Suseno; Baharom Abdul Hamid; Kinan Salim (INCEIF, 2022)

    In the last three decades, the microfinance market has continued to grow, from 13 million clients in 1997 to 98 million in 2009 and 139.9 million in 2018. As microfinance grows, a transformational change in microfinance in microfinance has taken place. Prior to the 1990s, microfinance worked more as microcredit for poverty alleviation and development instruments which were still subsidized. But today microfinance has turned into a more complex ecosystem with more varied market participants and approaches. Will these microfinance institutions be sustainable in providing financial and social services now and in the future? What are the key variables that play an important role in the sustainability of the MFIs? This study is to help find the answers to these questions using a multi-criteria decision-making framework and a dynamic parametric analysis. This study aims to measure the sustainability of microfinance institutions in a multi-dimensional manner so that the achievement of its mission - the triple bottom line - can be measured and evaluated. This study also examines MFI in OIC member countries considering that OIC is a group of countries with the the second largest number of members after the United Nations. Investigating the MFIs from 111 countries worldwide from 2003 to 2019, this study utilizes the TOPSIS and VIKOR frameworks as the two multi-criteria decision-making (MCDM) approaches that have been proven efficient, consistent, and compatible with the decision problem on measuring MFI's sustainability performance. This study utilized a framework of governance approach and institutional theory to predict the key variables of MFI's sustainability performance through a dynamic parametric method, namely generalized method of moment, known as GMM.

  • Publication
    Intellectual capital disclosure practices and governance mechanisms of Islamic banks: a comparative study between IFRS and AAOIFI financial reporting regimes
    Syaima' Adznan; Zulkarnain Muhamad Sori; Shamsher Mohamad Ramadili Mohd (INCEIF, 2022)

    The Islamic banking industry has grown and gained a remarkable position in the global share of the financial sector. This growth requires a strong emphasis on intellectual capital (IC) that includes dedicated human capital, reliable structural capital, and a committed and long lasting relational capital among participants in the Islamic banking ecosystem. The study aims is to examine and compare the intellectual capital disclosure (ICD) practices of Islamic banks under different reporting regimes. The IFRS issued by IASB and FAS issued by AAOIFI are the two commonly used standards for financial repoting by Islamic banks. The findings indicate that, on average, there is not much difference between IFSB and AAOIFI scores (IASB:57.25% vs AAOIFI: 56.58%); in fact, most of IFSB-based banks performed better that AAOIFI-based banks throughout the period of study except in first year (i.e. 2012). The study also examined the relationship of corporate governance and the moderating role of Shariah committee with the extent of ICD practices among the Islamic banks. Several corporate governance mechanisms such as board size, number of board meetings, board gender, board independence, board expertise, audit committee size, number of audit committee meeting, audit committee gender, audit committee independence, and audit committee expertise were used as dependent variables. While, selected Shariah committee characteristics that, included Shariah committee size and Shariah committee gender were the moderating variables and firm characteristics were used as control variables to control for cross-sectional differences associated with ICD. The study applied the prominent resourced-based, agency and legitimacy theories and formulated twenty-three (23) hypotheses. Based on a total sample of 231 Islamic banks in four countries, namely Malaysia, Brunei, Bahrain and Jordan covering year 2012 to 2018, the findings revealed that having an effective governance structure is essential, as it is able to influence the ICD practices of Islamic banks. Specifically, the study found that ICD practices of Islamic banks is significantly and positively associated with board size, board independence, audit committee gender and audit committee independence. The results suggest that larger or reasonable board size tends to have varied skills and expertise among the board members, resulting in more information by allowing for greater diversity of backgrounds and viewpoints.

  • Publication
    Innovating a waqf-linked sukuk framework to finance the development of idle waqf land in Malaysia
    Mohamed Ayaz Mohamed Ismail; Magda Ismail Abdel Mohsin (INCEIF, 2022)

    The funding conundrum for idle waqf land in Malaysia has been with us for a long time and there is need to find a feasible, effective and adequate solution for the issue. In other parts of the world, sukuk have been used to a limited extent to develop waqf land. Although Malaysia is a leading jurisdiction for sukuk issuances, we have not seen it happen here. The objectives of this study are to: examine the legal and regulatory framework in Malaysia to develop waqf land; investigate the existing constraints facing the development of idle waqf land in Malaysia; evaluate the replicability of existing sukuk structures used in other parts of the world to develop waqf land in Malaysia; and propose a framework for waqf-linked sukuk in Malaysia considering its unique legal and regulatory framework for waqf. This research adopts a qualitative research method. Further, interviews have also been conducted with subject matter experts to understand and explore the practical aspects of the research topic. The findings of this research indicate that there are several constraints facing the development of Waqf land in Malaysia including non-uniformity of the administration and management of waqf across the states, lack of governance in waqf administration and critically, dearth of funding. Due to the unique legal framework and waqf governance in the country, the sukuk models used so far in other jurisdictions to finance the development of waqf land cannot be fully replicated in Malaysia. However, it is found that a potential solution in the form of a unique waqf-linked sukuk as a means to raise financing for the development of idle waqf land in Malaysia is viable. The proposed waqf-linked sukuk framework is designed to facilitate the issuance of a waqf-linked sukuk within the existing laws and regulations governing sukuk in Malaysia, and is designed to appeal to the widest range of investors to ensure the highest possibility of a successful issuance. It also introduces the concept of cash waqf, at the option of the investor, to the capital and returns of the sukuk, to address the challenge of sustainability of funding of the waqf institution. The waqf-linked sukuk framework represents a potential framework to be relied upon by the stakeholders in the waqf ecosystem in Malaysia to support the funding requirements related to the development of idle waqf land. Positive outcome is expected from the implementation of this framework. This is due to the advantageous nature of utilizing sukuk to raise funding in an efficient and sustainable manner. Additionally, this dissertation opens the door for more research to explore sukuk as one of the main instruments to finance waqf projects.

  • Publication
    The impact of government human capital expenditure on economic growth and the role of institutions in OIC countries
    Habeebah Simisola Fa-Yusuf; Mohamed Ariff Abdul Kareem; Baharom Abdul Hamid (INCEIF, 2020)

    Theoretically, one of the ways governments that aim to improve economic growth in their countries is by increasing expenditure on human capital. However, some empirical evidence from OIC countries do not support the finding that expenditure on the two most important aspects of human capital (expenditure on education and health) affects growth positively. One of the plausible reasons for the observed unusual finding could be the presence of moderating variables. Therefore, this study investigates the relevance and applicability of one such moderating variable, namely the quality of institutions, given the relatively low global ranking of OIC countries in terms of institutional quality. This study contributes to the new institutional economics literature by discovering that some institutional quality variables determine the way human capital expenditure affects economic growth. This study uses the methodology of panel data analysis and interaction graph plots. Interaction graph plots show the marginal effect of a continuous variable on another continuous variable. Without the inclusion of interaction terms, we find that, on average, in OIC countries, the effect of government education expenditure (GEE) on growth is insignificant while the effect of government health expenditure (GHE) on growth is either insignificant or significant and negative. The interaction graph plots show the effect of government human capital expenditure on growth at different levels of growth. When we consider the marginal effect of institutional quality, we find that generally, better bureaucracy quality, control of corruption, government effectiveness, law & order and rule of law augment the positive effect of GEE on growth. We also find that better government effectiveness and law & order augment the positive effect of GHE on growth.