Key themes include poverty and religiosity, profit taking, capital markets, early-warning system for banks
The Islamic Research and Training Institute (IRTI) has released six new working and policy papers on select germane issues in Islamic economics, banking and finance.
The papers, comprising of five working papers and one policy paper, focus on key themes that include ownership and governance issues in sukuk financing, the need for early-warning system for Islamic banks, Islamic perspectives to profit entitlement, and effects of religiosity on multidimensional poverty.
IRTI regularly publishes working papers and policy papers discussing contemporary issues in Islamic economics, banking and finance, as part of initiatives to deepen knowledge creation and innovation in the field.
"The IRTI Working Paper Series and Policy Paper Series are meant to disseminate the findings of research work in progress and encourage exchange of ideas on the theoretical and practical development of Islamic economics, banking and finance. Our aim is to promote sharing of information and thoughts for the overall benefit of the global Islamic financial industry," said Director General of IRTI, Dr. Humayon Dar.
The new working papers are entitled: Role of Ownership and Governance Mechanism in Sukuk Financing by Malaysian Firms - An Application of A Double Selection Model; Bank Lending Behavior and Business Cycle in Dual Banking System - Evidence from Indonesia; Assessing Islamic Banking System Vulnerabilities in Pakistan - Evidence from 'Bankometer' Model; Basis for Legitimate Entitlement to Profit in Islamic Law; and Does Religiosity Affect Multidimensional Poverty? Evidence from World Values Survey (2010-14).
The policy paper is entitled: Islamic Financial Institutions and Participatory Finance Constraints - The Case of Pakistan.
Findings of the papers have various policy implications for companies, investors, policymakers, regulators, and the Islamic finance industry in general. Some of the findings, observations and recommendations include:
- Ownership structure and corporate governance are important determinants in Sukuk transactions in Malaysia. Firms with higher government ownership are most likely to participate in Sukuk, and concentrated ownership positively influences the participation decision.
- Sukuk offers opportunities to engage in real economic activity without compromising faith, and for firms to capitalize on faith-driven investor groups for their financing needs. Regulators need to carefully regulate Sukuk instruments to ensure that they are used in the spirit of Islamic finance and they are Sharia compliant.
- Innovation and creativity are necessary to promote participatory modes of financing and to make this mode the preferred choice for meeting the increasingly sophisticated and diversified financial needs of societies.
- The ability to predict which bank is vulnerable to financial distress is of critical importance to central banks, commercial banks, creditors and equity investors. In this context, a "Bankometer" can assist banks and financial regulators in Pakistan to improve the performance and resilience of the financial system. It is important for banks in Pakistan to develop their early-warning systems that could predict their vulnerability to financial distress.
- Islamic banks in Indonesia are behaving counter-cyclical, while conventional banks are behaving pro-cyclical in their lending activities, and this tendency requires a different policy formulation from what obtains at the moment. Designing a sound framework and effective instruments is important to address the differential nature of lending behaviour between the two banking systems.
- The general perception that religion contributes to poverty or that poor people tend to be more religious is incorrect when poverty is measured in a more comprehensive multidimensional form. Similarly, the notion is wrong that countries where religious values are given more importance are constraining themselves and thereby end up with more poverty than others. Higher religiosity is not associated with higher multidimensional poverty; rather, higher religiosity is associated with lower multidimensional poverty.
All the published papers are available on IRTI website via this link.