Development in Islamic banking: a financial risk‐allocation approach

2008 ◽  
Vol 9 (1) ◽  
pp. 40-51 ◽  
Author(s):  
M. Mansoor Khan ◽  
M. Ishaq Bhatti
Keyword(s):  
Financial Risk ◽  
Islamic Banking ◽  
Risk Allocation ◽  
Allocation Approach

scholarly journals On the Impossibility of Fair Risk Allocation

2016 ◽  
Vol 16 (1) ◽  
pp. 143-158 ◽  
Author(s):  
Péter Csóka ◽  
Miklós Pintér
Keyword(s):  
Performance Evaluation ◽  
Financial Risk ◽  
Capital Allocation ◽  
Equal Treatment ◽  
Insurance Companies ◽  
Strong Monotonicity ◽  
Risk Allocation ◽  
Investment Funds ◽  
Coherent Measures Of Risk ◽  
Measures Of Risk

AbstractAllocating risk properly to subunits is crucial for performance evaluation and internal capital allocation of portfolios held by banks, insurance companies, investment funds and other entities subject to financial risk. We show that by using coherent measures of risk it is impossible to allocate risk satisfying simultaneously the natural game theoretical requirements of Core Compatibility and Strong Monotonicity. To obtain the result we characterize the Shapley value on the class of totally balanced games and also on the class of exact games as being the only risk allocation method satisfying Strong Monotonicity, Equal Treatment Property and Efficiency. Moreover, we clarify and interpret the related game theoretical requirements that have appeared in the literature so far and have been applied to risk allocation.

scholarly journals POOL OF FUNDS APPROACH AND ASSET ALLOCATION APPROACH IN SHARIA'S PERSPECTIVE (A Literature Review)

2020 ◽  
Vol 2 (1) ◽  
pp. 4-25
Author(s):  
Fahmi Ali Hudaefi ◽  
Ahmad Bisyri
Keyword(s):  
Qualitative Research ◽  
Content Analysis ◽  
Asset Allocation ◽  
Analysis Data ◽  
Islamic Banking ◽  
Islamic Perspective ◽  
Fund Allocation ◽  
History Of ◽  
Islamic Values ◽  
Allocation Approach

The aim of this research is to explore the Islamic perspective on the conventional thought of funds banking allocation methods, they are asset allocation approach and pool of funds approach, which one of them is practiced in Islamic banking in Indonesia, it is pool of funds approach. Sharia instruments that used to explore Islamic perspective on those two conventional methods are the verses of Islamic values in transaction, they are doing amanah in muamalah as taught in An-Nisa 68, being identified the owned property as taught in Al-Baqarah 188, doing abetter notation in muamalah as taught in Al-Baqarah 283 and being fair in fulfilling weight and measure as taught in Hud 85. Other used sharia instruments are history of Prophet Muhammad pbuh and Caliph Umar bin Abdul Aziz and Fiqh special axiom in muamalah. This descriptive qualitative research with the method of content analysis data finds that the asset allocation approach is more agreeable method to all sharia instruments that used in this research.Keywords: Al-Qur’an, Tafser, Islamic Values in Muamalah, Islamic BankPrincipal, Bank Fund Allocation MethodsAbstrakPenilitian ini berujuan untuk mengetahui pandangan syariah terhadap metode alokasi dana bank yang berasal dari pemikiran konvensional, yaitu pool of funds approach dan asset allocation approach, dimana pool of funds approach dipraktikan di perbankan syariah Indonesia. Instrumen syariah yang digunakan dalam penelitian ini atau yang menjadi tolak ukur pandangan syariah terhadap kedua metode tersebut adalah nilai-nilai Islam dalam bermuamalah yang terkandung di dalam Al-Qur’an, yaitu berlaku amanah di dalam surat An-Nisa 58, jelasnya sumber kepemilikan harta didalam surat Al-Baqarah 188, melakukanpencatatan yang baik didalam muamalah dalam surat Al-Baqarah 283 dan berlaku adil dalam memenuhi takaran dan timbangan didalam surat Hud 85. Instrumen syariah lainnya yang digunakan adalah sejarah keuangan yang ada hubungannya dengan sistem pengalokasian dana pada zaman Nabi Muhammad Saw dan Khalifah Umar bin Abdul Aziz, serta Kaidah Khusus Fiqh di bidang muamalah. Penelitian dekriptif dengan pendekatan kualitatif dan content analysis sebagai alatanalisis data menunjukan bahwa metode asset allocation approach lebih sesuai dengan nilai-nilai syariah yang terdapat di dalam instrument-instrumen syariah yang menjadi tolak ukur di dalam penelitian ini.Kata Kunci: Al-Qur’an, Tafsir, Nilai Islam dalam Bermuamalah, PrinsipOrepasional Bank Syariah, Metode Alokasi Dana Bank

scholarly journals Risk Allocation in Capital Markets: Portfolio Insurance, Tactical Asset Allocation and Collar Strategies

1994 ◽  
Vol 24 (1) ◽  
pp. 5-18 ◽  
Author(s):  
Eric Chevallier ◽  
Heinz H. Müller
Keyword(s):  
Capital Markets ◽  
Asset Allocation ◽  
Financial Risk ◽  
Risk Tolerance ◽  
Individual Investors ◽  
Risk Allocation ◽  
Portfolio Insurance ◽  
Price Equilibrium ◽  
Tactical Asset Allocation ◽  
Payoff Functions

AbstractThe theory of risk exchange is applied on the allocation of financial risk in capital markets. It is shown how the shape of individual payoff functions depends on risk tolerance and cautiousness. For the special case where the Neumann-Morgenstern utility functions of all individual investors belong to the HARA class and have non decreasing risk tolerance it is proved that generalized versions of “portfolio insurance”, “tactical asset allocation” and “collars” are the only strategies occurring in price equilibrium.

Determination of government guarantee and revenue cap in public–private partnership contracts

2021 ◽  
Vol ahead-of-print (ahead-of-print) ◽  
Author(s):  
Hongyu Jin ◽  
Shijing Liu ◽  
Jun Li ◽  
Chunlu Liu
Keyword(s):  
Financial Risk ◽  
Public Private Partnership ◽  
Risk Allocation ◽  
Financial Risks ◽  
Private Partnership ◽  
Content Type ◽  
Government Guarantee ◽  
Determination Process ◽  
The Government ◽  
Private Investors

PurposeConsidering there is a lack of research in determining the optimal levels of government guarantee and revenue cap, the objective of this research is to determine their optimal levels to achieve a reasonable financial risk allocation between governments and private investors while avoiding overly lucrative conditions for private investors.Design/methodology/approachExpanded net present value (NPV) analysis and bargaining game theory are employed to construct the core of the determination process. The risk gap between governments and private investors is assessed via an expanded NPV analysis to see if the financial risk has been shared reasonably, based on which the range of the government guarantee is decided. A bargaining model is then created to help locate the optimal level of the government guarantee. Finally, a revenue cap, often combined with the government guarantee in public–private partnership (PPP) agreements, will be determined if overly lucrative conditions for private investors are observed or governments suffer a risk spillover.FindingsReferring to a real PPP project in Australia, Project BA is created to validate the applicability of the proposed determination process. The outcome shows that the proposed determination process in this paper is capable of determining the optimal levels of government guarantee and revenue cap. The government preferences towards risk allocation will influence the values of the optimal levels. Governments may also consider to alleviate the control over investors' net profits to mobilise private investors into PPP projects.Research limitations/implicationsThere is a potential possibility that the revenue cap fails to control the financial risk for governments or the overly lucrative condition for private investors. In other words, even though the revenue cap is set at the minimal level, the financial risk for governments still beyond their tolerance range or the overly lucrative condition for private investors still occurs. Future research may focus on other financial protective schemes which help to better control the financial risks for governments and profits for private investors.Originality/valueGovernment guarantees are frequently used as an investment incentive to reduce the probabilities of suffering loss for private investors. Nevertheless, the financial risks for governments may increase after providing guarantees and, as a result, revenue cap is required by governments to avoid placing themselves in an unprotected situation. By recognising the importance of the two contractual parameters, many scholars dig into their option values. However, there are very rare research works focussing on the method of determining the specific levels of government guarantee and revenue cap. To overcome the limitations of existing models and enrich the methodology for government guarantee and revenue cap determination, this paper contributes to the body of knowledge by developing a government guarantee and revenue cap determination process which contributes to a reasonable allocation of financial risks between governments and private investors.

scholarly journals RESIKO MORAL HAZARD PADA PERBANKAN SYARIAH DI INDONESIA

2016 ◽  
Vol 12 (1) ◽  
Author(s):  
Rina Mandara Harahap
Keyword(s):  
Moral Hazard ◽  
Adverse Selection ◽  
Financial Risk ◽  
Good Governance ◽  
Islamic Banking ◽  
Sharing Scheme ◽  
Adequate Information ◽  
Public Responsibility ◽  
Effective Supervision ◽  
Control Management

The problems of Principal-Agent often occurred in financing scheme of Islamic banking as the effect of imbalance information between Shahibul Maal and Mudharib are adverse selection and moral hazard. Providing adequate information and determining optimum sharing schemethat meet the utility of Islamic banking and client can reduce the problem of adverse selection and moral hazard. Even though financial product is highly risked, yet it can be reduced by optimizing sharing scheme and thus the financial amount can be increased. Furthermore, the effective supervision of the corporation as a control management is necessary to minimize financial risk. Then, Good Corporate and Good Governance (GCG) Principles must be implemented in Islamic banking as a consequence of public responsibility in running the bank according to shariah principle based on Al-Qur’an, Hadith, and Ijmā

scholarly journals RISIKO KEUANGAN DAN TINGKAT KESEHATAN KEUANGAN BANK DENGAN SIZE, INFLASI, DAN GDP SEBAGAI VARIABEL KONTROL PADA PERBANKAN SYARIAH DI INDONESIA

2017 ◽  
Vol 3 (01) ◽  
pp. 27
Author(s):  
Yuwita Ariessa Pravasanti
Keyword(s):  
Financial Risk ◽  
Panel Data Analysis ◽  
Control Variable ◽  
Operational Risk ◽  
Islamic Banking ◽  
Financial Risks ◽  
Return On Assets ◽  
Return On Equity ◽  
Operating Margin ◽  
Financial Soundness

This study aims to analyze the financial risk and health financial level of banks on Islamic banking in Indonesia. This study aims to get empirical evidence about the possibility of relationship and influence of financial risks (liquidity risk (Financing to Deposit Ratio), financing risks (Non Performing  Financing)  and  operational  risk  (RWA  for  operational  risk)  and  the  financial soundness of banks (Net Operating margin, Return on Assets and Return on Equity) with the size of bank, inflation and Gross Domestic Product (GDP) as a control variable in islamic banking in Indonesia. This study used panel data analysis and used 9 islamic bank with 5 years in a period, from 2010 to 2014 so the sample used in this study were 45 data. The data were processed using Microsoft Excel and Eviews software version 8.The results showed that simultaneously financial risk not significant effect on NOM, but significant effect on ROA and ROE. Partially NPF variables only significantly influence on NOM, FDR and NPF variable significant effect on ROA, and FDR variable significant effect on ROE. The control variables used in this study had no effect on health financial level.

Healthcare contracts and the allocation of financial risk

2020 ◽  
pp. 103-122
Author(s):  
Pauline Allen ◽  
Marie Sanderson ◽  
Christina Petsoulas ◽  
Ben Ritchie
Keyword(s):  
Financial Risk ◽  
Cost Savings ◽  
Evidence Base ◽  
Risk Allocation ◽  
Capital Costs ◽  
Contractual Relationships ◽  
New Models ◽  
Integration Of Services ◽  
Over Time

Chapter 7 reports two aspects of research on contracting in the NHS. The first investigates how the policies to use contractual mechanisms including financial risk allocation work in practice. Most of the contractual relationships between NHS owned acute providers and commissioners were characterised by the use of general annual financial settlements outside the terms of the contract. This behaviour appeared to be increasing over time. The second study comprises a review of the evidence concerning new forms of contract being introduced into the NHS: alliance and outcome based contracts. These are aimed at facilitating the integration of services and improving quality of care. Evidence from other sectors indicates that new models of contracting may result in cost savings including a reduction in capital costs, the development of innovations and benefits in relation to time. But there are high transaction costs in relation to the process of contract negotiation and specification. The evidence base regarding improvements in the quality of services is not convincing. These models carry a number of potential governance issues in relation to their implementation in the NHS, and are at risk of failing to satisfy public sector governance objectives including accountability, integrity and transparency.

Optimizing the concession period of PPP projects for fair allocation of financial risk

2019 ◽  
Vol 26 (10) ◽  
pp. 2347-2363 ◽  
Author(s):  
Hongyu Jin ◽  
Shijing Liu ◽  
Chunlu Liu ◽  
Nilupa Udawatta
Keyword(s):  
Financial Risk ◽  
The Body ◽  
Government Support ◽  
Risk Allocation ◽  
Fair Allocation ◽  
Optimal Length ◽  
Content Type ◽  
Determination Process ◽  
Concession Period ◽  
Private Investors

Purpose Targeting public–private partnership (PPP) projects, the purpose of this paper is to help decision makers fairly allocate financial risk between governments and private investors through a properly designed length of concession period. Design/methodology/approach On the one hand, the length of the concession period should be long enough to help private investors to achieve their expected profits. On the other hand, the length of a concession period cannot be decided without agreeing on an upper limit, since an overlong concession period takes too much time for governments to recover their investment and leads to an overly lucrative condition for private investors. Following this logic, the concession period decision range is decided, which defines the lower and upper limits for the length of the concession period. The net present values (NPVs) for governments and private investors are estimated via Monte Carlo simulation to better reflect the uncertainties. To further decide on the optimal length of the concession period, the principle of fair risk allocation between governments and private investors is adopted. The concession period, as an important project parameter, should help to minimize the financial risk gap between governments and private investors. Findings The developed concession period determination process is validated using a numerical example of a PPP transportation project. The analysis outcomes show that the proposed methodology is capable of determining the length of the concession period so as to control private investors’ profit within a reasonable range while achieving a fair allocation of financial risk between governments and private investors. The outcomes also indicate that, before determining the optimal length for the concession period, governments may need to make a choice between better financial risk allocation or stringent profit control for private investors. Research limitations/implications The determination process developed here may be inapplicable to social infrastructure PPPs where the income stream is less predictable. In addition, the data analysis targets a highway project with a capital subsidy provided by the government. To strengthen the effectiveness of the proposed determination process, further research should apply the model to PPPs with other kinds of government support. Originality/value The concession period for a PPP project is an important parameter and it is a common practice for governments to predetermine the length of the concession period before inviting tenders. The existing models for determining the concession period focus too much on the simulation of NPVs for project parties and neglect the importance of risk allocation in signing and maintaining a long-term contract. There is also a lack of research to evaluate the influence of governments’ preferences on the length of the concession period. To overcome the limitations of the existing models and enrich the methodology for concession period determination, this paper contributes to the body of knowledge by developing a concession period determination process which can help governments to make better decisions. The financial risk is expected to be more evenly shared between governments and private investors with the concession period derived from the proposed process. This determination process is also capable of evaluating the influence of governments’ preferences on the length of the concession period.

scholarly journals A risk allocation approach to optimal exchange rate policy

2005 ◽  
Vol 57 (3) ◽  
pp. 398-421
Author(s):  
B. Gabriela Mundaca ◽  
Jon Strand
Keyword(s):  
Exchange Rate ◽  
Exchange Rate Policy ◽  
Risk Allocation ◽  
Rate Policy ◽  
Allocation Approach
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