Analysis of default behavior of borrowers under Islamic versus conventional banking

2016 ◽  
Vol 8 (2) ◽  
pp. 156-173 ◽  
Author(s):  
Genanew Bekele ◽  
Reza H. Chowdhury ◽  
Ananth Rao
Keyword(s):  
United Arab Emirates ◽  
Default Risk ◽  
Explanatory Power ◽  
Capital Requirements ◽  
Islamic Banking ◽  
Specific Information ◽  
Probability Of Default ◽  
Loan Default ◽  
Content Type ◽  
Bank Branches

Purpose The purpose of this paper is to consider borrower-specific characteristics to understand the factors affecting both the probability and quantum of loan default by individual borrowers under Islamic and conventional banking. Design/methodology/approach Borrower-specific characteristics that explain the probability of default may not necessarily be similar factors that determine the quantum of default. The authors therefore apply a Box-Cox double hurdle model to treat both the probability and quantum of default in a two-step approach. The authors also explain the differences in default risk and quantum of default between Islamic and conventional banking borrowers from their behavioral perspectives following the Sharia principles in financial transactions between lenders and borrowers. The authors use borrower-specific information of two separate bank branches of the United Arab Emirates that solely deal with either Islamic or conventional banking products. Findings The paper demonstrates that the probability of default and the quantum of default appear to be influenced by different set of client-specific factors. The results suggest that the probability of default does not vary significantly between Islamic and conventional banking borrowers. The evidence also shows that Islamic banking defaulters, compared to those in conventional banking, repay a large quantum of overdue when their financial leverage improves. However, they do not tend to reduce their outstanding quantum of overdue faster than conventional banking defaulters. Research limitations/implications Availability of data from only two bank branches may limit the explanatory power of empirical findings. Practical implications The study findings will enable the Islamic and conventional banks to appropriately address Basel Capital requirements based on the borrowers’ behavior. Social implications The study findings have the potential for Islamic and conventional financing institutions to be more flexible with equity in their lending practices. Originality/value Religious beliefs are crucial in borrower’s default behavior in Islamic banking.

Drawing ethical mentation in Islamic banks; addressing operational lines heterogeneity with special reference to Al-Ghazali’s ethical philosophy

2021 ◽  
Vol ahead-of-print (ahead-of-print) ◽  
Author(s):  
Shinaj Valangattil Shamsudheen ◽  
Saiful Azhar Rosly ◽  
Syed Abdul Hamid Aljunid
Keyword(s):  
Decision Making ◽  
Special Reference ◽  
United Arab Emirates ◽  
Partial Least Square ◽  
Islamic Finance ◽  
Islamic Banking ◽  
Islamic Banks ◽  
Content Type ◽  
Ethical Philosophy ◽  
Divine Knowledge

Purpose This study aims to examine the decision-making behaviour of Islamic banking practitioners of the United Arab Emirates with special reference to the operational line heterogeneity by employing factors that are religious in nature such as intellect, satanic force and divine knowledge as encapsulated in al-Ghazali’s ethical philosophy. Design/methodology/approach A total of 337 samples were collected from the Islamic banking practitioners in the United Arab Emirates using a purposive sampling technique, and the empirical analysis was conducted with the measures of model fit and bootstrapping technique using Partial least square Structural equation modelling and multi-group analysis. Findings The empirical findings reveal that the dedicated use of intellect in making decisions related to ethical issues where desires and emotions tend to overwhelm reason and human choices. While divine knowledge is found ineffective guidance of the intellect, the element of satanic force is found significantly impacting decision-making. As the lack of religious consciousness is evident among respondents, higher exposure to operational risk is expected. These findings were found identical across the Islamic banking practitioners in different lines of operations. Research limitations/implications The span of the study is limited to a single country. Future studies are recommended to replicate the study to more markets where the share of Islamic finance is significant. Practical implications Findings of the study highly suggest respective authorities of Islamic financial institutions to intensify the capacity-building programs on the foundation of faith which includes Islamic thought and worldview, to enhance the corporate ethical decision-making. Moreover, equal importance should be given to all the banking practitioners regardless of line of business operations. Originality/value With undue emphasis is given to the juristic (fiqh) aspects of Shariah compliance in the Islamic banking and finance industry, less has been attempted to explore its ethical dimension (akhlaq) in the compliance parameters that leave a relatively large gap to address prevailing unethical practices in Islamic finance institutions. Findings from this study can be useful as a warning to the Islamic banking firms to enhance the sense of God-fearing and improve existing measures in the organisation in mitigating operational risks that may arise from people or system and consequently ensure the smooth governance of the Islamic banks.

Bank regulation and credit crunch: evidence from MENA region commercial banks

2021 ◽  
Vol ahead-of-print (ahead-of-print) ◽  
Author(s):  
Chawki EL-Moussawi ◽  
Mohamad Kassem ◽  
Josse Roussel
Keyword(s):  
Commercial Banks ◽  
Banking Sector ◽  
Explanatory Power ◽  
Banking Regulation ◽  
Capital Requirements ◽  
Mena Region ◽  
Institutional Variables ◽  
Content Type ◽  
The Impact ◽  
The Relationship

PurposeThis paper focuses on the relationship between the regulatory capital requirements and the supply of credit for commercial banks that are operating in the MENA region from 1999 till 2017.Design/methodology/approachThe application of the Fixed Effects Model on a panel of commercial banks in the MENA region has shown a negative relationship between supply of credit and both the capital requirements and solvency ratios.FindingsThe results showed that the idiosyncratic, the macroeconomic and the institutional variables affect the supply of credit behavior of banks. The robustness tests using the Two-Stage Least Square method (2SLS) also led to a negative correlation between the growth of credit and capital requirements. Specific macroeconomic and institutional variables have revealed the expected sign and are significant regardless of the estimated specifications.Research limitations/implicationsThis work can be subjected to further future extensions. The explanatory power of our model can be improved by incorporating variables that reflect the corporate governance and structure of banking sector. Similarly, we can also include a variable that takes into account the increasing competition that could affect the stability of the banking sector and therefore the prudential banking regulation.Originality/valuePrevious studies that investigated only the relationship between capital level and risk-taking behavior of banks in the MENA region did not take into account neither the economic and institutional environment nor the impact of these regulations on credit (loans) supply.

Determinants and outcome of Islamic corporate social responsibility (ICSR) adoption in Islamic banking industry of Pakistan

2020 ◽  
Vol ahead-of-print (ahead-of-print) ◽  
Author(s):  
Syed Asim Ali Bukhari ◽  
Fathyah Hashim ◽  
Azlan Bin Amran
Keyword(s):  
Corporate Social Responsibility ◽  
Social Responsibility ◽  
Positive Relationship ◽  
Banking Industry ◽  
Islamic Banking ◽  
Bank Branch ◽  
Content Type ◽  
Bank Branches ◽  
Islamic Bank ◽  
Corporate Social

Purpose The purpose of this study is to empirically examine the determinants and outcomes of Islamic corporate social responsibility (ICSR) adoption in Islamic bank branches in Pakistan. The research framework examines the influence of stakeholder’s pressure on ICSR adoption. It also analyses the relationship between ICSR adoption and intangible outcomes achieved by the Islamic bank branch. Design/methodology/approach A total of 400 questionnaires were distributed through a mail survey to Islamic bank branches in Pakistan. The respondents of the study were the branch manager of Islamic bank branches in Pakistan. A simple random sampling technique was used and resulted in the collection of 293 usable questionnaires. SMART PLS was used to statistically analyse the data using partial least squares structural equation modelling approach. The measurement and structural models were analysed. Findings The results indicate a significant and positive relationship between Shariah supervisory board pressure, competitor pressure and ICSR adoption in Islamic bank branches. A moderate strength positive relationship was found out between top management pressure and ICSR adoption. Results reveal that customer pressure and community pressure have an insignificant influence on ICSR adoption. Data analysis shows that the adoption of ICSR practices have a significant and positive influence on an Islamic bank branch’s Intangible outcomes. Research limitations/implications The sample size was relatively small because of the limited time duration. Originality/value The construct of ICSR has not been extensively researched upon especially through empirical studies. Limited research exists in the area of factors than can influence Islamic bank branches to adopt ICSR practices and currently no empirical research has focussed on the intangible outcomes that can be achieved through ICSR adoption by an Islamic bank branch. The limited study exists in the Pakistan context as well, which is a rapidly growing Islamic banking industry.

scholarly journals Can market state and market volatility explain time-varying momentum profits in South Africa?

2022 ◽  
Vol ahead-of-print (ahead-of-print) ◽  
Author(s):  
Mwangele Kaluba ◽  
Yudhvir Seetharam
Keyword(s):  
South Africa ◽  
Default Risk ◽  
Explanatory Power ◽  
Market Volatility ◽  
Momentum Strategies ◽  
Content Type ◽  
Fund Managers ◽  
Fundamental Factor ◽  
Momentum Profits ◽  
Market State

PurposeWhile the momentum anomaly is prevalent in South Africa, few have examined the reasons influencing it. This study examines whether momentum profits vary through time and are affected by the state of the market and market volatility between 1998 and 2019.Design/methodology/approachThe authors consider combinations of portfolio construction, such as the lookback period, weighting scheme, measure of volatility and the volatility window period. They further examine the interaction of momentum with sentiment, default risk and semi-deviation as a measure of risk, as a means of testing whether behavioural factors have significant influence.FindingsThe results generally show that neither volatility nor market state has explanatory power on momentum profits.Originality/valueThese results make the momentum anomaly in South Africa an even greater mystery than before as they do not conform to the existing literature from developed economies. The authors do, however, find that default risk is a significant predictor of momentum profits, which is a useful additional factor for those fund managers who utilise momentum strategies. This implies that a fundamental factor, default risk, is a potential explanation for the market-related momentum anomaly.

scholarly journals COVID-19 pandemic risk and probability of loan default: evidence from marketplace lending market

2021 ◽  
Vol 7 (1) ◽  
Author(s):  
Asror Nigmonov ◽  
Syed Shams
Keyword(s):  
Financial Markets ◽  
Financial Distress ◽  
Default Risk ◽  
Sample Selection ◽  
Probability Of Default ◽  
Loan Default ◽  
Economic Distress ◽  
Logit Regression ◽  
Low Levels ◽  
The Impact

AbstractAs the COVID-19 pandemic adversely affects the financial markets, a better understanding of the lending dynamics of a successful marketplace is necessary under the conditions of financial distress. Using the loan book database of Mintos (Latvia) and employing logit regression method, we provide evidence of the pandemic-induced exposure to default risk in the marketplace lending market. Our analysis indicates that the probability of default increases from 0.056 in the pre-pandemic period to 0.079 in the post-pandemic period. COVID-19 pandemic has a significant impact on default risk during May and June of 2020. We also find that the magnitude of the impact of COVID-19 risk is higher for borrowers with lower credit ratings and in countries with low levels of FinTech adoption. Our main findings are robust to sample selection bias allowing for a better understanding of and quantifying risks related to FinTech loans during the pandemic and periods of overall economic distress.

The buy-in benchmark in Islamic banking: combined effect of brand role clarity and employee brand commitment towards employee brand equity

2021 ◽  
Vol ahead-of-print (ahead-of-print) ◽  
Author(s):  
Mohsin Altaf ◽  
Irfan Saleem ◽  
Faisal Mustafa ◽  
Farooq Anwar
Keyword(s):  
Brand Equity ◽  
Random Sampling ◽  
Brand Management ◽  
Empirical Studies ◽  
Combined Effect ◽  
Islamic Banking ◽  
Role Clarity ◽  
Brand Commitment ◽  
Content Type ◽  
Bank Branches

Purpose Employee position is acknowledged as central in service brand management to achieve competitive advantage. Hence, this study aims to illustrate the importance of brand role clarity (BRC) and employee brand commitment (EBC) by investigating the moderating role of EBC on the relationship between BRC and employee brand equity (EBE) in Islamic banking. Design/methodology/approach Data is collected from 259 respondents who are involved in Islamic banking. Proportionate stratified random sampling was used to select bank branches for the study, and simple random sampling was adopted to choose respondents within these bank branches. Findings Building on the insight obtained from data analysis, the results of this study demonstrate that the EBC strengthens the significant relationship between employee BRC and EBE. It indicates that EBC is vital in affecting the employee BRC on EBE. Originality/value The importance of BRC and EBC has been widely discussed in the literature that both of these variables are essential sources of EBE. However, empirical studies on the combined effect of EBC and BRC on EBE have not been considered in past studies.

Does collectivism necessarily negate the spirit of entrepreneurship?

2014 ◽  
Vol 20 (3) ◽  
pp. 278-296 ◽  
Author(s):  
Rachid Zeffane
Keyword(s):  
Middle East ◽  
United Arab Emirates ◽  
Explanatory Power ◽  
National Level ◽  
Future Research ◽  
Strong Impact ◽  
Gulf Region ◽  
Personal Traits ◽  
Content Type ◽  
The Impact

Purpose – The purpose of this paper is to explore the relationships between individualism/collectivism (as personal traits) and individuals’ potential to become an entrepreneur. Design/methodology/approach – The study draws on a sample of 503 students enrolled in business courses at a university in the United Arab Emirates (UAE). It focusses on the concept of Entrepreneurial Potential (EP) as a measure of “desirability and inclination” to start a business. The paper tests the hypothesis that the concepts of individualism and collectivism are not necessarily polar ends of the same continuum and examine their impacts on EP, controlling for age and gender as main demographic characteristics. Four main hypotheses are explored. Findings – Statistical analysis confirms the two main hypotheses. They reveal that: first, concomitant with the dominant collectivist values at national level, potential future entrepreneurs evolving in the Middle East/Gulf region endorse personal traits of a predominantly collectivist nature; second, contrary to popular assumptions individualism does not have a strong impact on youth EP. In the context of this study, the impact of collectivism on EP is most significant. The paper also found that gender had no significant impact on EP Research limitations/implications – The use of personality traits alone, as a basis for understanding predictors of EP may not be sufficient. A number of contextual variables (such the socio-cultural and economic context) may also have a strong influence. Unfortunately, it is not possible to test for these effects with the data available in this study. Future research may consider these. Practical implications – Despite its limited scope (limited sample-size and target population), the findings of this study are useful to both practitioners and policy makers. Management practitioners interested in entrepreneurial behaviors need to take stock of the fact that future entrepreneurs can (and perhaps should be able to) blend their competitive entrepreneurial drive with the spirit of collectivism. This is particularly relevant in selection processes using personality tests for the purpose of extracting the most likely candidates for entrepreneurial ventures involving youth. Originality/value – The findings of this study do not support the general assumption that individualism and entrepreneurship ties necessarily go hand in hand. They clearly indicate that collectivism has more explanatory power in this regard, though this may be contextual. These findings may be explained by the context of the study (UAE/Middle East). The overwhelming majority of the respondents are from the Middle East and gulf region, where collectivist aspirations are predominant. Yet, the economies of countries in those regions are fuelled by an increasing number of advanced and quite daring entrepreneurial projects, as exemplified by the modernist business ventures in Dubai, Qatar, and Abu Dhabi.

Sharīʿah compliant working capital financing_ a case-study of Indian sugar industry

2020 ◽  
Vol 11 (3) ◽  
pp. 674-693
Author(s):  
Abuzar Nomani ◽  
Mohammad Khalid Azam
Keyword(s):  
Sugar Industry ◽  
Panel Data Analysis ◽  
Capital Requirements ◽  
Raw Material ◽  
Islamic Banking ◽  
Working Capital ◽  
Content Type ◽  
Agriculture Sector ◽  
Capital Financing ◽  
Sugar Mills

Purpose This paper aims to assess how Sharīʿah guidelines improve the working capital needs of the Indian sugar industry. Previous studies reveal that the sugar industry in India is in a state of cash deprivation for decades. Finance is not available for expansion, as well as for working capital requirements. Banks have also declined to provide working capital loans to the sugar industry. Design/methodology/approach Lack of working capital management and its impact upon sugar mills profitability are examined based on a sample of six Indian sugar mills and the use of panel data analysis for the period 2011-2015. Findings The regression results suggest the need for reducing the number of days’ account receivables and inventories to a reasonable minimum to maintain the liquidity necessary for the mills, which current mills cannot manage to achieve, and consequently, suffer liquidity problems. Practical implications This paper presents a model of Sharīʿah-compliant working capital financing for cash deprived Indian sugar industry. All the three parties stand to benefit from this arrangement: the farmer will get the price of his crop promptly and at its farmland, sugar mill will secure the required quantity of raw material (sugarcane) without any immediate cash outflow, and the Islamic bank will earn a reasonable mark-up profit from this transaction. Originality/value The study is the first comprehensive effort to explore the possible combination of Islamic banking products subject to the fulfillment of needs of sugar mills and farmers and the application of an Islamic banking instrument in the agriculture sector of India. It also suggests the possible models for financing under a Salam and Murabahah contract.

Environmental worldview beliefs and CSR advertising

2019 ◽  
Vol 15 (3) ◽  
pp. 379-394 ◽  
Author(s):  
Robert G. Magee
Keyword(s):  
Social Responsibility ◽  
Information Seeking ◽  
Explanatory Power ◽  
Specific Information ◽  
Core Beliefs ◽  
Persuasion Knowledge ◽  
Content Type ◽  
Environmental Worldview ◽  
The Public Sphere ◽  
Corporate Social

Purpose This paper aims to show how environment-related worldview beliefs, in addition to specific persuasion knowledge, can influence how a consumer responds to ads about corporate social responsibility (CSR) projects. Design/methodology/approach Two experiments manipulated ad copy and consumers’ persuasion knowledge to examine the effects of consumers’ environmental worldview beliefs on their judgments of a firm’s CSR reforestation project. Findings When an ad presented ambiguous information, both consumers’ persuasion knowledge and their environmental worldview influenced the attribution of the firm’s motives. When an ad presented environment-specific information, however, consumers’ worldview did not influence their attribution of motives. Attributions, in turn, predicted attitudes toward the ad and attitudes toward the brand and were associated with intentions for information-seeking and referral behavior. Research limitations/implications A consumer’s core beliefs can play an important role in understanding the application of persuasion knowledge, and the reinforcement-of-meaning principle expands the persuasion knowledge model’s explanatory power. Practical implications Marketing communications that involve social responsibility projects must take into account how core beliefs can influence the way consumers respond to projects. Social implications This research demonstrates the importance of worldview beliefs in communication that takes place in the public sphere. Originality/value The experiments’ results contribute to a more robust understanding of the persuasion knowledge model, particularly as it applies to CSR messages and introduces the reinforcement-of-meaning principle.

Effects of focus versus diversification on bank risk and return: evidence from Islamic banks’ loan portfolios

2020 ◽  
Vol 11 (9) ◽  
pp. 2155-2168
Author(s):  
Lama Tarek Al-kayed ◽  
Khaoula Chaffai Aliani
Keyword(s):  
Default Risk ◽  
Design Methodology ◽  
Geographic Area ◽  
Bank Risk ◽  
Islamic Banking ◽  
Islamic Banks ◽  
Economic Sectors ◽  
Risk And Return ◽  
Content Type ◽  
Loan Portfolios

Purpose The purpose of this paper is to investigate the effect of a focus loan strategy on Islamic banks’ (IB) performance in three areas: sectoral, geographic and the type of Islamic instrument. This paper specifically addresses two questions. First, should IBs focus or diversify their loan portfolios? Second, how does focus in lending affect IBs’ returns and risk? Design/methodology/approach The panel generalized linear squared method was used for regressions throughout the paper. Data used in the analysis were extracted from IBs’ publicly available regulatory reports in the Gulf Cooperation Council countries. The sample is an unbalanced panel that includes financial data on 26 banks during the period 2010–2018. Findings Focusing on Islamic instruments and economic sectors would harm IBs’ profitability while reducing their risks. Geographic focus increased the profitability of IBs, but it also increased their default risk. The focus in Islamic instruments was beneficial when risk is low to moderate, but when the risk of an IB increased, it was better to diversify across Islamic instruments. Focus in geographical areas, on the other hand, had a non-linear U-shaped relationship with return, which means that when IBs’ risk is high, focusing their loans in one geographic area enhances their returns. Originality/value This paper fills the existing gap in Islamic banking literature regarding the focus/diversification dilemma. It is the first attempt to study the effect of focus in three areas (sectoral, geographic and instrument used) on the return and risk of IBs.

Sign in / Sign up

Export Citation Format

Share Document