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Islamic Banking and Financial CrisisReputation, Stability and Risks$

Habib Ahmed, Mehmet Asutay, and Rodney Wilson

Print publication date: 2013

Print ISBN-13: 9780748647613

Published to Edinburgh Scholarship Online: May 2014

DOI: 10.3366/edinburgh/9780748647613.001.0001

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(p.234) Index

(p.234) Index

Source:
Islamic Banking and Financial Crisis
Publisher:
Edinburgh University Press

Page numbers in italics refer to figures and tables

AAOIFI (Accounting and Auditing Organisation for Islamic Financial Institutions)
accounting standards, 43, 128, 157, 163, 164, 170
criticism of sukuk contracts, 12
on currency exchange, 145
governance standards (GSIFI), 155, 163, 164, 172–3, 174, 176, 177, 178, 179–80, 182, 201, 207, 208
Sharīc ah Board, 200
AɔAyan Leasing and Investment bank, Kuwait, 114
ABC Islamic bank, Bahrain, 105
Abdallah, Ahmed Ali, 172
Abdel Karim, R. M., 171, 175
Abdul Majid, Abdul Rais, 64, 77, 78
Abdul Majid, M. S., 124
Abdul Manan, 153
Abdulazeem, Abozaid, 223, 232n3, 232n4, 232n5, 233n14, 233n18
Aboumouamer, F. M., 200, 220n6, 220n10, 221n12
Abu Bakar, M. A., 43, 89
Abu Dhabi Islamic Bank (ADIB), 105, 114, 232n7
resilience study, 44, 47–53, 48, 51, 52
Abu Ja cfar, 30
Abu Sa cīd, 30
Accounting and Auditing Organisation for Islamic Financial Institutions see AAOIFI
adapted return on equity (ROE) analysis scheme, 41, 44–55, 45, 48, 132
Adawiah, E. R., 153
Adrian, T., 90
Affin Bank Berhad (AB), Malaysia
financing behaviour study, 105
liquidity risk management study, 129–33, 130, 131, 132
stability study, 66, 70–8, 71, 72, 73, 74, 75, 76, 85
agents, reshaping the behaviour and responsibilities of economic, 30–6
responsibility of regulators, 35–6
sellers’ standard of care, 32–5
Agricultural Bank of Iran, 44
Ahmad, I. U., 43
Ahmad, Wahida, 9
Ahmed, H., 25, 42, 43, 106, 107, 108, 109, 113, 115, 117, 117, 118, 119, 120, 122n4, 220n6
Ainley, Michael, 9
Akkizidis, I., 42, 63, 64, 107, 108
Al-Asqalani, Al-Hafiz Ibn Hajar, 146n2, 146n3
al-Azhar University, Islamic Research Institute, 157
Al-Bahuti, 233n15
Al Baraka Banking Group
Bahrain, 17, 171–2
resilience study, 44, 47–53, 48, 51, 52
Sharīc ah report study, 176–9, 178, 182, 192
South Africa, 105
Turkey, 105
al-bay (trade-based) financing, 91
Al-Bayhaqi, 30, 36–7n3, 36n2, 140, 141
Al-Bukhari, 30, 31, 33
Al-Dasuqi, 233n15
Al-Ghazali, 232n1
al-ghunm bi al-ghurm, 137
Al-Hattab, 233n15
Al-Jarhi, Mabid Ali, 14, 229–30
Al Jazira Bank, Saudi Arabia, 105
al-kharaj bin daman, 137
Al-Khazali, O., 43, 44
Al-Mazrooei, M., 107
Al-Nasaɔi, 30
Al Rajhi Bank, Saudi Arabia (AIRajhi)
resilience study, 44, 47–53, 48, 50, 51, 52
risk management study, 114
Al-Rajhi Banking & Investment Corporation, Malaysia, Sharīc ah report study, 176–9, 178, 182, 184
Al-Saɔadi, A.-R. b. N., 30
Al-Sadah, A. K. I., 127
Al Salam Bank, Bahrain, 114
Al-Shatibi, 223
Al-Sherbini, 233n15
(p.235) Al-Suwailem, Sami, 138, 139
Al-Tabari, M. i. J., 30
Al-Tamimi, H., 107
Al-Tirmidhī, 33, 140, 141
Al-Zuhayli, Wahbah, 33, 138, 141
Albertazzi, U., 87, 89
Allen, F., 26
Allen, W., 59
Allfirst, 118
Alliance Financial Group Berhad (AFG), Malaysia
financing behaviour study, 105
stability study, 66, 70–9, 71, 72, 73, 74, 75, 76, 85
AM Bank Berhad, Malaysia, 105
amanah (trustworthy), 91
Amlak, Dubai, 7
Angbazo, L., 129
appointment criteria, for Sharīc ah board members, 211–12, 211
Arab Finance House, Lebanon, 114
Arab Islamic Bank, Palestine, 114
Arab Uprising, 14
arbitrage, 35, 36
arbitration, 209
Arcapita bank, Bahrain, 114
Archer, S., 108, 109, 118, 119, 119, 120, 122n5
Arens, A., 157
Ariff, M., 42
Arrifin, Noraini, 108
Asea, P. K., 90
Asia Crisis (1997), 13, 14, 77, 78
Asian Finance Bank, Malaysia, 114
Askari, Hossein, 15
assets
earnings, 94, 96
growth, 15, 41
pricing of, 60, 61, 62
top Islamic banks by total assets, 40, 44 see also return on assets (ROA) ratio
Asya Katilim Bankasi, Turkey, 44
Audit & Governance Committees (ACGs), 164/167, 166
audits
Ayub, M., 35, 125
Aziz, Z. A., 22, 23, 24, 25, 26, 27, 35
Bacha, O. I., 90, 136
Badreldin, A., 41, 45, 46, 50
Bahrain
financing behaviour study, 95–6, 105
liquidity risk management study, 127
risk management study, 114
Sharīc ah board survey, 201
Sharīc ah governance survey, 201, 207
Sharīc ah report study, 174, 176–9, 178, 182
Bahrain Islamic Bank (BIB)
Sharīc ah internal control audit study, 163–8, 165–7
Sharīc ah report study, 177–9, 178, 182, 185–6
Bahrain Monetary Agency, 127
bai al-sarf (currency exchange), 144–5
bai bithaman ajil (deferred payment sale) contracts (BBA), 96, 225–6
Bakar, M. D., 200
Bangladesh, Sharīc ah board survey, 201
Bank Al Bilad, Saudi Arabia, 114
Bank Ettamouil Saudi Tounsi (BEST Bank), Tunisia, 114
Bank for International Settlements (BIS), Switzerland, 3, 24
Bank Islam Brunei, 114
Bank Islam Malaysia Berhad (BIMB)
Annual Report 2006, 63
established, 13, 149
financing behaviour study, 105
liquidity risk management study, 129–33, 130, 131, 132
resilience study, 44
risk management study, 114
Sharīc ah internal control audit study, 150, 163–8, 165–7
Sharīc ah report study, 176–9, 178, 182, 197–9
stability study, 66, 70–9, 71, 72, 73, 74, 75, 76, 84
Bank Islami Pakistan, 114
Bank Maskan, Iran, 44, 114
Bank Mellat, Pakistan, 44
Bank Muamalat Malaysia Berhad (BMMB)
established, 13
liquidity risk management study, 129–33, 130, 131, 132
risk management study, 114
Sharīc ah report study, 176–9, 178, 182, 190
stability study, 66, 70–8, 71, 72, 73, 74, 75, 76, 84
Bank Negara Malaysia (BNM)
Guidelines on Financial Reports for Licensed Islamic Banks (GP8-i), 173
Guidelines on the Governance of Sharīc ah Committee for the Islamic Financial Institutions (GPS-I), 149, 155–6, 157, 163, 163–4, 173
Liquidity Framework, 127–8, 131
liquidity risk management study, 129
Sharīc ah issues, 17, 35, 207, 211
stability study, 66
Bank Rakyat, Malaysia, 105
bank runs, 65, 120, 124, 126
Bank Saderat Iran, 44
Bank Sepah, Iran, 44
Bank Syariɔah Mandiri, Indonesia, 114
Bank Tejarat, Iran, 44, 114
BankScope, 40, 44, 113
Baraka bank see Al Baraka Banking Group
Barings, 118
Basel Committee on Banking Supervision (BCBS), 7, 8, 9, 26, 66, 78, 128, 133–4, 201
Basel I standards, 89
(p.236) Basel II standards, 7, 8, 66, 89, 115
Basel III standards, 7–10
Bashir, A. M., 43
bay muajjal contracts, 96, 142
Beasley, M. S., 157
Bernanke, Ben S., 23, 25, 26, 29, 34, 90
Bhatti, M. I., 42, 43, 88
Bikker, J. A., 87, 89, 90, 94, 100
Blinder, A. S., 90
Bliss, R. R., 89, 90
Blom Development Bank, Lebanon, 200
Blomberg, B., 90
boards of directors (BODs), 110, 115, 128, 155, 159, 171, 173, 176, 210, 212
bond markets, absence of, 64
Bordo, M. D., 22, 24, 26
Bouheraoua, Said, 12
Bouvatier, V., 87, 89, 90
Brown, Kym, 6, 42, 43
Brunei
risk management study, 114
Sharīc ah board survey, 201
bubbles, 2, 14, 21, 23, 61
buffers, 8, 11, 100, 101, 102
Burger, Allen, 89
Bursa Malaysia, 149
business cycles, 2, 5, 10–12, 87–90, 93–4, 95, 99, 101
Calmes, J., 34, 35
capital adequacy, 7–8, 23, 65–8, 74, 78–80, 115, 118
capital growth to earning asset growth (K/EA) ratio, 96
capital risk reports, 117
care, standards of, 31, 32–5
Carey, A., 107
Carletti, E., 26
cash reserves, 92
Casson, P., 200
caveat emptor, 31
caveat venditor, 31, 35, 36
Chan, S., 34, 35
Chapra, M. Umer, 14, 25, 29–30, 41, 42, 106, 116, 220n6
China, demand for oil, 14
CIBAFI (General Council for Islamic Banks and Financial Institutions), 43
Cihák, M., 64, 90
CIMB Islamic bank, Malaysia
liquidity risk management study, 129–33, 130, 131, 132
risk management study, 114
Sharīc ah report study, 176–9, 178, 182, 189
Citibank Malaysia Berhad, 105
Citibank, US, 7, 40
Çizakça, M., 5
collateralised debt obligations (CDOs), 3, 6, 24
commodities and equities position risk reports, 117
Commodity Futures Trading Commission (CFTC) Glossary, 140
Companies Act (1965), Malaysia, 156
competition, 6, 34, 61, 62
compliance see under Sharīc ah
compliance risk, 63
confidentiality, 6, 18, 213–14, 214
Consumer Credit Safety Commission (CCSC), 34, 35
Consumer Product Safety Commission (CPSC), US, 34
Cooper, G., 22
core capital ratio (CCR), 66, 74–5, 75, 86
Cornett, M., 63, 66
corporate bonds, 9
Cosar, E. E., 97
cost-income ratio (CIR), 48, 49, 52
counter-cyclical behaviour, 87, 88, 94–5, 94, 99
country risk reports, 117
Cox, S., 108, 109
Credit Card Accountability Responsibility and Disclosure (CARD) Act (2009), US, 36
credit crunch, 90
credit-derivatives, 60
credit growth, imprudent, 24–5
credit risk, 108, 110, 111, 114, 117, 121, 129, 137, 139, 151
Crotty, James, 3, 4
Cumming, C., 107
currency exchange, 144–5
cyclical behaviour, 94, 95, 97/99, 99; see also counter-cyclical behaviour; pro-cyclical behaviour
Daníelsson, J., 62
Dar, Humayon, 137
Darrat, A. F., 90
Davos, World Economic Forum (2010), 29
dayn (debt) see debt
De Graeve, F., 60
de Lis, Santiago Fernandez, 89, 90
debt
the Prophet on, 30–1
rescheduling, 229
debt-based financing, 27–8, 29–30
debt trading practices, 224, 229, 230–1
Delorenzo, Y. T., 219–20n1
deposit insurance schemes, 24, 25
deposit margin (DM), 50, 50, 53
deposits, loans to deposits ratio see loans to deposits (L/D) ratio
deposits times capital (D/C) ratio, 65, 68, 69, 70, 71, 71, 72, 72, 76–7, 78, 83, 86
deregulation, 2, 42, 61
Derigs, Ulrich, 10
derivatives
and the 2008 financial crisis, 3, 6
credit-derivatives, 60
(p.237) definition, 146n1
hedging and, 140–1, 146
impermissible, 136
‘Islamic’, 136–7, 141, 145–6
leverage ratios and, 10
speculation and, 139–40
Development Islamic bank, UAE, 105
Devi, S., 220n7
disclosure and transparency, 27
discretionary counter-cyclical buffers, 8
displaced commercial risk, 108, 110, 111, 112, 114, 117, 120–1, 137, 152
Diwany, Tarek El, 139, 146n5
dot-com bubble (2001), 21
Dowd, Kevin, 4
Drew, Jill, 3
Drzik, J., 128
dual banking systems, 66–7, 80
Dubai, effect of the 2008 global crisis, 14
Dubai Islamic Bank (DIB), resilience study, 44, 47–53, 48, 51, 52
Dusuki, Asyraf Wajdi, 28, 146n7
Ebrahim, M. S., 42
economic agents, reshaping the behaviour and responsibilities of, 30–6
responsibility of regulators, 35–6
sellers’ standard of care, 32–5
Efficient Market Hypothesis (EMH), 21
Egypt, credit risk research, 129
eina (back-to-back) sales, 224–7, 231
economic analysis of eina and tawarruq, 228–30
eina-based personal financing, 226
home financing, 225
resemblance of BBA home financing to converntional mortgage, 225–6
similarity of eina to interest-based financing, 226–7
El-Gamal, M., 138
el-Hawary, Dahlia Anwar, 64
El Tiby, Amr Mohamed, 5
Elder, R. J., 157
Elgari, Mohammed Ali, 139, 141
Elhiraika, A. D., 90
Emirates Global Islamic Bank, Pakistan, 114
Emirates Islamic Bank, UAE, 44
EON Capital Islamic bank, Malaysia (EONCAP)
liquidity risk management study, 129–33, 130, 131, 132
risk management study, 114
equity-based financing, 29–30, 46, 53, 91, 92, 93–4
equity capital to total assets (ECTA) ratio, 65, 67, 69, 70–1, 71, 72, 76–7, 78, 83, 86
equity investment risk, 92, 110, 111, 113, 114, 115–16, 137, 151–2
equity ratio (ER), 45, 48, 49
equity, return on (ROE) ratio see return on equity (ROE) ratio
Errico, L., 43, 106, 116
Esposito, John L., 7
ethico-legal principles, Islamic, 22, 31–2, 32–4, 35
European banks, research into, 90
European Central Bank (ECB), Frankfurt, 26, 59
EXOT (other income margin), 45, 47, 49, 53, 54
Faiola, Anthony, 3
Farahbaksh, M., 43
fatwās, 12, 154, 171, 210, 223
Federal Reserve System, US, 2, 23, 34
fee-based income, 45, 46–7, 53
financial architecture, redressing the current, 28–30
financial crises
applying lessons learned from the 2008 global crisis, 6–7, 21–39
debt trading practices in Islamic finance, 230–1
Islamic banking during, 12, 13–14
Islamic banking factors mitigating, 4–5
similarities of Islamic to conventional interest-based financing products, 224–30
financial instability hypothesis (Minsky), 21
financial intermediation model, 3
financial leverage multiplier (FLM), 46, 47/49, 47–8, 51
Financial Services Authority (FSA), UK, 40
Financial Stability Forum (FSF), 22, 24, 25, 26, 27
financing behaviour study, 87–105
findings, 97–102
fixed-rate financing cyclicality analysis, 100–2
model estimation, 97–100
Islamic banks and economic stability, 91–4
literature review, 89–91
modelling, 94–7
financing margin (FM), 49, 50, 54
fiqh jurisprudence, 12, 109, 139, 157, 165, 174, 200, 222, 230; see also International Islamic Fiqh Academy, Jeddah
fixed effects (FE) model, 97, 100, 101
fixed-rate financing
cyclicality analysis, 100–2, 101
growth to earning asset growth (FR/EA) ratio, 96
percentage of total financing, 88
foreign exchange (FX)
forward product –i, 142–3, 142
forward waɔ d-i product, 143, 143
outright, Islamic, 143–4, 143
risk, 117, 137
forward contracts
(p.238) fractional reserve banking model, 29
France
examination of the Islamic banking model, 40
Islamic banking proposition, 80
FSA (Financial Services Authority), UK, 40
FSF (Financial Stability Forum), 22, 24, 25, 26, 27
Fukuyama, Francis, 2
Furash, E., 107
G-20 countries, 7
Gambacorta, L., 87, 89
gambling, 140; see also maysir; qimar
General Council for Islamic Banks and Financial Institutions (CIBAFI), 43
generalised least square (GLS) method, 97
gharar
definitions, 138
effects of prohibition, 42
prohibition of, 6–7, 139, 155
Gibson, C., 65, 76
Glass–Steagall Act (1933), US, 2
global crisis (2008) see financial crises
‘global saving glut’, 21
globalisation, 23, 106
Goudreau, R., 129
Grais, Wafik, 12, 64, 78, 108, 121, 153, 175, 200
Gramm–Leach–Bailey Act (1999), US, 2
Greuning, H. V., 46, 63, 64, 108, 109, 116, 121
gross domestic product (GDP) growth, 88, 93, 94–102, 98, 99
gross income margin (GIM), 49, 50/53, 54
Gruss, B., 87, 89, 90
Gulf Cooperation Council (GCC)
attitude towards sukuk, 9
effect of the 2008 global crisis, 14
Sharīc ah governance survey, 201/207–18, 207, 208, 209, 210, 211, 212, 214, 215, 216, 217, 218 see also individual countries
Gulf Finance House, Bahrain, 105
Gupta, S. L., 139, 140
ḥadīth, 30, 33, 137, 140–1, 171
Hakim, S., 129
ḥalāl (lawful) transactions, 31, 33–4
Ḣaldane, A. G., 59
Hameed, S., 171, 173, 179, 180
hamish jiddiyah (security deposit), 118, 120
Hancock, D., 89
harām (prohibited), 223
Ḣaron, A., 63, 108
Hasan, Zulkifli, 13, 200, 209, 220n8
Hassan, M. K., 42, 43
Hausman test, 97, 99, 100
Hayes, Samuel L., 7, 80, 126, 138
hedging, 140–1, 146
Heimshoff, U., 61
Hesse, H., 64, 90
Hin Hock, J. L., 108
Hirtle, Beverly J., 107
Hock, J., 63
Hoggarth, Glenn, 60
Holt, C., 61
home ownership
BBA home financing, 96, 225–6
home loan market, 10
in the US, 3
Hong Leong Bank Berhad (HLB), Malaysia
financing behaviour study, 105
stability study, 66, 70–8, 71, 72, 73, 74, 75, 76, 84
HSBC (Hongkong and Shanghai Banking Corporation), stability study, 67–70, 69, 70, 71, 72, 73, 73, 74, 76, 83
HSBC Malaysia (Hongkong and Shanghai Bank Malaysia Berhad), 105
Hu, H., 89, 90
Hull, John C., 138, 146n1
Humphrey, C., 153
Hyun, S. S., 90
IAS (International Accounting Standards), 43
Ibn Abideen, 233n15
Ibn al-Subki, 223
ijārah (lease purchase), 9, 10, 11, 93, 96, 106, 116, 125, 127
Im, Pesaran and Shin (IPS) method, 97, 99
IMF (International Monetary Fund) working papers, 64
independence, of Sharīc ah board members, 212–13, 212
India, demand for oil, 14
Indonesia
adoption of Basel III, 7
risk management study, 114
Sharīc ah board survey, 201
Industrial Development Bank, Sudan, 114
instability see stability
inter-bank market, 8–9, 42, 109, 124, 126, 127
interest-based financing, 6, 10, 27–8, 91
Sharīc ah products similar to, 222, 224–30 see also eina sales; tawarruq
interest charge risk, 63
interest rate risk, 117, 129
interest rates
effect of movement, 5, 63, 89–90, 124, 129
high, 124
low, 22, 23, 24
Internal Control Questionnaires (ICQs), 162, 163
International Accounting Standards (IAS), 43
International Institute of Islamic Thought, 200
(p.239) International Islamic Fiqh Academy, Jeddah, 12, 139, 157, 200, 222
International Islamic University of Malaysia (IIUM), 113
International Monetary Fund (IMF) working papers, 64
interviews, and internal control, 162–3
investment, definition, 140
investment account holders (IAHs), 108, 112, 116–17, 117, 120
Investment Dar Company KSCC v. Blom Development Bank, 200
investment margin, 45, 53, 89
investment risk, 92, 110, 111, 113, 114, 115–16, 137, 151–2
investment risk reserve (IRR), 53
Investorwords.com, 140
IPS (Im, Pesaran and Shin) method, 97, 99
Iqbal, M., 5, 42, 106
Iqbal, Z., 46, 63, 64, 108, 109, 116, 121, 219, 220n1
Iran
case study, 90
economic isolation, 64
risk management study, 114
Sharīc ah board survey, 201
Islamic Banking Act (1983, ACT 276), Malaysia, 156
Islamic banking model, 40, 42–3
Islamic Development Bank (IDB), Saudi Arabia, 42, 44
Islamic finance, history, 63
Islamic Finance and Global Stability Report (2010), 40, 41
Islamic Financial Services Board Act (2002), Malaysia, 109
Islamic Financial Services Board (IFSB), 10, 46, 47, 78, 109–12, 133, 170, 201
Capital Adequacy Standard for Institutions, 108, 115, 116
Guiding Principles on Corporate Governance, 176, 182, 201, 219n1
Guiding Principles on Risk Management, 106, 108, 110, 111, 113, 117, 118, 121n1, 122n6, 122n7, 122n8, 122n9, 125, 133–4, 151, 170, 174
Guiding Principles on Sharīc ah Governance System, 200, 201, 207
Survey on Sharīc ah Boards, 200–1, 220n6
Ismail, Abdul Ghafar, 89, 137
Ismail, N., 213, 220n9, 221n13
istisnā contracts, 9, 11, 96, 119
Italy, Italian banks case study, 90
Jābir, 33
Jackson-Moore, E., 118
jahalah (ignorance), 4, 138
jahiliyah (exploitation), 6
Jain, A., 22, 24, 26
Jarque-Bera value, 97, 98
Jones, C. I., 21, 24
Jordan
risk management study, 114
Sharīc ah board survey, 201
Jordan, C., 22, 24, 26
Jordan Islamic Bank, 114
K/EA (capital growth to earning asset growth) ratio, 96
Kader, R. A., 89
Kahf, M., 41, 139
Kalhoefer, C., 46
Kamali, Mohammad Hashim, 136, 137, 138, 139, 140
Kamel, S., 40
Karim, R. A. A., 108, 109, 118, 119, 119, 120, 122n5
Karuvelil, K. Z., 22
Karwowski, E., 90
Kashyap, A. K., 22, 90
Kassim, S. H., 89, 124
Kaufman, G. G., 89, 90
Kazarian, E. G., 43
Khaleeji Commercial Bank, Bahrain, 114
Khan, Akram, 139
Khan, M. Fahim, 139, 140
Khan, M. M., 42, 43, 88
Khan, T., 106, 107, 108, 109, 113, 115, 116, 117, 117, 118, 119, 120, 122n4
Khandelwal, S., 42, 63, 64, 107, 108
Kia, A., 90
Kiaee, H., 90
Kick, T., 60
Koetler, M., 60
Kolb, Robert W., 139, 140
KPMG, 42, 159, 160, 161
Krichene, N., 22, 25, 26, 27, 28, 29, 35
Kryst, Mark H., 13
kufr (disbelief), 30
Kulathunga, A., 64, 78, 108, 121
Kunhibava, Sherin, 146n1, 146n4
Kurdistan International Bank, 114
Kuveyt bank, Turkey, 105
Kuwait
financing behaviour study, 95–6, 105
risk management study, 114
Sharīc ah governance survey, 201, 207
Sharīc ah report study, 174, 177–9, 178, 182
Kuwait Finance House (KFH), Kuwait
established, 13
financing behaviour study, 105
resilience study, 44, 47–53, 48, 50, 51, 52
Sharīc ah report study, 177–9, 178, 182, 187–8
Kuwait Finance House (KFH), Malaysia, Sharīc ah report study, 176–9, 178, 182
Kuwait Turkish Participation Bank, 114
Kuwaitis, bankruptcy of, 13
Laeven, L., 89, 90, 94, 100
language issues, 179
Lanman, S., 21, 24
(p.240) Lebanon
credit risk research, 129
risk management study, 114
Lehman Brothers Holdings, 3, 4
lender of last resort (LOLR), 116
Lepetit, L., 87, 89, 90
leveraging, 10, 24, 26, 90
Levin, Lin and Chu (LLC) method, 97, 99
Lewis, M., 42
Likert scale, 113
liquidity
definitions, 26
function, 65
high, as a problem for Islamic banks, 76–7
liquidity and leveraging, 26
Liquidity Management Centre, Bahrain, 127
liquidity risk, 110, 110/112, 111, 114, 117, 120–1, 137, 152
liquidity risk management study, 124–35
literature review, 126–9
banks’ risk management and financial performace, 128–9
liquidity risk and its management, 126–8
recommendations, 133–4
research method, 129–30
results and discussions, 130–3
extent of liquidity risk, 130–1, 130
liquidity risk and banks’ financial performance, 132–3, 132
liquidity risk management disclosure in Islamic banks, 131–2, 131
Llewellyn, D. T., 5, 106
Lloyds TSB, UK, 7
loan loss provision (LLP), 87, 88, 90–1, 92–102, 93, 98, 99
loans to deposits (L/D) ratio, 65, 68, 69, 70, 71–3, 71, 72, 76–7, 83, 86
London Metal Exchange (LME), 9, 227
long-term assets, 5, 6, 9, 11, 65, 126, 127
loss provision growth to earning asset growth (LP/EA) ratio, 96
Lown, C., 90
Maali, B., 200
mafsada (evil), 223
Mahmassani, Subhi, 139
Majnoni, G., 89, 90, 94, 100
Malaysia
Bursa, 149
Central Bank see Bank Negara Malaysia
Companies Act (1965), 156
effect of the 2008 global crisis, 13
financing behaviour of Islamic banks, 89, 95–6, 105, 230
High Court, 200
inter-bank market, 127
Islamic Banking Act (1983, ACT 276), 156
Islamic Financial Services Board Act (2002), 109
liquidity risk management study, 127–8, 129–34
risk management and Islamic forward contracts study, 136–7
risk management study, 114
Securities Commission, 149
Sharīc ah Advisory Council, 170, 173
Sharīc ah board survey, 201
Sharīc ah governance survey, 201/207–18, 207, 208, 209, 210, 211, 212, 214, 215, 216, 217, 218
Sharīc ah internal control audit study, 149–50, 153, 163–8, 165–7
Sharīc ah report study, 174, 176, 178, 182
sukuk in, 13 see also stability study
Malik, Imam, 232n1
Mansor, A. M., 153
market risk, 108, 110, 111, 114, 115, 117, 121, 137, 152
Marsh, J., 60–1
Marston, D., 64, 78
Marzban, Shehab, 10
maṣlaḥah (public interest), 18, 138, 223
Masraf Al Rayan, Qatar, 44
Mat Radzi, Rafisah, 9
Maybank Islamic Berhad, Malaysia, 44, 105
maysir (gambling), 6, 26, 138, 139, 155
McDonald’s, 33–4
Meezan Bank, Pakistan
financing behaviour study, 105
risk management study, 114
Sharīc ah report study, 177–9, 178, 180, 182, 193–6
Mersch, Y., 22, 26
Metwally, M. M., 43
Metzemakers, P. A. J., 87, 89, 90, 94, 100
Minsky, Hyman, 21
Mirakhor, A., 22, 25, 26, 27, 28, 29, 35, 108, 116, 219, 220n1
Mishkin, F., 25, 59
mitigation see risk mitigation
Mizen, P., 22, 24, 25
Mohd Arrifin, Noraini, 108, 109, 117, 118, 119, 119, 122n5
Moizer, P., 153
Molyneux, P., 42
money supply growth, 96, 98, 99, 100
Moore, Michael, 13
Mortgage Backed Securities (MBSs), 3
mortgages
Islamic, 6, 225–6
in the US, 3–4, 21, 22, 40, 42
muḍārabah contracts, 5, 8, 9, 10, 11, 13, 92, 110, 115, 116, 125, 126, 127, 151, 152
mudarib (investment manager), 108, 109, 115, 152
Muhammad (Prophet) see Prophet Muhammad
Mulyany, R., 153, 163, 172, 180
murābaḥ ah contracts, 9, 10, 11, 14, 93, 96, 106, 116, 124, 227, 228
mushārakah contracts, 5, 9, 11, 92, 110, 116, 126, 127, 151, 152
(p.241) Nakashima, Ellen, 3
Napier, C., 200
Neamie, S., 129
net interest margin (NIM), 129
net stable funding ratio (NSFR), 9
The New York Times, 21, 22, 24
Newman, M., 40
Nier, E. W., 27, 61, 77
Nocco, B. W., 107, 128
Nonomiya, L., 21, 24
Nordic banking crisis, 61
Norges Bank, 3
normality test, 98
Northern Rock (NR), UK, stability study, 67–70, 69, 70, 71, 72, 73, 73, 74, 76, 79, 83
notice, periods of, 9, 11, 126
Obaidullah, M., 136, 140
Obama, Barack, US President, 34, 35
off-balance sheet (OBS), 3, 9, 10, 108, 110
oil prices and production, 14
Oldfield, G., 126
operating expenses, 45, 47
operational risk, 108, 110, 111, 112, 113/115, 114, 117, 121, 137, 152
Organisation of the Islamic Conference, 12
Organization for Economic Co-operation and Development (OECD), 22, 26, 27, 35, 201
other income margin (EXOT), 45, 47, 49, 53, 54
over-the-counter (OTC) derivatives market, 3
Overdahl, James A., 139, 140
overdraft facilities, 11
Overseas Chinese Bank Malaysia Berhad (OCBC), 105
Pagach, D., 129
Pages, Jorge Martinez, 89, 90
Pakistan
case study, 90
financing behaviour study, 95–6, 105
risk management study, 114
Sharīc ah board survey, 201
Sharīc ah report study, 174, 177–9, 178, 180, 182
Palestine, risk management study, 114
panel data method, 95
Pellegrini, Matteo, 12, 153, 175, 200
Peter, G. v., 61
Podpiera, J., 62, 77, 79
pre-tax return on equity (ROEbt), 47, 49
pro-cyclical behaviour, 87, 88, 89, 90, 91
profit and loss sharing (PLS), 4, 42–3, 47, 63, 64, 88, 91
profit equalisation reserves (PER), 5, 8, 53, 112, 116–17, 120
profit growth, 41
profit maximisation, 24, 27
profit rate risk, 137
Prophet Ibrahim, 177/179
Prophet Muhammad, 30–1 see also Qurɔ ān
Provisions for Doubtful Financing and Impairment, 47
Public Bank Berhad (PB), Malaysia, 105
Qatar
Sharīc ah board survey, 201
Sharīc ah governance survey, 201, 207
Qatar Islamic Bank (QIB), resilience study, 44, 47–53, 48, 51, 52
Qawaid Fiqiah, 137
qimar (gambling), 139
Quagliariello, M., 87, 89, 90
Qurɔān
on appropriation of wealth and rights, 91
Ayat al-Dayn, 30
on betrayal of trust prohibited, 171
on cheating and fraud, 171
on confidence, 177/179
on documentation and witnessing of debts, 33
on fulfilling commitments, 35
on gambling, 140, 171
on good and evil, 223
on good-will, 161
on hedging and avoiding risk, 140
on honest fulfilment of contracts, 171
on importance of reserves, 88, 91, 92, 93, 100, 102
on labour, 91
on manipulated uncertainty (gharar), 171
on prohibition of chance and speculation, 91
on prohibition of risk, 91
on ṭayyiban, 33
on transparency, 171
on usury, 171
Rahim, A., 153, 154
Rajan, R., 22
random effects (RE) model, 97, 100, 101
rate of return/displaced commercial risk, 110, 111, 112, 114, 117, 120–1, 152
Ray, N., 126
real estate, 3, 7, 13, 14
Reinhart, Carmen M., 2, 14
Reis, Ricardo, 60
reserves growth to earning asset growth (R/EA) ratio, 96
resilience study, 40–57
analysis, 47–53, 48, 49, 50, 51, 52, 54
background, 41–4, 44, 45
data and methodology, 44–7
response rates, 201/207
retained earnings, 8
return on assets (ROA) ratio
liquidity risk management study, 129, 132–3, 132
performance of Islamic banks, 43
stability study, 65–6, 68, 73–4, 73, 78, 83, 86
(p.242) return on equity (ROE) ratio
adapted return on equity analysis scheme, 41, 44–55, 45, 49, 132
liquidity risk management study, 129, 132–3, 132
performance of Islamic banks, 43
pre-tax return on equity (ROEbt), 47, 49
stability study, 65–6, 68, 73–4, 74, 83, 86
RHB Islamic bank, Malaysia
financing behaviour study, 105
liquidity risk management study, 129–33, 130, 131, 132
risk management study, 114
Sharīc ah report study, 176–9, 178, 182, 191
ribā (usury)
applicability, 230–1
circumventing, 228
effects of prohibition, 42
meaning of, 231
prohibition of, 4, 91, 126, 155, 171, 222
reason for, 229
Rifācah, 33
risk
definitions, 137
Islamic banking exposure to, 11, 43, 63–4
types of, 63, 106, 110
risk adjusted rate of return (RAROC), 118, 119
risk assessment, 2, 60, 62, 159, 167
risk management, 25, 43, 60–4, 69, 77, 200
risk management and Islamic forward contracts study, 136–48
background, 136–7
bai al-sarf (currency exchange), 144–5
risk in Islamic finance, 137–8
Sharīc ah’s position, 138–41
structures, 142–4
FX forward product –i, 142–3, 142
FX forward waɔ d-i product, 143, 143
Islamic FX outright, 143–4, 143
the way forward, 145–6
Risk Management Committees, 131
risk management study, 106–23
categories of risk management practices, 113–17, 114
data analysis and findings, 113–19
IFSB and guiding principles of risk management, 109–12, 111
research methodology, 112–13
risk management issues in Islamic banking, 107–9
risk measurement, 109, 118, 119
risk mitigation, 12–13, 16, 108, 109, 118–19, 120
risk provision ratio (RPR), 48, 49, 52
risk reporting, 117–18, 117
risk sharing, 4, 5, 10, 42
risk transfer, 4, 10, 24–5, 61
risk-weighted assets, 8, 69
risk weighted capital ratio (RWCR), 66, 75–6, 76, 86
Robbins, Lionel, 24
Robertson, J., 28
Rochet, J. C., 87, 89, 90
Rogoff, Kenneth S., 2, 14
Rosenthal, Franz, 6
Rosly, S. A., 43, 89, 138
Roubini, N., 22, 23, 25, 34
Royal Bank of Scotland, UK, 7
Rudolph, B., 42
Sahih Ibnu Hibban, 140
Sahih Muslim, 144
salam contracts, 9, 11, 119, 125
Salem, R., 46
sales-based income, 46, 50
Samad, A., 43
Sano, Koutoub Moustapha, 233n16
Santomero, A. M., 107, 126
Sanusi, N. A., 89
Saporta, Victoria, 60
sarf (currency exchange), 144–5
Sarkar, A., 22
Saudi Arabia
adoption of Basel III, 7
effect of the 2008 global crisis, 14
effect of the Arab Uprising, 14
financing behaviour study, 95–6, 105
risk management study, 114
Sharīc ah governance survey, 201, 207
Saunders, A., 63, 66, 129
Saurina, Jesus, 89, 90
Schapek, Michael, 140
Scholtens, B., 106
Scholz, J., 42
Schroeck, G., 106, 128
Schumacher, L., 129
secondary markets, 42
Securities and Exchange System (SEC), US, 2
Securities Commission, Syriah Advisory Council, Malaysia, 233n16
securitisation, 3, 6, 24, 42
Sekaran, U., 201/207
sellers’ standard of care, 32–5
Sgherri, S., 87, 89, 90
Shafiɔ i school, 232n1, 233n14
Shahul, H., 153, 163, 172, 180
Shamil Bank, Bahrain, 105
Sharīc ah
as the basis of the IFI, 21
compliance
advantages of, 89
debt to equity ratio, 10
desire for, 106
fee-based guarantees, 10
liquidity issues, 124, 125, 126–7, 127
reshaping of regulatory framework, 31–2
reviews, 216
and risk management, 108, 118–19, 120 see also Sharīc ah report study
fatwās, 12, 154, 171, 210, 223
as a financial model, 29, 91
(p.243) and forward contracts, 139, 140–1
governance systems and risk mitigation, 12–13
IFSB and, 110
maqasid al-, 138
non-compliance risk, 110, 112, 114, 115, 117, 200, 217–18, 231–2
objectives, 28
and the realisation of benefits, 35
Supervisory Boards (SSBs), 7, 12–13, 149 see also Sharīc ah governance survey; Sharīc ah report study
towards genuine products, 222–33
criterion of the non-Sharīc ah-compliant transaction, 231–2
proposed approach, 223–4
reasons for the occurrence of the financial crisis, 224–31 see also financial crises
Sharīc ah board survey (IFSB), 200–1, 220n6
Sharīc ah Committees, 153, 155–7, 164, 165–6
Sharīc ah governance survey, 200–21
findings, 207–18
assessments of Sharīc ah board, 217–18, 218
attributes of Sharīc ah board members, 211–14, 211, 212, 214
operational procedures, 214–17, 215, 216, 217
role of Sharīc ah board, 210, 210
Sharīc ah board members, 207–8
Sharīc ah governance and regulation, 209, 209
Sharīc ah governance approach, 208, 208
methodology, 201–7
questionnaires, 202–6
response rate, 207
Sharīc ah internal control audit study, 149–69
addressing operational risk, 153–4
audit test, 150
framework, 150–1, 150
governance, accountability and transparency measures, 154–63
audit of operations, 154–7, 154
internal control, 157–61, 159
performing Sharīc ah internal control audit, 162–3
Sharīc ah internal control, 161–2
proposed Sharīc ah internal control checklist, 163–8, 165–7
risk management in Islamic financial instiutions, 151–2
Sharīc ah report study, 170–99
discussion and findings, 174–80
model of Sharīc ah governance, 176
Sharīc ah reports: an analysis, 175–80
SSB and Sharīc ah non-compliance risk, 174–5
examples, 184–99
literature review, 171–3
model of Sharīc ah report, 181
research method, 174
Sharīc ah reports, 216–17
Sharīc ah Supervisory Council, 63
shirkah magazine, 40, 41, 42
shock, economic, 1, 2, 26, 60, 61, 62
short-term money market, 42
Sikka, P., 153
Singapore, effect of the 2008 global crisis, 13
Skully, M., 42, 43
Smith, W., 128
Smolarski, Jan, 140
Souk al-Manakh crisis, 13
South Africa, financing behaviour study, 95–6, 105
Special Purpose Vehicles (SPVs), 42
speculation, 139–40
stability study, 58–86
descriptive analysis, 67–75
conventional and Islamic banks, 70–5
finding instability, 67–9
remarks on instability, 69–70
discussion of findings and propositions, 76–9
framework, 59–64
reflections on stability, 59–63
risk and stability for Islamic banks, 63–4
methodology, 65–6
sample, 66–7
stable funding, 9
Standard Chartered Bank Malaysia Berhad (SCB), 105
Standard Chartered Modaraba bank, Pakistan, 114
statistical models, reliability of, 62
Stein, J. C., 22, 90
stress tests, 131
Structural Term Assets, 9
Stulz, Rene M., 107, 128, 140
sub-prime mortgages, 3–4, 10, 21, 22, 40, 42, 48, 53
Sudan
instability in, 64
Sharīc ah Supervisory Boards, 170, 172, 201
sukuk
as an alternative to corporate bonds, 9
criticism of sukuk contracts, 12
liquidity risk management study, 125
in Malaysia, 13
trade in, 46 see also ijārah contracts
sukuk al-salam contracts see salam contracts
Sulaiman, A. A., 89
Sunan Abu Dawud, 144
Sundararajan, V., 64, 78, 106, 108, 109, 116, 121
Sunnah, 153, 161
Syuɔbul Iman, 140
Tadamon Islamic Bank, Sudan, 114
Tahir, Mohammad Iqbal, 140
Takaful Malaysia bank, 149
takāful (mutual insurance), 106, 110, 155
ṭalāq (divorce), 31–2
(p.244) tawarruq (method of providing cash advances)
definition, 12
economic analysis of eina and tawarruq, 228–30
in Islamic banks, 227
liquidity risk management study, 124
making legitimate, 231
prohibition of, 12, 200
similarity of tawarruq to interest-based financing, 227–8
Taylor, J. B., 22, 25, 126
ṭayyiban (wholesome, good) transactions, 33–4
third parties
selling mortgages to, 6
transfer of risk to, 24
Tier 1 Capital Ratio (Tier-I), 8, 10, 66, 68, 69, 83
Tier 2 Capital Ratio, 66
‘too big to fail’ syndrome, 5, 25
total capital ratio (TCR), 66, 68–9, 69, 83
total financing growth to earning asset growth (TF/EA) ratio, 96
trade-based financing, 91, 93, 94
transparency, 27, 61, 121, 145, 213–14, 214
Treasury, US, 7
Trichet, J. C., 25
Truman, E. M., 21, 22, 26, 27
Tunisia
case study, 90
risk management study, 114
Turkey
adoption of Basel III, 7
financing behaviour study, 95–6, 105
risk management study, 114
Turkiye Finans Katilim Bankasi, Turkey, 114
Turley, S., 153
Turnbull guidance, 158
Tyagi, A., 26, 34
Udell, Gregory, 89
Uhde, A., 61
ummah, 176
Unal, M., 220n11
unit root test, 99
United Arab Emirates (UAE)
financing behaviour study, 95–6, 105
risk management study, 114
Sharīc ah board survey, 201
Sharīc ah governance survey, 201, 207
United Bank of Switzerland (UBS), 40
United Capital Bank, Sudan, 114
United Kingdom (UK)
examination of the Islamic banking model, 40
Islamic banking proposition, 80
Sharīc ah governance survey, 201/207–18, 207, 208, 209, 210, 211, 212, 214, 215, 216, 217, 218
United States (of America, US)
Acts, 2
Federal Reserve System, 2, 23
home ownership in, 3
leveraging, 90
mortgages in, 3–4, 21
as the originator of the 2008 global crisis, 21, 22
regulatory and supervisory framework, 26–7
Securities and Exchange System, 2
Treasury, 7
urboun (earnest money), 118, 120
Usmani, Sheikh Taqi, 12, 28, 29, 41, 80, 109
van Wensveen, D., 106
Venardos, Angelo M., 15
venture capital, 11
Venture Capital Bank, Bahrain, 114
Vogel, Frank E., 7, 80, 126, 138
Volcker, P., 21
waɔ d (unilateral promise), 143–4, 143, 145
Wagner, W., 60–1, 61
Wagster, J. D., 89
Warr, R., 129
Warren, E., 26, 34
Weill, L., 62, 77, 79
White, W., 60
wholesale markets, 9, 10
Wilcox, J. A., 89
Wilson, Rodney, 11, 13, 14, 220n5
Wolfowitz, Paul, 154–5
women, on Sharīc ah boards, 208
Wood, G., 59
World Economic Forum
in Davos (2010), 29
Financial Development Report (2008), 22–3
Yap, K. L., 89
Yellen, J. L., 22
Yusof, R., 89, 124
Yusoff, Remali, 11
Zaher, T. S., 42
zakāh (obligatory charity), 92, 100, 173, 179
Zarka, Anas, 228–9
Zoubi, T. A., 43, 44