Obiyathulla Bacha
INCEIF (Intern. Centre for Edu. in Islamic Finance), PHD, Faculty Member
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Many Organization of the Islamic Cooperation (OIC) stock markets are still in their early stage of development. In this stage, several conditions such as weak legal system and regulations, a limited supply of institutional investors, lack... more
Many Organization of the Islamic Cooperation (OIC) stock markets are still in their early stage of development. In this stage, several conditions such as weak legal system and regulations, a limited supply of institutional investors, lack of transparency and accountability are key hurdles. Several approaches have been taken to enhance the capacity and integration of stock markets to promote intra-investment among the OIC countries by Islamic Development Bank (IDB) and International Organization of Securities Commissions (IOSCO). They indicated an urgent need to intensify the Islamic product issuance onto the various international financial exchanges, especially the introduction of Islamic global depositary receipts (IDRs) to create liquidity in the Islamic capital market. Thus, this study is to examine the current depositary receipts in the OIC countries, the need to have IDRs, possible challenges and recommendation in implementing IDRs. The study recommends that the OIC countries with surplus capital will assist those OIC countries with capital shortage. Consequently by having IDRs, there is less reliance on the Western exchanges and disintermediation of the middle man and more value creation amongst the OIC member states’ stock exchanges.
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The following sections are included: IntroductionUnderlying Themes and Fundamentals of Fiqh Mu’amalahRequirements for Islamic Capital Market Instruments/TransactionsShari’ah-Based Contracts for Financial TransactionsInternational... more
The following sections are included: IntroductionUnderlying Themes and Fundamentals of Fiqh Mu’amalahRequirements for Islamic Capital Market Instruments/TransactionsShari’ah-Based Contracts for Financial TransactionsInternational Institutions for Islamic FinanceSummaryQuestions and ProblemsBibliographyWebsites
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The following sections are included: IntroductionMoney Market: ComponentsThe Pricing of Money Market InstrumentsDetermining the Yield of a Money Market InstrumentInterest Rates, Yields and Price of Money Market InstrumentsMalaysia Money... more
The following sections are included: IntroductionMoney Market: ComponentsThe Pricing of Money Market InstrumentsDetermining the Yield of a Money Market InstrumentInterest Rates, Yields and Price of Money Market InstrumentsMalaysia Money Market — Trading PerformanceThe Central Bank, Money Market, and Monetary Policy OperationsCommercial Banks and the Money MarketSummaryQuestions and ProblemsBibliographyWebsites
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The following sections are included: IntroductionKey Trends in Capital Market DevelopmentStock Exchanges of the Islamic WorldDebt MarketsMoney MarketsDerivatives MarketRisks in Capital MarketsEconomic Indicators and their Role in Capital... more
The following sections are included: IntroductionKey Trends in Capital Market DevelopmentStock Exchanges of the Islamic WorldDebt MarketsMoney MarketsDerivatives MarketRisks in Capital MarketsEconomic Indicators and their Role in Capital MarketsSummaryQuestions and ProblemsBibliographyWebsitesEndnotes
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Research Interests: Islam and Capital Market
PurposeThe purpose of this study is to understand and evaluate the roles and functions of the Sharīʿah committee (SC) of Islamic banks (IBs) in Malaysia and to recommend a resetting of the scope of responsibilities to enable the SC to... more
PurposeThe purpose of this study is to understand and evaluate the roles and functions of the Sharīʿah committee (SC) of Islamic banks (IBs) in Malaysia and to recommend a resetting of the scope of responsibilities to enable the SC to effectively respond to current market needs.Design/methodology/approachA Likert-type survey questionnaire was developed and distributed to all available SC members through e-mails and online surveys as well as self-administered questionnaires. At the end of the survey, 87 useable questionnaires were collected from 161 SC members, representing a 54% response rate.FindingsThis study finds that most SC members have the necessary Sharīʿah qualification, and they are mostly academics with doctoral degrees. However, there is a noticeable lack of diversity in the composition of experts in the committees. Respondents indicate that their main functions are to ensure Sharīʿah compliance of bank operations and product offerings. This is of course consistent with ...
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The following sections are included: IntroductionThe Islamic Interbank MarketPricing the Mudarabah Interbank Investment FundsThe Islamic Interbank Cheque Clearing SystemIslamic Money Market InstrumentsKey Islamic Money Market... more
The following sections are included: IntroductionThe Islamic Interbank MarketPricing the Mudarabah Interbank Investment FundsThe Islamic Interbank Cheque Clearing SystemIslamic Money Market InstrumentsKey Islamic Money Market InstrumentsPricing of Islamic Money Market InstrumentsIIMM and Issues of RiskTrading Performance on IIMMThe Kuala Lumpur Islamic Reference RateBursa Suq Al-SilaCommodity MurabahaLiquidity Management in Other JurisdictionsSummaryQuestions and ProblemsBibliographyWebsitesEndnotes
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PurposeThe purpose of this study is to examine the relationship of the board and risk committee in respect of risk-taking in conventional and Islamic banks in Malaysia.Design/methodology/approachThis study uses unbalanced panel data for... more
PurposeThe purpose of this study is to examine the relationship of the board and risk committee in respect of risk-taking in conventional and Islamic banks in Malaysia.Design/methodology/approachThis study uses unbalanced panel data for 15 conventional and 14 Islamic banks over the period 2007–2016. The generalised least squares random effects technique is applied.FindingsThe evidence shows that independent directors and frequency of board meetings reduce risk-taking but that the number of directors with finance and banking experience and those with multiple directorships tend to increase risk-taking. The findings also indicate that the size of the risk committee, the number of directors on the risk committee and the appointment of a designated risk officer tends to reduce risk-taking in banks. By comparing conventional and Islamic banks, the findings show that Islamic banks have lower exposure to portfolio risk but higher insolvency risk.Practical implicationsThe findings in this s...
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The following sections are included: What are Sukuk?Sukuk FundamentalsUnderlying Islamic Contracts for SukukSukuk StructuresSukuk — PlayersRisks Associated with Investing in SukukSukuk in MalaysiaSukuk in Malaysia: Growth and... more
The following sections are included: What are Sukuk?Sukuk FundamentalsUnderlying Islamic Contracts for SukukSukuk StructuresSukuk — PlayersRisks Associated with Investing in SukukSukuk in MalaysiaSukuk in Malaysia: Growth and EvolutionUnderlying Asset and the Structuring of SukukSummaryQuestions and ProblemsBibliographyWebsitesEndnote
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The following sections are included: IntroductionComponents of an Islamic Equities MarketScreening of Stocks for Shari’ah ComplianceComponents/Products of an Islamic Equities MarketIslamic Equity IndicesThe Stock Exchanges of the Islamic... more
The following sections are included: IntroductionComponents of an Islamic Equities MarketScreening of Stocks for Shari’ah ComplianceComponents/Products of an Islamic Equities MarketIslamic Equity IndicesThe Stock Exchanges of the Islamic WorldSummaryQuestions and ProblemsBibiliographyWebsites
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Muslim countries of the developing world suffer indebtedness resulting mostly from funding development infrastructure. Faced with a dire need for development infrastructure but with inadequate resources to fund them domestically, these... more
Muslim countries of the developing world suffer indebtedness resulting mostly from funding development infrastructure. Faced with a dire need for development infrastructure but with inadequate resources to fund them domestically, these governments often resort to foreign borrowing. As neither foreign banks nor international debt markets would allow for the debt to be in home currency, the funding is invariably denominated in foreign currency. For the borrowing country, in addition to currency exposure such borrowing increases the country's leverage and economic vulnerability. As these countries typically have a narrow economic base with heavy reliance on commodity exports, they are susceptible to the vagaries of commodity price fluctuation. Leverage increases the amplitude of the economy's fluctuation, resulting if not in outright crisis, then, at least in financial distress and depreciating home currency. As a result, when the foreign currency funded project comes on stream...
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The following sections are included: IntroductionNecessary Features of Islamic Financial InstrumentsIslamic Finance Instruments with Features of Derivative InstrumentsThe Islamic Profit Rate SwapHow is the IFI Hedged?Sukuk with Embedded... more
The following sections are included: IntroductionNecessary Features of Islamic Financial InstrumentsIslamic Finance Instruments with Features of Derivative InstrumentsThe Islamic Profit Rate SwapHow is the IFI Hedged?Sukuk with Embedded OptionsDerivative Instruments — How Shari’ah Compliant Are They?Shari’ah-Compliant Instruments for Managing Exchange Rate RiskSummaryQuestions and ProblemsBibliographyWebsites
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The role of regulation extends beyond ensuring stability and confidence in the financial system, as it is also a behavioral shaper of market players. The laws, standards, and guidelines issued are instrumental in creating an incentive... more
The role of regulation extends beyond ensuring stability and confidence in the financial system, as it is also a behavioral shaper of market players. The laws, standards, and guidelines issued are instrumental in creating an incentive structure for market players to behave in certain ways. Using incentive audit approach, this paper attempts to examine the efficacy of the evolving Malaysian regulatory and supervisory framework for Islamic banking, in preserving financial stability as well as supporting the growth of the financial system and real economy. The findings suggest that the present framework unintentionally misaligns incentives and discourages Islamic banks from fully embracing risk sharing as the underlying principle for their financial instruments. The findings of this paper call for reconfiguration of the regulatory/supervisory framework to better promote risk sharing.
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Critics of contemporary Islamic finance often highlight the absence of meaningful presence of equity-based financing instruments such as mudarabah. It has been argued that this is attributable to inter alia, the agency problems inherent... more
Critics of contemporary Islamic finance often highlight the absence of meaningful presence of equity-based financing instruments such as mudarabah. It has been argued that this is attributable to inter alia, the agency problems inherent in mudarabah financing. Within a risk and return framework, mudarabah financing presents an uninviting commercial proposition to financiers. The use of equity kickers effectively shifts the risk/return balance in favour of the rabbal mal and thereby possibly rekindling interest in mudarabah on the part of financiers. This paper explores the dynamics of such an employment of equity kickers. Our analysis shows that equity kickers are particularly expedient, from the financier’s perspective, when project durations are short, expected profitability is less assuring and when mudarib’s equity stake is high. In addition, it is demonstrated that the profit sharing ratio can be used as a balancing mechanism to achieve equitability between the interests of the rabbal mal and mudarib.