Islamic Monetary Economics and Institutions (eBook)

Theory and Practice

Muhamed Zulkhibri, Turkhan Ali Abdul Manap, Aishath Muneeza (Herausgeber)

eBook Download: PDF

2019 | 1st ed. 2019
XXIII, 201 Seiten
Springer International Publishing (Verlag)
978-3-030-24005-9 (ISBN)

Infos

This edited volume explores theoretical and empirical issues related to monetary economics and policy in the Islamic financial system. Derived from the Conference on Islamic Monetary Economics and Institutions: Theory and Practice 2017 held in Malé, Maldives, the enclosed papers highlights several option for authorities and regulatory bodies regarding monetary policy and regulation, as well as discussing how Islamic monetary policy effects growth, financial stability and resilience to shocks in practice. The inter-linkage between Islamic monetary policy and other markets are also explored. 

The subject of Islamic economics has gained considerable attention in the last four decades with the emergence of Islamic financial institutions around the world. This phenomenon has motivated economists to develop a comprehensive theoretical framework of modern monetary economics for Islamic economic system. An important characteristic of the Islamic economic system is the abolition of interest from the financial system. Islamic monetary economics is distinguished from conventional monetary economics due to the absence of interest. Therefore, under the Islamic economic system, monetary policy has to depend on other tools. In the early theoretical literature on Islamic monetary economics, many have discussed the role of money in Islamic economics system, while the number of empirical studies on Islamic monetary economics is a relatively new phenomenon. According to Islamic scholars, there are three main goals of Islamic monetary policy: a) economic well-being with full employment and optimum rate of economic growth; b) socioeconomic justice and equitable distribution of income and wealth and c) stability in the value of money. Hence, the Islamic monetary policy has several socioeconomic and ethical implications.

 

Featuring regional case studies, this book serves as a valuable resource for academics, scholars, practitioners and policy makers in the areas of Islamic economics and finance.

Muhamed Zulkhibri is a Senior Economist at Islamic Research and Training Institute, Islamic Development Bank, Saudi Arabia with years of progressive experience in the Central Bank of Malaysia and policy-oriented institutions. He has authored extensively on monetary economics, financial institutions and markets, finance and economic development as well as Islamic economics and finance. He has published extensively in leading academic journal, industry report and the financial press. He has also lectured for under- and post-graduate program at the University of Nottingham, U.K and University Putra Malaysia. He earned a Ph.D in economics from University of Nottingham, United Kingdom.

Turkhan Ali is a Senior Research Economist at Islamic Research and Training Institute (IRTI), Islamic Development Bank, Kingdom of Saudi Arabia. Prior to joining IRTI, he was an Associate Professor of Economics in the Faculty of Economics and Management Sciences, where he taught various courses for Bachelor, Master and Ph.D. level. His research interests include macroeconomics, (Islamic) capital market, financial stability and stress testing for Islamic financial institutions. He has spoken and attended various national and international conference on economics and finance issues, while his research papers have appeared in numerous academic journals. He obtained his Ph.D. in economics from International Islamic University Malaysia.

Aishath Muneeza is the first female Deputy Minister of Ministry of Islamic Affairs and the first chairperson of the Hajj Pilgrimage Fund of Maldives. Currently, she is the chairperson of Maldives Centre for Islamic Finance. She structured the first corporate sukuk, sovereign private sukuk and Islamic Treasury instruments for the government of Maldives and she has played the key role in offering of Islamic finance products by more than eleven institutions. She also designed the first Islamic microfinance scheme offered in Maldives. She sits in Shariah advisory committees of financial institutions offering Islamic financial services such as Islamic hire purchase and takaful. She also holds the position of chairperson of three different in-house Shariah committees. She is the chairperson of Shariah Advisory Council of CMDA, the capital market regulatory authority of Maldives since 2011. She is the only registered Shariah Adviser for structuring capital market instruments in Maldives and she is a registered Shariah Advisor at the Securities Commission of Malaysia. The Islamic capital Market framework of Maldives was designed by her.

Inhalt

Foreword 5
Preface 7
References 11
Contents 12
About the Guest Editor 14
About the Editors 15
Contributors 17
List of Figures 19
List of Tables 21
Chapter 1: Introduction 22
1.1 Overview 22
1.2 Theoretical Foundation of Monetary Policy from Islamic Perspectives 23
1.3 Monetary Policy, Policy Instruments, and Financial Stability in Islamic Economy 25
1.4 Conclusion 27
References 28
Part I: Theoretical Foundation of Monetary Policy from Islamic Perspectives 29
Chapter 2: Monetary Economics and Macroeconomic Model for an Islamic Economy 30
2.1 Introduction 30
2.2 Macroeconomic Model for an “Islamic” Economy 32
2.3 Monetary Economics in an “Islamic” Economy 35
2.3.1 Demand for Money in “Islamic” Economy 37
2.3.2 Money Demand Function in “Islamic” Economy 38
2.3.3 Monetary Policy in “Islamic” Economy 40
2.4 Islamic Perspective on Monetary Policy for Present-Day Muslim Economies 41
2.4.1 Cost of Holding Money in Islamic Perspective 43
2.4.2 Money Demand Management in Present-Day Muslim Economies 45
2.4.3 Money Supply in Present-Day Muslim Economies 46
2.4.4 Equilibrium in Money Market 48
2.4.5 Need for Monetary Policy in Present-Day Muslim Economies 49
2.5 Outline of Monetary Policy for Present-Day Muslim Economy 50
2.5.1 Strategy for Gradually Reducing the Trading of Debt-Based Financial Instruments in Secondary Market 51
2.5.2 Shari’ah Supervision of Monetary Policy 51
2.6 Conclusion 52
Appendix I: Beyond Market Economics in an Islamic Economy 53
Appendix II: Macroeconomic Objectives of an Islamic Economy 55
References 56
Chapter 3: Islamic Monetary Economics: Insights from the Literature 57
3.1 Introduction 57
3.2 Literature Review 59
3.2.1 A Brief History of Monetary Evolution and Early Islamic Monetary Policy 59
3.3 Islamic Monetary Economics: Equity vs. Interest Rate 60
3.4 Demand and Supply of Money in Islamic Monetary System 62
3.5 Framework of Interest-Free Monetary Policy 64
3.6 Empirical Literature on Islamic Monetary Economics 66
3.7 Implications 68
3.8 Conclusion 69
References 70
Chapter 4: On Normative and Logical Foundations of Monetary Policy 72
4.1 Introduction 72
4.2 Why Monetary Authorities Target Inflation? 73
4.3 Monetary Authorities Don’t Care About Socioeconomic Implications 74
4.4 Is It Sensible to Control Inflation? 75
4.5 Unemployment and Inflation Trade-Off and Its Moral Implications 76
4.6 Inflation Targeting and Its Moral Implication 76
4.7 The Cost Channel of Monetary Transmission Mechanism 77
4.8 Cost Versus Demand Channels and Employment 78
4.9 Monetary Policy and Income Inequality 79
4.10 Conclusion 79
References 80
Chapter 5: Historical and Ideological Peculiarity of the Monetary Institutions: Islamic and Austrian School’s Perspectives 82
5.1 Introduction 82
5.2 Historical and Cultural Particularity of an Institution 84
5.3 Origin of Modern Monetary System 85
5.4 Austrian School of Economics on Modern Monetary System 87
5.5 Money Creation Through FRB System and Islamic Banks (IBs) 89
5.5.1 If Financing Is Asset Backed Will It Cause Inflation? 89
5.5.2 Status of Private Ownership 90
5.5.3 Mitigating the Bank Run 92
5.5.4 Transfer of Wealth to the Elite 93
5.6 Incoherence Between Western and Islamic Monetary Principles 94
5.7 Alternatives 96
5.7.1 Local Currencies 96
5.7.2 LETS (Local Exchange and Trading System) 97
5.7.3 Sound Money 98
5.8 Conclusion 99
References 100
Part II: Monetary Policy, Policy Instruments and Financial Stability in Islamic Economy 103
Chapter 6: Islamic Finance and Participatory Financing Constraints in Pakistan 104
6.1 Introduction 104
6.2 Literature Review 106
6.3 Current Practices and Experiences 107
6.3.1 Experiences of Malaysia 108
6.3.2 Experiences of Pakistan 109
6.4 Participatory Financing Constraints 111
6.4.1 Supply Side Challenges 112
6.4.1.1 High Level of Risk 112
6.4.1.2 Accounting and Taxation Issues 113
6.4.1.3 Legal and Regulatory Concerns 113
6.4.1.4 Lack of Consolidated Supervision Framework 114
6.4.1.5 Foreclosure Issues 115
6.4.1.6 Rights and Obligations of IBs 115
6.4.1.7 Adverse Selection and Moral Hazard Problems on Asset Side 115
6.4.1.8 Complicated Documentation Process 116
6.4.1.9 Regulatory Requirement of Benchmarking with Conventional Benchmark ‘KIBOR’ 116
6.4.1.10 Lack of Human Resource Capacity and Technical Expertise of IBs 116
6.5 Demand Side Challenges 117
6.5.1 Dual/Parallel Banking System 117
6.5.2 Customers’ Perception 117
6.5.3 Other Issues 118
6.6 Conclusions 118
6.6.1 General Recommendations 119
6.6.2 Specific Recommendations 120
6.6.2.1 Exemption of Benchmarking with KIBOR for Participatory Modes of Financing 120
6.6.2.2 Proposal for Tax Neutrality Treatment for Participatory Modes of Financing 121
6.6.2.3 Proposal for Legal Amendments 122
6.6.2.4 Proposed Approaches Under Existing Legal and Regulatory Framework 122
References 123
Chapter 7: Pricing Deposit Insurance Premium in Islamic Banks 124
7.1 Introduction 124
7.2 Models of Islamic Deposit Insurance 125
7.3 Methodology 126
7.3.1 Pricing of Deposit Insurance 126
7.3.2 Empirical Analysis 127
7.4 Conclusion 129
Appendix: Deposit Insurance Systems in Selected Countries 130
References 130
Chapter 8: Rate of Profit as a Monetary Policy Tool for Financial Stability 132
8.1 Introduction 132
8.2 The Rate of Profit: An Overview 133
8.3 Research Methodology 136
8.4 Results and Discussion 136
8.4.1 Money Market and Shari’ah Monetary Operation by Bank Indonesia 136
8.4.1.1 Repo and SBI (Bank Indonesia Certificate) Shari’ah-Based Auction 138
8.4.1.2 Shari’ah Repo Based on Government Sukuk (SBSN) 139
8.4.1.3 Repo in the Intraday Liquidity Facility (FLI) 140
8.4.1.4 Repo Transaction in Islamic Short-Term Funding Facility (FPJPS) 140
8.4.1.5 Non-repo Bank Indonesia Shari’ah Deposit Facility (FASBIS) 141
8.4.2 The Impact of the Shari’ah Monetary Policy Transmission with Repo Transaction 142
8.4.3 The Use of Rate of Profit as a Reference Rate in Islamic Bank 143
8.4.4 Risk in Repo Transactions with SIMA/SBSN 146
8.4.5 The Benefits and the Advantages of Repo Transactions Shari’ah 147
8.5 Impact of Islamic Monetary Policy with the Rate of Profit 149
8.6 Conclusion 150
References 151
Chapter 9: Stress Testing and Reverse Stress Testing: An Approach for a Resilient Islamic Financial Industry 152
9.1 Introduction 152
9.2 Study Design and Methodology 153
9.2.1 Case Analysis 154
9.3 Stress Testing 155
9.3.1 Liquidity Stress Testing 156
9.3.2 Regulatory Requirements and Guidance 157
9.3.3 Liquidity Risk Stress Testing Framework 159
9.3.4 Micro Stress Testing 160
9.3.5 Macro Stress Testing 161
9.4 Dynamics of IFIs’ Liquidity Position 162
9.4.1 Factors Which Might Impact Liquidity Position 163
9.5 Discussion 164
9.5.1 Reverse Stress Testing 164
9.5.2 Stress Testing Limits (IFI Case Study) 168
9.6 Conclusion 169
References 171
Chapter 10: Liquidity Risk Management in Islamic Banks: Evidences from Malaysia 173
10.1 Introduction 173
10.2 Motivation and Research Questions 175
10.3 Literature Review on Banks’ Liquidity 176
10.4 Malaysia Liquidity Regulations and the Importance of the LCR 179
10.5 Theory and Measurement of Liquidity Risk 181
10.5.1 Methodology and Data 181
10.5.2 Empirical Model 183
10.5.3 Descriptive Statistics 184
10.6 Results 186
10.6.1 ARDL Approach for Liquidity Time Series Model of Malaysian Islamic Banks 186
10.6.2 Long-Run Relations of Malaysian Islamic Banks 187
10.6.3 Granger Results for Malaysian Islamic Banks 188
10.6.4 Impulse Response Test Results for Malaysian Islamic Banks 188
10.7 Conclusion 190
References 191
Chapter 11: Fintech-Enabled Islamic Financial System and Financial Stability 194
11.1 Introduction 194
11.2 Fintech and Islamic Financial Products 195
11.2.1 Recent Trends 195
11.2.2 Historical Development of Islamic Financial Products 195
11.2.3 Criticism by Academia Against the Current Practice 196
11.3 How Fintech Can Respond to Criticisms Against the Current Practice 197
11.3.1 Against Type I Failure: More Equity-Based Transactions 197
11.3.2 Against Type II Failure: Promoting Economic Fairness 199
11.4 How Islamic Fintech Contributes to Financial Stability 202
11.4.1 Ideal of Islamic Finance and the Dual Banking System 202
11.4.2 Potential Positive Effects on Financial Stability 203
11.5 Conclusion 204
References 204
Glossary of Arabic Terms 206
Index 212

Produkt-Details

• Erscheint lt. Verlag: 1.10.2019
• Zusatzinfo: XXIII, 201 p. 23 illus., 12 illus. in color.
• Sprache: englisch
• Themenwelt: Wirtschaft ► Volkswirtschaftslehre
• Schlagworte: Equity-Based Financial System • FinTech • Interest-free economy • Islamic banks • Islamic Finance • Islamic monetary economics • Islamic monetary policy • Macroeconomic model • Participatory Finance • Waqf • Zakat
• ISBN-10: 3-030-24005-3 / 3030240053
• ISBN-13: 978-3-030-24005-9 / 9783030240059