Year
2020
Country
Qatar
Language
English
Abstract
| The UN’s Sustainable Development Goals (SDGs) require sustainable investments in non- standard projects; however, sustainable investments are impossible without sustainable financing. Banks, as the core providers of bulk financing, face problems in ensuring sustainable financing; however, these problems are more pronounced in the case of Islamic banks since Shariah prohibits offering riskless interest returns on deposits. As a result, Islamic banks are prone to withdrawal risk, which they mitigate by smoothing returns of Islamic investment accounts, which in turn generates displaced commercial risk among other problems. In this paper, we suggest solving this problem by applying a new valuation benchmark that takes into consideration market segmentation. We then translate correct valuation into a practically implementable transparency scheme suitable for private and institutional investors. Using quarterly data from 81 Islamic banks in 16 countries across 8 years, we show how investment recommendations can be derived, which can then be transparently communicated to guide depositor behavior and provide regulators with an early-warning system for expected erratic withdrawals. This will enhance sustainable financing for Islamic banks, which in turn would allow them to engage in sustainable long-term investments, such as those required to meet the SDGs. |
English
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CIS minaretein
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CIS Program Old
CIS publications
No
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