Islamic Finance

There is a huge number of definitions of Islamic Economics available in the literature. The vast majority take existing definitions from the western literature and modify them to incorporate an Islamic angle. This leads to the widespread belief that Islamic Economics is a variant or a branch of conventional economics. We argue that something can be called “Islamic” only if it is based on the Quran and Sunnah. In this paper we propose a new definition based purely and directly on Islamic ideas and sources.

Conventional finance suggests that the higher the risk of an investment, the higher the return it should give. Nevertheless, whether Islamic stocks that offer alternative investment in the stock market suggest different risk-return relationship still needs to be investigated. This empirical study is aimed at assessing risk-return behavior of Islamic stocks. This study employs cross sectional data of portfolio developed using beta-rank and market capitalization, in which daily data will better reflect the real volatility.

During a recession, state-owned banks in Indonesia tend to place their fund in the central bank’s certificate, as real sector becomes less attractive. On the other side, Islamic bank’s strong dependence on the accomplishment of its Profit-Loss Sharing (

Basel Accords promote Value at Risk (VaR) that is the most used method as the preferred one to measure and report market risks of financial institutions. Using VaR usually requires having asset valuation models and identifying their risk factors as model input parameters, allowing thus to stress them and calculate valuations (mark-to-market or mark-to-model). The previous requirements will make VaR calculation - roughly adapted from conventional finance - complicated for Islamic finance as there are not well-known valuation models and the risk factors may not be easily identified.

This paper investigates the impact of ownership structure, measured by two dimensions: nature of owners and ownership concentration, on bank risk, controlling for country and bank specific traits and other bank regulations. Particularly, it compares risk-taking behaviour of conventional and Islamic banks in 10 MENA countries under three types of bank ownership (family-owned, company-owned and state-owned banks) over the period 2005-2009. The result shows a negative association between ownership concentration and risk.