Banks avoid participatory financing due serious information asymmetries, adverse selection and moral hazard problems with negative impacts for the return on capital provided. Even financing instruments with a participatory legal form such as musharakah sukuk have been stripped of their risk sharing substance and became functional equivalents of interest-bearing bonds.
This study aims to shed light on the risk structure in the presence of Islamic banking, in particular in Turkey. Islamic banking and conventional banking are considered to be different kind of sources for funding. Returns in the conventional banking expected to be heavily influenced by the interest rate in the money market. However, Islamic banking returns are interest-free so that interest rate changes are not expected to affect the deposit returns in Islamic banks. Interest rates in the economy is a proxy to highlight the general risk level of the economy.
Banking regulations play an inevitable role for the stability of a country’s financial system and economy at large. Banking regulation on capital requirements known as Basel III will have a large effect on the world’s financial systems and economies. On the positive side, toughened capital and liquidity requirements should make national and global financial system safer. On the other side, enhanced safety will come at a cost, since it is expensive for banks to hold extra capital and to be more liquid.
Stress testing is an essential risk management tool that helps financial institutions to identify, assess and mitigate risks in their businesses. Stress tests have been and are an excellent tool for understanding the plausible impact of a what-if scenario in banking industry. The global financial crisis has placed the spotlight squarely on stress tests. Though, Islamic banks operate within the similar financial environment, and their balance sheet composition, however, calls for different treatment in stress testing.
The ongoing global financial crisis, which was triggered by US subprime mortgage crisis since 2007 and has spread to some EU countries, is just a repeat of previous financial crises. The new financial crisis usually has wider, deeper and more devastating impacts on the economy and the people than those of previous ones. In the history of capitalism, there have actually been crises almost continuously for the past 200 years except for during one short period, 1945-1971, under Bretton Woods Agreement.
This paper compares profit sharing and debt contracts in presence of moral hazard. Its originality relatively to the existing studies consists in performing the comparison between the two contracts in a more general context. Firstly, the internal funds of the agent (entrepreneur) are enabled to vary between 0% and 99%. Secondly, an incentive mechanism is incorporated to the sharing contract in the context of a two-period relationship. Both contracts are shown to be feasible for sufficiently high internal funds of the entrepreneur.
This study aims to investigate the survival time of Islamic and conventional banks in the Gulf region, taking into account the impact of the global financial crisis and by employing the discrete-time duration models. The empirical application is comprised of fifty-six commercial banks taken from five countries over the period of 1995 to 2011. In addition, to examine the differences between banks, a range of explanatory variables from both the micro- and macro-level are included in several models.
For many years, microfinance was considered an appropriate tool to accomplish social and financial goals simultaneously. Over time, microfinance has become more commercialized, transforming into a financially efficient industry, allowing customers to have access to more sophisticated banking products (e.g. small housing loans). Despite interest from the commercial sector, the industry has yet to find a workable market-based solution to fund micro-finance.