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Investigation of the expected loss of sharia credit instruments in global Islamic banks

Author

Listed:
  • Farihana Shahari
  • Roza Hazli Zakaria
  • Md. Saifur Rahman

Abstract

Purpose - – The purpose of this paper is to investigate the expected outcomes, both of positive and negative returns occurred by shariá credit instruments in global Islamic banks. The annual panel data from 2005 to 2012 is collected from 40 Islamic banks from 12 countries and value at risk (VaR) technique is employed in the investigation process. The findings of this study indicate several outcomes: first, majority of Islamic banks use debt-based financing (DBF) and avoid asset-based financing (ABF) due to the lack of secured rate of fixed returns and collateral. Second, the ABF financing shows the positive returns. Third, interestingly, DBF financing faces higher credit risk compared to ABF even DBF secures its financing through tight policy implementation. Finally, this paper comes up with policy recommendations for the further reduction of credit risks and improvement of bankers’ confidence level in implementing the ABF financing policy. Design/methodology/approach - – VaR on panel data. Findings - – Shariá credit instruments play an important role. Research limitations/implications - – Data findings. Originality/value - – Fully original.

Suggested Citation

  • Farihana Shahari & Roza Hazli Zakaria & Md. Saifur Rahman, 2015. "Investigation of the expected loss of sharia credit instruments in global Islamic banks," International Journal of Managerial Finance, Emerald Group Publishing Limited, vol. 11(4), pages 503-512, September.
    • Handle: RePEc:eme:ijmfpp:v:11:y:2015:i:4:p:503-512
    DOI: 10.1108/IJMF-12-2014-0196
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    Citations

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    Cited by:

    1. Safiullah, Md, 2023. "Funding liquidity in Islamic banks: Does the Shariah supervisory board's higher educational attainment matter?," Pacific-Basin Finance Journal, Elsevier, vol. 78(C).
    2. Saba Moradi & Farimah Mokhatab Rafiei, 2019. "A dynamic credit risk assessment model with data mining techniques: evidence from Iranian banks," Financial Innovation, Springer;Southwestern University of Finance and Economics, vol. 5(1), pages 1-27, December.

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