Search results for: debt financing

Authors: Muhammad Bahrul Ilmi

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The purpose of this research is to analyze the influence of Islamic financing and work relation founding simultaneously and partially towards non-performing financing in Islamic banks. This research was regression quantitative field research, and had been done in Muammalat Indonesia Bank and Islamic Danamon Bank in 3 months. The populations of this research were 15 account officers of Muammalat Indonesia Bank and Islamic Danamon Bank in Surakarta, Indonesia. The techniques of collecting data used in this research were documentation, questionnaire, literary study and interview. Regression analysis result shows that Islamic financing and work relation founding simultaneously has positive and significant effect towards non performing financing of two Islamic Banks. It is obtained with probability value 0.003 which is less than 0.05 and F value 9.584. The analysis result of Islamic financing regression towards non performing financing shows the significant effect. It is supported by double linear regression analysis with probability value 0.001 which is less than 0.05. The regression analysis of work relation founding effect towards non-performing financing shows insignificant effect. This is shown in the double linear regression analysis with probability value 0.161 which is bigger than 0.05.

Keywords: Syariah financing, work relation founding, non-performing financing (NPF), Islamic Bank

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Authors: Khalid Hassan Abdesamed, Kalsom Abd Wahab

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Economic development and growth are significantly linked to the consistent and sustainable sector of small and medium enterprises (SMEs). Banks are the frontrunners in financing and advising SMEs. The main objective of the study is to assess the tendency of SMEs to use the Islamic bank. Model was developed using quantitative method with a hypothetical-deductive testing approach. Model (N = 364) used primary data on the tendency of SMEs to use Islamic banks gathered from questionnaire. It is found by Mann-Whitney test that the tendency to use Islamic bank varies between those firms which consider formal financing with the ones relying on informal financing with the latter tends more to use Islamic bank. This study can serve academic researchers, policy makers, and developing countries as a model of SMEs’ desirability to Islamic banking.

Keywords: formal financing, informal financing, Islamic bank, SMEs

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Authors: Meysam Doaei, Mojtaba Kavand

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WAQF as a part of Islamic social security system is developed in Islam. Traditional WAQF has some limitations which are resolved in WAQF Sukuk. In regard to acceptability of Islamic finance in the world, WAQF Sukuk also has been developing in Islamic countries. In this paper, concept of WAQF, traditional and modern WAQF financing are presented. Then, WAQF Sukuk, its application and its model in Iran are developed.

Keywords: Al-mawqūfat development, traditional financing, modern financing, WAQF Sukuk

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Authors: Ayşen Edirneligil, Mehmet Mucuk

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In developing countries, one of the most important restrictions about the economic growth is the lack of national savings which are supposed to finance the investments. In order to overcome this restriction and achieve the higher rate of economic growth by increasing the level of output, countries choose the external borrowing. However, there is a dispute in the literature over the correlation between external debt and economic growth. The aim of this study is to examine the effects of external debt on Turkish economic growth by using VAR analysis with the quarterly data over the period of 2002:01-2014:04. In this respect, Johansen Cointegration Test, Impulse- Response Function and Variance Decomposition Tests will be used for analyses. Empirical findings show that there is no cointegration in the long run.

Keywords: external debt, economic growth, Turkish economy, time series analysis

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Authors: Syaza Isma, Timothy Higgins

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In Malaysia, increased take-up rates of tertiary student borrowing, and reliance on retirement savings to fund children's education show the importance of public higher education financing schemes (PTPTN). PTPTN has been operating for 2 decades now; however, there are some critical issues and challenges that include low loan recovery and loan default that suggest a detailed consideration of student loan/financing scheme alternatives is crucial. In addition, the decline in funding level per student following introduction of the new PTPTN full and partial loan scheme has raised ongoing concerns over the sustainability of the scheme to provide continuous financial assistance to students in tertiary education. This research seeks to assess these issues that put greater efficiency in an effort to ensure equitable access to student funding for current and future generations. We explore the extent of repayment hardship under the current loan arrangements that presumably led to low recovery from the borrowers, particularly low-income graduates. The concept of manageable debt exists in the design of income-contingent repayment schemes, as practiced in Australia, New Zealand, UK, Hungary, USA (in limited form), the Netherlands, and South Korea. Can Income Contingent Loans (ICL) offer the best practice for an education financing scheme, and address the issue of repayment hardship and concurrently, can a properly designed ICL scheme provide a solution to the current issues and challenges facing Malaysia student financing? We examine the different potential ICL models using deterministic and stochastic approach to simulate income of graduates.

Keywords: deterministic, income contingent loan, repayment burden, simulation, stochastic

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Authors: Zidane Abderrezaq

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This paper’s primary objective is to identify the relative importance of various Islamic financial products, in theory and in practice, by examining the financing records of the Bank Islam Malaysia (Berhad) and the Algeria Islamic Bank. Currently, seven available Islamic financing products are considered viable alternatives to interest-based conventional contracts: mudarabah (trust financing), musharakah (equity financing), ijarah (lease financing), murabahah (trade financing), qard al-hassan (welfare loan), bay` bi al-thaman al-ajil (deferred payment financing), and istisna` (progressive payments). Among these financial products, mudarabah and musharakah are the most distinct. Their unique characteristics (at least in theory) make Islamic banks and Islamic financing viable alternatives to the conventional interest-based financial system. The question before us is to determine the extent of mudarabah and musharakah in Islamic financing in practice. The data are as follows: the average mudarabah is 5% of total financing, and the average musharakah is less than 3%. The combined average of mudarabah and musharakah for the two Islamic banks is less than 4% of the total finance and advances. The average qard al-hassan is about 4%, while istisna` does not yet exist in practice. Murabahah is the most popular and dominates all other modes of Islamic financing. The average use of murabahah is over 54%. When the bay` bi al-thaman al-ajil is added to the murabahah, the percentage of total financing is shown to be 82.68%. This paper also explores some possible reasons why these two Islamic banks appear to prefer murabahah to mudarabah and musharakah.

Keywords: Islamic banking, Islamic finance, Islamic banking rofitability, investment banking

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Authors: Irena Paramita Pramono

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Islamic bank is a financial industry with huge potential to grow in Indonesia. Profit-sharing agreement in the operations of Islamic banks distinguishes Islamic banks with conventional banks. Profit-sharing agreement allows sharing of benefits and risks between shahibul maal and mudharib in islamic bank. This study aimed to observe the patterns of influence between the risk-sharing agreement, financing risk and Profitability in Islamic banks. This research used several Islamic banks as sample and path analysis method. The empirical results of this research shows that the profit-sharing agreement in deposits structure has no direct significant effect to ROA, but it has indirect effect to ROA through profit-sharing financing. On the other hand, profit-sharing financing has direct and indirect influence to ROA through financing risk. This research shows that profit-sharing financing has a positive significant effect to the financing risk and also to the ROA. The research recommends Islamic banks to continue using and developing profit-sharing agreement in its operational activities, hence to create value.

Keywords: Islamic bank, profit-loss sharing agreement, financing risk, profitability

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Authors: Euphrasia Susy Suhendra, Lies Handrijaningsih

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The banking sector as an intermediary party or intermediaries occupies a very important position in bridging the needs of working capital investment in the real sector with funds owner. This will certainly make money more effectively to improve the economic value added. As an intermediary, Islamic banks raise funds from the public and then distribute in the form of financing. In practice, the distribution of funding that is run by Islamic Banking is not as easy as, in theory, because, in fact, there are many financing problems; some are caused by lacking the assessment and supervision of banks to customers. This study aims to analyze the influence of the Third Party Funds, Return on Assets (ROA), Non Performing Financing (NPF), and Financing Deposit Ratio (FDR) to Total Financing provided to the Community by Islamic Banks in Indonesia. The data used is monthly data released by Bank of Indonesia in Islamic Banking Statistics in the time period of January 2009 - December 2013. This study uses cointegration test to see the long-term relationship, and use error correction models to examine the relationship of short-term. The results of this study indicate that the Third Party Fund has a short-term effect on total funding, Return on Assets has a long term effect on the total financing, Non Performing Financing has long-term effects of total financing, and Financing deposit ratio has the effect of short-term and long-term of the total financing provided by Islamic Banks in Indonesia.

Keywords: Islamic banking, third party fund, return on asset, non-performing financing, financing deposit ratio

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Authors: Riznaldi Akbar

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In this study, we compared the performance of the Artificial Neural Network (ANN) model with back-propagation algorithm in correctly predicting in-sample and out-of-sample external debt crisis in Indonesia. We found that exchange rate, foreign reserves, and exports are the major determinants to experiencing external debt crisis. The ANN in-sample performance provides relatively superior results. The ANN model is able to classify correctly crisis of 89.12 per cent with reasonably low false alarms of 7.01 per cent. In out-of-sample, the prediction performance fairly deteriorates compared to their in-sample performances. It could be explained as the ANN model tends to over-fit the data in the in-sample, but it could not fit the out-of-sample very well. The 10-fold cross-validation has been used to improve the out-of-sample prediction accuracy. The results also offer policy implications. The out-of-sample performance could be very sensitive to the size of the samples, as it could yield a higher total misclassification error and lower prediction accuracy. The ANN model could be used to identify past crisis episodes with some accuracy, but predicting crisis outside the estimation sample is much more challenging because of the presence of uncertainty.

Keywords: debt crisis, external debt, artificial neural network, ANN

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Authors: N. Yachou, R. Aboulaich

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Home is a basic necessity for human life, that why home financing takes a large chunk of people’s income. Therefore, Islamic and Conventional Banks try to offer new product in order to respond to customer needs related to home financing. Basing on this fact, we propose a Modified Diminishing Partnership model based on profit and loss sharing to reduce the duration of getting the full shares in the house property. Our proposition will be represented by the rental that customer has to give every month to the bank with redemption to increase his shares on the property of the house.

Keywords: home financing, interest rate, rental rate, modified diminishing partnership

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Authors: Koffi Sodokin

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Financing microstructures are increasingly seen as a means of financial inclusion and improving overall well-being in developing countries. In practice, digital transformation in finance can accelerate the optimal functioning of financing microstructures, such as access by households to microfinance and microinsurance. Large households' access to finance can lead to a reduction in income inequality and an overall improvement in well-being. This paper explores the impact of access to digital finance and financing microstructures on household well-being and the reduction of income inequality. To this end, we use the propensity score matching, the double difference, and the smooth instrumental quantile regression as estimation methods with two periods of survey data. The paper uses the FinScope consumer data (2016) and the Harmonized Living Standards Measurement Study (2018) from Togo in a comparative perspective. The results indicate that access to digital finance, as a cultural game changer, and to financing microstructures improves overall household well-being and contributes significantly to reducing income inequality.

Keywords: financing microstructure, microinsurance, microfinance, digital finance, well-being, income inequality

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Authors: Anees Tahir

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Margin financing plays a significant role in Pakistan's stock market (PSX), offering investors the opportunity to maximize profits by borrowing funds from financiers to purchase marginable stocks. However, this financial practice raises several Shariah-related concerns. The study follows legal doctrinal research methodology. It explains and analyzes the law of margin financing prevailing in PSX and compares it with the principles of Shariah. It also examines and investigates the practices of margin financing from the perspective of Shariah. As part of the study, the researcher has conducted structured interviews with the Shariah advisors of the finance industry, academicians, market practitioners, and regulators. Thus, the study analyzes the findings of interviews. This article explores the legal framework and practice of margin financing in Pakistan from a Shariah perspective. The article investigates various issues relating to margin financing, including the fundamental concern of interest-based lending, which contravenes Islamic principles. It also highlights the problematic subject matter of margin financing, often involving non-Shariah compliant securities. Additionally, the article addresses the restriction on proprietary rights and the problematic element of speculation associated with margin financing. To provide a Shariah-compliant alternative, the Securities and Exchange Commission of Pakistan (SECP) introduced Murabahah Shares Financing (MSF) in 2019. However, the focus of the market is still on conventional margin financing. In the opinion of the researcher, the effective implementation of MSF is imperative because in the absence of such an alternative, the faith sensitive investor will remain deprived of a level playing field, and he is unable to get required financing opportunities through a halal and Shariah-compliant manner. This article argues that margin financing in its current form is incompatible with Shariah principles and should be discontinued. It is recommended that the SECP should gradually phase out the use of margin financing and increase reliance on MSF to provide faith-sensitive and committed investors with Shariah-compliant financing options.

Keywords: margin financing, marginable stocks, faith sensitive investor, Murabahah shares financing

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Authors: Ishna Indika Jusi, Rifana Meika

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Terrorism financing method in Indonesia is developing at an alarming rate, to the point, it is now becoming more complex than before. Terrorists traditionally use conventional methods like robberies, charities, and courier services to fund their activities; today terrorists are able to utilize modern methods in financing their activities due to the rapid development in financial technology nowadays; one example is by hacking an illegal Fintech Company. Therefore, this research is conducted in order to explain and analyze the consideration behind the usage of an illegal fintech company to finance terrorism activities and how to prevent it. The analysis in this research is done by using the theory that is coined by Michael Freeman about the reasoning of terrorists when choosing their financing method. The method used in this research is a case study, and the case that is used for this research is the terrorism financing hacking of speedline.com in 2011 by Rizki Gunawan. Research data are acquired from interviews with the perpetrators, experts from INTRAC (PPATK), Special Detachment 88, reports, and journals that are relevant to the research. As a result, this study found that the priority aspects in terms of terrorist financing are security, quantity, and simplicity while obtaining funds.

Keywords: Fintech, illegal, Indonesia, technology, terrorism financing

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Authors: Irni Rahmayani Johan, Ira Kamelia

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One of the impacts of the rapid advancement of technology is the rise of digital finance, including peer-to-peer lending (P2P). P2P lending has been widely marketed, including an online student loan that used the P2P platform. This study aims to analyze the effect of financial literacy, perception of debt, and perception of risk toward student willingness to use the online student loan (P2P lending). Using a cross-sectional study design, in collecting the data this study employed an online survey method, with a total sample of 280 undergraduate students of IPB university, Indonesia. This study found that financial literacy, perception of debt, perception of risk, and interest in using online student loans are categorized as low level. While the level of knowledge is found to be the lowest, the first-year students showed a higher level in terms of willingness to use the online student loan. In addition, the second year students recorded a positive perception toward debt. This study showed that level of study, attendance in personal finance course, and student’ GPA is positively related to financial knowledge. While debt perception is negatively related to financial attitudes. Similarly, the negative relationship is found between risk perception and the willingness to use the online student loan. The determinant factor of the willingness to use online student loans is the level of study, debt perception, financial risk perception, and time risk perception. Students with a higher level of study are more likely to have a lower interest in using online student loans. Moreover, students who perceived debt as a financial stimulator, as well as those with higher level of financial risk perceptions and time risk perceptions, tend to show more interest to use the loan.

Keywords: financial literacy, willingness to use, online student loan, perception of risk, perception of debt

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Authors: Amrial, Yuri Oktaviani, Ziyan Muhammad Farhan

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On the phase of shifting paradigm into sustainability, Indonesia is involved in Sustainable Development Goals (SDGs) project. That act is revealed by creating Medium and Long Term Roadmap for Sustainable Finance in Indonesia which collaborated design by Indonesia Financial Service Board (OJK) and Ministry of Environment and Forestry. One of alternative for that infrastructure financing is sharia-based financing, Green Sukuk (Sukuk specified on sustainable infrastructure project). Green Sukuk for infrastructure financing in Indonesia can be issued by the government in the form of Sukuk Project Financing. Moreover, banks in Indonesia can also participate for the issuance of Green Sukuk. So that the banks can create a financing for people who are concerned about environmental issues. By using qualitative methods and literature review, this paper aims to discuss potential, strategy and planning of Green Sukuk for financing sustainable infrastructure in the purpose of SDGs. This paper will benefit for government to give scientific discussion on the strategy of Green Sukuk in promoting sustainable goals infrastructure project in Indonesia.

Keywords: green sukuk, infrastructure, SDGs, sustainable

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Authors: Andri Ottesen, Sam Toglaw, Mirna Safa

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Entrepreneurial companies on their developing path from an idea to a corporation go through a similar six-step process. Each of these six development steps is supported by a distinctive financing path. This paper explores the Kuwait model for Entrepreneurial Finance and Development through in-depth interviews with ten successful Kuwaiti entrepreneurs. This paper offers insight into the development and financing of entrepreneurial companies in this oil-rich, predominantly Islamic country that are in many ways different from the steps. Western entrepreneurial companies go through. This model could be used to understand the commonalities and the difference between entrepreneurial development and financing and could be used to bridge the gap.

Keywords: entrepreneurial-financing, entrepreneurial-developing, Kuwait, Vancouver school

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Authors: Sanja Pfeifer, Nataša Šarlija, Marina Jeger, Ana Bilandžić

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The purpose of this study is to explore the different facets of growth among micro, small and medium-sized firms in Croatia and to analyze the differences between models designed for all micro, small and medium-sized firms and those in creative industries. Three growth prediction models were designed and tested using the growth of sales, employment and assets of the company as dependent variables. The key drivers of sales growth are: prudent use of cash, industry affiliation and higher share of intangible assets. Growth of assets depends on retained profits, internal and external sources of financing, as well as industry affiliation. Growth in employment is closely related to sources of financing, in particular, debt and it occurs less frequently than growth in sales and assets. The findings confirm the assumption that growth strategies of small and medium-sized enterprises (SMEs) in creative industries have specific differences in comparison to SMEs in general. Interestingly, only 2.2% of growing enterprises achieve growth in employment, assets and sales simultaneously.

Keywords: creative industries, growth prediction model, growth determinants, growth measures

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Authors: Rihab Belguith, Fathi Abid

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The paper develops a system-based approach to investigate the dynamic adjustment of debt structure and investment policies of the Dow-Jones index. This approach enables the assessment of relations among sales, debt, and investment opportunities by considering the simultaneous effect of the market environmental change and future growth opportunities. We integrate the firm-specific sales variance to capture the industries' conditions in the model. Empirical results were obtained through a panel data set of firms with different sectors. The analysis support that environmental change does not affect equally the different industry since operating leverage differs among industries and so the sensitivity to sales variance. Including adjusted-specific variance, we find that there is no monotonic relation between leverage, sales, and investment. The firm may choose a low debt level in response to high sales variance but high leverage to attenuate the negative relation between sales variance and the current level of investment. We further find that while the overall effect of debt maturity on leverage is unaffected by the level of growth opportunities, the shorter the maturity of debt is, the smaller the direct effect of sales variance on investment.

Keywords: dynamic panel, investment, leverage decision, sales uncertainty

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Authors: Renny Wulandari

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This study aims to determine how the influence of Non Performing Financing, Financing Deposit Ratio, Operating Expenses and Operating Revenue and Net Income Margin on the disclosure of financial risk in Sharia banks. To achieve these objectives conducted associative research method with data source in the form of secondary data that is annual report data with period 2013-2016. The population in this study is the sharia banking industry in Indonesia and who issued the annual financial statements. A method of sampling use probability sampling. Analysis in this research is with SEM-PLS. The result is Net Income Margin has a significant effect on financial risk disclosure while Non Performing Financing (NPF) Financing to Deposit Ratio (FDR), Operating Expenses and Operating Revenue (OEOR) have no effect on the disclosure of financial risk in sharia bank.

Keywords: Sharia banks, disclosure of risk financial, non performing financing, financing deposit ratio, operating expenses and operating revenue, net income margin

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Authors: Fatin Fadhilah Hasib, Puji Sucia Sukmaningrum, Imron Mawardi, Achsania Hendratmi

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Murabaha is the most popular contract by the Islamic banks in Indonesia, since there is opinion stating that the risk level of mudharaba and musyaraka are higher and the return is uncertain. This research aims to analyze the difference of return, risk, and variation coefficient between profit sharing-based and trading-based financing in Islamic bank. This research uses quantitative approach using Wilcoxon signed rank test with data sampled from 13 Indonesian Islamic banks, collected from their quarterly financial reports from 2011 to 2015. The result shows the significant difference in return, while risk and variation coefficient are almost same. From the analysis, it can be concluded that profit sharing-based financing is less desirable not because of its risk. Trading-based financing is more desirable than the profit sharing because of its return.

Keywords: financing, Islamic bank, return, risk

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Authors: Dinesh Sivaguru, Kamal Thilakasiri

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Preventing money laundering and terrorist financing is a major national and international problem today. Several attempts have been made to prevent money laundering by national and international dimension. These are often counteracted by the multi dynamic nature of the crimes. However, launders are often to use remittance systems to clean their ill-gotten money. This study presents the role of domestic financial institutions and the effective practices and actions should implement within domestic financial institutions to control and prevent financial crimes. This thesis highlights the progress that is required to prevent money laundering and terrorist financing, further it is an original contribution to the knowledge in an under researched field in Sri Lanka.

Keywords: money laundering, terrorists financing, financial institutions, regulatory bodies

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Authors: Ahmad Dahlan Salleh, Nik Abdul Rahim Nik Abdul Ghani, Muhamad Firdaus M. Hatta

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Risk management has implications on pricing, governance arrangements, business practices and strategy. Nowadays, home financing contract offers more in the risk transfer form to increase bank profit. This is parallel with Islamic jurisprudence method al-Kharaj bi al-thaman (gain accompanies liability for loss) and al-ghurm bil ghunm (gain is justified with risk) that determine the matching between risk transfer and returns. Malaysian financing trend is to buy house. Besides, exists transparency lacking risk transfer issues to the clients because of not been informed clearly. Terms and conditions of each financing also do not reflect clearly that the risk has been transferred to the client, justifying a determination price been made. The assumption on risk occurrence is also inaccurate as each risk is different with the type of financing contract. This makes the Islamic Financial Services Act 2013 in providing standards that transparent and consistent can be used by Islamic financial institution less effective. This study examines how far the level of the risk and obligation incurred by bank and client under various Islamic home financing contract. This research is qualitative by using two methods, document analysis, and semi-structured interviews. Document analysis from literature review to identify profile, themes and risk transfer element in home financing from Islamic jurisprudence perspective. This study finds that need to create a risk transfer parameter by banks which are consistent with risk transfer theory according to Islamic jurisprudence. This study has potential to assist the authority in Islamic finance such as The Central Bank of Malaysia (Bank Negara Malaysia) in regulating Islamic banking industry so that the risk transfer valuation in home financing contract based on home financing good practice and determined risk limits.

Keywords: risk transfer, home financing contract, Sharia compliant, Malaysia

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Authors: Mas Pertiwi I. G. AG Istri, Sri Kristinayanti Wayan, Oka Aryawan I. Gede Made

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Ability of government to meet the needs of infrastructure investment constrained by the size of the budget commitments for other sectors. Another barrier is the complexity of the process of land acquisition. Public Private Partnership can help bridge the investment gap by including the amount of funding from the private sector, shifted the responsibility of financing, construction of the asset, and the operation and post-project design and care to them. In principle, a construction project implementation always requires the investor as a party to provide resources in the form of funding which it must be contained in a successor agreement in the form of a contract. In general, construction contracts consist of contracts which passed in Indonesia and contract International. One source of funding used in the implementation of construction projects comes from funding that comes from the collaboration between the government and the private sector, for example with the system: BLT (Build Lease Transfer), BOT (Build Operate Transfer), BTO (Build Transfer Operate) and BOO (Build Operate Own). And form of payment under a construction contract can be distinguished several ways: monthly payment, payments based on progress and payment after completed projects (Turn Key). One of the tools used to analyze the feasibility of the investment is to use financial models. The financial model describes the relationship between different variables and assumptions used. From a financial model will be known how the cash flow structure of the project, which includes revenues, expenses, liabilities to creditors and the payment of taxes to the government. Net cash flow generated from the project will be used as a basis for analyzing the feasibility of investment source of project financing Public Private Partnership could come from equity or debt. The proportion of funding according to its source is a comparison of a number of investment funds originating from each source of financing for a total investment cost during the construction period by selected the contract system and several alternative financing percentage ratio determined according to sources will generate cash flow structure that is different. Of the various possibilities for the structure of the cash flow generated will be analyzed by software is to test T Paired to compared the contract system used by various alternatives comparison of financing to determine the effect of the contract system and the comparison of such financing for the feasibility of investment toll road construction project for the economic life of 20 (twenty) years. In this use case studies of toll road contruction project Bali Mandara. And in this analysis only covered two systems contracts, namely Build Operate Transfer and Turn Key. Based on the results obtained by analysis of the variable investment feasibility of the NPV, BCR and IRR between the contract system Build Operate Transfer and contract system Turn Key on the interest rate of 9%, 12% and 15%.

Keywords: contract system, financing, internal rate of return, net present value

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Authors: Sandra Rigot, Samira Demaria, Frederic Lemaire

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The starting point of this research is the contemporary capitalist paradox: there is a real scarcity of long term investment despite the boom of potential long term investors. This gap represents a major challenge: there are important needs for long term financing in developed and emerging countries in strategic sectors such as energy, transport infrastructure, information and communication networks. Moreover, the recent financial and sovereign debt crises, which have respectively reduced the ability of financial banking intermediaries and governments to provide long term financing, questions the identity of the actors able to provide long term financing, their methods of financing and the most appropriate forms of intermediation. The issue of long term financing is deemed to be very important by the EU Commission, as it issued a 2013 Green Paper (GP) on long-term financing of the EU economy. Among other topics, the paper discusses the impact of the recent regulatory reforms on long-term investment, both in terms of accounting (in particular fair value) and prudential standards for banks. For banks, prudential and accounting standards are also crucial. Fair value is indeed well adapted to the trading book in a short term view, but this method hardly suits for a medium and long term portfolio. Banks’ ability to finance the economy and long term projects depends on their ability to distribute credit and the way credit is valued (fair value or amortised cost) leads to different banking strategies. Furthermore, in the banking industry, accounting standards are directly connected to the prudential standards, as the regulatory requirements of Basel III use accounting figures with prudential filter to define the needs for capital and to compute regulatory ratios. The objective of these regulatory requirements is to prevent insolvency and financial instability. In the same time, they can represent regulatory constraints to long term investing. The balance between financial stability and the need to stimulate long term financing is a key question raised by the EU GP. Does fair value accounting contributes to short-termism in the investment behaviour? Should prudential rules be “appropriately calibrated” and “progressively implemented” not to prevent banks from providing long-term financing? These issues raised by the EU GP lead us to question to what extent the main regulatory requirements incite or constrain banks to finance long term projects. To that purpose, we study the 292 responses received by the EU Commission during the public consultation. We analyze these contributions focusing on particular questions related to fair value accounting and prudential norms. We conduct a two stage content analysis of the responses. First, we proceed to a qualitative coding to identify arguments of respondents and subsequently we run a quantitative coding in order to conduct statistical analyses. This paper provides a better understanding of the position that a large panel of European stakeholders have on these issues. Moreover, it adds to the debate on fair value accounting and its effects on prudential requirements for banks. This analysis allows us to identify some short term bias in banking regulation.

Keywords: basel 3, fair value, securitization, long term investment, banks, insurers

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Authors: Rahul Ravindranathan, R. P. Gokul

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India, in its efforts towards economic and social development, is currently experiencing a heavy demand for energy. Due to the lack of sufficient domestic energy reserves, the country is highly dependent on energy imports which has increased rapidly at a rate of about 12 % per annum since 2005. Hence, India is currently focusing its efforts to manage this energy supply and demand gap and eventually achieve energy security. One of the most cost effective means to reduce this gap is by adopting Energy efficiency measures in the country. Initial assessments have shown that Energy efficiency measures have an energy conservation potential of about 23%. For an estimated investment potential of USD 8 Billion, the annual energy savings was estimated to be about 180 Billion Units per annum. In order to explore this huge energy conservation potential, many critical factors need to be considered to achieve practical energy savings. Financing options for these investments is one such major factor. Not only has India come out with various policy level as well as technology level drives to promote Energy efficiency but it has also developed various financing schemes to promote investment in Energy Efficiency projects. The Public sector has already come out with certain financing schemes such as the Partial Risk Guarantee Fund (PRGF), Venture Capital Fund (VCF), Partial Risk Sharing Fund (PRSF) etc., and various sectors are gradually utilizing these schemes to implement energy saving measures. However, additional financing options are required in order to explore the untouched energy conservation potential in the country. Hence, there is a need to develop some innovative financing options for India which would motivate the private sectors as well as financing institutions to invest in these energy saving measures. This paper shall review the existing financing schemes launched by the Government of India and highlight the key benefits as well as challenges with respect to these schemes. In addition to this, the paper would also review new and innovative financing schemes for India and how the same could be adopted in other parts of the globe especially in South and South East Asia. This review would provide an insight to the various Governments as well as Financial Institutions in coming out with new financing schemes for their country.

Keywords: energy, efficiency, financing, India

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Authors: Bashir Tijjani Abubakar

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Capital markets play a very important role in financing of private and public institutions in both developing and developed economies. Unfortunately, small and medium enterprises (SMEs) in those economies are yet to fully utilize the markets to finance their long financial needs. This study assesses the factors that influence the decisions of the Muslim Owners/Managers of SMEs in Nigeria and specifically in Kano to seek capital market financing. Logit regression model was used to assess the factors such as control of ownership, perception of the owners/managers on the interest rate charged by commercial banks, educational qualification, size, and age of the SMEs. The study reveals that all the factors have significant positive influence on the willingness of the SMEs Owners/Managers to seek capital market financing. The study recommends educating the Owners/Managers on the operations and products of the markets.

Keywords: capital markets, capital market financing, small and medium enterprise and willingness, size of an enterprise, age of an enterprise and control of ownership

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Authors: Bashir Ahmad, Daneji, Hamidu Aminu, Ahmad, Aliyu Mukhtar, Daneji, Haruna Mohammed

Abstract:

It has been established and universally agreed that vibrant Micro, Small and Medium Enterprises (MSMEs) play significant roles in economic growth and development. In Nigeria, MSMEs are not playing the expected roles. Notable among the plethora of reasons is lack of prompt and sufficient finance. Government and other stakeholders attempted in several ways at different times to provide the required finance to MSMEs but the results were not encouraging and consequently, many failed. In recent past, Islamic financing emerged world over as promising alternative source of financing. However, its awareness among MSMEs entrepreneurs in north east region of Nigeria stands to be questioned. This study explored the 'Demographic Factors Influence on Awareness of Islamic Financing among MSMEs entrepreneurs in the North East Region of Nigeria'. The primary data used in this study were collected through questionnaire. In analyzing the collected data, the study used frequency, percentages, Pearson correlation, ANOVA and test of homogeneity test (Levene’s test) parameters generated from SPSS (version 15). The findings of the study revealed that entrepreneurs’ age, state of origin, religion and educational level influence their MSMEs awareness of Islamic Financing in the north east region of Nigeria. The study recommended that Islamic Financing institutions, government and relevant agencies should do more to enhance the awareness of Islamic financing among MSMEs entrepreneurs in the north east region of Nigeria.

Keywords: awareness, demographic factors, entrepreneurs, Islamic financing

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Authors: Freddy Munzhelele

Abstract:

Setting: the empirical research has shown that the life cycle theory has an impact on the firms’ financing decisions, particularly the dividend pay-outs. Accordingly, the life cycle theory posits that as a firm matures, it gets to a level and capacity where it distributes more cash as dividends. On the other hand, the young firms prioritise investment opportunities sets and their financing; thus, they pay little or no dividends. The research on firms’ financing decisions also demonstrated, among others, the adoption of trade-off and pecking order theories on the dynamics of firms capital structure. The trade-off theory talks to firms holding a favourable position regarding debt structures particularly as to the cost and benefits thereof; and pecking order is concerned with firms preferring a hierarchical order as to choosing financing sources. The case of life cycle hypothesis explaining the financial managers’ decisions as regards the firms’ capital structure dynamics appears to be an interesting link, yet this link has been neglected in corporate finance research. If this link is to be explored as an empirical research, the financial decision-making alternatives will be enhanced immensely, since no conclusive evidence has been found yet as to the dynamics of capital structure. Aim: the aim of this study is to examine the impact of life cycle theory on the capital structure dynamics trade-off and pecking order theories of firms listed in retail, industrial and mining sectors of the JSE. These sectors are among the key contributors to the GDP in the South African economy. Design and methodology: following the postpositivist research paradigm, the study is quantitative in nature and utilises secondary data obtainable from the financial statements of sampled firm for the period 2010 – 2022. The firms’ financial statements will be extracted from the IRESS database. Since the data will be in panel form, a combination of the static and dynamic panel data estimators will used to analyse data. The overall data analyses will be done using STATA program. Value add: this study directly investigates the link between the life cycle theory and the dynamics of capital structure decisions, particularly the trade-off and pecking order theories.

Keywords: life cycle theory, trade-off theory, pecking order theory, capital structure, JSE listed firms

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Authors: Sennanda Musa, Ahmed Mutunzi Kitunzi, Gerald Kasigwa, Ismail Kintu

Abstract:

This paper is an analysis of the empirical relationship between project financing by Islamic Development Bank (IsDB) and the poverty trends in the context of countries benefiting from IsDB. Specifically, the study seeks to find out whether there is a statistically significant relationship between the project financing dollar amounts by IsDB (PF) and the GNI Per Capita, PPP of 57 countries for the years 2002 to 2021. The research is a longitudinal, desk-top triangulation of correlation, regression, hypothesis-testing employing the linear dynamic panel data GMM model as an estimator of the empirical relationships between the key variables of the study. The study results show that there is a significant positive relationship between the PF dollar amounts from the IsDB and the GNI Per Capita, PPP in these 57 countries. Therefore, countries that receive higher PF dollar amounts from the IsDB, generally have more GNI Per Capita, PPP (less poverty) than their counterparts. It is, therefore, recommendable for countries to formulate policies that facilitate Islamically financed projects to mitigate poverty. This paper develops policy discussions regarding allocation of political attention to the policy topics on poverty mitigation, and their relation to financing projects Islamically, thus generate information on policy choices regarding the Islamic financing alternative.

Keywords: gross-national-income, IsDB-project-financing, public policy, poverty

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Authors: Craig M. Allen

Abstract:

Twenty two African entrepreneurs with Small and Medium Enterprises (SMEs) in a single social network centered around a non-Muslim population in a smaller African country, selected an Islamic financing structure, a form of Murabaha, based solely on market rationale. These entrepreneurs had all won procurement contracts from major purchasers of goods within their country and faced difficulty arranging traditional bank financing to support their supply-chain needs. The Murabaha-based structure satisfied their market-driven demand and provided an attractive alternative to the traditional bank-offered lending products. The Murabaha-styled trade-financing structure was not promoted with any religious implications, but solely as a market solution to the existing problems associated with bank-related financing. This indicates the strong market forces that draw SMEs to financing structures that are traditionally considered within the framework of Islamic finance.

Keywords: Africa, entrepreneurs, Islamic finance, market acceptance, Murabaha, SMEs

Procedia PDF Downloads 155