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All Journal ETIKONOMI Journal of Islamic Monetary Economics and Finance
Faaza Fakhrunnas
Department of Economics, Universitas Islam Indonesia, Indonesia
Economics, Econometrics & Finance

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Climate Change Adaptation: Does Islamic Banking Play a Role? Nazrul Hazizi Noordin; Faaza Fakhrunnas
Journal of Islamic Monetary Economics and Finance Vol. 12 No. 2 (2026)
Publisher : Bank Indonesia

Show Abstract | Download Original | Original Source | Check in Google Scholar | DOI: 10.21098/jimf.v12i2.3322

Abstract

This study examines the role of Islamic banking in advancing climate change adaptation. Applying fixed effects and System Generalized Method of Moments estimators to panel data from 29 dual banking countries from 1995 to 2021, we find that a one-standard-deviation increase in the share of Islamic banking assets is associated with a 1.773-point improvement in the climate adaptability index. When climate adaptation is decomposed into its two constituent dimensions, climate vulnerability and climate readiness, we find that Islamic banks contribute significantly to enhancing climate readiness, while their impact on reducing vulnerability is less pronounced. The contribution is particularly salient in countries where Islamic banking is systemically important, underscoring the significance of market penetration and institutional embeddedness. Additionally, Islamic banks are shown to have maintained a consistent, positive contribution to climate adaptation both before and after the adoption of the Paris Agreement in 2015. These findings underscore the normative alignment between the ethical foundations of Islamic finance and the environmental commitment of global communities. This study offers important policy implications, including the need for stronger regulatory support, deeper integration of Islamic finance within national climate strategies, and strengthened climate governance within Islamic banks. It also adds to the literature by providing new empirical evidence on the distinctive and evolving role of Islamic banking in supporting macro-level climate resilience. Acknowledgment The first author acknowledges the support of the Securities Commission Malaysia in awarding the fellowship at the Oxford Centre for Islamic Studies, during which this paper was completed.
Credit Risk, Liquidity, and Financial Stability: An Investigation in the Indonesian Banking Sector Faaza Fakhrunnas
ETIKONOMI Vol. 25 No. 1 (2026)
Publisher : Faculty of Economic and Business, Universitas Islam Negeri Syarif Hidayatullah Jakarta

Show Abstract | Download Original | Original Source | Check in Google Scholar | DOI: 10.15408/etk.v25i1.44917

Abstract

Research Originality: This study offers a clear and precise investigation into the relationship between credit risk, liquidity, and financial stability, addressing the inconclusive findings in prior literature. In addition, a nonlinear approach is adopted to capture the dynamic interaction of credit risk and liquidity on financial stability Research Objectives: The study aims to assess the influence of Islamic banks' credit risk and liquidity on financial stability in the Indonesian banking sector. Research Method: Utilizing time series data ranging from 2004m1 to 2022m8, a nonlinear autoregressive distributed lag (NARDL) approach is adopted to measure the impact of credit risk and liquidity on financial stability. Empirical Results: The findings of the study reveal that it has nonlinear, symmetric, and asymmetric effects between independent variables and dependent variables. In the short run, only credit risk has a significant relationship, while in the long run, either credit risk or liquidity affects financial stability significantly. Implications: The study's results imply that Islamic banks must implement liquidity monitoring and a credit risk early warning system. At the regulatory level, tailor-made liquidity instruments and encouraging Islamic banks to have a larger capital buffer need to be introduced and regulated. JEL Classification: G20, G21, G29
ESG Commitment and Bank's Default Risk in Emerging and Developing Countries: Does Islamic Bank Matter? Faaza Fakhrunnas; Turalay Kenc; Hengchao Zhang
Journal of Islamic Monetary Economics and Finance Vol. 11 No. 4 (2025)
Publisher : Bank Indonesia

Show Abstract | Download Original | Original Source | Check in Google Scholar | DOI: 10.21098/jimf.v11i4.2789

Abstract

This paper examines the impact of ESG commitment on banks’ default risk in emerging and developing countries. Using a panel dataset comprising 157 banks from 28 countries over the period 2016-2022 and the Two-Step Generalized Method of Moments (2-Step GMM), it reveals that banks’ ESG commitment reduces banks’ probability of default (PD). Islamic banks also matter for ESG commitments, where Islamic banks have a higher probability of default than conventional banks while committing to the governance pillar. The findings of the study imply that financial authorities and banking institutions in emerging and developing countries need to spur banks’ ESG commitment. However, it must be carefully implemented in Islamic banks, considering that it likely increases Islamic banks' PD. The study contributes to the empirical research concerning the nexus between ESG commitment and banks' default by extending the measurement of the probability of default and delving deep into investigating its relation  to Islamic banks.
Co-Authors Hengchao Zhang Nazrul Hazizi Noordin Turalay Kenc