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Journal : Communications in Science and Technology

Analyzing the profit-loss sharing contracts with Markov model Wahyudi, Imam; Sakti, Ali
Communications in Science and Technology Vol 1 No 2 (2016)
Publisher : Komunitas Ilmuwan dan Profesional Muslim Indonesia

Show Abstract | Download Original | Original Source | Check in Google Scholar | DOI: 10.21924/cst.1.2.2016.17

Abstract

The purpose of this paper is to examine how to use first order Markov chain to build a reliable monitoring system for the profit-loss sharing based contracts (PLS) as the mode of financing contracts in Islamic bank with censored continuous-time observations. The paper adopts the longitudinal analysis with the first order Markov chain framework. Laplace transform was used with homogenous continuous time assumption, from discretized generator matrix, to generate the transition matrix. Various metrics, i.e.: eigenvalue and eigenvector were used to test the first order Markov chain assumption. Cox semi parametric model was used also to analyze the momentum and waiting time effect as non-Markov behavior. The result shows that first order Markov chain is powerful as a monitoring tool for Islamic banks. We find that waiting time negatively affected present rating downgrade (upgrade) significantly. Likewise, momentum covariate showed negative effect. Finally, the result confirms that different origin rating have different movement behavior. The paper explores the potential of Markov chain framework as a risk management tool for Islamic banks. It provides valuable insight and integrative model for banks to manage their borrower accounts. This model can be developed to be a powerful early warning system to identify which borrower needs to be monitored intensively. Ultimately, this model could potentially increase the efficiency, productivity and competitiveness of Islamic banks in Indonesia. The analysis used only rating data. Further study should be able to give additional information about the determinant factors of rating movement of the borrowers by incorporating various factors such as contract-related factors, bank-related factors, borrower-related factors and macroeconomic factors.
Co-Authors . Muhran . Nurhasanah Abdul Azis Abdillah Abdullah khanif Achmad Heri Nurcahyo Adi Murdiono Adi, Danang S Adian Husaini Adies Kadir Aditya Nugroho Aditya Pangestu Halomoan Tampubolon agus irawan Ahmad Faizal Arifien Ahmad Ubaidillah ahmad yani Ahmad Zeintoro, Raka Akhmad Zaeni Al Haqi, M Nurul Hayyullah Al Mubarok, Ahmad Aly Syukron Aziz Ali Sakti, Ali Alief Ilhan Alif’uan Nur Reza Alvina Fidriyanti Amara Yulia Amara Yulia F.P Aminullah Aminullah, Aminullah Aminuyati Ana Toni Roby Candra Yudha Analistiani, Analistiani Anam, Ruiziq Khoirul Andi D Yunianti Andianto Anggreni, Dwi Shinta Angraeni, Novita Anis Fauzi, Anis Apri H Iswanto Apri Heri Iswanto Aprilyana, Putri Ayunda Arida Susilowati Iswanto Arif R. Harijadi Arifin, Ghaniyah Geulis Arifin, Muhammad Alif Nur Arkhano, Rachmanda Aquila Armansyah, Rendy Ary Iswahyudi Asep Hendra Supriatna Asep Maulana, Asep Ashari, Beni Athala Rania Insyra Atmawi DARWIS Augustina, Sarah Aura Tesalonika Hendriardani Ayu Sayekti, Mahendi Pasca Aziz Al Mubarok, Ahmad Aly Syukron Aziza Aulia Azzahra Azwardi Azwardi Bagus Pujo Sasongko Bahanawan, Adik Bahrul Rizal Bambang Suryadi, Bambang Bastian , A. Fandi Bastian, Achmad Fandi Berlinda Sayidah Imamah Bima Dwi Atmadja Budi Aribowo Ceng Asmarahman Chindy Kriswahyuni Chresta Awaliyah Suntana Corryanti Corryanti Damayanti, Emilia Davit Mahesa Handika Dede J. 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