Abstract
Conventional financing and Islamic financing have the same mechanism of operation, although their nature is different. This difference creates different risk, which requires a proper investigation and observation. Thus, the conventional portfolio manager cannot use the same set of proportion or strategy when they want to invest in Islamic financial product. This study determines the optimal portfolio combination and its proportion for Islamic bank financing which include several contracts (Murabahah, Mudharabah, Musharakah, Bai Bithaman Ajil, Ijarah, Ijarah Thumma Al Bai, Istisna’). We apply single index model (SIM) since SIM enables precise calculation of the composition of each asset (financing) by identifying the value of Excess Return to Beta (ERB) as well as the cut-off point based on the acquisition of equivalent rate of profit sharing for each financing. The results show that the optimal composition of portfolio consist of Ijarah or leasing (59.93%), Musharakah or joint venture (29.18%) and Murabahah or sales (10.89%). The portfolio expected return is 1.20% with portfolio risk of 1.67%.
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Authors would like to acknowledge the Faculty of Computer and Mathematical Sciences, Universiti Teknologi MARA (UiTM) Malaysia for funding this publication.
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Hussin, M.F., Hussin, S.A.S., Zahid, Z. (2021). Optimal Portfolio Construction of Islamic Financing Instrument in Malaysia. In: Mohamed, A., Yap, B.W., Zain, J.M., Berry, M.W. (eds) Soft Computing in Data Science. SCDS 2021. Communications in Computer and Information Science, vol 1489. Springer, Singapore. https://doi.org/10.1007/978-981-16-7334-4_9
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DOI: https://doi.org/10.1007/978-981-16-7334-4_9
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