Recent Submissions

  • The efficiency of Participation Banking Sector in Turkey: A DEA Approach

    Smolo, Edib; Iqbal, Mohamed Ashraf; Akdemir, Ayşe; Finance (Springer, 2024-02-15)
    There are six participation banks in Turkey, and they are expected to contribute significantly to the economy in the future. The aim of this study is to assess the efficiency of these participation banks based on financial data from 2010 to 2020. Data envelopment analysis (DEA), a non-parametric efficiency approach, is used in this study with three input variables (profit share expenses, personnel expenses, and total funds), and two output variables (profit share income and net profit). While Kuveyt Türk, Ziraat Katılım, and Türkiye Finans are found to be the most efficient, Albaraka Türk and Vakıf Katılım are inefficient – at least when the most recent observations (2018-2020) and the four-year moving average efficiency score for both outputs and inputs are used. As for the overall average scores, Türkiye Finans is the most efficient participation bank, followed by Ziraat Katılım and Vakıf Katılım. The least efficient participation banks are Kuveyt Türk and Albaraka Türk. For participation banks to gain a larger share of the market and to continue contributing to overall economic growth, policymakers must pay attention to these underperforming banks.
  • Extending the concept of financial literacy: A step toward a sustainable society

    Smolo, Edib; Knezović, Emil; Aydin, Šejma; Finance (Association "Research and Development Academy", 2023-05-22)
    This study analyzes financial literacy in Bosnia and Herzegovina by considering three areas: interest, inflation, and diversification, with financial literacy as a multi-dimensional construct consisting of financial knowledge and financial skills. Using a cross-sectional questionnaire-based survey, 638 valid responses were collected from working-age individuals (18-65 years old). Financial knowledge and skills were analyzed through a prism of several demographic factors, including age, education, household income, and gender. Welch's F tests, ANOVA with Brown-Forsythe, LSD post hoc tests, and Welch's t-tests were performed to test the hypotheses. The findings provide evidence of moderate financial literacy. Similarly to previous studies, financial knowledge and skills partially depend on the respondent's age, education, household income, and gender. The study contributes to the current literature by taking a much-needed non-functional approach to examining financial literacy, focusing not only on financial knowledge but also on often neglected financial skills and providing insight into the unique context of Bosnia and Herzegovina.
  • Finance-Growth Nexus: Evidence from Systemically Important Islamic Finance Countries

    Smolo, Edib; Nagayev, Ruslan; Finance (2023-05-08)
    Purpose The purpose of this study is to examine the effects of financial development on the economic growth of jurisdictions with systemically important Islamic finance. Design/methodology/approach The authors use several estimation methods. The primary analysis is based on the LSDVC method using a sample of 23 countries covering the period of 2000–2019. Findings The findings suggest that the financial sector may not be a significant factor in determining economic growth, or that it may decrease it depending on the proxy used. These results are in line with recent studies and robust across different estimation specifications and methods used. Practical implications Finance practitioners may reconsider the way they conduct their daily activities as their impact on economic growth is fading away. Similarly, policymakers should consider the role that financial development plays in economic growth alongside other factors that may influence its impact. It may be necessary to examine the moderating effects of institutional development on the relationship between finance and growth and consider the channels through which financial development can contribute to economic growth. Additionally, it would be useful to study the impact of Islamic finance on economic growth using different data sources. Originality/value Although the topic has been explored using different data sets and focusing on different samples, it has not been explored considering the impact of Islamic finance development on economic growth. Given the global appeal of the Islamic finance industry, it is worth investigating its significance for economic growth.
  • The Role of Waqf (Endowment) in Economic Development of Bosnia & Herzegovina: A Historical Overview and Future Prospects

    Smolo, Edib; Finance (Palgrave Macmillan, 2019)
    Despite a plethora of roundtable discussions and practical initiatives on sustainable socio-economic issues to solve the inequality gap between the rich and poor, policy makers and economists still remain in the dark and have not been able to unveil solutions to major social challenges to humanity concerning poverty, community empowerment, sustainability, and social injustice, globally. There are many verses in the Qurān that directs Muslims to engage in trade activities. Islam encourages social entrepreneurial ventures and gives the etiquette and spiritual guidance needed to engage in trade. Islamic Social Entrepreneurship (ISE), in particular, is vital for the Muslims to attain sustainable community empowerment, social and economic justice. Waqf (Islamic endowment) is indeed a vehicle for financing ISE and the waqf-ISE model, discussed in this paper, provides an environment that mobilizes resources to provide a platform that caters for socio-economic development. This paper showcases the waqf-ISE model which is engineered from ground zero from Islamic foundations, without emulating any Western model and provides a window of opportunity to solve many of the societal issues afflicting Bangladesh, particularly, in terms of poverty alleviation, socio-economic development and provides a platform to empower communities in a sustainable manner.
  • Islamic Finance and Limited Purpose Banking (LPB): Two Sides of the Same Coin

    Smolo, Edib; Finance (IGI Global, 2020)
    The saying that “history repeats itself” is best manifested in capitalist financial system operating world- wide. It seems people are not learning lessons from the history of financial crises. Leading economists and capitalist gurus are warning about an inherently fragile capitalist financial system and about an urgent need to do something about it before it is too late. After the recent global financial crisis, Kotlikoff proposed the most radical and the most comprehensive reform of the existing financial system. His pro- posal became known as the Limited Purpose Banking (LPB). Kotlikoff’s proposal runs hand in hand with the aspirations of the pioneers of Islamic finance. He envisioned a financial system that is based on risk sharing, cooperation, and overall public interest (maslahah). In short, the idea of the LPB – after certain modifications and minor adjustments – can be applied in developing a true Islamic financial system. Thus, it can be said that the LPB and Islamic finance are two sides of the same coin.
  • Does Bank Concentration and Financial Development Contribute to Economic Growth? Evidence from OIC Countries

    Smolo, Edib; Finance (Palgrave Macmillan, 2020)
    Numerous attempts have been made to study the impact of bank concentration and/or competition on economic growth especially after the global financial crisis. There is scarcity in literature covering this relationship within the Organization of Islamic Cooperation (OIC) member countries. This study investigates whether bank concentration and financial development contribute to economic growth within the OIC countries. It investigates whether the same applies to high-income and low-income countries; corrupted and less-corrupted countries. The study employs the generalized method of moments (GMM) estimators that best fit the sample. Overall, bank concentration seems to have a negative impact and non-linear relationship with economic growth. Financial development has a negative impact on economic growth with minute coefficients’ values that can be ignored economically. Economic conditions within the OIC countries may not be improved by additional financial services, but rather by reducing bank concentration (increasing competition), corruption and improving overall income levels.
  • The Importance of FDI and Institutions in the Development of the Western Balkans

    Smolo, Edib; Finance (International University of Sarajevo, 2022)
  • Islamska ekonomska misao i slobodno tržište: uloga islamskih učenjaka

    Smolo, Edib; Finance (Udruženje građana “Multi”, 2022)
  • Bosna-Hersek’teki Güncel Makroekonomik Gelişmeler [Current Macroeconomic Developments in Bosnia and Herzegovina]

    Smolo, Edib; Siljak, Dzenita; Finance (İstanbul Ticaret Odası, 2022)
    Bosnia and Herzegovina (B&H) is a small, open economy. The country belongs to the geopolitical region of the Western Balkans and has been going through the transition process for the past three decades. The transition process, which started in Europe with the fall of the Berlin Wall in 1989, implies that a country transforms from a centrally planned to a market economy. A market economy is characterized by liberalized prices and trade and an enforceable legal system, including the protection of property rights. During socialism, prices were artificially determined, trade and investment were restricted, unemployment was practically non-existent, and all decisions were made by the central government, which indicates that efficient institutions did not exist. The transition process ends once a country joins the European Union (EU). Bosnia and Herzegovina, together with Croatia, Kosovo, Montenegro, North Macedonia, Serbia, and Slovenia, formed the Socialist Federal Republic of Yugoslavia (SFR Yugoslavia), a country known for its unique system of market socialism, which was more flexible than socialism in the Union of Soviet Socialist Republics (USSR) or Central and Eastern European (CEE) countries. Private property practically did not exist, as it was not considered compatible with the socialist economic system and its expansion was restricted by law (Uvalić, 2018). Most of the economy was state-owned. The state decided what and how much each company would produce and the inputs were provided by the state. If the quota could not be fulfilled, then the quality of the products had to be sacrificed, which did not create any problems since there was no competition among the enterprises (Berend, 2016). The manufacturers did not sell their products in the market; that was done by specialized companies. After the Second World War, Yugoslavia pursued rapid industrialization, where the priority was given to heavy over light industry (Uvalić, 2018). Therefore, transition economies lie between developed and developing countries; they are industrialized, but the technology is obsolete. Bosnia and Herzegovina, together with other former Yugoslav republics, produces less sophisticated goods, which is one of the reasons why the countries are not as competitive as they should be. SFR Yugoslavia ceased to exist in its original form in 1991. Bosnia and Herzegovina declared its independence on 1 March 1992. The break-up of SFR Yugoslavia was followed by several wars – in Slovenia (1991), Croatia (1991-1995), B&H (1992-1995), and Kosovo (1998-1999). The wars delayed the transition to a market economy. CEE countries that had a more strict form of socialism went through the transition process in fifteen years. Among former Yugoslav republics, Slovenia joined the EU in 2004, followed by Croatia in 2013. In the 1990s, B&H and other Western Balkan countries faced structural problems; hyperinflation, slow economic growth, high public deficits, and depreciating exchange rates (Estrin and Uvalić, 2016).
  • Financial markets and integration: The case of Bosnia and Herzegovina

    Smolo, Edib; Finance (International University of Sarajevo, 2022)
    Integrating a country into a global financial system is a difficult task. This task is even more challenging when faced with a country that has a highly complex political system. Bosnia and Herzegovina (B&H) is a perfect example of a country having two separate government entities with four different levels that are further divided along political and ethnic lines. Bosnia is a small, open economy that has been going through the transition process since the Dayton Peace Agreement ended the aggression in 1995. It consists of two semi-autonomous political entities: The Federation of Bosnia and Herzegovina (hereafter FBIH) and Republika Srpska (hereafter RS), with District Brčko as a de facto third entity. FBIH is further divided into ten cantons. Even though B&H is a small open economy, it is rich in natural resources and has excellent potential for economic growth. However, to reach its full economic potential, the country must integrate more closely with regional and international markets. Leaving behind the socialist economic system, B&H committed itself to developing market-oriented economic policies and systems. With the technical and financial assistance of the international community and international financial institutions, B&H embarked on several structural reforms and investment programs right after the Dayton Peace Agreement was signed in 1995. However, due to the complex nature of the B&H government, these reforms have not been entirely successful, and critical reforms are yet to be addressed. More than two decades after the aggression, B&H faces a slow and stagnant economic growth with weak institutions making it vulnerable and unstable. Better integration of the country, both internally and externally, is needed for B&H to grow further. It is believed that the government can overcome other differences with better economic and financial integration. The absence of an integrated economic area within the country harms the economic development and performance of all sectors of the B&H economy. As pointed out by many, the main culprits for such situations are a fragmented administrative structure, partly different legal frameworks and implementation practices, a weak rule of law, lengthy bureaucratic procedures, and low-quality public administration.
  • The Finance-Growth Nexus and the Role of Institutional Development: A Case Study of the Western Balkan Countries

    Smolo, Edib; Finance (Springer International Publishing, 2023)
    his paper empirically investigates the impact of finance and institutions on the economic growth of the Western Balkan economies – Albania, Bosnia and Herzegovina, Montenegro, North Macedonia, and Serbia – using a panel data analysis covering 2000–2020. While individually, neither finance nor institutions significantly impact economic growth, they increase the sample countries’ GDP when the two interact. Furthermore, the results suggest that the finance-growth relationship is non-linear, with a positive impact having a threshold. This relationship also depends on the sample’s institutional development (and vice versa). Similarly, this relationship depends on the proxy used, and hence, we need to be careful when making conclusions.