Abstract

http://ssrn.com/abstract=1694335
 
 

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Islamic vs. Conventional Banking: Business Model, Efficiency and Stability


Thorsten Beck


City University London - Sir John Cass Business School; Tilburg University - European Banking Center, CentER

Asli Demirgüç-Kunt


World Bank - Financial and Private Sector Development; World Bank

Ouarda Merrouche


World Bank

October 1, 2010

World Bank Policy Research Working Paper No. 5446

Abstract:     
This paper discusses Islamic banking products and interprets them in the context of financial intermediation theory. Anecdotal evidence shows that many of the conventional products can be redrafted as Sharia-compliant products, so that the differences are smaller than expected. Comparing conventional and Islamic banks and controlling for other bank and country characteristics, the authors find few significant differences in business orientation, efficiency, asset quality, or stability. While Islamic banks seem more cost-effective than conventional banks in a broad cross-country sample, this finding reverses in a sample of countries with both Islamic and conventional banks. However, conventional banks that operate in countries with a higher market share of Islamic banks are more cost-effective but less stable. There is also consistent evidence of higher capitalization of Islamic banks and this capital cushion plus higher liquidity reserves explains the relatively better performance of Islamic banks during the recent crisis.

Number of Pages in PDF File: 44

Keywords: Banks & Banking Reform, Debt Markets, Access to Finance, Financial Intermediation, Bankruptcy and Resolution of Financial Distress

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Date posted: October 19, 2010  

Suggested Citation

Beck, Thorsten and Demirgüç-Kunt, Asli and Merrouche, Ouarda, Islamic vs. Conventional Banking: Business Model, Efficiency and Stability (October 1, 2010). World Bank Policy Research Working Paper Series, Vol. , pp. -, 2010. Available at SSRN: http://ssrn.com/abstract=1694335

Contact Information

Thorsten Beck (Contact Author)
City University London - Sir John Cass Business School ( email )
106 Bunhill Row
London, EC1Y 8TZ
United Kingdom
Tilburg University - European Banking Center, CentER ( email )
PO Box 90153
Tilburg, 5000 LE
Netherlands
Asli Demirgüç-Kunt
World Bank - Financial and Private Sector Development ( email )
United States
202-473-7479 (Phone)
202-522-1155 (Fax)
HOME PAGE: http://econ.worldbank.org/staff/ademirguckunt/
World Bank ( email )
1818 H Street, NW
Washington, DC 20433
United States
Ouarda Merrouche
World Bank ( email )
1818 H Street, NW
Washington, DC 20433
United States
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