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Risk in Islamic Banking

Pejman Abedifar

University of St Andrews - School of Management

Philip Molyneux

Bangor Business School

Amine Tarazi

Universite de Limoges, LAPE

May 3, 2012

LAPE Working Paper

This paper investigates risk and stability features of Islamic banking using a sample of 553 banks from 24 countries between 1999 and 2009. Small Islamic banks that are leveraged or based in countries with predominantly Muslim populations have lower credit risk than conventional banks. In terms of insolvency risk, small Islamic banks also appear more stable. Moreover, we find little evidence that Islamic banks charge rents to their customers for offering Sharia compliant financial products. Our results also show that loan quality of Islamic banks is less responsive to domestic interest rates compared to conventional banks.

Number of Pages in PDF File: 61

Keywords: Islamic banking, Islaminc Finance, Bank risk, credit risk, stability, insolvency, Zscore

JEL Classification: G21, G32

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Date posted: November 18, 2010 ; Last revised: October 12, 2012

Suggested Citation

Abedifar, Pejman and Molyneux, Philip and Tarazi, Amine, Risk in Islamic Banking (May 3, 2012). LAPE Working Paper. Available at SSRN: https://ssrn.com/abstract=1663406 or http://dx.doi.org/10.2139/ssrn.1663406

Contact Information

Pejman Abedifar (Contact Author)
University of St Andrews - School of Management ( email )
The Gateway, North Haugh
St Andrews, Fife KY16 9RJ
United Kingdom
Philip Molyneux
Bangor Business School ( email )
Bangor Business School
College Road
Gwynedd LL57 2DG, Wales LL57 2DG
United Kingdom
Amine Tarazi
Universite de Limoges, LAPE ( email )
5 rue Felix Eboue
Limoges, 87000
Feedback to SSRN

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