Islamic Banking: How Has it Diffused?

30 Pages Posted: 1 Sep 2010

See all articles by Kangni Kpodar

Kangni Kpodar

International Monetary Fund (IMF)

Patrick A. Imam

International Monetary Fund (IMF)

Date Written: August 2010

Abstract

This paper investigates the determinants of the pattern of Islamic bank diffusion around the world using country-level data for 1992 - 2006. The analysis illustrates that income per capita, share of Muslims in the population and status as an oil producer are linked to the development of Islamic banking, as are economic integration with Middle Eastern countries and proximity to Islamic financial centers. Interest rates have a negative impact on Islamic banking, reflecting the implicit benchmark for Islamic banks. The quality of institutions does not matter, probably because the often higher hurdle set by Shariah law trumps the quality of local institutions in most countries. The 9/11 attacks were not important to the diffusion of Islamic banking; but they coincided with rising oil prices, which are a significant factor in the diffusion of Islamic banking. Islamic banks also appear to be complements to, rather than substitutes for, conventional banks.

Keywords: Banking systems, Cross country analysis, Economic models, Financial systems, Interest rates, International banking, Islamic banking, Middle East, North Africa, South Asia, Sub-Saharan Africa, Time series

Suggested Citation

Kpodar, Kangni and Imam, Patrick A., Islamic Banking: How Has it Diffused? (August 2010). IMF Working Paper No. 10/195, Available at SSRN: https://ssrn.com/abstract=1669870

Kangni Kpodar (Contact Author)

International Monetary Fund (IMF) ( email )

700 19th Street, N.W.
Washington, DC 20431
United States

Patrick A. Imam

International Monetary Fund (IMF) ( email )

700 19th Street, N.W.
Washington, DC 20431
United States

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