Risk in Islamic Banking

Review of Finance, Forthcoming

Posted: 12 Oct 2012

See all articles by Pejman Abedifar

Pejman Abedifar

University of St Andrews - School of Management

Philip Molyneux

University of Sharjah - College of Business Administration

Amine Tarazi

University of Limoges - Faculty of Law and Economic Science

Multiple version iconThere are 2 versions of this paper

Date Written: September 23, 2012

Abstract

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 Shariá compliant financial products. Our results also show that loan quality of Islamic banks is less responsive to domestic interest rates compared to conventional banks.

Keywords: Islamic banking, Islamic finance, bank risk, credit risk, stability, insolvency, Zscore, rent-seeking

JEL Classification: G21, G32

Suggested Citation

Abedifar, Pejman and Molyneux, Philip and Tarazi, Amine, Risk in Islamic Banking (September 23, 2012). Review of Finance, Forthcoming, Available at SSRN: https://ssrn.com/abstract=2160235

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

University of Sharjah - College of Business Administration ( email )

University City Road
Sharjah, 27272
United Arab Emirates

Amine Tarazi

University of Limoges - Faculty of Law and Economic Science ( email )

5 rue Felix Eboue
Limoges, 87000
France

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