Islamic Banks Product Mix

26 Pages Posted: 18 Mar 2021

See all articles by Sara Al Balooshi

Sara Al Balooshi

University of Bahrain ; University of St Andrews

Date Written: April 23, 2020


This paper uses hand-collected quarterly values of the different Islamic banking products to answer the following questions: Do debt-like banking products dominate Islamic banks' assets, making them identical to conventional banks? Are bank performance and solvency sensitive to the product's inclination to achieve the aspirations of Islamic law? What are the implications of such diversification/concentration on banks' financial stability and performance? Results show that debt-like products contribute to banks' returns but increase the default probabilities. Profit-loss sharing products are significant for banks' solvency. The Herfindahl Hirschman Index and the Shannon Entropy (SE) indicate that diversification into financing modes that are in the real spirit of Islam is beneficial to bank solvency but harms returns.

Keywords: Islamic Banks, Product Mix, Portfolio Diversification, Performance

JEL Classification: G21, G23, G29

Suggested Citation

Al Balooshi, Sara, Islamic Banks Product Mix (April 23, 2020). Available at SSRN: or

Sara Al Balooshi (Contact Author)

University of Bahrain ( email )

P.O Box 32038
Sukhair Campus, 32038

University of St Andrews ( email )

Castle Cliff
St Andrews
St Andrews, KY16 9AR
United Kingdom

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