Abstract
This study compares two types of banks: conventional banks and Islamic banks. Indeed, since the aftermath of the credit crunch and the global financial crisis (2008–2009), the former have been severely criticized, while the latter are increasingly considered as an alternative form of banking. From a panel sample of twenty major banks (ten conventional banks and ten Islamic banks) located in various developed and emerging countries over the period April 2006- February 2013, the present paper examines whether or not there are significant differences between the two banking systems. Our sample enables us to compare these international banking systems, taking the crisis impact and new regulations and supervisory rules into account. To this effect, we carried out econometric analyses of univariate and multivariate panel data, which pointed to two interesting findings. First, there are only a few significant differences between IBs and CBs in terms of financial risk. Second, PVAR (Panel Vector Autoregressive) estimates and the analysis of Impulse Response Functions (IRFs) indicate weak interactions between IBs and CBs, while panel causality tests reject the causality hypothesis from IBs to CBs.
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Notes
In the international IBS congress organized by the International Association of IBs in 1979, an IB was defined as a banking institution that collects money and uses it according to Islamic Sharia laws, designed to build a society based on solidarity, equity, ethics and morals.
A Sharia Board is a committee that certifies Islamic financial products as being Sharia-compliant with regard to the Sharia or Muslim Law.
The main idea behind these rules is that money is not a productive asset but an instrument of exchange and that individuals are not the owners of their wealth.
Some Sharia committees changed their minds about the prohibition of some products surprisingly quickly. In 2002, for example, a Fatwa (an authoritative religious decree of Islamic law) by an imam from Al-Azhar University stated that remuneration defined for a determined period was not prohibited.
While the first unit root test supposes that the unit root is common to all individual series, the second test implies the presence of an individual unit root.
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The authors would like to thank an anonymous referee for constructive comments made on an earlier version of this paper.
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Jawadi, F., Cheffou, A.I. & Jawadi, N. Do Islamic and Conventional Banks Really Differ? A Panel Data Statistical Analysis. Open Econ Rev 27, 293–302 (2016). https://doi.org/10.1007/s11079-015-9373-9
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DOI: https://doi.org/10.1007/s11079-015-9373-9