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Do Islamic Banks Have Greater Market Power ?

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  • Laurent Weill

    ()
    (Laboratoire de Recherche en Gestion et Economie, Université de Strasbourg)

Abstract

The aim of this paper is to investigate whether Islamic banks have greater market power than conventional banks. Indeed Islamic banks may benefit from a captive clientele, owing to religious principles, which would be charged greater prices. To measure market power, we compute Lerner indices on a sample of banks from 17 countries in which Islamic and conventional banks coexist over the period 2000-2007. Comparison of Lerner indices shows no significant difference between Islamic banks and conventional banks. When including control variables, regression of Lerner indices even suggests that Islamic banks have a lower market power than conventional banks. A robustness check with the Rosse-Panzar model confirms that Islamic banks are not less competitive than conventional banks. The lower market power of Islamic banks can be explained by their different norms and their different incentives.

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Bibliographic Info

Paper provided by Laboratoire de Recherche en Gestion et Economie (LaRGE), Université de Strasbourg in its series Working Papers of LaRGE Research Center with number 2009-02.

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Date of creation: 2009
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Handle: RePEc:lar:wpaper:2009-02

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Keywords: Islamic banks; Lerner index; Bank Competition.;

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Cited by:
  1. Laurent Weill, 2012. "How Quality of Institutions Shape the Expansion of Islamic Finance," Working Papers of LaRGE Research Center 2012-08, Laboratoire de Recherche en Gestion et Economie (LaRGE), Université de Strasbourg.
  2. Michael Hamp & Carolina Laureti, 2011. "Balancing flexibility and discipline in microfinance: Innovative financial products that benefit clients and service providers," Working Papers CEB 11-044, ULB -- Universite Libre de Bruxelles.
  3. Wassim RAJHI & Slim A. HASSAIRI, 2013. "Islamic Banks And Financial Stability: A Comparative Empirical Analysis Between Mena And Southeast Asian Countries," Region et Developpement, Region et Developpement, LEAD, Universite du Sud - Toulon Var, vol. 37, pages 149-177.
  4. Baele, Lieven & Farooq, Moazzam & Ongena, Steven, 2011. "Of Religion and Redemption: Evidence from Default on Islamic Loans," CEPR Discussion Papers 8504, C.E.P.R. Discussion Papers.
  5. Farooq, M., 2011. "Essays on financial intermediation and markets," Open Access publications from Tilburg University urn:nbn:nl:ui:12-4944287, Tilburg University.
  6. Czerniak, Adam, 2010. "Symptomy kryzysu globalnego a etyka gospodarcza religii światowych. Analiza porównawcza bankowości islamskiej i bankowości klasycznej w kontekście kryzysu finansowego
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    ," MPRA Paper 26971, University Library of Munich, Germany.

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