IDEAS home Printed from https://ideas.repec.org/a/eme/imefpp/v1y2008i1p10-19.html
   My bibliography  Save this article

Cost of capital of Islamic banking institutions: an empirical study of a special case

Author

Listed:
  • Kadom Shubber
  • Eid Alzafiri

Abstract

Purpose - The paper's purpose is to ascertain how computing the cost of capital for Islamic banks may differ from the case of conventional ones. Design/methodology/approach - The published accounts of four major Islamic banks were analysed, so as to test the set hypotheses. Also, two surveys were undertaken on this issue, one for banking officials; the other for depositors at a major Islamic bank. Findings - For Islamic banks, it became clear that deposit accounts were not a liability, as these fell within the definition of “profit-and-loss sharing” instruments. In fact, a high-positive correlation coefficient was apparent between an Islamic bank's market value and the size of its deposits. Also, the market value of Islamic banks was clearly independent of its cost of capital. Research limitations/implications - The two surveys expressed the views of respondents, and these could be subjective. Also, the core sample studied in depth was limited to four banks, and this could be widened in subsequent research. Practical implications - Risk associated with deposit-taking needs to be looked at differently in the case of Islamic banking institutions. Also, return provided to shareholders came out higher than for depositors. Originality/value - The paper sheds new light on how the cost of capital may be computed in the case of Islamic banks. Also, the relationship between depositors and shareholders is investigated, though additional research is required on this aspect.

Suggested Citation

  • Kadom Shubber & Eid Alzafiri, 2008. "Cost of capital of Islamic banking institutions: an empirical study of a special case," International Journal of Islamic and Middle Eastern Finance and Management, Emerald Group Publishing, vol. 1(1), pages 10-19, April.
  • Handle: RePEc:eme:imefpp:v:1:y:2008:i:1:p:10-19
    as

    Download full text from publisher

    File URL: http://www.emeraldinsight.com/10.1108/17538390810864223?utm_campaign=RePEc&WT.mc_id=RePEc
    Download Restriction: Access to full text is restricted to subscribers

    As the access to this document is restricted, you may want to search for a different version of it.

    More about this item

    Keywords

    Cost of capital; Banks; Banking; Islam;

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:eme:imefpp:v:1:y:2008:i:1:p:10-19. See general information about how to correct material in RePEc.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Virginia Chapman). General contact details of provider: http://www.emeraldinsight.com .

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    We have no references for this item. You can help adding them by using this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service hosted by the Research Division of the Federal Reserve Bank of St. Louis . RePEc uses bibliographic data supplied by the respective publishers.