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The Impact Of Consolidation On Islamic Financial Services Industry

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  • IQBAL, ZAMIR

    (The World Bank Treasury in Washington, D.C. USA)

Abstract

Small asset size of Islamic Financial Institutions (IFIs) is often cited an obstacle for further growth. Looking at the motivating factors behind consolidation wave in conventional financial markets, this paper argues that IFIs can also benefit from consolidation in several ways. Expanding the scale of operations is not sufficient but it is essential that IFIs expand the scope of their products and services to meet the challenges of domestic and international markets. An increase in scale and scope through consolidation can provide IFIs necessary threshold to justify building a solid infrastructure for new services on both sides of the balance sheet. In addition to benefits of expanding scope, consolidation can bring benefits to IFIs through diversification and through enhanced management quality as well as efficiency gains from prudent risk taking, monitoring and anagement. The paper concludes by discussing policy implication for policy-makers and the managers before embarking on the wave of consolidation.

Suggested Citation

  • Iqbal, Zamir, 2008. "The Impact Of Consolidation On Islamic Financial Services Industry," Islamic Economic Studies, The Islamic Research and Training Institute (IRTI), vol. 15, pages 80-103.
  • Handle: RePEc:ris:isecst:0053
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    References listed on IDEAS

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    1. John Hawkins & Dubravko Mihaljek, 2001. "The banking industry in the emerging market economies: competition, consolidation and systemic stability: an overview," BIS Papers chapters,in: Bank for International Settlements (ed.), The banking industry in the emerging market economies: competition, consolidation and systemic stability, volume 4, pages 1-44 Bank for International Settlements.
    2. Khan, Tariqullah & Ahmed, Habib, 2001. "Risk Management: An Analysis of Issues in Islamic Financial Industry (Occasional Papers)," Occasional Papers 91, The Islamic Research and Teaching Institute (IRTI).
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    8. V. Cerasi & S. Daltung, 1995. "The Optimal Size of a Bank: Costs and Benefits of Diversification," Departmental Working Papers 1995-05, Department of Economics, Management and Quantitative Methods at Università degli Studi di Milano.
    9. Berger, Allen N. & Demsetz, Rebecca S. & Strahan, Philip E., 1999. "The consolidation of the financial services industry: Causes, consequences, and implications for the future," Journal of Banking & Finance, Elsevier, vol. 23(2-4), pages 135-194, February.
    10. Demsetz, Rebecca S & Strahan, Philip E, 1997. "Diversification, Size, and Risk at Bank Holding Companies," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 29(3), pages 300-313, August.
    11. Amel, Dean & Barnes, Colleen & Panetta, Fabio & Salleo, Carmelo, 2004. "Consolidation and efficiency in the financial sector: A review of the international evidence," Journal of Banking & Finance, Elsevier, vol. 28(10), pages 2493-2519, October.
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