IDEAS home Printed from https://ideas.repec.org/a/ris/isecst/0063.html
   My bibliography  Save this article

The Case For Universal Banking As A Component Of Islamic Banking

Author

Listed:
  • AL-JARHI, MABID ALI

    (financial expert, Emirates Islamic Bank, Dubai,)

Abstract

Universal banking is one of the main components of Islamic banking. Islamic banks provide finance to enterprises through either sharing directly in the net results of their activities or financing their purchases of assets, goods and services on credit. We can therefore expect Islamic banks to hold equity in corporations and sit on their boards of directors. This paper aims to put forward the case of universal banking as a part of Islamic banking. A large amount of literature is surveyed that comes from banking theory, macroeconomic and monetary theory, as well as empirical studies about banking practices. The conclusion is that universal banking on its own is a sound practice that can offer developing countries special advantages. Such a conclusion is rather important because many of the Islamic countries where believers in Islamic banking reside are developing. It would therefore be helpful to see that Islamic banking as it contains universal banking would give a helping hand in the process of development that would not be easily obtained from conventional banking.

Suggested Citation

  • Al-Jarhi, Mabid Ali, 2005. "The Case For Universal Banking As A Component Of Islamic Banking," Islamic Economic Studies, The Islamic Research and Training Institute (IRTI), vol. 13, pages 2-65.
  • Handle: RePEc:ris:isecst:0063
    as

    Download full text from publisher

    File URL: http://www.irti.org/English/Research/Documents/IES/093.pdf
    File Function: Full text
    Download Restriction: no

    References listed on IDEAS

    as
    1. Caroline Fohlin, 1998. "Relationship Banking, Liquidity, and Investment in the German Industrialization," Journal of Finance, American Finance Association, vol. 53(5), pages 1737-1758, October.
    2. James, Christopher, 1987. "Some evidence on the uniqueness of bank loans," Journal of Financial Economics, Elsevier, vol. 19(2), pages 217-235, December.
    3. Jith Jayaratne & Philip E. Strahan, 1996. "The Finance-Growth Nexus: Evidence from Bank Branch Deregulation," The Quarterly Journal of Economics, Oxford University Press, vol. 111(3), pages 639-670.
    4. Uhlig, Harald, 2000. "Should We Be Afraid of Friedman's Rule?," Journal of the Japanese and International Economies, Elsevier, vol. 14(4), pages 261-303, December.
    5. Schmidt, Reinhard H. & Hackethal, Andreas & Tyrell, Marcel, 1999. "Disintermediation and the Role of Banks in Europe: An International Comparison," Journal of Financial Intermediation, Elsevier, vol. 8(1-2), pages 36-67, January.
    6. Vander Vennet, Rudi, 2002. "Cost and Profit Efficiency of Financial Conglomerates and Universal Banks in Europe," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 34(1), pages 254-282, February.
    7. Mayer, Colin, 1988. "New issues in corporate finance," European Economic Review, Elsevier, vol. 32(5), pages 1167-1183, June.
    8. Bertero, Elisabetta, 1994. "The Banking System, Financial Markets, and Capital Structure: Some New Evidence from France," Oxford Review of Economic Policy, Oxford University Press, vol. 10(4), pages 68-78, Winter.
    9. Saunders, Anthony, 1994. "Banking and commerce: An overview of the public policy issues," Journal of Banking & Finance, Elsevier, vol. 18(2), pages 231-254, January.
    10. Gorton, Gary & Rosen, Richard, 1995. " Corporate Control, Portfolio Choice, and the Decline of Banking," Journal of Finance, American Finance Association, vol. 50(5), pages 1377-1420, December.
    11. Da Rin, Marco & Hellmann, Thomas, 2002. "Banks as Catalysts for Industrialization," Journal of Financial Intermediation, Elsevier, vol. 11(4), pages 366-397, October.
    12. Keith Blackburn & Niloy Bose & Salvatore Capasso, 2005. "Financial Development, Financing Choice and Economic Growth," Review of Development Economics, Wiley Blackwell, vol. 9(2), pages 135-149, May.
    13. Oliver D. Hart, 1983. "The Market Mechanism as an Incentive Scheme," Bell Journal of Economics, The RAND Corporation, vol. 14(2), pages 366-382, Autumn.
    14. Luc Laeven, 2002. "Bank Risk and Deposit Insurance," World Bank Economic Review, World Bank Group, vol. 16(1), pages 109-137, June.
    15. White, Eugene Nelson, 1986. "Before the Glass-Steagall Act: An analysis of the investment banking activities of national banks," Explorations in Economic History, Elsevier, vol. 23(1), pages 33-55, January.
    16. João Santos, 1998. "Commercial Banks in the Securities Business: A Review," Journal of Financial Services Research, Springer;Western Finance Association, vol. 14(1), pages 35-60, July.
    17. Dinc, I Serdar, 2000. "Bank Reputation, Bank Commitment, and the Effects of Competition in Credit Markets," Review of Financial Studies, Society for Financial Studies, vol. 13(3), pages 781-812.
    18. Hans Degryse & Steven Ongena, 2001. "Bank Relationships and Firm Profitability," Financial Management, Financial Management Association, vol. 30(1), Spring.
    19. Franklin Allen & Douglas Gale, 1999. "Innovations in Financial Services, Relationships, and Risk Sharing," Management Science, INFORMS, vol. 45(9), pages 1239-1253, September.
    20. Boris Pleskovic & Joseph E. Stiglitz, 2000. "Annual World Bank Conference on Development Economics 1999," World Bank Publications, The World Bank, number 13839, December.
    21. John H. Boyd & Mark Gertler, 1993. "U.S. Commercial Banking: Trends, Cycles, and Policy," NBER Chapters,in: NBER Macroeconomics Annual 1993, Volume 8, pages 319-377 National Bureau of Economic Research, Inc.
    22. Tullio Jappelli & Marco Pagano, 1994. "Personal Saving in Italy," NBER Chapters,in: International Comparisons of Household Saving, pages 237-268 National Bureau of Economic Research, Inc.
    23. Nicola Cetorelli, 2001. "Banking Market Structure, Financial Dependence and Growth: International Evidence from Industry Data," Journal of Finance, American Finance Association, vol. 56(2), pages 617-648, April.
    24. Bhattacharya Sudipto & Thakor Anjan V., 1993. "Contemporary Banking Theory," Journal of Financial Intermediation, Elsevier, vol. 3(1), pages 2-50, October.
    25. Kiminori Matsuyama, 1995. "Complementarities and Cumulative Processes in Models of Monopolistic Competition," Journal of Economic Literature, American Economic Association, vol. 33(2), pages 701-729, June.
    26. David Amirault & Brian O'Reilly, 2001. "The Zero Bound on Nominal Interest Rates: How Important Is It?," Staff Working Papers 01-6, Bank of Canada.
    27. Pagano, Marco, 1993. "Financial markets and growth: An overview," European Economic Review, Elsevier, vol. 37(2-3), pages 613-622, April.
    28. Taylor, Michael & Fleming, Alex, 1999. "Integrated financial supervision : lessons of Northern European experience," Policy Research Working Paper Series 2223, The World Bank.
    29. Rafael La Porta & Florencio Lopez-de-Silanes & Andrei Shleifer & Robert W. Vishny, 1998. "Law and Finance," Journal of Political Economy, University of Chicago Press, vol. 106(6), pages 1113-1155, December.
    30. Kroszner, Randall S. & Rajan, Raghuram G., 1997. "Organization structure and credibility: Evidence from commercial bank securities activities before the Glass-Steagall Act," Journal of Monetary Economics, Elsevier, vol. 39(3), pages 475-516, August.
    31. John H. Boyd & Chun Chang & Bruce D. Smith, 1998. "Moral hazard under commercial and universal banking," Proceedings, Federal Reserve Bank of Cleveland, issue Aug, pages 426-471.
    32. Tullio Jappelli & Marco Pagano, 1994. "Saving, Growth, and Liquidity Constraints," The Quarterly Journal of Economics, Oxford University Press, vol. 109(1), pages 83-109.
    33. Berger, Allen N & Udell, Gregory F, 1995. "Relationship Lending and Lines of Credit in Small Firm Finance," The Journal of Business, University of Chicago Press, vol. 68(3), pages 351-381, July.
    34. Santos, Joao A. C., 1999. "Bank capital and equity investment regulations," Journal of Banking & Finance, Elsevier, vol. 23(7), pages 1095-1120, July.
    35. Rin, Marco Da, 1996. "Understanding the development of the German Kreditbanken, 1850–1914: an approach from the economics of information," Financial History Review, Cambridge University Press, vol. 3(01), pages 29-47, April.
    36. Demirguc-Kunt, Ash & Levine, Ross, 1996. "Stock Markets, Corporate Finance, and Economic Growth: An Overview," World Bank Economic Review, World Bank Group, vol. 10(2), pages 223-239, May.
    37. Matutes, Carmen & Vives, Xavier, 2000. "Imperfect competition, risk taking, and regulation in banking," European Economic Review, Elsevier, vol. 44(1), pages 1-34, January.
    38. Caroline Fohlin, 1998. "Banking systems and economic growth: lessons from Britain and Germany in the pre-World War I era," Review, Federal Reserve Bank of St. Louis, issue May, pages 37-48.
    39. Aghion, Philippe & Bacchetta, Philippe & Banerjee, Abhijit, 2001. "Currency crises and monetary policy in an economy with credit constraints," European Economic Review, Elsevier, vol. 45(7), pages 1121-1150.
    40. Marvin Goodfriend, 2000. "Overcoming the zero bound on interest rate policy," Conference Series ; [Proceedings], Federal Reserve Bank of Boston, pages 1007-1057.
    41. Puri, Manju, 1996. "Commercial banks in investment banking Conflict of interest or certification role?," Journal of Financial Economics, Elsevier, vol. 40(3), pages 373-401, March.
    42. Fama, Eugene F., 1980. "Banking in the theory of finance," Journal of Monetary Economics, Elsevier, vol. 6(1), pages 39-57, January.
    43. Randall S. Kroszner & Philip E. Strahan, 2001. "Throwing Good Money after Bad? Board Connections and Conflicts in Bank Lending," Center for Financial Institutions Working Papers 02-12, Wharton School Center for Financial Institutions, University of Pennsylvania.
    44. Sean Becketti & Charles S. Morris, 1992. "Are bank loans still special?," Economic Review, Federal Reserve Bank of Kansas City, issue Q III, pages 71-84.
    45. Douglas W. Diamond & Raghuram G. Rajan, 2001. "Liquidity Risk, Liquidity Creation, and Financial Fragility: A Theory of Banking," Journal of Political Economy, University of Chicago Press, vol. 109(2), pages 287-327, April.
    46. Tetsuji Okazaki & Kazuki Yokoyama, 2001. "Governance and Performance of Banks in Prewar Japan: Testing the "Organ Bank" Hypothesis Quantitatively," CIRJE F-Series CIRJE-F-111, CIRJE, Faculty of Economics, University of Tokyo.
    47. Atje, Raymond & Jovanovic, Boyan, 1993. "Stock markets and development," European Economic Review, Elsevier, vol. 37(2-3), pages 632-640, April.
    48. Bryant, John, 1980. "A model of reserves, bank runs, and deposit insurance," Journal of Banking & Finance, Elsevier, vol. 4(4), pages 335-344, December.
    49. Randall S. Kroszner & Philip E. Strahan, 2001. "Throwing Good Money After Bad? Board Connections and Conflicts in Bank Lending," NBER Working Papers 8694, National Bureau of Economic Research, Inc.
    50. George J. Benston, 1994. "Universal Banking," Journal of Economic Perspectives, American Economic Association, vol. 8(3), pages 121-143, Summer.
    51. Gorton, Gary & Schmid, Frank A., 2000. "Universal banking and the performance of German firms," Journal of Financial Economics, Elsevier, vol. 58(1-2), pages 29-80.
    52. Charles Calomiris, 1995. "The Costs of Rejecting Universal Banking: American Finance in the German Mirror, 1870-1914," NBER Chapters,in: Coordination and Information: Historical Perspectives on the Organization of Enterprise, pages 257-322 National Bureau of Economic Research, Inc.
    53. Robert Hauswald & Robert Marquez, 2000. "Relationship banking, loan specialization and competition," Proceedings 695, Federal Reserve Bank of Chicago.
    54. World Bank, 2001. "Finance for Growth : Policy Choices in a Volatile World," World Bank Publications, The World Bank, number 13895, December.
    55. Aghion, Philippe & Dewatripont, Mathias & Rey, Patrick, 1997. "Agency Costs, Firm Behavior and the Nature of Competition," IDEI Working Papers 77, Institut d'Économie Industrielle (IDEI), Toulouse, revised 2000.
    56. Berger, Allen N. & Hunter, William C. & Timme, Stephen G., 1993. "The efficiency of financial institutions: A review and preview of research past, present and future," Journal of Banking & Finance, Elsevier, vol. 17(2-3), pages 221-249, April.
    57. Douglas W. Diamond, 1984. "Financial Intermediation and Delegated Monitoring," Review of Economic Studies, Oxford University Press, vol. 51(3), pages 393-414.
    58. Allen N. Berger & Anil K. Kashyap & Joseph M. Scalise, 1995. "The Transformation of the U.S. Banking Industry: What a Long, Strange Trips It's Been," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 26(2), pages 55-218.
    59. Matutes, Carmen & Vives, Xavier, 1996. "Competition for Deposits, Fragility, and Insurance," Journal of Financial Intermediation, Elsevier, vol. 5(2), pages 184-216, April.
    60. Günter Lang & Peter Welzel, 1998. "Technology and Cost Efficiency in Universal Banking A “Thick Frontier”-Analysis of the German Banking Industry," Journal of Productivity Analysis, Springer, vol. 10(1), pages 63-84, July.
    61. Simon H. Kwan & Elizabeth S. Laderman, 1999. "On the portfolio effects of financial convergence - a review of the literature," Economic Review, Federal Reserve Bank of San Francisco, pages 18-31.
    62. Gande, Amar & Puri, Manju & Saunders, Anthony, 1999. "Bank entry, competition, and the market for corporate securities underwriting," Journal of Financial Economics, Elsevier, vol. 54(2), pages 165-195, October.
    63. Ramirez, Carlos D, 2002. "Did Banks' Security Affiliates Add Value? Evidence from the Commercial Banking Industry during the 1920s," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 34(2), pages 393-411, May.
    64. A. Galetovic, 1996. "Finance and growth: a synthesis and interpretation of the evidence," Banca Nazionale del Lavoro Quarterly Review, Banca Nazionale del Lavoro, vol. 49(196), pages 59-82.
    65. John, Kose & John, Teresa A. & Saunders, Anthony, 1994. "Universal banking and firm risk-taking," Journal of Banking & Finance, Elsevier, vol. 18(2), pages 307-323, January.
    66. Gary Gorton & Frank A. Schmid, 1995. "Universal Banking and the Performance of German Firms Federal Reserve Bank of Chicago," Center for Financial Institutions Working Papers 96-11, Wharton School Center for Financial Institutions, University of Pennsylvania.
    67. Claudio E. V. Borio & Renato Filosa, 1994. "The changing borders of banking: trends and implications," BIS Working Papers 23, Bank for International Settlements.
    68. A. Galetovic, 1996. "Finance and growth: a synthesis and interpretation of the evidence," BNL Quarterly Review, Banca Nazionale del Lavoro, vol. 49(196), pages 59-82.
    69. Rajan, Raghuram G, 1992. " Insiders and Outsiders: The Choice between Informed and Arm's-Length Debt," Journal of Finance, American Finance Association, vol. 47(4), pages 1367-1400, September.
    70. Stiglitz, Joseph E, 1985. "Credit Markets and the Control of Capital," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 17(2), pages 133-152, May.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Al-Jarhi, Mabid, 2002. "Macroeconomics: an Islamic Perspective," MPRA Paper 66938, University Library of Munich, Germany, revised 2004.
    2. Al-Jarhi, Mabid, 1980. "A Monetary and Financial Structure for an Interest-Free Economy: Institutions, Mechanism & Policy," MPRA Paper 66741, University Library of Munich, Germany, revised 2004.
    3. Al-Jarhi, Mabid, 2014. "Towards an Economic Theory of Islamic Finance Regulation," MPRA Paper 66744, University Library of Munich, Germany, revised 2014.
    4. Al-Jarhi, Mabid Ali M. M., 2016. "An Economic Theory of Islamic Finance Regulation," Islamic Economic Studies, The Islamic Research and Training Institute (IRTI), vol. 24, pages 1-44.

    More about this item

    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:ris:isecst:0063. 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: (IRTI Staff) or (). General contact details of provider: http://edirc.repec.org/data/irisbsa.html .

    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.

    If CitEc recognized a reference but did not link an item in RePEc to it, you can help with 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.