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Risk in Islamic Banking

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  • Pejman Abedifar

    () (LAPE - Laboratoire d'Analyse et de Prospective Economique - IR SHS UNILIM - Institut Sciences de l'Homme et de la Société - UNILIM - Université de Limoges)

  • Philip Molyneux

    () (Business School - Bangor University, Bangor)

  • Amine Tarazi

    () (LAPE - Laboratoire d'Analyse et de Prospective Economique - IR SHS UNILIM - Institut Sciences de l'Homme et de la Société - UNILIM - Université de Limoges)

Abstract

This paper investigates risk and stability features of Islamic banking using a sample of 553 banks from 24 countries between 1999 and 2009. Small Islamic banks that are leveraged or based in countries with predominantly Muslim populations have lower credit risk than conventional banks. In terms of insolvency risk, small Islamic banks also appear more stable. Moreover, we find little evidence that Islamic banks charge rents to their customers for offering Shariá compliant financial products. Our results also show that loan quality of Islamic banks is less responsive to domestic interest rates compared to conventional banks.

Suggested Citation

  • Pejman Abedifar & Philip Molyneux & Amine Tarazi, 2012. "Risk in Islamic Banking," Working Papers hal-00915115, HAL.
  • Handle: RePEc:hal:wpaper:hal-00915115
    Note: View the original document on HAL open archive server: https://hal-unilim.archives-ouvertes.fr/hal-00915115
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    Keywords

    rent-seeking; Islamic banking; Islamic finance; bank risk; credit risk; stability; insolvency; Zscore; rent-seeking.;

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