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The effects of interest rate on Islamic bank financing instruments: cross-country evidence from dual-banking systems

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dc.contributor.authorMirzet Seho
dc.contributor.authorEdib Smolo
dc.contributor.authorObiyathulla Ismath Bacha
dc.date.accessioned2020-12-11T13:10:50Z
dc.date.available2020-12-11T13:10:50Z
dc.date.issued2020
dc.description.abstractIn theory, the cornerstones of Islamic finance are interest avoidance and risk-sharing. In practice, however, Islamic banks seem to be lacking both, particularly the latter. We investigate the interest rate impact on Islamic banks' three most-widely used types of financing instruments - i.e. sale-based, lease-based and risk-sharing-by employing the system GMM estimators on a unique panel data set of 77 Islamic banks from 13 countries over the period 2003-2017. We find that sale- and lease-based financing instruments are negatively correlated with the interest rate and that their exposure is amplified in more developed Islamic banking jurisdictions. Risk-sharing instruments, however, appear to be out of the interest rate domain of influence except in less developed Islamic banking jurisdictions, where the impact is positive. Additionally, the above effects on sale-based and risk-sharing instruments hold true only in the case of full-fledged Islamic banks and Islamic bank subsidiaries, respectively; the impact on lease-based instruments hold under all specifications. The findings imply that predominant use of sale- and lease-based financing instruments in their current form undermines the interest-free and risk-sharing essence of Islamic banking and runs the risk of converging with its conventional counterpart.en_US
dc.identifier.citationSeho, M., Bacha, O. I., & Smolo, E. (2020). The effects of interest rate on Islamic bank financing instruments: cross-country evidence from dual-banking systems. Pacific-Basin Finance Journal, 62, Article 101292. https://doi.org/10.1016/j.pacfin.2020.101292en_US
dc.identifier.doihttps://doi.org/10.1016/j.pacfin.2020.101292
dc.identifier.issn0927-538X
dc.identifier.urihttps://ikr.inceif.edu.my/handle/INCEIF/3326
dc.languageEnglish
dc.language.isoengen_US
dc.publisherElsevier B.V.en_US
dc.rights2020. Elsevier B.V.
dc.sourceSEDONA
dc.subjectIslamic banksen_US
dc.subjectFinancingen_US
dc.subjectInstrumentsen_US
dc.subjectInterest rateen_US
dc.subjectRisk-sharingen_US
dc.titleThe effects of interest rate on Islamic bank financing instruments: cross-country evidence from dual-banking systemsen_US
dc.typeJournal Articleen_US
dlc.maintopicIslamic bankingen_US
dspace.entity.typePublication
ikr.doctypeScholarly Works
ikr.topic.maintopicIslamic bankingen_US
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