Islamic Banking and Finance: Recent Empirical Literature and Directions for Future Research

Abstract

This paper examines the recent empirical literature in Islamic banking and finance, highlights the main findings and provides a guide for future research. Early studies focus on the efficiency, production technology and general performance features of Islamic versus conventional banks, whereas more recent work looks at profit-sharing and loss-bearing (PSLB) behaviour, competition, risks as well as other dimensions such as small business lending and financial inclusion. Apart from key exceptions, the empirical literature suggests no major differences between Islamic and conventional banks in terms of their efficiency, competition and risk features (although small Islamic banks are found to be less risky than their conventional counterparts). There is some evidence that Islamic finance aids inclusion and financial sector development. Results from the empirical finance literature, dominated by studies that focus on the risk/return features of mutual funds, finds that Islamic funds perform as well, if not better, than conventional fundsthere is little evidence that they perform worse than standard industry benchmarks. Some recent evidence, however, suggests that Islamic bond (Sukuk) issuance destroys value for shareholders.

Islamic Banks’ Role in Serving the Poor Unbanked Population in Pakistan

“…Islamic banks need to finance the commodity producing sectors like small farms in agriculture, micro businesses and the SMEs. However, Islamic banking and finance has yet to make a significant contribution to financial inclusion and socio-economic development (Abedifar et al, 2015).…”

“…It is accomplished by properly and equitably linking the business and economy with finance. There is empirical evidence that Islamic finance helps inclusion and financial sector development (Abedifar, Ebrahim, Molyneux, & Tarazi, 2015). As discussed in the World Bank and Islamic Development Bank Group (2016), Islamic banking system has enabling features for inclusion by dint of its encouraging risk sharing, prohibiting interest, enhancing financial stability, and promoting investment in morally acceptable projects.…”

What determines the adoption of Islamic finance products in a non-Islamic country? Empirical evidence from Cameroonian small- and medium-sized enterprises

“…The Islamic mode of finance differs from the conventional mode in several ways including economic roles, and supervisory roles (Jubilee et al, 2021). Many innovative Islamic financial products have been widely discussed in the Islamic finance literature (Abedifar et al, 2016;Hassan and Lewis, 2014). Some of the most common products are presented in the table below, which equally permits us to understand the specificities of each product and the similarities that exist between some of them which make them to be constituted in a particular group.…”

“…Thus in addition to the attitude, subjective norms, perceived behavioral control, and intention as identified by the TPB as the drivers of behavioral action, we include awareness and religious motivation to enhance the predictability of the theory (Godin and Kok, 1996). A major limitation of this theory is the assumption that when an individual forms an intention to act, they will be free to act without limitation [2]. That is intention is not only a direct determinant of action but equally has a 100% probability of leading to action.…”

Islamic Finance in Ethiopia: Current Status, Prospects and Challenges

“…Islamic banking is providing products and services for customers through three establishment ways such as full-fledged Islamic banking, Islamic window and Islamic subsidiaries banks (Sole, 2007 andAbedifar, Ebrahim, Molyneux, &Tarazi,2015). Considering this, Abdulhade (2020) studied the opportunities and challenges facing Interest-free window Banking in Ethiopia.…”