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Islamic Banking and Financial Development

Author

Listed:
  • Lebdaoui Hind

    (School of Finance, Shanghai University of University of Economics, Shanghai, Shanghai, China)

  • Wild Joerg

    (School of Finance, Shanghai University of University of Economics, Shanghai, Shanghai, China)

Abstract

With the growing number of Islamic banks worldwide, much ink has been spilled on heated debate about its merits and ability to improve the financial sector. In order to buttress the subject matter of this debate, this paper investigate the link between Islamic banking assets share and the financial development. Using five different proxies of financial development from 22 countries for the period between 2000 and 2013, this research employs the generalized method of moments to cope with the endogeneity problem, and concludes that the share of Islamic banking is positively associated with the banking sector activity as measured by private credit. The competition of banking sector intensifies in countries with higher Islamic bank shares resulting in smaller net interest margin, whereas the structure of the financial sector does not change. A financial sector index composite regression showed that in general, financial development is positively linked to the Islamic banking presence. These findings provide empirical evidence that Islamic banking presence benefits financial development in Muslim countries.

Suggested Citation

  • Lebdaoui Hind & Wild Joerg, 2016. "Islamic Banking and Financial Development," Review of Middle East Economics and Finance, De Gruyter, vol. 12(2), pages 201-224, August.
    • Handle: RePEc:bpj:rmeecf:v:12:y:2016:i:2:p:201-224:n:2
    DOI: 10.1515/rmeef-2015-0018
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    References listed on IDEAS

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    Cited by:

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    2. Lebdaoui, Hind & Chetioui, Youssef, 2021. "Antecedents of consumer indebtedness in a majority-Muslim country: Assessing the moderating effects of gender and religiosity using PLS-MGA," Journal of Behavioral and Experimental Finance, Elsevier, vol. 29(C).
    3. Assad Ullah & Xinshun Zhao & Muhammad Abdul Kamal & Adeel Riaz & Bowen Zheng, 2021. "Exploring asymmetric relationship between Islamic banking development and economic growth in Pakistan: Fresh evidence from a non‐linear ARDL approach," International Journal of Finance & Economics, John Wiley & Sons, Ltd., vol. 26(4), pages 6168-6187, October.
    4. Hind Lebdaoui & Youssef Chetioui & Tahar Harkat, 2024. "Propensity towards Islamic banking among non-users: a mixed-methods analysis," Journal of Financial Services Marketing, Palgrave Macmillan, vol. 29(1), pages 45-66, March.

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