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Islamic Banks' Return on Depositors and Conventional Banks' Deposit Interest: Is there Causality? Evidence of Causality from Bangladesh

Author

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  • Abdus Samad

    (Department of Finance and Economics, Utah Valley University, 800 West University PKY, Orem, UT 84097, USA)

  • Mohammad Ashraful Ferdous Chowdhury

    (Department of Business Administration, Shahjalal University of Science and Technology, Sylhet, Bangladesh)

Abstract

The critiques of the Islamic bank allege that the depositors' return and the return on loans of the Islamic bank is nothing but the interest rate of the conventional banks and they simply follow the conventional banks interest rate. This paper empirically investigates the causal relation and the causal direction between the conventional banks' interest rate and the Islamic banks' return applying VEC model. The results of the VER Granger Causality/Block Exogeneity Wald Tests show unidirectional causal relation and the direction of causality ran from the Islamic banks' rate of return to the conventional banks' interest rates.

Suggested Citation

  • Abdus Samad & Mohammad Ashraful Ferdous Chowdhury, 2017. "Islamic Banks' Return on Depositors and Conventional Banks' Deposit Interest: Is there Causality? Evidence of Causality from Bangladesh," International Journal of Economics and Financial Issues, Econjournals, vol. 7(5), pages 432-439.
    • Handle: RePEc:eco:journ1:2017-05-52
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    References listed on IDEAS

    as
    1. Granger, C. W. J., 1988. "Some recent development in a concept of causality," Journal of Econometrics, Elsevier, vol. 39(1-2), pages 199-211.
    2. Serhan Cevik & Joshua Charap, 2015. "The Behavior of Conventional and Islamic Bank Deposit Returns in Malaysia and Turkey," International Journal of Economics and Financial Issues, Econjournals, vol. 5(1), pages 111-124.
    3. Abdus Samad, 2004. "Performance Of Interest-Free Islamic Banks Vis-À-Vis Interest-Based Conventional Banks Of Bahrain," IIUM Journal of Economics and Management, IIUM Journal of Economis and Management, vol. 12(2), December .
    4. Aggarwal, Rajesh K & Yousef, Tarik, 2000. "Islamic Banks and Investment Financing," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 32(1), pages 93-120, February.
    5. Chong, Beng Soon & Liu, Ming-Hua, 2009. "Islamic banking: Interest-free or interest-based?," Pacific-Basin Finance Journal, Elsevier, vol. 17(1), pages 125-144, January.
    6. Johansen, Soren, 1991. "Estimation and Hypothesis Testing of Cointegration Vectors in Gaussian Vector Autoregressive Models," Econometrica, Econometric Society, vol. 59(6), pages 1551-1580, November.
    7. Mona Esam Fayed, 2013. "Comparative Performance Study of Conventional and Islamic Banking in Egypt," Journal of Applied Finance & Banking, SCIENPRESS Ltd, vol. 3(2), pages 1-1.
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    Cited by:

    1. Samad, Abdus, 2018. "Is there any causality between Islamic banks’ return on depositors and conventional banks’ deposit interest: Evidence of causality from Bahrain’s financial market," Business and Economic Horizons (BEH), Prague Development Center, vol. 14(4), pages 894-912, August.

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    More about this item

    Keywords

    Conventional Bank Interest rate; Islamic Bank deposit and loan rate; Granger causality; Bangladesh;
    All these keywords.

    JEL classification:

    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • F31 - International Economics - - International Finance - - - Foreign Exchange

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