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The Survival Of Islamic Banking: A Micro-Evolutionary Perspective

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  • EL-GAMAL, MAHMOUD A.

    (Professor (Chair) of Islamic Economics, Finance and Management, Professor of Economics, and Professor of Statistics,)

Abstract

Many economists have studied the macroeconomic properties of interest-free banking in the framework of an isolated and ideal Islamic economy. In this age of integrated global financial markets, it is important to consider an alternative model where interest-based and interest-free banking co-exist. I present an evolutionary game-theoretic model in which strictly profit loss sharing (PLS), regular interest-based banks, and banks with Islamic windows interact. In this model, an ideal PLS regime would be the most prosperous, even from a purely financial standpoint. However, the PLS institutions are in jeopardy if they have to compete with conventional banks. It is shown in this model that in the face of competition with interest-based institutions, a critical initial mass of the hybrid type is necessary not only for the survival but also efficiency of the PLS in a heterogeneous environment.

Suggested Citation

  • El-Gamal, Mahmoud A., 1998. "The Survival Of Islamic Banking: A Micro-Evolutionary Perspective," Islamic Economic Studies, The Islamic Research and Training Institute (IRTI), vol. 5, pages 1-19.
    • Handle: RePEc:ris:isecst:0093
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    References listed on IDEAS

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    1. Weil, Philippe, 1989. "The equity premium puzzle and the risk-free rate puzzle," Journal of Monetary Economics, Elsevier, vol. 24(3), pages 401-421, November.
    2. Muhammad Anas ZARQA, 1983. "Stability In An Interest-Free Islamic Economy: A Note," Pakistan Journal of Applied Economics, Applied Economics Research Centre, vol. 2(2), pages 181-188.
    3. Mehra, Rajnish & Prescott, Edward C., 1985. "The equity premium: A puzzle," Journal of Monetary Economics, Elsevier, vol. 15(2), pages 145-161, March.
    4. Ziauddin Ahmad, 1992. "Book Review: Towards Interest-Free Banking Institute of Islamic Culture, by: Shaikh Mahmud Ahmad, Reviewed by: ZIAUDDIN AHMAD مراجعة علمية لكتاب: نحو معهد بلا حدود للثقافة الإسلامية - تأليف: الشيخ محم," Book reviews and book reports published in the Journal of King Abdulaziz University: Islamic Economics. 466, King Abdulaziz University, Islamic Economics Institute..
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    Cited by:

    1. Ahmed Mahdi Belouafi & Chaouki Bourakba & Karima Saci, 2015. "Islamic Finance and Financial Stability: A Review of the Literature التمويل الإسلامي والاستقرار المالي: مراجعة الأدبيات النظرية," Journal of King Abdulaziz University: Islamic Economics, King Abdulaziz University, Islamic Economics Institute., vol. 28(2), pages 3-42, July.
    2. Nathan Berg & Jeong-Yoo Kim, 2013. "Prohibition of Riba and Gharar: A signaling and screening explanation?," Working Papers 1314, University of Otago, Department of Economics, revised Nov 2013.

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