On the co- existence of conventional and Islamic banks: do these banks differ in business structure?

Abstract

Islamic and conventional banking institutions co-exist in many Muslim countries as well as in few western states. In some jurisdictions, the share of Islamic banking and finance (IBF) is substantial while in others it is still at nascent stages. However, the growth of IBF suggests bright future prospects in the industry, especially owing to its relatively better performance in the recent financial crisis. The superior growth of IBF raises important questions about the business structure of Islamic banks and how it is different from that of conventional commercial banks. Renewed interest has emerged about the principles of IBF itself. Various empirical studies have been conducted at the individual and institutional level, especially by the World Bank and the International Monetary Fund, on Islamic banking with respect to its diffusion, efficiency, performance and stability. We hope to contribute to this emerging body of literature through this empirical study by applying bank-time fixed effects that compares the Islamic and conventional banking within the same bank and a specific year-quarter.