Islamic Banking Sector Research Articles

The Effect of Trust and Brand Image on Customer Retention with Customer Loyalty as Intervening Variables to Customers of Sharia Commercial Banks

Sharia banking is currently facing a very competitive industry era. Customer retention is one of the phenomena confronted by Islamic banks in Indonesia. Therefore, the problem in this research is how to increase customer retention in the Islamic banking sector. This study also aims to test and analyze the effect of trust and brand image on customer retention with customer loyalty as an intervening variable. A total of 100 customer respondents who have saving accounts for more than five years at Sharia Bank filled out the questionnaire in this study. The collected data were processed using the Smart PLS program with measurements of the inner and outer model tests. The test results proved that trust, brand image, and customer loyalty positively and significantly affect customer retention in Islamic commercial banks. Meanwhile, indirect testing proved that the customer loyalty variable could mediate customer trust and retention variables. However, it is unable to mediate the brand image variables on customer retention. DOI : https://doi.org/10.26905/jkdp.v25i2.5145

The effectiveness of anti-money laundering legislation in Islamic banking of Pakistan: experts’ opinion

PurposeThe efficient and strong financial system is considered as the backbone of the economy to function properly along with to attract international capital flow, investment and employment. But, on the other hand, weakness in the financial system will create negative impacts on the economy by sabotaging society’s trust in the financial system. In Pakistan, the key component of the financial sector is the banking sector including conventional and Islamic banking. Pakistan is among the pioneer of the Islamic banking sector, its share of 15.6% deposits in the total banking sector. This paper aims to analyze the effectiveness of anti-money laundering (AML) legislation in the Islamic banking sector of Pakistan.Design/methodology/approachThe study is doctrinal legal research. The semi-structured interview approach for analysis have been adopted to analyze the materials used in the study to attain the objective. The survey approach was used in critically analyzing the effectiveness of AML laws in conjunction with Islamic banking of Pakistan by incorporating the expert’s views and perceptions. The interviews conducted through electronic media including email, WhatsApp and LinkedIn.FindingsThe findings revealed that the State Bank of Pakistan is playing an active role and bringing stringent updates and regulations from time to time for the enforcement of these legislations. The irony is that these laws are not implemented in a proper way due to a lack of coordination among legislative authorities and the banking sector.Research limitations/implicationsAs money laundering is an international recognized offense, the study is based on only the Islamic banking sector of Pakistan. This is a very extensive and contentious matter, and this study is impeding money laundering operations and their analysis to the Islamic banks only.Practical implicationsIt is recommended that more efficient laws and regulatory environments are a needed in the Islamic banking sector of Pakistan accompanied by proper and timely implementations of these laws with the joint collaboration of national and international agencies.Originality/valueThis is the first study that incorporated the expert’s opinion from diverse background to analyze the effectiveness of AML legislation with special reference to the Islamic banking sector of Pakistan and contribute significantly in providing greater insight in improving AML legislations in Pakistan.

The efficiency of Islamic Banks in the Southeast Asia (SEA) Region

The Islamic banking sector has become a crucial part of the global banking industry. Despite the Islamic banking industry’s encouraging growth in the Southeast Asia (SEA) region, prior studies mostly focused on Islamic banks’ efficiency in the individual country. To fill the literature gap, this study aims to measure the efficiency and productivity growth of Islamic banks in the SEA region. This study adopted the DEA technique and the Malmquist productivity index to evaluate 31 Islamic banks’ performance in SEA from 2014 to 2019. The results evidenced an improvement in efficiency and progress in productivity for the banks in the region. The findings documented better efficiency and gradual progress in productivity for Islamic banks in Indonesia, consistent efficiency for Malaysia, a significant improvement for Brunei; hence, both Thailand and the Philippines Islamic bank depicted a drop-in efficiency for 2019. The findings trigger bank managers to acknowledge the inefficiencies and their sources. Investors and policymakers may find the findings useful in observing the banks’ performance; thus, taking effective mechanism and policies to promote competent and sustainable SEA Islamic banks in the long run.

Impact of the Brand Image on Purchase Intentions in Islamic Banks, A Moderating and Mediating Effect Study

The customers of Islamic banking sector are very conscious to operate the brand in Pakistan. That is rudimentary for directors to make a decent brand image of Islamic banks through the promoting procedures and obtain competitor edge. This research additionally shows that customer attitude enhances the relationship of brand image and purchase intentions towards Islamic banks. The purport of current research was to investigate the intention of the customer to Islamic banking. The study is conducted on the Islamic banking sector of Pakistan. The examination offers a chance to optically discern whether the brand image is behind customer's cull of Islamic banks when religiosity influences the customer's attitude regarding purchase intentions. current investigation will be subsidiary to examine the customer's reaction cognate the purchases and will be gainful for Islamic banking sector to keep up their positive and diverse brand image when contrasted with the conventional bank in the psyche of the customers. Likewise will virtually certainly realize that how religious convictions transmute the customer’s attitudes regarding purchase intentions. Develop a questionnaire for data amassment. 230 respondents are culled as a sample from southern Punjab. Those are the customer of Islamic banks. Brand image have paramount impact on customer attitude (mediate variable) and purchase intentions (dependent variable). Religiosity mitigates the relationship of brand image (independent variable) and customer attitude (mediate variable). Customer attitude is withal act as a good mediator between dependent and independent variable. Through current investigation, Islamic banking sector ascendant entities make methodologies and make a decent image as a primary concern of their customer. In Pakistan, the Islamic banks have no much famous. Since individuals have very little comprehended the fundamental targets of Islamic banks and furthermore they have not cognizance about the distinction of Islamic banks and conventional banks. Keywords: Brand image, Customer attitude, Purchase intentions, Religiosity, Islamic banks DOI: 10.7176/EJBM/13-9-01 Publication date: May 31 st 2021

Compliance and Determinants of the AAOIFI Financial Standards: Evidence from the MENA Region

This paper analyses the level of compliance of financial disclosure with accounting standards of the Accounting and Auditing Organization for Islamic Financial Institutions (AAOIFI) and its determinants in Middle Eastern and North African (MENA) Islamic banks. Based on 40 Islamic banks in seven MENA countries over the period 2010-2016, the authors used a disclosure index to measure the compliance level and the effect of governance characteristics and the Sharia Board on the extent of compliance with the AAOIFI accounting standards. Results show a high level of compliance (67%). Using the Feasible General Least Square Regression, we found that the presence of women on the board of directors, the reputation of the Sharia Board, and the cross membership of Sharia Board members are key determinants of compliance. While independence of board of directors is significantly associated to reduced financial disclosure. The research contributes to the literature on accounting and the Islamic banking sector. These findings will be useful for regulatory authorities to better- understand the accounting disclosure practices of Islamic banks. Although findings are encouraging, the sample is limited only to banks. Future researches could deal with a larger sample and review other disclosure items to ensure compliance with the AAOIFI standards. Few empirical studies have explored the determinants of compliance with the AAOIFI standards for Islamic banks in MENA countries. Therefore, this work complements and enriches the research in the field in the MENA region. Keywords: financial disclosure, AAOIFI compliance, Islamic banks, governance characteristics, Sharia board

Regulatory policies in the global Islamic banking sector in the outbreak of COVID-19 pandemic

This paper forecasts the response of Islamic banks’ dynamics (size, profitability, nonperforming financing, and stability) to the COVID-19 pandemic over the period ranging from 2019Q4 to 2021Q4. Nine jurisdictions are considered based on their Islamic banks’ systemic importance, namely Bahrain, Brunei, Indonesia, Kuwait, Malaysia, Pakistan, Saudi Arabia, Turkey, and UAE. Using the bivariate VARX model, our forecasting exercise shows that the Islamic banks’ response to the COVID-19 pandemic is not uniform across jurisdictions. While the Islamic banks’ dynamics in Saudi Arabia, UAE, and Kuwait are less likely to be impaired, Bahrain, Brunei, Malaysia, Pakistan, and Turkey are expected to be relatively more affected especially in terms of their size growth. Saudi Arabia will continue leading the growth momentum of the global Islamic banking sector, and its Islamic banks’ assets are expected to reach at least $185.4 billion by the end of the fourth quarter of 2021. This paper recommends a prioritization approach for the implementation of the policy measures by the jurisdictions based on their banks-specific responses to the COVID-19 pandemic.

Analisis Peranan Strategi Marketing Funding Dalam Peningkatan Jumlah Nasabah dan Dana Pihak Ketiga:

Indonesia was ranked first in the global Islamic financial market at the 2019 Sharia Economic and Financial Research Forum (FREKS), where the market share in the Islamic banking sector had reached 6.01% and the OJK is targeting in 2023 the Islamic banking market share of 15%, wrong one indicator of improvement is by increasing the number of accounts and the amount of Third Party Funds (TPF). The purpose of this study is to determine what strategies are used by the Marketing Funding of the BPRS Harta Insan Karimah Cikarang Branch to increase the number of customers or accounts and the amount of TPF. Then what is the role of the strategy used by Marketing Funding in increasing the number of customers and the number of deposits.
 The pick-up strategy implemented by BPRS Harta Insan Karimah Cikarang branch is an excellent service provided to each customer, this strategy is considered to provide convenience to customers in savings and deposit products because the transaction can be done at home and the Marketing Funding team will visit the customer's house. If the strategy is to pick-up properly, the target number of customers will be achieved and theoretically the amount of deposits will increase as well. This study uses a qualitative method with a descriptive approach, so that the researcher will explain or describe the results of the study in verbal or descriptive form so that it is easy to understand. The research method used in data collection includes interviews, observation, documentation and literature study.
 The results showed that the strategy used by marketing funding was the pick-up strategy, where deposits, withdrawals and account opening could be done at the customer's house with prior confirmation with the Marketing Funding team so that the interaction was built between the two. The role of this strategy was significant in increasing the number of customers in 2017 reaching 11.11% and in the following year the number of customers increased by 10.79%. However, the role of the pick-ball strategy is not significant in increasing TPF, in other words the increase in the number of customers does not mean that TPF will increase as well, seen in 2015 of 10.79%, and the next 2 years decreased consecutively, namely -21.77% and -9.53%, in 2018 the amount of TPF increased again by 14.65%. Other alternative strategies that can be implemented by BPRS Harta Insan Karimah Cikarang Branch are maximizing social media as a means of advertising, recruiting SDI Marketing Funding team, socializing to guardians of affiliated school students, giving souvenirs to customers who can refer BPRS HIK, sponsoring the community agenda or institutions, as well as Improving the schedule for collecting funds and improving the information system.

COMPETITION, DIVERSIFICATION, AND STABILITY IN THE INDONESIAN BANKING SYSTEM

We examine the impact of competition and portfolio diversification on banking stability for conventional and Islamic banks in Indonesia. We find that the Islamic banking sector is less stable, when compared to the conventional banking sector. Competition in the banking sector reduces stability, while diversification enhances it. We find that competition negatively impacts the Islamic banks, but diversification has no impact on these banks. An interesting finding is that competition and diversification complement each other in enhancing the stability of the Indonesian banking sector. These findings carry an important policy implication for the banking sector of Indonesia.

Islamic Banking Products, Services and Objectives: Perspectives of Shariah Supervisors and Regulators

The study is aimed at assessing the opinions of vital Islamic banking stakeholders including members of various Islamic banking Shariah Supervisory Boards (SSBs) and pertinent personnel from Pakistan’s central bank – The State Bank of Pakistan (SBP). The research analyzes the percepts of respondents regarding various aspects relevant to Islamic banking (IB) products, service and objectives. The paper employs qualitative research approach in analyzing the Shariah and regulatory experts’ viewpoints regarding Islamic banking. The study is conducted using semi-structured interviews of twelve Shariah supervisors and nine SBP staff members serving in the Islamic banking department and Islamic banking focus groups in the regional/field offices of the State Bank of Pakistan. The study is of pioneering nature involving qualitative research design and inclusion of two of the most significant stakeholder groups from the Islamic banking sector of Pakistan who have not been included in the past studies regarding Islamic banking perceptions. The research findings highlighted that Shariah objectives are top priority of Islamic banks as per the views expressed by members of Shariah boards of various banks while in opinion of Islamic banking regulators, Islamic banks’ major concern is to achieve their business objectives. Keywords: Islamic Banking, Islamic Finance, Pakistan, Products, Perceptions, Shariah Compliance.

The influence of Islamic Work Ethic on employees’ responses to change in Kuwaiti Islamic banks

Significant attention has been paid recently to Islamic Work Ethic (IWE) particularly in organizational change literature. However, the nature of the relationship remains ambiguous. Research studies attempting to uncover IWE’s influence on characteristics of employees’ responses are still in its infancy. To tackle this gap, this study contributes to knowledge by developing a possible conceptual model identifying IWE’s influence on employees’ responses towards change in the shape of their commitment to change and organizational deviance. The testing of these relationships took place in the ever-developing Kuwaiti Islamic banking sector. Data was collected from 398 employees by distributing self-administered questionnaires. Outcomes revealed that the extent of IWE’s influence on employee commitment to change varied across different components. This result offers a unique understanding into IWE’s affiliation with employee attitudes to change, especially in the Islamic banking sector. Moreover, IWE was found to negatively influence employee engagement in organizational deviance. As such, this finding has not been established within the context of change previously. Due to such findings, several implications and future research directions emerge.

Impact of Mergers and Acquisitions on Operational Performance of Islamic Banking Sector

Merger and acquisition (hereafter MA) are the business expansion strategy. Islamic bank is the niche banking sector compared to its peers while it is categorized as too small to succeed. The paper aims to analyze the impact of MA on the operational performance of the Islamic banking sector. This study employs empirical research methods, namely cross-sectional pooled regression and panel data regression to analyze a set of samples consisting of 10 Islamic banks involved in MA from 6 countries, drawn from the International Monetary Fund (IMF), World bank, Ficth Connect, and Bloomberg over the years of 2009Q1to 2018Q4. The operational performance is estimated using accounting-based measures while the Herfindahl-Hirschman Index (HHI) and the concentration ratio (CR) are applied to signify market structure. Total assets, total deposits, and operating income variables are used to represent bank size. The findings indicate that bank size shows a negative impact on operational performance. While the segregated level of bank size which is larger banks and concentrated market structure has a greater impact on the operational performance of Islamic banks in the post-MA period. The paper concludes by discussing policy implications for policymakers and academicians for having the strategic decision on the MA deal and further research.

Ranking methodology for Islamic banking sectors – modification of the conventional CAMELS method

The state of banking systems is an important issue. The purpose of this paper was to test whether the well-known CAMELS microeconomic methodology, generally used for ranking banks, is applicable to evaluating Islamic banking systems. The hypothesis was tested by implementing a method for a particular case, public, free data – from 2013 till the first quarter of 2018 – on Islamic banking systems from the “Islamic Financial Services Board” (IFBS) database. As expected, modifications were necessary. First, because of the lack of data (in Islamic databases, no data refer to the management (“M”)), and second, to avoid the subjectivity of the five-degree method and to reach more sensibility. Thus, a hundred-level (standardized) rating system was introduced – “CAELS 100”, where “100” refers to the levels. The other part of the methodology – creating a simple average of the (now level 100) rating of raw indicators to get the letters of CA(M)ELS in the relevant period – remained unchanged. After the data cleaning, only six countries (Bahrain, Egypt, Kuwait, Oman, Turkey, and the United Arab Emirates) were able to participate in the analysis.The result showed that Egypt, Turkey and Kuwait were the best ones respectively. Thus, it was concluded that this “CAELS 100” methodology is suitable for evaluating Islamic banking systems. AcknowledgmentThe research was supported by the project “Intelligent specialization program at Kaposvár University”, No. EFOP-3.6.1-16-2016-00007.

Testing dividend life-cycle theory in the Islamic and conventional banking sectors of GCC countries

Purpose This paper aims to present a comparative evaluation of the determinants affecting the likelihood of dividend payouts by Islamic and conventional banks in the Gulf Cooperation Council (GCC) countries. Design/methodology/approach The authors used the dynamic panel logit model to test dividend life-cycle theory by analyzing the determinants affecting the likelihood of dividend payouts by GCC banks. Moreover, the authors used multinomial logistic regressions to extend the results where the dependent variable is a nominal variable equal to 1 for non-payment of dividends, 2 for lower dividend payments and 3 for higher dividend payments. Findings The authors report a finding consistent with the life-cycle theory of dividends where a higher proportion of retained-earnings-to-contribution mix implies a greater likelihood of dividend payments, apart from conventional characteristics such as profitability, size and growth. However, the authors find marked differences in the magnitude and significance of the life-cycle characteristics explaining the likelihood of dividend payouts for Islamic and conventional banks. The authors also find that Islamic banks are smaller and less profitable relative to conventional banks but have higher growth rates, which helps to explain why the proportion of dividend non-payments is higher for Islamic banks than for conventional banks. The results also indicate that the higher default rates and business risk associated with GCC banks reduces their propensity to pay dividends. Practical implications The topic of dividends remains an important puzzle in the field of modern finance. The findings have significant implications for a variety of stakeholders in both Islamic and conventional banks in GCC countries, including investors, depositors, analysts, managers, regulators and stock exchanges. Originality/value This paper aims to contribute to the literature by drawing on life-cycle theory as a basis for comparing the determinants affecting the likelihood of dividend payouts by Islamic and conventional banks in the GCC countries.

Islamic banking’s contribution to the Malaysian real economy

PurposeMalaysia is one of the fastest-growing Asian economies with a properly designed and developed Islamic financial system. This unique feature of the Malaysian economy made it an important case study, and the purpose of this study is to assess for the dynamic contribution of Islamic finance to the growth of the real economy.Design/methodology/approachThe study uses a quarterly data set of 20 years analysed via the autoregressive distributive lag bounds test approach to cointegration.FindingsThe results in the short-run show a non-significant relationship between Islamic banking indices and the real economy. However, in the long-run, financing and deposits of Islamic banks are favourable and contribute significantly to the growth of the Malaysian economy. There was an accumulation of meaningful and wide-ranging investment over the period of the study and productivity of capital was also extra-efficient. The direction of causality is found to be bidirectional between Islamic banking deposits and Malaysian gross domestic product (GDP), but there is a weak causal effect from Islamic banking financing to GDP.Research limitations/implicationsMalaysia has a dual financial system (conventional and Islamic) and both can affect its real economy. This research is limited to Islamic banking’s effects on Malaysian economic growth. The research also limits the scope and coverage for 20 years, from 1998 to 2017 to cover the years for which data is available for all the variables used in the study.Practical implicationsThe results confirm that the Islamic banking sector in Malaysia is performing well in carrying out its major function of financial intermediation, which is the pooling and channelling of funds to productive investment activities. Consequently, the fact that Malaysia excels in Islamic finance is not a fluke. It is because of the effective performance of Islamic financial institutions in the country. Furthermore, Malaysian authorities are doing their level best in promoting Islamic financial activities.Originality/valueThe study fulfills the need to uncover the relationship between the Islamic financial system and the real economy in Malaysia. It differs from other studies as it uses the most recent available data, introduces new variables and identifies the channel by which Islamic banking development transmits growth.

Access to Own Dwelling through Ijarah at Islamic Banks and State-Owned Housing Scheme in Pakistan

Purpose: Access to a safe dwelling is one of the necessities of life and an indicator to reveal the economic development of a country. In Pakistan, however, the majority of the people do not have their dwelling rather have to spend their life in renting homes or in slums. To overcome the housing shortfall, the State Bank of Pakistan has pronounced a low-cost housing scheme for the poor and the low-income segment of the society while the Islamic banking sector also offers ijarah facility to purchase or to construct own dwelling and claims to work in the objective of Islamic legal system. Therefore, this study aims to analyze critically, ijarah and state-owned low-cost housing scheme from the public insight. Design/Methodology/Approach: This research aims to utilize analytical, theoretical, and empirical methods of research rather than some combination thereof by utilizing experimental reasoning based on naturally occurring data, reports, and surveys. To evaluate ijarah and government housing scheme from public insight, a survey of 100 salaried persons has been conducted by way of the questionnaire at different companies in District Rawalpindi. Findings: This study found that Pakistan is suffering from the acute issue of lack of own dwelling. The result of the conducted survey reveals that the majority of the employed people showed more trust in the state-owned housing scheme than ijarah at Islamic banks. Those people showed their interest in the state-owned housing scheme than ijarah at Islamic banks. Implications/Originality/Value: The practical approach to ijarah at Islamic bank found in trust deficit concerning the public insight. That ijarah does not provide low-cost homes to the homeless people, hence not serving by Shari’ah. The current policy of the state provides an opportunity to ijarah to facilitate poor people by softening its terms and conditions and by way of qard-e-hasanah.

Systemic Risk in Dual-Banking Systems during the COVID-19 Pandemic

While operating side-by-side with conventional banks, the systemic risk profile of Islamic banks could be different due to their unique business model. Using a sample of ten countries with dual-banking systems, where the Islamic banking sector is considered systemically important, this paper evaluates the systemic risk and identifies the determinants of systemic importance (measured using spillover indices) of financial institutions. The objective is to understand whether there are any differences in the systemic risk profiles of conventional and Islamic banks during the COVID-19 pandemic. The results indicate a significant increase in systemic risk in the sample countries during the first half, followed by a recovery in the second half, of 2020. Comparative analysis shows that Islamic banks, while earning abnormal returns, pose significantly less spillover to others relative to conventional banks. During the COVID-19 pandemic, there is an overall increase in spillovers, the magnitude of the effect of systematic risk increased, and higher abnormal return performance shows a negative association with spillover. Furthermore, we find that sensitivity to oil prices is a systemic risk factor for financial institutions, especially for Islamic banks. The results are robust to alternate estimation techniques. The findings of this study provide valuable insights for regulators of dual-banking systems.

The COVID-19 Pandemic Effect on the Performance of the Islamic Banking Sector in KSA: An Empirical Study of Al Rajhi Bank

The aim of this study is to assess the impact of the COVID-19 pandemic on the performance of the Islamic banking sector in the Kingdom of Saudi Arabia. Several issues arose in the financial sector around the world after the COVID-19 crisis. The study looks at Al Rajhi Bank's progress before and during the COVID-19 pandemic. Al Rajhi Bank is one of the largest banks in the Kingdom of Saudi Arabia and the world, with $ 80 billion in deposits, $ 6.77 billion in paid-up stock, and a large employee base. The findings show that the COVID-19 crisis had only a minor impact on Saudi Arabia's Islamic banking system, especially the bank under investigation, and that Islamic banks are capable of escaping the financial and economic risks associated with the crisis. Islamic banks are distinguished from other commercial banks by their ability to respond quickly to crises such as economic and financial shocks.

Awareness, Understanding, and Usage of Islamic Banking Products and Services: A Case of Customers' Satisfaction Towards Islamic Banking in Pakistan

The Islamic banking sectors in Pakistan are experiencing a challenging phase of progress due to intense competition with conventional banks. The primary purpose of this study is to articulate the literature of Islamic banking in Pakistan by investigating the influence of the level of awareness, understanding and usage of Islamic banking products and services on the satisfaction level of its account holders. For achieving this objective, a sample of 400 respondents is chosen through purposive sampling technique from the target population from Islamic banks in Pakistan. The calculated results of PLS-SEM Bootstrapping and SPSS revealed a significant and positive influence of the awareness and understanding level of account holders of Islamic banks on their satisfaction levels. However, the Islamic bank usage by account holders has no impact on their satisfaction level due to the provision of less innovative products and services as compared to conventional banks. This study thus enhances the literature regarding the aforementioned aspects of customer satisfaction. It simultaneously draws an attention to the area that is suitable for the prosperity and progress of the Islamic banking system of Pakistan. The results of this study also give valuable information and helpful guidelines for Islamic banks to formulate innovative strategies of products and promotional policies to retain and attract potential customers. Though this study is broadening the scope of Islamic banking literature, it is not considering the scenario of conventional banks. Islamic banks can manage and enjoy the competitive edge if similar information about conventional banking is available for comparison purposes, which provides the scope of study in future research.

Perkembangan Keuangan Islam di Eropa

Penelitian ini menganalisis implikasi kerja sama yang terjalin antara Inggris dengan Bahrain, khususnya lembaga keuangan internasional Al-Baraka, dalam mengembangkan perbankan Islam (syariah). Inggris merupakan negara non-Timur Tengah yang mengembangkan keuangan Islam sejak masuknya Al-Baraka International Bahrain pada tahun 1982. Pada saat ini, Inggris merupakan pusat bank Islam di Eropa dan memegang peran penting dalam sektor perbankan Islam. Studi ini menganalisis kebijakan Inggris dalam membuka Islamic Bank of Britain (IBB) dan proses kerja sama dengan Al-Baraka Bahrain dari sudut pandang hubungan internasional. Teori yang digunakan dalam penelitian kualitatif ini adalah Regional Security Complex. Konsep amity and enmity dalam Regional Security Complex digunakan untuk melihat bagaimana kerja sama tersebut dapat terjalin. Temuan dalam studi ini adalah bahwa Inggris merupakan pasar potensial dalam pengembangan perbankan syariah di Eropa dan kerja sama yang terjalin antara Inggris dan Bahrain dalam pengembangan perbankan syariah terjadi dalam dinamika amity and enmity. Di antara kedua pihak tidak hanya terdapat relasi persahabatan, namun juga ada kecurigaan Inggris terhadap lembaga keuangan Al-Baraka yang berpotensi menjadi lembaga keuangan yang dominan dan menggeser lembaga keuangan konvensional.

Exposure to interbank investment and financing risk by Islamic banks: a dynamic panel analysis of Malaysia

PurposeThe Government of Malaysia has developed an Islamic Interbank Money Market since January 1994 with the objective to facilitate funding for the Islamic banking sector in the country. This platform also enables Islamic banks to obtain Sharīʿah-compliant funds from other Islamic banks. This study aims to examine the effects of interbank investment and financing risk on the financing decisions of Malaysia’s Islamic banks between 1994 and 2015. The financing decisions are used as financing measures to determine the effect of investing in the interbank market and financing risk indicators on financing.Design/methodology/approachThe descriptive, correlation and dynamic panel analysis results are derived with the help of LIMDEP 9.0 software.FindingsThe study found a negative relationship between the interbank investment variable with the financing decisions of Islamic banks. This reflects that an increase in interbank investment leads Islamic banks to reduce their level of financing. These findings prove that the investment activities between Islamic banks had a “substitution effect” and decreased their capability of financing because of their tendency to maintain liquidity.Originality/valueIslamic banks are confident that they will generate higher profits in the coming financial year. The economic conditions of Malaysia do not influence Islamic banks’ financing decisions, whereas Islamic banks in this study are more dependent on the balance sheet indicators.