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Liquidity Management Practices in Islamic Banking

100%
Sobol I.
Zarządzanie i Finanse
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2013
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vol. 2
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issue 1
566-576
EN
In the last few decades the increasing significance of Islamic banking has been observed. A distinctive feature of Islamic banks is the obligation to conduct operations in accordance with principles of sharia, which is the religious law of Muslims. The prohibition of usury (arab. riba), understood as any sort of increase over the principal amount, is considered to be the most fundamental sharia principle that Islamic banks must follow. As a result transactions conducted by Islamic banks cannot be based on interest. This principle applies also to money market operations which are essential for managing the bank’s liquidity. Islamic banks create their own instruments such as commodity murabaha or ijara sukuk to manage liquidity risk. Those instruments, however, have many drawbacks. First of all, they are hardly traded in the secondary market. Secondly, they are not universally approved by Islamic scholars which results in inability to trade them across the countries.
2
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Efficiency and client satisfaction of Islamic and conventional banks: A bilateral effect

100%
Talla A.
Business and Economic Horizons
|
2018
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vol. Volume 14
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issue Issue 2
282-299
EN
In this paper, we investigate the possible bidirectional causal relationship between bank efficiency and client satisfaction in the banking sector of Kuwait. For this purpose, we applied structural equation model (SEM) methodology. Based on a 5-point Likert scale questionnaire, data was gathered from Islamic banks (IBs) clients and conventional banks (CBs) client. We found a significant evidence of a, relatively, higher client satisfaction for IBs. The findings, also, provide evidence of a positive and significant bilateral causal relationship between client satisfaction and bank efficiency. This is a result that confirms an anticipated theoretical proposition related to the ultimate goal of firm value maximization. Discussions, interpretations, implications, and recommendations are provided.
3
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Comparison of the efficiency measurement of the conventional and Islamic banks

100%
Musa H., Natorin V., Musova Z., Durana P.
Oeconomia Copernicana
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2020
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vol. 11
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issue 1
29-58
EN
Research background: Islamic banks appeared on the world scene as active players over two decades ago. Many of the principles upon which Islamic banking is based have been commonly accepted all over the world. Financial institutions driven by Islamic principles acquire new clientele without excessive marketing, due to preservation of conservative values. Contrary to the conventional investment banks, their value is based on real money, and not on virtual activities from swap and derivative assets. Competition between conventional (or traditional) and Islamic banks is increasing every day, moreover, Islamic financial institutions are more resistant to the crisis. Our study contains analysis and comparison of economic efficiency of the conventional and Islamic banks. Besides the fact that traditional and Islamic banks apply inputs differently, the reason of better efficiency of Islamic banks may be connected with different approach to the risk management and control of the banking operations by the Sharia commission. Purpose of the article: The main aim of the article is to compare the economic efficiency of the conventional and Islamic banks in Europe. Methods: To achieve the aim of the paper, firstly the selected financial indicators of traditional and Islamic banks in Europe were compared. The second, the analysis of the economic efficiency of the selected 1460 conventional and Islamic financial institutions using DEA methods was conducted. Findings & Value added: Research results indicated methodological differences in the economic efficiency measuring in the Islamic banks. At the same time, the higher economic efficiency of Islamic banks was confirmed. The results are motivating for the follow-up investigation into the causes of higher efficiency of Islamic banks compared to traditional banks.
4
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Comparison of factors influencing liquidity of European Islamic and conventional banks

88%
Musa H., Musova Z., Natorin V., Lazaroiu G., Martin Boda M.
Oeconomia Copernicana
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2021
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vol. 12
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issue 2
375-398
EN
Research background: The innovation in Sharīʻah-compliant banking products has resulted in the rapidly increasing size of assets in Islamic banks worldwide. The assets of such banks have been growing twice as fast as those of conventional banks. Islamic banks do not depend on conventional interest, speculation, or complex derivatives stemming from banking operations. Instead, their actions in respect of profit/risk sharing, and the clarity of the contract are consistent with Islamic Sharīʻah principles, which seek to promote a more equal society. Purpose of the article: This research aims to identify and compare factors influencing the liquidity of Islamic and conventional banks in Europe. Candidate factors are sought amongst profitability, credit quality, credit expansion and capital adequacy indicators. Methodology: First, relevant financial ratios for 249 observations on Islamic banks and 2,306 observations on conventional banks are selected and compared for the period 2013?2017. Second, liquidity is explained separately for each type of banks by panel data regression to identify its determinants in a comparative context. Findings & value added: The results indicate that the impact of the net interest margin on the liquidity ratio of Islamic banks is insignificant, which is obviously due to the prohibition of the use of interest (riba). To the contrary, in conventional banking a higher net interest margin results in a reduction in liquidity. Capital adequacy has a positive influence upon liquidity in both types of banks, but in Islamic banking, the influence is 5.4 times greater. The findings strongly suggest that the liquidity of Islamic and conventional banks is affected by different factors.
5
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An empirical investigation between liquidity and key financial ratios of Islamic banks of United Arab Emirates (UAE)

63%
Tabash M. I.
Business and Economic Horizons
|
2018
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vol. Volume 14
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issue Issue 3
713-724
EN
This paper empirically analyzes the impact of liquidity risk on key financial performance aspects of Islamic banks in the UAE. To document the association between liquidity risk and other performance ratios, time series data are taken for full-fledged Islamic banks working in the UAE from 2000 to 2014. Liquidity ratios and capital adequacy ratios, profitability ratios, and tangibility ratios are determined. Correlation and regression analyses are used to test the study hypotheses using SPSS. The findings indicate that capital adequacy and tangibility ratios are the main factors to determine liquidity risk of UAE Islamic banks. Furthermore, the results showed that the size of Islamic banks’ assets and capital adequacy had a positive and significant association with liquidity risk. Policymakers and Islamic finance experts should devote more attention to enhancing the base of Islamic finance assets to manage liquidity issues.
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