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A comparative study of the returns on Mudhārabah deposit and on equity in Islamic banks

Abdou Diaw (International Centre for Education in Islamic Finance (INCEIF), Kuala Lumpur, Malaysia)
Abdoulaye Mbow (International Centre for Education in Islamic Finance (INCEIF), Kuala Lumpur, Malaysia)

Humanomics

ISSN: 0828-8666

Article publication date: 1 November 2011

Abstract

Purpose

The paper aims to compare the return on Mudhārabah deposits (ROMD) to the return on equity (ROE) in Islamic banks.

Design/methodology/approach

The summary statistics of the ROMD and the ROE is used to make a comparison between them with a sample of nine Islamic banks, from seven countries, over the last five years. Regression analysis is also undertaken to unveil the variables affecting the behaviour of ROMD and ROE at Kuwait Finance House.

Findings

The results show that the ROE tend to be at least two times higher than the ROMD. In most of the investigated cases the ROMD are more correlated to the corresponding conventional interest rate than to ROE. The regression analysis suggests that the return on assets affects more significantly the ROE than the ROMD.

Originality/value

The originality of the paper resides in the size of the sample and in the design and the findings.

Keywords

Citation

Diaw, A. and Mbow, A. (2011), "A comparative study of the returns on Mudhārabah deposit and on equity in Islamic banks", Humanomics, Vol. 27 No. 4, pp. 229-242. https://doi.org/10.1108/08288661111181288

Publisher

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Emerald Group Publishing Limited

Copyright © 2011, Emerald Group Publishing Limited