Evaluation of the Islamic interbank benchmark rate
International Journal of Islamic and Middle Eastern Finance and Management
ISSN: 1753-8394
Article publication date: 28 January 2020
Issue publication date: 4 May 2020
Abstract
Purpose
The purpose of this study is to evaluate the Islamic Interbank Benchmark Rate (IIBR) and investigate its relationship with conventional benchmark rates.
Design/methodology/approach
This study relies extensively on multivariate regression and Granger causality analysis, using data culled for the IIBR, conventional interest-dependent benchmark rates and oil prices. The data was collected daily over a period spanning from November 2011 to June 2015.
Findings
The main finding of this study is that there is a significant negative correlation between the IIBR and London Interbank Offered Rate (LIBOR) and other conventional interbank benchmark rates. This negative linear relationship is due to the IIBR representing a substitute investment for international investors when traditional rates fall in relation to the IIBR.
Practical implications
This study seeks to bring research on the IIBR and Sharia finance into the mainstream. It provides new insights into the IIBR as an independent interbank benchmark rate, exploring and confirming its status as a Sharia complaint financial tool.
Originality/value
This study is a comprehensive investigation of the relationship between the IIBR and conventional counterpart benchmark rates (LIBOR, Kuala Lumpur Interbank Offered Rate, effective federal funds rate and conventional rates in the Gulf Cooperation Council countries). The study contributes to the understanding of the IIBR’s framework principles and its value as a solution to current and future Sharia-complaint short-term interbank market funding for the Islamic finance industry.
Keywords
Citation
Tlemsani, I. (2020), "Evaluation of the Islamic interbank benchmark rate", International Journal of Islamic and Middle Eastern Finance and Management, Vol. 13 No. 2, pp. 249-262. https://doi.org/10.1108/IMEFM-06-2018-0203
Publisher
:Emerald Publishing Limited
Copyright © 2020, Emerald Publishing Limited