Islamic and cooperative banks – including credit unions – are broadly similar in that they both share risk with savers. However, risk sharing goes along with ownership control in cooperatives, whilst Islamic banks share risk with borrowers also, and full downside risk with depositors. Islamic banking is consistent with mutual ownership, which may ease some of the governance and efficiency concerns implied by Shari’ah constraints. Greater risk sharing among cooperative bank stakeholders, along the lines of products offered by Islamic banks, may strengthen cooperatives’ financial resilience.
The views expressed in this paper are those of the authors and do not necessarily represent those of the IMF or IMF policy. The paper was prepared while Al-Muharrami was visiting the IMF as a Fulbright Scholar supported by a grant from the U.S. Department of State. The authors would like to thank Suliman Aljabrin, Khalid Al-Saeed, Martin Cihák, Mohamed Norat, Abdulkader Thomas, Zeine Zeidane, and an anonymous referee for useful comments.
Al-Muharrami, S. and Hardy, D.C. (2014), "Cooperative and Islamic Banks: What can they Learn from Each Other?", International Perspectives on Participation (Advances in the Economic Analysis of Participatory & Labor-Managed Firms, Vol. 15), Emerald Group Publishing Limited, Bingley, pp. 73-94. https://doi.org/10.1108/S0885-333920140000015011
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