The risk of political instability and the performance of Islamic banks: does corruption matter?

Abstract

Purpose

This study aims to investigate the relationship between political instability and the performance of Islamic banks in emerging countries.

Design/methodology/approach

For a data sample of 93 Islamic banks in 20 emerging countries during the period from 2011 to 2016, the authors identify indicators that matter most for the activities of Islamic banks.

Findings

The study finds that a stable government and law and order are positively correlated with the health of Islamic financial institutions. On the other hand, corruption and military involvement in politics can create an unstable environment for businesses, leading to uncertainty and risk. The study also reveals that Islamic banks operating in regions or communities with lower risk of socio-economic conditions tend to exhibit higher levels of profitability.

Originality/value

Overall, the study provides valuable insights into the impact of political instability on Islamic banks in emerging countries.

Citation

Yunan, Z.Y., Alharthi, M. and Jeris, S.S. (2024), "The risk of political instability and the performance of Islamic banks: does corruption matter?", Journal of Financial Crime, Vol. 31 No. 6, pp. 1384-1406. https://doi.org/10.1108/JFC-09-2023-0229