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Many banking efficiency studies have focused on conventional banks. Recently, Islamic banks have opened in many countries and operated in similar fashion to traditional banks. This chapter measures and compares Islamic banking efficiency to conventional banking efficiency represented by three European countries – Germany, Turkey and the United Kingdom. The study covers the period from 2005 to 2008 in measuring the X-efficiency using the non-parametric method, known as Data Envelopment Analysis (DEA). It reveals that Islamic banks are technically more efficient than conventional banks but are beset by lower allocative efficiency. This results in lower cost efficiency for Islamic banks in comparison to the more conventional banks in Europe.

Purpose – This research analyses the stability of a number of banks operating in Malaysia by using descriptive statistical analysis based on internal variables. These include the characteristics of the bank, capital adequacy ratio, ratio of profitability, liquidity ratio and the ratio of bank operations.

Methodology/approach – Each bank’s stability is studied using z-score analysis. Data are sourced from the balance sheets and income statements of the banks from 2000 to 2011.

Findings – The results indicate that characteristics of a bank do influence a bank’s performance. There are significant differences in financial ratios between Islamic and conventional banking. Islamic banks provide a lower loan loss of capital to cover impaired loans than conventional banks. This provides high capital based on the mean value obtained. The capital ratio allows both sets of banks to meet the capital adequacy ratio set by the Central Bank of Malaysia. Meanwhile, in profitability ratios, conventional banks have higher returns on higher assets, whereas Islamic Banking has higher returns on higher equity. Only 8 Islamic banks and 11 conventional banks are highly stable banking institutions in Malaysia.

Originality/value – Islamic and conventional banking systems in Malaysia need further improvement to deal with unexpected economics crises and increased competition between the two. Hence, Islamic banking must be refined, especially for improving their stability to attract more investments for further development and performance.

This chapter investigates the presence of a difference in the systemic risk level between Islamic and conventional banks in Bangladesh. The authors compare systemic resilience of three types of banks: fully fledged Islamic banks, purely conventional banks (CB), and CB with Islamic windows. The authors use the market-based systemic risk measures of marginal expected shortfall and systemic risk to identify which type is more vulnerable to a systemic event. The authors also use ΔCoVaR to identify which type contributes more to a systemic event. Using a sample of observations on 27 publicly traded banks operating over the 2005–2014 period, the authors find that CB is the least resilient sector to a systemic event, and is the one that has the highest contribution to systemic risk during crisis times.

This study examines the legal codification of nascent markets, specifically, the process of defining and incorporating Islamic banking and organic agriculture within the legal system in Turkey. I find that actors’ priorities differ significantly with respect to formal codification and that the existing legal order and socio-political and economic contexts shape how state and non-state actors influence legislative and regulative action. This study contributes to our understanding of how actors and their ideological commitments and relational concerns affect the legal formulation of new industries.

German ethical banks have experienced a significant increase in customers, deposits, and lending. They aim to establish a fairer banking system. But the simultaneous pursuit of social, ecological, and economic goals leaves them vulnerable to conflicting orders of worth. The authors examine the normative foundations that ethical bank employees refer to when they describe their everyday practices and identify the specific problems that arise from negotiating between moral principles and economic demands to provide insights into the impacts, constraints, and paradoxes of normatively oriented business practices. Drawing on the theoretical framework of the sociology of critique, the authors assume that moral categories, social processes of interpretation, and justification are an essential part of markets. Ethical banking is characterized by the need to meet both market-limiting and market-expanding requirements, and this particularly becomes contentious when dealing with economic growth. By analyzing ethical banks’ freely accessible documents, the authors first outline the institutional guidelines. In a second step, the authors analyze 27 qualitative interviews with employees of ethical banks to gain insights into everyday lending practices and action-guiding normative orientations. The goal of this chapter is to examine the tensions that may arise from applying normative guidelines under the condition of increasing economic requirements and to disclose the way that ethical banks negotiate between mechanisms of expansion and limitation. The analysis of this chapter points out a paradox of ethical banking: due to the banks’ economic expansion, investments corresponding to their ethical commitments tend to become a luxury they cannot afford.

This research examines the bidirectional relationship between Environmental, Social and Governance (ESG) voluntary disclosure engagement and financial performance of a panel of banks extracted from the Gulf Cooperation Council (GCC) banking industry, covering a period of 11 years (2007–2017). We find that GCC banks, and in particular Islamic banks, voluntarily disclose low level of information related to ESG activities. Using system GMM methodology, we provide evidence that ESG disclosure adversely affects bank performance, regardless of the bank performance measure used. Thus spending on ESG turns out to be costly for GCC banks, a result that is consistent with the agency problem, where managers are likely to reduce long-term expenditures related to ESG actions in order to boost short-term profits. As managers' compensations often relate to short-term financial performance, managers tend to reduce their spending on ESG activities. Furthermore, contrary to previous research, our results indicate that the relationship between ESG and financial performance is bidirectional and dynamic. We also find evidence that ESG disclosure positively affects performance only for well-diversified banks. Finally, although conventional banks disclose significantly more information related to ESG activities, we do not find any significant differences between the two types of banks in the relationship between ESG disclosure and performance. Our suggestion is that these results are consistent with what we call “clientele” and “gravitation” effects, where a customer tends to choose to deal with the bank that reflects his religious beliefs (gravitation effect) and with the bank that provides him with the best services (clientele effect) regardless of its ESG disclosure.

This paper uses the case of Islamic banking in Amman, Jordan, to assess the wide moral range of expectations, levels of satisfaction, and means of evaluating banks’ “Islamicness.”

The information is gathered from interviews conducted during over 21 months of ethnographic research and one month in participant observation and research access as an intern at the Middle East Islamic Bank (MEIB) in Amman, Jordan.

I found three modes for evaluating “Islamicness” when actors decide whether or not to become customers of Islamic banks.

These modes demonstrate that Islamic banking is no longer the cultural protectionism of a relatively homogeneous community of Muslims. Rather it is a fraught and tense field for actors’ debates about types of moralities in the markets and modes of moral assessments of “Islamicness.”

The amplification of the individual and individual choice and authority in the moral assessments of Islamic banking may ultimately serve to unseat prior dichotomous theoretical framings of morality’s presence or absence as “Islamic” or “not Islamic” and “good” and “bad.” By unleashing to individuals the construction of morality in the markets, moral rights and wrongs, and moral evaluations, fragmentation of moral consensus in market practices will occur.

This chapter’s goal is to define the kind of seeds to be planted for moving forward in the safe and stable drive toward a leading central banking role directed at achieving a sustained Islamic banking and finance development within the global financial system. The system witnessed the input of Islamic banking with its fruitful contribution as a feasible banking structure in both implementing agreed reforms and shaping the next steps directed toward crisis prevention and crisis resolution.

The adopted approach is based upon scientific conceptual basis as well as the practical experience related to the central banking role and Islamic banking evolution. This chapter will define the strategic role of Central Banks and highlight the conceptual basis governing the leading role of central banks as well as the practical basis derived from our central banking and Islamic banking experience.

In light of the conceptual and practical basis for enabling an efficient and effective role of Central Banks as a regulatory body in shaping the future of the Islamic Financial System. Legal, institutional and managerial strategic determinants for this role have been defined.

The analytical work of this chapter crystallises in a pioneering initiative the main determining factors governing the role of central banks as the main regulatory body for Islamic banking, and how this role could be effective in affecting the future role to be played by the Islamic banks in the global financial system. Also, to this end, the integrated required role by central banks, public policies, multilateral institutions and Islamic banks are illustrated.

Energy and cooperative hard work and commitment from all players, including the regulators of Islamic banks supported by public policies, international and multilateral institutions and members of the Islamic banking family is thought to be the main determining factor for transforming the Islamic banking family into one that will make the Islamic people and all humanity – through the global financial system – live with more stability, welfare and happiness.

Inquiring into the role of Islamic and conventional banks regarding the core responsibility of lending is an established phenomenon. This chapter is based on key findings regarding dynamic changes in the structural mix of credit portfolios in Islamic banks and conventional banks of Pakistan.

The nature of the study is exploratory; the sample consists of 5 Islamic banks and 20 conventional banks of Pakistan comparatively evaluated for the time frame of 2008–2014.

Our findings show that for Islamic banks, there is an increasing trend in the credit portfolios as a proportion to assets as well as to equity, whereas in case of conventional banks the findings are opposite. The results further prove a positive and negative growth of credit portfolios as proportional to assets and equity in case of Islamic and conventional banks respectively. It is also observed that credit portfolios of Islamic banks are growing with higher degree as a proportion to equity as compared to proportion to assets. On the other hand, conventional banks show higher degree of decline of credit portfolios as a proportion to equity as compared to assets.

These findings also show that primary stakeholders in Islamic banks are more risk seekers thus more inclined towards risky investments than ordinary credits.